Milford Astor Pty Limited v Machinery Developments Limited

Supreme Court of NSW|2002-11-26|Before: Mathews AJ

Introduction 2 Milford Astor Pty Limited ("Milford Astor") entered into an agreement in December 1999 to sell twenty Bell-Mark printing machines to the defendant, Machinery Developments Limited ("MDL") at a total price of AUD239,748. The plaintiff's case is that the machines were delivered in accordance with the contract, but only $187,812.80 was paid by the defendant, leaving outstanding an amount of $51,935.20. The plaintiff's statement of claim seeks payment of this amount together with interest. 3 MDL does not dispute the essence of the agreement between the parties or the fact that the machines were delivered, although there is a strong dispute as to whether the machines, as installed, complied with the terms of the contract. The principal issue between the parties arises from MDL's cross-claim against Milford Astor. This in essence asserted that Milford Astor was in breach of express or implied conditions of the contract, and that the machines as delivered were not fit for the purpose for which they were intended. It raised claims for breach of contract as well as claims under the Sale of Goods Act 1923 and the Trade Practices Act 1974 (Cth). 4 Before turning to the facts of the matter, I should make one brief observation. The amount in issue in this case is in the order of $52,000. In the normal course of events a claim of this nature would not be brought in this Court. If it were, costs penalties would be imposed upon the plaintiff. However, in this case Milford Astor had no choice but to commence proceedings in this Court. The defendant being a New Zealand company, it is the only court with jurisdiction to deal with the matter. 5 I turn now to discuss the factual background of the matter.

• The length of cable between each printer and its control unit;

• The networkability of the printers. 24 There is also a significant issue as to the effect, if any, of the exemption clause contained in Milford Astor's normal terms and conditions of contract. 25 I turn now to discuss each of these matters.

Length of cable between printer and control unit. 26 Mr Melville said that when he first saw the Bell-Mark printer being exhibited by Milford Astor at the Melbourne exhibition, he had a conversation with Mr Riley which included words to the following effect: "I said: "Could one control unit control six printers?" He said: "No, because each control unit is dedicated to a particular printer." I said: "Where can we put the control boxes - they are too big to fit inside the bagger machine." He said: "You can put them wherever you like, they come with 30 metre cables which can attach to the printer." I said: "That's good, this will be appropriate for the configuration in the CMG Plant." 27 Mr Gordon Little, the Australian Sales Manager of Danaflex, was present with Mr Melville when he attended Milford Astor's stand at the Melbourne exhibition. He described a conversation to the following effect. Melville: "These controllers are too big to sit in the baggers. Where can we put them?" Riley: "Wherever you like, they come with 30 metre cables." 28 Mr Riley denied that this conversation took place. He said that Mr Melville asked him whether the six printers in each bank could be operated from a single controller. He said no, that would not be possible. Mr Melville then asked whether the controllers could be placed into a central location, physically removed from the printers. He answered "No, what you see is the package as supplied by Bell-Mark." 29 Mr Riley said that some time later, in early November 1999, he had a telephone conversation with Mr Melville in which the latter asked "can Bell-Mark supply longer cable length between the printer and control cabinet? We cannot fit cabinets where we intended." Mr Riley said he was not certain, but that he would ask Bell-Mark about it and would get back to Mr Melville as soon as possible. Mr Riley subsequently made enquiries from Bell-Mark's technical customer services engineer in the United States, Mr Jim Parker. Mr Parker e-mailed him on 5 November 1999 in the following terms: "At present three metres (10 feet) is the only tested length. Any other length would be untested, unknown, and not recommended at this time. It is unclear when any tests will be done to validate longer cable lengths. I'm sure this is not what you want to hear." 30 In his affidavit dated 27 July 2001 Mr Riley said that he forwarded this e-mail on to Mr Melville in New Zealand. 31 As mentioned earlier, on November 11, 1999 Mr Riley faxed a quotation to Mr Melville in Auckland for the supply of Bell-Mark thermal transfer printers. There was no reference in the quotation to the length of the cable between the printers and their control units. After further negotiations, a revised quote was e-mailed by Mr Riley to Mr Melville on 3 December 1999 and accepted by Mr Melville the following day, 4 December. There was no reference in any of this correspondence to the length of the cables. 32 At about this time Mr Melville had a conversation with Mr Michael Fleming, a director of Thermal Coating, a competitor of Milford Astor. Mr Melville was explaining to Mr Fleming why he was ordering the printers from Milford Astor rather than from Mr Fleming's company. The reasons, he said, were twofold: first, because Mr Fleming's printers were too large to fit into the baggers. Second, because Milford Astor's cabling could be 30 metres long, thus enabling the control boxes to be housed in a central location. Mr Fleming told Mr Melville that he thought a 30 metre cable would not be possible. This prompted Mr Melvile to send an e-mail to Mr Riley on 10 December 1999. 33 Mr Fleming said in his evidence that this conversation took place before MDL had contracted to purchase the printers from Milford Astor. However, in my view he must have been mistaken on this matter. Mr Melville said that the conversation took place later, and I accept that this almost certainly was the case. It is highly unlikely, in my view, that Mr Melville would have accepted Milford Astor's quotation of 3 December 1999 had he realised that the 30 metre cabling might not be available. 34 As relevant here, Mr Melville's e-mail of 10 December 1999 was in the following terms: "Robert, can you confirm that we can mount the control units for the printers 30 metres away as indicated in Melbourne? There is some question here that it is not possible."

