Forwood Products Pty Ltd v Gibbett

I. The applicant Brisk Shavings Pty Ltd recover from the respondent Forwood Products Pty Ltd damages in the sum of $325,000.

II. The applicant Kenneth Maxwell Gibbett recover from the respondent Forwood Products Pty Ltd damages in the sum of $10,000.

III. That in addition the applicants pay interest to each respondent on the damages referred to above calculated on the basis that the entitlement to interest commenced from 30 June 1994 and continued until the date of judgment and that the rate of such interest is the rate prescribed in respect of that period by the Third Schedule to the Supreme Court Rules 1987 (SA).

6. That there be no order as to the costs of the cross appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

HILL J: 1 I have had the advantage of reading in draft form the reasons for judgment of both Emmett and Tamberlin JJ. I agree with both Emmett J and Tamberlin J that the claim by the first respondent, Mr Gibbett and the second respondent, Brisk Shavings Pty Ltd ("Shavings") for breach of a warranty or condition implied under the Sale of Goods Act 1895 (SA) must fail and for the reasons given by Emmett J. I also agree with his Honour that leave to amend to allege a new agreement for the sale of wood shavings in May 1993 should be refused. 2 There remains then the claims for breach of s 52 of the Trade Practices Act 1974 (Cth) or in the alternative in negligence arising out of the events which occurred in May 1993. I agree that leave should be given to amend the statement of claim to include paragraphs 15A.1, 15A.2 and 15A.3 to permit these matters to be argued. As Emmett J notes, Forwood did not oppose these amendments. As the claim in negligence could not succeed unless the claim arising from the alleged contravention of s 52 of the Trade Practices Act 1974 (Cth) also succeeded it is only necessary for me to consider the question by reference to s 52. 3 In a case such as the present it is necessary that an applicant claiming damages under s 87 of the Trade Practices Act 1974 (Cth) for breach of s 52 of that Act show that the respondent made a representation which was false or misleading; (ie a misrepresentation); that the applicant relied upon that misrepresentation and that the applicant suffered loss as a result of that reliance. It is not necessary that the misrepresentation was known by the respondent to be false or misleading, Equity Access Pty Ltd v Westpac Banking Corporation (1990) ATPR 40,994 at 50,950. Nor is it necessary that the applicant show that the misrepresentation was deliberate. Further, a representation may be false or misleading where the representation is simply wrong. And there will be cases where a representation will be wrong and thus false or misleading where the respondent omits a material matter, so that the omission renders the representation a half truth and thus misleading. Ultimately, the question which arises is whether in the circumstances the respondent engaged in conduct that was false or misleading or conduct that was likely to mislead or deceive, not whether what the respondent said was, on its own, false or misleading: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32. 4 The dispute between the parties was thus in small compass. It concerns what was said in May 1993 by Mr Hay, the customer services manager of Forwood to Mr Gibbett in the presence of Mr Buckley, the Perth accountant when Messrs Gibbett and Buckley visited the timber mill operated by Forwood at Mount Gambier in South Australia. The conversation has to be seen against the background of a finding by the learned primary Judge that Mr Hay knew that the wood shavings which Mr Gibbett or Shavings were purchasing from Forwood were for use for packaging live crayfish for export. 5 The conversation took place adjacent to a tank where it could be observed that timber from which wood shavings were ultimately derived was being dipped in some form of chemical solution. Both Mr Gibbett and Mr Buckley exhibited concern that the timber from which the shavings would come was being dipped in a chemical solution. They asked Mr Hay what the chemical was. Mr Hay told them that the chemical was PCP or "penta". He indicated that the chemical would be concentrated only on the outer edge of the dipped timber. He said that the amount of the chemical in the leading edge of the shavings was so low as to be barely detectable. Nevertheless it was clear from what he said that there would be quantities of PCP in the wood shavings, no matter how small those quantities would be. Nothing Mr Hay said was false, so far as it went. 6 Mr Hay had available to him quite detailed information as to the dangers of PCP. It was a very toxic chemical which required careful handling precautions. The product information available to Mr Hay revealed that PCP was "very toxic to fish". Indeed, it is not in dispute that wood shavings from timber that had been dipped in PCP were very unsuitable for use as packaging for live crayfish. It can not be disputed that what Mr Hay said to Mr Gibbett was very much a half truth as an exposition of the consequences of dipping timber to be used to derive wood chips for ultimate use in packaging live crayfish. 7 It is also common ground now that nothing was said by Mr Hay directly about the suitability of wood shavings from timber dipped in PCP for use in connection with the export of live crayfish. Likewise it is now common ground, and indeed, it was found as a fact, that Mr Hay did not consciously avoid providing accurate information to Messrs Buckley and Gibbett. Indeed, at no stage did Mr Hay seek to hide the fact that PCP was being used "in the shavings - on the timber". 8 The question is whether the fact that what Mr Hay said was really only part of the story of the impact of PCP on timber dipped in it and destined for use as packaging made his conduct misleading or deceptive within s 52 when neither Mr Gibbett or Mr Buckley had ever suggested to Mr Hay that they would rely on anything he said in determining the suitability of the wood chips from the mill for use as packaging material for packaging live crayfish. 9 It is no doubt correct to say, as Emmett J does, that neither Mr Gibbett nor Mr Buckley asked Mr Hay any question about the properties of PCP. But that is not determinative of the question whether Mr Hay's response to the general enquiry as to what chemical was being used was misleading or deceptive conduct. Once the issue of the chemical was raised and answered in the way it was, it could reasonably be expected in the circumstances that Mr Hay would draw attention to the toxic nature of PCP. He did not, and in not so doing, his response amounted to conduct that was misleading or deceptive. The response reasonably conveyed to Mr Gibbett and Mr Buckley the representation that there was no concern in connection with wood chips that the timber from which they would be derived had been treated with PCP because the PCP content was so low as to be negligible. 10 The conclusion that Mr Hay's conduct was in the circumstances misleading or deceptive is, if anything, reinforced by the evidence which Mr Hay gave that the position he took at the time was that he was providing to Mr Gibbett and Mr Hay "all information relevant to the product we were supplying him". Albeit unintentionally, Mr Hay was not doing that. The information supplied was quite incomplete and it was that incompleteness which made his conduct a contravention of s 52. I do not think, as Emmett J suggests, that the conduct was taken out of the realm of conduct that was misleading or deceptive because the discussion occurred informally or from any other circumstance surrounding the observance by Mr Gibbett and Mr Buckley of the dipping process. 11 The second issue is whether Mr Gibbett or Mr Buckley relied upon the misleading conduct. Counsel for Forwood submitted, and the submission is accepted by Emmett J that it would have been unreasonable for Mr Gibbett to draw any conclusion from what was said having regard to Mr Gibbett's own knowledge that PCP should be avoided or to rely on anything said by Mr Hay as being a statement concerning the suitability of the wood shavings for use in connection with the export of live crayfish, without making clear to Mr Hay that he was intending to do so. 12 I have considerable sympathy for Mr Hay. Perhaps Mr Gibbett had at least as much knowledge as Mr Hay had concerning the suitability of shavings derived from timber dipped in PCP for use as packaging for live crayfish, in that neither had much actual knowledge at all. Certainly Mr Hay intended no misstatement. Yet, in circumstances where Forwood did not even wish to sell woodchips to the respondents Forwood is to be made liable in damages in a considerable sum. But the issue, ultimately, is one of fact. It is whether the respondents relied upon the conduct of Mr Hay and in particular the half truth which he disclosed to Mr Gibbett. The learned primary Judge found that there was reliance. His Honour said: "In my judgment, at that meeting, Gibbett was relying upon the skill and judgment of Forwood through Hay as to the properties of the PCP solution, in particular as to the suitability of wood shavings from timber dipped in PCP solution for packaging live crayfish for export. Had he, or Buckley, then been told that the consequence of the wood shavings coming from timber dipped in the PCP solution was that they should not be used for packing live crayfish for export, I find that the transaction would not then have been proceeded[sic]." 13 That finding was a finding of fact arrived at by his Honour who had the advantage of having observed the witnesses. Although, it may be said, the finding is one of inference, rather than direct testimony, it nevertheless is one that may in indirect and subtle ways be influenced by the observance of the witness and in my view should not be interfered with by a Court on appeal. 14 In my view the damages found by his Honour flowed from the misleading conduct. There is no ground of appeal on the issue of the quantum of damages. 15 I agree with Tamberlin J on the question of interest and accordingly with his Honour as to the orders which should be made on the appeal. In consequence the appeal should be dismissed with costs. The cross appeal should be allowed on the question of interest, but otherwise dismissed. Interest should be allowed for the full period between 30 June 1994 to the date of judgment, without any disallowance in respect of any intermediate period. I agree also that the appellants should pay one half of the respondents' costs of the cross appeal. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.

