BETWEEN : ROBE RIVER MINING CO PTY LTD (ANC 008 594 246)

MITSUI IRON ORE DEVELOPMENT PTY LTD (ACN 008 734 361)

CAPE LAMBERT IRON ASSOCIATES and PANNAWONICA IRON ASSOCIATES

Contract - Pleading - Defence - Sufficiency of plea - Application for leave to amend

Limitation Act

Sale of Goods Act 1895 (WA), s 14(i), s 14(ii)

1 ANDERSON J: On the face of it this would not appear to be a complicated case. The plaintiffs placed orders with the first defendant for the manufacture and supply of steel drive shafts which were to be fitted into bucket wheel reclaimers at Cape Lambert. The machines were to be used to reclaim iron ore from stockpiles and the drive shafts were to drive the bucket wheel. The two drive shafts were delivered in early 1988 and one of them was fitted in 1990 and after about 3 years it failed and there was a considerable amount of damage done to the reclaimer. The plaintiffs say the drive shaft failed because it was not of merchantable quality nor reasonably fit for its purpose. They plead a case in contract against the first defendant in which they say that the first defendant was in breach of the implied conditions under s 14(i) and s 14(ii) of the Sale of Goods Act 1895 (WA) as to merchantable quality and fitness for purpose and they claim to recover damages arising from the breaches. There are also allegations of negligence against the first defendant and against two other parties joined as second and third defendants. These parties were suppliers to the first defendant.

2 The pleadings have undergone amendment from time to time. The first defendant now wishes to start again with a fresh defence and I have before me an application to amend and a document entitled "Minute of Proposed Substituted Defence" dated "March 2003". The application is opposed. For the sake of brevity I will call the first defendant the defendant and the Proposed Substituted Defence the defence.

3 The first objection is to par 10.2 of the defence which is in the following terms:

10.1 ...

10.2 Proposed to rely and did rely on its own skill and judgment

(a) in all matters relating to the design of the drive shafts, the material specification for the drive shafts and required mechanical properties of the drive shafts; and

(b) in interpreting the ultrasonic test certificate it required (as part of the quality control procedures) and in satisfying itself that the method and intensity (level) of testing was adequate to disclose those discontinuities in the steel of the drive shafts which may lead to crack propagation under the loads and stresses to which Robe knew, or should have foreseen, the drive shafts would or might be subjected in operation"

4 In considering this part of the defence the starting point is par 6B(1) of the statement of claim in which the plaintiffs plead:

"6B(1) Further or alternatively to paragraph 6A above, the plaintiffs made known to the first defendant, expressly, alternatively by implication, the purpose for which the drive shafts were required, namely for the use of each shaft as a bucket wheel drive shaft for a reclaimer as shown on the drawing, so as to show that the plaintiff relied upon the first defendant's skill or judgment."

5 Although I think the word "particular" should appear before the word "purpose" it is reasonably clear that this is a plea of the matters which attract the implied condition under s 14(i) of the Sale of Goods Act 1895 (WA) which provides:

"14(i) 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 he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose ..."

6 The main plea to par 6B(1) is in par 11 of the defence which pleads:

"11. Save as admitted in paragraphs 7 to 11 (inclusive), Hofmann denies each and every allegation contained in paragraphs 5, 6, 6A and 6B of the statement of claim."