On 13 December 1999 Mr Riley responded, again by e-mail, as follows: "No the 30 M option is not available commercially and is only in experimental stages. We are left with what is connected to the printer you have. 35 There is a clear conflict between the evidence of Mr Melville and that of Mr Riley as to their conversations and dealings on to this aspect of the transaction. In this regard, I have no hesitation in accepting Mr Melville's version. Not only was his account of the Melbourne conversation confirmed by the evidence of Mr Little, but the whole course of dealings between Mr Melville and Mr Riley is explicable only on the basis of the version given by Mr Melville. 36 Mr Riley in his evidence conceded that Mr Parker's e-mail dated 5 November 1999 was not in fact forwarded on to Mr Melville, as he had stated in his affidavit of 27 July 2001. To this extent he was forced to concede that he had made an untrue statement in his affidavit. Moreover Mr Melville's e-mail to Mr Riley dated 10 December, when he queried whether the control units could be mounted 30 metres away from the printers "as indicated in Melbourne", cannot sit with Mr Riley's denial that there was any reference to 30 metre cables during their Melbourne conversations. Further, Mr Riley's e-mail of 13 December was itself misleading and inaccurate. He described the 30 metre option as "not available commercially" and "only in experimental stages". In fact, there were no experiments relating to 30 metre cabling, as Mr Riley must have known. Mr Parsons' e-mail dated 5 November 1999 had said, inter alia, "it is unclear when any tests will be done to validate longer cable lengths". It was suggested to Mr Riley in cross-examination that the reason he said in his e-mail of 13 December that the 30 metre option was in experimental stages was to explain away his earlier statement to Mr Melville that a 30 metre cable would be available. Mr Riley denied this, but it is difficult to understand why else he would have made such an inaccurate statement. 37 In my view this sequence of events reflected very adversely on Mr Riley's credibility generally. The statement in his affidavit, which he later admitted to be false, related to an issue which was central to the case. So also did his account of the conversations between Mr Melville and himself in Melbourne, which cannot stand with other evidence in the case. It would be very difficult indeed to attribute these discrepancies to a faulty recollection as opposed to a deliberate misstatement. Mr Melville, on the other hand, presented as an honest, forthright and reliable witness. Where the evidence between the two of them is in conflict, I have no hesitation in accepting Mr Melville's version in preference to that of Mr Riley. 38 Mr Melville said that when he learned that the 30 metre cabling was not available it was too late to seek printers from alternative sources. At that stage MDL had already entered into its contract to purchase the printers from Milford Astor. Given the time constraints at CMG, it would not have been feasible to locate and secure eighteen alternative printers within the short time frame involved. Accordingly, MDL was required to accommodate to the situation by changing the placement of the control units. This was a more difficult job than originally envisaged because, when the printers in due course arrived, the cable links were only two metres long instead of the three metres which MDL had been led to expect. A considerable amount of work was required to extend the cables and to reconfigure the placement of the control units. MDL claims, as part of its cross-action, the costs thereby incurred. 39 Mr Melville said, and I accept that, had he known that the 30 metre cabling was not available, he would either not have entered into any contract with Milford Astor to purchase the printers, or he would have negotiated a different price structure to take account of the additional costs to be incurred. Nevertheless, the written contract between the parties contained no reference to cable lengths. There is therefore a real issue as to whether there was any actionable breach by Milford Astor which would entitle MDL to damages. If there was, the effect of the exemption clause needs to be considered as does MDL's claims under the Trade Practices Act. And even if MDL surmounts all these difficulties, the damages it can recover will be of a very low order. I shall discuss these matters later. First I shall deal with the other heads of MDL's cross-claim.

