Goodman v Cospak

CATCHWORDS : [CONTRACT] - OFFER AND ACCEPTANCE - Twelve month contract for the supply of glass bottles by the defendant for use in the plaintiff's salad dressing filling line - breakages of bottles on line - 'battle of the forms' - whether contract contained implied terms as to merchantable quality and fitness for purpose - application of 'global' over 'last shot' approach - whether two forms inconsistent - IMPLIED TERMS - Implication of terms from trade usage and custom - whether parties under an implied obligation to cooperate in implementation of bottles onto filling line - EXCLUSION CLAUSES - Whether exclusion of all liability "imposed by law" sufficient to exclude liability in negligence - consideration of the status in Australia of the rules in Canada Steamship Lines Ltd v R [1952] AC 192. - [NEGLIGENCE] - Claims that defendant owed concurrent duties in contract and negligence - circumstances in which a duty of care in negligence can arise between two large commercial entities in detailed contractual relations. - [TRADE PRACTICES] - Misleading and deceptive conduct said to arise by defendant's failure to inform plaintiff of alleged defects in bottles - circumstances in which silence may constitute misleading and deceptive conduct. - [DAMAGES] - Whether defendant entitled to damages for 'loss of a chance'. PARTIES : Goodman Fielder Consumer Foods Ltd formerly known as Meadow Lea Foods Limited v Cospak International Pty Ltd FILE NUMBER(S) : SC 50139/2001 COUNSEL : M.T. McCulloch for plaintiff M.A. Pembroke SC and A. Ivantsoff for defendant SOLICITORS : Hunt & Hunt for the plaintiff Wight & Strickland for the defendant

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50139/2001 GOODMAN FIELDER CONSUMER FOODS LTD, formerly known as Meadow Lea Foods Limited v COSPAK INTERNATIONAL PTY LTD JUDGMENT 1 MASTER: This is the hearing of proceedings that concerns the supply of glass bottles by the defendant (referred to herein and in the evidence as "Cospak") and the plaintiff (referred to herein and in the evidence as "Meadow Lea"). Meadow Lea used the glass bottle known as the "Nikki" bottle in the production of Praise salad dressing. Cospak was not a manufacturer but a distributor of glass containers and for the purposes of the contracts which concern this case it had sourced its supply of bottles from Hwa Hsia, a Taiwanese glass manufacturing company. 2 For some years Meadow Lea had sourced its bottles from ACI Glass. By the end of 1998 and early 1999 it was becoming apparent to Meadow Lea that the moulds used by ACI which had been built in 1993 were nearing the end of their economic life. There would thus be a need for the replacement of moulds if Meadow Lea's supply of bottles were still to be sourced from ACI. 3 The relevant market had used glass bottles for some time although it was anticipated by Meadow Lea that within the medium to short term, namely, between 12 and 24 months there would be a move to plastic containers made from PET. 4 The tooling necessary for the glass production by ACI had been what was known as "hard tooling" which used a specially hardened steel. That tooling normally has a life span of approximately five years. An other alternative was to use non-hardened steel to make what was called "soft tooling" which tooling had a substantially shorter life span of somewhere in the order of 12 months. 5 The events leading up to the introduction of the Cospak bottle during 1999 included orders being placed and trial runs of production bottles on the Meadow Lea production line. These efforts were directed towards production runs in November and December, which were intended to supply the market which was predominately a summer market in Australia for the particular product. 6 Ultimately on 10 December 1999 Meadow Lea purported to terminate the contract between it and Cospak for the supply of the glass bottles following upon what it considered was unacceptable failures in the initial production run. Those failures were ones which led Meadow Lea to recall the product from distribution warehouses before it was supplied to the public. 7 Each party claims a wrongful termination of the agreement by the other side and makes appropriate claims for damages and loss of profits. In order to understand the matter it is probably useful to set out a little more of the detail of the negotiations and the events that led up to the termination at the end of 1999. 8 Negotiations initially commenced in April 1999 when Meadow Lea provided Cospak with a specification for the Nikki bottle and indicated that it would require approximately 5 million bottles per annum. This was passed back to Hwa Hsia who produced an initial drawing for the bottle. Cospak gave a quote for the supply of the bottle to Meadow Lea on 27 April 1999 at a price of A$247 per 1000 units based on the supply of 5 million bottles per annum. The quote was only valid for a period of 12 months. 9 On 4 May 1999 there was a letter from Cospak to Meadow Lea, which dealt, inter alia, with a timetable for production and delivery of bottles with the first delivery in September 1999. It attached Cospak's terms and conditions of sale which included clause 1 and 9 which are in these terms: "1. GENERAL (a) These terms and conditions constitute the whole contract between the seller and the buyer and supersede all previous communications either oral or written. Any quotation or tender by the seller shall be deemed to be subject to these terms and conditions. No term or condition contained in the buyers acceptance or order shall add to amend or delete these terms and conditions or any of them unless expressly agreed in writing by a duly authorised officer or seller. …………………………… 9. WARRANTY AND LIABILITY OF SUPPLIER (a) If the goods are not of a kind ordinarily acquired for personal, domestic or household use the liability of seller for breach of any conditions or warranty implied by the Trade Practices Act 1974 (other than by section 69) and/or the Sale of Goods Act 1896 (as amended) shall be limited to one of the following at seller's option. (i) the replacement of the goods or the supply of equivalent goods; or (ii) the repair of the goods; or (iii) the payment of the cost of replacing the goods or of acquiring equivalent goods; or (iv) the payment of the cost of having the goods repaired. (b) To the full extent permitted by law all other warranties or liabilities imposed or implied whether by law or by statute are expressly negatived. (c) Buyer shall assume all risk and liability resulting from the use of the goods either alone or in conjunction with other goods or materials even if seller had or should have had prior knowledge of the use to which the goods would be put." 10 On 19 May there was an order from Meadow Lea to Cospak for the supply of 2 million Nikki bottles at a cost of $494,00.00. That purchase order had a paragraph dealing with conditions in these terms:- "Conditions - Price variations affecting this order must be agreed with the purchaser before goods are consigned. Delivery: The goods supplied under this document shall be free from defective materials and workmanship, of merchandisable quality, fit for the purpose it is intended to be used, and shall comply in all aspects with the provisions of any statutes, rules and regulations particularly relating to but not limited to health, pure foods and Weights and Measures of all or any of the relevant authorities of any State or Territory of the Commonwealth of Australia. Indemnity: the supplier indemnifies Meadow Lea Foods Ltd against any liability where such liability is caused or contributed to by any defect or fault in the goods supplied by the supplier under this order including but not limited to liability of Meadow Lea Foods Ltd to consumers under the Trade Practices Act or other legislation relating to the sale of goods." 11 The parties agree that the indemnity is not relevant to the matters with which I have to deal as on its proper construction it only applies to third party claims. 12 At the commencement of the hearing there was a dispute as to whether or not there were any other terms and conditions attached to this purchase order but in the result there were no such other terms and conditions. 13 After this order production of the moulds was put underway and in June there was a meeting at the Meadow Lea factory between Mr Mark Kerr, from Meadow Lea and Mr Jim Knox and Mr David Driver from Cospak and three representatives of Hwa Hsia. This was for the purpose of observing the Meadow Lea factory production line. 14 On 21 June and appropriate order was placed by Cospak with Hwa Hsia. That purchase order was amended on 5 July 1999 to provide for the supply of 1,963,520 bottles. By mid July there was a meeting at the Hwa Hsia factory in Taiwan between Mr Knox, Mr Driver, Mr Kerr, and others who observed the production of the Nikki bottle. 15 In August the first Nikki bottles from Hwa Hsia were delivered to Cospak and on 6 September 1999 Carol Marau of Meadow Lea requested ten pallet loads (22,440 bottles) of the Nikki bottle for a production trial. 16 That trial took place on 7 September 1999. The people observing the trial included Mr Driver, Mr Bill Pallis and other Meadow Lea employees but not Mr Kerr, the Group Packaging Development Manager of Meadow Lea. During the trial ACI's Nikki bottle was run through the production line immediately followed by the Cospak Nikki bottle. The Cospak bottles immediately started jamming on the production line and because there was no maintenance crew the filling line could not be adjusted. The trial was halted after approximately 3,000 bottles. 17 Mr Driver had discussions with Mr Kerr and arranged for a new trial with an appropriate maintenance crew to be present in order to adjust the production line. 18 The second trial took place on 25 October 1999. This used 11 pallets (22,440 bottles). There was initially some jamming although towards the end of the run the line appeared to be working more smoothly. The efficiency was about 75%. 19 Immediately after the second trial which had been observed by, inter alia, Mr Driver, Mr Kerr, and Mr Pallis and several others there was a meeting to discuss the trial. The minute produced at that meeting dealt with a number of issues arising from the production trial. Of importance it recorded the following in respect of the jamming of bottles on the production line. "Jamming and bridging of Nikki bottles observed at Alpine and Filler sections of the production line. In total the production trial was run at 75% efficiency (11 pallets in 5 hours compared to the standard ACI glass which has historically run at 11 pallets per 3 hours. Two options discussed: 300,000 Nikki bottles to be produced with an increase in surface coating of silicone to provide higher slip on bottles. Approximately 12 weeks for delivery. Action : Cospak Investigation on additional rollers and guide rails (100% coverage) at alpine section of production line. Costings and timings to be provided. Action : Minoo Chinoy and Dennis (machine operator)"

