FEDERAL COURT OF AUSTRALIA
Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd ACN 087 011 541 [2008] FCA 1591
CONTRACT – international sale of perishable goods – whether exporter was an agent for sale for a grower or a buyer for resale from the grower – criteria for distinguishing the two relationships.
CONTRACT – grower and exporter – ongoing business relationship – oral contract – terms – exporter “passing on” price reductions for alleged defects in quality – whether contractually justified in so doing.
SALE OF GOODS – whether sale contracts were subject to the Sale of Goods Act 1895 (SA) or the Sale of Goods (Vienna Convention) Act 1986 (SA) – goods sold into Singapore and Hong Kong – Singapore a party to the Convention, but not Hong Kong.
SALE OF GOODS – implied conditions as to quality and fitness – sale for resale to overseas buyer – defects alleged by overseas buyer – liability of original seller to buyer for resale – onus of proof.
PLEADING – leave to amend defence sought at conclusion of final oral addresses after 16 day hearing – a new implied contractual term proposed based on prior dealings – leave refused.
Sale of Goods Act 1895 (SA) ss 14, 18, 52 Sale of Goods (Vienna Convention) Act 1986 (SA) United Nations Convention on Contracts for the International Sale of Goods, Arts 1, 9, 35, 39, 44, 50 Trade Practices Act 1974 (Cth) ss 51A, 52, 75B, 82, 84(2), 87 Fair Trading Act 1987 (SA) ss 54, 56 Uniform Commercial Code, §1-303 Unidroit Principles of International Commercial Contracts 2004, Arts 1.9, 5.1.2 Sale of Goods Act (1979) (UK) s 48C(1)(a) Evidence Act 1995 (Cth) ss 69, 87 Misrepresentation Act 1971 (SA) s 7
Telecommunications Products Case, Cour de Cassation (France), 2 April 2008 cited GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 cited Hawkins v Clayton (1988) 164 CLR 539 cited Fraser-Ramsay (New Zealand) Ltd v De Renzy (1912) 32 NZLR 553 cited Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd [2002] EWCA Civ 288 considered South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 cited
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- 2 - International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 considered Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 cited
Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130 cited Nichols v Arthur Murray Inc 56 Cal Rptr 728 (1967) cited Colonial Mutual Life Assurance Society Ltd v The Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 cited Bailey & Co Ltd v Balholm Securities Ltd [1973] 2 Lloyd’s Rep 404 cited Jackson Securities Ltd v Cheesman (1986) 4 NSWLR 484 cited Weiner v Harris [1910] 1 KB 285 cited Gannow Engineering Co Ltd v Richardson [1930] NZLR 361 cited Jackson v Royal Bank of Scotland [2000] EWCA Civ 203 cited Ex parte White; In re Nevill (1870) LR 6 Ch App 397 considered Ex parte Bright; In re Smith (1879) 10 Ch D 566 cited Bailey & Co Ltd v Balholm Securities Ltd cited Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 distinguished Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 cited Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240 cited WK Witt (WA) Pty Ltd v Metters Ltd [1967] WAR 15 considered Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 cited Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472 cited Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 cited The “Tiiskeri” [1983] 2 Lloyd’s Rep 658 cited Kemp Ltd v Tolland (trading as James Tolland & Co) [1956] 2 Lloyd’s Rep 681 considered BICC plc v Burndy Corporation [1985] 1 Ch 232 cited Flowers Case, Saarbrücken Provincial Court of Appeal, 3 June 1998, CISG-online 354, http://cisgw3.law.pace.edu/cases/980603g1.html cited Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 cited Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 cited Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 cited Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 cited RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 41 FCR 164 cited Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 cited CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ATPR 40-042 cited Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 cited Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 cited Watson v Foxman (1995) 49 NSWLR 315 cited
Cheshire and Fifoot, Law of Contract (9th Aust ed, 2008) Schlechtriem and Schwenzer (eds), Commentary on the UN Convention on International Sale of Goods at 411 ff and 460 ff (2nd English ed, 2005) Farnsworth on Contracts (3rd ed, 2004) Furmston (ed), The Law of Contract (2nd ed, 2003) Bowstead & Reynolds on Agency (18th ed, 2006) Atiyah, The Sale of Goods (10th ed, 2001) Dal Pont, Law of Agency (2nd ed, 2008)
- 3 - Benjamin’s Sale of Goods (7th ed, 2006) Restatement of Agency, Third 3 Am Jur 2d, “Agency” Restatement of Agency, Second Fisher, Agency Law (2000) Sutton, Sales and Consumer Law (4th ed, 1995)
Schroeter UG, “The Status of Hong Kong and Macao under the United Nations Convention on Contracts for the International Sale of Goods” (2004) 16 Pace International Law Review 307
ANTHONY GOULD HANNAFORD TRADING AS TORRENS VALLEY ORCHARDS v AUSTRALIAN FARMLINK PTY LTD (ACN 087 011 541), CHOON KIAT KOH, BRUCE ARTHUR PLUMMER and HEATHER CHURCHILL; AUSTRALIAN FARMLINK PTY LTD (ACN 087 011 541), CHOON KIAT KOH, BRUCE ARTHUR PLUMMER and HEATHER CHURCHILL v ANTHONY GOULD HANNAFORD TRADING AS TORRENS VALLEY ORCHARDS
No SAD 251 of 2005
FINN J 24 OCTOBER 2008 ADELAIDE
GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 251 OF 2005
BETWEEN: ANTHONY GOULD HANNAFORD TRADING AS TORRENS VALLEY ORCHARDS Applicant/Cross-Respondent
AND: AUSTRALIAN FARMLINK PTY LTD (ACN 087 011 541) First Respondent/First Cross-Claimant
CHOON KIAT KOH Second Respondent/Second Cross-Claimant
BRUCE ARTHUR PLUMMER Third Respondent/Third Cross-Claimant
HEATHER CHURCHILL Fourth Respondent/Fourth Cross-Claimant
JUDGE: FINN J DATE OF ORDER: 24 OCTOBER 2008 WHERE MADE: ADELAIDE
THE COURT ORDERS THAT:
1. The applicant file and serve on or before Friday, 21 November 2008:
(a) draft minutes of order to give effect to these reasons; and
(b) proposed orders in relation to the claims for loss of use of monies and for interest with expert calculations upon which the former is based.
2. The matter be adjourned for the making of orders including as to costs until Thursday, 18 December 2008 at 9.00 am.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 251 OF 2005
BETWEEN: ANTHONY GOULD HANNAFORD TRADING AS TORRENS VALLEY ORCHARDS Applicant/Cross-Respondent
AND: AUSTRALIAN FARMLINK PTY LTD (ACN 087 011 541) First Respondent/First Cross-Claimant
CHOON KIAT KOH Second Respondent/Second Cross-Claimant
BRUCE ARTHUR PLUMMER Third Respondent/Third Cross-Claimant
HEATHER CHURCHILL Fourth Respondent/Fourth Cross-Claimant
JUDGE: FINN J DATE: 24 OCTOBER 2008 PLACE: ADELAIDE
TABLE OF CONTENTS
THE PRINCIPAL ACTORS ...... [9] A note about cherries ...... [16] The “cool chain” ...... [19] THE PARTIES’ CASES ...... [25] (i) The pleaded case ...... [25] (ii) The course of dealing sidewind ...... [35] SALE AND RESALE OR AGENCY: THE APPLICABLE PRINCIPLES ...... [46] MATTERS OF CREDIT ...... [57] BACKGROUND PRIOR TO THE 2003/2004 SEASON ...... [60] THE CONSIGNMENT DOCUMENTATION ...... [67] THE 2003/2004 SEASON ...... [75] 1. General matters ...... [75]
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2. Price ...... [75] 3. Farmlink’s forms ...... [86] 4. The weather ...... [94] THE TWENTY-ONE CONSIGNMENTS ...... [96] Order 4017: sea freight to Hong Kong ...... [108] The other consignments (cont) ...... [120] THE SEASON’S SETTLEMENT ...... [159] Miscellaneous Evidence ...... [172] CONCLUSION: SALE OR AGENCY ...... [176] The terms of the contract ...... [187] Purchase discounts ...... [193] ISSUES OF QUALITY AND QUALITY CONTROL ...... [208] Singapore ...... [210]. Hong Kong ...... [213] Hong Kong: Factual setting and evidence ...... [216] The alleged admission ...... [223] The evidence (cont) ...... [226] Hong Kong: Conclusion on quality issues ...... [237] CONCLUSION ON THE CONTRACT CLAIM ...... [245] THE TRADE PRACTICES ACT CLAIMS ...... [247] 1. The claim against Ms Churchill ...... [249] (i) The negotiation representations...... [257] (ii) The market representations ...... [260] (iii) The “silence” claim ...... [265].. 2. The claims against Mr Plummer and Mr Koh ...... [267] CONCLUSION ON THE TP ACT CLAIMS ...... [268] THE APPLICANT’S AGENCY CLAIM ...... [269] THE CROSS-CLAIM ...... [271] CONCLUSION AND ORDERS ...... [276]
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REASONS FOR JUDGMENT
1 Anthony Hannaford, who trades under the name Torrens Valley Orchards, is a cherry grower in the Adelaide Hills. His produce is sold into both the domestic and overseas markets. In the 2003/2004 season, Australian Farmlink Pty Ltd, an exporter of South Australian produce, sold TVO cherries to a business in Hong Kong (eleven shipments) and to a company in Singapore (ten shipments). The return TVO received from Farmlink on the sale of its cherries was, in aggregate, about one third of what Mr Hannaford claims were the agreed sale prices. The primary reasons allegedly assigned for the greatly diminished returns were price reductions because of quality defects apparent in most of the consignments of the cherries on arrival in Singapore and Hong Kong. These reductions were called “purchase discounts” in Farmlink’s documentation and “credits” in TVO’s.
2 Neither the Singaporean buyer, Freshmart Singapore Pte Ltd, nor the Hong Kong business, Wing Cheong Laan (whose principal was named Mak), is a party to this proceeding. The second and third respondents, Choon Kiat Koh and Bruce Plummer, are directors of Farmlink. The fourth respondent, Heather Churchill, was at all relevant times Farmlink’s export manager.
3 The fundamental issues arising in this proceeding relate to the nature and the terms of the relationship between TVO and Farmlink in the sale of TVO’s cherries: was it that of seller and purchaser, or was it one of principal and agent? And whichever was the case, what were the terms of the sale or of the agency? Surprisingly perhaps, the parties’ agreement, such as it was, was an oral one.
4 It is fair to say that the respondents’ defence drifted far from that upon which the case was originally pleaded and conducted. After the close of oral submissions I was asked to entertain a further amendment to the defence to accommodate issues that had been brought into focus in final submissions. As I will later indicate, I refuse to allow the amendment sought.
5 The oral character of the contract(s) apart, two further factors have complicated the resolution of this matter. The first is the real uncertainty as to the legal context in which the
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question of characterisation of the parties’ relationship is to be addressed. If the matter is properly to be regarded as one of sale and resale, the vendor-purchaser relationship between TVO and Farmlink would be subject to the Sale of Goods Act 1895 (SA) and the resale relationship between Farmlink and Freshmart, but not Mak, probably to the Sale of Goods (Vienna Convention) Act 1986 (SA). This latter matter, though, has not been addressed by the parties and has not been the subject of evidence to the extent that it might raise questions as to the law of Singapore and Hong Kong respectively: see United Nations Convention on Contracts for the International Sale of Goods, Art 1 (“CISG”). Singapore has ratified the CISG and it is in force in that country. Though the CISG was in force in China, but not in Hong Kong, at the time of the “hand over” to China, China has apparently not taken the necessary steps to have the CISG apply to Hong Kong. The Cour de Cassation in France has, in consequence, recently concluded that the CISG was not applicable to Hong Kong: see Telecommunications Products Case, Cour de Cassation, 2 April 2008; and see generally Schroeter UG, “The Status of Hong Kong and Macao under the United Nations Convention on Contracts for the International Sale of Goods” (2004) 16 Pace International Law Review 307. If, on the other hand, the relationship of TVO and Farmlink is that of principal and agent, TVO’s relationship with Freshmart, but not with Mak, was subject probably to the provisions of the Sale of Goods (Vienna Convention) Act. I mention this for the following reason. The CISG, but not the domestic Sale of Goods Act, has a developed regime for a buyer (i) to notify a seller of lack of conformity with the quality required by the contract: see CISG Arts 35, 39 and 44 and see Schlechtriem and Schwenzer (eds), Commentary on the UN Convention on International Sale of Goods at 411 ff and 460 ff (2nd English ed, 2005); and (ii) to effect a price reduction for non-conformity: CISG Art 50 and Schlechtriem and Schwenger at 596 ff. I note this because both Farmlink and Mak effected price reductions. The evidence on whether they were negotiated or not is controversial.
6 The second complicating factor relates to those price reductions. It is clear from the evidence that, at presently relevant times, quality problems of varying severity were prevalent in both the domestic and overseas sales of cherries generally and that, in respect of overseas sales, exporters routinely passed on price reductions to Australian suppliers in response to this phenomenon. The evidence both of TVO’s dealings with other exporters, and of its dealings with Farmlink since the 2000/2001 cherry season, illustrate this practice. The significance, if
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any, of it in the characterisation of the parties’ relationship and in the terms of it has been vigorously debated before me.
7 I have in the event concluded that Farmlink was not TVO’s agent. It was a purchaser for resale. The individual purchases in respect of each consignment to Singapore and Hong Kong were for agreed prices. Because quality defects were a recurrent concern and because Freshmart and Mak effected price reductions (whether or not, at least in Freshmart’s case, in reliance upon Art 50 of the CISG), the individual sales by TVO took place in a context in which reductions in the “purchase price” payable by Freshmart and Mak were to be anticipated in some degree for quality defects. I am not satisfied, though, that in passing on price reductions Farmlink had any contractual right so to do. Formally it may have had rights against TVO under the Sale of Goods Act (eg s 14 and s 52) for which it may have been entitled to claim damages for breach of warranty in respect of particular individual contracts or to set off such a breach in diminution or extinction of the price.
8 Mr Hannaford’s routine acceptance of reductions (at least those said to be made for quality reasons) in the purchase price owing to him was, in my view, a reasonable and sensible business response to a recurrent phenomenon in an ongoing business relationship in a market for perishables. As I observed in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at [230]:
… notwithstanding their contract, parties in an ongoing business relationship … commonly “regulate their relationships in accordance with what they consider is fair and reasonable or commercially necessary at particular points in time rather than by reference to a priori rights and duties arising under a contract”: Integrated Computer Services Pty Ltd [v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11, 110] at 11,117.
Such “mutual accommodation” may, or may not, over time evidence a contract variation. In the present case as pleaded it did not. Mr Hannaford was not obliged to accept whatever price reduction Farmlink had accepted from, or perhaps even agreed with, Freshmart and Mak. He retained his right to renegotiate his contract with Farmlink and was entitled to insist that price reductions ascribed to quality defects were reasonable and legitimate, ie were in fact made for reasons of quality and were ones for which he bore the responsibility.
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THE PRINCIPAL ACTORS
9 (i) Anthony Hannaford. Mr Hannaford is, apparently, the biggest cherry grower in South Australia. He commenced his own business in 1985 and registered the business name Torrens Valley Orchards several years later. During the 2003/2004 cherry season he owned – and he still owns – three orchards in the Adelaide Hills. After an early dealing with Mr Plummer in the late 1980s, he recommenced dealings with Mr Plummer and Ms Churchill in the mid-nineties about which time, or perhaps a little later, he commenced supplying them with cherries.
10 (ii) Heather Churchill. Ms Churchill has been involved in the export industry since the mid to late 1980s. She moved to South Australia in 1993 and took up a position as export coordinator with an apple exporter, South Australian Horticultural Export Co. While working in that position she met Mr Plummer who, in 1999, offered her a position with Australian Farmlink Pty Ltd, a new business which he was involved in starting up. As export manager, her responsibilities were to find market sales for produce, to arrange for its export and delivery and to discharge all the associated accounting and administrative functions. She was responsible to the directors of Farmlink. The overseas markets with which she had dealings included Singapore, Malaysia, Thailand, Taiwan, Hong Kong, the UK and some Pacific islands. Her evidence was that although Farmlink dealt with a variety of products for export, during the cherry season she concentrated 100 per cent on cherries. Ms Churchill remained the export manager of Farmlink until 2006.
11 (iii) Australian Farmlink Pty Ltd and its directors. The company’s business was the supply of export services both to Mr Plummer’s organisation and to other local growers of fruit and vegetables. Its two directors were Mr Plummer and Mr Choon Kiat (Peter) Koh.
12 Mr Plummer was also a director of Plummer’s Border Valley Orchards Pty Ltd, a grower, packer and marketer of apples, some cherries and some stone fruit. PBVO was one of Farmlink’s suppliers. Many of the export shipments from TVO were initially delivered to the PBVO packing shed. Ms Churchill’s office was in the PBVO administrative building. It was her evidence that it was normally Mr Plummer’s brother who dealt with the cherry side of PBVO’s business.
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13 Mr Koh, the other of Farmlink’s two directors, is also a co-director and shareholder of Freshmart. Ms Churchill variously described him as “controller”, “manager” and “principal” of Freshmart. Freshmart was one of Farmlink’s buyers, and is based in Singapore. Mr Koh personally dealt with Ms Churchill on its behalf in relation to its purchase of cherries. It is Ms Churchill’s evidence that, in his capacity as a director of Farmlink, Mr Koh never supplied instructions to her as an employee of Farmlink.
14 (iv) Mak. Mr Pin Jam Mak, known as Mak, was another of Farmlink’s buyers who traded under the business name Wing Cheong Laan and was based in Hong Kong. Ms Churchill’s evidence was that she had known him for ten years, and that he had a track record with her that was impeccable. Specifically, she indicated that she had been dealing with Mak at least since 1999 and probably since 1995.
15 There was contrary evidence as to Mak’s character given by a TVO witness, Jonathan Freeman, who was the sole director of a company conducting an aquaculture and agriculture export business and who said he had a long standing involvement in the export of food products (including cherries) to the Chinese market. Such question as there is about Mak’s character, I need not resolve. This said, his actual conduct and/or his likely conduct in the circumstances bear directly both on some of my findings and on issues of proof.
A note about cherries
16 The South Australian cherry season is of short duration. Picking normally commences in early December and usually runs for about five weeks. Cherries need to be picked quickly once they mature. Once picked, they immediately start to die, hence the industry emphasis on trying to preserve their quality and life for as long as possible through a process of refrigeration called the “cool chain” (see below) which aims to keep cherries at a constant temperature (between 0 and 1C) from when they reach the packing shed at an orchard until they are delivered to market. Any break in the cool chain can have a significant adverse affect on the quality of the cherries. Properly handled and stored, the commercial life of a picked cherry can be extended up to eight weeks.
17 Like all perishables, the quality of cherries is affected by a variety of factors. Extended periods of rainfall can cause cherries to crack. Rain equally causes them to swell
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and if this occurs just prior to picking they become more susceptible to bruising during the picking and packing process. A range of other environmental factors can affect quality: birds, winds, temperatures, soils, fungi, etc. Equally, cherries require careful handling. As Mr Hannaford put it: “they are extremely delicate … to handling conditions … They have to be … picked carefully, handled carefully, transported carefully all the way through the process.”
18 There are different varieties of cherries having different characteristics, for example, the times at which they mature. And they can differ in size. The evidence in this matter is that, at the relevant times, the markets generally preferred big, firm, sweet cherries with green stalks.
The “cool chain”
19 The following is an amalgam of the evidence of several of the witnesses and Mr Hannaford’s description of his own practices. As noted above, the purpose of the cool chain is to reduce and maintain the temperature of cherries to as close to zero as possible until they are consumed. This prolongs the life of the fruit by retarding the natural senescing process. Any significant break in the cool chain will have some effect on the life and/or quality of the cherry.
20 The “chain” begins soon after the cherries are picked. They are transported unrefrigerated to the packing shed where they are quickly placed into a ‘hydro-cooler’ – a machine which pumps cooled water through the bins of cherries for up to 10 minutes. This process removes much of the initial field heat. From there, the cherries are moved either temporarily into a receiving cool room, or directly into the packing chain. In the packing chain, the cherries are cleaned, “singulated” (a process in which clumps of cherries are broken up), sanitised, protected by fungicide, sorted and packed. Cooled water is used during most steps of this process, and the cherries are put through a hydro-cooler for a second time. The packing shed itself is both insulated and air-conditioned. The cherries are subsequently returned to a different cool room for storage before delivery.
21 In the export context, the cool chain differs depending on whether the cherries are being sea-freighted or air-freighted to their destination.
