Thriving Enterprises Pty Ltd v South Pacific Food Trader Pty Ltd

Local Court Act 2007 LEGISLATION CITED : Sale of Goods Act 1923 Uniform Civil Procedure Act 2005

Abalos v Australian Postal Commission (1988) 171 CLR 167 Chilcotin Pty Limited v Cenelage Pty Limited 7 Ors (1999) NSWCA 11 Hanak v Green (1958) 2 QB 9 Metwally (No 2) v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68; (1985) 59 ALJR 481 CASES CITED : Multicon Engineering Pty Limited v Federal Airports Corporation (1997) 47 NSWLR 631 Newman v Cook (1963) VR 659 Soulemezis v Dudley (Holdings) Pty Limited (1987) 10 NSWLR 247 State of New South Wales v Moss [2000] NSWCA; (2000) 54 NSWLR 536 Tatmar Pastoral Co Pty Limited v Housing Commission of NSW (1984) 58 ALJR 553 Thriving Enterprises Pty Limited v South Pacific Food Trader Pty Limited [2008] NSWSC 919

PARTIES : Thriving Enterprises Pty Limited - Plaintiff/Appellant South Pacific Food Trader Pty Limited - Defendant/Respondent

COUNSEL : Mr RI Bellamy - Plaintiff/Appellant Mr J Raine - Defendant/Respondent

SOLICITORS : Access Law Group - Plaintiff/Appellant Wood Marshall Williams - Defendant/Respondent

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

2010/00002736 - THRIVING ENTERPRISES PTY LTD v SOUTH PACIFIC FOOD TRADER PTY LTD

JUDGMENT 1 HIS HONOUR: Nature of Proceedings This is an appeal from a decision of her Honour Quinn LCM handed down on 15 December 2009. Her Honour entered judgment in favour of the defendant against the plaintiff on a cross-claim brought by the defendant. Her Honour entered judgment in the amount of $35,232.55. 2 The plaintiff (cross-defendant on the cross-claim) brings these proceedings pursuant to s39(1) of the Local Court Act 2007. That subsection provides: "39(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law."

Factual Background 3 The plaintiff (Thriving) is a company which supplies food packaging film. The defendant (South Pacific) conducts business as a food packager. In 2005 Thriving supplied to South Pacific a quantity of food packaging film. 4 The food packaging film supplied by Thriving was not in accordance with the specifications which it had agreed with South Pacific. The film was not paid for and Thriving sought payment from South Pacific. That claim was brought on 18 October 2005 in the Local Court. South Pacific defended the claim on the basis that the food packaging film was made of non-compliant material and that South Pacific was entitled to terminate the contract and reject the film. 5 The matter proceeded before Quinn LCM. In the course of the evidence given on that occasion, it became clear that South Pacific had used some of the food packaging film which it had received from Thriving. On 30 January 2008 her Honour found that the packaging film supplied by Thriving was not made of the agreed material and entered judgment in favour of South Pacific. 6 Thriving appealed to this Court. The matter was heard by Malpass As J on 4 September 2008 (Thriving Enterprises Pty Limited v South Pacific Food Trader Pty Limited [2008] NSWSC 919). His Honour upheld Thriving's appeal and sent the matter back to be decided according to law. 7 The basis for his Honour's decision was that s38 of the Sale of Goods Act 1923 (SGA) provided that where goods have been delivered and used in a manner inconsistent with the ownership of the seller, the goods are deemed to have been accepted. Once goods are deemed to be accepted, it is not open to the buyer, absent express terms to the contrary, to reject them and/or to contend that the sale contract is repudiated. Any condition of the sale becomes enforceable only as a warranty. 8 His Honour held that Quinn LCM had not addressed the legal consequences of the use of the film by South Pacific and the deemed acceptance that flowed from this. It should be noted that this point which was successfully taken on appeal had not been raised or argued before her Honour. 9 On 13 March 2009 the matter came back before Quinn LCM for hearing. On this occasion her Honour entered judgment in favour of Thriving in the amount of $26,405.23, being the unpaid purchase price. On that occasion, South Pacific sought and was granted leave to file a cross-claim. The cross-claim claimed the following amounts: Additional labour costs ($15,746.40 + GST $1,574.64) An amount in reduction of the purchase price due to non-compliance with the specification ($15,762.25 + GST $1,576.22) Wasted film ($5,769.75 + GST $576.97). 10 In its defence to the cross-claim Thriving challenged the quantification of the damages claimed and asserted that there had been a failure to mitigate on the part of South Pacific. The notice of defence to the cross-claim was filed in May 2009. 11 The cross-claim was heard by her Honour on 24 August and 23 November 2009. Each side made written and oral submissions. In bringing its cross-claim South Pacific relied upon s54 SGA. That section provides: "54 Remedy for breach of warranty (1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods, but the buyer may: (a) set up against the seller the breach of warranty in diminution or extinction of the price, or (b) maintain an action against the seller for damages for the breach of warranty. (2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty. (3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. (4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent the buyer from maintaining an action for the same breach of warranty if the buyer has suffered further damage." 12 Her Honour found in favour of South Pacific. Her Honour allowed the two amounts for the diminution in the value of the film acquired, i.e. $23,685.19. In relation to the claim for additional labour costs, her Honour accepted that some of that labour would have been required in any event and reduced the claim by one-third. In relation to that part of its claim, South Pacific recovered $11,547.36. On 15 December 2009 her Honour entered judgment in favour of South Pacific on its cross-claim in the amount of $35,232.55.