20 After the trial Meadow Lea continued to manufacture salad dressing using ACI bottles up until 22 November 1999. 21 On 18 November 1999 a person from Meadow Lea ordered 162 pallets of the Nikki bottle from Cospak by requesting a draw down from the stock held by Cospak. These were supplied from the run of bottles that had been used for the trial. This draw down was placed with the Consumer Department of Cospak and did not come to the attention of Mr Driver of Cospak who had been intimately involved in the trials and the discussions thereafter as to the rectification and the difficulties on the trial. It was conceded for the purposes of the hearing that "McCulloch: In terms of amendment, the plaintiff concedes as a fact that it was aware that the 162 pallets ordered for the November production run were the same batch from which the 15 pallets from the October trial were taken. Secondly, it was aware of the matters discussed at the meeting after the October 1999 trial as referred to in the minutes inter alia. Thirdly, the order was placed for the 162 pallets before 22 November 1999 in circumstances where there that had been (a) no further trial of bottles and (b) no further request (should one have been necessary) for a further 300,000 bottles to be obtained."

22 On 21 November 1999 Cospak delivered 162 pallets of Nikki bottles to Meadow Lea and on 22 November 1999 Meadow Lea conducted a commercial production run using ACI glass and immediately afterwards started the Cospak bottles. There were breakages on the production line with reduced efficiency of bottles down the line. All 162 pallets were used and the finished stock was sent to the Meadow Lea warehouse at Lurnea.

23 Shortly thereafter it was discovered that there were broken bottles amongst finished stock at the warehouse and on 26 November 1999 there were discussions as to the sorting of product and investigation of the problems. The next production run for this product was scheduled to take place on 13 December 1999.

24 Further discussions and investigations took place and on 6 December 1999 Meadow Lea issued a product recall in respect of the product. Slivers of glass had been found in one of the broken bottles. On 8 December 1999 Meadow Lea decided to order further stock from ACI.

25 On 10 December 1999 Meadow Lea purported to terminate the agreement between it and Cospak. The claims made in the proceedings 26 The principal claims made by the plaintiff are claims for breach of contract. The breaches are breaches of the terms implied under the Sale of Goods Act being for merchantable quality and fitness for purpose. It also pleads breaches of a number of other terms said to have been implied by law. However in submissions it was stated that in the event that the implied conditions under the sale of goods act were implied then these terms were not pressed. 27 The plaintiff also claims in negligence based upon the negligent failure to comply with the various implied terms and also a failure to quarantine the bottles, which it still retained after 25 October 1999, which were ultimately called for by the plaintiff and used in the production run on 22 November 1999. 28 The plaintiff made a claim for breach of s 52 of the Trade Practices Act and alleged as representations the defendant's ability to supply glass bottles for the plaintiff in accordance with the needs of the plaintiff and in accordance with the implied terms. 29 The defendant raised a number of defences to the contract claim. These were as follows:

1. It denied that there had been any breach of contract and said that the breakages were not as a result of any manufacturing defect. 2. In answer to the claim for the goods being reasonably fit for the purpose it pleaded that there was no reliance on the seller's skill and judgment. 3. It raised an express term of the contract, namely, clause 9(c) of the conditions that the plaintiff assumed the risk in respect of the goods. 4. It raised the limitation of liability under clause 9(a) of the conditions of contract. 5. It raised a failure to mitigate when on 8 December 1999 the plaintiff rejected an offer by Cospak to rectify the problems encountered on the production line. 30 In answer to the claim for negligence the defendant raised the plaintiff's own contributory negligence. 31 In answer to the whole of the claim the defendant alleged a breach of an essential implied term pleaded in clause 17.2 of the defence. That term was in these conditions. "17.2 The implied obligations of the plaintiff included the following: (a) The plaintiff would set up and adjust its filling line in such a way as to suit the particular bottles supplied by the defendant and to enable those bottles to move efficiently and smoothly along the plaintiff's filling line facility. (b) The plaintiff would ensure that adequate test runs, utilising the defendant's bottles on the plaintiff's filling line, were conducted and properly supervised, so that all necessary adjustments and alterations to both the production line and the bottles (if necessary) could be carried out to ensure the efficient and smooth operation on the plaintiff's filling line. (c) That in the event of the jamming of the bottles on the filling line, or collisions thereon resulting in breakage, prior to the completion of (a) and (b) above, the plaintiff would not purport to terminate the agreement without first providing an adequate opportunity to enable the rectification or improvement of the filling line or any variation to the specified manufacture, or any adjustment of the coating of the bottles. (d) That the plaintiff would act in good faith towards the defendant in endeavouring to allow the defendant to have the benefit of the agreement and in performing its obligations set out in sub-paragraphs (a), (b) and (c), above." 32 As I have mentioned the defendant brought a cross claim for damages. The defendant based this upon first, misleading conduct. In brief that misleading conduct was that it insisted on the use of the ACI specification without informing the defendant that it had accepted variations to that specification over time by ACI in respect of the bottles that ACI supplied to it. 33 In the cross claim the defendant also relied upon the breach of the implied term in clause 17.2 of the defence. The terms of the contract 34 By the time of completion of the hearing there was no doubt as to what comprised the express terms of the agreement. They were: --

(a) The letter from Cospak to Meadow Lea dated 27 April 1999,

(b) The letter from Cospak to Meadow Lea dated 4 May 1999 together with the special conditions to which I have referred to above,