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22 Where the cherries are air-freighted, they are loaded into refrigerated trucks for transport to the airport. The truck refrigeration units operate on engine power while in motion, but otherwise on mains power – they are re-connected to mains power on arrival. At the airport, the cherries are unloaded into cool rooms for temporary storage. These are removed from the cool rooms about 45 minutes prior to departure and left un-refrigerated on the tarmac. Dr Brown, an expert witness called by Farmlink, noted that it was the bane of trying to transport perishables by air to get air companies to ensure that containers are kept in cool rooms, particularly during brief transit stops. The evidence was that the cherries are not refrigerated whilst in the air, although air pressure and temperature is controlled.
23 Where the cherries are to be sea-freighted, they are loaded into refrigerated trucks for transport to PBVO. At PBVO, the pallets are again cooled using an enforced blower system, and then loaded into sea shipping containers. The containers are cooled prior to loading, although to prevent condensation are generally off power during the actual loading. The refrigeration units on the containers also are not capable of being powered by the trucks during transport, although power is re-established immediately upon arrival at the port. Dr Brown gave evidence that a short disconnection from a cooling system, such as would occur transporting cherries from the Adelaide Hills to Port Adelaide, was not normally significant, appropriate insulation and the large thermal mass involved preventing any significant increase in temperature.
24 The evidence on how the cool chain is maintained subsequent to delivery to the overseas buyer is dependent on the processes of the buyer in question. Nonetheless, it was not contested that its maintenance after delivery was significant to the ultimate quality of the cherries when sold.
THE PARTIES’ CASES
(i) The pleaded case
25 Put in short form the applicant’s primary case is that in or about early December 2003 Farmlink orally agreed with TVO to sell cherries grown by TVO into the Hong Kong and Singapore markets at agreed prices for each of four different cherry sizes and, further, that a premium of at least one dollar above those prices was payable for cherries packed into punnets. That agreement, when enlivened by Farmlink’s individual packing orders to TVO,
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constituted Farmlink a purchaser of TVO’s cherries at the agreed price. Eleven such orders were filled for shipment to Hong Kong; and ten for Singapore. There was a large shortfall in the amounts Farmlink actually remitted to TVO relative to the agreed prices for these shipments. TVO’s primary claim is for the amount of the shortfall, plus damages for loss of the use of the money and interest.
26 The contract’s term as to price is also pleaded in alternative ways (ie approximately the agreed price or at reasonable prices) which it is unnecessary to set out here in detail.
27 Alternatively, TVO has contended that Farmlink was a del credere agent for the purposes of the marketing and sale of cherries in Hong Kong and Singapore, with Farmlink warranting that TVO would receive the agreed prices. Indemnification is sought in respect of this warranty which is alleged to be an implied term of the agency.
28 Distinctly, TVO alleges that Farmlink, if an agent, breached its contractual duties as agent. The Further Amended Statement of Claim instances (i) non-disclosure of material information relating to the operation of the agency and in particular the state of the Hong Kong and Singapore markets at the time of its orders for cherries from TVO; (ii) failure to exercise reasonable care and skill in performing the agency particularly in relating to securing the agreed prices or approximately those prices; and (iii) failing to provide material advice to TVO or misleading TVO in a number of specified matters relating to the sales into the Hong Kong and Singapore markets.
29 The alleged failures to advise and instances of misleading are in turn pleaded to misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) and of s 56 of the Fair Trading Act 1987 (SA).
30 In the Amended Defence and Cross-Claim which was operative during the conduct of the hearing, Farmlink denied there was an agreement for the sale of cherries to it such as propounded by TVO. Nonetheless, it accepts that an oral agreement was entered into with TVO in or about December 2003 for it to sell cherries grown by TVO into the Asian market on terms that:
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(i) The cherries to comply with the specifications set out in Farmlink’s Pre-Shipment Inspection Form or alternatively there was an implied term of the agreement that the cherries were of a quality as contained in the specifications pursuant to s 14 of the Sale of Goods Act;
(ii) Farmlink could only give an estimate as to the price that would be paid or received for TVO’s cherries as the prices were subject to change because they were dependent on the prices which Farmlink could obtain for the cherries in specific markets as affected by:
(a) demand in the market at the time of supply;
(b) the price of other cherries of equal quality in the Hong Kong and Singapore markets at the time;
(c) the quality of the cherries being sold;
(d) the stability or instability of the market/s.
(iii) The cherry packaging requirements as detailed by Farmlink had to be adhered to by TVO when packaging the cherries to send direct to Hong Kong or Singapore.
(iv) Farmlink (through Churchill) would contact TVO and advise what type and quality of cherry it required and TVO would advise what price they were willing to sell the cherries for. Once TVO advised of the supply price of the different quality cherries, Farmlink would then add onto that supply price the export costs, plus Farmlink’s margin (which was approximately 65 cents per kilo) (‘Selling Price’). Farmlink would then offer this Selling Price to the Hong Kong and Singapore markets and the buyers of those markets would either reject or accept that Selling Price. If that Selling Price was accepted, it remained static unless it was altered by the factors as set out at (ii) above.
31 It should be noted in passing that the respondents’ defence expressly acknowledged that TVO was not made aware of the selling price of the cherries in Hong Kong or Singapore, nor was it aware of the margin received by Farmlink. This information was said to be “commercially sensitive”.
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32 The respondents denied the terms of the oral contract pleaded by TVO. Notably, para 6 of the FAD denied that Farmlink was, in law, a purchaser of TVO’s cherries to it at the prices pleaded by TVO.
33 Further the respondents denied Farmlink was a del credere agent as pleaded by TVO or an agent on the terms pleaded by TVO. Nonetheless, its case has been conducted on the basis that it nonetheless was an agent for sale.
34 Farmlink in turn cross-claimed against TVO for damages for its failure to supply cherries that met Farmlink’s specifications in breach of its agreement with Farmlink and/or of s 14 of the Sale of Goods Act. As I will later indicate, this claim was not pursued before me. Distinctly, Farmlink claimed indemnification as an agent for its export and transport costs in effecting overseas sales.
(ii) The course of dealing sidewind
35 The matter I would stress about the above pleadings is that each side’s case was founded upon an oral contract alleged to have been entered into in or about December 2003. Farmlink’s case later took a new turn outside the pleadings. This needs some explanation as it is the subject of a ruling below. In its Summary of Facts, Issues and Contentions filed before the hearing, Farmlink referred at length to a course of dealing between itself and TVO from 1999/2000 to 2003/2004 and, in particular, to what was said to be TVO’s acceptance of purchase discounts for quality. It asserted its relationship with TVO was an agency for sale at a negotiated conditional price. And it asserted that:
27. Even if there was an agreement for sale of goods by TVO to Farmlink sufficiently certain to be enforceable, then the decisive point is that it was a condition and had been agreed and/or established by the course of dealing between the parties that the price paid to TVO would be the conditional price less any “purchase discounts” applied by the overseas buyers and passed back to TVO by Farmlink.
36 Though an amount of time at the hearing was devoted to TVO’s dealings with Farmlink for the seasons from 1999/2000 to that presently in issue, the applicant clearly prosecuted its case on the basis of the contrasting oral contracts pleaded. The respondents’ counsel provided the applicant’s counsel with written final submissions almost at the end of the applicant’s final address. It was then that the issue of “course of dealing” came fully to
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the fore. The contention was now squarely put that, as terms of a contract may be implied from a past course of dealings, the dealings of the parties prior to 2003/2004 required close consideration. In particular Farmlink applied purchase discounts in every season from 1999/2000. These, it is said, were acquiesced in by TVO. The course of dealing generally was then relied upon to indicate both the relationship of the parties and the terms of their agreement.
37 In oral submissions counsel for the respondents, while accepting that they may not have pleaded the matter “in as many words”, contended that, even if Farmlink was a purchaser from TVO, the price payable was as determined by the course of dealings over the previous four seasons. He then referred to para 27 of the Summary of Facts, Issues and Contentions to which I referred above. The applicant’s response to this is contained in his counsel’s reaction:
HIS HONOUR: Are you making any point about this, Mr Brohier, because you did refer to that fact … this morning.
MR BROHIER: Yes, your Honour. We say that we have run the case on the pleaded defence, and the pleaded defence is that there was a term in the contract that – an oral term, that Farmlink could only give an estimate of price because it was dependent on prices; could obtain a specific market is affected by demand in the market, etcetera; and then, in paragraph 8.2 and 10.2, that the reason there was non-payment was because a lack of quality. That’s the case we have always met, and if there is an attempt to say that regardless of quality the issue is what price they got so that in effect it was a carte blanche agreement, we say that’s not open, and we have made it clear in our whole submissions that we have based it on the pleadings.
38 It is fair to say that the term said to emerge from the course of dealing relating to purchase discounts evolved during the respondents’ final oral submissions: see eg Transcript 890, line 23 – 892, line 11; as did its relationship to the oral contract that had been pleaded: see Transcript 895, lines 4-9.
39 In reply submissions, counsel for the applicant dealt with the alleged course of dealing term as follows:
MR BROHIER: Your Honour, the attitude we take about that is this: firstly, we say that the case should proceed on the pleaded case of an oral agreement. If your Honour is minded to give some leeway to deal with a course of conduct case, it can only be on the basis of the evidence which, as
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we have submitted, the only course of conduct can be that, where there were proper quality claims, properly justified, then a price discount is factored in. By that, we mean that it can’t be the case that any alleged quality claim has to result in a discount. It can only be that the course of dealing shows that – I withdraw that. We will only – we say the only amendment that could be allowed is to allow a plea that the course of dealing shows that where there are quality claims, which then are justified, the reduction flows.
The proposition that is put to your Honour is that, if you like, the amendment that is sought is that price is dependent on whatever the overseas buyer wants to pay according to his whim and fancy at the time. If that is the proposition, we say your Honour should reject any attempt to amend the pleadings to plead that, not on the basis of prejudice, but on the basis that it doesn’t sit with the evidence, and your Honour can consider the evidence and, in our submission, you’ll come to this position, that it’s simply not supported.
Counsel did point to the prejudice TVO would suffer if a more qualified version of the implied term was advanced allowing for Farmlink to act unilaterally in accepting price discounts. I accept that such would be the case.
40 At the close of oral submissions, counsel for the respondents asked that Mr Hannaford be permitted to re-open his case to give such evidence as he might wish to avert any prejudice arising from the course of dealing case that he was seeking to put. It was clear that the term he now wished to propose involved some retreat from what appeared to have been advanced previously: see Transcript 912, lines 25-45. I refused to countenance re-opening of the case – it had already been adjourned part heard for a lengthy period – but I did ask counsel for the respondents to provide a draft of the term proposed for the purpose of determining whether any amendment to their defence might be permitted in the circumstances.
41 As subsequently proposed, the term was adapted to the contingencies both of a sale and purchase and of an agency for sale. In each case the term was in substance the same. Paragraph 5.7 of the proposed Further Amended Defence is as follows:
Further and in the alternative, if (which is denied) there was a contract for sale and purchase of the goods as alleged, based on past dealings between the parties, it was an implied term during the 2003/2004 season that Farmlink was entitled to and could unilaterally accept from the overseas buyers and pass back to TVO without TVO’s prior consent any and all discounts or reductions sought by the overseas buyers even if such discounts or reductions resulted in no or a negative return to TVO, except for discounts sought by the overseas buyers on the ground of price changes in their market described by Farmlink in its credit notes or purchase orders for the 2003/2004 season as “price
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discounts”, as to which Farmlink would seek TVO’s prior consent before accepting and passing back price reductions to TVO.
42 The applicant has opposed my allowing this amendment (and its agency for sale counterpart: para 13.9) to be made. That opposition is based essentially on (i) the inconsistency between the proposed term and the evidence in relation to the purpose of the parties’ transactions; (ii) both the lack of support from Ms Churchill for it and the fact that the term was not put to Mr Hannaford; and (iii) the focus that had been placed on quality as the alleged actual reason for discounts.
43 I am quite conscious of the foundation that both a prior course of dealing between parties and practices and usages thereby established between them can provide (a) for the drawing of inferences as to the actual terms on which the parties have contracted and (b) for the imputation of implied terms in their contract: for the difference between inference and imputation, see Hawkins v Clayton (1988) 164 CLR 539 at 570-571 and 573. This is evidenced both in the provisions of international instruments such as the CISG Art 9: see Schlechtriem and Schwenzer at 141 ff; see also Unidroit Principles of International Commercial Contracts 2004, Arts 1.9 and 5.1.2; and in the domestic laws of common law countries: see eg Uniform Commercial Code, §1-303; Restatement of Contracts, Second, §223; Farnsworth on Contracts, §7.13 (3rd ed, 2004); Furmston (ed), The Law of Contract at [3.18] (2nd ed, 2003); Cheshire and Fifoot, Law of Contract at [10.18] and [10.29] (9th Aust ed, 2008). I equally accept that it may well have been the case, as I will later suggest, that some at least of the terms upon which TVO and Farmlink actually intended to contract in the 2003/2004 season were to be inferred from their prior course of dealings. But that is not the question on which I must rule.
44 The amendment sought to be made at such a late stage is not one which I consider should be permitted. It is yet another variant on the term initially proposed – the variation seemingly being a response to accommodate questioning during final submissions. It is of such a character that it ought to have been the subject of evidence both of Ms Churchill and of Mr Hannaford. It raises quite a spectrum of different issues to those raised by what had been pleaded by the respondents. And it embodies an exception the provenance of which relates only to evidence in the 2003/2004 season and not to “past dealings”. It is simply far too late
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in the day to permit this amendment to be made, the more so because I consider the proposal itself to be uncertain in scope and ambiguous in content.
45 I will in any event later suggest both that the term itself attributes a character and a consequence to past dealings which I do not consider is reasonably suggested by them and that important aspects of Ms Churchill’s decisions in 2003/2004 in relation to purchase discounts had no reflection at all in the prior course of dealing.
SALE AND RESALE OR AGENCY: THE APPLICABLE PRINCIPLES
46 Notwithstanding that the relationships of principal and agent and seller and buyer are mutually exclusive, the one being a fiduciary relationship, the other a “commercially adverse relationship”: Bowstead & Reynolds on Agency at [1-032] (18th ed, 2006); the distinction between them in cases where sales or purchases have been effectuated by an intermediary can be a fine one not easy to draw: see Atiyah, The Sale of Goods at 28 (10th ed, 2001). Unsurprisingly, courts have emphasised that decided cases are for the most part of limited assistance given the quite fact (and agreement) specific nature of the inquiry to be made: see eg Fraser-Ramsay (New Zealand) Ltd v De Renzy (1912) 32 NZLR 553 at 575; see generally, Dal Pont, Law of Agency at [2.3] (2nd ed, 2008); the more so when, as in the present matter, the contract in question (whether of agency or sale) is an oral one: cf Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd [2002] EWCA Civ 288 at [30]-[31].
47 Before identifying those factors which have been found to be of varying significance as indicators of, variously, agency or sale, it is appropriate, first, to refer generally to a number of relatively uncontroversial propositions of agency law. In so doing, I repeat for convenience in part what I said in South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 at [131] ff.
(1) Those definitions of agency that take the principal and agent relationship itself as their particular focus: contrast International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 at 652; emphasise that that relationship “can only be established by the consent of the principal and the agent”: Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130 at 1137; see,
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for example, Bowstead & Reynolds at [1-001]; Restatement of Agency, Third, §1.01; 3 Am Jur 2d, “Agency”, §15.
(2) The consents so given need not necessarily be to a relationship that the parties understand, or even accept, to be that of principal and agent: Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 at 587. It is sufficient if “they have agreed to what amounts in law to such a relationship”: Garnac Grain Co Inc at 1137; Nichols v Arthur Murray Inc 56 Cal Rptr 728 (1967) at 730-731; Restatement of Agency, Second, §1 comment.
(3) Though there is no uniformly agreed definition of agency: see the discussion in Fisher, Agency Law at 8-11 (2000); the two whose authoritative character has resulted in their wide citation are those of the Restatement of Agency, Third, §1.01 and of Bowstead & Reynolds at [1-001] (the latter being based upon the Restatement provision). The Restatement’s definition is that:
§1.01 Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.
Bowstead & Reynolds’ definition is that:
[1-001] Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation.
The necessary consents apart, the required characteristic of the relationship is that one party acts on behalf of, and is authorised to act on behalf of, the other. This “representative” characteristic must be able to be discerned in the factual relation of the parties: Colonial Mutual Life Assurance Society Ltd v The Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 at 48-50.
(4) Though the characteristic of “control” is accentuated in the Restatement’s definition: see comment f to §1.01; its significance is far more muted in Anglo-Australian law: see South Sydney District Rugby League Football Club at [136]. Thus, it is commented in Bowstead & Reynolds (at [1-017]) that:
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It might seem therefore that control is not a significant feature of the internal relationship, except in so far as the relationship by definition posits a person, the principal, giving authority, and the agent’s duty to obey instructions if he wishes to continue as agent. Nevertheless, if the principal gives up all control of his supposed agent the relationship is only doubtfully one of agency.
I will return to the significance of the presence or absence of control later in these reasons.
48 Before turning to the factors which have been said to be possibly indicative of agency or of sale, it is instructive to refer first to §14J of the Restatement of Agency, Second, which accentuates the fiduciary and the adversarial characters of agents and buyers respectively:
One who receives goods from another for resale to a third person is not thereby the other’s agent in the transaction: whether he is an agent for this purpose or is himself a buyer depends upon whether the parties agree that his duty is to act primarily for the benefit of the one delivering the goods to him or is to act primarily for his own benefit.
49 Judges have, on occasion, used a test stated at the level of generality of §14J to determine whether a particular relationship (ordinarily manifest in a written agreement) is one of agency or of sale. So, in Fraser-Ramsey (New Zealand) Ltd it was commented (at 566):
There is no trace in the agreement of the creation of or of the intention to create a fiduciary relation between the parties.
Characteristically, though, a more finely tuned and contextual focus on particular “indications” is employed especially where, as in the present matter, the parties’ relationship is not recorded in a written agreement. I use the description “contextual” for this reason. The indications for the most part are not necessarily determinative and acquire their actual significance from the particular context in which they appear.
50 For present purposes I would note the following.
51 (i) As an agent for sale ordinarily acts on behalf of its principal: but cf in relation to a broker selling in its own name: Bailey & Co Ltd v Balholm Securities Ltd [1973] 2 Lloyd’s Rep 404 at 408; Jackson Securities Ltd v Cheesman (1986) 4 NSWLR 484 at 489-490; is it apparent from the facts that the seller has actually conferred on the intermediary an authority to negotiate and/or to sell on the seller’s behalf thus bringing into existence direct contracts between the seller and the third party buyer: Mercantile International Group plc at [30]-[34]?
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52 (ii) Often interlocking factors of some significance are (a) by whom is the sale price to the third party set? and (b) how is the intermediary remunerated/rewarded for the sale to the third party? If the intermediary is remunerated by commission pre-arranged with the seller this will ordinarily indicate an agency relationship: eg Weiner v Harris [1910] 1 KB 285; although in exceptional circumstances a buyer for resale may be paid what is described, or is misdescribed, as a commission: eg Gannow Engineering Co Ltd v Richardson [1930] NZLR 361; Jackson v Royal Bank of Scotland [2000] EWCA Civ 203 at [17]-[18]. In the absence of fully informed consent, it would be a breach of fiduciary duty for an agent to profit on the sale of its principal’s property by, for example, marking up the principal’s stipulated sale price and retaining the difference. That an intermediary so acts may itself be indicative that the parties relationship was that of seller and buyer for resale and not agency for sale: Ex parte White; In re Nevill (1870) LR 6 Ch App 397. Nonetheless, a principal may agree to an agent deriving its remuneration from a mark-up on the price the principal stipulates it is to receive from the sale: eg Ex parte Bright; In re Smith (1879) 10 Ch D 566. In Mercantile International Group plc in circumstances in which the agreements between the parties pointed unambiguously to an agency relationship, it was held that that conclusion was unaffected by the circumstances that the principal knew that the intermediary charged more to purchasers than it confirmed to the principal; the principal did not mind nor care to know the detail of the matter, but was satisfied to get the price it stipulated; and the principal was content that the intermediary should keep for itself an undefined margin, it obtaining no remuneration by way of commission or otherwise from the principal: at [5] and [36].
53 (iii) It may be apparent from the circumstances and context of the supplier’s and intermediary’s dealing, that, on sales to a third party buyer it was reasonably to be expected that the intermediary was to answer to that buyer for the quality of the goods sold: cf International Harvester Co; Bowstead & Reynolds at [1-032].