7 This is of course a bare denial and although no complaint is made about par 11 I would not have thought a bare denial is a sufficient plea to par 6B(1). It leaves unclear whether the defence is that whilst the plaintiffs made known to the defendant the particular purpose for which the drive shafts were required it did not do so in a way which showed that the plaintiffs' relied on the defendant's skill and judgment to supply drive shafts suitable for that particular purpose or whether the defence is that the plaintiffs did not make the particular purpose known to the defendant at all. This deficiency is not cured by par 10.2. The object of par 10.2 seems to be to add to the bare denial by merely adding a positive plea as to whose skill and judgment the plaintiffs did rely on and to what extent. This latter plea is open to two objections. In the first place, it does not matter (in the sense that it is not a material fact) whose skill and judgment the plaintiffs relied on if it was not the defendant's skill and judgment, so at best the plea in par 10.2 is a plea of evidence in support of the denial in par 11 and at worst it raises a false issue. Secondly and perhaps more importantly, par 10.2 does not of itself answer the allegation in par 6B(1). Taken as a whole par 10.2 does no more than plead that the plaintiffs relied on their own skill and judgment (that is, they did not rely on the defendant's skill and judgment) with respect to the particular matters enumerated in the pleading ie, "design", "materials specification", "mechanical properties", "interpreting the ultrasound test certificates" etc. The reason why this is not of itself an answer to par 6B(1) is that in a sale of goods case the buyer may succeed in a claim under s 14(i) even though he placed no reliance on the seller as to some matters. So, for example, the buyer may supply the design and materials specification thus showing that he did not rely on the seller's skill and judgment with respect to those matters. However, he may still rely on the seller's skill and judgment to procure and use suitable materials. He would succeed if the defect was within the scope of that reliance: Cammell Laird & Co Ltd v Manganese Bronze and Brass Ltd [1934] AC 402; Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441. In order for a plea of no reliance as to a particular matter such as design to be a good defence and to be not embarrassing it must be clear from the defence as a whole that the defence case is that the defect was in the design. That is not clear on the face of this defence read as a whole. While there is an allegation to that effect (par 19) there are other allegations tending to suggest that the defendant wishes to rely on latent defects in the steel (par 13.1), a defective forging process (par 13.3), inadequate ultrasonic inspection (par 13.6) and/or overloading ie, use beyond design capacity rather than defective design (par 14).

8 The long and the short of it is that because of the way the defence as a whole is pleaded it is very difficult to understand the significance of par 10.2. It may be part of a plea that there was no reliance at all upon the defendant's skill and judgment to supply a drive shaft capable of driving the reclaimer bucket in question in which case it adds nothing to the denial in par 11 and is otiose. It may be part of a plea that although there was some reliance on the defendant's skill and judgment that reliance did not go to the extent of relying on the defendant with respect to the particular matters pleaded in par 10.2(a) and (b) in which case it is an incomplete plea for want of a clear unambiguous allegation that the defect arose within those matters ie, not within the scope of the reliance placed on the defendant. On the other hand par 10.2 might have some other purpose.

9 I would not allow an amendment in terms of par 10.2 of the defence.

10 The next objection is to the proposed new par 12 of the defence which pleads:

"12. There was an express term, alternatively an implied term, of the contract as varied that delivery of the second drive shaft to be completed would take place at Hofmann's Bayswater works on 25 February 1988, the date on which the drive shaft was completed."

11 The objection to this plea is that it is embarrassing in that it fails to properly or adequately particularise the pleading in that it "fails to give the usual particulars as to whether the terms are written or oral and if written, identify the document etc."

12 In par 7 and par 8 of the defence the first defendant pleads the contract which it contends is the relevant contract and this contract is said to be contained in certain identified "documents and/or conversations".

13 This is in itself an embarrassing plea because of the uncertainty created by the expression "and/or" and because it is uncertain which items comprise the contract and which items comprise the variations. The plea is quite unorthodox. The manner of pleading a contract is well settled and has been for many many years and it is puzzling to know why the usual form has not been followed. Ordinarily there would be a plea that the contract is wholly in writing or wholly oral or wholly to be implied or inferred; or is partly in writing and partly oral; or is partly in writing, partly oral and partly to be implied or inferred. They are the only possibilities. Particulars would then usually be given. Depending on how it is contended that the contract is constituted, the particulars would be of those terms which were in writing and those terms which were oral and those which were to be implied or inferred. See generally Bullen and Leake and Jacobs, "Precedents of Pleadings" (12th ed) page 345 et seq.

14 Where a contract is said to arise by implication or where terms of a contract are said to be implied it is usual and I think necessary to plead the facts and circumstances out of which the implication arises.

15 None of this is done in this case. At the very least the plaintiffs are entitled to know whether the alleged express term is to be found in one of the documents identified as comprising the contract and if so in which document; or whether it is to be found in one of the conversations alleged to constitute the contract and if so which conversation. The addition of the words at the end of par 12 ie "the date on which the drive shaft was completed" add an additional element of embarrassment in that the significance of those words is unclear. Is it an otiose plea of irrelevant fact or is it an allegation that there was an agreement that delivery would take place on the date on which the drive shaft was completed or is it alleged that there was an express agreement for delivery on 25 February 1988?

16 I accept the submission that par 12 is embarrassing and do not allow that amendment to be made.

17 The next objection is to the proposed new par 13. That plea is as follows:

"13. Hofmann says the (material) background to the contract was as follows. Robe and Hofmann knew that or ought reasonably to have known that:-

..."

