Contract claim - Terms of contract - Sale by description - Breach - Whether breach proved to be causative of loss

Andrews Brothers (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17

Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500

Davis v Pearce Parking Station Pty Ltd [1954] HCA 44; (1954) 91 CLR 642

Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472

State of Western Australia v Bond Corporation Holdings Ltd [1990] FCA 522; (1991) ATPR 41-081

1 SCOTT DCJ: This action arises out of the supply by the defendant to the plaintiff of metal oxide silicone field effect transistors ("Mosfets") which the plaintiff caused to be inserted in power supply modules ("power supply units") manufactured by it. The power supply units were sold by the plaintiff to Digital Technology International ("DTI") which incorporated the units into security equipment which it then sold to General Electric ("GE") for installation in buses operating in North America.

2 The essential allegations in the plaintiff's amended statement of claim ("statement of claim") are as follows:

(a) On about 21 December 2006 Andrew Warenczak the plaintiff's managing director telephoned Troy Collins of the defendant and asked Mr Collins to provide a written quotation for the sale to the plaintiff of 7,500 Mosfets.

(b) In response to that request the defendant provided quotation number 189809 dated 21 December 2006 ("first quotation") by which the defendant offered to sell to the plaintiff Mosfets manufactured by VISHSEMI ("Vishay") parts numbered S14840DY-T1-E3, description N-CH Mosfet SO-8 40V 9 mohm @ 10V at a price of $1.03 per unit plus GST.

(c) On 21 December 2006 the plaintiff sent to the defendant a purchase order for inter alia 7,500 Mosfets ("first purchase order").

(d) A contract ("contract") was thereupon entered into between the plaintiff and the defendant pursuant to which the plaintiff agreed to purchase and the defendant agreed to sell to the plaintiff 7,500 Mosfets of the description referred to above at that unit price plus GST.

(e) It was an implied condition of the contract such condition being implied by s 13 of the Sale of Goods Act (WA) that the Mosfets would correspond with the description in the contract.

(f) Implicit in the contract were representations ("implied representations") by the defendant to the plaintiff to the effect that:

(i) the Mosfets had been manufactured by Vishay; and

(ii) the Mosfets would correspond with their description in the contract.

(g) Shortly prior to the Mosfets being due for delivery to the plaintiff, Mr Collins told Mr Warenczak and thereby represented to him, relevantly, that the Mosfets were approximately two years old:

(i) but were definitely manufactured by Vishay and ROHS (being an acronym for reduction of hazardous substances, meaning that the Mosfets were lead free); and

(ii) because of the age of the Mosfets the defendant required the plaintiff to execute a waiver against warranty claims against the defendant if the Mosfets did not solder correctly;

(h) In reliance on the implied representations and the express representations (collectively "representations") the plaintiff by Mr Warenczak executed, on 4 January 2007, a document prepared by the defendant ("waiver") which contained the following terms:

"Purchaser understands and acknowledges that Arrow's responsibility is limited to credit or replacement, of these parts, only if mutually agreed by both purchaser and Arrow."

(i) The defendant supplied 7,500 Mosfets to the plaintiff being:

(i) Invoice 973028 dated 18 January 2007 - 5,000 Mosfets at a price of $5,665 (inclusive of GST) which sum was paid by the plaintiff; and

(ii) Invoice 980240 dated 5 March 2007 - 2,500 Mosfets at a price of $2,832 (inclusive of GST) which sum the plaintiff did not pay.

(j) The Mosfets were not manufactured by Vishay and had an on resistance of 25 or 30 volts and not 40 volts and that the defendant was in breach of the terms of the contract.

(k) The making of the representations amounted to misleading or deceptive conduct on the part of the defendant in the course of trade or commerce in contravention of s 52 of the Trade Practices Act 1974 ("TPA") in that the Mosfets had not been manufactured by Vishay and did not correspond with their description in the contract.

(i) by reason of the breaches of the contract it has suffered loss and damage;

(ii) by reason of the misleading or deceptive conduct it has suffered loss and damage;

(iii) the waiver ought to be set aside having been procured by the misleading or deceptive conduct of the defendant;

(2) damages for breach of contract or misleading or deceptive conduct;

3 In the amended defence and counterclaim ("defence and counterclaim") the defendant says:

(a) the first quotation constituted an invitation to treat;

(b) the first purchase order constituted an offer by the plaintiff to the defendant to purchase the Mosfets;

(c) on about 21 December 2006 the plaintiff applied to the defendant for a credit account which application ("credit application") was accepted by the defendant on or about 22 December 2006. The credit application included the following terms and conditions:

"(i) All dealings, arrangements and contracts made between the defendant and the plaintiff relating to any products, services or transactions were subject to the terms and conditions of trade contained in the credit application. (clause 9)

(ii) No claim by the plaintiff need be recognised unless made in writing within 14 days of delivery of the goods to the plaintiff. No claim for damage or resultant expense, direct or indirect in respect of any goods shall in any case exceed the invoice price of the goods in respect of any damage or expense. Any damage or expense over and above such invoice shall be the responsibility of the plaintiff. (condition 9)

(iii) All conditions and warranties expressed or implied by statute, common law, equity, trade, custom or usage or otherwise howsoever are expressly excluded to the maximum extent permitted by law. Where so permitted the liability of the defendant for a breach of a condition or warranty that cannot be excluded is limited (at the defendant's option) to the replacement or repair of the goods or the supply of equivalent goods or the price of replacing or repairing the goods or of acquiring equivalent goods. The defendant shall not be liable in any way whatsoever for indirect or consequential loss or damage whatsoever (whether based on tort or contract or otherwise). (condition 10)