54 (iv) Two duties stemming from a finding of agency are that the agent (a) must keep its principal’s property separate from its own; and (b) must keep an accurate account of all transactions entered into on its principal’s behalf: see generally Bowstead & Reynolds at [6- 088] ff; Dal Pont, Ch 13. It has been suggested on occasion that these consequences may be indicative of an agency (at least if they have been expressly or impliedly agreed by the parties): cf Benjamin’s Sale of Goods at [1-049] (7th ed, 2006). For present purposes I merely
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note those agency obligations. I will make further reference to them after having outlined how Farmlink actually dealt with TVO in relation to the proceeds of sale received from the Singaporean and Hong Kong buyers and in relation to keeping accounts of the sales made by Farmlink.
55 There are two final matters to which I should refer. First, while the relationships of agency and sale are mutually exclusive, it is not uncommon for an intermediary to be the agent of its seller-principal but to be a principal vis-à-vis a third party on the sale to it: see eg Bailey & Co Ltd v Balholm Securities Ltd at 408; Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676. As was said by Roskill LJ in Romalpa (at 690):
I see no difficulty in the contractual concept that, as between the defendants and their sub-purchasers, the defendants sold as principals, but that, as between themselves and the plaintiffs, those goods which they were selling as principals within their implied authority from the plaintiffs were the plaintiffs’ goods which they were selling as agents for the plaintiffs to whom they remained fully accountable.
As will be seen, the respondents seek to draw some comfort from this.
56 Secondly, neither TVO nor the respondents have sought to advance and rely upon known practices and usages in the cherry sale and/or exporting market which might illuminate in any way the complexion properly to be given to their relationship or its incidents: see CISG, Art 9(2); Unidroit Principles of International Commercial Contracts 2004, Art 1.9(2); Uniform Commercial Code, §1-303 (“usage of trade”).
MATTERS OF CREDIT
57 The matters that are in issue in this proceeding occurred some years ago and for the most part during a very confined period when both Mr Hannaford and Ms Churchill were working under considerable pressure. It was only to be expected that their respective recalls might be inaccurate and be likely to be affected by reconstruction from contemporary documentation to which they each later had access. I am satisfied that the evidence of both of these witnesses was affected in these ways and to some degree self-servingly.
58 If Mr Hannaford’s recall of some matters was indistinct or erroneous, especially as to matters of timing, Ms Churchill’s was on occasion wholly questionable. I am satisfied that
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she convinced herself on some number of occasions that what she would have done/said etc was what she did/said etc. She was warned about this. I am satisfied her use of “I would have” was not simply a speech habit.
59 I have concluded that on some matters of importance Ms Churchill’s evidence ought not be accepted unless corroborated by documentary evidence. She was often evasive and combative in answering questions. Some passages of her evidence were transparently self- serving or underwent adaptation as the case evolved. I have little confidence in much of her evidence on contested matters.
BACKGROUND PRIOR TO THE 2003/2004 SEASON
60 For the reasons given earlier, the prior dealings of TVO and Farmlink are not directly relevant in determining the nature and the terms of the parties’ relationship. Nonetheless, they provide relevant contextual material and for that reason I refer to them, albeit sketchily, and primarily in relation to the “application” of purchase discounts by Farmlink and to the manner in which accounts were settled.
61 The 1999/2000 season was the first in which TVO dealt with Farmlink in relation to cherries. Mr Hannaford said in evidence that he could not remember specifically taking up the topic of purchase discounts with Ms Churchill at the beginning of their business relationship but that at some stage they certainly did discuss discounts and how they work and how they apply and why. He reiterated that at pre-season and post-season meetings with Farmlink and its growers discounts were discussed from time to time “and we talk about why and how and what the problems were and what we can do to avoid them … if it is related to the growing of the cherries and packing”.
62 When discussing a $3,822.50 discount said to be for “poor quality” on an order in excess of $80,000.00, Mr Hannaford said he was not “shocked and awed” [counsel’s terms]:
I mean, there is always some things that happen during the season. There are quite often some issues, some problems. Maybe it is our fault. Maybe some cherries snuck through the system and so there are, from time to time there are some issues, either fair or unfair, that can result in some discounts, yes.
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He understood that overseas buyers demand quality and they will reject cherries or seek a discount if the quality is not there.
63 In the 1999/2000 season, discounts were applied to four of twenty-four orders amounting $14,670.10 leaving a payment by Farmlink to TVO of $362,935.62 on an expected return of $377,605.72. The accounts for this season were settled on about 9 February and it was only then that Farmlink delivered the completed “purchase orders” (see below) showing the purchase discounts applied.
64 In the 2000/2001 season the purchase discounts applied to TVO sales ($251,131.78) amounted to about half the expected return and related to nine of twenty-one orders. Two container shipments, one to Singapore, the other to Hong Kong, accounted for about $185,000.00 of the total discount. TVO’s benefit from the insurance recovery on the container losses was $119,864.74, payment being made after August 2001. The evidence on the policies effected by Farmlink has been left in a less than satisfactory state. While TVO benefited ultimately from the insurance payout, I am satisfied it was neither the insured nor a beneficiary under the contract. The evidence, such as it is, suggests the insurance was effected in Farmlink’s name with the interests of the Singaporean and Hong Kong buyers noted on the policies. The further significance of the insurance claims for present purposes is that Farmlink indicated to Mr Hannaford that thereafter insurance was not available for cherry consignments it made abroad.
65 In the 2001/2002 season on Farmlink’s figures, TVO’s expected return was $177,790.00 and purchase discounts of $15,795.90 were applied to six of eleven consignments. In this season TVO dealt with a number of exporters all of whom passed back purchase discounts to it. So, for example, Jayfresh (Mr Freeman’s company) provided TVO a return of $310,135.20 after purchase discounts of $21,909.80. I note in passing that both Mr Hannaford and Mr Freeman indicated that Jayfresh approached discounts “a little bit differently”. The final accounting for Farmlink was done in March 2002. Mr Hannaford indicated he received some progressive part payments through this season but generally he received the outstanding purchase orders in a bunch after the end of the season on the final accounting.
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66 The 2002/2003 season, for present purposes, was relatively similar to the preceding year: TVO’s return was, on Farmlink’s figures, $138,381.50 after purchase discounts amounting to $19,543.00 were applied to nine of seventeen consignments. Jayfresh, in its dealings with TVO, applied discounts which in aggregate were in similar proportions to returns as were Farmlink’s. As in previous years, the purchase discounts were probably communicated to Mr Hannaford at the end of season settlement. Mr Hannaford accepted in cross-examination that, by this season, whenever the question of purchase discounts came up, Ms Churchill’s standard reply was that they had been applied because the cherries had been partially rejected on quality grounds.
THE CONSIGNMENT DOCUMENTATION
67 Each of the individual consignments in issue in this matter both had its own particular setting and was located in a larger general context of dealings between TVO and Farmlink. Nonetheless, it is convenient to refer, first, to the relatively standard documentation generated in respect of the consignments not only for such illumination as it provides as to the TVO- Farmlink-overseas buyer relationships, but also because the documentation provides terms of reference in the factual narrative which follows.
68 The document that initiated an export consignment was Farmlink’s “Export Packing Order” which was sent to TVO. This was in a standard form of which the following is an example:
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69 Periodically, not invariably, instructions were given under the heading “VARIETY” – for example: “good, firm, sweet”; “the best”; “good, firm, red” (reflecting a direction from Mak in Hong Kong); etc. Such rare notations as were made under “Comments” towards the bottom of the form were ordinarily of a more prosaic character: “must be at [PBVO] by 11 am Tues”; etc.
70 Such orders were effected usually by TVO delivering the packaged cherries to PBVO or, on occasion, to freight forwarders retained and paid for by Farmlink. It is agreed between the parties that, if the relationship between TVO and Farmlink was that of sale and purchase, such delivery was an unconditional appropriation such that property passed to Farmlink: see Sale of Goods Act, s 18 rule 5(1); Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236; Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd’s Rep 240. When making a delivery TVO usually faxed what it called a “dispatch docket” to Farmlink. This handwritten document, which made no reference to price, was for present purposes the only document of significance generated by TVO for delivery to Farmlink in any season. Mr Hannaford’s explanation for the absence of a price on the dispatch docket was that:
We didn’t put a price on because sometimes the price can vary a little bit and this was one reason for creating these documents was for our own internal records as well to keep track of our sales for our own viewpoint but there was very often a price variation to do with cost of freight [or] the fact if they were in punnets or gift boxes, there may be some variation to the agreed price.
71 The airway bill for a consignment, or the bills of lading for sea shipments, were all in the name of Farmlink which was invoiced for, and paid, freight. Farmlink invoiced its overseas buyer for the fruit at prices fixed by it. TVO was not copied that invoice. I will later make reference to Farmlink’s Cherry Shipping Strategy Plan for its projected prices to overseas buyers for that season. The prices so fixed differed from those agreed between TVO and Farmlink as TVO’s “agreed” or “firm” sale price and they were not communicated to TVO. The only reference to TVO in the invoice was as part of the “Description of Goods”, for example, “TVO STELLA CHERRIES x 18 – 500 gm”. Payment by the buyer was required to be made to a general bank account of Farmlink which, on the evidence, was used for its general trading activities.
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72 When Farmlink paid TVO for a purchase it did so by reference to a document entitled “Purchase” and referred to in evidence as a “purchase order”. That document, directed to TVO, referred to a specific order; it described Farmlink (at its address) as the party TVO was to “Ship To”; it identified under headings the quantity, description and price of the cherries particularised in the order and the percentage “discount”; and it specified what, in the event, was the sale price and that it had been paid. This document was entered into Farmlink’s computer after receipt of TVO’s dispatch docket (which described the number of cartons and the varieties of cherries), as was the sale price which Ms Churchill described as “the expected price return” to TVO. Such discounts as were applied were entered ordinarily prior to settlement with TVO.
73 I would note in passing that the freight invoices, copies of the airway bill or the bills of lading and the invoices to overseas buyers were not sent by Farmlink to TVO.
74 To anticipate matters, the applicant’s contention is that the above documentation clearly indicated that each transaction involved a sale by TVO to Farmlink with a re-sale to the overseas buyer. Farmlink, in contrast, contends that the documentation is consistent with its having acted as an agent for sale vis-à-vis TVO and as a seller vis-à-vis the overseas buyers, hence its reliance upon Romalpa at 690.
THE 2003/2004 SEASON
1. General matters
2. Price
75 Consistent with her practice in earlier seasons, Ms Churchill arranged a pre-season planning meeting at PBVO on 30 October 2003 with growers (including Mr Hannaford) with whom she hoped to deal and who may have been interested in exporting some cherries. Apart from having a wrap-up of the previous season, the agenda referred, amongst other matters, to crop expectations, ie volume, size, quality and timing, to export market potential and to packaging requirements. The agenda did not refer to price – unsurprisingly in my view given that the meeting was almost two months in advance of when exporting might be expected to commence and about a month before picking. It is Ms Churchill’s evidence that price probably was not discussed at that meeting: “Not that early, no”. I would note that the
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Cherry Export Marketing Strategy she faxed to TVO on 2 December 2003 made no mention of price and, in a fax to Freshmart of the same date suggesting an export “Program for Singapore”, she gave only indicative prices as it was “too early for the real prices”.
76 At some time, though, it is clear that the growers told Ms Churchill what prices per kilo they wanted for cherries (categorised by size), such that there was, according to Ms Churchill, an understanding between not just Farmlink and TVO, but all the growers that “this was the sort of price they would want to go out to the market to return, and that’s what they expected”. It is equally clear that she calculated her own export strategy referred to below on the basis of those prices. Those prices were (i) $7.00/kg for 24-26mm fruit; (ii) $9.00/kg for 26-28mm fruit; (iii) $11.00/kg for 28mm fruit; and (iv) there was about a $1.00 premium on 500gm punnets. Farmlink and TVO later agreed several changes to these prices as actual consignments were made. It also is alleged that Farmlink made unauthorised changes on occasion, ie changes not negotiated with TVO.
77 While Mr Hannaford could not recall when prices were discussed, he said it would have occurred at some stage: “We had to have some basis on which to have a meaningful business relationship, not only with Farmlink but with all our buyers”. The prices referred to above were those he had in mind at the time.
78 At some time before Farmlink actually started shipping cherries, Ms Churchill prepared for Farmlink’s own use the “Cherry Shipping Marketing Plan – 2004”. That document set out in tabular form projected consignments by air and sea for the weeks commencing 22 December 2003 and ending 19 January 2004; the names and volumes of cherries to be supplied by named sellers; and the cherry prices. These last were in the following table:
CHERRY PRICES 2004 TYPE/SIZE AVE PALLET SEA 5 KG 24 $47.50 $45.00 $40.00 26 $57.50 $55.00 $50.00 28 $67.50 $65.00 $60.00 6 x 2 KG 26 $144.00 $138.00 $126.00 28 $168.00 $162.00 $150.00
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500g PUNNETS $90.00 $86.00
1 KG GIFT PACK $150.00 $144.00 (The acronym “AVE” refers to a particular type of container for aircraft shipments.)
79 Though slow to concede in cross-examination that the strategy document projected Farmlink’s own prices it is clear, in my view, that such was their intended purpose and were devised in much the manner indicated by Ms Churchill in evidence-in-chief:
Well, based on the price advised by growers, I calculate what my shipping costs and transport costs, and export costs might be, add in my margin, work out what sort of selling price that my buyers have to accept before I can confirm an order, then I issue that price to the market.
80 Farmlink’s sale prices to overseas buyers were set by it without reference to Mr Hannaford; they were never revealed to him; and Ms Churchill said she would have refused to tell him the margin Farmlink received “because it was commercially sensitive”. I would note that this evidence is reflected in paras 5.1.5-5.1.6 of the Further Amended Defence.
81 There are three further matters concerning price to which I should refer. The first relates to Mr Hannaford’s evidence as to his allegedly having been told by Farmlink that he could only be given an estimate of the price he would be paid for the sale of the cherries and why this was so (see FAD para 5.1.3):
MR BROHIER: Now, it is said by Farmlink that it was orally agreed in December 2003 between you and Ms Churchill that the prices – that Farmlink could only give an estimate as to price and prices were dependant on the prices which Farmlink could obtain for cherries in specific markets – are you with me at the moment – as affected by four matters. Demand in the market at the time of supply. Was that ever discussed between you and Ms Churchill?---We quite often discussed market-related issues.
But did you discuss the issue of price being dependant on the demand of the market at the other end?---No. No, we were selling in our own market and it was not related to specific variation in markets overseas, it was what was happening in Australia.
So is the answer to that question - - - ?---No.
No. Did you discuss that the price that Farmlink would give you would be dependant on the price of other cherries of equal quality in the Hong Kong and Singapore markets at the time?---No, definitely not.
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Did you discuss that the price that they would give you would be dependant on the quality of the cherries being sold?---No.
And that the price that they would give you would be dependant on the stability or instability of the markets?---No.
Despite what is pleaded in FAD para 5.1.3 (which is reflected in the above questions), Ms Churchill’s evidence did not controvert Mr Hannaford’s.
82 Secondly, Mr Freeman gave evidence that his company, Jayfresh, contracted with suppliers on the basis of an agreed price, fixed after inspection of the consignment at the airport or port of dispatch. Prior to that the parties determined an estimated or indicative price. Earlier he gave evidence, seemingly of industry practice, that producer and exporter fix the price at which the producer is selling. Save in one respect to which I will refer below, I should indicate I have not found Mr Freeman’s evidence of particular help. Jayfresh’s business practices as described by Mr Freeman differ significantly from those of Farmlink and I am not satisfied that his practices have been shown satisfactorily to be the industry’s practices in South Australia. Aspects of what he had to say about re-negotiation of agreed prices for quality and market issues are, nonetheless, noteworthy. I refer here to evidence given in cross-examination which enlarges somewhat on his affidavit:
And sometimes [the agreed price] is the subject of quality discounting, isn’t it?---Quality and market discounting. I make that point very strongly. It is often – not sometimes – it is often subject to a buyer wishing to re-negotiate based on quality and based on market.
Okay?---Yes.
If they do re-negotiate, they do that with you, do they?---Yes.
And then you go back to the buyer? [The reference to “buyer” appears to be mistaken and that “supplier” was intended: see Affidavit para 26.3.]---Yes.
And work out, do you, what is going to be the final price?---It depends. As I think I made quite clear in my affidavit, if it is of a relatively modest adjustment, or something that I feel would be acceptable to that particular producer – in the case we are talking about here, Tony Hannaford at TVO – but I deal with many producers, and you have different relationships with different producers. If I felt comfortable that the modification was (a), deserved, and (b) consistent with my relationship with that particular producer I may well accept it straight up. But if it is any major issue – and I would state that anything over 5 per cent is a major issue – then it requires further investigation, further discussion before any acceptance. Can I make clear at
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this point the fixed prices, the fixed price at this point. It is not arbitrary that you accept any discount. It is not arbitrary that you accept any discount. It is my role to ensure that any discounts, any modifications to the price are carried out correctly, fairly and in timely fashion.
Though cross-examined at length on the difficulties in re-negotiating back-to-back contracts, his evidence remained that, subject to his relationship with a particular producer, he had to secure agreement to the variation of two contracts. He also later indicated that where a reduction was sought for a purely market related issue, eg the market had changed: … then you would be putting a very strong emphasis on the responsibility of the actual importer and, notwithstanding, they may have lost severely. They have an obligation to share in that particular loss and not pass on their loss down the chain.
Distinctly, he indicated that he had been told by Mr Hannaford the prices he had agreed with Farmlink (they were as I noted earlier). Mr Freeman considered that the price was higher than what he knew he could get for TVO cherries. He could not compete with Farmlink’s prices.
83 Thirdly, it was Ms Churchill’s evidence that the prices agreed with TVO were “firm prices” as the following illustrates:
MR BROHIER: Now … Ms Churchill, before the adjournment you said that when you sent orders off overseas, you had confidence that the prices that were reflected in your purchase order which you had keyed in would be achieved?---Yes.
So, so far as you were concerned, those prices were firm prices?---At that point in time, at the point of export, yes.
And any changes to those prices had to be by negotiation?---Yes.
And that negotiation had to include the grower?---Yes.
And because it was by negotiation, the grower had the right to say that he wouldn’t agree to a change in price?---Yes.
84 She went on, though, to qualify this by differentiating between “price” and “quality”.
85 Again to anticipate my conclusion, I am satisfied that prior to the first consignment TVO and Farmlink agreed the prices at which TVO would sell its cherries. These were firm prices which could be re-negotiated. They were not simply indicative or “expected” prices. I will later explain my reason for this conclusion in that it involves rejecting the contention that
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the prospect of purchase discounts necessarily made agreed prices “expected” ones. I have already foreshadowed my conclusion that the TVO-Farmlink relationship in respect of the individual consignments was that of seller and purchaser. As to Ms Churchill’s assertion that she did not have to re-negotiate discounts for quality issues, this relates to the terms of the contract. As I will later indicate, I am not satisfied that such a term reflected the implied intention of the parties. I should add, even if I had concluded that the parties relationship was that of principal and agent, I would similarly have concluded that the agreed price was the return Ms Churchill was authorised to obtain for TVO and that she was not authorised to bind TVO to quality discounts if TVO did not consent to them.
3. Farmlink’s forms
86 In the FAD para 5.1, Farmlink pleaded that its December 2003 oral contract with TVO was on terms (inter alia) that (i) the cherries were to comply with the specifications as set out in Farmlink’s Pre-Shipment Inspection Form (as provided by it to TVO); and (ii) Farmlink’s Cherry Packaging Requirements had to be adhered to by TVO.
87 Farmlink had produced probably in 1999 a document entitled CHERRY PACKAGING REQUIREMENTS. It is unnecessary to reproduce it here. It specified how differing weights were to be packaged for export whether by air or by sea, how the cartons were to be labelled and what exceptions applied when exporting to Hong Kong. Ms Churchill’s evidence is that she distributed it to the suppliers including Mr Hannaford in and after the 1999 season and that in 1999 she had a discussion with Mr Hannaford about it. She distinctly remembered delivering the Requirements form to him in the 2003/2004 season at his premises sometime in December “prior to the start of cherries”. On a subsequent visit to his premises she saw the document pinned on a little notice board in his office.
88 For his part, Mr Hannaford’s evidence-in-chief was that he did not recall receiving the Requirements form and could not recall it specifically, although he accepted that a copy of it may have been pinned to his noticeboard. He reiterated this evidence in cross-examination.
89 It is unnecessary for me to further consider the evidence concerning the document. Though pleaded by Farmlink as supplying a term of the parties’ contract, I do not consider that it was likely to have been intended to have had contractual effect. There is no evidence to
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suggest that it was provided in circumstances indicating such was the case or that, over the ensuing years, adherence to it was insisted upon and monitored. There is equally no evidence that TVO did, or did not, pack in accordance with the Requirements form. The form was, probably, an instructive guide to Farmlink’s suppliers. This conclusion seems to me to be the more likely given my finding on the Pre-Shipment Inspection Form.