Associate: Dated: 20 March 2002 IN THE FEDERAL COURT OF AUSTRALIA

ON APPPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT TAMBERLIN J: 16 I have had the advantage of reading the draft reasons for the judgment of Emmett J in this matter and I adopt what his Honour has set out in relation to the history of the matter and the pleadings including the summary of the judgment given below. 17 In particular I agree with his Honour's reasoning in relation to the claim for breach of warranty and the conclusion that the proposed amendment in subpars 15A(1)-15A(3) should be refused. As his Honour noted, the remaining proposed amended paragraphs were not objected to and accordingly I would grant leave to amend those paragraphs. 18 I do not agree with the conclusion reached by his Honour that there was no misleading conduct on the part of the appellants and the further conclusion that the respondents did not establish reliance. 19 In relation to the misleading conduct alleged, the primary Judge did not find that Russell Hay ("Hay") was expressly told that the wood shavings were to be free of any chemicals which might be regarded as toxic or harmful to crayfish packaged in them or to consumers. The consequence of the discussion in May 1993, adjacent to the dipping tank, was that Kenneth Maxwell Gibbett ("Gibbett") and Gregory Buckley ("Buckley") made known their concern about the fact that timber, from which wood shavings would ultimately be taken, was being dipped in some form of chemical solution. When questioned about this, Hay told them what it was and the extent to which it penetrated the timber. He said that the chemical pentachlorophenol ("PCP") would be "barely detectable". The primary Judge considered that, at that time, Hay was aware of the potentially harmful properties of PCP due to information which had been received from the supplier and in the course of inquiries made about procuring replacement supplies. His Honour referred to par [21] of his reasons, which disclosed the general nature of that awareness on his Honour's view. That paragraph reads: "The Manufacturer's Safety Data Sheet of Rhône - Poulenc contained handling precautions which reflected Hay's understanding of the properties of liquid PCP. It was toxic by inhalation, ingestion and skin absorption. Protective clothing, gloves and eye and face protection was required when handling the product, and skin contact was to be avoided. An important note was that the product, either pure or as a solution, should not be discharged into the water supply, or the sewerage system, or into drainage ditches. The product disposal precautions on the sheet stated 'Replace contaminated fluids. Do not release into the environment. Very toxic to fish'. Hay said that the information was, as one might expect, consistent with the information provided by Nufarm." 20 The Appeal Book indicated that this information included the seven page application by Rhône - Poulenc Specialtes Cliniques concerning the chemical used (PCP) which contained a great deal of information as to the toxic matter of the chemical including the matters adverted to specifically by his Honour. 21 The relevant exchange in cross-examination with Hay in relation to this matter was as follows: "Mr Hay: … At no stage did I avoid or hide the fact that Penta was being used in the shavings - on the timber. Question; You do have a recollection particularly of Mr Buckley asking, "What's the chemical"? Mr Hay: … Yes. Question: When he did his tour in May of 1993? … Mr Hay: Yes I do. Question: You've agreed that you corrected Mr Barsee's draft statement so as to state that what you told them was that, … 'The amount of the chemical in the leading edge of the shavings was so low as to be barely detectable? … Mr Hay: That's right. It doesn't say "not detectable". It probably should have - I should have been more enthusiastic and gone on. It would definitely be there. So I'm saying it's a very low quantity. In a physical sense, there's not much of it. That's true. … The position I took at that time - that we were providing all information relevant to the product we were supplying him and that they were making the assessment that it was suitable for their requirements, until later on we decided that that it was not appropriate and in fact following some new concerns another stance was taken. I was not involved at that time … at the time I was involved my role was entirely to keep the customer fully informed to the best of our knowledge about the product he was buying, which I believe we did. Question: Yes, so you stand by the statement you made to Mr Gibbett in about May 1993 that to the best of your knowledge … that it was a fair thing to say to Mr Gibbett in response to the specific inquiries raised that the level of it in the leading edge of the shavings was so low as to be barely detectable? Mr Hay: Yes." 22 The primary Judge went on to say at [104]: "In my judgment, at that meeting, [May 1993], Gibbett was relying upon the skill and judgment of Forwood through Hay as to the properties of the PCP solution, in particular as to the suitability of wood shavings from timber dipped in PCP solution for packaging live crayfish for export. Had he, or Buckley, then been told that the consequence of the wood shavings coming from timber dipped in the PCP solution was that they should not be used for packaging live crayfish for export, I find that the transaction would not then have been proceeded [sic]." 23 The claim made in the amended statement of claim, subpars 18A(1)-18A(2) was that the first defendant contravened s 52 of the Trade Practices Act 1974 (Cth) ("TPA") in that the 1993 representations were misleading. 24 In my opinion, taken in context, the position in substance was that concern was expressed to Hay in the above terms as to the use of chemicals in the treatment of the timber. At that time Hay had available extensive detailed information in the form of the chemical attributes and hazards of the chemical but did not disclose them. He was not told the nature and extent of the toxicity. The answer which was given, namely that the amount of the chemical was so low as to be barely detectable, was clearly designed to reassure Gibbett that there was no problem as a result of the treatment because of the low amount of the chemical used in the treatment. 25 In those circumstances it was open to a reasonable person in the position of Gibbett and Buckley, to understand that they were being told that in no circumstances could the timber treated with any toxic chemical cause any problem because of the low content. It was intended to be, and was taken to be, a reassurance. In fact, the timber as treated by the chemical, was unsuitable for the purpose envisaged by Gibbett. The failure to give more detailed information, although not deliberate, was in fact a misleading statement which could reasonably have been considered to convey the absence of any problem from toxicity when in fact this was not the true position: see Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97. 26 Accordingly, I am satisfied that there was misleading conduct by Forwood Products Pty Ltd ("Forwood") and that an error has not been shown in the conclusion reached by his Honour in this respect. An incomplete response to a serious inquiry expressing concern to a person with further relevant information available which is not disclosed, is capable of being considered and was properly so considered by his Honour in the present case to be misleading conduct. 27 In reaching this conclusion I do not think that there is any significant distinction between "fish" and "crayfish" so far as toxicity is concerned. It will be recalled that the warning given in the manufacture's material was that the chemical was "very toxic to fish". This was not conveyed to Gibbett and Buckley. This information would clearly have been relevant to the recipient having a fair opportunity to make a decision as to whether to continue to accept the timber or not. 28 In this case it is apparent that demeanour and impression as well as the information conveyed in the oral and written evidence was of considerable importance both in relation to the misleading nature of the conduct and reliance. Impression clearly played a substantial role in the conclusion, which his Honour reached in relation to the distortion of the true situation as conveyed to Gibbett in the absence of the further information which Hay possessed and also in relation to the question of reliance. In this respect it should be noted that his Honour formed the impression that although he doubt about the reliability of Gibbett's evidence in general, Gibbett must have been mistaken in assessing his state of knowledge in relation to the implications of dipping the timber in a chemical solution in relation to the export of live crayfish as at December 1992 or May 1993. This is a conclusion which must have been formed as a consequence of his Honour's observations and impressions of Gibbett as a witness, having regard also to what Gibbett would have reasonably been expected to have done if he had appreciated the significance of the chemical treatment of the timber in relation to wood shavings, in that period. I do not accept that his Honour was in error in relation to reliance in the misleading conduct. 29 For the above reasons I am satisfied that no error has been demonstrated in the reasoning or conclusions reached by the primary Judge in relation to the characterisation of the conduct of Hay, notwithstanding that such conduct was not intended to be misleading in any way and, that Hay was acting in good faith and without any intention to mislead in the May discussions. Accordingly, I am satisfied that there was misleading and deceptive conduct at that meeting and this conduct was relied on by Gibbett in continuing with the arrangements.