(iv) The plaintiff will pay the defendant any costs and expenses incurred by it or its solicitors, legal advisers, mercantile agents or other parties acting on the defendant's behalf in respect of anything initiated or being considered against the plaintiff whether for debt, possession of goods or otherwise. (condition 15)

(v) Except as otherwise may be agreed by the company, the contract shall be governed by the laws of the State of Victoria. (condition 17)"

(i) on or about 21 December 2006 Mr Warenczak told Mr Collins that the lead time for the supply of the Mosfets was too long as a consequence of which the defendant sourced the Mosfets from a third party supplier in Hong Kong;

(ii) Mr Collins told Mr Warenczak that the Mosfets would not be supplied until the plaintiff acknowledged that the Mosfets were from a third party supplier. On about 3 January 2007 the defendant forwarded the waiver to the plaintiff which the plaintiff executed and returned to the defendant.

(i) the Mosfets were being sourced from a third party not the manufacturer (Vishay);

(ii) the defendant's liability in respect of the Mosfets was limited to credit for or replacement of the Mosfets only if mutually agreed by the plaintiff and the defendant; and

(iii) any issue with the Mosfets must be brought to the defendant's attention within 14 days of delivery.

(f) Following entry into the credit application and receipt from the plaintiff of the waiver the defendant accepted the offer contained in the plaintiff's first purchase order and agreed to supply the Mosfets to it.

(g) In the premises the sale of the Mosfets to the plaintiff was subject to the terms and conditions in the credit application and the waiver.

(h) It does not admit that the Mosfets were not manufactured by Vishay, does not admit that the Mosfets supplied had an on resistance of less than 40 volts and says that the plaintiff failed to notify it of any claim for loss in writing or at all within 14 days of delivery of the Mosfets to the plaintiff.

(i) In the premises it denies that it is liable to compensate the plaintiff for the loss alleged or at all alternatively that any damages to which the plaintiff is entitled are limited to the purchase price of the Mosfets alternatively the cost of replacing the Mosfets or of acquiring equivalent goods.

(j) Further that by executing the waiver and returning it to the defendant the plaintiff is estopped from claiming damages as claimed or at all.

(k) Further that the plaintiff has waived its right to complain about issues regarding the Mosfets because it failed to bring the same to the defendant's attention within 14 days.

(l) It denies that the plaintiff suffered loss and damage.

(m) Further that the plaintiff has failed to mitigate any loss and damage by reason that:

(a) the plaintiff did not breakdown voltage test the Mosfets prior to board loading, contrary to advice in the wavier;

(b) the plaintiff did not breakdown voltage test the Mosfets until no earlier than 2 April 2007 knowing that they came from a third party supplier and not Vishay;

(c) the plaintiff did not breakdown voltage test the Mosfets until no earlier than 2 April 2007 despite;

(i) Mr Collins telephoning Mr Warenczak on or about 13 March 2007 and recommending that the plaintiff stress test the Mosfets;

(ii) Mr Warenczak knowing or suspecting at least by 9 March 2007 that the Mosfets had been rebadged and might not be genuine; and

(iii) Mr Collins telephoning Mr Warenczak between 27-29 March 2007 advising him to stress test the Mosfets.

4 Finally, the defendant counterclaims against the plaintiff the sum of $2,838.50 being the price of the 2,500 Mosfets delivered to the defendant for which the plaintiff has not paid, interest and costs pursuant to the credit application alternatively costs to be taxed.

5 It is common ground that reference to 40V in the description of the Mosfets refers to the on resistance or breakdown voltage of the Mosfets at 40 volts.

6 The relevant chronology as I find it to be from the exhibits and the evidence relating to the formation and terms of the contract between the parties is as follows:

(a) Due to a purchase order for a quantity of power supply units the plaintiff had the need for Mosfets from Vishay which it normally purchased from a company in the US. Mr Warenczak said that their usual supplier had informed him that it had no present stock and its delivery time was 18 weeks. He said that he recalled that the defendant was an official distributor of Vishay and that Mr Collins had been seeking the plaintiff's business for some time.

(b) On 21 December 2006 Mr Warenczak telephoned Mr Collins and asked him whether the defendant could supply some Vishay SI48040 Mosfets, what the lead time was and what the price would be.

(c) Mr Collins told Mr Warenczak that he would check the defendant's stock but he thought that he had the Mosfets in an overseas warehouse.

(d) Mr Collins telephoned Mr Warenczak and told him that the Mosfets were available and Mr Collins said that he would forward a formal quotation to Mr Warenczak.

(d) Mr Collins emailed the first quotation to Mr Warenczak (Exhibit B) on 21 December 2006 (4.02 pm).

(e) By email dated 21 December 2006 (4.20 pm) Mr Collins forwarded a credit account application to Mr Warenczak stating in that email "I figure if we are going to be doing more business together, then it is worth opening an account (makes it easier for you to order as you don't need to mess around with prepayment)". The email and the attached application are Exhibit C.

(f) By email dated 21 December 2006 (4.41 pm) to Mr Collins Mr Warenczak acknowledged receipt of the application and inter alia advised that he had passed it on to a staff member to complete.

(g) Under cover of an email from Mr Warenczak to Mr Collins dated 21 December 2006 (6.26 pm) Mr Warenczak forwarded the plaintiff's first purchase order for (inter alia) the 7,500 Mosfets and sought advice from Mr Collins as to whether additional goods could be supplied by the defendant and if so he would reissue the plaintiff's purchase order.