90 The Inspection Form was a detailed document requiring the sampling and testing of cherries to be shipped for defects and quality characteristics. It was to be signed by a quality officer after testing at the supplier’s packing shed.
91 Ms Churchill’s evidence is that she “certainly” gave copies to Mr Hannaford in the 2003/2004 season and pointed out to him that the form differed from previous years now that there was an instrument called a penetrometer that could measure the firmness of cherries. She said Mr Hannaford asked her if she could get him one but she was unsure whether she could get him one for use in that season.
92 For his part, Mr Hannaford agreed he was given the form at the beginning of the business relationship in 1999. He thought he was given only one copy. He did not recall, and thought it very unlikely, that he was later given other forms: “we never referred to it specifically again”. He acknowledged that when it was received, all the suppliers looked at it:
We were all in a learning process and it is good to see what the buyers are looking at and talking about and what their buyers want.
He had no recollection of it being suggested he should have a penetrometer. While he thought he probably should have one, he did not know anyone “even at this point” who actually had one.
93 The critical part of Ms Churchill’s evidence which doomed any contractual defence founded on the Inspection Form arose out of questioning upon the first active order (4014), a consignment which was delivered to PBVO:
And you didn’t ask Mr Hannaford for the pre-shipment inspection report?--- No, I didn’t.
And you shipped a total of 21 shipments in the 2003/2004 year?---Yes.
And you never asked for a pre-shipment inspection report?---Not for each
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particular order, no, but when those pre-shipment inspection forms are issued, they’re issued on the basis that they are an in-house record of inspection and, if possible, I would like a faxed copy of those to Australian Farmlink for each order; that was my wish-list. If they were too busy or couldn’t do it or whatever I did not insist.
And in the 2003/2004 year you never once, after the shipments started, ask for those forms?---In all the dealings I’ve had with Torrens Valley Orchards I’ve never once received any of those forms.
And you never once asked for those forms in the 2003/2004 year?---At the start of every season I asked all the growers suppling [sic] export cherries to use these as a guideline to ensure that their cherries would meet our buyers’ specifications and it’s up to them to comply with those wishes but I don’t force them to do it.
My question is that, from the time the shipments started on 19 December, you didn’t once ask for those forms?---I asked for those forms before the shipment starts. I have indicated what my expectations are.
But just listen to my question?---Yes.
From the 19 December, when the shipment started from TVO?---Yes.
You didn’t once ask for those forms?---I did not ask for them to be delivered to me, no.
And it wasn’t, in your understanding, any part of the contractual requirements between yourself and TVO that those forms would be completed?---It was my expectation in their best interests for them to use those forms to please pack to Farmlink specifications.
But if they chose not to that was none of your business?---It was for their own benefit.
But if they chose not to, then you went along with that?---If they chose not to it would be to their own disadvantage.
4. The weather
94 In his expert report, Dr Gordon Brown, a horticultural research scientist whose specialty has been pre-harvest factors affecting post-harvest performance of apricot, cherry and apple noted that rainfall late in the season, prior to harvest, causes fruit to swell with water, often to the point of splitting. Three rain recording stations in the area of TVO’s three orchards recorded, respectively, 36.2mm, 22.2mm and 25.6mm of rain over the three day
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period 20 to 22 December. Mr Hannaford agreed that this was a significant amount of rain at a critical time, ie harvest time.
95 I will return to this matter when considering quality issues later in these reasons.
THE TWENTY-ONE CONSIGNMENTS
96 I have annexed to these reasons in an abbreviated and revised form a schedule of the export packing orders actually filled by TVO, the last column of which indicates the destination of the consignment and the amount (in Australian dollars) of any discount applied: see Annexure A. While it will be necessary to refer in a little detail to some number of the individual orders, the schedule is provided as an overview of the season’s consignments.
97 Mr Hannaford’s evidence is that the pre-Christmas Australian market was very strong particularly in Western Australia which could only be supplied from South Australia. He was receiving very high prices in Perth that could not be obtained in the export market. He recognised, though, that once the local market was sated in the pre-Christmas rush he would need Ms Churchill post-Christmas when domestic sales were weaker.
98 The first export packing order TVO received that it filled was 4014 of 19 December 2003. The consignment was delivered to PBVO on 23 December and air freighted to Singapore. It was uneventful. The expected return of $21,892.50 was realised. No purchase discount was applied. Two further consignments to Singapore were despatched, one that day and another the day after (orders 4015 and 4016 respectively). Again no discounts were applied. I note in passing that an order 4013 was sent to TVO for delivery to Singapore but appears on the evidence to have been subsumed into order 4014. The order number was later re-used for a Hong Kong consignment.
99 The first discount in an order for Singapore was applied to order 4018. This order was made on 24 December 2003 and the air freighted consignment arrived in Singapore on 27 December. A discount of $3,162.50 was applied to an expected return of $21,664.00. A “Credit Note” which Farmlink sent to Freshmart – not to TVO – stated that the reason for the discount was “Price Reduction”. In her evidence-in-chief Ms Churchill indicated that she put those words in the form:
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And why do you do that?---I would suggest because there’s been a change of price in the market and they’ve requested that we reduce the price.
Do you do that on the basis of information received from somebody?---Yes, I would be contacted by the buyer and advised of the issues, I guess, that a price reduction was required.
And that’s as usual and as in previous seasons?---As standard, yes.
100 In cross-examination Ms Churchill gave evidence which I do not accept that she agreed the reduction “after negotiating with … Mr Hannaford”: “It is part of my process, if there’s a change in prices to negotiate with the buyers and also with the suppliers.” Ms Churchill did not refer to her so “negotiating” in her evidence-in-chief. Neither was Mr Hannaford cross-examined about it.
101 It is worthy of note in passing that FAD para 10.3 ascribes all Singaporean price discounts to “the quality of the cherries” but that the proposed further amendment to the FAD which I refused to allow: see [35] ff; sought to imply a term allowing Farmlink a capacity to accept discounts sought on the ground of price changes in the market after obtaining TVO’s prior consent thereto.
102 In his oral submissions counsel for the respondents made two concessions in relation to the order 4018 price reduction as the following exchange indicates:
HIS HONOUR: Assuming it was just a reduction in price, in effect a renegotiation of price, for whatever reason, are you saying that in light of past dealings … like matters occurred so that it is unremarkable now?
MR HOILE: Yes.
HIS HONOUR: Are there instances of renegotiation of price unrelated to quality?
MR HOILE: No, I accept what my learned friend has said in two respects. First, that it is the first time identifiably that price discount as opposed to any other, as a quality related issue, has been identified, that, with respect, is correct, and I accept also the submissions that have been made by my friend to the effect that Ms Churchill’s evidence as she volunteered it under cross examination, that that had been as a result of a – first of all a communication from Singapore and then a negotiation and then agreement with Mr Hannaford. I accept that that was not lead from her in chief and I accept that that was not suggested to Mr Hannaford. So an appropriate basis for your Honour to proceed would be on the acceptance of those concessions.
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103 Ms Churchill commenced communications with Mak in Hong Kong on 19 December 2003. She indicated that because of local high prices, it would be difficult to negotiate until after Christmas. In an email to Ms Churchill of the same day Mak expressed interest in a consignment by ship. He also requested her to advise if she could cover up reference to Australia and port of origin on the carton: ie “DO NO PRINT ‘Produce of Australia’ on the ctn”. Ms Churchill said this request was a standard one from Hong Kong buyers: “if they … choose to send product to China, they don’t like to have a reference to where it come from”. I will refer later to the illegal cross-border trade into China and to Ms Churchill’s reluctant and quite unconvincing evidence of her knowledge of Mak’s participation in that trade.
104 To reiterate what I have earlier said, there was significant rain in the area of TVO’s three orchards in the period 20 to 22 December.
105 On 24 December Ms Churchill offered Mak the first delivery by air on 28 December 2003. He responded requesting delivery on that day and that she “[p]lease pick the best quality, it must be hard firm, bright red (not dark red), no pitch on skin surface”. The reborn order 4013 was placed with TVO on 27 December. The only instruction given on the order under the heading “Variety” was “good, firm, sweet Vans”. The expected return of $42,735.00 was realised, no price discount being applied.
106 On 27 December a further order (4019) for air freight to Singapore was sent to TVO. The comment on the order included “Please make sure fruit is good. Market getting grumbly” and “Van – No Stella please”. A price discount of $1,275.00 was applied to an expected return of $20,145.00. Ms Churchill gave evidence-in-chief concerning the order form itself which related to a conversation she claimed to have had with Mr Hannaford concerning quality problems with Stella. Mr Hannaford denied any such conversation with Ms Churchill or that he attributed softness in cherries he had sent to them having been badly affected by rain. For my own part I am not satisfied that this alleged conversation occurred. It is more probable that it was a self-serving reconstruction at best which was prompted by the order form itself.
107 A major segment of the evidence on consignments related to the cherries sent by sea to Hong Kong for order 4017. The expected return was $116,540.00. A purchase discount of that amount was applied. This consignment needs to be dealt with at length.
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Order 4017: sea freight to Hong Kong
108 In email exchanges on 26 December 2003 Mak responded favourably to Ms Churchill’s proposal for a sea consignment to Hong Kong arriving on 12 January; she gave cherry prices for this which matched those in her Cherry Shipping Strategy Plan – 2004; and she indicated she would “be assessing the stock available for a sea-freight shipment”, given when it would need to be loaded. On 29 December a further exchange of emails occurred. Ms Churchill said she had checked for suitable fruit but the varieties available were “not sea freight quality for shipping today” in her opinion. She mentioned a delay in shipping with arrival in Hong Kong on 18 January 2004. Mak accepted an arrival date of 18 January but preferred 12 January. Ms Churchill then replied she would assess the next varieties for suitability over the next couple of days. In cross-examination Ms Churchill accepted that she was intending to convey to Mak that she would personally look at the fruit that was available and she said she did this over the next few days:
I would have satisfied myself that there was fruit in that shed that I would assess as suitable for export, yes, but not specifically the fruit that would have got packed and sent. I would have looked at the line, said, yes, that has potential, but I certainly didn’t see anybody write, this is Farmlink cherries on that box.
109 Earlier she had accepted that when orders were delivered to Plummers she had the opportunity to inspect them there but that was not her role:
You do not see it as your role to assess the quality of the cherries, do you?---I physically cannot possibly inspect enough product that would satisfy me, that it would pass its criteria, that is on the onus of the packers and the packager is to do that.
…
So you don’t independently assess whether cherries are ready for airfreight or able to be – I’ll withdraw that. You don’t – you won’t independently assess whether cherries are of quality to be air freighted?---I do not inspect packed product that has been consolidated for specific orders.
And you don’t independently assess whether certain cherries are suitable for sea freight?---I visit my packers and growers of cherries almost every day. I look at plenty of cherries that come in. I check them out and make judgment calls whether, “Yeah, that one looks all right, that one looks all right,” but I do not inspect packed fruit.
In the 2003/2004 year, the year we’re talking about?---Yes.
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Between say 27 and 30 December?---Yes.
You didn’t go to Hannaford’s and inspect any cherries, did you?---I would have gone to Hannaford’s many times.
Between that period you didn’t go and inspect any cherries?---I would have probably, at least, once or twice, attended his shed.
She then went on to accept that she had been to TVO’s fruit block nine to sixteen times in the 2003/2004 season and her purpose was to assess the potential of the fruit coming in to be exported.
110 Order 4017 was placed with TVO on 30 December. It was for 16,000kg of fruit which was picked between 27 December and 31 December. It was packed between 30 December and 2 January 2004 and was delivered to PBVO on 2 January 2004. On arrival at Plummers it was stored in PBVO’s cool room. No evidence was led as to the temperature in that room. On 2 January the cherries were transported by unrefrigerated truck to Port Adelaide. They remained there for two days (in a refrigerated state) before being loaded on 4 January 2004.
111 Prior to the container being sealed at PBVO, two temperature recorders (Ryan Recorders) were inserted in the container. The printout of their recording for the period is in evidence. There is a disagreement as to how, temporally, the printout is to be read. I am in no position to resolve this, but proceed on the basis that the ship in question arrived in Hong Kong on 19 January 2004 and the container was opened on that day. There is also some uncertainty as to whether the vent on the container which was set open at 10 cbm (an unexplained term) was adjusted during shipment. It was set at less than 10% when inspected on arrival. I am unable to resolve this uncertainty on the evidence but note that the applicant contends that the onus is on Farmlink to show the “cool chain” was maintained during shipment.
112 Apparently because of a request made on Mak’s behalf, Thomas Kwan, the managing director of Marinasia Ltd and a marine cargo surveyor, attended the opening of the container to survey and report on the condition of the load of cherries. His report (Marinasia I), which appears to have been prepared eleven days later from notes, is in evidence. It indicated that the container before the opening was sealed with its original seal and it was opened in his presence. Of the two Ryan Recorders in the container, that located at the front of it recorded
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that the temperature was maintained at 2°C for the first 7 days and then gradually dropped to 0°C from the 11th day throughout the rest of the voyage. The recorder at the rear of the container showed a gradual drop from 2.5°C to 1°C then it varied between 1°C and 2°C throughout the rest of the voyage.
113 The report indicated that a considerable number of cartons of varied varieties and sizes were drawn at random from various pallets and were opened for inspection. It described the condition of the inspected cherries as follows:
Overall, all the fresh berries were in soft condition and some were deformed. About 70 to 75% of the fresh cherries bore dimples, pitting, scars and/or bruising damage. About 5-10% of the fresh berries had deteriorated and were rotting.
The Report’s conclusion was:
The fresh cherries in the inspected cartons had softened to varying extents, and many berries had bruising damage. Also present were a mixture of scarred, dimpled and deteriorated cherries, which, with the mould and progressive decay, render them unfit for human consumption. Overall, the entire load of fresh cherries had a poor appearance and was of inferior quality and condition. This would greatly affect the selling price while attempting to dispose of the product in the wholesale market.
114 I should note immediately that I am not satisfied of Mr Kwan’s expertise to comment on the selling price of the cherries: he said in cross-examination that his opinion was “common sense”.
115 Attached to the report was a sequence of photographs, mostly of cherries in open boxes. Apart from revealing some level of defects in some cherries, the photographs do not to the unskilled eye obviously confirm the observations in, and the conclusion of, the report.
116 Mr Kwan had almost no independent recollection of the circumstances the subject of his report. His oral evidence did not, in consequence, add to his written report.
117 Mr Hannaford gave evidence on each of the sheets of cherry photographs annexed to the report. While describing such defects in the cherries as appeared visible in the photographs, his general opinion was that they do not support the propositions in the report that 70%-75% of the fresh cherries were dimpled, etc and that 5%-10% had deteriorated and
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were rotting. Of some of the photographs he commented that the cherries look “quite good” or “quite bright”. My own impression of the photographs is much the same as Mr Hannaford’s.
118 I should add that on 19 January 2004 Mak sent Ms Churchill an email with four photographs attached which referred to the sea shipment and to having found a quality problem: “The cherries have mould, damage, bird’s mark and holes”.
119 Ms Churchill gave evidence of Farmlink’s practice in loading sea containers. I need not narrate it here.
The other consignments (cont)
120 On 30 December order 4020 was sent to TVO for an air freight consignment to Hong Kong. This order and orders 4035 (9 January 2004), 4036 (10 January), 4038 (10 January) and 4039 (10 January) arrived in Hong Kong between 1 January and 16 January 2004. In aggregate they had an expected return, on Farmlink’s case, of $168,982.50. Each attracted a purchase discount which, aggregated, amounted to $100,704.40.
121 As the applicant rightly observed in submissions, there were no written complaints from Mak, no emails and no Marinasia reports. There is no evidence at all as to any quality problems with those shipments. Ms Churchill in cross-examination sought to justify the discounts by analogy with the four Marinasia reports, the remaining three of which I refer to below. I disregard her speculation. I do accept, though, that she had no knowledge of how much Mak obtained on the sale of any of these five consignments.
122 On 2 January Farmlink sent two export packing orders to TVO, one (order 4022) for air freight to Singapore, the other (order 4023) for air freight to Hong Kong. The former had no purchase discount applied to the expected return of $7,749.00. The latter had a purchase discount applied which was equivalent to the expected return of $31,050.00 resulting in no actual return.
123 The latter, which arrived in Hong Kong on 5 January 2004, resulted in an email from Mak on 9 January 2004. It read “Devanned cherries found quality problem, mould, soften.
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pls see photos”. Five photographs were attached. The photographs in the Court Book are unintelligible. Mr Hannaford’s evidence-in-chief was that if the cherries were of such quality in fact as to be worthless on arrival, this would have been extremely obvious if looked at before they left Australia. He went on to indicate that, if the cool chain had not been properly maintained between 5 and 9 January, in a warm and humid environment the fruit could easily have rapidly broken down.
124 Ms Churchill conceded that the four day delay was “generally later” than what she would expect for a quality problem report to come in. She made no inquiries of Mak as to what happened between the 5th and the 9th. And the first she heard that Mak was not intending to pay anything for the order was when she received an email on 10 February 2004 to that effect which related to six orders. I will return later to that email. I merely note here that it said:
The arrival condition of those cherries … in Hong Kong was poor as you could see in the e-mail photos we sent to you earlier. It was worst when it arrived China market. We had to incur heavy transportation fees for sending goods to China. Fruits were sold at very low selling price and could not cover the transportation cost.
125 Of some importance, on 2 January 2004 (the day order 4023 was sent to TVO), Mak sent Ms Churchill an email advising that the market price for cherries in China was slipping down and requesting a lower price or discount. He also advised of the need to reconsider the next air freight (scheduled for 5 January) “due to this market price change”. To anticipate matters, on 7 January Mak sent Ms Churchill a further email on these themes:
Cherries price declines very serious in market. We loss A$12/ctn. Due to price too high, please stop all air shipment until further advise. Thanks Also please advise if can lower the price, please negotiate with grower.
As I later indicate, these emails probably shed some light on the fate of order 4023. By the time of the latter email, orders 4020 and 4023 would have arrived in Hong Kong: Mak had been caught on a falling market.
126 Reverting to Mak’s 2 January (“China market price slipping”) email, Ms Churchill’s evidence is that she would have read it on 3 January and that she then had a conversation with Mr Hannaford in which she advised him of the email and told him they needed to look at “our
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prices” as the next order was subject to offering a lower price. Mr Hannaford then offered a 50 cents per kilo discount for the small 24mm size as there was a shortage of the large size. She then advised Mak on that day that she would reduce the price by $2.50 per carton on the 24mm cherries. Mr Hannaford’s recall of this conversation differs somewhat in its detail but is similar in its essence. He acknowledged he was made aware there was “some weakness in the market”.
127 On 3 January order 4025 was sent to TVO for air freight to Singapore. TVO’s actual return on it was the expected return with no discount being applied.
128 It is necessary now to turn to the period 4 January – 9 January in which there clearly were a series of communications between Ms Churchill and Mr Hannaford and Mr Hannaford and Mr Freeman. While there are inconsistencies in particularly Mr Hannaford’s evidence, and reason to suspect reconstruction based on an email from Mak of 9 January, I do not consider that much of operative present significance can be made of this. I would foreshadow, though, that Mr Hannaford relies on two conversations from this period to found several of his misleading or deceptive conduct claims. For this reason I should indicate that I accept Ms Churchill’s evidence of the conversations she said she had with Mr Hannaford on 3 and 7 January 2004 concerning the Hong Kong Market, each of which was followed by Mr Hannaford’s agreement to a price reduction.
129 It is Mr Freeman’s evidence that he spoke to Mr Hannaford “on or around” the first week in January 2004 when he told him of a conversation he had had with a Mr Chiu (from a major Hong Kong fruit importer). He was told by Mr Chiu, who apparently knew the agreed price between TVO and Farmlink, “that there [was] no way Tony Hannaford [was] going to get that price back”.
130 Mr Hannaford’s evidence of the conversation is that Mr Freeman told him that the China price was too low, his (TVO’s) cherries were being sold in Guangzhou, China, at a fairly low price and that according to his buyer, someone was not going to get paid, probably him. Mr Hannaford said he could not precisely date this conversation. Having been shown the 9 January email (relating to order 4023), he still said he did not know whether it was before or after that date. He did indicate that around that time he and Ms Churchill were having conversations every day and that he had had a conversation with her about what
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Freeman had told him. He said she responded that she hadn’t heard anything and, as far as she knew, everything was OK.
131 Mr Hannaford also gave evidence that around 9 January, he heard from another buyer that the Hong Kong Market had crashed and he rang Ms Churchill about this. He said Ms Churchill confirmed that the market was definitely over-supplied, and that the buyer had requested she cancel the next (Friday) shipment, but otherwise did not seem worried: “it is a big market, it can clear quickly.” Mr Hannaford then agreed to cancel the Friday shipment. Later the same day he rang her again and because he had fruit to move, instead suggested a lower price. He was subsequently told the buyer agreed to accept fruit at a $1.00 per kilo discount off the normal price.