Damages 30 In relation to damages there was no appeal and the cross-appeal was discontinued. 31 In relation to interest, his Honour, in a separate judgment of 27 April 2001, disallowed interest for a period from the beginning of January 1998 to October 1999, on the basis that there was a failure on behalf of the applicants to comply in a timely manner with directions and bring the matter to a prompt hearing. His Honour enumerates the delays in his judgment on interest and costs. 32 Section 51A(1) of the Federal Court Act 1976 (Cth)provides in effect that interest shall be awarded, unless good cause is shown to the contrary, on money judged to be paid between the date when the cause of action arose and the date on which the judgment is entered. The prima facie rule then is that interest should be awarded as provided by the Statute: see Grincelis v House (2000) 173 ALR 564 at par [7]. The question in the present case is whether there has been good cause shown to the contrary. 33 The present case is distinguishable from Golden West in that the disallowance by the primary Judge was not due to delay in the commencement of the proceedings. His Honour referred to the decision in Golden West Refining Corp Ltd v Daly Laboratories Pty Ltd (unreported Federal Court of Australia, Carr J, 16 February 1995), where Carr J observed: "I do not see any fault on the applicant's part in bringing this matter to hearing. Insofar as it was within the power of the parties to have this matter brought on for an early hearing, in my opinion each party shared that power equally." 34 In the present case where the litigation has been managed by the Court, each party should play an active role in bringing the matter to an early hearing. It is no excuse, for example, for one party to adopt a passive role and then complain that the other side is not pursuing the proceeding in a timely manner or to suggest that the Court is responsible for the delay. The matter should be immediately brought to the attention of the Court and the delay complained of. That apparently did not occur, except perhaps in a sporadic way, in the present case. Where a party delays in instituting proceedings, the responding party can of course play no positive role. The position is different where litigation has been instituted and the case is under management. Either party can take the initiative to expedite the matter. It is important to bear in mind that the unsuccessful party has profited from the use of the successful applicant's funds in the period up to judgment. An affidavit was filed by the solicitor for Gibbett on 16 June 1999 providing an explanation, at least as to part of the period, and referring to the impecuniosity of Gibbett and his medical condition. This was in respect of a period from about October 1998 onwards up to about June 1999. This evidence was not adverted to by his Honour in deciding the question of interest. There was also a period during which the parties were awaiting the outcome of other proceedings in Western Australia. His Honour took the view this did not excuse the failure. In all the circumstances my view is that the applicants should not have been deprived of interest for the period in question. 35 The applicants cross-appealed in relation to the question of costs. In view of the discrete findings made by his Honour the applicants were awarded forty percent (40%) of their costs. His Honour considered that there were separate issues on which the applicants failed in their claim and therefore they should not get costs in respect of the matters on which they did not succeed. I can see no error in his Honour's reasoning on this question. 36 Accordingly, for the above reasons, the appeal should be dismissed with costs. The cross-appeal should be allowed on the question of interest but otherwise dismissed. Interest should be allowed for the full period between 30 June 1994 to the date of judgment, without any disallowance in respect of any intermediate period. Having regard to the outcome on the cross-appeal the respondents should have fifty percent (50%) of their costs on the cross- appeal. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate: Dated: 20 March 2002 IN THE FEDERAL COURT OF AUSTRALIA

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT EMMETT J: 37 The appellant, Forwood Products Pty Ltd ("Forwood"), operated a timber mill ("the Mill") at Mount Gambier, S.A. under the name Mount Gambier Pine Industries ("MGPI"). Forwood sold wood shavings from the Mill to the first respondent, Kenneth Maxwell Gibbett ("Gibbett") from about January 1993 to June 1993, and later to the second respondent, Brisk Shavings Pty Ltd ("Shavings"), from 1 July 1993 to October 1993. The wood shavings were sold and supplied by Forwood for the purposes of on-selling by Gibbett and Shavings (after some further processing), to the exporters of live crayfish in Western Australia and South Australia, who used them as packing for the crayfish. 38 Gibbett and Shavings brought a proceeding in the Court claiming damages in respect of the wood shavings sold to them by Forwood. It is common ground that the wood shavings supplied were not fit for use in connection with packing live crayfish, because of the presence in the wood shavings of pentachlorophenol ("PCP"). 39 The claims were based on: · breach of warranty allegedly implied by the Sale of Goods Act 1895 (SA);

· contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA") and s 56 of the Fair Trading Act 1987 (SA);

40 Gibbett and Shavings claimed that the consequence of conduct by Forwood in May 1993 was to bring to an end a budding and potentially profitable business. Shavings could not perform its contracts for the supply of wood shavings, since alternative sources of good quality wood shavings were not available. 41 On 27 April 2001, a judge of the Court ordered that: 1. Shavings recover from Forwood damages, including a lump sum in lieu of interest, of $452,000; 2. Gibbett recover from Forwood damages, including a lump sum in lieu of interest, of $13,800; and 3. Forwood pay to Shavings and Gibbett 40 percent of their costs of and incidental to the application to be taxed, excluding therefrom specific orders for costs made in the course of the proceedings.

Forwood, by notice of appeal dated 18 May 2001, appealed to the Full Court of the Federal Court from those orders. By notice of cross-appeal dated 5 June 2001, Gibbett and Shavings appealed from the orders in so far as certain additional claims were disallowed and in so far as the primary judge failed to order Forwood to pay all of the costs incurred by Gibbett and Shavings. Gibbett and Shavings subsequently abandoned the cross-appeal in its entirety. Following abandonment of the cross-appeal, the only issues on the appeal concerned a meeting that took place in May 1993 at the Mill. 42 In their statement of claim, filed in November 1995, Gibbett and Shavings made allegations based on discussions that had occurred between Gibbett and Russel Hay ("Hay"), the customer services manager of Forwood,, in October 1992. No express allegation was made in the statement of claim of any agreement or conduct in May 1993 that gave rise to any independent cause of action. However, in the course of argument on the appeal, it became apparent that Gibbett and Shavings supported the orders of the primary judge entirely on the basis of the events of May 1993. They therefore sought leave to amend the statement of claim. 43 The proposed amendments entail including further allegations as follows: "15A.1 Further and in the alternative, in about May 1993, the second plaintiff entered into an agreement with the first defendant for the supply by the first defendant to the second plaintiff of wood shavings ("the May 1993 agreement"). 15A.2 Pursuant to s14.1 of the Sale of Goods Act 1895 (SA) it was an implied term of the May 1993 agreement that the said wood shavings were suitable for the purpose of packaging live crayfish. 15A.3 In breach of the May 1993 agreement, the said wood shavings, which were supplied from May 1993 until October 1993, were unsuitable for the purpose of packaging live crayfish, and the first and second plaintiffs suffered loss and damage. 18A.1 Further and in the alternative, in about May 1993 the first defendant represented that the wood shavings to be supplied under the May 1993 agreement were suitable for use in packaging live crayfish, or at least, that the said wood shavings were not so contaminated as to be unsuitable for such use ("the May 1993 representations"). 18A.2 The May 1993 representations were false and misleading in contravention of s52 of the Trade Practices Act 1974 (Cth) and s56 of the Fair Trading Act 1987 (SA). 19A.1 Further and in the alternative, the first defendant owed the second plaintiff a duty of care in relation to information provided by the first defendant to the second plaintiff as to the properties and characteristics of the PCP in the wood shavings. 19A.2 The second defendant was in breach of its said duty of care, in that in May 1993 the second defendant:

19A.2.1 failed to pass on knowledge and information about the characteristics of PCP which the first defendant possessed;

19A.2.2 conveyed the impression that the presence of PCP in the wood shavings was not, or was unlikely to be, of any consequence;

19A.2.3 failed to pass on knowledge and information to the effect that PCP was a dangerous compound, subject to rigorous manufacturers' guidelines and careful handling regimes to protect employees and the environment; 19A.3 In the further alternative, the first defendant was in breach of its duty of care to the second plaintiff in that in August 1993 the first defendant failed to inform the second plaintiff of the risk that due to the potential of PCP to leach from the wood shavings, the wood shavings were or might be unsuitable for use in packaging live crayfish." 44 Forwood did not oppose the inclusion of paragraphs 18A.1, 18A.2, 19A.1, 19A.2 and 19A.3. However, Forwood opposed the inclusion of the proposed paragraphs 15A.1, 15A.2, and 15A.3.

gibbett 45 Mr Gibbett qualified as an electrical fitter and mechanic in 1974. In November 1991, he commenced operating a transport business under the name Brisk Transport Management. By 1992 that business was transporting liquor from Perth to Geraldton, as well as delivering timber products around Perth. As a sideline, he acquired reject timber from a timber mill and re-sized it for resale. Gibbett himself spent about half his time travelling between between Perth and Geraldton. 46 In the course of his work, Gibbett learned of the live crayfish export industry. He came to meet the General Manager of MG Kailis Seafood Exporters ("Kailis"). As Gibbett had an interest in timber by-products, he discussed the prospect of supplying wood shavings to Kailis for use in the packaging of live crayfish for export. In January 1992, Gibbett procured a supply to Kailis of some 900 bags wood shavings from a source in South Australia. 47 Gibbett sold a further three truckloads of wood shavings to Kailis during that season. He also sold wood shavings to two other substantial live crayfish exporters, one in Fremantle and one in Geraldton. Those wood shavings were largely procured from an entity called Peat Soils. By late 1992, Gibbett held the view that its supplies were somewhat overpriced. Also, he was not confident of its ability to supply wood shavings with sufficient regularity and in sufficient volume to meet his anticipated demands. 48 By October 1992, Gibbett had secured a contract to supply Fremantle Fishermans Co-operative Society Ltd with a number of loads of wood shavings, and he also had other "forward orders" for the next season from other fish exporters, procured in about June 1992.

Forwood and the Mill 49 In December 1992, Forwood was routinely dipping green timber in PCP solution to prevent blue stain fungus. As part of timber processing, all green timber at the Mill had been dipped in a tank containing a heavily diluted PCP solution to prevent that fungus since the 1950s. The treated timber was then stored in the open and, generally after a few days, it was manually restacked to improve its drying. It might remain in the open for some months before being taken to the kilns for further and more intensive drying and then processing in the dry mill to the stage of the final product. The wood shavings that were sold to Gibbett and Shavings were by-products of the processing of timber through the moulders as part of the dry mill processing. 50 In the late 1980s Hay, who was involved in the operations of the green mill of MGPI in his role as customer services manager, learned of some concerns about the use of PCP in dipping timber. He started investigating possible alternative processes to prevent blue stain fungus on timber. His aim was to explore whether cheaper and more effective chemical treatments were available which were environmentally safer than organochlorines such as PCP. He was the person within Forwood who had the most knowledge of PCP and its properties. He became aware that it was "potentially toxic" in certain circumstances. He was unable to find a suitable alternative chemical. Progressively, the safety precautions applicable to the use of PCP became greater. 51 A manufacturer's safety data sheet of Rhône-Poulenc containing handling precautions was admitted as evidence before the primary judge. It reflected Hay's understanding of the properties of liquid PCP. It was toxic by inhalation, ingestion and skin absorption. Protective clothing, gloves and eye and face protection was required when handling the product, and skin contact was to be avoided. An important note was that the product, either pure or as a solution, should not be discharged into the water supply or sewerage system, or into drainage ditches. The product disposal precautions on the sheet stated: "Replace contaminated fluids. Do not release into the environment. Very toxic to fish".

meeting in december 1992 52 In December 1992, Gibbett made his first contact with Forwood. He attended its premises and met Hay. He explained that he wanted to acquire wood shavings for use in the packaging of live crayfish for export. At the meeting in December 1992, Hay was not over-whelmed at the prospect of selling wood shavings to Gibbett. Hay told him that Forwood did not have wood shavings available to be sold to him, as another enterprise was already purchasing all Forwood's wood shavings. 53 Hay did not take Gibbett on the usual tour of the Mill on the occasion of the visit in December 1992. Hay took Gibbett on a tour in the reverse order from his usual tour for visitors. After leaving Hay's office, they visited the hopper area where the wood shavings were stored, and Gibbett was then shown the wood shavings and expressed delight at their colour, shape, cleanliness and springiness. That is apparently a consequence of the timber being air dried. 54 Gibbett was asked by Hay why the shavings could not be bought in Western Australia. Gibbett told him that the Western Australian wood shavings were very dusty and not suitable for Gibbett's purpose, but did not tell him that one problem with them was that they were sprayed with preservative. When Hay told Gibbett that Forwood had no wood shavings for sale, he invited Gibbett to take that aspect up with Lew Parsons, a senior officer in the Department of Primary Industries if he wished. Gibbett subsequently did so. 55 As a result of the intervention of an officer of the Minister for Primary Industries, Forwood decided to divert some of its wood shavings to sale to Gibbett. Parsons told Gibbett that Forwood would supply up to twenty tonnes of wood shavings per week at $30 per tonne. Gibbett put in place the appropriate arrangements to make payment for the wood shavings, for their storage in Mount Gambier and for their collection from MGPI by a contractor on his behalf.

meeting in january 1993 56 In January 1993, Gibbett again visited the Mill. He was accompanied by his mother, Lorna Moyle ("Moyle") and by Alan Spehr ("Spehr"), a local cartage contractor. The main purpose of this second meeting was to take steps to ensure that Spehr operated efficiently in the collection of wood shavings. By this time, Moyle was engaged in supervising the sifting of wood shavings (received from other suppliers) to ensure they were "clean", that is contained no dirt or mud or foreign objects. She had been doing so from about October 1992. That work was being carried out at rented premises at Wingfield, a suburb of Adelaide. 57 By this time, Gibbett had received some supplies of wood shavings from Forwood. The quality of the wood shavings was again discussed with Hay. Moyle said that the wood shavings had to be free of foreign objects and dirt and fungus. No comments were made to the effect that the wood shavings were to be chemical free. 58 Gibbett also decided to carry out the sifting process at Mount Gambier, to avoid double handling. The wood shavings would then be transported directly from Mount Gambier to Western Australia, rather than to Wingfield for sifting. Transport costs would be reduced, as the heavier rejected material from the wood shavings, namely the sawdust, would not be carted at all from Mount Gambier. Moyle and others moved to Mount Gambier. Contract labour at Mount Gambier was also engaged. That had all been put in place by about May 1993. By June 1993, the operation in Mount Gambier had expanded. Another sifting machine had been commissioned and acquired.