(h) By email from Mr Collins to Mr Warenczak dated 22 December 2006 (8.55 am) Mr Collins forwarded a further quotation ("second quotation") which included, in addition to repeating the first quotation, quotations on the additional items (Exhibit E).

(i) By email dated 22 December 2006 (12.22 pm) Mr Warenczak forwarded the plaintiff's revised purchase order ("revised purchase order") to the defendant.

(j) By email dated 2 January 2007 (2.42 pm) from Mr Collins to Mr Warenczak, Mr Collins sought one further trade reference for the credit application (Exhibit G).

(k) By email dated 2 January 2007 (3.13 pm) Mr Warenczak informed Mr Collins that Louise (presumably a staff member of the plaintiff), should already have called to provide the additional reference and he assumed that this would not impact on delivery. Mr Collins responded by email on that day (3.21 pm) that Louise had called him with Sonar as a reference and that the defendant would still be "ok with the delivery". (Exhibit 41)

(l) By letter dated 3 January 2007 from the defendant to the plaintiff the defendant informed the plaintiff that credit facilities had been established to a limit of $9,000 and attached a copy of the credit application which had been signed on 21 December 2006 by Mr Warenczak on behalf of the plaintiff.

7 There is no dispute between the parties about this sequence of events. In evidence Mr Collins said that all dealings between the plaintiff and defendant before 21 December 2006 were cash transactions. Mr Warenczak confirmed that to be the case (T264). Mr Collins said that the practice of the defendant was that if there was a transaction in cash there would need to be a prepayment. A prepayment was not required in this case as the transaction was an approved credit transaction.

8 Mr Collins said that the internal approval (within the defendant) on the plaintiff's credit application delayed the processing of the order for (inter alia) the Mosfets. He said by that he meant that he could not process that order if it was not a credit account unless a prepayment was made. A credit application was pending and if the transaction (with the plaintiff) was going to be processed on credit then it would be necessary to wait for the credit account to be set up so that the defendant's computer system would allow the defendant to enter an order.

9 In this case the defendant processed the order after acceptance of the credit application. I do not accept the defendant's contention that the two quotations from the defendant were invitations to treat or that (relevantly) a second purchase order was an offer made by the plaintiff to it.

10 The plaintiff accepted the second quotation by the revised purchase order of 22 December 2006. Whilst neither party made reference to the second quotation and the revised purchase order in their pleadings they relied upon those documents in their closing submissions.

11 I do not accept the plaintiff's submission that the contract between the parties was concluded upon delivery of the revised purchase order from the plaintiff to the defendant such that the credit application was not part of the contract.

12 Nor do I accept the defendant's contention that the credit application was accepted by the defendant on 22 December 2006. The acceptance of the credit application was not communicated to the plaintiff until 3 January 2007. I do however find that the credit application was part of the contract between the parties.

13 To that end I refer to the exchange of emails to which reference is made above. From the plaintiff's standpoint I find that it was aware that the credit application was referable to this transaction, and not only to future transactions as the plaintiff's counsel contends. The email from Mr Warenczak to Mr Collins of 2 January 2007 in which Mr Warenczak said that he assumed that the provision of the additional reference would not impact on delivery, bears that out. I find that he would not have made that statement had he not been aware that the credit application formed part of the overall transaction.

14 Further, the parties did not treat the contract as a cash transaction. Relevantly, delivery of the first shipment of the Mosfets was effected on 18 January 2007 however payment was not then made by the plaintiff (via credit card) until 28 February 2007. In evidence Mr Warenczak said that the reason why the invoice for the first lot of Mosfets was not paid within 30 days was because Arrow's account was (payable) 30 days after the end of the month so that if the goods were delivered any time in January they had to be paid for by the following month. (T265) Clearly the plaintiff treated payment under this contract to be by utilising the credit facility.

15 The credit application terms and conditions contained therein form part of the contract between the parties. The relevant terms and conditions contained in the credit application are referred to above.

16 I find that the contract for the purchase of the 7,500 Mosfets comprised:

(c) the application for credit containing the terms and conditions therein.

17 In the statement of claim the plaintiff alleges that shortly before the Mosfets were due for delivery, Mr Collins verbally informed Mr Warenczak and thereby represented to the plaintiff in effect that:

(1) the Mosfets were approximately two years old but were definitely manufactured by Vishay and (were) ROHS (par 9.1(a) and (b)); and

(2) because of the age of the Mosfets the defendant required the plaintiff to execute a waiver against warranty claims if the Mosfets did not solder correctly (par 9.2).

18 At trial Mr Warenczak gave no evidence that Mr Collins told him on that occasion that the Mosfets were manufactured by Vishay. Consequently the representation pleaded in par 9.1(a) of the statement of claim is not made out. Mr Warenczak did however give evidence that on 3 or 4 January 2007 Mr Collins telephoned him and told him that the Mosfets were more than two years old so the plaintiff would have to sign a waiver document. As a consequence when the waiver was received he signed and returned it.

19 Mr Collins on the other hand said in evidence that because the Mosfets were not being sourced direct from Vishay as the manufacturer there was a need from the defendant's standpoint for a waiver to be executed by the plaintiff.

20 He said that he telephoned Mr Warenczak and told him that the Mosfets were coming from the grey market and in order to continue with the purchase order the defendant would need the waiver to be signed.

21 Mr Collins said that in response Mr Warenczak said that he had heard some bad stories about the grey market and he (Mr Collins) then said that he hadn't experienced that personally but he had also heard horror stories.

22 Mr Collins denied that he required Mr Warenczak to sign the waiver because of the age of the Mosfets. He said that the waiver form was related to the Mosfets being sourced otherwise from the manufacturer, not relating to age or anything else. He agreed that he told Mr Warenczak that they were older parts.