132 In Mr Hannaford’s pleading, the first of the above two conversations with Ms Churchill (that described in para [130]) was placed about 4 January: FASC para 13.7.4. The second in which he asked whether the Chinese market had collapsed (that described in para [131]) was dated about 6 January: FASC para 13.7.5.
133 It is Ms Churchill’s evidence that, on 7 January, prior to her receiving the “serious decline” email from Mak of that date, she was called by Mr Hannaford who said he had information that the Hong Kong market had crashed. She told him she had heard nothing. Later the same day she read the 7 January email and contacted Mr Hannaford immediately telling him that she had received an email that supported what he had told her earlier in the day: “They have indicated that they are losing money on the prices that we have offered” and that “The market is in a state that requires us to stop shipping immediately and to look at renegotiating our price”. He asked what he was going to do with all his cherries and she said they could not be sent to Hong Kong at this stage. The next morning, Mr Hannaford called to indicate that he needed to keep his stock moving and would be prepared to renegotiate a price to keep the stock flowing. He agreed to a $1.00 per kilo discount. Later that day, Ms Churchill indicated in an email to Mak that “we would like to keep this stock moving” at reduced prices for shipping on 11 January. Mak confirmed the discounted order on 9 January. Ms Churchill agreed that the discount was initially for the first shipment (which became order 4035) and was “to be negotiated if necessary after that”.
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134 I am satisfied that Mr Hannaford’s location of the dates on which he had communications with Ms Churchill is unreliable. I find that the operative conversations concerning the market crash and the price reduction occurred on 7 and 8 January 2004 and that Ms Churchill communicated to Mr Hannaford the substance of the 7 January email, though without referring expressly to Mak losing $12 per carton.
135 To return to the consignments, on 6 January order 4028 was placed with TVO. It was for an air freight consignment to Hong Kong. A purchase discount of $33,300.00 was applied such that there was no actual return. The shipment was scheduled to arrive in Hong Kong on 7 January at 10.05 pm. It was delayed in Melbourne and arrived in the afternoon of the 8th. There is no evidence as to whether, when in Melbourne, the consignment went on to the tarmac and was kept there for a while. As the respondent’s expert, Dr Brown, said:
… the bane of trying to transport perishable products by air is trying to get the air companies to actually ensure that those containers are put in cold rooms and only pulled out at the last minute; it never happens.
There is no evidence at all concerning their storage in Melbourne.
136 In the evening of 9 January 2004 Mak sent Ms Churchill an email alleging quality problems with order 4028 and attaching a number of photographs which, coincidentally, were part of a larger number annexed to a Marinasia Report (“Marinasia II”), relating to this order, of 29 January 2004. Mr Kwan’s inspection for the report was made on 9 January 2004 at the Cheung Sha Wan wholesale market. To anticipate matters, Mr Kwan prepared two further Marinasia Reports on Hong Kong consignments – Marinasia III of 30 January in respect of order 4037 and Marinasia IV of 2 February in respect of order 4041. These inspections were all done at the same wholesale market where Mak trades.
137 In cross-examination Mr Kwan was asked where the respective goods were in the market when he inspected them:
You inspected them at a place similar to that is shown in these two photographs, that is, out in the storeroom area outside of the cool room?--- Sometimes they … but not exactly at the same area close to the store. Some may be outside the store at other areas.
Some may be outside in the open?---Yes.
In the open air?---They are near the market.
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In a side street or something?---Yes. A lot of streets is – the place is the market – the place is a market.
All right. So in one of the market alley ways?---Yes, but is close to – to the source.
138 The opinion expressed in Marinasia II (on order 4028) on the condition of the berries inspected was that all were in soft condition; about 35% to 40% bore dimples, scars and/or bruising; and about 3% had deteriorated and were rotting. Overall they were said to be of inferior quality and of very poor appearance and condition.
139 Mr Hannaford’s comments on the attached photographs were similar in tenor to those in Marinasia I. He also gave the following evidence:
MR BROHIER: The next question that follows then is this, Mr Hannaford. If the cherries were of good quality when they left your orchard, on that assumption, how could you account for there being at least some cherries in the state that is shown in the last two photographs, say, of MFI2?---It’s my belief that there must be some serious breakdown in the cool chain at some stage, and the breakdown can occur quite quickly if the – in a hot, humid environment and if they’re allowed to heat up and then cool down a bit. I’ve got no way of ascertaining the actual age of these cherries, because they look to be significantly older than some of the earlier photos.
I think the question that his Honour asked was if those cherries were in that state on the date shown – which was 9 January – even if the cool chain had been impeccably maintained, would there have been some indication when they left Australia?---Yes, there must have been.
140 On 6 January Farmlink confirmed with Freshmart a sea freight of cherries to Singapore. The sea order (made up predominantly of TVO cherries) was placed on the following day. This order (4031) needed to arrive in Singapore in time to service the Chinese New Year which that year fell on 22 January. The expected return on the order was $60,472.00. There was a purchase discount of $29,992.00.
141 The Singapore shipment was due to arrive on 18 January. It arrived a day late. On 19 January Ms Churchill and Mr Hannaford had a conversation in which Ms Churchill said that Mr Koh was going to look at the shipment to see whether he would sell it quickly or hold onto it. Ms Churchill’s evidence was that she contacted Mr Hannaford specifically to ask him directions as to whether in his opinion the fruit was good enough to hold until after the
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Chinese New Year. She agreed that Mr Koh made the decision to hold it back but added that because Hannaford was not able to make a decision she instructed Mr Koh “to make a decision that would … be best for Tony”. The proposition that Mr Hannaford’s advice was sought was never put to him. I do not accept that it was put in fact or that Ms Churchill “instructed” Mr Koh as she suggests. I find the decision was Mr Koh’s.
142 On 26 January the container was opened. That day Mr Koh sent an email to Ms Churchill as a “preliminary report” with some photos attached alleging quality specific problems. A survey report was foreshadowed. On 29 January a further email attaching more photographs was sent. Both Mr Freeman and Mr Hannaford gave evidence that certain of these last photographs to which they were taken showed exposure of the cherries to the environment. The 29 January email seems to suggest the pictures were survey pictures. There is no evidence as to when they were taken. No survey report was tendered and no expert evidence of the quality of this, or of any other, consignment to Singapore has been given.
143 Reverting again to the sequence of consignments, on 8 January TVO filled part of order 4032 for air freight to Singapore. The expected return was $1,848.00 but a purchase discount of $336.00 was applied. Cherries shipped in this order were referred to in a more general email of 15 January 2004 that made quality complaints covering “the last few shipments”.
144 9 January 2004. This was an eventful day concerning Hong Kong consignments. This was the first day on which Mak had made a quality complaint. He did so, first, in relation to order 4023 and, then, to order 4028 (as has been noted). Despite the 7 January “serious decline” email, he sent an email on the 9th to Ms Churchill asking her to “arrange the maximum air space … you can, we plan to ship volumes for … NYS” (Chinese New Year). Mr Hannaford received Mak’s email and photographs relating to order 4023 from Ms Churchill. He did not go and consult his own quality control records or “pallet sheets” (these were apparently destroyed the year after they were made). Finally, on the 9th, order 4035 was sent to TVO for air freight to Hong Kong. I have dealt already with this order in the earlier omnibus treatment of five orders beginning with order 4020.
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145 On 10 January Mr Hannaford had a conversation with Ms Churchill about the 9 January emails. She told him she had received another email and photos relating to order 4028. He said he told her he did not want to see “lots of pretty pictures” because photos in themselves do not actually prove anything. I accept this evidence rather than Mr Churchill’s somewhat different version of the conversation which clearly contains elements of reconstruction.
146 On the same day Ms Churchill supplied TVO with a “Mud Map” (a plan) for four air freight consignments to Hong Kong and one to Singapore. It noted: “If there are too many quality problems shipments will stop. Please check very carefully.” Export packing orders were sent the same day.
147 Singapore order 4033 had an expected return of $27,732.00. A purchase discount of $17,952.00 was applied. The consignment was scheduled to arrive in Singapore in the early hours of 14 January. A quality complaint was made in an email of Mr Koh with accompanying photographs of, seemingly, 15 January 2004. It was sent late in the evening Singapore time. There is no evidence of the consignment’s treatment after its arrival.
148 The Hong Kong order 4036 has been considered earlier with order 4020.
149 Hong Kong order 4037, on Farmlink’s case, was expected to return $27,600.00. A 100 per cent purchase discount was applied. This consignment exported from Melbourne was estimated to arrive in Hong Kong in the evening of 13 January. As Marinasia III reported of it, it in fact arrived in the evening of 14 January. For unknown reasons it was sent on another flight. The report itself does not in its judgments or conclusions differ significantly from Marinasia II. Though it was dated 30 January 2004, the inspection was made on 15 January. What is very clear from the first page of the accompanying photographs is that the pallets (or some number of them) were, on Mr Kwan’s evidence, standing at the entrance to Mak’s store when he inspected them. On 15 January Mak, by email, made a quality complaint; foreshadowed a survey report; and sent several photographs the following day.
150 Hong Kong order 4038 has been considered with order 4020; as has order 4039.
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151 The final overseas shipment was order 4041. It was a large air freight to Hong Kong and is the subject of some controversy. On 15 January Ms Churchill sent Mak an email informing him she had secured 300 x 6 x 2kg cartons of 28mm+ cherries; indicating she “could ship this to arrive Sunday”; and asking whether he was “able to accept 2 kg packs”. Mak replied asking their price but did not confirm the order. Ms Churchill said she “would have” emailed a reply but could not locate it. Her evidence is that her initial email resulted from being asked by Mr Hannaford if she could export further stocks of cherries he had, some of which were in two kilogram packs. The same day she sent a facsimile to TVO informing Mr Hannaford that she had “got space to Hong Kong from Melbourne to Hong Kong tomorrow [the 16th]. 780 x 5kg ctns. Shipment must be in Melbourne 9 am tomorrow.”
152 About two hours later Ms Churchill sent order 4041 to TVO. On its face, it specified the order was for 780 cartons of “Lapins (good ones)”, sized 24, 26 and 28 mm, to be delivered to Melbourne. In the “Comments” section at the bottom of the page the following appeared:
300 x 6 x 2 KG WILL ALSO GO IN THIS ORDER IF CONFIRMED.
There is disagreement between the parties as to what was conveyed to TVO by the order and this comment. Ms Churchill denied that she was saying the order was for 780 cartons confirmed and for 300 x 6 x 2kg to be confirmed: “I have [sic] not had a confirmed order for any of the items at that point.” Her evidence is that she later had a conversation with Mr Hannaford who rang her when the delivery truck arrived at TVO. He wanted to know if there had been any confirmation from Hong Kong for this order yet. She told him no. He advised that “in his opinion it should be all right” and he would “take the risk and send the goods to Melbourne.”
153 Ms Churchill sent air freight instructions to the shipper, Danzas, in Melbourne and prepared airport delivery instructions for delivery to Melbourne for 780 cartons only. An airway bill was faxed to her by Danzas: it was for “1080 CTNS” of “perishable cargo”. She gave the freight forwarder the instructions to put the goods on the aircraft accepting, though, that she had no confirmed order. She then sent Mak an invoice for both the 780 cartons and the 300 x 6 x 2kg packs. She accepted that after the alleged “take the risk” conversation, she did not contact him again about this consignment. Ms Churchill would not accept that, as of
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16 January, she was the only person who knew she did not have an order: Mr Hannaford took the risk on “his potential purchase order”.
154 Mr Hannaford is not of great assistance. He denied in cross-examination that on 15 January he rang Ms Churchill indicating he wanted to send more cherries to Hong Kong including 2 kg packs although he then said he did not recall the conversation and he was not trying to push extra fruit there. He equally denied that she said in the conversation that she did not have an order. He accepted that he had a conversation with her at the time the truck arrived and it was possible that he asked had the order been confirmed but he had no recall of what she told him. He emphatically denied saying he was prepared to take the risk.
155 The estimated time of arrival in Hong Kong of order 4041 was around midday on 17 January. Late in the evening on 19 January 2004, Mak sent an email to Ms Churchill which stated that:
We didn’t order this shipment but the airport told us to get the cherries this Sunday [the 18th]. The Lapin cherries’s arrival condition is poor. Please see attached photos.”
I would note that no separate complaint was made about the 300 x 6 x 2kg packs.
156 A Marinasia Report (Marinasia IV) was done on the order. The survey was conducted on 19 January at the wholesale market and the report prepared on 2 February 2004. By the time of the survey, the report indicated that the 2kg packs “had already been disposed of”. The price of them to Mak was $50,400.00 which was well over half the total invoiced price of the order.
157 The conclusion of the report was that the cherries inspected had softened to varying extents. Many of them were of inferior quality, and were comprised of a mixture of decayed, scarred and dimpled cherries. The dimpling and scarring of sizes 24-26mm and 26-28mm was to the extent of 40 to 45 per cent in each carton inspected; the 26-28mm cherries had undergone a greater extent of deterioration and rotting of which about 20 per cent with progressive decay rendered them unfit for human consumption. The expected return to TVO was $70,500.00. The discount applied by Farmlink was in that amount.
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158 My own conclusions concerning order 4041 can be briefly stated. I am satisfied from the documentation – and reject Ms Churchill’s inconsistent oral evidence – that she placed (i) an order with TVO for 780 cartons which, against the background of her telling TVO she had got the requisite airspace, would in terms reasonably have conveyed to Mr Hannaford that it was a confirmed order and was filled as such; and (ii) an order for 300 x 6 x 2kg packs to be confirmed. I am not satisfied that she ever conveyed to TVO that the 780 carton order was not confirmed. In the absence of the emails Ms Churchill said she “would have” sent concerning Mak’s inquiry about the cost of the packs, I am not prepared to conclude that Mak either confirmed, or rejected, the offer of the packs. What I do accept in the absence of any actual communication of a confirmation to Mr Hannaford concerning the packs, is that he may have been prepared nonetheless to take the risk of sending those packs to Melbourne. I am not satisfied that he assumed any greater risk than that, although for the reasons I give below, I do not consider that this finding has, in the event, any operative significance. When Ms Churchill gave the instruction to load the aircraft with the 300 packs without further communication with TVO, Farmlink, in my view, assumed the risk of Mak’s rejection of those packs. This conclusion is informed in part by my conclusion that the TVO-Farmlink relationship was, in the 2003/2004 season, that of seller and purchaser and that the instruction to load the aircraft effected a sale to Farmlink. Though the evidence on the fate of the packs is scant, I nonetheless infer from Mak’s lack of specific reference to them in his late 19 January email, let alone a reference to having already disposed of them, that he accepted and disposed of them in the ordinary course of his business even if he had not ordered them, or for that matter the 780 cartons, from Farmlink. I would further infer that he sold them knowing their invoiced price which had been sent to him by Ms Churchill.
THE SEASON’S SETTLEMENT
159 On 16 and 28 January 2004 Farmlink made payments to TVO of $50,000.00 and $42,735.00 respectively. On 27 January Ms Churchill emailed Mak requesting “adjustments to Invoices for cherries and nectarines, so we can finalise some payments”. No response being received she sent a further email on 10 February. It stated that growers were threatening and “some even refusing, to accept any claims for Cherries … as I have been unable to supply further information”. She sought information and payment promptly and indicated she was looking forward to a meeting with him in Kowloon on 18 February. Ms
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Churchill conceded in cross-examination that it was untrue that growers were refusing to accept claims but said she was endeavouring to get Mak to react as she was being pressured.
160 It was in reply to that email that Mak wrote his email of 10 February to which I earlier referred but will repeat here. It identified orders 4023, 4028, 4037, 4041 and 4017 and said:
The arrival condition of those cherries and nectarines in Hong Kong was poor as you could see in the e-mail photos we sent to you earlier. It was worst when it arrived China market. We had to incur heavy transportation fees for sending goods to China. Fruits were sold at very low selling price and could not cover the transportation cost.
161 Ms Churchill replied to Mak by fax in the following terms:
I am disappointed to receive your email regarding your response to our quality issues.
As always, I will do my best to offer a reasonable solution, but I am unable to just write off $348,772.00 for the following reasons:
* lack of sufficient details regarding the extent of the quality problem * delayed response to requests for further information * inability for me to stop shipments had I been aware that we would not receive any return for shipments incurring a quality claim
However, I am fully aware of how devastating quality issues are for all concerned, and based on equivalent costs of quality problems in other markets, and surveys of stock retained in Australia, I offer the following:
Inv 04023 AWB: 618 5563 1741 770 ctns @ $20.00 = $15,400.00 … Inv 04028 AWB: 160 2281 3136 780 ctns @ $20.00 = $15,600.00 Inv 04037 AWB: 160 2281 3361 780 ctns @ $20.00 = $15,600.00 Inv 04041 AWB: 232 7813 8400/9515 780 ctns @ $20.00 = $15,600.00 Inv 04017 C/N: CRLU 5203505 3068 ctns @ $20.00 = $61,360.00 ______$127,560.00 This is a very realistic and reasonable assessment, offered in good faith, which I hope you will accept. Please also note that we did not receive any report for Inv 04023.
I will call you later to discuss further.
162 It was in cross-examination on this email that Ms Churchill accepted that with a quality issue, Mak would “within a few days … know that he could not get a return for [the]
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stock”. She previously had conveyed a quite different impression in evidence about how long it took to get answers to quality inquiries – it took a long time to work out quality claims.
163 When Ms Churchill went to Hong Kong she was unable to meet Mak for a projected breakfast – “he was delayed in China” – so she had a telephone hook-up at his office where recovery of money was discussed. Mr Hannaford telephoned her the morning of her return to Adelaide (which was on 20 February 2004). Her version of the conversation was that she told him she and Mak were negotiating and she was expecting this to be finalised in a couple of days. A couple of days later Mak gave his best figure. If it was acceptable he would transfer funds in the following 24 hours. She then contacted Mr Hannaford and told him this outcome.
164 Mr Hannaford said he had several telephone conversations with Ms Churchill in February. In that of around 20 February, he asked “if it was going to hurt”. He was told “It’s going to hurt a lot” which he could not understand given the season he had had.
165 On 26 February Farmlink was credited with $115,016.23 from Mak. That payment related not only to cherries sourced from TVO but also to peaches and nectarines from other growers. I would note in passing that Ms Churchill gave evidence that she negotiated a 15 per cent increase to secure that figure. There is no documentary evidence of this. I do not accept it occurred.
166 Ms Churchill went to TVO’s office on 28 February. Mr Hannaford could not recall whether she then gave him two schedules referred to below. He was “that disgusted and shocked, I just couldn’t comprehend the situation”. The purchase orders were posted to him after the meeting. All of the purchase orders are in evidence. As I have noted, they indicated the expected return, the purchase discount (if any), and the total paid on each order. They clearly create the impression that the purchase discount applied in each case was the actual discount referable to that particular order. It only emerged in cross-examination that such was not the case in relation to Hong Kong orders and that for five such orders an aggregate discount was simply apportioned to these orders by Ms Churchill.
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167 The following are the two schedules which Ms Churchill gave Mr Hannaford. They relate to Hong Kong and Singapore respectively. In a sense they speak for themselves. The annotations on them are to be disregarded.
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168 The Hong Kong report can only be described as deceptive and self-serving and, I consider, designedly so. It also reveals Ms Churchill’s awareness of Mak’s trading in China. This was a subject upon which she repeatedly gave evasive and equivocal evidence during the hearing. While Ms Churchill may not, in respect of any particular order, have known to whom and where it was being on-sold by Mak, I am satisfied she was well aware throughout that his business did engage in the illegal cross-border China trade.
169 The Hong Kong schedule purports – as is said in the lower central box – to be an analysis of the outcome albeit the quality issues were based on the average cost in Singapore. That box equally asserts that “the buyer could only pay what he was able to collect, as his customers refused to pay any more”. Ms Churchill conceded she had no documentary proof of Mak’s returns. She relied on “10 years of honest dealings”. The assertion made in the same box that, based on China Market Reports, she was “able to identify TVO stock due to my sizing format” must be treated with considerable reserve notwithstanding the confidence of the assertion. Ms Churchill was unable to identify the source of these reports: “I just Google searched for a China market report and that is what I got”. She accepted, though, that China is a massive economy with hugely disparate markets. The China market reports she used were tendered. Having heard her explanation of how she identified TVO stock, I can only say I am not satisfied that there was any reasonable basis for her view. Having heard her explanation of the bottom two boxes of the Hong Kong schedule, it is difficult to resist the conclusion that the schedule itself was not a contrivance to provide some apparent explanation for Mr Hannaford’s return.