gibbett and buckley 59 On 14 April 1993, at Gibbett's request, Hay, on behalf of Forwood, wrote confirming that Forwood had agreed to supply to "Brisk Sawdust and Shavings Supplies" dry fine wood shavings up to twenty tonnes per week at $42 per load of 1.4 tonnes. That letter was enclosed in material contained in an application to a lending institution made on behalf of Brisk Transport Pty Ltd, then trading as Brisk Sawdust and Shavings Supplies, for finance in the sum of $190,000 to cover the purchase of trucks, trailers and equipment. The finance application indicated that the transport side of Gibbett's business would be expanded, essentially to bring wood shavings from Mount Gambier to Adelaide and Perth. It indicated that Gibbett was operating as a sole trader under the names Brisk Transport Management and Brisk Sawdust and Shavings Supplies, and that he proposed to sell those businesses into Brisk Transport Pty Ltd. 60 The finance application referred to the competitors of the business as being other suppliers of wood chips whose product was:

"very dusty and proving unpopular with the Asian importers. The shavings are also tainted in that the timber contains certain toxins. This has come about by the timber being treated with herbicides during its storage. [Emphasis added] The application described the wood shavings from MGPI as not being treated with any toxic chemicals. Gibbett said that he had not given that instruction to his accountant. Nevertheless, the documentation demonstrates an awareness on the part of Gibbett at the time of the possible significance of chemical treatment of timber. 61 A notice to Gibbett's creditors, dated 29 April 1993 was admitted in evidence before the primary judge. That notice contained representations that, since November 1991, Gibbett had concentrated on establishing the marketing of pine shavings. The notice was accompanied by a financial application to certain banks. The application contained representations that there was a goodwill value in having a supplier of "toxin free product" to established markets. Further, Gibbett claimed, while the use of shavings was not new, other suppliers had had problems in providing a clean, "untainted" product. Those references again demonstrate an awareness of the significance of chemical treatment of timber. 62 The application went on to say: "The shavings provided by the other competitor are very dusty and proving unpopular with the Asian importers. The shavings are also tainted in that the timber contains certain toxins. This has come about by the timber being treated with herbicides during its storage. The timber from South Australia is felled, kiln dried and processed within a short period. As there is no storage time, the timber has not been treated with any toxic chemicals." [Emphasis added] 63 In about April 1993, as a result of the notice to creditors, Gibbett made contact with Gregory Morris Buckley ("Buckley"), a Perth accountant, who was at the time considering whether to acquire an interest in the Western Australian business of Shavings, which was then about to be incorporated. As part of the process of the negotiation between Gibbett and Buckley, they visited the Mill together in May 1993.

the may 1993 discussions 64 Gibbett and Buckley met Hay at the Mill. They were accompanied by Moyle and Ross Smith, an employee. The discussion included the proposed arrangement between Buckley and Gibbett and its term. The content of the discussion also included the quality of the wood shavings, assurance of continued supply and the volume of wood shavings likely to be required in the future. After a discussion in Hay's office, the three men had a tour of the Mill. They followed Hay's normal route through the green mill and then to the dry mill. That is to say, they followed the timber milling process from its initial stages to its completion. 65 The critical discussion occurred when they came to the dipping tank in the green mill. A pack of freshly cut timber was in the process of being dipped into the dipping tank. The observation of that process prompted further discussion. 66 Buckley and Gibbett at that point had a short private discussion. Buckley then asked Hay about the contents of the dipping tank. Hay told him it was PCP or "Penta", a reference to the trade name used for PCP, namely "Pentabrite". Gibbett's evidence was that Hay said he did not know the name of the chemical in the dipping tank. The primary judge found that it was clear that Hay did know its name, and to claim that lack of knowledge on his part would imply an element of evasiveness, which His Honour did not accept that Hay possessed. His Honour did not accept that at any time Hay consciously avoided providing accurate information to either Gibbett or Buckley. 67 In response to further questioning, Hay said that the PCP or "Penta" would be concentrated only on the outer edge of the dipped timber. He told Gibbett and Buckley that one client of MGPI, a toy manufacturer, had tested timber from MGPI to ensure it was safe for use in children's toys and found that it was safe. Hay said that that was hardly surprising, as any residual PCP would be left in the wood shavings and not in the sawn timber itself. There was further discussion about the amount of PCP in the wood shavings, and Hay said words to the effect that:

"the PCP did not penetrate the timber and only affected the outside surface of the dipped timber, and that the amount of PCP in the outer edge of the wood shavings would be 'barely detectable' and [was] 'virtually nothing'." He did not say that the wood shavings were chemical free, as Gibbett claimed. 68 Although there were three sheets of paper in plastic sheets affixed to the wall in those areas, as information for employees handing Pentabrite, they did not come to Gibbett's attention at the time. Nevertheless, the inspection clearly disclosed to Gibbett and Buckley that the timber was being treated with some form of chemical. 69 The discussions between Buckley and Gibbett resulted in an agreement between them and the supply of wood shavings by Forwood to Gibbett continued. Gibbett also proceeded with his plans to establish several corporate vehicles for his business, including Shavings, Brisk Holdings Pty Ltd ("Holdings"), to occupy the property where the wood shavings were to be sifted, and Brisk Transport Pty Ltd, to operate the transport side of the business.