(c) the purchase order from Meadow Lea to Cospak dated 19 May 1999, and

(d) The specification dated 23 June 1999 (Annexure E to the statement of Mr Kerr exhibit A). 35 There was some conflicting evidence as to the duration of the contract but the defendant concedes that, on the evidence of Mr Driver, its witness, there was a twelve-month contract subject to review thereafter. 36 So far as the implied conditions are concerned section 19 of the Sale of Goods Act 1923 of New South Wales relevantly provides as follows: -- "19 Implied condition as to quality or fitness Subject to the provisions of this Act, and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows: (1) Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose. (2) Where goods are bought by description from a seller who deals in goods of that description (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods there shall be no implied condition as regards defects which such examination ought to have revealed. (3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. (4) An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith." 37 There is no doubt that the condition that the goods shall be of merchantable quality will be implied in the contract. In respect to the condition of fitness for purpose the only question that might arise is whether the buyer relies on the seller skill or judgment. Although there was a specification for the goods in circumstances of this case the buyer clearly did rely on the seller's skill and judgment in respect of the production of the bottle and thus the implied condition will be part of the contract. 38 Section 57 of the sale of goods act provides that implied terms created, inter alia, by section 19 of the act may only be negatived or varied by express agreement. The question which arises is whether clause 9 (a) or (b) of the special conditions has that effect. The plaintiff submission was that it was apparent on the face of the condition that it was not the New South Wales Sale of Goods Act 1923 that was being limited as the reference was to the "Sale of Goods Act 1896". This would seem to be a reference to either the Queensland or Tasmanian statute both of which were first passed in 1896. The English act upon which the statutes were modelled was passed in 1893. 39 The strange thing about this submission is that if it is right then it is only the trade practices warranty, which is limited under clause 9 (a). The terms of clause 9 (b) would thus be sufficient to exclude altogether the New South Wales Sale of Goods Act. This result is contrary to what the draughtsman was intending in clause 9 (a), which was an attempt merely to limit a breach to the circumstances, set out in the sub paragraphs. 40 Normally the court will endeavour, so far as the ordinary and natural meaning of the words permit, to construe commercial agreements in a manner consistent with good commercial sense and convenience: Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-14, per Kirby P. To like effect in Kearns v Hill (1990) 21 NSWLR 107 at 109, Meagher JA said: The fact that a document happens to contain infelicities and mistakes is not a sufficient reason for a court called upon to interpret one or other of its provisions to do so in a narrow or unreal way or to depart from its cardinal duty to construe each provision according to its natural meaning, and in such a way to give it its most ample operation. 41 Thus, taking into account the context of the words and the objectively ascertained intentions of the parties, "the essential question is what would reasonable business people in the position of the parties have taken the clause to mean": Schenker & Co (Aust) Pty Ltd v Malpas Equipment and Services Pty Ltd [1990] VR 834 at 840, per McGarvie J. While prima facie peculiar to the commercial context, this approach is consistent with the objective and non-technical construction which the court must assign to all written agreements following the decision in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181. In that case (at [11]), Gleeson CJ, Gummow and Hayne JJ approved the dicta of Lord Hoffman in Investors Compensation Scheme Ltd v Hafele Australia Pty Ltd [1998] 1 WLR 896 at 912 to the effect that the construction of written contracts generally involves: "The ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."

42 It is trite to point out that there has been for many years Sale of Goods legislation in each State of the Commonwealth. They are amended from time to time and the draughtsman has recognised this fact. Thus the precise form of the relevant act is referred to in an ambulatory way. The federal equivalent is the Trade Practices Act and clearly the draughtsman is trying to cover the field. Elsewhere in the document the draughtsman recognises that there will be sales governed by the laws of different states. This is demonstrated by clause 10 (a) which provides: "This contract shall be governed and construed in accordance with the laws of the State in which the goods are delivered." 43 In this case the goods were delivered in New South Wales. It seems to me that the correct construction of the expression in clause 9 (a) is to regard it as applying to any State Sale of Goods Act as this will avoid the clearly inconsistent result to which I have referred above. 44 It is necessary to deal with the plaintiff's submissions as to the effect of the conditions, which appear on the purchase order of 19 May 1999. The plaintiff's submission was that there was agreement for one delivery of bottles namely that contained in the purchase order. In their submission the other letters of 27 April and 4 May which are part of the agreement do no more than set out a template containing the terms which will apply on each occasion the plaintiff chooses to order bottles. This is probably right but it will be noticed that the conditions on the order include conditions for merchantable quality and fitness for purpose without any restriction. 45 It is trite law, known in the discourse of contracts as the 'mirror principle', that a valid acceptance must correspond to the offer and represent an unqualified acceptance of the offeror's proffered terms. It therefore follows that if the acceptance purports to introduce a new term (or terms) inconsistent with or additional to those contained in the offer, then the acceptance has no effect as such and instead represents a counter-offer: R.A. Brierley Investments Ltd v Landmark Corporation Ltd (1966) 120 CLR 224 at 234, per Barwick CJ, Kitto and Windeyer JJ.

46 For obvious reasons a rigid application of the mirror principle can lead to conceptual difficulties when commercial transactions are conducted on conflicting standard form agreements, each purporting to prevail over the other. Accordingly, when such 'battles of the forms' have been found to result in a concluded agreement, the authorities disclose three different approaches to the question of the ascertainment of terms.

47 The traditional approach, known as the 'last shot' doctrine, is most consistent with orthodox principles of contract and dictates that the express terms of the contract are those of the last-proffered form whose terms are not objected to by the other party (usually evidenced by performance). Thus in British Road Services Ltd v Arthur V Crutchley & Co Ltd [1968] 1 All ER 811 (CA), the plaintiffs delivered a truckload of whisky to the defendant's bonded warehouse under cover of a delivery note whose terms included a stipulation that all goods were to be held in accordance with the plaintiff's standard conditions. Upon receipt of the goods the defendant stamped the note acknowledging delivery on its terms and conditions, one of which was a limitation of liability clause in the event of loss or destruction. The whisky was stolen and the plaintiffs sued for (inter alia) breach of contract and the defendants pleaded the limitation of liability clause. Applying the 'last shot' doctrine, it was held that the defendant's conditions prevailed over those of the plaintiff; the delivery note was an offer, the stamping of the note indicated not acceptance but a counter-offer due to its inclusion of inconsistent terms, and this counter-offer was then accepted by the plaintiffs by the act of proceeding with the delivery (Lord Pearson at 817; Sachs LJ at 825).

48 The second approach, known as the 'higher status' doctrine, flows from the decision of Mocatta J in Transmotors Ltd v Robertson, Buckley & Co Ltd [1970] 1 Lloyd's Rep 224. In that case, the plaintiff warehousers contracted with the defendant road haulage company for the transport of certain goods from Liverpool to London which, in the event, were stolen en route. For may years the defendants had conducted their business with the plaintiffs on the basis of invoices which expressed the haulage of any particular load to be governed by the defendant's standard terms and conditions. After this particular job was arranged between the parties by telephone, the plaintiff sent a confirmation note clearly setting out its terms and conditions of carriage, to which the defendant responded by sending an invoice referring to its standard terms. At 234, and notwithstanding the fact that the defendants had fired the 'last shot', his Lordship held that the plaintiff's terms were to prevail on the basis that: "When one is considering the terms of a contract between two parties, a confirmation note in relation to the formation of the contract is a document which anyone would consider to be of a far higher status in this respect than an invoice relating only to matters of accounting [emphasis added]." 49 Alternatively expressed, the "obscurity of the terms" of the invoice was such that the plainly expressed terms of the plaintiff's confirmation note were to prevail.

50 Finally there is the 'global' or "synthesis" approach derived from the judgment of Lord Denning MR in Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1972] 1 WLR 401 in which the plaintiffs offered to sell the defendants a machine on terms expressed to prevail over any of those asserted by the defendant. One of the plaintiff's proffered terms was a 'price acceleration clause' to the effect that the machine would be sold at prices ruling at the date of delivery. On receipt of the offer, the defendant buyers responded by sending a purchase order containing inconsistent terms and conditions from those of the sellers, which requested the latter to tear off a slip and return it signed to the defendants as evidence of 'acceptance.' This the sellers did, albeit under cover of a letter reiterating that the machine was to be supplied 'in accordance with' its original 'quotation'; the buyers did not object, and the machine was duly constructed and supplied. Later, however, a dispute arose as to price, and thus the question before the Court of Appeal was whether the price acceleration clause in the seller's terms was to prevail over the defendant's terms as to price.

