Is the first defendant entitled to succeed on the cross claim?
72Each party relied in his or its pleadings on the agreement reached during the meeting on 4 August 2005 between the directors of the first defendant and Mr Larkin. However, there was a significant dispute as to what was said and agreed at the meeting. The second defendant's evidence was that the conversation was primarily about the supply of BlueScope Colorbond. There was no reference to imported steel products.
73The first defendant pleaded in the second amended cross claim that the plaintiff agreed:
(a) to sell and deliver BlueScope Steel products to the first defendant as ordered by the first defendant;
(b) to charge the first defendant $1500-1600 per tonne for BlueScope Steel Galvabond and Zincalume slit coil steel and to charge the first defendant at prices equivalent to prices BlueScope Steel would charge the first defendant for BlueScope Colorbond steel;
(c) to deliver the steel to the first defendant at its Perth or Karratha premises (as required) free of charge for sale or return at the plaintiff's cost if not used, up to a credit limit of $100,000, per month, delivered stock to be paid for within 60 days of use.
74It is alleged by the defendants that the first defendant entered into the agreement because it relied on Mr Larkin's assurance that the plaintiff would supply only BlueScope Steel product to the first defendant and, accordingly, the agreement included an implied term that what the plaintiff would supply would correspond with the description BlueScope Steel product. This implication was available by virtue of s 18 of the Sale of Goods Act 1923. As it was not in issue that BlueScope Steel products came with the BlueScope Steel warranty, the agreement, by implication, included a term that the steel supplied by the plaintiff to the first defendant would have the benefit of the BlueScope Steel warranty.
75Mr Larkin disputed the second defendant's version of the conversation and agreement. He gave evidence that the conversation was primarily about the sale of imported non-BlueScope Steel slit coil which he could supply directly to the first defendant in Perth (or Karratha), at a cost saving to the first defendant. There was no reference to Colorbond at that meeting though there may have been at a subsequent meeting. He did not agree to sell only BlueScope steel products to the first defendant. He would not have been commercially able to do so. The agreement pleaded in the plaintiff's amended statement of claim was for "the supply by the plaintiff to the first defendant of steel related product".
76Those present at the meeting on 4 August 2005 were Mr James, the second defendant and Mr Larkin. Mr James did not give evidence. There was no contemporaneous written account of what transpired save for the credit application which referred to the product simply as "coil".
77Each of the parties advanced a number of reasons why their version should be preferred. Foremost amongst those reasons was the lack of credibility of the opposing principal witness.
78Senior counsel for the defendants submitted that Mr Larkin was not a witness of credit and that his evidence should not be accepted when it was in conflict with that of the second defendant. It was asserted Mr Larkin was not frank in giving evidence. He did not make concessions where concessions were called for. He was evasive and many times disregarded the cross examiner's question to advocate the plaintiff's position. He often blustered. He even went so far as to disown his own evidence in his own affidavits when his own material was put to him during his cross examination. This exposed either the fallacy of the evidence in the affidavits or indicated that Mr Larkin was prepared to tailor the evidence, even to the extent of modifying his own, to best advance the interests of the plaintiff in the litigation. The first defendant provided a schedule of examples which, it submitted, established those matters.
79I agree there were aspects of Mr Larkin's evidence which were unsatisfactory. He tended to be an advocate in the plaintiff's cause and this affected the reliability of his evidence, which at times was internally inconsistent. However, I do not accept the broad submission that his evidence should not be accepted when it was in conflict with that of the second defendant.
80Senior counsel for the plaintiff submitted the first defendant's cross claim was a dishonest and contrived attempt by the second defendant to evade the first defendant's payment obligations in respect of steel ordered received and used by it in its business. Its case was entirely based upon the uncorroborated and unsubstantiated evidence of the second defendant.
81Senior counsel for the plaintiff submitted the second defendant was evasive, he wasn't prepared to tell the truth, he was commercially dishonest. He was dishonest in his evidence. He didn't make concessions that were appropriate to be made and he was time and time again caught out in giving evidence contrary to the documentary contemporaneous material...[He was] rarely prepared to give a straight answer to anything. One would not accept anything that he said unless it was independently corroborated. Most of what he said was not.
82The allegations made against the second defendant were, generally, supported by the evidence though there were some concessions made by the second defendant which could be, and were, accepted. The second defendant had demonstrated commercial dishonesty. I did not regard him as a reliable and credible witness. I reject senior counsel for the defendants' submission that the second defendant was naïve, "perhaps intellectually unable to deal with the cross examiner". In the circumstances it is necessary to assess the probabilities of what occurred, particularly by reference to the surrounding circumstances and objective evidence if available.