First Ground of Appeal 13 Thriving raised two questions of law in its appeal. The first was based on the construction of s54 SGA. It submitted that the remedy specified in s54(1) is in the alternative, i.e. a diminution or extinction of the purchase price for breach of warranty (i.e. a defence) or a claim for damages. Following on from that, it submitted that subject to s54(4) the remedies in s54(1) are exclusive. In other words, absent a defence for diminution or extinction of the purchase price, it is only further damage which can be recovered by way of a cross-claim. 14 Thriving noted that it was common ground that in its defence to Thriving's claim for the purchase price of the film, South Pacific had not raised a diminution in the purchase price for breach of warranty. That being so, Thriving submitted that South Pacific was precluded by s54 from raising those matters in its cross-claim. South Pacific's cross-claim was accordingly limited to its claim for further damage. Thriving submitted that subject to the outcome of the second ground of appeal, South Pacific's judgment on the cross-claim should be for $11,547.36 only. 15 The s54 SGA interpretation point raised by Thriving seems to be a good one. The sale of goods legislation, both in Australia and in the United Kingdom, has traditionally thrown up technical legal points which can prove decisive in such litigation. Counsel for South Pacific conceded that if Thriving were allowed to rely upon this ground of appeal it would defeat South Pacific's claim for a reduction of the purchase price because of Thriving's breach of warranty. That concession was properly made in the light of the decisions in Hanak v Green (1958) 2 QB 9 and Newman v Cook (1963) VR 659 (a decision of the Full Court of the Supreme Court of Victoria). 16 The issue is whether Thriving should once again be allowed to rely upon a ground of appeal which was not run in the court below. 17 This point was not raised in Thriving's Notice of Grounds of Defence to the Statement of Cross-claim filed 4 May 2009. It was not in Thriving's written outline of submissions nor was it in Thriving's oral submissions made to her Honour. The first time this point was taken was in Thriving's written submissions on the appeal dated 22 July 2010. South Pacific submits that in the circumstances of this case Thriving should not be allowed to rely upon this ground of appeal. 18 The relevant principles are conveniently set out in Multicon Engineering Pty Limited v Federal Airports Corporation (1997) 47 NSWLR 631. 19 That case acknowledged the importance of a party being bound by how it conducted its case in the court below. On this issue Mason P, with whom Gleeson CJ and Priestley JA agreed, quoted with approval the following passage from the High Court in Metwally (No 2) v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68; (1985) 59 ALJR 481: "It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so." 20 Mason P went on to say at 645: "While the principle is a compelling one, it needs recognition that University of Wollongong did not involve an appeal by way of rehearing. Indeed, it did not involve an appeal at all. Since this is an appeal by way of rehearing, the matter should be approached in accordance with the principle stated in cases such as Suttor v Gundowda Pty Limited and Coulton v Holcombe . A party seeking to advance for the first time and appeal a new ground not taken at trial will be precluded from doing so if the new ground could possibly have been met by calling evidence at the hearing or if, had the ground been raised below, the respondent might have conducted the case differently at trial. MCE argues that these principles do not preclude it from raising the constitutional point on appeal, because all that is in issue is the proper approach to be followed in considering whether to adopt a report in a matter in the Federal jurisdiction. The evidence which each party wish to rely upon was before the judge. However there is another principle of more direct relevance. A party does not have a right to insist that a new point be decided on appeal simply because all of the facts have been established beyond controversy or the point is one of construction or of law, even constitutional law. This is because it remains a question of whether the appellate court "may find it expedient and in the interests of justice to entertain the point". The rule is not an absolute one, as evidenced by this Court's decision in Della Patrona v Director of Public Prosecutions (No 1) (Court of Appeal, unreported, 1 September 1985). However: "It is a sound general principle, leading not only to the maintenance of fair play, but also to the repression of unnecessary litigation, that parties must be bound by the course they deliberately adopted at the trial." In Coulton Gibb CJ, Wilson, Brennan and Dawson JJ said that: "It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish." In the present case it would not be "in the interests of justice" to permit MCE to repudiate on appeal the stance it adopted at all stages in the trial. That would make it a classical case of a party having elected to fight on one basis, and lost, seeking a new trial to be allowed to fight it on another basis." 