23 He also agreed in cross-examination that the source from which the Mosfets were being acquired was Pro-Arn, a dealer with which a previous co-employee had dealt satisfactorily.

24 Mr Collins said that he thought that Pro-Arn was a reliable supplier and that when he telephoned Mr Warenczak his (Mr Collins) primary concern was that the parts were more than two years old and might not solder correctly.

25 He agreed that he had no real concerns about the authenticity of the Mosfets because he thought that the defendant was dealing with a reliable supplier.

26 He said however, that he did tell Mr Warenczak that the Mosfets were coming from the grey market although there was no written communication from him to Mr Warenczak before the waiver was executed, relating to that issue.

27 Mr Warenczak denied that Mr Collins told him that the Mosfets were being sourced from the grey market. He said that he knew what the grey market was. He said that the grey market was where goods were purchased, not from a manufacturer or from a franchised supplier, but from a third party supplier and as a consequence there was less certainty as to the origin of the goods and a risk that the goods were not genuine. He said that that was why he would not deal in the grey market. He said that he was not prepared to take a risk in acquiring goods from the grey market but he was prepared to take a risk that the Mosfets may require some soldering attention which was manageable.

28 In the statement of claim the plaintiff alleges that Mr Warenczak executed the waiver in reliance upon the representations.

29 As I say, there was no evidence that any representation was made by Mr Collins to Mr Warenczak shortly before the waiver was signed that the Mosfets were definitely manufactured by Vishay as is pleaded in par 9.1(a) of the statement of claim.

30 I do not accept that Mr Collins told Mr Warenczak, before the waiver was signed, that the Mosfets were being sourced from the grey market. Whilst it may have been the defendant's practice to require the waiver to be signed in the event that parts were not being sourced direct from the manufacturer, the genuineness of the Mosfets was not a matter which concerned Mr Collins at the time that he had this conversation with Mr Warenczak.

31 That is in accordance with his evidence to which I have referred above. He had no reason to believe that Pro-Arn was not reliable and he conceded that the matter uppermost in his mind was the fact that the parts were more than two years old and may have some solder issues.

32 I accept that Mr Collins told Mr Warenczak that the Mosfets were more than two years old and the plaintiff would have to sign a waiver document.

33 It is common ground that the waiver was forwarded by Mr Collins to Mr Warenczak. In the cross-examination of Mr Warenczak there was the following exchange:

"Q. Now you read this [the waiver] before you signed it didn't you?

1. A. I did.
2. Q. The opening words 'Advice of parts not being sourced direct from manufacturer in NSM form' you read that, didn't you?
3. A. Yes.
4. Q. And what that means is third party supply, doesn't it?
5. A. Yes.
6. Q. And you knew that at the time you signed it, didn't you?
7. A. I signed it on the basis that Mr Collins said to me that the reason why I needed to sign the document was because the parts were more than two years old.
8. Q. I'll ask you the question again. I'm not asking you why you signed the documents. I'm simply saying to you that you knew at the time you signed the document that they were being sourced from a third party supplier, didn't you?
9. A. No, I did not.
10. Q. What did you take then the words 'Advice of parts not being sources (sic) direct from manufacturer' to mean?
11. A. I understand what those words mean. I didn't believe that they were part of the reason why I was signing the waiver.
12. Q. And the words mean coming from a third party, don't they?
13. A. Yes.
14. Q. And that means grey market doesn't it?
15. A. No it doesn't, not to me. It is quite common within the industry that if one company doesn't have a particular part in stock, they will contact one of their competitors, source the part from the competitor and then supply it to the customer. So the competitor will have sourced it from Vishay and then Arrow will be buying from a competitor."

34 The waiver is a short document. The heading "Advice of parts Not being sourced direct from manufacturer (NSM) form" is clear as is the body of the document.

35 Notwithstanding that Mr Warenczak was, as I find, told by Mr Collins that the waiver needed to be signed because the parts were more than two years old, the fact is that Mr Warenczak read and understood the waiver. It must have been evident to him that the defendant was acquiring these parts from a party other than the manufacturer, Vishay. If that was a matter about which he was confused or concerned then I would have expected him to raise that issue with Mr Collins. He did not do so but signed and returned the waiver to the defendant.

36 It may have been open to Mr Warenczak to refuse to sign the waiver or to require the waiver to be amended so as to restrict its operation to a waiver of warranty claims referable to the age of the parts. Mr Warenczak did not do so but signed the waiver unamended.

Section 52 claim

37 In the statement of claim the plaintiff alleges that the making of the representations constituted misleading or deceptive conduct by the defendant in trade or commerce in contravention of s 52 of the TPA and to that end the representations relied on are:

(a) the Mosfets had been manufactured by Vishay (par 8.1);

(b) the Mosfets would correspond with their description in the contract (par 8.2);

(c) the Mosfets were approximately two years old but were definitely manufactured by Vishay (par 9.1(a)); and

(d) because of the age of the Mosfets the defendant required the plaintiff to execute a waiver against the warranty claims against the defendant if the Mosfets did not solder correctly.

38 The plaintiff then contends that in reliance upon the representations Mr Warenczak executed the waiver.

39 Further, the plaintiff says that the representations constituted misleading or deceptive conduct by the defendant in contravention of s 52 of the TPA insofar as:

(a) contrary to the representations pleaded in pars 8.1 and 9.1(a) the Mosfets supplied had not been manufactured by Vishay; and

(b) contrary to the representations pleaded in par 8.2 the Mosfets supplied did not correspond with their description in the contract.