Commissioning of the printers 40 Milford Astor's quotation dated 11 November 1999 included the following component: " Installation The following covers the setup and commissioning of printers for the Rockhampton installation. 2 people for 3 days (airfares and accommodation) $2,530.00 If more than one field trip is required the above rate will apply." 41 Milford Astor's later quotation dated 3 December 1999 also included a claim for "commissioning (Rockhampton)" in the amount of $2,530. 42 Mr Riley and his associate Mr Geha went to Rockhampton on 19 January 2000 for the purpose of commissioning the printers. Mr Riley said that when he arrived most of the machines were not ready for commissioning. However he and Mr Geha did what work they could. When Mr Riley returned to Sydney, on 24 January 2000, he said that thirteen printers already had been commissioned. By the time Mr Geha left three days later, Mr Riley said that all eighteen machines had been commissioned, in that they were able to produce a set of good prints 43 Evidence was given that the plaintiff's solicitor attempted on a number of occasions, but without success, to locate Mr Geha. Accordingly, no adverse inference can be drawn from the plaintiff's failure to adduce evidence from him. 44 Mr Melville disputed that the printers were functioning correctly when Mr Riley and Mr Geha left Rockhampton. It became apparent, he said, that neither Mr Riley nor Mr Geha had the expertise to get the printers functioning correctly. There were serious problems, he said, of print consistency which were not resolved for a considerable period of time after the CMG plant became operational. In the meantime, CMG had to hire additional staff to hand-write onto the bags with felt tipped pens the data that was supposed to be printed onto them. Mr Melville was cross-examined as to why he did not ask Mr Riley to return and complete the commissioning process. He answered that this would have been pointless, as it was clear that neither Mr Riley nor Mr Geha knew anything about the technical aspects of the printers. In fact, Mr Melville said, he did speak to Mr Riley about their problems with the printers, as it became necessary to seek help from Bell-Mark in the United States. For this purpose, Mr Melville telephoned Mr Riley and asked for the name of the person in Bell-Mark who could assist them. 45 Mr Melville said that it was only after MDL's discussions with Bell-Mark that he and his team became aware that the performance of the printers was affected by particular settings. With this knowledge, and with the experience they had already gained on the printers, they were eventually able to get the printers working satisfactorily. But this was, he said, approximately three months after Milford Astor's representatives had left the Rockhampton plant. In the meantime, before Bell-Mark was contacted, various people were attempting to get the printers functioning properly. 46 Mr Melville's evidence on this matter was supported by several witnesses. Mr Manson, the General Manager of CMG, said that it was not until late April or early May that the printers were properly operational. In the meantime, CMG employed an extra twelve people to manually write the information onto the bags with indelible markers. CMG incurred considerable costs in this regard, which were not passed on to either Danaflex or MDL. 47 Mr Fleming, of Thermal Coating, gave evidence on this aspect of the matter. He was called in by Mr Melville to try to rectify the problems with the printers, notwithstanding that Mr Fleming's company was a competitor of Milford Astor. Mr Fleming went to Rockhampton on two separate occasions. By the time he left after the second visit he was satisfied that all eighteen machines were working properly. 48 Anthony Matijeasevich (generally known, and referred to in this judgment, as Mr Matos), is a director of Automation Systems Limited, the company which was engaged by MDL to network the Bell-Mark printers. For that purpose, Mr Matos was at the CMG plant in Rockhampton during the early part of 2000. He confirmed that continual problems were experienced in getting the printers to work properly after Mr Riley and his companion had left. He and his employees carried out substantial work in assisting in the commissioning of the printers. This was additional to the networking of the printers which he had originally been employed to undertake. He sent an invoice for this additional work which was paid by MDL. 49 The essence of "commissioning" the printers was to ensure that they operated effectively and reliably on a continuous basis. The evidence overwhelmingly indicates that the Bell-Mark printers were not working in this manner when Mr Riley and Mr Geha left the CMG plant. But this cannot sound in damages at the behest of MDL. All it means is that Milford Astor inadequately performed that part of its contract which related to the commissioning of the printers. $2,530 was assigned under the contract for this work. Milford Astor is not, on my finding, entitled to payment of that amount, and its claim will be reduced accordingly. But MDL cannot claim from Milford Astor the amounts which it then paid to other people for the commissioning of the printers, notwithstanding that these amounts considerably exceeded the $2,530 assigned under the contract for this purpose. For it is not suggested that the difficulties encountered in making the printers operational were attributable to any defect in the printers themselves. Rather they were caused by an inadequacy of information as to how the printers should properly be commissioned.

