Plaintiff v Defendant

Supreme Court of Victoria|2010-12-16|Before: Pagone J

CONTRACT - Terms - Whether terms of contract included terms of credit application previously agreed to - Exclusion from liability under Goods Act 1958 (Vic) s 19 - Notice of exclusion clause - Reasonable understanding - Mitigation of loss - Reasonable steps taken.

2 The main issue between Vic Alps and Redox was whether the contract they had made in late November 2004 for the supply of the defective tartaric acid included terms which had been sent from Redox on 10 March 1998 as part of a credit application to be completed by Vic Alps. Most of the facts which might otherwise have been in issue between the parties had been agreed between them by the time of, or during, the hearing. It was accepted that the tartaric acid supplied by Redox was not reasonably fit for use by Vic Alps as an additive in the making of wines for human consumption for itself or for others, and that the tartaric acid supplied by Redox to Vic Alps was not of merchantable quality. It was also agreed that Vic Alps had expressly or by implication made known to Redox the particular purpose for which the tartaric acid supplied by Redox to Vic Alps was required, namely for use by Vic Alps as an additive in the making of wines for human consumption for itself and for others which were to be sold for profit. It was also accepted, by allegations and admissions in the pleadings, that Redox agreed that both the fact of and the amount of the settlements between Vic Alps and each of All Saints and Vallunga was reasonable.

3 The purchase of the tartaric acid by Vic Alps had been preceded by a request to Redox for a quote. On 18 November 2004 Mr Dylan Hetherington (on behalf of Vic Alps) sent an email to Anita Ohanessian, a Redox sales representative, seeking prices on a list of chemicals needed by Vic Alps for its 2005 vintage production. Amongst the list was tartaric acid and Mr Hetherington's observation that he "really need[ed] the price on the Tartaric". Ms Ohanessian responded seeking information about the quantity needed in order for her to offer the most competitive prices. Mr Hetherington responded the following morning and within a few days received a price list described as the "Redox 2005 Vintage Chemical Pricing". The tartaric acid was described in the quote as "Tartaric Acid L (+)" and its quality was described simply as "European". Three orders for tartaric acid were subsequently placed by Vic Alps with Redox. Each was accompanied by an invoice that required payment by a specified date after delivery. The first tax invoice from Redox to Vic Alps for the tartaric acid was dated 8 February 2005 and was due for payment on 31 March 2005. The second was dated 16 March 2005 and was due for payment on 30 April 2005. The third was dated 11 April 2005 and was due for payment on 31 May 2005.

4 The significance of the difference between date of delivery and date for payment lies in the terms of credit which Redox relies upon in answer to the claims against it by Vic Alps. On 10 March 1998 Vic Alps had approached Redox for the supply of product. Vic Alps had been involved with Kingston Estate Wines in South Australia and had previously purchased product from Redox through the Kingston Estate account with Redox. In 1998 Vic Alps decided to purchase produce directly in Victoria and made contact with Redox. The person at Redox contacted was Ian Spackman who was called to give evidence about computer diary entries maintained at the time. The diary entries from March 1998 recorded his conversation concerning the establishment of an account for Vic Alps. He gave evidence of having printed a credit application form of six pages which was then sent by fax marked to the attention of Ross Ingram at Vic Alps. An order was placed for some product which appears to have been paid by cheque before any credit application was formally made by Vic Alps or received by Redox. In November 1998, however, Redox's electronically maintained diary entries recorded that Vic Alps had sent its credit application to Redox and that it had been received. Interim credit of $1000 was organised at about that time and various administrative steps were also undertaken in connection with checking and establishing the account.

5 A form for a credit application of six pages was sent by Redox to Vic Alps in March 1998. It is not clear whether six pages were returned by Vic Alps. There was tendered in evidence a single page which recorded various facsimile transmissions of that page of the credit application. It was plainly the first of the six pages sent to Vic Alps on 10 March 1998. It appears also to have been the second page of a fax sent by Vic Alps (on a Kingston Estate Wines fax machine) on 13 November 1998. It appears from that page that it was the first page of a six page document. An example of the six pages (subsequently superseded) reveals that it was only that page that required any completion by Vic Alps. The remaining five pages set out the terms and conditions of sale which at the time were stated as being effective as at 1 June 1989. The page sent by fax on behalf of Vic Alps to Redox was signed by Ross Ingram as its financial controller. On that page there was typed in capital letters immediately above the place for signature the words "WE HEREBY CONFIRM HAVING READ AND AGREED TO THE ATTACHED TERMS AND CONDITIONS OF SALE".