40 The plaintiff then alleges that by reason of the defendant's misleading or deceptive conduct:

41 The implied representations upon which the plaintiff relies, being those pleaded in par 8 of the statement of claim, must be representations as to a future matter ie, the identity of the manufacturer of and the description of the Mosfets to be supplied at some point in the future. Not representations as to an existing fact.

42 Any claim which the plaintiff may have referable to the identity of the manufacturer of the Mosfets or their description at the time of supply must in my view fall to be determined in accordance with s 51A of the TPA. That cause of action would need to be pleaded (State of Western Australia v Bond Corporation Holdings Ltd [1990] FCA 522; (1991) ATPR 41-081 per French J).

43 The cause of action, if it was to be mounted, would depend upon whether the representations, when made, were reasonably based. That was a matter raised during the course of discussion with counsel for the plaintiff on the first day of the trial in respect to which counsel for the plaintiff agreed that that would amount to a case different from that conducted by the plaintiff and no application to amend the statement of claim was thereupon made.

44 In my view the claim for damages based upon the implied representations pleaded in par 8 of the statement of claim is misconceived. The mere fact that (if found) the Mosfets, as they were supplied were not manufactured by Vishay and/or did not correspond with the description in the contract cannot give rise to a finding that the defendant's conduct in making those implied representations was misleading and deceptive contrary to s 52 of the TPA.

45 Any such claim would have to be formulated by reference to s 51A of the TPA and no such claim was mounted. As a consequence the claim in par 17 of the statement of claim is not made out.

46 For the same reason the plaintiff's claim that Mr Warenczak executed the waiver in reliance upon the implied representations is not made out.

47 In par 16 of the statement of claim the plaintiff alleges that the (relevant) representation pleaded in par 9 which was misleading and deceptive was the representation pleaded in par 9.1(a) about which, as I say, there was no evidence.

48 The consequence is that the plea in par 18 of the statement of claim that the waiver ought to be set aside is not made out. It follows that the claim based on misleading or deceptive conduct contrary to s 52 of the TPA fails.

49 There are two parts of the waiver upon which the defendant relies.

50 The first is the sentence pertaining to the limitation of liability and the second is the time frame within which the defendant asserts that any issues were to be brought to the defendant's attention.

51 Insofar as the sentence pertaining to limitation of the defendant's liability is concerned that is in the following terms:

"Purchaser understands and acknowledges that Arrow's responsibility is limited to credit or replacement, of these parts, only if mutually agreed by both purchaser and Arrow."

52 The defendant contends, properly construed, that sentence means that the defendant's responsibility for the Mosfets supplied is reduced to zero, but if mutually agreed, the defendant may agree to provide credit to the value of the goods or replacement of them.

53 The plaintiff, on the other hand, contends that on the proper construction of that sentence, the defendant's responsibility is limited to credit or replacement of the Mosfets only if mutually agreed by both the plaintiff and the defendant and that because the plaintiff did not agree to any limitation, the sentence does not affect the defendant's liability to the plaintiff.

54 This sentence is poorly drafted. However it is included in a document the thrust of which is to make known to the plaintiff that the defendant has not sourced the Mosfets directly from the manufacturer but from a third party and that the Mosfets are outside the direct manufacturer's warranty. In those circumstances it would be extraordinary if this sentence was to be construed in terms that the liability of the defendant would be limited only if both it and the plaintiff both agreed as the plaintiff contends.

55 It has often been said that limiting terms are in general construed strictly or narrowly and, in case of ambiguity, contra proferentem that is, against the party relying on the term. For example, see Davis v Pearce Parking Station Pty Ltd [1954] HCA 44; (1954) 91 CLR 642 at 649.

56 This approach is no longer applied mechanically: Cheshire & Fifoot "Law of Contract" 9th Aust ed, 10.73. In Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510 the High Court held that the meaning of a limiting term:

" ... is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity."

57 Having regard to the context in which it appears subject to the matters to which I refer below, in my view the proper construction of the sentence is that the extent of the defendant's liability is to credit or replace the goods and then only if the parties agree.

58 The question which then arises is as to the nature of any claims to which this limitation refers. This sentence appears, in context, with respect to the unavailability of the "direct manufacturer's warranty". There is further reference to "... parts supplied with ...... codes over two years old have no warranty whatsoever". There is no specificity as to the extent of any warranty which might otherwise be available.

59 On its proper construction this sentence, insofar as it limits the defendant's liability to the plaintiff, is in my view restricted to matters which might otherwise be covered by the manufacturer's warranty. The extent of such warranty is not specified.

60 I do not consider that this sentence restricts claims which the plaintiff may have against the defendant other than those which might be covered by the manufacturer's warranty. That warranty is not likely to extend to any claim which the plaintiff may have against the defendant for the claimed failure to supply Mosfets manufactured by Vishay and which were of a particular specification namely a breakdown voltage of 40 volts.

61 The consequence is that whether the terms of the waiver are incorporated as a term of the contract or whether, as the defendant alleges, the plaintiff is estopped from resiling from the terms of the waiver, the defendant's liability to the plaintiff for the breaches of the conditions of the contract about which the plaintiff complains is not, on the proper construction of this sentence, limited.

62 The defendant also asserts that the sentence in the waiver in terms that "any issue should be brought to Arrow's attention within 14 days of delivery" is to be construed in terms that any issue with the Mosfets must be brought to the defendant's attention within 14 days of delivery.

63 This contention is not made out. The word "should" in that sentence is not analogous to "must". The sentence is not mandatory by its terms and any failure on the part of the plaintiff to bring to the defendant's attention any issue within 14 days of delivery does not preclude the plaintiff from maintaining any claim at law to which it might be entitled.

