Piper Ellis P/L & Anor v Farmland P/L & Ors [2000] QSC 157

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

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

[1] CHESTERMAN J: The first defendant ("the defendant") applies for judgment pursuant to UCPR 293 on the basis that it has a defence to the proceeding. It accepts that it cannot obtain judgment unless it demonstrates that the plaintiff's case against it cannot succeed: that it is "absolutely hopeless". The court should treat applications for judgment by defendants cautiously. A plaintiff should not be prevented from advancing a case that might possibly succeed.

The plaintiff sues to recover damages for breach of contract. The defendant's point is that the contract was relevantly in writing and that its terms undeniably preclude the plaintiff from recovering the damages it seeks.

[2] The defendant carries on the business of supplying steel products for use in agriculture. It buys steel from one or more of the other defendants, and subjects it to a hardening process. It then on sells the treated steel for particular applications. The plaintiffs carry on business as retailers of agricultural implements and parts. They bought steel products from the defendant. The product in question is plough discs and rakes.

[3] The plaintiffs' case sufficiently appears from their pleadings and particulars. By paragraph 4 their further amended statements of claim they allege that between early June and 18 July 1997 Mr Kennedy on behalf of the plaintiffs and Mr Thompson on behalf of the defendant agreed that the plaintiffs would purchase agricultural products which would be supplied within a reasonable time of their order and at a price discounted to 60 per cent from the defendant's list price. The term giving rise to the dispute was that

"The products would be manufactured of high carbon content steel and would be suitable to the purpose of applying a formulated hard coating using a furnace brazing process by the plaintiffs in order to provide the products with a substantially enhanced working life".

It is then alleged that in breach of the term the defendants supplied products which were deficient because they were incapable of being reliably hardened by the plaintiffs' process in order to increase their normal working life. The products were therefore unfit for the purpose for which they were bought.

It is then pleaded that, as a consequence of the breach, the plaintiffs have suffered loss which they identify as

(b) The price paid to the defendant for the products which was wasted

(c) Money spent on applying the plaintiffs' heat treating process to the products which likewise was wasted

(d) Money spent in providing replacement product and refunding moneys to customers

(e) Money spent investigating the cause of the problem

(f) Loss of profits to be expected from the sale of the product

(g) Additional expenditure on advertising for the replacement product.

[4] The defects in the steel products supplied by the defendant were particularised. They were said to be that at the temperatures to which the steel was subjected for the purpose of hardening the carbon solute did not mix homogeneously in the steel so as to make it hard but developed pockets of layered iron and carbon which reduced the overall hardness of the steel. I have consulted the Macquarie dictionary for the meaning of the terms, "austenite", "marsenite" and "pearlite", which appear in the particulars in order to give this description of the alleged deficiency.

[5] The plaintiffs are located at Kingaroy in Queensland. The defendant has its premises at Freeling in South Australia. Messrs Thompson and Kennedy communicated by telephone and by fax. On 8 July 1997 Mr Thompson faxed Mr Kennedy

"It is with great pleasure that we submit the below for your consideration . . . all product will be Australian made by a reputable and reliable local supplier . . . the basis of our quotation is for heat treated but unpainted and unbundled product.

Subject to the usual credit approval by our finance department the following payment terms would be offered . . .

In closing, I trust that our quotation meets with your approval and please do not hesitate to contact me if you have any questions."

[6] On 18 July 1997 Mr Kennedy faxed a reply to Mr Thompson which was accompanied by "Piper Ellis order number H5415" and went on

"As per your fax of 8-7-97 please supply all product in an unpainted, unbundled state . . . We . . . appreciate the quick and professional manner in which our request for product supply was handled . . . We look forward to a mutually rewarding business relationship."

On 22 July 1997 another employee of the defendant sent a fax to Mr Kennedy. It said

"Further to John Thompson's fax to you dated 8-7-97 we require the Application for Credit and the Privacy Protection of Information forms to be completed and faxed back to the writer as a matter of priority. Would you please ensure that all directors sign both forms".

The first document referred to has the defendant's name, address and logo printed at the top. Below are the words "Application for Credit". There follow headings which call for the provision of the customer's name, address, telephone and fax numbers and the identification of partners or directors of the applicant, as well as names and telephone numbers of persons to act as referees as to credit worthiness. Beneath a bold line drawn across the page towards the bottom there appear the words

"The applicant acknowledges that they have read and understands and agrees with the terms and conditions as stated on the back of this application form".

The draftsman obviously thought that the chance that the form might be used by one or by several persons to apply for credit could be accommodated by the random variation of the singular and plural forms of nouns and verbs.