termination of the arrangement 70 From the beginning of July 1993 Shavings was the buyer of the wood shavings from Forwood. However, there was a lull in the purchase of wood shavings in July and August 1993 whilst Gibbett spent time in Perth on the transport side of his business. By August 1993, Gibbett had entered into a long term lease for new premises at Mount Gambier and had commissioned a custom designed sifting machine, which was manufactured in Mount Gambier. In September 1993, orders by Shavings to MGPI resumed and were being met by MGPI. By 18 October 1993, Shavings had received about 153 tonnes from MGPI and had produced about 2,575 bales of wood shavings, which had been transported to Western Australia to meet the demand from the commencement of the cray fishing export season. 71 In the meantime, MGPI was confronting issues concerning its use of PCP. On 4 August 1993, it was notified by a government authority in the following terms: "As you have been informed by telephone, testing of groundwater at the above site has revealed that dioxins in significant quantity have been detected in the groundwater. This is of major concern. ……………………………… Given the serious nature of this pollution it is imperative that you cease any operations at the site which use pentachlorophenol where there exists a possibility that any of the pentachlorophenol may enter the groundwater…" 72 That information came as a surprise to Forwood. The relevant authority routinely tested for possible contamination of groundwater supplies, and previously there had been no similar problem. On receipt of the letter of 4 August 1993, Forwood immediately ceased dipping timber in PCP solution. It has not used PCP since. 73 Nevertheless it had on hand substantial stocks of timber that had been treated in the green mill by being dipped in PCP. As the problem that had been identified concerned the run-off of PCP from timber, Forwood proposed to process that timber in the normal operations of the Mill. In August 1993, it was not thought that there was a problem with leaching of PCP from treated timber. It was believed that the PCP solution, after dipping and drainage, was either recovered or was "set" into the outer edge of the dipped timber. It was believed at that stage that the ground contamination was simply caused by timber dripping PCP solution. However, tests performed in the following period confirmed that PCP, which was previously believed to be "set" in timber, was able to leach out due to rainfall on timber stacked in the open. 74 Neither Hans Kobes, a sawmill manager at the Mill nor Hay addressed the significance of the letter of 4 August 1993 in relation to the sale of wood shavings to Shavings at the time of receipt of the letter. Supply of PCP contaminated wood shavings to Shavings continued routinely in September and early October 1993. In the meantime, Forwood was endeavouring to "manage" the problem of the risk of PCP contaminated groundwater with its employees and with the public. A task force was established to address the issues and concerns. 75 However, on 18 October 1993 Kobes telephoned Gibbett. He told him that there was a problem about continuing to supply wood shavings. A meeting was arranged for 20 October 1993. Kobes also spoke to the South Australian Health Commission at about the same time. It was confirmed to him that PCP was present in the wood shavings, and that the wood shavings should not come into contact with food. A "zero content" of PCP in the wood shavings had to exist. That advice was unequivocal. 76 At the meeting on 20 October 1993 Kobes told Gibbett of that advice. Shavings then had about 600 bales of wood shavings in stock at Mount Gambier, which Kobes on behalf of Forwood agreed to take back and sell to its other purchaser of wood shavings. Gibbett said that he also had about 600 bales of wood shavings in storage in Western Australia. Gibbett agreed not to sell or deliver any wood shavings supplied by MGPI pending further investigations. 77 On 22 October 1993 the South Australian Health Commission formally advised Forwood that wood shavings containing PCP should not be used in packaging for food. On 22 October 1993, Forwood wrote to Gibbett to that effect. That letter added: "In the light of this, arrangements have been made to provide freshly processed shavings from the Mount Gambier Sawmill." Forwood also operated other timber mills known as the Mount Gambier Sawmill and the Nangwarry Mill. Apparently neither dipped timber in PCP to prevent blue mould. Wood shavings from the Nangwarry Mill had already been provided to Shavings, but Gibbett regarded them as unsuitable because of excessive sawdust content. 78 In the next several days, Gibbett arranged for the recall of all bales of wood shavings delivered to customers in Western Australia, and for their safe disposition. He also arranged for the safe disposition of wood shavings held in bales in Perth and Adelaide and the cleaning of the processing area at Mount Gambier. Bales that had been used to hold contaminated wood chips were also disposed of. 79 On 20 October 1993, Shavings had demanded from Forwood a suitable alternative supply of wood shavings. Forwood, by letter of 28 October 1993 to Shavings, offered to supply wood shavings from either its Nangwarry Mill or its Mount Gambier sawmill, free from PCP. It specifically refused to guarantee that the wood shavings would be free of any contamination. It sought formal acceptance of those conditions. Gibbett declined to accept them. In the meantime, however, those alternative sources of supply of wood shavings were being provided. 80 In early December 1993, Gibbett refused to take any more wood shavings from Forwood from its Mount Gambier Mill or its Nangwarry Mill. At the time Kobes had told him that MGPI was about to embark upon its new wood drying method, which involved no chemical dipping, and that he expected that wood shavings from timber not dipped in any chemical might be available from about April 1994. Shavings had, by then, more or less abandoned plans to service its clients properly for the 1993/94 crayfishing season. 81 No evidence was led as to whether Shavings had sought supplies of wood shavings from other sources such as those it used in 1992. Kobes did not at that time promise the availability of clean wood shavings from MGPI at April 1994. He told Gibbett that those clean shavings would only become available when the stacked treated timber had been used up in the normal course. As it happened, that took about two years. As timber was processed under the new drying method, timber that had been treated with PCP was also being processed. There was a risk that clean wood shavings might be mixed with wood shavings from timber dipped in PCP solution processed at about the same time. 82 Understandably, Forwood was not prepared to guarantee that it would supply uncontaminated wood shavings from the MGPI Mill in those circumstances. It was not cost effective for MGPI to isolate wood shavings from timber passing through the moulders in the dry mill which had been dipped in PCP solution from wood shavings from timber passing through the moulders in the dry mill which had not been dipped in PCP solution. 83 Shavings stopped operating on 7 December 1993. Gibbett proposed to resume operations at the end of April 1994, when he anticipated that clean shavings from MGPI would be available. MGPI was not able to supply uncontaminated wood shavings from the Mill at that time or for a considerable period thereafter. By that time, he had effectively replaced all the product pre-ordered and baled by 18 October 1993, but the effort of doing so had demonstrated to him that the production prospects with the nature of the wood shavings available did not justify continuing. In December 1993, Gibbett also closed down the transport business as the contract to transport to breweries between Perth and Geraldton was lost. 84 Supplies of wood shavings from Nangwarry Mill were made available, but Gibbett complained that it was of "inconsistent quality". As MGPI still had treated timber to process, it was not in a position to offer uncontaminated wood shavings from that mill. The supply of wood shavings from Nangwarry Mill was not continued, as Shavings found that it contained too much sawdust. The difficulties in procuring reliable and satisfactory new wood shavings meant that orders for the sale of wood shavings were also difficult to procure from exporters of live crayfish.