170 Cheques for the outstanding balances referred to in the schedules cleared in TVO’s account on 4 March.
171 On 26 March 2004, Farmlink was sent a solicitor’s letter on Mr Hannaford’s behalf concerning Farmlink’s conduct “in acting as the agent” for TVO in relation to the export of its cherries during January 2004. Some reliance, necessarily slight: see [47](2) above and WK Witt (WA) Pty Ltd v Metters Ltd [1967] WAR 15 at 18; is placed upon this characterisation of the relationship. Reliance equally is placed upon a discovered TVO table relating to the exports to Hong Kong in which the heading: “Expected Price” and “Expected Amount” have been altered by hand to “Agreed Price” and “Agreed Amount”. Mr Hannaford could not
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identify the handwriting. Farmlink relies on this as evidence of attempted reconstruction of events to support TVO’s sale of goods claim.
Miscellaneous Evidence
172 Evidence on quality control apart (which is considered below), there is a deal of material before me to which I need make no, or only slight, reference. Though much has been said of the Australian market in general and of TVO’s dealing with Woolworths and Coles in particular, I do not consider that the evidence on that market or on those dealings has any significant probative value either in characterising the TVO-Farmlink relationship or in resolving the quality questions raised. I would note in particular that it is accepted by TVO that their sales to local wholesale markets are conducted through agents; and that both Woolworths and Coles conduct their own inspections based on their own specifications and reject cherries that do not meet the specifications. No question of rejection has arisen in this matter although evidence was put on of three rejections by Woolworths of entire deliveries in January 2004. Equally, I draw from Dr Brown’s evidence that risks to the maintenance of the cool chain for cherries transported in the domestic freight system are of a different order to those presented by export freight.
173 I equally have not had regard to evidence concerning TVO’s dealings with other exporters – and in particular Jayfresh “J” in other years. The bare detail of financial outcomes devoid of context and circumstance, I consider to be likely to mislead and therefore to prejudice.
174 A document was tendered by Farmlink which indicated graphically TVO’s packed stock on hand in the 2003-2004 season and the hypothetical level of stock without Farmlink sales. It demonstrated, predictably, a marked rise from after Christmas peaking at about 17 January and then a progressive fall thereafter. It obviously demonstrates, if this was needed, that Mr Hannaford had cherries he wished to keep moving both around 7-10 January and on 15 January.
175 Before adverting (to the extent necessary) to the evidence on quality issues and quality control, it is necessary that I give my conclusions, first, on the proper characterisation of the TVO-Farmlink relationship in the 2003/2004 season and, secondly, to the terms of that
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relationship. I take this course because it has some real bearing on how the quality issues should be dealt with.
CONCLUSION: SALE OR AGENCY
176 I have already foreshadowed my conclusion and have referred in passing to elements in the evidence upon which one or other of the parties has relied to support the characterisation of the relationship for which it contends. As will be seen, their submissions in substance depend upon fact findings each invites me to make.
177 By way of preface to my own conclusions, I should make the following general observations. The relationships of TVO and Farmlink, and of Farmlink and Freshmart and Mak respectively, were clearly interdependent ones as the evidence of the process of making and filling orders reveals. It was open to Farmlink to choose to so structure its relationship with TVO – or for that matter with Freshmart or Mak – in a manner which obliged it to act in the interests either of TVO in the sale of cherries or of Freshmart or Mak in their purchase. It equally was open to Farmlink to choose to structure its relationships with TVO and the overseas buyers in a manner which, while requiring cooperation with, and some level of trust in, them, served its own several interests: cf Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 at [17]. In my view, Farmlink chose the latter course. This was clearly manifest in its price agreement with TVO and in its seller-purchaser relationship with the overseas buyers. There was nothing fiduciary about it.
178 The rival contentions of the parties can be simply put. TVO’s case is that an overarching (or framework) conditional contract was entered into in or about December 2003 under which it agreed that, if it accepted an order or orders to sell cherries to Farmlink, it would do so at the prices that the parties had previously agreed. That agreement was effectuated in the individual orders filled by TVO.
179 Under the shadow of the principles to which I earlier referred and of the decisions of International Harvester Co, Ex parte White; In re Neville and Witt in particular, the factual matters upon which TVO relies primarily for this conclusion are: (i) the transaction between TVO and Farmlink was at a firm price; (ii) the documentation all reflected a sale from TVO to Farmlink; (iii) Farmlink set the price for the overseas sale and kept its sale price and
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margin a secret; (iv) Farmlink engaged all the freight forwarders and paid the freight costs itself; (v) Farmlink never accounted to TVO in a way which showed the total amount received, its margin and amounts paid for freight, etc; (vi) Farmlink issued invoices to its overseas customers; (vii) Farmlink alone knew the identity and location of its overseas customers; (viii) Farmlink identified itself as the shipper on the bills of lading and airway bills; (ix) Farmlink negotiated the changes in price without checking or obtaining instructions from TVO or Mr Hannaford; and (x) significantly in the year that there was insurance, the insured was Farmlink, the consignee’s interest was noted, but there was no recording of TVO having any interest in the cherries.
180 Farmlink’s submission is that the relationship formed in December 2003 was one of agency. The indicators of this, it contends were: (i) the parties did not intend, and there was no mutual assent to, a contract of sale whereby the property in the cherries was transferred to Farmlink; (ii) there was no identifiable “offer” and “acceptance” of a contract for sale of goods; in particular, there was no price agreed – except to say it was agreed that TVO would accept whatever Farmlink stated on the completed and delivered purchase order; (iii) the course of dealings between the parties, including acceptance by TVO of the purchase discounts as applied by Farmlink, was more consistent with an agency for sale than a sale of goods; (iv) Farmlink accounted periodically for the proceeds of sales, by detailing the purchase discounts; it did not simply pay an agreed price; (v) remuneration was by a margin of $0.65 per kilogram, not by Farmlink making a profit on resale; (vi) in TVO’s letter by its solicitors of 26 March 2004, TVO acknowledged that Farmlink was an agent for sale, not the buyer of its cherries; (vii) the arrangement was that Farmlink exported TVO’s cherries, not that Farmlink bought the cherries as Farmlink’s own property at a fixed price and resold them for what Farmlink could get, keeping any profit or taking any loss; (viii) the fact that “the price” was not ascertained until Farmlink completed the purchase order including any discounts was inconsistent with there being a contract of sale.
181 It is, in my view, not open to serious doubt that in effecting sales to Freshmart and Mak, Farmlink acted as seller of the cherries consigned, passing the property in them to the buyers and at prices agreed between it and the buyers. The respondents appear to have accepted as much. Farmlink was acting as a principal in the conduct of its own export business and not simply as an agent in the ordinary course of its principal’s business. The
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email communications between Ms Churchill and Mak and Mr Koh exemplify this. They are redolent of transactions being effected between Farmlink and the overseas buyers: cf Ms Churchill’s often stated judgments about “suitability” of cherries to be exported; her indications of the quality instructions she gave to her suppliers; and, in her email of 3 January 2004: “I will reduce the price $2.50/ctn on the 24mm”.
182 The documentation passing between Farmlink and Freshmart and Mak respectively admits of no other conclusion, the more so given the international trading context in which the dealings occurred. It is, in my view, most improbable that the overseas buyers would reasonably have committed themselves to a contractual arrangement with a principal of whose actual identity or circumstances they may have been unaware, especially where the goods in question were perishables of a type that were apt to give rise to some level of quality issue during periodic dealings over a season: on the distinction between unidentified and undisclosed principals, see Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472. The view I take of Farmlink’s contracts with Freshmart and Mak is that they were ones to which TVO was a stranger. If the prices in those contracts were to be re-negotiated for reasons of quality defects, market conditions or whatever, that was to be by the contracting parties alone. Likewise if claims for defects in quality permissible under the applicable law against the seller were to be made they were to be made against Farmlink.
183 The final comment I would make on Farmlink’s relationship with the overseas buyers is that it would have been obvious to them that Farmlink was not the grower of the cherries Freshmart and Mak purchased. It was an exporter. But there is nothing in the evidence reasonably to suggest that Farmlink was acting, or was purporting to act, in the overseas sales in a “representative” capacity: cf above [47](3).
184 The issue that remains is: what was the true character of the TVO-Farmlink relationship? As I have earlier indicated, while the relationships of agency and sale are mutually exclusive, it is not uncommon for an intermediary to be the agent of its seller- principal but to be a principal vis-à-vis a third party on a sale to it: see above [55]. In my view the present is not one such case. And it is, in any event, far removed from the
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reservation of title clause type of case exemplified by Romalpa on which the respondents’ rely.
185 The evidence, in my view, simply cannot sustain a conclusion that Farmlink acted on TVO’s behalf in a “representative”: cf Bowstead & Reynolds at [1-001]; Colonial Mutual Life Assurance Society at 48-50; or “fiduciary”: cf Restatement of Agency, Second, §1.01; capacity in selling its cherries. Farmlink was a purchaser buying for the purposes of resale. It is significant in this that (i) the parties agreed in advance the prices at which TVO would sell its cherries – they were not simply indicative prices (I will refer below to the significance in this of purchase discounts); (ii) while the consignments were into markets with which TVO had some, albeit rudimentary knowledge, they were simply two of the overseas markets into which TVO cherries were consigned by exporters in the 2003/2004 season; (iii) Farmlink, in contrast, was knowledgeable about, and experienced in, those two markets at that time: cf Witt at 18-19; (iv) TVO did not assume responsibility for the export or the costs associated with the export – this was at Farmlink’s expense: cf Witt at 18-19 – and Farmlink, not TVO, bore responsibility for misadventures happening to the cherries after delivery to it; (v) TVO was not in a position to exercise practical control over Farmlink (other than by refusing orders); (vi) TVO was unaware of Farmlink’s price; (vii) while Mr Hannaford doubtless understood that Farmlink would obtain its own return on the sales (howsoever this was done), there was nothing unusual about his having no interest in that matter as his relationship with Farmlink did not otherwise point to an agency relationship: cf Mercantile International Group plc at [5] and [36]; and (ix) TVO happened to know the Singapore buyer was a company with which Mr Koh was associated but did not know the identity of the Hong Kong buyer. In short, having regard to the context in which they dealt with each other, the relationship they formed in the making and filling of orders was that of seller and buyer for resale. The contrary inference that TVO appointed Farmlink its agent for sale is neither a reasonable, nor the most probable, deduction from the known facts.
186 I would add, because it is a matter relied upon by the respondents, that I do not derive any assistance from the manner in which Farmlink received payments from its buyers and “accounted” to TVO. If it was an agent, then, subject to how its accounting to TVO was (or was taken in the circumstances to have been) agreed, the manner in which it held the proceeds of sale of its principal’s property (ie in its own trading account) may itself have constituted a
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breach of trust: see Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 30; but cf The “Tiiskeri” [1983] 2 Lloyd’s Rep 658 at 663 ff. For understandable reasons, I have not been addressed on this. However, if, as I have held, Farmlink was receiving the purchase price for its consignments from its purchaser and then was settling with its own seller, there was nothing unusual in the manner of its so doing. I would add that it may well have been the case that the timing of its settlement was an implied actual term of their framework contract (the bulk of orders being settled en bloc at the end of the season).
The terms of the contract
187 Being a contract for the sale of goods, each order filled was subject to the provisions of the Sale of Goods Act. As I earlier noted, it is agreed in light of my sale finding that property in the cherries passed in respect of each consignment when the goods were appropriated to the contract and this occurred on delivery: see Sale of Goods Act, s 18 rule 5; Gamer’s Motor Centre (Newcastle) at 255; Carlos Federspiel & Co SA. The individual orders equally were subject to the provisions of s 14 of the Act as to implied conditions as to quality and fitness. Though it has not been the subject of contest by TVO, I am prepared to assume without deciding that, with the subject matter of the contract being perishables and it being a known purpose of the individual orders that the cherries were intended to travel to, variously, Singapore and Hong Kong for resale, it was an implied condition of each order filled that the cherries were, at the time of sale, in such a condition that they would still be fit for human consumption at the end of their shipment unless “that condition is unnaturally changed” after delivery to the first buyer, ie Farmlink: Sale of Goods Act, s 14(a); Kemp Ltd v Tolland (trading as James Tolland & Co) [1956] 2 Lloyd’s Rep 681 at 684-685; Benjamin’s Sale of Goods at [11-067], but see also [11-060] and [11-062] as it is contended by TVO that Farmlink had an opportunity to inspect prior to shipment. I will refer to this later in these reasons: see [235]. The corollary of this condition was that Farmlink bore responsibility for unnatural changes in the cherries’ condition occurring after delivery to it and until delivery to the overseas buyers: Kemp at 684-685.
188 The issues for present purposes are seemingly whether (i) it was a term of the contract that Farmlink could reduce the agreed price payable to TVO because of a price reduction effected in the Farmlink and Mak or Freshmart contracts for reasons related to quality defects that were apparent when the goods were inspected on arrival in Singapore or Hong Kong; or
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(ii) contrary to what I have held, that the agreed price was only an indicative or estimated price that would be paid or received for TVO’s cherries as the prices were, to quote para 5.1.3 of the FAD –
… subject to change because they were dependent on the prices which Farmlink could obtain for the cherries in specific markets as affected by:
5.1.3.1 demand in the market at the time of supply;
5.1.3.2 the price of other cherries of equal quality in the Hong Kong and Singapore markets at the time;
5.1.3.3 the quality of the cherries being sold; and
5.1.3.4 the stability or instability of the market/s.
189 I have already indicated that I have refused to allow an amendment to the defence to permit the respondents to raise the first of the above alternatives which they said was an implied term based on past dealings. I will, though, indicate below that, even if I had allowed the proposed amendment to be made, it would not have availed them. The second alternative raises directly the contractual provenance, if any, of purchase discounts and their application. Before turning to it directly, I would note the following.
190 First, the terms of the contracts with the overseas buyers are not before me. I have found, though, that the contracts with them were separate from Farmlink’s contract(s) with TVO and I have presumed from the email correspondence and the invoices sent to the overseas buyers that the prices invoiced were agreed prices. I emphasise this. Further, I have no actual evidence to suggest either buyer had any unilateral contractual right to insist on price discounts for quality or for other reasons although, as I indicated at the outset, the Farmlink-Freshmart, but not the Farmlink-Mak contract, may have been subject to the provisions of the Sale of Goods (Vienna Convention) Act and hence to the CISG’s scheme permitting unilateral price reductions for non-conformity with quality requirements: see Art 50.
191 Secondly, given that Farmlink had separate contracts with TVO and the overseas buyers and at different prices for the cherries, it is not clear from the evidence how Ms Churchill translated the amount of a price discount in an overseas contract into an amount in the TVO contract. Nonetheless, Farmlink’s submissions on the cross-claim for its “margin”
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would seem to suggest that, save probably in the cases of no return to it, in all transactions “where enough money was actually received from the overseas buyer to cover the margin and a return to TVO, Farmlink was [entitled to its margin]”, any balance being passed on to TVO after deduction of Farmlink’s expenses.
192 The very obvious difficulty with this alleged entitlement, and it is illustrated starkly in the evidence, is that quality defects notified by an overseas buyer to Farmlink may have been attributable to any one or more of a number of causes for which TVO, Farmlink or the overseas buyer may have been responsible, eg the defect may have been caused at the packing stage (TVO’s responsibility), by an event during overseas transit (Farmlink’s) or after delivery (the overseas buyer’s). As between Farmlink and the overseas buyer, Farmlink may have taken steps to ensure that defects for which the buyer was responsible were not passed on to it (though there is no evidence that it did so). As between Farmlink and TVO, unless otherwise agreed (an unlikely prospect), Farmlink had no entitlement to pass on to TVO quality discounts to the extent to which they were attributable to causes for which it or the overseas buyer was responsible. I would simply note that there is little in the evidence to suggest that Ms Churchill had any real appreciation of this and of its practical consequence. That lack of appreciation carried over into the proposed amendment.
Purchase discounts
193 It would require the proof of exceptional circumstances before a Court would be likely to be satisfied that it was an implied term of an oral agreement that a seller (or for that matter a principal) would agree to a buyer for resale (or agent) selling the goods abroad at a price to be determined after taking into account the four variables pleaded and then subsequently passing back that price (minus the reseller’s expenses and margin) to the seller as the original contract price. Such a term would place the seller at the buyer for resale’s mercy and would require a commercially most unlikely risk assumption on the seller’s part.
194 Perhaps conscious of this, the respondents sought to limit their entitlement to pass on purchase discounts to those which were quality related. This was done when it was revealed that discounts from Singapore had been passed on for market reasons. I would comment in passing that while counsel for the respondents said that this was the “first time identifiably” such discounts have been passed on – and I accept what counsel said – I am not prepared to
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assume that the discount for order 4018 was the only actual instance ever of such a discount in the parties’ dealings, absent proof of an appropriate investigation of price discounts in previous years of dealing. This unpreparedness, I would add, would have influenced somewhat the view I would have taken of any reliance placed upon prior dealings in the disallowed proposed amendment to establish a certain, and not illusory, implied term.
195 I would add, though it does not strictly arise given my amendment ruling, that I have great reservations about whether what we know about (a) past purchase discounts passed on; (b) the explanations for, and contexts of, them (we know nothing of the causes of the alleged defects: cf Kemp); (c) the fact that the only catastrophic discounts (in the 2001/2002 season) gave rise to insurance claims which ameliorated the loss; and (d) the usually small to moderate amounts for discounts in past years revealed in the material before me, would be sufficient to justify inferring a term committing Mr Hannaford to accept a quality discount passed on to him, assuming such a term could be formulated intelligibly.
196 I should make this additional comment about prior dealings. It is clear that Mr Hannaford appears to have accepted as of course some level of price discounts during the preceding years of dealing with Farmlink. It is unsurprising that he did so given the perishable nature of cherries and the known factors that could produce defects even in well run orchards and packing sheds – which he clearly considered TVO to be. To repeat what he frankly conceded:
I mean, there is always some things that happen during the season. There are quite often some issues, some problems. Maybe it is our fault. Maybe some cherries snuck through the system and so there are, from time to time there are some issues, either fair or unfair, that can result in some discounts, yes.
197 Parties to a sales contract are, as a matter of party autonomy, quite entitled to agree a regime of some form which would permit a buyer unilaterally to discount the price paid for the goods purchased because of some quality defect in them. As I earlier noted, the CISG contains such a regime: see also Sale of Goods Act (1979) (UK), s 48C(1)(a) and Benjamin’s Sale of Goods (at [19-203]). Benjamin’s Sale of Goods (at [12-129]) notes that this “special remedy of reduction of the price” is one which may lead to a monetary award different from what an award of damages would produce.
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198 The protections to the seller in a discounting clause are for the parties to agree, but in a setting such as the present where recurrent dealings in perishables were envisaged, one would have expected notification of lack of conformity within a reasonable time would be a reasonably basic minimum requirement. Be this as it may, the problems with discounting clauses become pronounced where, as here, there is a chain of transactions where the defect in quality is discovered in the resale transaction and not in the original sale. If a price reduction is to be effected in the resale contractual relationship (whether unilaterally or by negotiation) any passing on mechanism permitting reduction of price in the original sale transaction would reasonably be expected to be one which ensures that the reduction could only be for defects having causes for which the original seller was responsible. If it did not – and the “passing back” envisaged by the respondents seems not to – the original seller would be exposed to the prospect of having to bear losses occasioned by causes for which the buyer for resale and/or the ultimate purchaser may be responsible.
199 Under the general law, a buyer who seeks to resist payment in whole or in part because of quality issues: cf Sale of Goods Act, s 52(1)(a); must establish both the cause of loss and that the seller was responsible for it. If the buyer can only show that the cause must have been one of a number of causes, the buyer’s burden becomes the greater:
… because he must show, if he cannot differentiate between the causes, that all those causes which might have been the cause of the loss are all matters for which the [seller] is responsible: Kemp at 685.
200 The evidence in this matter does not suggest that Farmlink engaged in meaningful investigation of the causes of the overseas buyers’ alleged losses nor, more significantly, that it effectually negotiated price reductions in the Farmlink-overseas buyer relationship notwithstanding Ms Churchill’s evidence that she worked “very, very hard” to get the settlement sum from Mak. Farmlink was presented, it seems, with a fait accompli about which it said it negotiated, though Ms Churchill gave no evidence which I could accept as to the efficacy of her endeavours.
201 Whether the matter be viewed as one of a purchase reduction varying an agreed price, or as a mechanism for settling the agreed price where there were “quality” issues, the deficiencies in the contractual term propounded remain the same. TVO would be required to surrender the right to agree to the change of price. More importantly it would be rendered
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wholly vulnerable in the TVO-Farmlink relationship to what was agreed – or simply accepted – in the Farmlink-overseas buyer relationship.