83The first defendant's directors, at the time of the meeting, were making some use of Colorbond material and intended to increase that use in the future. The first defendant had ordered a roll forming machine which was to be used to make broad sheet profile but it was yet to be delivered. In my opinion, the first defendant's directors would have had an interest in discussing the possibility of accessing Colorbond from the plaintiff in the future. Similarly, Mr Larkin represented a steel distributor and it would be expected he would have an interest in ascertaining whether there was a prospect of increasing the plaintiff's profits by doing business with the first defendant. Accordingly, it seems to me more likely than not, that the conversation would have made reference to Colorbond material contrary to what Mr Larkin has said.
84The plaintiff had access to imported galvanised slit coil which it could directly supply to the first defendant more cheaply than BlueScope slit coil. The first defendant was a user of slit coil and would have had an interest in ascertaining whether a lower price was obtainable from the plaintiff. In my opinion, contrary to what the second defendant has said, it is likely the plaintiff would have sought to sell imported galvanised slit coil to the first defendant and would have informed the first defendant's directors that the coil to be supplied would be imported.
85In my opinion, it is more likely than not, that the agreement was not limited to the supply of BlueScope steel product. That this is so is confirmed by the nature of the orders placed by the first defendant with the plaintiff and the absence of evidence that the plaintiff could have undercut the prices charged by BlueScope or other suppliers of BlueScope steel as it was able to do using imported steel.
86Mr Larkin said that what happened in practice was that the first defendant's designated person (Mr James from 4 August 2005 until he resigned on 31 May 2006, Mr Hardie from June 2006 until he resigned in August 2007 and Mr Hart from August 2007 until he resigned on 28 October 2007) would place an order for steel by some written or other communication with Mr Larkin who would communicate with them as to what he was able to provide and the price at which he was able to provide it and then he would do so. The second defendant did not personally place any orders for steel with the plaintiff nor did Mr Schrimpf, who commenced as the operations manager for the first defendant in October 2007. The last order for steel to be supplied by the plaintiff to the first defendant was placed by Mr Hart in September 2007.
87The defendants alleged that the first defendant ordered steel products from the plaintiff by reference to the steel product and colour description in the BlueScope colour chart but, in breach of s 18 of the Sale of Goods Act, the plaintiff largely supplied imported product and very little BlueScope product. This supply of imported product was also contrary to the plaintiff's representation that the steel product to be supplied was BlueScope.
88The defendants' senior counsel opened the case as one where the first defendant was never informed that the product delivered was not BlueScope Steel. Additionally, the first defendant received documentation which continued to represent that BlueScope Steel products were being supplied. That was misleading and deceptive. The second defendant gave evidence he believed the product supplied was BlueScope Steel product. In the second amended cross claim, the first defendant pleaded:
"Acting in reliance upon the conduct of the cross defendant's, the cross claimant assumed that all the steel sold and delivered to it by the cross defendant was BlueScope Steel product."
89The defendants submitted they were unaware until March 2008 that the plaintiff was supplying non-BlueScope Steel product to the first defendant. I do not accept this submission. In my opinion, there is ample evidence that the first defendant was aware from the time of the agreement that non-BlueScope Steel product would be supplied to the first defendant pursuant to the agreement.
90The second defendant, despite stressing in his evidence the importance to the first defendant of using only steel products manufactured by BlueScope, was not averse to using non-BlueScope steel product in that:
(a) prior to the meeting on 4 August 2005 the first defendant was using coil as steel framing for transportables. The coil was supplied by Bon Pacific (New Zealand). As the defendants knew, the coils were not manufactured by BlueScope;
(b) inquiries of various steel manufacturers and suppliers as to the availability of slit coil for supply to the first defendant were being made by the second defendant prior to the meeting on 4 August 2005. The second defendant denied making any inquiries of the plaintiff. However, on 21 June 2005 the plaintiff's Mr Faulkner forwarded an email to the second defendant in which email the plaintiff offered galvanised G550 which was stated to be "much cheaper than the BlueScope offer on zincalume or galvabond!!" This distinguished between the product being offered and the BlueScope equivalent, Galvabond. The email commences "Hello Ralph". This suggests it was sent in response to an enquiry by the second defendant as to non-BlueScope steel coils. The second defendant says he "can't recall this email now". It is presumed to have been received by the second defendant - s 161(d) Evidence Act 1995 (NSW);
(c) the second defendant gave evidence that the defendants first knew in February/March 2008 that the plaintiff had supplied non-BlueScope Steel products to the first defendant. However the defendant continued to use the non-BlueScope Steel in its various business enterprises after that date. Mr Schrimf, who took over Mr Hart's role, gave evidence that by August 2007 he knew all stock remaining was non-BlueScope steel. It was put to the second defendant that he knew by August 2007 as a result of reading an invoice that described non-BlueScope steel as the relevant product that the plaintiff was supplying non-BlueScope steel products to the first defendant. He initially agreed but then retracted that agreement.