[7] It is to be inferred that the original application form contained printing on both sides of one sheet. The acknowledgment refers to terms and conditions "on the back of" the form. The only copy in evidence is photostatic with printing on only one side of the sheet. The "terms and conditions" appear on a separate sheet. The facsimile copy transmitted to the plaintiffs was in the same form. That is, both sides of the application form were sent by facsimile which produced the copy on two separate sheets of paper.

This fact assumed some importance in the submissions. Before noting the relevant contractual terms it is appropriate to deal with the communication of the document. It is admitted by the plaintiffs (Reply paragraph 4(f)(i)(ii)).

[8] On the same day, 22 July 1997 the plaintiffs' two directors, Mr David Pratt and Mr Herbert Pratt completed the application form, signed it in the spaces provided beneath the acknowledgment and faxed it to the defendant. They did not fax back the copy of the terms and conditions which they received as a separate document, though almost instantaneously with the application form. It does not appear that they have ever signed a sheet of paper on which those terms and conditions are reproduced.

[9] The form which was signed by Messrs Pratt omitted the telephone numbers of the credit referees identified. This omission was drawn to the plaintiffs' attention by a fax from Mr Krause on 23 July 1997. The plaintiffs responded by adding the telephone numbers to the facsimile copy of the application form received the day before and faxing it back to the defendant. In addition Mr David Pratt completed and returned by facsimile transmission the authority required under the Privacy Act on 22 July 1997. By paragraph 4(f)(iii) of their Reply the plaintiffs admit that an application for credit form was completed on their behalf by the Messrs Pratt; that the form contained the acknowledgment I have set out; and that the form was sent by facsimile transmission to the defendant on 23 July 1997. It is further admitted in paragraph 4(f)(v) of the reply that the form was signed by the two directors.

[10] There are nine numbered terms and conditions. The relevant ones are 2, 4 and 5. Clause 2 reads

(2) The customer shall inspect the goods upon delivery . . . and advise the company in writing within seven (7) days of faults or if not according to order. Provided the goods are not damaged nor used . . the company shall remedy any faults."

(1) Any variation must be in writing signed by the Company.

(3) These terms and conditions are the only conditions of sale and any terms sought to be made applicable by the customer by virtue of its order form or otherwise shall be wholly non applicable."

(2) The Company shall not in any circumstance be liable for any claim, liability, expense or cost arising even indirectly from any fault or weakness in or the goods whether inherent or not nor in respect of faulty or deceptive job practices and the customer shall hold harmless and keep indemnified the Company therefrom."

The terms and conditions identify the defendant as "the company".

[11] The plaintiffs advance three reasons why the terms and conditions did not form part of their contract with the defendant.

The first is that the contract was concluded prior to the exchange of documents which included the terms. This is not right. The letters I have described make it clear that the defendant intimated it would supply goods on credit only in accordance with its usual terms. Its letter of 8 July 1997 was not an offer capable of immediate acceptance. Mr Thompson specified that the defendant would agree to supply goods "subject to the usual credit approval by our finance department". That approval required the provision of the information identified in the application form and a signed acknowledgment that the specified terms and conditions would form part of the contract. The plaintiffs' order of 18 July 1997, if it constituted an offer, was not accepted. Instead the defendant insisted by its faxes of 22 and 23 July 1997 that the plaintiffs execute the credit application form before agreeing to supply the goods described in the order.

[12] The second point is that the terms and conditions do not form part of the contract because they were not signed on behalf of the plaintiffs. The point is concluded against the plaintiffs by the decision of the Court of Appeal, Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472. McPherson JA (with whom Thomas JA and Cullinane J agreed on this point) said:

"The plaintiff had, however, a practice of requiring a new customer to sign a written application form for credit addressed to it by that customer. Such an application form was signed by or on behalf of the defendant . . . It . . . concludes with the following words:

"I/we acknowledge receipt of and accept the general terms and conditions of sale".

The defendant relied on the fact that, contrary to that acknowledgment, the general terms and conditions of sale were not received by it on or before that form of application was signed. For my part, I cannot see that it matters. The plaintiff is not here attempting to set up an estoppel . . . what matters is that the defendant accepted the general conditions and signed the form of application as having agreed to do so.

Despite the use of the word "accept" it is, I think, clear enough that technically the concluding words of the credit application embodied an offer to the plaintiff from the defendant to carry on their buying and selling on the general terms and conditions of sale . . . It is true that the defendant did not, or may not have, become aware of the terms of the general conditions until the first invoice was delivered . . . but that is irrelevant. It is perfectly possible in law for a person to contract on terms that are incorporated into a contract only by reference to another document, which that party has never before seen, and may in fact never set eyes on . . .

Here the credit application was signed by the defendant, who in doing so agreed to be and became bound by those general conditions once the application for credit was accepted by the plaintiff. All that remained for the plaintiff at the trial was to identify the general conditions referred to in the credit application."