64 I have found that the terms and conditions contained in the application for credit applied to the contract. Those terms are recited earlier.

65 Condition 9 is in terms that "no claims by the purchaser need be recognised unless made in writing within 14 days after delivery of the goods to the purchaser". The defendant asserts that no claims having being made within that time frame the plaintiff is precluded from making claim against the defendant.

66 That contention is, in my view, misconceived. This condition is restricted to a circumstance in which there is a return by the plaintiff (purchaser) to the defendant of goods. That construction appears from the preamble to that condition.

67 The plaintiff did not return the Mosfets the subject of either delivery to the defendant and as a consequence this condition does not preclude the plaintiff from maintaining any claim to which it has entitlement.

68 The first sentence in condition 10 is that "All conditions and warranties expressed or implied by statute, common law, equity, trade, custom or usage or otherwise howsoever are expressly excluded to the maximum extent permitted by law".

69 In the contract the Mosfets are specifically described. These are the specific goods which the defendant had undertaken to supply. In my view this sentence does not have the effect of excluding the express obligation of the defendant as seller to supply the Mosfets in accordance with that description in the contract.

70 It follows that the purported restriction on the liability of the defendant referred to in the second sentence of this condition does not apply (Andrews Brothers (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17; Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472).

71 However by the third sentence in this condition the defendant is in my view not liable to the plaintiff for indirect or consequential loss or damage.

72 In the event that I find that the defendant is liable to the plaintiff in damages, those damages will not extend to indirect or consequential losses.

73 By condition 17 the provisions of the Goods Act 1958 (Vic) ("Goods Act") apply, not the Sale of Goods Act 1895 (WA).

74 Relevantly the provisions of the Goods Act are as follows:

"18. When there is a contract for the sale of goods by description there is an implied condition that the goods shall correspond with the description.

1. 42. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or, subject to section 41, when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller, or when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.
2. 59. (1) Where there is a breach of warranty by the seller or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may -

(a) set up against the seller the breach of warranty in diminution or extinction of the price; or

(b) maintain an action against the seller for damages for the breach of warranty.

(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty."

75 As to the plaintiff's claim in contract against the defendant the following matters fall for determination:

(a) Whether the defendant was in breach of the terms of the contract.

(b) If the defendant was in breach, whether the plaintiff suffered damages recoverable against the defendant by reason of such breach.

76 I find that by the contract the defendant was bound to supply Mosfets which were to be manufactured by Vishay and to have a breakdown voltage of 40 volts.

77 In addition this transaction amounted to a contract for the sale of goods by description within the meaning of s 18 of the Goods Act. The Mosfets were specifically described in the contract as being manufactured by Vishay and the part number and description were identified. As a consequence it follows that pursuant to s 18 of the Goods Act there was a term of the contract that the Mosfets should correspond with the description (Metal Roofing (supra) at [35]). That is (relevantly) manufactured by Vishay with a breakdown voltage of 40 volts.

78 I am satisfied that the Mosfets were not manufactured by Vishay. Although the direct evidence to that matter is sparse I refer to Exhibit 43 which is an email from Victor Lim of Vishay to John Simpson of the defendant in these terms: "... officially, I do not want to official verify if these are Vishay parts as the process will be 'open up' for abuse ... but on a confidential note these are NOT Vishay from what we can tell on the Del#".

79 I am also satisfied on the evidence that the Mosfets did not have a breakdown voltage of 40 volts. Exhibit 9 is a report from Luigi Iemi dated 13 June 2008 who was the expert called by the plaintiff. He conducted a breakdown voltage test on a random selection of Mosfets supplied by the defendant to the plaintiff and compiled a report.

80 He gave evidence at trial. He said that there was a difference between the breakdown voltage and the maximum operating voltage of the parts.

81 He said that the maximum operating voltage specified by the manufacturer is the voltage to which the parts could be used without damage being inflicted. The breakdown voltage was the operating voltage above which the device stops functioning.

82 He said that the voltage across the Mosfets tested by him was, above 30 volts, stepped up in one volt increments.

83 The Mosfets he tested "blew" at 34 volts but not at 33 volts showing that the Mosfets satisfactorily operated to 33 volts but spiked over 15 mA at 34 volts.

84 I am satisfied that the breakdown voltage of the Mosfets was 34 volts.

85 Further, Mr Warenczak gave evidence that after he was informed by DTI that some of the power supply units were blowing up he got one of the Mosfets supplied by the defendant, which had not been used, connected it across a power supply, turned up the voltage and observed that current flowed below 40 volts. From that he determined that the Mosfet was not resistant to (did not have a breakdown voltage at) 40 volts.

86 I am satisfied that the defendant breached these conditions of the contract.

Whether the plaintiff suffered damage recoverable against the defendant by reason of the breach

87 Following delivery of the initial tranche of 5,000 Mosfets the majority of them were installed in power supply units manufactured by the plaintiff. Those power supply units were delivered to DTI which incorporated a number of them into security equipment sold to GE and installed in buses.

88 In this regard the plaintiff seeks to recover against the defendant damages totalling $77,689.30 calculated in accordance with its particulars of loss and damage dated 17 June 2008. Those damages are essentially the cost of replacing the Mosfets with Mosfets corresponding with the description in the contract, the cost of and incidental to the replacement of the Mosfets in the power supply units and the costs billed by DTI referable to the replacement of the power supply units.

89 In order for the plaintiff to recover damages from the defendant it must prove that by reason of the breach of these or either of these conditions (relevantly that the Mosfets were not manufactured by Vishay and or did not have a breakdown voltage of 40 volts) it suffered loss. To that end the identity of the manufacturer was not a relevant factor in the damages about which the plaintiff makes claim.