51 At 404-405, his Lordship said:- "I have much sympathy with the judge's approach to this case. In many of l these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out of date. This was observed by Lord Wilberforce in New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1975] A.C. 154, 167. The better way is to look at all the documents passing between the parties-and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points-even though there may be differences between the forms and conditions printed on the back of them. As Lord Cairns said in Brogden v. Metropolitan Railway Co. (1877) 2 App. Cas. 666, 672: ". . . there may be a consensus between the parties far short of a complete mode of expressing it, and that consensus may be discovered from letters or from other documents of an imperfect and incomplete description; ..." Applying this guide, it will be found that in most cases when there is a "battle of forms," there is a contract as soon as the last of the forms is sent and received without objection being taken to it. That is well observed in Benjamin's Sale of Goods, 9th ed. (1974), p. 84. The difficulty is to decide which form, or which part of which form, is a term or condition of the contract. In some cases the battle is won by the man who fires the last shot. He is the man who puts forward the latest terms and conditions : and, if they are not objected to by the other party, he may be taken to have agreed to them. Such was British Road Services Ltd. v. Arthur V. Crutchley & Co. Ltd. [1968] 1 Lloyd's Rep. 271, 281-282, per Lord Pearson; and the illustration given by Professor Guest in Anson's Law o f Contract, 24th ed., pp. 37, 38 when he says that "the terms of the contract consist of the terms of the offer subject to the modifications contained in the acceptance. In some cases the battle is won by the man who gets the blow in first. If he offers to sell at a named price on the terms and conditions stated on the back : and the buyer orders the goods purporting to accept the offer-on an order form with his own different terns and conditions on the back-then if the difference is so material that it would affect the price, the buyer ought not to be allowed to take advantage of the difference unless he draws it specifically to the attention of the seller. There are yet other cases where the battle depends on the shots fired on both sides. There is a concluded contract but the forms vary. The terms and conditions of both parties are to be construed together. If they can be reconciled so as to give a harmonious result, all well and good. If differences are irreconcilable-so that they are mutually contradictory-then the conflicting terms may have to be scrapped and replaced by a reasonable implication." 52 Therefore, considering all the documents in the case it was held that the sale was on buyer's terms; while there was a clear inconsistency between the parties conditions as to price, and the sellers had fired the 'last shot', the seller's reply referring to their previous 'quotation' was construed as referring only to the machine specifications contained in that document rather than the offered terms and conditions. In addition, as that offer was destroyed by the buyer's terms it was irrelevant that it expressed itself to prevail over any of the buyer's terms. Similarly in Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 14 BCL 91, Kirby P (as his Honour then was) said (at 101): "In my view, the parties were not ad idem on the written exchanges. There was an impasse. They then proceeded, as business people frequently do, to get on with the business of supplying and receiving the goods. The respondent supplied the goods. They were accepted when received in New Zealand. By that acceptance, the contract was made. In many cases, such conduct will be an end of the technical contractual differences between the parties. The legal niceties will melt away in the practical realities of commerce. It is only where, as here, a dispute occurs that lawyers must, retrospectively, classify the arrangements. But they should do so by adopting a commonsense and practical approach." 53 However, It should be note that as the Court of Appeal was there directly concerned with the question of where a contract was made rather than that of its terms, this passage is in the nature of obiter.

54 On the facts in this case, it is apparent that the terms of Meadow Lea's purchase order of 19 May 1999 do not represent an unqualified acceptance of the terms contained in Cospak's letter of 4 May 1999. There does not appear to be any direct inconsistency between Meadow Lea's terms as to the quality and fitness for purpose of the bottles and clauses 9(a) of Cospak's terms as the former speak to the existence of such implied terms and the latter to the quantum of liability flowing from any breach by Cospak of such terms, without purporting to exclude their existence. There appears little room for doubt, however, that the inclusion of additional terms on Meadow Lea's purchase order (as to indemnity, compliance with health regulations and so forth) has the effect of positing it as a counter offer rather than an acceptance. Moreover it is submitted that the 'higher status' approach is of little utility on the facts, as both documents are contemporaneous to each other, were clearly brought to the attention of each party and, as a matter of form, are both expressed in language connoting the attempted creation of legal obligations.

55 On the above analyses, therefore, there appear two possible outcomes: (a) Applying the traditional rules of offer and acceptance as reflected in the 'last shot' approach, that Meadow Lea's purchase order terms prevail over those of Cospak; as above, Meadow Lea's order can plainly be construed as a counter offer that was accepted by Cospak by its conduct in engaging Hwa Hsia to manufacture the ordered bottles and then delivering them to Meadow. The result of this approach, however, is that traditional contract doctrine dictates that a "counter offer kills the original offer" ( Trollope & Colls Ltd v Atomic Power Constructions Ltd [1963] 1 WLR 333 at 337, per Megaw J; approved by Lord Denning MR in Butler at 404), such that on this analysis the only express terms of the contract would be those printed on Meadow's purchase order including of course the express terms as to merchantable quality and fitness for purpose. The fact that the Cospak clause 1 purported to expressly exclude any amendment in the later order gives support for this analysis.