202 Both the form of “purchase discount” sought unsuccessfully in the proposed amendment and the “settling of price” mechanism suggested by para 5.1.3 of the respondents’ FAD are not terms to which, I consider, a reasonable commercial business would in the circumstances agree. And I am not satisfied that Mr Hannaford agreed, or should be taken to have agreed, to the latter in the circumstances.
203 Though I have analysed what appears to be the price discounting (or settling) mechanism as if it was stark in form, I am uncertain as to what in fact were to be the precise features of the term in question. I have not been assisted in this by the language used to describe its operation (eg the “passing back” of discounts) although it is understandable insofar as the respondents have denied there was a sale and resale.
204 Accepting both that price discounts were accepted by Mr Hannaford in the past and that quality issues for which TVO would accept responsibility could reasonably be anticipated to arise in the 2003/2004 season, I am nonetheless satisfied that Mr Hannaford did not in that season agree (by word or conduct) to a price reducing or price fixing term for quality issues such as seems to be propounded by the respondents. Rather he had fixed an agreed price with Farmlink that, ultimately, could only be varied with his consent. However, in recognition of the potential for price problems occurring, it could reasonably be anticipated that he would have been prepared to respond to a predictable exigency in the sale and export of his cherries by permitting a crude procedure to be followed as a reasonable and sensible means to deal with quality issues, but without surrendering his rights either to have his responsibility for alleged quality issues demonstrated or to consent to price variations. As I indicated at the outset of these reasons, this form of sensible commercial response in a market for perishables which short-circuits potential disputes in ongoing relationships where a level of trust and confidence is required to be maintained and a quick resolution of problems is desired, is understandable, probably necessary. It leaves the actual terms of the contract where they so often lie in business dealings. That is as default rules to be availed of where, as here, reason exists because of the circumstances to have the actual entitlements and responsibilities of the parties formally established.
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205 Accordingly I find that TVO and Farmlink contracted for the 2003/2004 season on the basis of the agreed prices for different sizes of cherry as pleaded by the applicant. Those prices could only formally be varied by Farmlink with the consent of TVO, express or implied. Mr Hannaford did not accept the “discounts” for the 2003/2004 season. He put them in question.
206 I have so far made little reference to the contract pleaded by the respondents. I have already indicated that insofar as it was founded on Farmlink’s Pre-Shipment Inspection Form, that document had no contractual effect. I have rejected the alleged price settling mechanism (such as it was) that was pleaded. I have presumed that the sale of cherries to Farmlink was subject to an implied condition of fitness for purpose under s 14 of the Sale of Goods Act. The alleged term referring to the Cherry Packaging Requirements seems, in the event, to be of no moment. Even if a term, there is no evidence that it was not complied with. It is the case, in my view, that the oral agreement pleaded by the respondents fell by the wayside as the case progressed, Farmlink’s case becoming, as its counsel put it, essentially one of denial of the contract pleaded by TVO.
207 My conclusion in effect necessitates that the applicant must succeed in his claim to be paid the purchase price. Farmlink has not set up as a defence the seller’s breach of the implied condition of quality and fitness: see BICC plc v Burndy Corporation [1985] 1 Ch 232 at 247; Sutton, Sales and Consumer Law at [22.24] ff (4th ed, 1995). That breach is only relied upon in justification of the price discounts applied: FAD 8.2 and 10.3. While a cross- claim for damages for breach of the implied condition has been pleaded, it has not been prosecuted: see “The Cross-Claim” below. In the circumstances Farmlink can only be said to have persisted in a “self-help” remedy which lost any semblance of justification when TVO insisted on its strict legal rights.
ISSUES OF QUALITY AND QUALITY CONTROL
208 It is not strictly necessary for me to deal with these matters given the view I have taken of the TVO-Farmlink contract and of the defence and cross-claim pleaded by the respondents. However, because they loomed large in the evidence adduced, though not so much so in submissions, I will state briefly my own views on them.
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209 By way of preface to what I have to say, I should indicate that it is necessary to deal separately with quality issues as they relate to Singapore and Hong Kong consignments respectively.
Singapore
210 Of the ten consignments to Singapore, price discounts were applied to five. I have already indicated that for one of these (order 4018) the discount was market related. The same is probably the case with the discount for order 4019. The respondents do not press market related discounts. The remaining three instances of discounts (and possibly order 4019) were quality related. In relation to order 4031 (the sea shipment) and orders 4032 and 4033, specific quality complaints were made by Mr Koh by email with accompanying photographs of what purported to be TVO cherries. The email relating to the sea shipment foreshadowed a survey report. No such report was put in evidence.
211 I ruled that, though the emails were admissible as business records under s 69 of the Evidence Act 1995 (Cth), I would limit the use that could be made of them to the fact of complaints having been made. It was foreshadowed that Mr Koh, who is a respondent, would be called to give evidence. He was not. Without explanation the emails had little probative value. While the respondents sought to use Mr Hannaford’s evidence-in-chief on the emails in their case, I considered this would be unfair given the failure to call Mr Koh – the more so given the selectivity of most of the photographic images and the broad generalisations made by Mr Koh. Even if my ruling was incorrect, I would have attributed no weight to the emails for present purposes. They do not justify the discounts made.
212 No expert evidence was called in relation to these shipments. Ms Churchill, in passing the discounts on, appears simply to have assumed without inquiry that the alleged defects were caused by circumstances for which TVO was responsible. Given the view I take of the TVO-Farmlink contract, this was a matter for Farmlink to prove, not assume, if it was to secure a reduction in price: see Kemp. In any event, the evidence of the complaints made by Mr Koh does not establish the truth of what he alleged, let alone justify the discounts applied. I say this while acknowledging that, if the Farmlink-Freshmart contracts were subject to the provisions of the CISG, Mr Koh’s emails may have provided the trigger to unilateral price reductions in the Farmlink-Freshmart contract, under Art 50 of the Convention.
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Hong Kong
213 Purchase discounts, allegedly for quality reasons, were applied to ten of the eleven consignments to Hong Kong. As to five of these – orders 4020, 4035, 4036, 3038 and 4039 – there is no evidence at all of any quality problems with them. There were no written complaints from Mak; no emails; and no Marinasia reports. Absent such evidence, Farmlink could proffer no reasonable basis for its accepting a purchase reduction let alone for passing it on to TVO. In any event the circumstances surrounding at least order 4020 excite a real suspicion that this order, and possibly some orders other than the above (eg order 4023), were discounted in whole or in part for reasons unrelated to quality as such. Mak, as I earlier indicated, had been caught on a falling market.
214 Of the remaining five orders, order 4023 elicited a belated email quality complaint and photographs from Mak on 9 January 2004; the remaining orders 4017 (the sea shipment), 4028, 4037 and 4041 resulted initially in emails and photographs alleging quality issues and subsequently in each instance, a Marinasia Report. I would emphasise that all five of these orders were total losses. The price discount in each instance exceeded TVO’s agreed price and resulted in a nil return to Farmlink as well. In what follows I am concerned only with these five orders. The discounts applied to the other five orders were clearly not appropriately substantiated.
215 Before commenting on the five total losses, it is necessary to make brief reference to a number of factual matters and to the evidence of Dr Brown, the horticulturalist scientist to whom I earlier referred.
Hong Kong: Factual setting and evidence
216 A considerable body of evidence was adduced relating, variously, to Mr Hannaford’s care for, and conduct of, his orchards and packing shed; his cherry picking, handling and packaging practices; his record and date keeping practices to track the odyssey of cherries from their picking from a particular sub-block, to their use to fill a particular order and then their despatch; his cooling system and the manner in which in practice he sought to maintain the cool chain; etc. It is unnecessary that I outline that evidence here, save to refer to four particular matters.
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217 First, I have referred (a) to the fact that a significant amount of rain fell in the area of TVO’s orchard over the period 20 to 22 December; and (b) to Dr Brown’s evidence that rainfall late in the season prior to harvest causes fruit to swell with water, often to the point of splitting and that fruit bloated by rain is easy to bruise in normal harvesting procedures. Though a possible explanation for some of the quality problems in the cherries in Hong Kong and Singapore was said to be likely to be the softness of cherries on the tree, there is no direct evidence before me that such was the case. Having previously conceded that the rainfall in December was significant, Mr Hannaford indicated in re-examination that he did consider that where fruit was picked six days after rain “any detrimental effects would have been gone by then”. There were no price discounts for quality for fruit picked and exported to Singapore and Hong Kong between 22 December and 29 December. The first consignment of fruit to have quality issues after 29 December was order 4017 (the sea shipment to Hong Kong), the fruit for which was picked between 27 and 31 December.
218 Secondly, in the 2003/2004 season TVO had its own quality control check list document – a “pallet sheet” – which was, according to Mr Hannaford, “done more thoroughly” in that season because TVO had had a lot of quality issues and a very bad year in 2002/2003. The checking which occurred was by way of sampling after packing. The sheet would indicate where the fruit came from, its size, variety and characteristics including defects such as marks, splits, bruises and no stems. No filled out forms for the 2003/2004 season were produced in these proceedings. The evidence was that it was TVO’s practice to discard the completed versions of them 12 months after their completion. Needless to say, this has been a matter of some comment by the respondents’ counsel in this instance.
219 Thirdly, critical comment has been made of Mr Hannaford’s failure to consult TVO’s own pallet sheets when quality issues first were raised on 9 January 2004 and of his not wanting to see the email photographs of alleged defects in fruit. Mr Hannaford’s evidence on the first of these is that perhaps he should have looked at the pallet sheets but he had no idea why he did not. As to the photographs, the explanation he gave was that he did not want to see them because photos in themselves did not actually prove anything.
220 Fourthly, there is evidence, relied upon by each side when to its own advantage, both of cherries included in the consignments in question being picked from the same sub-block at
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the same time as those accepted by Woolworths and Coles and of such cherries being rejected by Woolworths and Coles. It is understandable that TVO would rely upon the former of these particularly in light of Devlin J’s comment in Kemp (at 687) on the relevance of sales of the same commodity to other purchasers without complaint, when searching for causes of defects. The most that I consider should be said generally of the comparison of export and domestic consignments is that the domestic picture for comparable quality cherries does not match that from Hong Kong. However, I place little reliance upon this in relation to the five orders under consideration for the reason that the evidence on which to base the comparability of cherries going to Woolworths and Coles and to the export market does not for the most part permit meaningful – and in the case of order 4028 any – comparison: see Schedule 3 to the Schedules Brief.
221 The only expert evidence called by the respondents was that of Dr Brown. The instructions Farmlink’s solicitors gave to Dr Brown are not unimportant in understanding his report and the significance to be attributed to it. They include:
On the basis of the assumptions we have asked you to accept, we seek your written report and opinion as to possible causes for the condition and quality of the cherries as observed, commented on and photographed by Freshmart in Singapore and Mr Thomas Kwan, Managing Director of Marinasia (Hong Kong) limited to whether their condition and quality could possibly have been caused during:
1. the growing and/or; 2. the picking and/or; 3. the packing and/or; 4. the storing of the cherries prior to their transport from the premises of the packer to the warehouses in Australia from where they were shipped or airfreighted overseas.
If you are of the view that there are possible causes for the observations, comments and photos made and taken in Singapore and Hong Kong during the above stages, can you identify them and explain how they could possibly occur.
We realise that some if not all of the observations and comments could have been due to causes during the export stage, but we do not seek your opinion on this issue, except to ask you to identify any observations or comments as to condition or quality that could not possibly have been caused during the export stage, and if so, for the reasons why not.
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222 The applicant’s counsel, again for understandable reasons, focussed upon the last paragraph quoted and has submitted that it constituted an admission made in circumstances such that it can be treated as having been made by Farmlink under s 87 of the Evidence Act. Before dealing with that submission, I would note that Dr Brown indicated in his report that he did “not cover possible causes of the fruit deterioration that may have occurred during transport, shipment and receival”.
The alleged admission
223 The Evidence Act defines an “admission” for present purposes to mean a previous representation made by a party that is adverse to that party’s interest in the outcome of the proceeding. Section 87(1), insofar as presently relevant, provides:
For the purposes of determining whether a previous representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that:
(a) when the representation was made, the person had authority to make statements on behalf of the party in relation to the matter with respect to which the representation was made; or
(b) when the representation was made, the person … had authority otherwise to act for the party, and the representation related to a matter within the scope of the person’s … authority.
224 I need not consider whether Farmlink’s solicitor’s representation, even if adverse to Farmlink’s interest, could be a vicarious admission under s 87(1) as I am not satisfied that, considered in context, it is an admission at all. At first blush, the impugned statement may in form appear to be one adverse to Farmlink’s interest. Read in its setting and having regard to its purpose, it should in my view be taken as recognising possibilities that a competent expert would otherwise explore but into which Dr Brown was instructed not to inquire. It was not an acceptance that those possibilities were causes of the condition and quality of the cherries in question.
225 In consequence, I rule that the statement is not admissible as an admission but it is admissible to explain the instructions given. Importantly, as Mr Hannaford neatly put it in evidence-in-chief: the report looked at issues relating to growing and packing but “not the whole picture”.
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The evidence (cont)
226 Dr Brown’s summary in his report included the following:
Cherries are harvested just before they start to senesce and harvested fruit are in a state of decline. If left at ambient temperature the commercial life of a cherry is only a few days. Under good handling and storage systems this can be extended to 8 weeks. Any delay in any process from and including harvest will result in reduced commercial life of the fruit. In this document many poor handling practices are discussed including harvest date, harvest temperature, on farm transport systems, methods of cooling, methods of storing, methods of grading and methods of packing fruit. If mismanaged all these factors have a potential to dramatically shorten the commercial life of the fruit. It is concluded that while mismanaging any one of these practices may not normally lead to poor fruit quality in marketing, if several factors are combined then there is an increased risk of commercial failure as was observed with the Torrens Valley Orchards fruit in Singapore and Hong Kong.
227 Under the heading “Pre-harvest factors affecting fruit storage characteristics”, “Harvest”, “Storage”, “Grading and Packing” and a number of other discrete subjects, were considered and their general significance explained. Neither Mr Hannaford nor Mr Freeman disagreed significantly with what was said. In relation to many of those subjects, the ill discussed was related in some way to the emails and photographs from Hong Kong and Singapore. So, for example, the comments:
(i) In trial work conducted this season gibberellic acid increased firmness of “Lapin” cherries from 325 to 361 g/mm. Failure to use this material has potential to lead to soft fruit after transport to distant markets as was found in Hong Kong and Singapore for the TVO fruit.
(ii) If harvest is delayed the fruit may have started senescence leading to soft fruit and fruit more prone to infection from rots as the fruit self defence mechanisms go into decline. This may partially explain the observed soft fruit and fruit rots that were encountered in TVO fruit in both Hong Kong and Singapore.
(iii) If used [cluster cutters] probably contributed to some of the damage and fruit rots observed in Hong Kong and Singapore.
228 Mr Hannaford did in fact us gibberellic acid. And he acknowledged the damage that, for example, wind and cluster cutters can cause. His agreement with the substance of Dr Brown’s report (other than its conclusion) cannot be taken as agreement that the pre-delivery factors referred to by Dr Brown were the causes of the defects identified in the photographs, emails and Marinasia reports.
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229 Dr Brown’s “Conclusion” was:
The symptoms observed in the TVO cherries are typical of senescing fruit and poor handling practices in the orchard and packing shed. The fruit quality and storage potential of cherry fruit is affected by numerous factors from flowering through to marketing. While it is not common for any one of these factors to led to market failure, the combination of several of these factors can led to severely reduced fruit quality and poor out turns as was observed here. As a combination of factors was probably involved the identification of an offending activity can not be made and is not appropriate. The whole system in use at TVO needs to be reviewed to avoid this outcome in future years. (Emphasis added.)
Mr Hannaford disagreed with this conclusion.
230 In his evidence-in-chief, by using the Schedule of Packing Dates at Tab 3 of the Schedules Brief, Dr Brown identified cherries which had been picked thirteen days before order 4041 was shipped, which he considered to be a long period of time for a highly perishable product. Farmlink has accentuated this in submissions.
231 In cross-examination, Dr Brown referred to the hazards of air freight (to which I earlier referred). As I have emphasised, TVO had no responsibility for misadventures in air or sea shipment. More importantly, Dr Brown was cross-examined on his instructions and on an email he sent to Farmlink’s solicitors in which he said:
I would prefer to be involved as soon as possible to look at the problem from an independent standpoint.
When asked what this meant, he said:
Okay. That’s very different. I would have preferred to have been involved in this virtually the day the first problem appeared in the marketplace, as in 10.1.2004 and, at that point, actually be involved in an independent study, which is not one sided or the other, to actually come up with an independent report at that point in time, when we can actually track what’s gone wrong. It is impossible now to actually say what happened. We can’t tell from the photographs whether it was grey mould or penicillin. We can take a guess. We can have an educated guess, but it would have been better if we had had an independent person, looking at the day that there was a problem. (Emphasis added.)
232 I earlier noted Ms Churchill’s slow coming to the view that the four day delay before Mak on 9 January 2004 notified by email a quality complaint in respect of order 4023 was “generally later” than what she would expect for a quality report to come in.
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233 I would digress here to note that in the CISG’s scheme for price reductions for nonconformity, it is accepted that a “reasonable period” for giving a notice of nonconformity under Art 39(1) for perishable goods must often be “within hours, or at least days”: see Schlechtriem and Schwenzer at 467. The authors refer, for example, to a decision of the Saarbrücken Provincial Court of Appeal of 3 June 1998 in which:
A German buyer, defendant, purchased flowers from an Italian seller, plaintiff. Upon collecting the flowers at the site of the seller’s business, the buyer’s driver commented upon their “miserable” state. After receiving the goods, the buyer informed the seller of the “miserable” state of the flowers and refused to pay the purchase price.
The court indicated that, where international trade in flowers was involved, the buyer can be expected to act immediately on the day of delivery: for the translation of this case see http://cisgw3.law.pace.edu/cases/980603g1.html.
234 Returning to the evidence, as I noted in the consignments narrative, there were some number of consignments which experienced unexplained delays in being sent to Hong Kong after being delivered to Farmlink, or unexplained delays before inspections/surveys were carried out. And there were delays in notification of a quality complaint. Of the five consignments of present interest, such delays affected orders 4023 (notification), 4028 (shipment), 4037 (shipment) and 4041 (inspection). There is no evidence as to how the latter three were stored, respectively, before shipment or before inspection. Equally the evidence of Mr Kwan in relation to orders 4028, 4037 and 4041 was that the cherries, when inspected, were in or near Mak’s store and, seemingly, in all three instances, not in cool rooms. Again I emphasise that unnatural deterioration caused after receipt by Mak was not something for which TVO was responsible.
235 Finally, there are two pieces of evidence to which I should refer. The first is to reiterate that in her facsimile to Mak of 11 February in which, in relation to six orders (which include the five of present interest), she complained of “lack of sufficient details regarding the extent of the quality problem” and “inability for me to stop shipments had I been aware that we would not receive any return for shipments incurring a quality claim”. The second point is that I am satisfied that, had Farmlink wished to do so, it could have had a system for inspection of TVO’s cherries for quality after delivery and before shipment. I simply note Mr Freeman’s account of Jayfresh’s practice in this respect. While Ms Churchill made growing
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claims concerning her visits to TVO to inspect cherries at the shed for suitability, it is my impression from the manner in which this evidence came forth that it was likely she was claiming more than her due.
236 I note both of these matters, not because they illuminate the potential causes of defects, but because they bear upon the question whether, for the purposes of s 14(a) of the Sale of Goods Act (the condition of reasonable fitness for purpose), Farmlink relied on TVO’s skill and judgment. As I earlier indicated, I was prepared to assume without deciding that there was in the TVO-Farmlink contract such an implied condition. That assumption may itself be a questionable one, but this matter has not been the subject of serious, direct argument.
Hong Kong: Conclusion on quality issues
237 Even if, which is not the case, Farmlink was defending TVO’s claim for its sale price on the basis of breach of a s 14 warranty or was suing for such a breach, I am satisfied that, on the material before me, it would be unsuccessful in either case. As I have already indicated, TVO’s warranties of quality and fitness address the condition of its cherries at the time of sale to Farmlink, albeit that condition must be such that they would be fit for consumption on delivery overseas (unless their condition had been changed through causes for which TVO was not responsible: Kemp at 684-685).
238 The evidence clearly suggests potential causes contributing in whole or in part to the losses on the five orders in question for which, variously, TVO, Farmlink and Mak would, if made out, be separately responsible. And there is Farmlink’s problem. The state of the evidence in relation to these five orders could not reasonably justify a finding that TVO was alone responsible for the total losses, bearing in mind that Farmlink would bear the onus of proof of that: Kemp at 685. This said, I am satisfied in relation to order 4041 in particular that a cause of defects in the cherries in that shipment could have been a matter for which TVO bore responsibility.