Networking of the printers 50 Mr Melville said that he discussed the networking of the printers with Mr Riley when he attended the Melbourne exhibition in October 1999. He described to Mr Riley the proposed configuration of baggers at the CMG plant and emphasised the need for the printers to be able to be networked with the baggers. Mr Riley replied that the printers could be networked, and that were already two installations in Australia and one in the United States in which multiple printers had been networked. 51 It was not suggested by MDL that Milford Astor was to be responsible for networking the printers. Milford Astor's original quotation dated 11 November 1999, as relevant to this issue, said as follows" " Networking

I realise Automation Systems are looking at the networking communications with the Printers however will finalise our proposal for networking early next week and will submit our offer under separate cover." 52 In fact, at Mr Melville's suggestion, no proposal or quotation for networking the printers was ever submitted by Milford Astor. MDL had already arranged with Mr Matos' company, Automation Systems Limited, to carry out this work. 53 In considering this issue it is important to distinguish between the networkability of the printers, on the one hand, and the physical work which was required to be done to achieve the networking, on the other. MDL's complaint is that the printers and their accompanying software, as supplied by Milford Astor, were not capable of being networked as originally envisaged. In particular, they were unable to operate within a time frame which was acceptable in an industrial setting. The delays between command and response were so great that the machines could turn out only a fraction of the work per minute as was required by CMG. When Mr Melville realised that this was the case, he contacted Mr Riley, seeking details of the two companies which had been able to network their Bell-Mark printers. Mr Riley at that stage said that there had been no previous attempt to network Bell-Mark printers in Australia. The only networking that he knew of was in the United States. This was in direct contrast, Mr Melville said, to what Mr Riley had told him in Melbourne. 54 The physical networking of the printers was, as mentioned, to be carried out by Mr Matos's company, Automation Systems, which was to be paid by CMG directly. Mr Matos and his team were thus at Rockhampton to carry out this work. However they encountered serious difficulties in trying to achieve any networking between the printers at an acceptably fast rate. In the end, they decided that it would not be possible to network the printers in the manner they had originally planned. Accordingly, they set about resolving the problem by adopting what Mr Matos described as a "broadcast mode." Mr Matos explained the difference between broadcasting and networking. I do not propose to go through the details of his evidence on this. Suffice it to say that Mr Matos said that the communication between printers which they were eventually able to achieve was not regarded as "networking" within his industry. 55 Mr Riley said that he had no experience in the networking of the Bell-Mark printers. He denied that he ever told Mr Melville that there were two Australian customers who had already successfully networked these printers. However he conceded that he did tell Mr Melville at the Melbourne exhibition that the printers could be networked. He said that he made this statement on the basis of information he had received from Bell-Mark. He insisted, however, that networking was not part of Milford Astor's brief. 56 It was certainly not part of Milford Astor's role, under its contract with MDL, to physically network the printers. That responsibility was allocated to Automated Systems Limited. However MDL's complaint is that one of the material inducements which procured its agreement to purchase the printers in the first place was Mr Riley's representation to Mr Melville that the printers were networkable. In fact they were not able to be networked in a manner which suited the industrial environment. 57 Mr Sirtes, who appeared for Milford Astor, submitted that the printers were in fact networkable when they were delivered by the CMG plant. They were capable of communicating with each other, albeit at a rate which was too slow for CMG's needs. But there is no evidence that Mr Riley was ever told about those needs. In other words, as Mr Sirtes put it, the machines failed to meet a performance criterion which had not been conveyed to Milford Astor. This cannot give rise to any cause of action on the part of MDL. 58 In my view there is real substance in this submission. It is for the defendant to satisfy me that there was a relevant misrepresentation or breach on the part of the plaintiff. I cannot be satisfied of this matter on the evidence before me. Accordingly this part of MDL's cross-claim must fail.