(b) Applying the 'global' approach, that Meadow Lea's and Cospak's terms can co-exist given that they appear to be capable of reconciliation so as to give a 'harmonious result' when construed with a 'commonsense and practical approach' that takes account of the 'realities of commerce.' Such an approach, seeking as it does to determine the ad idem of the parties from an objective rather than technical offer and acceptance perspective, is not only consistent with 'battle of the forms' decisions such as Butler and Reese Bros Plastics , but indeed the general trend of modern contract law generally; a strict offer and acceptance analysis, said Heydon JA in Brambles Holdings Ltd v Brambles City Council (2001) 53 NSWLR 153 at [71], "is neither sufficient to explain all cases nor necessary to explain all cases." Rather the salient factor for this nascent doctrine of formation is whether the parties have manifested, by their conduct, 'mutual assent' to certain terms; in Brambles Holdings at [80], Heydon JA continued: "If offer and acceptance analysis is not always necessary or sufficient, principles such as the general principle that a rejection of an offer brings it to an end cannot be universal. A rejected offer could remain operative if it were repeated, or otherwise revived, or if in the circumstances it should for some other reason be treated, despite its rejection, as remaining on foot, available for acceptance, or for adoption as the basis of mutual assent manifested by conduct." 56 See also: Pobjie Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105 at [23], per Mason P. 57 As I have pointed out there is no direct inconsistency between the terms, which can be construed together and reconciled. The Meadow Lea terms unlike the Cospak terms do not purport to be the sole terms or to reject any other terms. They are but one partial response to a standing offer for continuing supplies. Having regard to both of the documents it is clear that both parties recognised that the contract included terms as to merchantable quality and fitness for purpose. The last shot approach is very arbitrary in its results and it seems to me that it is preferable to endeavour, where the parties have proceeded with the contractual arrangements, to reconcile if at all possible the conflicting versions of terms of which they were both aware when they decided to proceed with production and delivery. Thus on this approach which I adopt the express terms of the contract can be said to comprise Cospak's terms of the 4 May letter in its entirety, plus those printed on Meadow Lea's purchase order of 19 May. Thus there are terms as to merchantable quality and fitness for purpose but they are qualified by clause 9 (a) and (b) of the Cospak terms. Vroon v Foster's Brewing Group Ltd [1994] 2 VR 32 at 82, per Ormiston J: "There is now sufficient authority to justify the Court enquiring as to the existence of an agreement evidenced otherwise than by offer and acceptance." 58 I turn to consider the implied term for which the defendant contends in paragraph 17 of its defence. Clause 1 of the special conditions to which I have referred contains a standard entire contract clause. Such a clause does not however preclude the implication of an implied term. See Hart v McDonald 10 CLR 417 at 430 and Johnson Matthey v A. C. Rochester Overseas (1990) 23 NSWLR 190 at 196. 59 The implied condition which I have set out above in paragraph 29 of these reasons is one which is said to be implied as a result of industry practice. Because of the particular nature of both the production process in the making of the bottle and the filling process which takes place on the purchaser's production line appropriate end results cannot be obtained unless there is a cooperative approach between the two parties. Mr Warne who was the defendant's expert who addressed the cause of the failures in the production run in November gave evidence in respect of this industry practice. The plaintiff's expert Mr Drake both in his reports and cross-examination also addressed it. 60 Mr Warne's explanation of the industry practice and the reasons for its existence is felicitously set out in paragraph 15 and 16 of his report exhibit 2 in these terms. "15. When new bottles are introduced to a filling line, whether for the first time, or in circumstances where the filling line has previously successfully handled similar bottles from a different supplier, transitional problems not infrequently arise causing jamming, breakages, a slowing down of the line and an overall loss of efficiency. This is especially so where large quantities of containers are sought to be processed. In the majority of cases, incidences such as these are temporary and can be rectified by adjusting the line to suit the new container. 16. In such a situation, it is usual practice in the Australian and international glass industry, for the purchaser and the supplier to work together with a view to eliminating the problems on the filling line. In my experience, as a supplier of glass and as an-end user, most of these problems are satisfactorily resolved provided that there is a collaborative approach by both parties. For example, it may be necessary for the packer to adjust machine settings (particularly clearances on infeed and discharge legs), or use lubricants on their filling lines or to adjust existing, or even add new, guide rails. On the other hand, it may be necessary for the supplier to increase the surface coating on the glass containers, or to seek to modify the moulds to incorporate improved design features. Adjustments such as these highlight the fact that neither the bottle nor the packaging line can be considered in isolation. Rather they must be viewed as integral, yet separate, parts of a total packaging system. It is because cooperation of this nature is considered desirable, and is normal in the industry, that most packaging material suppliers and their customers seek to develop, what are commonly referred to as "supply partnerships." To do otherwise is to run the risk poor glass performance and poor line efficiencies. In practice therefore, to achieve the mutual objective of both the glass supplier and the end-user (as befits a supply partnership) there must be orchestrated trials that rely on cooperative resolution of outstanding issues - and for this there is a shared responsibility." 61 In his report Mr Drake agreed with this subject to both parties having the relevant expertise. He had no knowledge of the expertise of the manufacturer and could not comment on that aspect. He had some doubt about whether the parties to the agreement, other than the manufacturer, might have had sufficient knowledge as a result of the comments made in the minutes of the meeting of 25 October 1999. The matter was dealt with in cross-examination in these terms: -- "Q. I just wanted to finish off the topic of the usual practice of rectification. Do you have Mr Warne's second report? In paragraph 14 of that report you will see what Mr Warne has said and you have responded in your paragraph 14, on page 5 of your second report, exhibit H. Would you turn to that? A. Yes. Q. Your comment seems to be in two parts. You say Mr Warne's comments are valid, but then you make the reference to both parties having the expertise, again? A. Yes. Q. And then you make reference to the statement which has been paraphrased from the minutes of the meeting of 25 October 1999, which refers to silicon? A. Yep. Q. Do I understand your problem to be that you think that the reference to silicon displays a lack of knowledge by someone? A. By the parties, yes, involved in that; yes, I do. Q. Because you think that anyone who speaks about putting silicon on an existing batch of bottles may not really appreciate the way in which surface coating is applied? A. Yes. Q. Did you see the minutes of the meeting of 25 October? A. I had a copy, yes. Q. Did you understand that the minutes recorded that the parties proposed that a new batch of 300,000 bottles be produced with an increased level of surface coating? A. Yes, I read that. Q. So it wasn't the case of applying silicon to existing bottles? A. I think in one of the earlier reports it did read that way; in one of the reports I did read. Q. You have got that from somewhere? A. Yes, I would have to go - but not in the minutes of the meetings; I agree with you. Q. It would be in accordance with normal practice after the first real trial, which is what happened on 25 October, for there to be a proposal to produce another fresh batch with an increased surface coating? A. An improved surface coating, yes. Q. Surface coating is a slightly intangible business, isn't it? By that I mean it is not always easy to get precisely the right level of surface coating for a particular application to a particular filling line, given a particular bottle? A. I don't think it is that difficult. It doesn't matter what bottle you are making. If you have permanent surface treatment, the conditions are pretty well the same all through." 62 There is no doubt from this and other passages in cross-examination of Mr Drake that he agrees that having identified a problem with surface coating it would be proper practice for the parties to have endeavoured to correct the problem prior to any production. 63 The law pertaining to the circumstances in which contractual terms may be implied on the basis of trade usages and customs appears inter alia in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Pty Ltd (1986) 160 CLR 226. In a joint judgment, the Court (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ) held that the implication of terms on the basis of trade usage and custom is a matter of the intentions of the parties in the sense that "the general notoriety of the custom makes it reasonable to assume that the parties contracted on the basis of the custom, and that it is therefore reasonable to imply such a term into the contract"(at 237). Accordingly, the Court outlined the following basal principles (at 236-8):

1. "The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact." 2. While it need not be "universally accepted", "there must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract." 3. "A term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement." 4. "A person may be bound by a custom notwithstanding the fact that he had no knowledge of it." 64 A number of cases have referred with approval to the passage in Browne on Usage and Custom (1875) to the following effect: "Seeing that custom is only to be inferred from a large number of individual acts, it is evident that the only proof of the existence of a usage must be by the multiplication or aggregation of a great number of particular instances; but these instances must not be miscellaneous in character, but must have a principle of unity running through their variety, and that unity must show a certain course of business and an established understanding respecting it." 65 These general principles can be applied to the instant proceedings in the following manner:

(a) There is no express term of the contract between the parties that contradicts the implication of a term to the effect that Meadow was obligated to adjust its filing line to accommodate the new bottles supplied by Cospak, conduct adequate test runs and afford Cospak a reasonable opportunity to rectify any difficulties before purporting to terminate as detailed in paragraph 17.2 of the Second Further Amended Defence. (b) While actual knowledge of a custom is not a necessary element, the meeting following the trial run on 25 October 1999 and the minutes recording the conduct of same supports the conclusion that Cospak and Meadow Lea, both longstanding and sophisticated glass industry participants, indeed had such actual knowledge as to the need for a cooperative approach between the parties in order to achieve an appropriate filling line result. This evidence is supportive of a conclusion that it is reasonable to assume that the parties intended to contract on the basis that such a cooperative approach was a necessary aspect of the contract of sale. (c) In addition to evidence of the observance of the alleged custom in this particular instance, it is the shared opinion of the expert reports placed before the court that "it is usual practice in the Australian and international glass industry, for the purchaser and supplier to work together with a view to eliminating the problems on the filing line." Moreover, given that the evidence shows that such practice has been aggregated under the definable industry concept of "supply partnerships", the alleged custom cannot be said to be 'miscellaneous' rather than 'unified' in nature. 66 In my view the implied term is part of the contact.