90 The relevant issue is whether the fact that the Mosfets did not have a breakdown voltage of 40 volts caused the plaintiff to suffer loss recoverable against the defendant.

91 I am not satisfied on the evidence that the plaintiff has proved that the fact that the Mosfets did not have a breakdown voltage of 40 volts was causative of the failure of the security units installed in buses or the power supply units. The relevant evidence was:

(1) Mr Warenczak said in evidence that the Mosfets come in different voltage levels and one could not use a 20 volt Mosfet in a circuit that was going to go 30 or 25 volts. He said that as an engineer one would always specify a part with a higher operating voltage then the intended voltage range. He said that "so in our case, our intended voltage range is up to about 32, 33 volts so we specify a 40 volt part to give a margin of safety".

(2) His evidence was that the voltage range to which the Mosfets were required to operate in the power supply units was up to a maximum of about 32, 33 volts. At T85 he said:

"... the power supply operates up to a maximum voltage of around 32 to 33 volts so anything below 33 volts is borderline failure in the field. The way Mosfets are designed, 30 volts, then the next step up is 40 volts typically so 40 volts was the logical choice."

(3) The evidence of Mr Iemi was that the Mosfets tested by him did not fail at 33 volts but at 34 volts. He said that the Mosfets tested by him did not fail below 34 volts.

(4) Whilst I am satisfied that the Mosfets had a breakdown voltage of no more than 34 volts there is no evidence that the power supply units were required to operate or did operate at 34 volts or over.

(5) In his evidence Mr Warenczak said that DTI "contacted us to say that some of the power supplies were, in their words blowing-up on buses in North America. So that then lead to some - some discussions between myself and DTI's engineer as to what might be the cause of it. I couldn't see anything that was wrong. I did some testing on our test system and couldn't find anything. DTI engineer did some testing and couldn't find anything."

(6) Objection was taken by counsel for the defendant to the admission into evidence of what Mr Warenczak was told by any representative of DTI (as to any alleged failure of any power supply unit) save for the purpose of that evidence being lead as to the fact that he was told something but not as proof of its content.

(7) In his letter to the defendant of 6 September 2007 (Exhibit 8) Mr Warenczak said "from my own investigations, the parts appeared to be the correct part, because the power supply functioned as it should".

"Q. And you said words to the effect that you had the product and it seemed to work but it also seemed not to work.

1. A. No, the product that is the problem that I had with this whole situation was that the product seemed to work and there didn't seem to be anything wrong with it.
2. Q. You said to him that the Mosfets didn't look correct, didn't you?
3. A. That - Yes, the - the only problem - look they didn't look right but they performed in exactly the way I would expect them to perform."

(8) Mr Warenczak said that he got one of the Mosfets that hadn't been used, tested it and it failed at below 40 volts from which he determined that it was the Mosfets which were causing the power supply units to "blow-up".

(9) He said that DTI required the power supply units to be replaced and he agreed to do so.

(10) The plaintiff caused André Gadella, one of its junior technicians to travel to the US to assist in the removal of the power supply units. Mr Gadella said that he saw a number of the power supply units and said in his evidence (T289) "there were quite a few (power supply units) that had failed inside buses, as when we were sent out there they said "oh, this bus isn't working properly. Its ... security system isn't working properly".

(11) The plaintiff called Richard Andrew Johnson from DTI who gave evidence that the power supply units were installed in DTI's equipment to take the voltage and power from the bus main power supply as part of the security equipment manufactured by DTI for installation in GE buses.

(12) He said that the power supply units were failing and causing the units to stop operating and he referred the issue to DTI's R & D manager who investigated it and followed it up with the plaintiff.

92 There was no evidence as to why it was that the security equipment in the buses failed or malfunctioned save for the evidence of Mr Gadella and Mr Johnson which was not other than what they had been told.

93 Further there was no evidence as to why it was that the power supply units which had been installed in the equipment manufactured by DTI had failed. There is no evidence that any of the Mosfets "blew up" in the power supply units.

94 There was no evidence as to the voltage at which the power supply units operated when it is alleged that they failed. It might be, for example that the power supply units failed at a voltage in excess of 40 volts. It may be that the power supply units failed because of a malfunction which was not associated with the Mosfets. To that end the power supply units are comprised of a number of components which were described by Mr Warenczak (T221-222).

95 I am left to speculate as to why it was that the security equipment and/or the power supply units failed or malfunctioned. I would have expected there to have been evidence as to these matters but there was not.

96 The plaintiff's claim sounds in damages. As a consequence of the finding by me that the plaintiff has not proved that it suffered loss and damage consequent upon the defendant's breach, the plaintiff's claim against the defendant must fail.

97 The second delivery of the Mosfets (2,500) was undertaken and the plaintiff has not paid for those parts. Mr Warenczak said in his evidence that the plaintiff has retained those Mosfets.

98 Having found that the Mosfets did not comply with their description in the contract the plaintiff would have been at liberty to reject those Mosfets after having had a reasonable opportunity of examining them for the purpose of ascertaining whether they were in conformity with the contract (s 41(1) and s 42 of the Goods Act).

99 Pursuant to s 42 of the Goods Act a buyer is deemed to have accepted goods when:

(a) it intimates to the seller that it accepts them;

(b) the goods have been delivered to it and it does any act in relation to them which is inconsistent with the ownership by the seller; or

(c) after the lapse of a reasonable time it retains the goods without intimating to the seller that it has rejected them.