18 Then follows twelve subparagraphs containing what seems to me to be nothing more than evidence and argumentation. It is not at all clear to what paragraph or paragraphs of the statement of claim these matters are directed. This means that it is entirely unclear what matter of defence (if any) is sought to be pleaded by them. For example, par 13.4 pleads in effect that the plaintiffs and the first defendant "knew that or ought reasonably to have known that... many internal defects in the steel would not render the drive shafts unsafe or unsatisfactory in operation or result in failure". This begs the question "so what?"

19 It is possible to hazard a guess that par 13 is simply a particularisation of the first defendant's overall defence of no reliance. But then the plaintiffs might expect to see a plea to the effect that in the circumstances pleaded in par 13 the plaintiffs did not rely or it was not reasonable for them to rely on the defendant's skill and judgment. In the absence of such a plea par 13 is embarrassing because it appears to be no more than evidence. Even if there was such a plea so as to make clear the purpose of par 13 much of it (eg par 13.4) may still be objectionable on the ground that it constitutes a plea of immaterial fact or a plea of evidence.

20 I uphold the objection to par 13 and decline to allow an amendment in those terms.

"14. Robe subjected the drive shafts to high torque loads whilst they were in operation. The torque loads were higher than the normal torque loads imposed on drive shafts of the dimensions and steel quality of the drive shafts."

22 The objection is that this paragraph is a statement of argument and conclusion without material facts being stated.

23 Once again it is a puzzling plea, the significance of which is not at all clear in the context of a defence to a claim under a contract for the sale of goods. On one view it is mere evidence and argument. The first sentence would appear to be otiose. By definition, one would think, drive shafts are subjected to torque in operation; and big drive shafts (as this appears to have been) may be expected to be subjected to "high" torque forces. The first sentence therefore does not disclose a defence. As to the second sentence, the concept of "higher than normal torque loads" is introduced. The significance of the allegation is unclear.

24 It may be intended to be part of an allegation that, if the plaintiffs did make known to the first defendant the particular purpose for which the goods were required they put the goods to a different use. But again this would be in substance a defence that the plaintiffs did not make known to the defendant the particular purpose for which the shafts were really required. It would again raise the question whether the defence is that the plaintiff did not make known the particular purpose for which the shaft which failed was required or whether the defence is that although that purpose was made known it was not made known in such a way as to show that the plaintiffs relied on the defendant's skill to supply a shaft suitable for that particular purpose or whether it is that for some other reason there was no implied condition under s 14(i).

25 As I understand the main thrust of the defence, taken as a whole, it is that the plaintiffs did not rely or it was unreasonable of them to rely on the first defendant's skill and judgment to supply a drive shaft suitable for the purposes for which these drive shafts were actually used. If that is the defence then a plea such as that in par 14 goes nowhere. At best it is evidence. It may be acknowledged that other matters of defence are alluded to here and there (defective design by the plaintiffs, damage to the drive shaft after delivery, defective repairs or alterations to the drive shaft after delivery) but par 14 does not seem relevant to any of these defences.

26 I would uphold the objection to par 14 and decline to permit an amendment in those terms.

27 The next objection is to par 15 which pleads to par 7 of the statement of claim and to understand the objection it is necessary to set out par 7 of the statement of claim which is in the following terms:

"7. It was an implied term of the contract that the shafts would be:

(a) of merchantable quality; and/or alternatively

(b) reasonably fit for the purpose of use as a drive shaft for a reclaimer

PARTICULARS

(i) the term pleaded in paragraph 7(a) above is implied in law by reason of the facts pleaded in paragraph 6A above and section 14(ii) of the Sale of Goods Act 1895

(ii) the term pleaded in paragraph 7(b) above is implied in law by reason of the facts pleaded in paragraph 6B above and section 14(i) of the Sale of Goods Act 1895

(iii) alternatively to paragraphs (i) and (ii) above, the terms are implied in fact because each is necessary to give business efficacy to the contract."

"15. Hofmann denies each and every allegation contained in paragraph 7 of the statement of claim. Hofmann says that the implication contended for

15.1 At paragraph 7(a) is not open because it is inconsistent with the express terms of the contract, namely the specification, when set in the background referred to in paragraph 14.