Breach of contract 67 The plaintiff's case on the breach of the contract was simple and did not need to rely upon any resolution of the conflicts between the experts as to the cause of breakages on the production line. It simply relied on the fact that there were failures on the production line, on completion two of the filled bottles were found to have had "checks" which are manufacturing defects and that in one filled glass bottle there was a break, which caused slivers of glass to be present in the product in the bottle. Before dealing with the plaintiff's allegations of breach it is of course necessary to see whether there was a breach of the implied term that I have found as part of contract. 68 It is necessary to make some reference to the experts' views as to the cause of the problems which occurred on the production run in order to see whether there has been a breach of the implied term. Mr Warne, Cospak's expert regarded the matter as one of production line problems and differences in the bottle compared to the ACI bottle and agreed that the relative level of permanent surface coating played a part in any problems. On the other hand Mr Drake the plaintiff's expert contended that the absence of adequate permanent surface coating was the primary cause of trouble allied with stress concentrators in the form of checks which were found in two bottles. These later matters were manufacturing defects. 69 The parties in their specifications stated the acceptable quality level in respect of certain defects one of these being the defect in question. The agreement between the parties was that the defect was acceptable until it reached a frequency of 1 percent. There is an Australian Standard containing the appropriate mechanism for determining whether the frequency of such manufacturing defects are above an acceptable quality level. 70 That standard required an appropriate random selection of bottles for testing in order to determine whether the acceptable level had been exceeded. In this case there was no compliance with the standard and it just happened that from the bottles, which suffered from damage, two of them showed evidence of checks. Notwithstanding the non-compliance with the standard Mr Drake was prepared to still maintain his view, on an intuitive basis, that there were manufacturing defects generally in the product. I do not accept Mr Drake's view on this aspect. It ignores the whole purpose and logic behind having a standard for random selection as a basis for an appropriate sample. The parties themselves as indicated by the specification were prepared to accept a certain quantity of manufacturing defects in the production. 71 The defendant submitted, and I think quite rightly, that the parties were correct in their meeting on 25 October 1999 in identifying the two matters which were causative of breakages at the trial, namely line handling and surface coating. An ordinary reading of the minutes of the meeting would indicate that both matters were to be investigated. Certainly adjustments to the production line of Meadow Lea were undertaken and there were additional rollers and guide rails installed. No steps were taken by Cospak to put in train the manufacture of the additional 300,000 bottles so that there could be a new trial and commencement of production if the trial was satisfactory. 72 There was conflicting evidence given on whether at the meeting it was an offer to have those additional bottles manufactured if Meadow Lea wished to follow that route or whether it was agreed that the production should be put in hand. Mr Driver's evidence on behalf of Cospak was that he made the offer and was waiting to hear back from Mr Kerr has to whether or not he should proceed. Interestingly Mr Kerr gave evidence as to his recollection of the meeting in these terms: -- "Q. As you left the meeting whose responsibility did you understand it to be to make the decision about putting in place the offer or the suggestion that there should be a further trial of 300,000 bottles with increased surface coating? A. That would have been my decision. Q. You never actioned that request, may we take it? A. No, I don't think we proceeded with that." 73 Mr Kerr, like most of the witnesses in this case, was frank and straightforward and I accept his evidence. Even if the actual situation was that it was in the hands of Cospak to put in hand the production of the additional bottles forthwith after the meeting each party knew that there was a lead-time of some 12 weeks before the bottles would be available. Plainly they would not be available by the 22nd November 1999. It is notable that at the October meeting there does not seem to be any complaint about the lead-time the parties contemplated. It is also apparent on the evidence that at the time the offer was made the whole of the 2 million bottles in the order had not been manufactured or delivered but only sufficient to meet the immediate needs and anticipated production by Meadow Lea. In making the offer Cospak was clearly making an offer that involved it discarding all the bottles that had been produced by the manufacturer to date. 74 Clearly when Meadow Lea decided to make a draw down on the order that they had placed they did so in the full knowledge that there had been no change to the surface coating of the bottles. There is evidence from Mr Warne that this is clearly contrary to the usual industry practice that underpins the implied term. In paragraphs 25 and 26 he said the following: "25. Given this sequence of events, it was, in my opinion, contrary to usual practice for Meadow Lea to require the production run of Cospak bottles on 22 November, immediately following the run of ACI bottles on the same filling line, and without ensuring that the two "action" items detailed in the minutes of the meeting on the 25 October, 1999 had been satisfactorily attended to. 26. Breakage of glass containers is not uncommon when settling in a new product on a filling line that has not been specifically set-up to suit the containers that it is handling. Nevertheless it is usual practice within the glass industry to treat line breakage with caution. In those circumstances, Meadow Lea's decision to commence production using Cospak bottles after there had been no change to the packaging/filling line, nor any increase in the surface coating thickness of glass containers, amounts, in my opinion, to a wholly unacceptable commercial risk. In circumstances in which nothing had changed since the second trial on 25 October 1999, further breakages were inevitable and should have been foreseen by Meadow Lea." 75 It follows in my view that there has been a breach of the implied term, on the part of the plaintiff. The plaintiff's termination of the contract is clearly based upon the failure of the production run on 22 November 1999. What this means is that the plaintiff is seeking to rely on that failure which was caused in my view by its breach of the implied term in the contract. See TCN 9 v Hayden Enterprises (1989) 16 NSWLR 130 at 147. Given the characterisation of the conduct by Mr Warne, with which I agree, such purported termination is a repudiation of the contract by the plaintiff. 76 In these circumstances the plaintiff is not entitled to damages for breach of contract. The plaintiff's claim in negligence 77 The plaintiff's claim in negligence pleaded that as a result of the relationship between them there was a duty of care owed by Cospak to Meadow Lea. Various breaches were alleged including the failure to supply bottle free of defects etc. During the course of the trial I gave leave to add a further particular negligence in these terms: -- "Failing after 25 October 1999 to ensure that the remaining Nikki bottles supplied by Hwa Hsia were not delivered to the plaintiff until such time as steps had been taken to increase the surface coating of those bottles, or before taking steps to ensure that the plaintiff was aware that those further bottles were manufactured at the same time as those the subject of the trial on 25 October 1999." 78 It will be recalled that the draw down was made through the customer service department of Cospak and did not come to the attention of Mr Driver the person who was aware of the problems that had occurred. On the evidence, which I have recounted plainly, Meadow Lea knew both aspects referred to in this particular of negligence. 79 There were other answers raised by the defendant in answer to the claim in negligence. The first of these was that clause 9 (b) of the special conditions operated and negatived any duty in tort. That clause can sit comfortably with the conditions, which are contained on the Meadow Lea order form. The conditions on the order form do not to purport to be an entire statement of the relevant conditions in the contract and they do not deal with the liability with which I am now concerned. 80 The words of the clause are, on their face, clearly wide enough to do this as it refers to a liability "imposed by law". A question that arises is whether on the proper construction of the clause it achieves this result. Upon the logic that liability in negligence can potentially arise in respect of serious property damage or injury to persons, rather than mere economic loss, it has long been a basal proposition of the construction of exclusion clauses that "clear words are necessary to exclude liability for negligence": Davie v Pierce Parking Station Pty Ltd (1954) 91 CLR 642 at 649, per The Court (Dixon CJ ,McTiernan, Webb, Fullagar and Kitto JJ); Commissioner for Railways (NSW) v Quinn (1946) 72 CLR 345 at 371-2, per Dixon J.

81 Consistent with this restrictive approach the Privy Council in Canada Steamship Lines Ltd v R [1952] AC 192 at 208 laid out the following three principles- later termed the 'Canada SS Rules' in view of their fundamental status in this area- to be applied in the construction of exclusion cluses:

1. A clause which "expressly exempts" the proferens from liability in negligence must be given effect as such. 2. If no such express exemption is present, consideration must be given to whether the "ordinary meaning" of the words used is of such width as to encompass the exclusion of liability in negligence. 3. Even if the ordinary meaning of the words are wide enough to cover negligence, "the existence of a possible head of damage other than negligence is fatal to the proferens." Alternatively expressed, if the words of the clause are such as to comprehend the exclusion of liability other than that arising in negligence, the clause must be restricted in operation to that other form of liability alone. 82 Turning to the words of clause 9(b) in these proceedings it is apparent that upon an application of the Canada SS Rules it cannot have the effect of excluding any liability incurred in negligence by Cospak. While certainly the 'negativing' of "all liabilities … imposed … by law" are broad enough in terms of Rule 2 to encompass liability in negligence, the fact that the clause further refers to "warranties … implied … by law or by statute" makes it evident that the exclusion of liabilities other than those in negligence are comprehended in a manner that arguably may be contrary to Rule 3.

83 However more recent authority leaves it open to conclude that the Canada SS Rules, notwithstanding their long provenance, no longer have any application in Australia. Specifically, in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 a unanimous High Court (Mason, Wilson, Brennan, Deane and Dawson JJ) posited a new approach to the construction of exclusion clauses in holding (at 510) that: "the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, reading 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." 84 On this approach, Rule 3 above, insofar as it is a strict rule of construction, can have no application; the decisive factor is the natural and ordinary meaning of the words read in their context.