6 Mr Ingram was not called to give evidence for Vic Alps but Shayne Cunningham was. Mr Cunningham was the chief wine maker and a managing director of Vic Alps. He has an impressive history in wine making and in the business of wine making. He had no specific recollection about the particular credit application but knew that as a matter of course suppliers would normally require the completion of a credit application. The terms of this credit application included an exclusion from liability under the Goods Act 1958 (Vic) which was relied upon by Redox. Clause 8 is headed "Exclusions of Liability" and provided:

a) Unless otherwise agreed in writing the only warranty provided by the company in respect of the goods is that warranty provided by the manufacturer of the goods and the liability of the company pursuant to such warranty is limited to any amount receivable by the company from the manufacturer.
b) To the full extent permitted by law:

(i) The company gives no condition or warranty whatsoever as to the suitability or fitness of the goods for their ordinary or any special use or purpose, and the description of the goods in any contract or any other document shall not import any such conditional warranty on the part of the company.

(ii) All statutory and implied conditions and warranties except as to title are excluded, and

(iii) It is the responsibility of the purchaser to satisfy himself as to the condition, quality, suitability and fitness of the goods for this purpose and the purchaser accepts the goods as they are within the faults or defects (if any).

d) The company shall be under no liability to the purchaser for any loss (including but not limited to loss of profit and consequential loss) of any kind whatsoever arising out of the supply of or failure to supply goods hereunder. The company shall not be liable in any circumstances for any technical advice or assistance given or rendered by it to the purchaser whether or not in connection with the manufacture or supply of the goods for or to the purchaser.
e) The purchaser acknowledges that, in entering into this agreement, they had not relied upon any statement, representation, warranty, condition, advice, recommendation, information, assistance or service provided or given by the company or anyone on its behalf in respect of the goods the subject of this contract and all other goods supplied to the purchaser, other than those that are expressly herein contained and that the purchaser relies upon its own expertise as to the application, suitability or fitness of the goods the subject of this contract and all other goods supplied to the purchaser for their ordinary or any special use or purpose.

Clause 8 has a clear heading indicating that it was directed to the exclusion of liability and occupies almost an entire page, albeit that its terms are spread over two of the five pages of the terms and conditions which followed the first page. To that extent it represented some 20% of the terms in the form for the credit application which was sent to Vic Alps by Redox in March 1998. The confirmation at the bottom of the page sent back by Vic Alps unquestionably purported to have read and to have agreed to the terms and conditions that was once attached to the first page. The evidence of what was attached to the first page is plainly the example of a form for credit application tendered in evidence which included clause 8.

7 The parties had agreed to be bound by the terms and conditions in the credit application. The completion of the first page by a person at Vic Alps occupying the position of financial controller is but one fact in reaching that conclusion. Vic Alps had sought maximum monthly credit of $10,000 in the context of business dealings between business enterprises. It is evident that eight months elapsed between its receipt by Vic Alps and the return to Redox. The return was a conscious act to satisfy a continuing requirement of trade with Redox. I cannot assume that Vic Alps was not intending to be bound by the terms which were contained in the subsequent five pages of terms and conditions that it had received but which it, apparently, did not return. Redox can readily be understood as having been informed by Vic Alps by the receipt from Vic Alps of the first page that the whole of the terms contained in the subsequent five pages were being agreed to by Vic Alps through its financial controller.

8 That is sufficient to dispose of the principal issue between Vic Alps and Redox. The former's primary case was that the terms in the credit application were not intended to apply to the November 2004 sales. I cannot agree with that submission. The credit application in 1998 was intended to govern all of the sales in respect of which credit was given. The purchases of the tartaric acid in November 2004 were amongst them. Vic Alps had agreed to be bound to terms attached to the credit application through its financial controller signing and returning the first of six pages in which, amongst other things, it acknowledged having read and agreed to the terms and conditions of sale. That Mr Cunningham was unaware of the particular credit application is irrelevant. Mr Hetherington, the cellar manager at Vic Alps who placed the order for the tartaric acid, made clear the process of sale and delivery of the tartaric acid in question as having been made on credit. The terms of the credit application were, therefore, triggered.