15.2 At paragraph 7(b) is not open because Robe did not rely on Hofmann's skill and judgment.

15.3 At paragraphs 7(a) and 7(b) is not necessary to give the contract business efficacy."

29 The objection is mainly to par 15.1 which is said to be "ambiguous and embarrassing". I agree that it is embarrassing to an extent but I do not think it is ambiguous. It is embarrassing to the extent that the words "when set in the background referred to in paragraph 14" are added. The reference to par 14 seems to be a reference to an earlier draft of the proposed defence which is now par 13 of the proposed defence. I have declined to allow an amendment in terms of par 13 so the words in question cannot be allowed to stand. But they would in any event be embarrassing. Whilst it is true that a contract is to be construed against its factual matrix a plea that a contract contains an express term should not be complicated by references to background. To do so is to descend into evidence and argument which is not the function of pleadings. It is usual and usually sufficient to plead that on its proper construction the contract contains the express term contended for.

30 I would allow the proposed par 15 save for the words "when set in the background referred to at paragraph 14" in par 15.1.

20.1 admits that one or both of the drive shafts were installed by Robe on the reclaimer

20.2 says it does not know when the drive shaft or the drive shafts were installed

20.3 says that, in circumstances not presently fully known to it, the drive shaft which failed was damaged whilst in service prior to 1 September 1993

20.4 says that Robe made alterations to the drive shaft which failed at its Cape Lambert engineering shop (or elsewhere) prior to 1 September 1993

20.5 otherwise denies each and every allegation contained in paragraph 11 of the statement of claim."

32 The objection as I understood it is that in the first place as to par 20.1 it is embarrassing to plead an admission "that one or both of the drive shafts were installed... on the reclaimer". I think this objection must be upheld. The admission must be clear to be any use at all. It is possible to interpret the admission as being that both drive shafts were installed but, on the other hand, that is not what the pleading says and it may not be what is intended.

33 This defect in the pleading carries through to par 20.2 because that paragraph follows on and is dependent for its meaning on the impermissible plea in 20.1.

34 There is no complaint about par 20.3 and par 20.4 and I merely observe that the significance of those subparagraphs escapes me. Once again, they appear to be pleas of mere evidence with a curious flourish in par 20.3 as to what was not "fully known" to the defendant.

35 The successful objections to par 20.1 and par 20.2 mean that leave must be refused to amend the defence in terms of par 20.

36 The next objection is to par 21 which is a long paragraph covering three pages and I therefore do not set it out. The basis of the objection to the pleas in par 20.3(c) and (d) are that these pleas refer to the drive shaft in relation to which no complaint is made in the statement of claim. I do not read those paragraphs in that way. They refer to the "drive shaft which failed" and that is the drive shaft about which complaint is made. I do not uphold these objections.

37 As I understand the objection to par 21.6 and par 21.7 it has two aspects. In the first place, the pleading is said to be conclusory, containing "generalised assertions without stating the material facts or adequate particulars to enable Robe to know the case it has to meet". I would not uphold this objection. I think the plea goes to causation and is sufficiently specific and well enough particularised, although it may be that further and better particulars would be allowed if requested. The plea is to the effect that it was not the failure of the drive shaft which caused the collapse of the reclaimer and the ensuing damage but that the collapse and damage was caused by design defects or structural defects in the reclaimer the purpose of which was to prevent damage in the event that a drive shaft failed. The precise defects in the design or construction of the reclaimer are set out in par 21.7 and are said in that paragraph to have caused the collapse of the reclaimer. So far as I can judge, knowing as little as I do about the facts of the case, the plea is sufficient to enable the plaintiffs to know the defence case on the issue of causation.

38 The other aspect to the objection is that as to par 21.6 and par 21.7, in so far as they attribute the cause of damage to some cause other than the failure of the drive shaft, the pleading amounts to the impermissible withdrawal of an admission previously made.

39 I have studied the earlier versions of the defence and compared them with par 21.6 and par 21.7 and cannot see that par 21.6 and par 21.7 withdraws an admission previously made. I do not uphold the objections to par 21.6 and par 21.7 but would give to the plaintiffs liberty to make further submissions in respect to these paragraphs in case I have misunderstood the plaintiffs' objections.

40 The next objection is to the proposed new par 28.

41 The objection is that the defendant is withdrawing an admission previously made and ought not be permitted to do so.

42 Paragraph 28 of the defence pleads to par 20 of the statement of claim. In the first version of the statement of claim (14 September 1995) par 20 pleaded:

"20. In or about the period January to March 1988 the first defendant manufactured the shaft from one of the forgings ('the forging') supplied to it by the second defendant."