[13] In this case the facts are stronger for the defendant. The terms and conditions are identified as being those printed on the reverse of the application form. The plaintiffs were provided with a copy of the terms simultaneously with the form. The contents of the form signed on behalf of the plaintiffs contains an express agreement to be bound by those terms.

"If the party affected signs a written document, knowing it to be a contract which governs the relations between them, his signature is irrefragable evidence of his assent to the whole contract, including the exempting clauses, unless the signature is shown to be obtained by fraud or misrepresentation." Per Denning LJ in Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 at 808.

[14] The third ground is that the plaintiffs agreed to be bound only by terms and conditions found in a particular location ie on the back of the form they signed. This argument cannot be taken seriously. The law has successfully overcome the earlier domination of form over substance. The law of contract is concerned with whether the parties agreed and on what terms, not the physical situation of those terms.

[15] The defendant submits that clause 5 exonerates it from liability in respect of the plaintiffs' claims. The parties agree that the clause should be construed

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

Per Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510. The defendant is not to be "in any circumstances . . . liable for any claim, liability, expense or cost arising even indirectly from any fault or weakness in the goods whether inherent or not". The plaintiffs' action is to recover the losses they suffered and the moneys they had to reimburse their customers by reason of the characteristics of the steel which made it incapable of hardening in accordance with the plaintiffs' preferred method. These characteristics constitute a "fault or weakness" in the steel sold. It is pleaded as such. The steel is said to be unsuitable because the amount or composition of the carbon in it would not react to the process so as to produce a hardened product. This condition falls naturally within the meaning of "fault or weakness". The money the plaintiffs seeks to recover are "claims, liabilities, expenses or costs" arising from the fault or weakness.

On its ordinary and natural construction clause 5 prevents the defendant from being liable to the plaintiffs on the claim animbrated in their action.

[16] The plaintiffs raise two more points. They contend that clause 5 is inconsistent with clause 2 and should give way to it. I cannot see an inconsistency. Clause 2 obliges the defendant to remedy any fault in product supplied, subject to conditions set out in the clause. Clause 5 exonerates the defendant from liability arising out of faults in the goods sold. It does not apply to the rectification of faults in goods supplied, but to the financial consequences of such faults. If, however, this is wrong and the obligation to remedy a fault comes within the ambit of "claim, liability, expense or costs arising from any fault" then clause 5 is to be read down so that the defendant remains liable to perform the obligation imposed on it by clause 2. The exoneration will not operate so as to prevent it having to remedy any fault notified in accordance with clause 2.

[17] The second objection refers to the disregard for grammar found in the clause. The disjunction "or" where it occurs for the third time ("in or the goods") is a nonsense. The result is not, however, that the clause is destroyed. It must, if possible, be given some meaning though if two meanings arise that adverse to the defendant should be preferred. The disjunction should be treated as an irrelevant addition and the clause should be understood as though it were not there. Mr Fraser QC advanced an alternative construction which would require a greater notional adjustment to the clause and extend its operation. He argues that the clause should be understood as though it read "The defendant shall not be liable for any claim . . . arising from any fault or weakness in the goods or from the goods". I do not think such a suggestion accords with the conventional approach to the construction of limitation clauses.

[18] Another point should be mentioned. The plaintiffs apparently rely upon the implied condition as to fitness imported into contracts for the sale of goods by s 17(a) of the Sale of Goods Act 1896. It seems doubtful, though perhaps not un-arguably so, that the plaintiffs made known to the defendant the particular purpose for which they required the steel so as to show that they relied upon the defendant's skill or judgment. What is clear beyond argument is that the implied condition may be excluded by express agreement (s 56) and that clause 4 of the terms and conditions does so.

[19] The defendant had another ground for asking for judgment. It was that only the second named plaintiff contracted with the defendant and the action by the first named plaintiff, Piper Ellis Pty Ltd should be dismissed. There is considerable substance to this argument but I do not consider that a contrary argument, that the first named plaintiff was an undisclosed principal to the contract which was made by Car Gai Pty Ltd on behalf of both plaintiffs is "absolutely hopeless". As I have concluded that the defendant is entitled to judgment by reason of the exclusion clause I do not intend to consider the matter at greater length.

[20] I think it is clear to the requisite degree that the terms and conditions form part of the contract between the defendant and the plaintiffs and that the plaintiffs' claims are within the purview of clause 5. The plaintiffs agreed that the defendant should not be liable for such claims and further agreed to indemnify it against such claims. In the circumstances the plaintiffs' action must inevitably fail. Accordingly I order that there be judgment for the defendant against the plaintiffs in action number 4776/1999. I further order that the first defendant's costs of and incidental to the action and this application be assessed on the standard basis and paid by the plaintiffs.