91The first orders placed pursuant to the agreement were for non-BlueScope steel product:
(a) the initial order was for galvanised coil. The order was supplied in September/October 2005. Mill certificates in respect of the order were forwarded to Mr James, at his request. The certificates identified the steel as manufactured by Essar Steel Limited, Mumbai. The second defendant agreed it was obvious that the steel was not a BlueScope product. The delivery was accepted;
(b) the first quotation by the plaintiff to the first defendant for coloured coil (for sheeting) was on 5 September 2005. It referred expressly to "Superguard" and the colours Blue Horizon and Off White. "Superguard" was manufactured by Australian Coloured Coaters (ACC) as was well known in the industry. The colours Blue Horizon and Off White were not registered BlueScope colours. The second defendant, in his evidence, agreed Superguard was an ACC product;
(c) on 4 October 2005 Mr James wrote as follows to Mr Larkin:
"The following is our upcoming requirement for coil.
Please place all coil on
Superguard G550AZ150
Double sided 25% gloss colour/grey underside .42x940
100 tonne Blueridge
100 tonne Manor Red
100 tonne Cottage Green
100 tonne Sandbank
200 tonne standard galv both sides
zinc"
(d) after discussion between Messrs James and Larkin, on 7 October 2005, Mr Larkin placed an order for 50 tonne Blue Horizon, 20 tonne Heritage Red, Caulfield Green and Sandalwood and 50 tonne Galv zinc. This was an example of Mr Larkin advising the first defendant what the product was the plaintiff was able to and would provide. The colours ordered were non-BlueScope equivalent to BlueScope registered colours identified in the first defendant's 4 October 2005 letter. The second defendant agreed that Mr James had ordered and been provided with Superguard ACC material;
(e) the supply of non-BlueScope steel continued thereafter. Mr Larkin gave uncontroverted evidence of a conversation with Mr Hardie confirming the importation of coil from the Taiwanese manufacturer, Yieh Phui;
(f) the second defendant gave the following evidence:
"Q. Mr Keller, may we take it that the only coloured sheet coil that Portaccomm had up until mid 2006 was that which was the subject of the large order that we have identified from late 05?
A. Yes
Q. Is it the case then that to the extent that you, that is Portaccomm, supplied coloured sheeting as part of any of its products up to at least 2006, it did so from the batch provided pursuant to the order of Mr James we've discussed?
A. Yes.
Q. You now know that to be imported ACC product, don't you?
A. Yes
Q. Yet whilst you say you didn't know that at the time, it is obvious from looking at the communication between Mr James and Mr Larkin that that is the case?
A. Yes.
Q. If you had looked at that material at the time you would have appreciated that as well?
A. I would have had concerns to that, yes.
Q. You would have been able to identify that perhaps with a few questions that you asked of somebody?
A. Well, I would want to know why the product is not BlueScope.
Q. But it would have been readily identifiable to you, do you say, had you looked at any of the order documents at the time that what you had obtained was non-BlueScope product, do you agree?
A. Yes."
92In March 2006 Mr Larkin and Mr Michael McNee of ACC met with Mr James at the first defendant's premises. The purpose of the meeting was to correct problems associated with the use of ACC coil on the first defendant's roll forming machine. Mr James had complained that the first defendant was having difficulty roll-forming ACC material. There was no challenge to this evidence.
93The second defendant agreed that Mr Larkin and Mr McNee visited the first defendant in March 2006. He claims he did not talk to Mr McNee beyond being introduced. He claims that he did not know why Mr McNee was there with Mr James and Mr Larkin. I do not accept that evidence. The second defendant appeared to me to be a man who would endeavour to keep himself informed of all aspects of his business. Such a person would, it seems to me, have ascertained the reasons for Mr McNee's presence.
94The undisputed fact is that there was, to the second defendant's knowledge, an ACC representative at the first defendant's premises discussing ACC product (non-BlueScope product) with the first defendant's director who was responsible for ordering steel.