9 Vic Alps maintained that Redox could not rely upon clause 8 because it had not done all that was reasonably necessary to bring to the attention of Vic Alps that the exemption clause applied to the November arrangement. It relied for that submission on a passage from Oceanic Sun Line Special Shipping Company Inc v Fay.[1] The relevant passage says:

If a passenger signs and thereby binds himself to the terms of a contract of carriage containing a clause exempting the carrier from liability for loss arising out of the carriage, it is immaterial that the passenger did not trouble to discover the contents of the contract. But where an exemption clause is contained in a ticket or other document intended by the carrier to contain the terms of carriage, yet the other party is not in fact aware when the contract is made that an exemption clause is intended to be a term of the contract, the carrier cannot rely on that clause unless, at the time of the contract, the carrier had done all that was reasonably necessary to bring the exemption clause to the passenger's notice ... In differing circumstances, different steps may be needed to bring an exemption clause to a passenger's notice, especially if the clause is an unusual one. In the present case, the only step which the defendant took to bring the exclusive foreign jurisdiction clause to the plaintiff's notice before the fare was paid was the note in the brochure that the conditions of carriage were printed in the (unavailable) Passenger Ticket Contract.

The facts and dicta in that case are far from the circumstances of the November 2004 contract between Vic Alps and Redox. The exemption clause relied upon by Redox was not unavailable (as was the situation in Oceanic Sun) but was clearly provided by Redox to Vic Alps. It was provided at the commencement of an intended course of dealings between Redox and Vic Alps in 1998 as a condition of the future supply of goods upon credit. The credit application specifically contained a mechanism to bring to the attention of Vic Alps the terms upon which Redox would rely, including the exclusion clause, by seeking from Vic Alps confirmation that it had read, and that it had agreed, to the terms and conditions of sale. This is not a case where one of the contracting parties was asserting that it would rely upon terms unavailable to the other contracting party and that its reliance was deemed to occur irrespective of being shown the terms which the contracting party was seeking to impose upon the other unilaterally. In this case Redox took the trouble of sending to Vic Alps the terms upon which it would rely and specifically sought from Vic Alps confirmation that it had read what it had been given to read and that it agreed with what it had been given to read. It was that to which Mr Ingram was attesting when he signed the first page. I therefore cannot accept (as was asserted in submissions for Vic Alps) that there was no evidence that Vic Alps agreed to the 1998 terms. It clearly purported to accept agreeing with those terms as the basis of continuous dealing thereafter.

10 A separate argument made for Vic Alps was that what was being agreed to through Mr Ingram was not the terms and conditions in the five pages following that which was signed by Mr Ingram but only with those terms and conditions preceding the sentence of confirmation and agreement. That is said to arise because the reference to the "attached terms and conditions" is (so it was said) capable of being taken to be a reference to the terms "immediately before it, namely, 30 days credit and a retention of title clause". I cannot accept that a reference to "the attached terms and conditions of sale" is in any meaningful sense capable of that construction. Those words appear on a piece of paper which itself says is only one of six. The very next page is headed "Terms and Conditions of Sale". There is, in my view, without meaning to be unduly critical of the argument, no meaningful sense in which "the attached terms and conditions of sale" can be a reference to what appeared above those words on the first of six pages rather than those which follow in pages two to six.