100 A buyer is not bound to return rejected goods and it is sufficient if he intimates to the seller that he refuses to accept them (s 43 of the Goods Act).

101 In this case the plaintiff upon satisfying itself that the Mosfets were not manufactured by Vishay and did not have a breakdown voltage of 40 volts made that complaint known to the defendant. By letter dated 6 September 2007 the plaintiff informed the defendant (inter alia) that it was necessary for the power supply units to be recalled so that the Mosfets (the subject of the first delivery) could be replaced.

102 In my view the plaintiff could then have rejected the 2,500 Mosfets as not corresponding with their description in the contract. The plaintiff then retained the 2,500 Mosfets. However by its complaint about the Mosfets and its refusal to pay the price, the plaintiff I find, made clear or at the very least intimated to the defendant that it rejected the Mosfets supplied to it. The plaintiff was not bound to return the Mosfets to the defendant and it was for the defendant to retrieve them if it wished to do so.

103 In the premises the defendant's counterclaim is dismissed.

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA

CITATION : MOTIUM PTY LTD -v- ARROW ELECTRONICS AUSTRALIA PTY LTD [2009] WADC 184 (S)

Calderbank offer - Costs - Claim and counterclaim dismissed

Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115

1 SCOTT DCJ: On 3 December 2009 I published my reasons for judgment in this action. Counsel for the plaintiff then told me that he wanted to address me as to a head of damage which he said flowed from my findings. As a consequence I listed the matter for 21 December 2009 to deal with any submission by the plaintiff in that regard and to hear the parties with respect to the question of costs.

2 With respect to costs the plaintiff conceded that the defendant was entitled to an order that the plaintiff pay the defendants costs of the claim and said that the defendant should be ordered to pay the plaintiff's costs of the counterclaim.

3 He submitted that because there was a good deal of time at trial taken up by argument resulting in the defendant amending its pleadings to plead an affirmative case that the plaintiff had failed to mitigate, the appropriate costs order should take into account the extent to which, by that argument, the trial was extended.

4 Counsel for the defendant contended that the requirement to amend the defendant's pleading so as to specifically plead a failure to mitigate on the part of a plaintiff was a "grey" area and that in real terms there was no appreciable delay in the disposition of this matter at trial by reason of the argument concerning amendment.

5 Counsel for the defendant said that a Calderbank offer was made to the plaintiff on 29 July 2009 by which the defendant offered to pay to the plaintiff the sum of $18,000 in full satisfaction of the claim and counterclaim inclusive of costs, such offer being open for a period of seven days. This offer was made before the last two days of the trial which had been adjourned part heard.

6 Counsel for the defendant submitted that the rejection by the plaintiff of that offer was unreasonable and referred to the principles recently enunciated by the Court of Appeal in Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115 at [16] et seq.

7 In the circumstances he submitted on behalf of the defendant that the plaintiff ought to be ordered to pay the defendant's costs of the third and fourth days of trial on a solicitor/client rather than party/party basis.

8 The reason why the defendant did not seek costs on an indemnity basis is that the letter containing the Calderbank offer made reference to costs on a solicitor/client basis.

9 The principles to be distilled from Ford are as follows:

(a) In order for the defendant to be entitled to an order for costs other than on a party/party basis it would be necessary for the defendant to satisfy the court that the plaintiff's failure to accept the Calderbank offer was so unreasonable in all of the circumstances that an order for costs on a party and party basis would not be just.

(b) All of the relevant facts and circumstances must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable.

(c) The mere fact that the recipient of a Calderbank offer is ultimately worse off than it would have been had the offer been accepted, does not mean that its rejection was unreasonable.

(d) The decision as to whether conduct is reasonable or unreasonable involves matters of impression or judgment.

10 The offer was made prior to the resumption of the trial which was adjourned on 17 April 2009, part heard. By then, the plaintiff's case had not been completed and there remained the evidence to be adduced for and on behalf of the defendant.

11 In this case the issues which fell to be determined were:

(a) whether the Mosfets corresponded with the description in the contract;

(b) whether the representations alleged to have been made by the defendant constituted conduct contrary to s 52 of the Trade Practices Act 1974 ("TPA") as amended;

(c) if the defendant was liable to the plaintiff whether the plaintiff suffered loss and damage and the extent to which any proven loss and damage was affected by limitation provisions and/or as to any representations, the provisions of s 68A of the TPA.

12 The Calderbank offer was inclusive of costs and was made after three days of trial. There was however further evidence to be adduced. I am of the view that the outcome was not likely to have been more certain when the offer was made than before the trial commenced.

13 In addition, there was no material put forward by the defendant so as to provide a basis upon which it may be contended that costs on a party/party basis would be any different from the costs incurred by the defendant after the offer was made.

14 In all of the circumstances, I do not consider that the plaintiff's rejection of the Calderbank offer was unreasonable so as to justify an order of the nature sought by the plaintiff.

15 The parties agree that because there was an overlapping of the issues in the claim and the counterclaim, the appropriate order for costs should be that the defendant be awarded a percentage of the costs of the claim thereby dealing with costs overall.

16 The plaintiff has been successful in its counterclaim. True it is that the counterclaim itself occupied little time at trial. Having said that, the issues which fell to be determined in the counterclaim were, apart from damages, essentially the same as those referable to the claim and the plaintiff was successful in respect to those issues.

17 Further, there was some extension of the trial by the argument relating to the amendment by the defendant of its pleadings for which the plaintiff is entitled to some costs consideration.

18 Having regard to all of the circumstances the appropriate costs orders are:

1. The plaintiff pay 75 percent of the defendant's costs to be assessed.