43 In the original defence to that plea (4 October 1995) the defendant admitted this allegation ie, admitted that the defendant manufactured the drive shaft which failed in the period January to March 1988.

44 In the first amendment to the statement of claim (31 August 2001) par 20 was pleaded as follows:

"20. In or about the period January December 1987 to March 1988 the first defendant manufactured the shaft from one of the forgings ('the forging') supplied to it by the second defendant."

45 The defendant made no attempt to amend its defence in order to plead to this statement of claim. The admission therefore was now that the shaft was manufactured in or about the period December 1987 to March 1988.

46 In the amended statement of claim of 23 September 2002 the plaintiffs pleaded:

"20. In or about the period January December 1987 to March 1988 pleaded in paragraph 8 the first defendant manufactured the shaft from one of the forgings ('the forging') supplied to it by the second defendant."

47 Paragraph 8 has itself undergone amendment. In the first statement of claim of 14 September 1995 it read:

"8. In or about the period January to March 1988 the first defendant manufactured and delivered two steel drive shafts to the plaintiffs pursuant to the contract pleaded in paragraph 6."

49 In the next version of the statement of claim dated 31 August 2001 par 8 pleaded:

"8. In or about the period January to March or April 1988 the first defendant manufactured and delivered two steel drive shafts to the plaintiffs pursuant to the contract pleaded in paragraph 6."

50 There was no consequential amendment to the defence so that, as the defence stood, this plea was admitted.

51 In the next and final version of the statement of claim par 8 reads as follows:

"8. In or about the period December 1987 and January to March or April 1988 the first defendant manufactured and delivered two steel drive shafts to the plaintiffs pursuant to the contract pleaded in paragraph 6.

(a) The first steel drive shaft was delivered by the first defendant to the plaintiffs in or about late January 1988.

(b) The second steel drive shaft was delivered by the first defendant to the plaintiffs on or about 18 April 1988."

52 This is a plea of specific delivery dates not before alleged.

53 I take the view that the defendant is entitled to reconsider its defence in light of this amendment. What is more, unless I have misunderstood the pleadings as a whole, the defendant's positive case now is that the drive shafts were manufactured and delivered on 22 January 1988 and 25 February 1988 respectively which is consistent with all but the most recent version of the statement of claim. Instead of a general admission that manufacture occurred in a period there is a plea that manufacture and delivery occurred on two specific dates within that period. That is hardly a withdrawal of the admission.

54 I do not uphold the objection to the proposed new par 28 of the defence on this ground ie, that it withdraws an admission previously made.

55 I should say that the proposed new defence by par 16 pleads specifically to par 8 of the statement of claim in its present form and no objection is taken to par 16 of the defence.

56 The next objection is to the proposal to set up a limitation defence. The plaintiffs complain in par 27 of their written submissions that "a limitation defence is pleaded for the first time in vague terms by the first defendant in ... paragraphs 8, 12, 16 and 17 of the revised minute".

57 I do not understand par 8 or par 12 to be a limitation plea although of course they may lay the groundwork for the limitation plea. The plea is really contained in the proposed new par 16 and par 17 of the defence. Paragraph 16 pleas that one drive shaft was delivered on 22 January 1988 and the second drive shaft was delivered on 25 February 1988. The significance of these pleas is that the writ was issued on 28 February 1994, six years and three days after the last delivery date pleaded in par 16.

58 In par 17 of the proposed new defence the plea is:

"17. In the premises referred to at paragraph 16.5 [the second delivery] the cause of action pleaded in paragraphs 6 to 15 inclusive of the statement of claim ... is statute barred. Section 38(1) Limitation Act is relied on."

59 I do not regard this as a "vague" or otherwise unsatisfactory plea of reliance on the Limitation Act.

60 The plaintiffs complain that the defendant does not explain in its pleading on what basis it contends that delivery of the shafts occurred on the dates pleaded. In my opinion, there is no obligation to do so. It is delivery and the date of delivery which are the material facts. Proof that delivery occurred on those dates is a matter for evidence and, perhaps, legal argument. This is not to say that the plaintiffs could not get particulars of the facts, matters and things relied on by the defendant for the plea that delivery occurred on a particular date but I am not persuaded that there is an insufficient plea of material facts in par 17.

61 I would invite counsel to agree on a minute of orders to give effect to this judgment. If agreement cannot be reached I will hear counsel as to the form of orders.