11 An additional argument was raised by Vic Alps that the notice of the existence of the terms was not reasonably capable of being understood. The basis of the argument lay in the relationship between clause 8(a) and (b). Clause 8(a) provided that Redox did extend the warranty provided by the manufacturer of the goods. There was some evidence to the effect that Redox had initially refused to provide details of the supply arrangement that it had with the supplier in Spain. The information was subsequently provided to Vic Alps and, in any event, the request by Vic Alps was only made, it seems, after November 2004. In any event, there is nothing incapable of being understood by the interaction between clauses 8(a) and (b). It was intended that any warranty provided by a manufacturer be capable of being relied upon also against Redox as the supplier. It is unnecessary for Redox to establish that the Spanish manufacturer did not have a liability under the Goods Act for the purpose of the exclusion clause to be capable of being understood. The issue was not whether the exclusion in clause 8(b) extended to Redox but, rather whether "the content and effect of the terms [were] reasonably capable of being understood". The argument for Vic Alps was put in the context of the concept of "reasonable notice" incorporating the need to ensure that the extent of the exemption, as well as the fact of exemption, be capable of proper assessment by the contracting parties. It may, or may not, have been the case that the Spanish supplier had provided warranties that were actionable under the Goods Act and, if it had, clause 8(b) might not have been available to Redox to the extent of any such concurrent warranties. That, however, is not for present purposes the relevant issue. The relevant issue is the contention that the content of the clause meant that there had been a failure to provide reasonable notice of the exclusion. In my view there cannot have been any such failure by Redox on the evidence before me. Furthermore, if it be relevant, I do not accept that Redox carried "the burden of establishing that all the requirements of the exemption clause" had been established where the requirement is that the manufacturer had warranties imposed by operation of the Goods Act. If it be relevant I would have thought that any such burden would have fallen upon Vic Alps.

12 It is not strictly necessary for me to consider the other issues which might have arisen for determination had I reached a different conclusion about the contractual arrangements between Vic Alps and Redox. However, it may be desirable to express some views briefly about the additional matters.

13 The first of those concerns was whether breach of s 19 of the Goods Act had been established. Vic Alps maintained that it had made known to Redox the particular purpose for which the tartaric acid was required so as to show that it, Vic Alps, relied upon Redox's skill and judgment. Vic Alps also maintained that the goods were bought by description. Accordingly, it maintained a breach of s 19(a) and (b) of the Goods Act. In my view each of those claims would otherwise have been made out had it been necessary for me to decide them. The tartaric acid was purchased by Vic Alps following a tender process through which Redox knew that the tartaric acid was to be used for the 2005 vintage production of wines. It tendered on that basis. Vic Alps did not know what tartaric acid would be supplied by Redox or the source of that supply. Redox was given the opportunity of making and selecting the appropriate products and proceeded without qualification, knowing that the tartaric acid was needed for the 2005 vintage. Accordingly I accept that Vic Alps relied upon the skill and judgment of Redox. It is also clear that the sale of tartaric acid was a sale by description.

14 More complex issues were raised by disputes about whether Vic Alps had failed to mitigate its loss. The duty to mitigate loss is a duty to act reasonably and, within that legal measure, is a question of fact.[2] In this regard the evidence is that by the commencement of the 2006 vintage Vic Alps believed the cause of the taint to be yeast hulls rather than the tartaric acid. Vic Alps quarantined the yeast hulls and it was not until about 24 February that the possibility of a different source of contamination (that is, other than the yeast hulls) might have been the cause of the problem. A Professor Bulleid gave expert evidence concerning proper wine making practices which was, in effect, that if there was a reasonable doubt about the source of the 2005 taint then all additives and equipment (including the tartaric acid) used in the 2005 vintage should have been quarantined. The evidence, however, establishes that reasonable people, each of whom had substantial business and commercial expertise, confidently believed upon investigations and testing that it was the yeast hulls which had caused the problem and nothing else. The yeast hulls might have been causing more taints than had been identified in 2005 but until 24 February 2006 it was only the yeast hulls that were thought to be the source of the problems. It was not until that belief was shaken that other causes were looked for. In those circumstances I consider it reasonable for Vic Alps to have proceeded with the 2006 vintage when it did and to have stopped when, on 24 February 2006, Vic Alps realised that there may have been another source of tainting.

15 It follows that the third party notice will be dismissed but I will hear the parties on any submissions they wish to make on costs.

[1] [1988] HCA 32; (1988) 165 CLR 197, 228-9 (Brennan J).

[2] Payzu Ltd v Saunders [1919] 2 KB 581, 588-9 (Bankes LJ); St Vincent's Hospital (Melbourne) Inc v University of Adelaide [2002] VSC 297, [35]-[36] (Warren J).

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