85 While the Court in Darlington did not refer specifically to the exclusion of liability in negligence and the Canada SS Rules, subsequent decisions have made it clear that the effect of this case is that the proper approach to such clauses is to adopt their the 'natural and ordinary meaning.' Thus in Schenker & Co (Australia) Pty Ltd v Malpas Equipment and Services Pty Ltd [1990] VR 834, McGarvie J (with whom Kaye J agreed and Ormiston J generally agreed) reviewed the Canada SS Rules and more recent Australian authority adopting the 'natural and ordinary meaning' approach and concluded (at 846) that the former authority "is inconsistent with the principles of the Australian cases culminating in Darlington Futures." With reference to authority, his Honour thereby concluded (at 846) that "in commercial contracts where the parties are not of unequal strength and the risks are normally borne by insurance, the courts should treat the parties as free to apportion the risks as they think fit."

86 Similarly in Valkonen & Valkonen v Jennings Constructions Ltd (1995) 184 LSJS 87 (SASC), Cox J (with whom Matheson and Perry JJ agreed) referred to Schenker and said (at 98): "In my respectful opinion the Full Court of Victoria was right. The first and second of the Canada Steamship Lines tests provide acceptable working rules but the third imposes an artificial and inflexible rule of interpretation that is as likely as not to frustrate the intention of the parties. The solicitude for the indemnifying party which explains the rule's creation will often be inappropriate in modern commercial conditions."

87 Most recently, in Glenmont Investments Pty Ltd v O'Loughlin & Ors (No 2) (2000) 70 SASR 185, the Full Court of the Supreme Court of South Australia was concerned with a clause purporting to exclude liability for (inter alia) "any accident damage or liability which may be caused through or by any Exhibitor." At first instance, applying the Canada SS Rules, it was held that the clause was not of sufficient width to exclude liability in negligence as its words were such that "negligence is not the only basis on which there could be liability." On appeal, however, this decision was overturned on the basis that the Canada SS Rules no longer function as strict rules of interpretation; at [257], the Court (Doyle CJ, Nyland and Martin JJ) said: "Insofar as the Canada SS Rules lay down strict rules of construction, such rules are no longer appropriate following the High Court's decision in Darlington. Such rules are to be eschewed in favour of construction of the clause according to its natural and ordinary meaning, viewed in the context of the contract as a whole. This is not to say that the Canada SS Rules are entirely without value for they may, in certain circumstances, act as a useful guide to interpretation. However, they can go no further than that." 88 In GL Nederlands (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62 at [22], Giles JA (with whom Spigelman CJ and Beazley JA agreed) left open the question of whether there existed a conflict between the Canada SS Rules and the approach of the High Court in Darlington.

89 On the assumption that Rule 3 of the Canada SS Rules has no application upon clause 9(b) of Cospak's terms, for the following reasons its words are sufficiently broad to exclude the liability in negligence alleged by Meadow Lea:

(a) The natural any ordinary meaning of the words ' all other … liabilities imposed … by law' is clearly such as to encompass liability arising in negligence. (b) The contract in issue governs a commercial transaction between two large corporate players who must be presumed to have the ability to manage their own risk. (c) The liability in negligence pleaded by Meadow Lea relates to economic loss flowing from the alleged defective manufacture of commercial products, and concerns not at all liability flowing from serious property damage or personal injury. 90 In my view the clause is an answer to the claims in negligence. 91 The defendant also raised the question of whether any tortious duty arose in the commercial circumstances, which are present in this case. For many years a conflict in the authorities existed as to whether liability in negligence for the infliction of purely economic loss was capable of concurrent existence with liability for breach of contract. While the House of Lords in Heldey Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, being the case in which the principle of liability in negligence for purely economic loss was first recognised by that tribunal, appeared to contemplate such a concurrent existence (at 493, per Lord Reid; at 502, per Lord Morris of Borth-y-Guest; at 511, per Lord Hodson; at 529, per Lord Devlin), Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 584-5 stridently opposed its development on the basis that: "The rationalised and principled development of the law cannot but be prejudiced and impeded for so long as the law of contract and the law of tort are, on the basis of past distinctions between different causes of action, seen as operating upon the same set of circumstances to impose, independently of actual intention, consequences which a legal theorist might describe as concurrent but which any ordinary person would describe as conflicting." 92 Despite his Honour's words, however, the maintenance of such a distinction between contractual and tortious liability is precisely the direction in which the law has taken. Thus in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 193-4 Lord Goff of Chievely (with whom Lord Keith of Kinkel, Lord Browne-Wilkinson, Lord Mustill and Lord Nolan agreed) maintained that, "given that the tortious duty is imposed by the general law and the contractual duty is attributable to the will of the parties", there could be no objection to a plaintiff pursuing concurrent claims in contract and tort. This decision was subsequently followed by the High Court (in preference to the view of Deane J in Hawkins) in Astley v Anstrust Ltd (1999) 197 CLR 1 at 22-23, per Gleeson CJ, McHugh, Gummow and Hayne JJ, and explained by Lord Lloyd of Berwick in Marc Rich & Co AG & Ors v Bishop Rock Marine Co Ltd & Ors [1996] 1 AC 211 at 223 as laying down a general rule that the "law of tort is not limited to filling in gaps left by the law of contract"; following Henderson (and now Astley) "the law of tort is the general law, out of which the parties may, if they can, contract".

93 For present purposes, and notwithstanding the general rule that tortious and contractual duties may co-exist, this latter proposition of Lord Lloyd of Berwick that parties may 'contract out' of liability in negligence is critical. There are legion authorities, that is to say, supporting the view that "a duty of care is likely to be denied if the parties have clearly considered, discussed and negotiated the terms of their bargain" through the mechanism of contract (Balkin and Davis, Law of Torts, Third Edition, page 436); indeed in Astley, the joint judgment referred to above queried in respect of such instances (at 22): "Why should the law of negligence have any say in regulating the relationship of the parties to the contract? The contract defines the relationship of the parties. Statute, criminal law and public policy apart, there is no reason why the contract should not declare completely and exclusively what are the legal rights and obligations of the parties in relation to their contractual dealings." 94 Thus in Frederick W Nielsen (Canberra) Pty Ltd v PDC Constructions (ACT) Pty Ltd & Anor (1987) 71 ACTR 1, the plaintiff subcontractor and first defendant head contractor entered into a contract for the supply by the former of mechanical services for the construction of the High Court building in Canberra. Upon a dispute arising, the plaintiff commenced proceedings claiming both breach of contract and breach of a tortious duty said to be owed by the first defendant to not act negligently such as to cause the plaintiff economic loss. Kelly J, however, held that the statement of claim disclosed no cause of action in negligence as (at 5): "Where … parties to a building contract enter into a detailed written agreement intended to regulate the performance of the contract, the relationship between the parties is governed by that written agreement; subject only to the implication of such terms as are necessary to be implied in the absence of express terms dealing with the subject matter of the implications." 95 Similarly in RW Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd & Ors (1992) 11 BCL 74 at 150, a case concerning the manufacture and supply by the defendant to the plaintiff of a rail-mounted reclaimer used in the transport of coal, Giles J held that no duty of care in negligence was owed on the basis that the "particular provisions of the specification were part of a detailed contract which sought to spell out with precision what was required of Krupp." Thus the rights and liabilities of the parties inter se were to be found exclusively in the contract, given that "the bargain between Krupp and Miller was a carefully structured bargain in contract."