95The origin of the products was identified by their packaging labels and stickers. These were clearly observable.
96The coloured sheet coil that the first defendant had been supplied was used throughout 2006 and well into 2007. That those coils were ACC product was obvious to the naked eye.
97The packaging of the coils from overseas made it clear that they were imported as they contained labels so stating. BlueScope steel was clearly identifiable by its distinctive labelling and by its dot matrix form of identification.
98The coils were stored on the first defendant's site. Their origin would have been apparent when checked on receipt, when the coil was being moved or used and during stocktaking, quite apart from casual observation.
99The first defendant from time to time between 16 January 2007 and 28 May 2008 forwarded to the plaintiff a list of the coil stock held by it. The description of the coils was such as made clear that the vast majority of the coils were non-registered BlueScope colours and thus it would have been clear to the defendants that the bulk of the steel which had been supplied and which was in its possession was non-registered BlueScope colours. Mr Schrimpf gave evidence that by August 2007 the first defendant had used up the BlueScope steel supplied to it and that all the stock it had was imported non-BlueScope steel.
100The first defendant was only liable under the consignment arrangement to pay for product actually used and if it did not use it could be returned to the plaintiff. Thus the decision to use the coil and any liability or loss resulting from that use was attributable to the first defendant once it knew that the product supplied was not BlueScope steel product. In my opinion, the first defendant knew at all relevant times through Mr James and later managers and staff as well as documentary material that non-BlueScope steel was being ordered by the first defendant and supplied by the plaintiff. The first defendant did not reject any product on the basis it was a non-BlueScope steel product. Such products were accepted - Sale of Goods Act 1923, s 38 and promises to bring its account up to date were made.
101The invoice relating to the sale to Mr Mees was dated 31 July 2007. It was identified by the second defendant. The entirety of the coil there described was non-BlueScope product. The second defendant claimed that he relied on the description in the invoices and that he used to look at them as they came in and examined them. However the evidence demonstrates that the second defendant examined invoices for the purposes of this case - not as and when they came in. Furthermore the second defendant said that Mr James was receiving the invoices. He gave the following evidence:
"Q: What I am saying to you is that if you bothered to look at the communications between your company and Southern Sheet and Coil you would have appreciated that what was being ordered and provided was substantial quantities of non-BlueScope steel; that's right isn't it?
A: If I had looked at the documentation which doesn't come to me, it goes to Garry James' house- to his email address, his fax number, of course I would have observed, yeah, that the material was not BlueScope as to what we discussed and as to what we set out to order."
102The defendants did not call any evidence from Messrs James, Hardie or Hart as to the first defendant's dealings with the plaintiff. It was said that the second defendant had had a "falling out" with Messrs James and Hardie and for that reason they were not called by the defendants to give evidence. Nevertheless, either party could have called these witnesses who, if appropriate, could have been cross examined pursuant to s 38 of the Evidence Act. It was a matter for the defendants as to whether they chose to call those witnesses or not. The onus of establishing breach of s 18 of the Sale of Goods Act and ss 52 and 53 of the Trade Practices Act rested with the first defendant. The onus was not discharged.
103The plaintiff submitted that in order to demonstrate the sale by description within the meaning of s 18 of the Sale of Goods Act, the buyer must rely on the description when entering into the contract. In the present case, there was no such evidence.
104The first defendant submitted that the purchase orders referred to BlueScope products. However they also referred to non-BlueScope products. It was encumbent upon the first defendant to identify the precise contract which it claimed was breached by the plaintiff, the manner in which it was breached and how it is that the breach of the precise contract caused the first defendant loss.
105The second defendant admitted making promises to the plaintiff to pay outstanding invoices in order to persuade the plaintiff to keep the consignment arrangement running. It was conceded that the first defendant was unable to pay its debts as and when they fell due from at least September 2007. The plaintiff relied upon a schedule of the defendants' broken promises of payment, promises which it was submitted were made without any real expectation by the defendants of being kept.
106Clause 13 of the plaintiff's general terms and conditions of sale provides:
"[The plaintiff] shall not be liable for any claim whatsoever unless made in writing within two(2) weeks after delivery."
The first defendant did not make any claim until it was sued by the plaintiff long after delivery.
107It has not been established that there was a misrepresentation by the plaintiff or any reliance upon alleged misrepresentations. The defendants were not misled or deceived. The first defendant has not established failure by the plaintiff to supply product conforming with its description. In my opinion for the reasons outlined above the first defendant has failed to prove breach of either the Sale of Goods Act or the Trade Practices Act or any resulting loss.