Discussion of legal principles 59 As the above discussion makes clear, MDL cannot succeed on its cross-claim in relation to either the commissioning or the networking of the Bell-Mark printers, although it is entitled to a small deduction from the price claimed by Milford Astor in relation to commissioning which was never properly carried out. The sole remaining matter relates to Mr Riley's representation that 30 metre cabling would be available between the printers and their control units. I accept Mr Melville's evidence that this assertion was made by Mr Riley both at the Melbourne exhibition and in subsequent telephone conversations with between them. 60 A substantial issue arises as to whether Mr Riley's statement constituted a promise which induced MDL to enter into the principal contract so as to establish a collateral contract, the breach of which would entitle MDL to claim damages for its breach; or whether, on the other hand, it constituted a mere representation. I am inclined to the latter view. However this is by no means the end of the matter. For in my view, Mr Riley's statement constituted a clear breach of s 52 of the Trade Practices Act. This section provides as follows: 52 . Misleading or deceptive conduct

(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1). 61 In my view all the ingredients for the operation of this provision have been made out in this case. Milford Astor, during the course of a commercial activity, engaged in conduct which was, at best, misleading. MDL, in reliance upon this misleading conduct, entered into a contract to purchase the Bell-Mark printers on conditions which would not have been acceptable to it had it known of the true situation. 62 My finding that Milford Astor was in breach of section 52 of the Trade Practices Act makes it strictly unnecessary to determine whether there was also a breach of an implied condition under s 19 of the Sale of Goods Act. It also makes it unnecessary to determine the effect of the exemption clause which is contained in Milford Astor's normal terms and conditions. According to Mr Riley's evidence, these terms and conditions were sent to MDL both by fax and by ordinary mail. Mr Melville denied ever having seen them. However the objective evidence strongly supports the proposition that they were in fact sent by Milford Astor to MDL on or about 11 November 1999. If I were required to make a finding on this matter, I would therefore conclude that the terms were communicated to MDL, and that they became part of the contract entered into on 4 December 1999. 63 The exemption clause in question was in the following terms: "8. CONSEQUENTIAL LOSS AND DAMAGE Save as expressly provided for in the limited warranty in paragraph 8, the Company shall not be liable for any loss or damage or injury, direct or consequential, whether in contract, tort, by statute or otherwise, and whether at law or in equity, and whether caused or arising out of or through the negligence, breach, acts or omissions for the Company, its servants or agents or otherwise and of whatsoever nature and to whomsoever or whatsoever caused arising out of the manufacturing and supply or supply only of any goods to the Customer or out of or through the use of any such goods by the Customer. 64 This clause is in very broad terms. It would almost certainly operate to exclude liability for breach of an implied condition under s 19 of the Sale of Goods Act. But it cannot exclude liability under s 52 of the Trade Practices Act. For there is clear authority that a vendor of goods cannot rely on an exemption clause in answer to a cause of action under s 52, as the conduct in making the representation preceded the contract in which the exemption clause was contained. As Sheppard DJ said in Clark Equipment v Covcat (1987) 367 71 ALJ at 371: "Parties may agree that statements and representations made antecedently to their entering into a contract are not to form the basis of any remedy in the event of there being a subsequent disagreement. Except in cases of fraud, the common law will give effect to their contract. But