consideration of claims by the primary judge 85 His Honour did not consider that Gibbett had made out any entitlement to relief in respect of the sales of wood shavings by Forwood to him in the period December 1992 to May 1993. His Honour held that there was no express condition of the agreement entered into between Gibbett and Forwood in December 1993 that wood shavings supplied by Forwood would be fit for the purpose of packaging live crayfish for export. 86 The circumstances in which the agreement in December 1992 was made lead to the conclusion that Gibbett was not relying on Forwood's (or Hay's) skill and judgment in deciding to acquire the wood shavings at that time. He had a greater knowledge of the requirements of live crayfish exporters for packaging material. He made his own judgment about the physical characteristics of the wood shavings from MGPI. The only real assurance he sought was that the wood shavings be "clean", that is free of dirt and like material. 87 There was no feature of his dealings with Hay, or with other officers of Forwood at the time that could reasonably be regarded as conveying to Forwood or Hay that Gibbett was relying upon their skill and judgment to provide wood shavings that were suitable for packaging live crayfish for export by reference to their being free of chemicals, except that they be "clean" in the sense described. Gibbett did not in fact rely upon the skill and judgment of Forwood or of Hay at that time to provide wood shavings which were chemical free or which were more generally suitable for packaging live crayfish for export. Until Gibbett's approach, neither Forwood nor Hay had addressed at all the suitability of wood shavings from MGPI for that purpose and neither was then called upon to address that question by anything Gibbett said. 88 His Honour did not consider that Forwood or Hay represented to Gibbett in December 1992 that the wood shavings from MGPI were fit for the purpose of use as packaging for the export of live crayfish. The claim based upon negligence in respect of the agreement of December 1992 and the supply of wood shavings to May 1993 also failed since it was premised upon the making of the representations and warranties. Since, at that time, Forwood and Hay were not aware that wood shavings for packaging live crayfish for export had to be free of chemical impregnation, and were not aware that Gibbett was relying upon their skill and judgment in that regard, the claim that they were negligent upon the basis alleged also failed. 89 Whatever may have been the requirements of the exporters of live crayfish concerning the quality of packaging material, there was nothing to suggest that Forwood or Hay had learnt of, or had any reason to know of, such requirements independently of the communications with Gibbett and later Buckley. The primary judge did not accept that either Gibbett or Forwood had made out their claim for damages for breach of contract in respect of the sale and supply of wood shavings from May 1993. There were no further relevant communications in the period to late October 1993 when the supply of wood shavings ceased. The communications that His Honour had found to have taken place did not constitute an express warranty that the wood shavings were suitable for the purpose of packaging live crayfish for export. 90 Although it was clear that Forwood, through Hay and Parsons, knew that the wood shavings were to be supplied for packaging live crayfish for export, His Honour did not accept that Hay was told that the wood shavings had to be kiln dried and chemical free. Nor was Hay expressly told that the wood shavings had to be free of any chemicals which might be regarded as toxic or harmful to crayfish packaged in them or to consumers. 91 However, His Honour concluded that, in the course of the discussion in May 1993 adjacent to the dipping tank, both Gibbett and Buckley exhibited some concern about the fact that timber from which wood shavings would ultimately be taken was being dipped in some form of chemical solution. They asked Hay about that. He told them what it was, and the extent to which it penetrated the timber. He did not then leave it to them to decide what they wished to do, but explained further that the PCP would be "barely detectable". He was then aware of the potentially harmful properties of PCP, due to the information about it that he had received both from the supplier and in the course of his enquiries about procuring a replacement. 92 His Honour concluded that, at that meeting, Gibbett was relying upon the skill and judgment of Forwood, through Hay, as to the properties of the PCP solution, in particular as to the suitability of wood shavings from timber dipped in PCP solution for packaging live crayfish for export. His Honour found that, had Gibbett, or Buckley, then been told that the consequence of the wood shavings coming from timber dipped in the PCP solution was that they should not be used for packaging live crayfish for export, "the transaction would not then have been proceeded" [sic]. Nor would Buckley have entered arrangements with Gibbett. Although they each proceeded, knowing that the timber was dipped in PCP solution, His Honour concluded that they relied on what Hay conveyed to them about its properties in so doing. 93 His Honour concluded that there was more than mere disclosure of the purpose for which the wood shavings were required. Their reliance was "a substantial and effective cause of the transaction proceeding". Hay was possessed of knowledge relevant to that matter, and conveyed a picture nevertheless that the wood shavings were not unsuitable for that purpose. Although His Honour entirely accepted that Hay was being both conscientious and honest in his answers, His Honour found that the circumstances indicated that he was in error in those views. It is true that it was only when the capacity of PCP solution to leach from treated timber was identified that Forwood and Hay recognised that the wood shavings should not have been used for the purpose of packaging live crayfish for export. 94 His Honour concluded that Gibbett and Shavings had established that they were entitled to damages for breach of contract by reason of Forwood selling to Gibbett, between May 1993 and June 1993, and then selling to Shavings, between July 1993 and October 1993, wood shavings that were not suitable for the purpose of packaging live crayfish for export, when Forwood impliedly warranted the suitability of the wood shavings supplied for that purpose. 95 Although the observation of Hay that any PCP in the wood shavings was "barely detectable" was literally true, and was believed by him, His Honour considered, in the circumstances, that it was capable of conveying the further meaning that wood shavings treated with PCP at the Mill were not so contaminated as to be unsuitable for use in packaging live crayfish for export. His Honour found that it did convey that further meaning to Gibbett. The true picture was distorted by that response or observation without conveying the further information that he had about the characteristics of PCP. 96 Hay did not intend to present any incomplete picture by his observation, but in the particular circumstances the failure to add that further information did lead to the observation being misleading. His Honour was also satisfied that Gibbett and Shavings relied upon the representation that he had found was been misleading and deceptive. They did so in continuing to seek and accept wood shavings from Forwood up to October 1993 for the supply of treated wood shavings to exporters of live crayfish and in connection with the business of doing so. 97 His Honour also concluded that there was clearly a sufficiently proximate relationship between Forwood and Gibbett to give rise to a duty of care owed by Forwood to Gibbett in relation to the information provided by Forwood to Gibbett in May 1993. There was a failure to take reasonable care by Hay in the discussion that took place in May 1993. Even a literally accurate statement (as Hay's was, that the presence of PCP in wood chips would be barely detectable) may nevertheless give rise to liability for a negligent misstatement. Because the issue as to the nature of the dipping process was raised, it was reasonable to expect him to respond in the light of his knowledge as to the purpose of the question. He was aware of the purpose for which the wood shavings were required. 98 His Honour held that Hay's response, given the knowledge he had about the characteristics of PCP by then, was inadequate. It was an answer that conveyed that the presence of PCP in the wood shavings was not, or was unlikely to be, of any consequence. As the supplier of wood shavings to Shavings at the time, Forwood was negligent in failing soon after 4 August 1993 to recognise, and inform Gibbett and Shavings, of the risk that the wood shavings might be unsuitable for use in packaging live crayfish for export. His Honour considered that the information given in May 1993 should have been updated. 99 The contract by which Forwood was to supply wood shavings was not for a specified term of years. It was to provide about twenty tonnes of wood shavings per week, more or less regularly, for an unspecified period. The contract was terminable on reasonable notice. That notice would have been no longer than any one crayfishing season, that is relevantly by about June 1994. Forwood was not obliged to provide a specific quantity of wood shavings per week. The arrangement was dependent upon wood shavings being available. Forwood would not have been expected to process timber simply to generate wood shavings for Gibbett or Shavings. If Forwood had identified the problem with the wood shavings in June 1994 it would not have been in breach of its contract to then decline to provide wood shavings to Shavings for the next crayfishing season. 100 The primary judge was not persuaded that the shavings business of Gibbett during 1992/93 was anywhere near as profitable as he claimed. Gibbett made a net profit of something in the order of 15-20 per cent on sales in his shavings business in that financial year. 101 Gibbett was clearly "cash strapped" in April 1993, at least in part, because the transport business was clearly unprofitable and Gibbett did not isolate the costs of operating the two businesses. But for Forwood ceasing to supply wood shavings in October 1993, Gibbett would have continued to operate the transport business, including to transport wood shavings to Western Australia. 102 By July 1993, the wood shavings business was being operated through Shavings, a separate legal entity. Shavings had good sales prospects had it been able to secure from MGPI wood shavings of the same quality as those provided up to 18 October 1993, and which were not from timber dipped in PCP. On the other hand, alternative satisfactory supplies of wood shavings were readily available, perhaps not quite so reliably. 103 Shavings may have sold between 5,000 and 6,000 bales of wood shavings to that market, so the sales would have been between $225,000 and $270,000 and probably towards the lower end of that range. After satisfying the Western Australian market, it was reasonable to allow further revenue of about $40,000 for sales of wood shavings in South Australia and Victoria. Accordingly, if the provision of wood shavings had continued for the balance of 1993/94, Shavings would have received about $275,000 or a little more for the sale of wood shavings to exporters of live crayfish. Its net profit would have been in the order of $40,000-$55,000. 104 Instead of achieving that result, Shavings and Gibbett were obliged to recall and replace some 2,800 bales of wood shavings in and after October 1993. There was also no doubt considerable time and expense incurred in endeavouring to procure alternative supplies of wood shavings and in dealing with customers of Shavings and in securing the recall and replacement of the PCP contaminated wood shavings. The loss of $275,693 during that year was the consequence of those matters. 105 Accordingly, His Honour awarded damages to Shavings in the sum of $325,000. That figure was arrived at having regard to an allowance for loss of profits plus the trading loss for the 1993/1994 year and a sum for diminution of the value of assets. His Honour also awarded damages to Gibbett in the sum of $10,000.