96 The facts of Simms Jones Ltd v Protochem Trading NZ Ltd [1993] 3 NZLR 369, are very similar to those in the present proceedings. In it, the defendant chemical company contracted to supply certain substances to the plaintiff detergent manufacturer, being goods that were subsequently found to be not of merchantable quality and unfit for their purpose pursuant to New Zealand sale of goods legislation. While the legal relationship between the parties was governed by a written contract, the plaintiffs commenced proceedings for damages in negligence as well as in contract on the basis that the defendants owed it a duty to "exercise skill and care in the formulation, manufacture and supply of liquid detergents." In response to this claim, however, Tipping J stated as a general principle (at 374-375) "that if the defined contractual duties attaching to sellers of goods are replaced or supplemented by liability in negligence, the result will be confusion and injustice", and quoted Lord Scarman in Tai Hing Cottton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 at 107 to the effect that: "Their Lordships do not believe that there is anything to the advantage of the law's development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship." 97 Alternatively expressed in Tipping J's own words (at 377): "Where parties are in a contractual relationship, it will, in the absence of special circumstances be a normal, natural and reasonable inference that they intend and expect their relationship to be governed solely by the contract and the law relating to contractual obligations. If an asserted obligation does not arise under the express terms or by clear and necessary implication, a party to the contract can reasonably expect the Court to take the view that there is no such obligation. If the obligation does arise expressly or by implication there is no need to rely on the suggestion that some concurrent or coexistent obligation of the same kind also arises in tort." 98 Thus, given that no such 'special circumstances' existed in this case, Tipping J held (at 381) that no duty of care in negligence existed in superaddition to the defendant's obligations under the contract of sale. 99 In the circumstances of the present case, where one is dealing with two large commercial organisations that have been careful to cover their relationship by a written contract, it would be inappropriate to extend to the relationship the concept of a duty of care and resultant liability. To utilise the words of the majority in Astely, the circumstances are such that it appears open to conclude that the relationship between Meadow Lea and Cospak was defined 'completely and exclusively' by contract, particularly in light of the fact that both the buyer's and the seller's terms addressed the consequences of defective manufacture by reference to contractual terms of merchantable quality and fitness for purpose. The plaintiff's trade practices act claim. 100 This claim was articulated somewhat faintly in submissions as a claim based upon representations constituted by silence. Shortly stated, in order for silence to constitute misleading and deceptive conduct pursuant to section 52 of the Trade Practices Act 1974 (Cth) the plaintiff must establish (primarily):

(a) That the representor was under some duty or obligation to disclose the matter is issue. As stated by Lockhart J in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 at 557, "silence may be relied on in order to show a breach of s 52 when the circumstances give rise to an obligation to disclose relevant facts." However this obligation need not be one of law or equity, but rather may be discerned from all the circumstances of the case: Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 at 88, per Samuels JA. (b) Where the silence in issue concerns a failure to provide information, then the plaintiff must show that the defendant deliberately withheld that information. This flows from s 4(2), paragraph (a) of which dictates that "a reference to engaging in conduct shall be read as a reference to do or refusing to do any act"; and, in turn, paragraph (b) which provides that a reference to 'refusing to do an act' includes a reference to "refraining (other than inadvertently) from doing that act." As stated by Bowen CJ in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 489, "although s 4(2) recognises that an omission to do an act may constitute "engaging in conduct", that will only be so where there has been a refusal to do, or a deliberate refraining from doing, an act. The words "refuse" and "refrain" clearly connote that the omission to do an act must be deliberate." See also Semrani v Manoun, Williams v Manoun [2001] NSWCA 337. 101 In substance the representation by silence was that the goods were of merchantable quality and fit for purpose. I.e. Cospak failed to tell Meadow Lea that they were not so fit. The short answer to this claim is that there is no evidence of any deliberate omission even if there were any duty to disclose. The defendant's cross-claim 102 It follows from my earlier conclusion that Cospak is entitled to succeed on it's cross-claim. It accepts the plaintiff's expert quantification of its loss on the balance of the purchase order dated 19 May 1999 in the sum of $88,913. It also sought additional damages to reflect the chance that there would be a further sale of bottles after the first order. The evidence of Mrs Clayton before me clearly established that Meadow Lea was proposing to move into plastic containers in a timeframe somewhere between 12 and 24 months from a time in the first half of 1999. 103 The evidence before me establishes that the loss for the balance of the 5 million bottles in the first year of the contract amounted to $137,345. For the 5 million bottles in the second year the loss of profit amounted to $226,158. It is plain that in respect of the first year of the contract the contract itself gave the plaintiff the potential to realise the chance of placing these orders and the thus the profits which have been quantified. 104 In the second year of the contract it does not promise the chance. The High Court in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 dealt with this aspect. In that case, the Commonwealth contracted with Amann for the latter to supply aerial customs surveillance services across the north coast of Australia. After the contract lead time of six months, Amann commenced work pursuant to the contract but, due to delays in sourcing the appropriate equipment, was unable to comply with its obligations. The Commonwealth purported to terminate the contract for fundamental breach, with Amann treating this action as repudiatory and suing for damages. In addition to compensation for loss of its expectation interest in accordance with the ordinary principles, Amann sought further compensation for the loss of the chance to have the contract renewed after the expiry of three years. In response to this claim the Commonwealth submitted (as explained by Mason CJ and Dawson J at 90) that: "Damages for the loss of a chance or an opportunity to secure a benefit may be awarded but, argues the Commonwealth, only in those cases in which there is a legal obligation to provide a chance or an opportunity of obtaining that benefit." 105 As the Commonwealth was under no obligation to renew the contract, it was thus submitted that no damages for loss of a chance could arise.

106 Epitomised by the joint judgment of Mason CJ and Dawson J, however, the majority in this case rejected the Commonwealth's submission and applied the general rule in Hadley v Baxendale to circumstances involving the loss of a chance. That is to say, a plaintiff's ability to claim damages for loss of a chance is not restricted to instances wherein the defendant was legally obligated to provide the chance, but rather extends to all cases in which the provision of the chance by the defendant can either be fairly and reasonably considered as arising naturally from the defendant's breach or may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract. Thus per their Honours (at 92): "As we have seen, performance of the contract by Amann would have placed it in an advantageous position to secure a renewal of the contract with the benefits that would entail. The prospect of renewal was a distinct commercial benefit, inevitably contemplated by the parties as enuring to the advantage of Amann on, and by reason of, its performance of the contract. It was not an advantage which would accrue to Amann independently of performance of the contract or incidentally. The corollary is that the parties necessarily contemplated the loss of that prospect as the probable result of a repudiation or fundamental breach of the contract on the part of the Commonwealth." 107 Accordingly, Amann was entitled to have the possibility that it could have had the contract renewed taken into account in the court's assessment of its expectation interest. 108 It must be borne in mind that it is for Cospak to demonstrate on the balance of probabilities that, but for the breach, there would have been a real, measurable or substantial chance that the opportunity in question would have occurred. Quite different considerations apply to the two periods. In respect to the first, the parties had reached an agreement and had the manufacturer produce the appropriate moulds which would last for approximately 6 million bottles. The price was fixed by reference to a quantity of 5 million bottles in the first year. It is unlikely that Meadow Lea would in these circumstances have sought supply from some other supplier. The matters most likely to affect the number of orders would be other commercial considerations such as the popularity of the product and other factors affecting the market for the product. There was, however, no evidence of these factors. The estimate by Meadow Lea for the summer season which in the letter of 4 May was for a total of 3,190,000 bottles. There was no estimate for the rest of the year for which the contract was to run that period being mainly in the winter. In the circumstances I think that a discount of some 25% would reflect the chances of other market forces intervening and the seasonal nature of the product to reduce the amount of the orders which the parties had contemplated in the first period. 109 In respect of the second period different considerations apply. In particular because of the proposed move to PET it might well have been that there was no need for glass bottles. Even if it was to be glass there is no evidence that has been called by Cospak dealing with the market situation and whether they were likely to be successful in any further tender or quoting process. There are of course other glass suppliers. It is plain from the fact that Meadow Lea moved from its traditional supplier to Cospak that it would be keen to obtain the best price it could in respect of the purchase of the bottles. In the absence of any information as to the market and the likelihood of success I am not satisfied that there is a real or substantial chance that Cospak would have received further orders. 110 Accordingly Cospak is entitled to damages in the sum of $191,822. The orders of the court are as follows: 1. Order that the plaintiff's claim be dismissed with costs. 2. Judgment in favour of the cross-claimant on the cross-claim in the sum of $191,822.00 plus interest at the rates provided for under the Supreme Court Act from 1 March 2000. 3. Order the cross defendant to pay the cross-claimant's costs of the cross-claim. **********

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