239 The Marinasia reports and the circumstances of three of the four surveys (orders 4028, 4037 and 4041) on which they were based are quite incapable of sustaining the burden of proving TVO’s sole responsibility, the more so in relation to the three mentioned because of
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the unexplained delays in shipment or inspection and of the circumstances of the inspection (ie at Mak’s store). There are, in consequence, real grounds for apprehending that the losses were caused or contributed to by causes for which either, or both, Farmlink and Mak were responsible, eg possible inappropriate storage during delays in air shipment (cf Dr Brown’s evidence) and breaks in the cool chain through exposure to warm and humid conditions in Hong Kong. Equally, there are unresolved questions surrounding order 4017 (the sea shipment): eg was the vent setting altered? Farmlink packed the container, but did it break the cool chain after delivery to it?
240 The reports, moreover, while purporting to describe the condition and appearance of the cherries, do not address the causes thereof. While those causes ought to have been of some concern to Ms Churchill for the purposes of Farmlink’s own contractual obligations to Mak, they should have been of vital concern to her if Farmlink was to ascribe sole responsibility for the losses to TVO under its contract with Farmlink. The evidence does not suggest that Ms Churchill questioned or probed the Marinasia reports or Mak in any way. TVO’s responsibility for the loss seems to have been assumed and Mak’s assertion of total losses accepted without question. And for the purposes of this proceeding, Farmlink has relied upon them. Mak was not called to give evidence.
241 The reports themselves are not altogether convincing documents. They are relatively standard form in their findings and they assert conclusions about the saleability of the cherries in the Hong Kong market. Mr Kwan’s expertise to give evidence on the cherry market was obviously open to objection – he simply relied on “commonsense”. And if the photos “actually prove anything” (Mr Hannaford’s comment), the evidence on them, as well as my own impression of them, do not accord with the reports’ conclusions.
242 What is clear beyond question is that Mak did not supply, nor was he asked in a timely fashion to supply, adequate information on the nature, extent and circumstances of the defects and losses. The opportunity to make informed evaluations of the cause or likely causes of the losses (I am assuming they were in fact losses) was lost. One can understand why Dr Brown said: “It is impossible now to actually say what happened.” One equally can understand why it is accepted under Art 39 of the CISG that the time for notice of nonconformity for perishable goods is very short: cf the “Flowers” case, above.
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243 Such are the doubts raised about the evidence in relation to any of the orders – doubts exaggerated by Ms Churchill’s failure to pursue the alleged quality complaints diligently – that I cannot now be satisfied in relation to any of the alleged quality complaints that the cause or causes of the losses and price reductions were ones for which TVO alone was responsible.
244 In consequence Farmlink could not, by relying upon “issues of quality”, have avoided an order to pay TVO the balance of the agreed purchase price. Nor could it have so made out a damages claim against TVO for an equivalent amount.
CONCLUSION ON THE CONTRACT CLAIM
245 I will order that there be judgment for the applicant in the sum of $452,779.40 for unpaid purchase price, this being the higher of the two sums advanced. The other sum is $432,473.80. The difference between the two, as I understand it, turns on whether or not, when Mr Hannaford agreed to a $1 per kilo discount on 7 January 2004, that was only for the 11 January consignment to Hong Kong. Ms Churchill applied it to later orders, although she agreed in evidence that, though it applied to the 9 January order, it was “to be negotiated if necessary after that”. There is no evidence of such having occurred. Accordingly, I have chosen the higher sum.
246 There will need to be further calculations done for the claim for the loss of use of monies. I will give directions accordingly.
THE TRADE PRACTICES ACT CLAIMS
247 My conclusion on the contract claim makes it strictly unnecessary to consider directly the misleading or deceptive conduct claim against Farmlink or to discuss (inevitably at some length: see Cheshire and Fifoot at [11.118]) the interaction of s 51A and s 52 of the TP Act and contractual promises: see eg Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217. It is necessary, though, to deal with the claims as they relate to each of the natural person respondents, Ms Churchill, Mr Plummer and Mr Koh. Though claims are made against all three under the TP Act (via s 75B), the Fair Trading Act 1987 (SA) s 54 and the Misrepresentation Act 1971 (SA) s 7, I will as a matter of convenience deal only with the TP Act claims given the view I take of the actual allegations made against the respondents
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individually. I would add that the TP Act claims against Ms Churchill provide in substance the foundation of the claims against Farmlink on whose behalf she was acting at all relevant times: see TP Act s 84(2).
248 It needs to be said at the outset that the claims, understandably, have been formulated against the contingency of fact findings quite different from those I have made. While it is necessary for the reason I gave above briefly to consider them, I recognise that those findings have rendered these claims superfluous.
1. The claim against Ms Churchill
249 There are three categories of representation alleged to have been made by Ms Churchill to Mr Hannaford and on which he is said to have relied, which constituted misleading or deceptive conduct. These were as follows:
(i) In representing that Farmlink could sell TVO’s cherries into Hong Kong and Singapore such that TVO would receive the agreed prices, Ms Churchill impliedly represented that Farmlink had reasonable grounds to make that representation: FASC paras 14-16, (“the negotiations representations”);
(ii) In a sequence of telephone conversations with Mr Hannaford after cherry consignments had commenced, she misled him in the following four respects (FASC paras 13.7.3 – 13.7.6, 17 and 18):
(a) from about 23 December 2003, Mr Hannaford and Ms Churchill had daily telephone conversations in relation to the ordering, delivery and sale of TVO’s cherries. In those conversations Ms Churchill said words to the effect that everything was going “all right”, when she had no reasonable basis to make such a representation;
(b) on about 4 January 2004, Mr Hannaford, in one such telephone conversation said to Ms Churchill words to the effect that he had heard from China that he was going to lose significantly and get nothing from dealing in the Hong Kong market. Ms Churchill said words to the effect that as far as she knew everything was all right, when she had no or no reasonable basis to make such a representation;
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(c) on about 6 January 2004 Mr Hannaford in a telephone conversation asked Churchill words to the effect whether the Chinese market had crashed. Churchill said words to the effect that it had not but it was “a bit weak”, with a “bit of oversupply” which should clear quickly when she had no or no reasonable basis to say the market was only “a bit weak” or only “bit over supplied” and would clear quickly but should have said that there was no or no reasonable prospect of TVO obtaining the Agreed Prices;
(d) after 6 January 2004, Mr Hannaford continued to have regular telephone conversations with Ms Churchill. Ms Churchill did not advise Mr Hannaford in those conversations of any difficulties with selling TVO cherries in the Hong Kong market, save and except for saying there were allegedly problems with the quality of cherries in one shipment.
It is alleged that in making the representations in (a) to (d) above, Ms Churchill impliedly represented that TVO would receive the agreed prices but she knew or should have known from and after 29 December 2003 that Farmlink was unable to sell TVO’s cherries into the Hong Kong market and from and after 8 January 2004 that it was unable to sell TVO’s cherries into the Singapore market at prices such that it could pay or TVO would receive the Agreed Prices and should have known at least from and after the last-mentioned dates that the market for cherries in Hong Kong and Singapore had crashed or become very poor or grim: (“the market representations”).
(iii) Finally, it is pleaded that (FASC para 19) Farmlink was, by Ms Churchill and its directors Mr Koh and Mr Plummer, silent as to the difficulties in fact being experienced in selling TVO’s cherries in Hong Kong and Singapore markets at prices such that it could pay to TVO the Agreed Prices or at all. That silence, in the context of the relationship between TVO and Farmlink and the representations in (i) above made during negotiations constituted misleading and deceptive conduct or conduct which was likely to mislead or deceive”: (“silence”).
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250 In final submissions, the TP Act claims were said to be essentially ones of non- disclosure. As I have indicated, the claims so perceived are at odds with fact findings I have made and especially with my characterisation of the TVO-Farmlink relationship.
251 Before dealing with the three categories of contravening conduct alleged, I should make the following observations about the principles to be applied to TP Act claims such as have been made.
252 First, misleading or deceptive conduct is conduct which in the circumstance does lead, or is capable of leading, a person into error or, in non-disclosure cases, which fails to disabuse a person of his or her error: Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 200; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198.
253 Secondly, a statement of opinion (ie of a belief or judgment) will not be misleading or deceptive or be likely to be so merely because it misinforms or is likely to do so: Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 at 242. It may be otherwise if the opinion was not in fact held, or had implicit in it the representation that it was reasonably based on a substratum of fact which was incorrect: RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 41 FCR 164; Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; Cheshire and Fifoot at [11.116].
254 Thirdly, by virtue of s 51A(2) where a corporation makes a representation as to a future matter and does not have reasonable grounds for making it, the representation is taken to be misleading: CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ATPR 40-042. The onus is on the representor to adduce evidence of reasonable grounds: Futuretronics International Pty Ltd.
255 Fourthly, silence, ie non-disclosure of a relevant fact or matter, can constitute misleading or deceptive conduct in circumstances in which one party is reasonably entitled to expect disclosure of the existence of that fact or matter if known to the other with whom it is dealing: see Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 198-201.
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256 Fifthly, put shortly, s 75B of the TP Act provides that if a person is “in any way … knowingly concerned in, or party to” (inter alia) a contravention of s 52 of the Act by another, that person will be liable for that contravention under s 82 and s 87 of the Act.
(i) The negotiation representations
257 These can be dealt with shortly. I have found that, prior to the making of any consignments to Hong Kong and Singapore, TVO and Farmlink entered into an agreement that the prices at which cherries were to be sold to Farmlink were fixed prices. Implicit in that agreement was the expression of a business judgment that, as and when Farmlink placed an order for cherries for resale to Hong Kong or Singapore, it would be able to make a return for itself on cherries purchased at the agreed prices.
258 Whether Farmlink did or did not have reasonable grounds for such a judgment, whether Farmlink did or did not actually make a return on all or any of its orders, could in reality be of no operative significance to TVO (there being no suggestion that the parties were dealing with each other on the assumption that Farmlink’s capacity to pay TVO depended upon its receipts from its overseas buyers). Nor could it have led Mr Hannaford into an operative error. The price TVO was to be paid was not dependent upon Farmlink’s sale price to its buyers but upon TVO’s contract with Farmlink (whether or not renegotiated for whatever reason including quality defects for which TVO was responsible) and upon its compliance with its contractual obligations (eg s 14 of the Sale of Goods Act).
259 While I do not consider that the alleged conduct gave rise to an actionable contravention of the TP Act, I accept that a judgment such as has been pleaded was probably conveyed to Mr Hannaford before any orders were placed, but in a setting in which it was well understood that agreed prices did not trump quality issues which could reasonably be expected to arise.
(ii) The market representations
260 Of the representations alleged in this category, the first – in conversations from 23 December Ms Churchill said words to the effect that everything was going “all right” to Mr Hannaford – does not warrant serious individual consideration. The pleading is devoid of detail and of context and is quite unilluminating: cf the observations of McLelland CJ in Eq
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in Watson v Foxman (1995) 49 NSWLR 315 at 318-319. The submissions have not ameliorated this.
261 The representations alleged to have been made in phone conversations around 4 and 6 January 2004 relating to the China market cannot stand in light of my earlier findings. I have rejected Mr Hannaford’s evidence as to the timing of the operative conversations and I have accepted Ms Churchill’s evidence as to their substance. They occurred on 3 and 7 January and resulted in Mr Hannaford’s agreement to two price reductions. These conclusions necessarily must lead to my rejection of both of these allegations of misleading or deceptive conduct. More significantly, I have found that at the relevant times Ms Churchill did make Mr Hannaford aware of the market conditions in the China market.
262 The final representation of this category was that after 6 January 2004 Ms Churchill had regular telephone conversations with Mr Hannaford but did not advise him of any difficulties with selling TVO cherries in the Hong Kong market save for saying there were allegedly problems with the quality of cherries in one shipment. An allegation so broadly cast is not only unsatisfactory, it is contradicted by a body of evidence. I will not reiterate that evidence here other than to note that I have found that on 7 January, Ms Churchill communicated the substance of Mak’s “serious decline” email to Mr Hannaford; probably on 7 January he agreed to cancel a shipment; the next morning he suggested a price reduction to which Mak agreed on 9 January; on 9 January two separate quality complaints were made by Mak, these being the first such complaint made by Mak; and notwithstanding the above, Mr Hannaford agreed to Farmlink’s “Mud Map” of 10 January proposing four air freight shipments to Hong Kong. Whatever might be said from this time onwards about the adequacy or otherwise of Ms Churchill’s investigation of the quality complaints made, the burden of the complaint – that she did not advise of any difficulties with selling in the Hong Kong market – is not made out.
263 In the result, I am not satisfied that any of the pleaded contraventions of the TP Act have been made out or that Ms Churchill was knowingly concerned in, or a party to, such contraventions.
264 I would add for the sake of completeness that, as with the negotiation representations, the infringing conduct pleaded here, and the alleged vice in it, are premised upon a
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characterisation of the TVO-Farmlink relationship which differs in vital respects from that which I have found.
(iii) The “silence” claim
265 This claim is founded on the nature of the relationship between the parties and the negotiation representations allegedly made. As I have earlier indicated the particular non- disclosure alleged, ie of difficulties in selling at prices such that it could pay the agreed prices, could have been of no operative significance given the true character of the parties’ relationship and of their respective rights and obligations under it.
266 I will order that the TP Act claims against Ms Churchill be dismissed. Because the claims against Farmlink are premised upon Ms Churchill’s conduct, I will dismiss the claim against it as well.
2. The claims against Mr Plummer and Mr Koh
267 The accessorial liability provisions of s 75B of the TP Act have been invoked against both of these respondents. While it is said that they had actual knowledge of the essential matters said to constitute the alleged contraventions of s 52 by Farmlink (via Ms Churchill), for the reasons I have already given, I am not satisfied that those contraventions have been established. Hence I will dismiss the claims against Mr Plummer and Mr Koh. I would add, though, without enlarging on it, that while the claims themselves were based on knowledge allegedly derived from the respondents’ positions in Farmlink, as supplier and buyer respectively of cherries and from alleged communications from Ms Churchill, the evidence adduced could justify no more than speculation about what each respondent knew of the actual circumstances of the TVO-Farmlink relationship and of the conduct inter se of Ms Churchill and Mr Hannaford.
CONCLUSION ON THE TP ACT CLAIMS
268 I will order that the claims made against each of the four respondents be dismissed.
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THE APPLICANT’S AGENCY CLAIM
269 As an alternative to the sale claim, the applicant has pleaded that, if Farmlink was an agent, (i) it warranted TVO would receive the agreed prices; (ii) it would indemnify TVO for any loss suffered by its inability to sell at prices that would enable TVO to receive the agreed prices; and (iii) it was subject to agency duties to disclose material information and to exercise reasonable care and skill. A claim has been made on the alleged indemnity and for breach of the agency duties.
270 Given my previous findings, it is unnecessary for me to consider this claim.
THE CROSS-CLAIM
271 Farmlink’s cross-claim as pleaded is curious. It is founded upon a failure by TVO to supply cherries that met the specifications in the Pre-Shipment Inspection Form with the consequence that:
TVO was in breach of the [pleaded] Agreement and/or in breach of s 14 of the Sale of Goods Act.
A claim for damages for these breaches is made, seemingly at least in relation to the s 14 claim, on the basis of sales to Farmlink.
272 A distinct plea is advanced for expenses incurred for export and transport costs Farmlink had to absorb. The basis of this claim seemingly is agency.
273 The former of these pleas was not opened at the hearing. Neither was it the subject of oral or written submissions. And it was quite inconsistent with the case put at trial insofar as it was premised upon the TVO-Farmlink relationship being that of seller and buyer. Even if it was not abandoned – and I consider it was – it inevitably would have failed for the reasons I gave in discussing “Issues of Quality”.
274 The plea for expenses was opened but was expanded to include a claim for Farmlink’s lost margin on sales. Counsel conceded that there might be some difficulty with such an enlarged claim, but relied on ordinary agency principles to justify Farmlink’s costs and expenses. Having rejected an agency characterisation of Farmlink’s position, this claim in turn must fail.
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275 I will order that the cross-claim be dismissed.
CONCLUSION AND ORDERS
276 I am conscious that my conclusions in this proceeding may cause some concerns in the conduct of the export trade in cherries. What needs to be understood is that those conclusions were based on the evidence, such as it was, that the parties considered appropriate to put before me and on the matters that they chose to put in issue. Significantly no reliance was placed upon practices and usages in this particular market or on the possible contextual significance of the CISG at least in relation to Singapore. It need hardly be added that this proceeding demonstrates the obvious inappropriateness of leaving the definition of the character and incidents of a complex, ongoing business arrangement to the inevitable uncertainties of an oral agreement.
277 I have indicated the orders that I will make. However, there are outstanding calculations to be made relating to the claim for the loss of use of monies.
278 I will direct that the applicant file and serve on or before Friday, 21 November 2008 (a) draft minutes of order to give effect to these reasons and (b) proposed orders in relation to the claims for loss of use of monies and for interest together with expert calculations upon which the former is based. I will adjourn the matter for the making of orders until Thursday, 18 December 2008 at 9.00 am.
I certify that the preceding two hundred and seventy-eight (278) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.
Associate:
Dated: 24 October 2008
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Counsel for the Applicant/Cross-Respondent: Mr C Brohier
Solicitor for the Applicant/Cross-Respondent: Kelly & Co
Counsel for the Respondents/Cross-Claimants: Mr M Hoile
Solicitor for the Respondents/Cross-Claimants: Cowell Clarke
Date of Hearing: 13, 14, 15, 16, 19, 20, 21, 22 and 23 March 2007, 29, 30 and 31 January 2008, 1, 4, 7, 8 and 15 February 2008 and 24 April 2008
Date of Final Submissions: 26 June 2008
Date of Judgment: 24 October 2008
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Annexure A
ABBREVIATED SCHEDULE OF EXPORT PACKING ORDERS
Order No. Date ETD ETA Loading at Destination and Payment Details 4014 19/12/03 23/12/03 24/12/03 Plummers Singapore 2205 0220 Paid in full 4015 19/12/03 24/12/03 24/12/03 Plummers Singapore 1430 1855 Paid in full 4016 19/12/03 25/12/03 25/12/03 Plummers Singapore 1430 1855 Paid in full 4018 24/12/03 27/12/03 27/12/03 Plummers Singapore 1430 1855 $18,501.50 paid $3,162.50 discount 4013 27/12/03 28/12/03 28/12/03 TVO Hong Kong 1150 2205 Paid in full 4019 27/12/03 29/12/03 29/12/03 Plummers Singapore 1225 1855 $18,870.00 paid $1,275.00 discount 4017 30/12/03 2/1/04 18/1/04 Plummers Hong Kong Sea Nothing paid $116,540.00 discount
4020 30/12/03 31/12/03 1/1/04 TVO Hong Kong 1430 1210 $11,903.10 paid $17,846.90 discount 4022 2/1/04 3/1/04 3/1/04 Plummers Singapore 1430 1855 Paid in full 4023 2/1/04 4/1/04 5/1/04 Plummers Hong Kong 1430 1210 Nothing paid $31,050.00 discount 4025 3/1/04 5/1/04 5/1/04 Plummers Singapore 1225 1840 Paid in full 4028 6/1/04 7/1/04 7/1/04 Plummers Hong Kong 1150 2205 Nothing paid Delayed $33,000.00 discount in Melb. 4031 7/1/04 9/1/04 18/1/04 Plummers Singapore Sea Arrived $30,480.00 paid 19/1/04 $29,992.00 discount
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4032 Not 10/1/04 10/1/04 Not Known Singapore known 1430 1855 $1,848.00 paid $336.00 discount 4035 9/1/04 11/1/04 11/1/04 TVO Hong Kong 1150 2205 $12,223.60 paid $17,176.40 discount 4033 10/1/04 13/1/04 14/1/04 Plummers Singapore 2205 0220 $9,780.00 paid $17,952.00 discount 4036 10/1/04 12/1/04 12/1/04 TVO Hong Kong 1655 2240 $11,023.80 paid $16,276.20 discount 4037 10/1/04 13/1/04 13/1/04 Plummers Hong Kong 1925 Nothing paid Arrived $27,600.00 discount 14/1/04 1900 4038 10/1/04 13/1/04 14/1/04 Plummers Hong Kong 2205 2050 $10,873.80 paid $16,426.20 discount 4039 10/1/04 15/1/04 16/1/04 Plummers Hong Kong 1430 0600 $22,253.80 paid $32,978.70 discount 4041 15/1/04 17/1/04 17/1/04 TVO Hong Kong 0045 1155 Nothing paid $70,500.00 discount