resolution of the appeal 106 The essence of the claims by Gibbett and Shavings is that it was misleading for Hay to say what he said at the May meeting without also saying that PCP might leach out of wood shavings. While the observation by Hay that any PCP in the wood shavings was "barely detectable" was literally true, it was capable, so it was said, of conveying the further meaning that wood shavings treated with PCP at the mill were not so contaminated as to be unsuitable for use in packaging live crayfish for export. Gibbett and Shavings contend that the true picture was distorted such that the observation was misleading. They claimed that the observation did convey that further meaning to Gibbett, who relied on it in continuing to seek and accept wood shavings from Forwood up till October 1993 and supplying those wood shavings to exporters of live crayfish. 107 Curiously, the proceeding appears to have been conducted on the basis that the measure of damages for breach of warranty, contravention of s 52 of the Trade Practices Act 1974 (Cth) and breach of a common law duty to take care in making the observation, was the same. However, there was no ground of appeal concerning the way in which damages were assessed by the primary judge, who found Forwood liable in respect of each cause of action. It is not necessary, therefore, to say anything about the measure of damages. Nevertheless, the absence of any comment should not be taken as an indication of approval of the approach taken by the parties. 108 His Honour found that an agreement had been made in December 1992 between Forwood and Gibbett. The terms of that agreement were that Forwood would provide about twenty tonnes of wood shaving per week, more or less regularly, for an unspecified period at $42 per load of 1.4 tonnes. However, His Honour found that the circumstances in which that agreement was made did not lead to the conclusion that Gibbett was relying on Forwood's skill and judgment in deciding to acquire the wood shavings at that time. In December 1992, Gibbett had a greater knowledge of the requirements of live crayfish exporters for packaging material. Gibbett made his own judgment about the physical characteristics of the wood shavings. The only real assurance he sought was that the wood shavings be "clean", meaning thereby that it was free of dirt and like material. 109 His Honour found that there was no feature of Gibbett's dealings with Hay, or with other officers of Forwood, at the time that could reasonably be regarded as conveying to Forwood or to Hay that Gibbett was relying on their skill and judgment to provide wood shavings that were suitable for packaging live crayfish for export except that they be "clean" in the sense described. Gibbett did not in fact rely upon the skill and judgment of Forwood or of Hay at that time to provide wood shavings that were chemical free or that were generally more suitable for packaging live crayfish for export. 110 The agreement of December 1992 was confirmed by the letter of 14 April 1993. His Honour made no finding that there was any variation of that agreement, except to the extent that there was a novation in July 1993 when Shavings was formed. However, there was no finding, and the evidence would not justify a finding, that the terms of the agreement were varied or changed upon novation. 111 There was no suggestion in the original pleading that the wood shavings supplied after May were supplied otherwise than pursuant to the agreement entered into in December 1992. There was no allegation of any variation of the agreement made in December 1992 to include an implied warranty. In any event, the terms of the discussion that took place in May 1993 would not constitute a variation of the terms of the December agreement. It follows that the claim by Gibbett and Shavings for breach of a warranty or condition implied under the Sale of Goods Act must fail. Leave to amend to allege a new agreement for the sale of wood shavings in May 1993 should be refused. 112 Counsel for Gibbett and Shavings accepted that the circumstances of the claims were such that, if the case based on contravention of s 52 of the Trade Practices Act 1974 (Cth) does not succeed, Gibbett and Shavings would not succeed in establishing a breach of a common law duty to take care in the course of the observations made during the May 1993 discussions. Thus, the essence of the claim against Forwood is contravention of s 52 of the Trade Practices Act 1974 (Cth)in the course of the May discussions. 113 Hay said that the PCP or "Penta" would be concentrated only on the outer edge of the dipped timber and that any residual PCP would be left in the wood shavings but "would have been very low so as to be barely detectable". His Honour accepted that that was literally true. On His Honour's reasoning, that was the relevant conduct for the purposes of s 52 of the Trade Practices Act 1974 (Cth). The question is whether, in all the circumstances, that conduct contravened s 52 and, if so, whether Gibbett relied on that statement. That is to say, did Hay cause Gibbett to be misled - Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525. 114 In cross-examination, Gibbett accepted that he knew that timber treated with "Pentabrite", the trade name of PCP, was "to be avoided". He had been told that it was to be avoided. He agreed that, in a practical sense, that meant that he would not buy wood shavings that had been treated with Pentabrite. His Honour accepted that Hay told Gibbett and Buckley in May 1993 that the contents of the dipping tank was PCP or "Penta". 115 Nevertheless, the primary judge concluded that Gibbett had, unintentionally, with the passage of time, attributed to himself a greater awareness of, and therefore sensitivity to, preservative treatment of timber as at late 1992 than was the case. His Honour considered that that was confirmed by Gibbett's preparedness to accept wood shavings from Forwood after May 1993, when he inspected and talked about the dipping tank. His Honour rejected Gibbett's evidence as unreliable in so far as he asserted that, in December 1992, he had told Hay that the wood shavings must be free from preservatives. Because of that, His Honour was prepared to attribute to Gibbett in May 1993 a lesser degree of awareness than that to which Gibbett himself was prepared to swear. 116 Hay said that, after he made the statements referred to in paragraph [77] above, he did some arithmetic in terms of the quantity of PCP that was being put on a square metre of timber. He calculated that there was a quantity in the wood shavings but that it was a very small quantity although he said that he did not imply that it was a negligible or unimportant quantity. 117 The inspection of the Mill in May 1993 was the first occasion when it became known to Hay that dipping may be an issue of significance for Gibbett. After the meeting at which Buckley was present, Gibbett went to Hay and asked detailed questions about the chemicals that were used and exactly how they worked. Hay said that PCP was removed in the shavings, predominantly along the leading edge. Thus, it was clear that PCP would be present in the shavings supplied to Gibbett. 118 Kobes, in a contemporaneous note of 4 November 1993 recorded the following: "Ken [Gibbett] agrees that dipping process was viewed and briefly discussed but not considered to be a problem. Ken said that WA Mills like WESFI and others produced PCP contaminated shavings. He had tested and found PCP two years ago and this was reason to come to Mt Gambier." Although Kobes' note is inaccurate in so far as it suggests that Gibbett himself had tested for PCP, the note confirms that Gibbett had an awareness, before he approached Forwood in December 1992, of the significance of PCP. 119 Nothing was said by Hay in May 1993 about the suitability of wood shavings for use in connection with the export of live crayfish. Further, Hay said unequivocally that there would be quantities of PCP in the wood shavings, however small the quantities may be. It was accepted by His Honour, and there was no challenge on appeal, that Hay did not consciously avoid providing accurate information to either Gibbett or Buckley. At that stage Hay knew nothing of the possibility of PCP leaching out of wood shavings. Certainly, he had knowledge of the extreme toxicity of PCP in concentrated form. However, the evidence would not support a finding that either Gibbett or Buckley sought, or could be understood as seeking, a express assurance from Hay about the chemical properties of the wood shavings that were being supplied. 120 It would have been foolish in the extreme for Gibbett and Buckley to rely upon a timber miller in Mt Gambier for advice concerning the suitability of wood shavings for such a use. It may have been reasonable to rely on Hay's response to a question about the properties of PCP. However, neither Gibbett nor Buckley made any such inquiry. No indication was given by them that they would rely in any way on Hay's observations in making a judgment about the suitability of the wood shavings for use in connection with the export of live crayfish. 121 There was no implied representation by Hay on behalf of Forwood that the wood shavings were suitable for use in connection with the export of live crayfish, in the sense that they were not in any way contaminated. On the contrary, Hay told Gibbett and Buckley that PCP remained in the wood shavings. Having regard to the informal nature of the communication, and the circumstances in which Buckley and Gibbett were being shown the dipping tank, it was neither misleading or deceptive, nor likely to be misleading or deceptive for Hay to say what he did. 122 The primary judge concluded that, but for Hay's observation, the transaction would not have proceeded. Gibbett was already a party to the December agreement, which His Honour held could be determined on reasonable notice. The reference to the transaction appears to be a reference to the continued purchase of the wood shavings from Forwood, under the December agreement, after May 1993. No new transaction was entered into by Gibbett at that time, other than the arrangement with Buckley. However, no loss was suffered by Gibbett or Shavings as a consequence of that arrangement. 123 It was unreasonable for Gibbett to draw any conclusion from what was said about the fitness of the wood shavings for use in connection with live crayfish, having regard to his knowledge that PCP should be avoided. It was unreasonable for him to rely on anything said by Hay as a statement concerning the suitability of the wood shavings for use in connection with the export of live crayfish, without making clear to Hay that he was intending to do so. 124 There was no contravention of s 52 of the Trade Practices Act 1974 (Cth). Further, neither Gibbett nor Shavings suffered any loss by the conduct of Hay's. It follows that the appeal should be upheld and the orders made by the primary judge should be set aside. In lieu of the orders made by the primary judge, there should be orders that the application be dismissed with costs. Gibbett and Shavings should pay Forwood's costs of the appeal. I certify that the preceding eighty eight (88) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate: Dated: 20 March 2002 Counsel for the Appellant: S P O'Sullivan with S Gupta Solicitor for the Appellant: Crown Solicitor Counsel for the Respondent: M Hoile Solicitor for the Respondent: H Bersee Date of Hearing: 30 November 2001 Date of Judgment: 20 March 2002