the remedy conferred by s 52 of the Trade Practices Act will not be lost, whatever the parties may provide in their agreement. If a vendor of goods has engaged in misleading or deceptive conduct, the law makes him accountable for loss and damage suffered as a result of his unlawful conduct. That conduct will usually have been committed, as in this case, prior to the signing of any contract. If, as a result of the con- duct, a person is induced to enter into a contract and suffers loss, an action to recover it lies. The terms of the contract are irrelevant. As Wilcox J said in Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 at 378: "Whatever may be the effect of cl 19 [the exemption clause in that case] in relation to an action brought in contract, in which reliance is placed upon an alleged warranty or condition not included in the contract of sale, that clause should not be allowed to defeat a claim based upon s 52. To permit such a clause to defeat such a claim would be to accept the possibility that a vendor might exacerbate his deception, as by actively misleading a purchaser as to the existence or nature of such an exclusion, and thereby ensure that he would escape liability:" 65 I turn finally to the question of damages. As Mr Burchett conceded, the evidence on this aspect of the matter is less than satisfactory. The evidence indicates that, had the 30 metre cabling been available, the control units would probably have been housed either in a separate room or possibly in the ceiling of the CMG plant. With the shorter length of cabling, alternative means of housing the controllers had to be devised . The solution reached was to place each control unit on the back of the printer it controlled. But there is no evidence as to the projected cost of the original proposal or the actual cost of the substitute measure. Therefore there is no basis upon which damages can be assessed for this part of MDL's claim. 66 There is one portion of the claim, however, which is ascertainable. On 28 February 2000 Mr Matos submitted an invoice to Bagger Company Limited for the work which Automation Systems Limited had carried out in making the Bell-Mark printers properly operational. The amount claimed was NZ$92,862. $7,200 of this was charged for "printer connectors - parts". According to Mr Matos, this related to work carried out in extending the cables which were attached to the printers as delivered. It will be remembered that these cables were only two metres long, which was even less than the cables on the demonstration model. The cables were too short to enable the controllers to be placed on the back of the printers, and a considerable amount of work had to be carried out, according to Mr Matos, to extend the cables so that this connection could be made. 67 In my view this amount is properly included as part of MDL's damages in relation to Milfor Astor's misleading conduct. The evidence indicates that the invoice was paid by MDL, notwithstanding that it was addressed to Bagger Company Limited, a close associate of MDL's. 68 As at February 2000 NZ $7,200 equalled A$9,097. MDL's cross-claim will therefore be allowed in this amount. 69 Milford Astor's original claim was $51,935.20. From this the sum of $2,530 must be deducted (being the commissioning charge), plus the $9,097.20. In the result, Milford Astor will receive a verdict in the amount of $40,308.00. 70 This represents a substantial victory for Milford Astor. However, it is not in my view appropriate that it receive all its costs of the proceedings. I order that MDL pay 50 percent of Milford Astor's costs. **********

Last Modified: 04/29/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Trade Practices Act 1974(Cth)

CITATION : Milford Astor Pty Limited v Machinery Developments Limited [2003] NSWSC 301 HEARING DATE(S) : 26 November 2002 JUDGMENT DATE : 15 April 2003 JURISDICTION: Common Law JUDGMENT OF : Mathews AJ DECISION : Verdict for the Plaintiff in the amount of $40,308. Defendant to pay 50 percent of the plaintiff's costs.

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