21 Statements to similar effect were made in Chilcotin Pty Limited v Cenelage Pty Limited 7 Ors (1999) NSWCA 11 where at [15] Giles JA said: "The second principle is that generally parties must be bound by the course they adopted at trial … At least in part this principle is founded on public policy considerations favouring the finality of litigation … and it may be that the appellant will not be permitted to make a new case on appeal even if the point is unaffected by possible further evidence or the way the opposing party would have conducted the case at trial (as is illustrated by Multicon Engineering Pty Limited v Federal Airports Corporation ). And this principle may come into play not only when the course taken at the trial was deliberate, but also if the appellants' conduct of the trial was affected by inadvertence." 22 While this appeal remains an appeal by way of rehearing, it is restricted to a question of law or a mixed question of fact and law. As such it is a much more confined right of appeal than that which is ordinarily conducted by the Court of Appeal when matters come before it. 23 As a matter of discretion, I am not prepared to grant leave to Thriving to rely upon this ground of appeal. The ground raises a narrow and technical pleading point which would produce a result contrary to the learned Magistrate's finding on the merits which was against Thriving. It is not without significance that in the proceedings before her Honour in August and November 2009, Thriving unsuccessfully contested the quantum of damages including the extent of the diminution of the purchase price arising from its breach of warranty. As with the earlier appeal before Malpass As J, Thriving did not run its case in the court below on the basis now relied on. 24 If this appeal point were allowed to be taken now it would be contrary to the philosophy behind the Uniform Civil Procedure Act 2005 with its emphasis upon substance not form and on cases being decided on their merits (see ss 56-58). 25 There is another consideration which is relevant. Had this matter been pleaded by Thriving in its defence to the cross-claim, it may have been possible for South Pacific to amend its defence in the proceedings brought by Thriving for the purchase price of the film. In saying that I am conscious of the fact that judgment was apparently entered by her Honour on that matter on 13 March 2009. 26 That may not have been a final judgment in that South Pacific was granted leave to bring a cross-claim at the conclusion of those proceedings. The cross-claim, of course, is part of the same proceedings. 27 Had the matter not had such an unfortunate history of apparently both sides misunderstanding the provisions of the Sale of Goods Act resulting in a multiplicity of hearings before the learned Magistrate, there would have been a single hearing in which both the claim for the purchase monies and the cross-claim would have been dealt with and a final judgment entered depending upon where the balance of damage lay. In the circumstances of this case, it may well have been arguable that the entry of judgment by her Honour on 13 March 2009 was irregular in that the cross-claim remained unresolved. I express no final opinion on this matter since it was not fully argued before me. I simply raise it to indicate that had Thriving raised the s54 SGA point in the court below, South Pacific may well have conducted its case differently. 28 Accordingly, in the exercise of my discretion I will not allow Thriving to rely upon its first ground of appeal.

Second Ground of Appeal 29 Thriving's second ground of appeal was that her Honour failed to provide adequate reasons for finding in favour of South Pacific. In particular she failed to provide adequate reasons for why she accepted the evidence of the principal of South Pacific, Mr Wachjo. It was common ground that a failure to provide adequate reasons does constitute an error of law (Soulemezis v Dudley (Holdings) Pty Limited (1987) 10 NSWLR 247 (Mahoney and McHugh JJA). 30 In Soulemezis Mahoney JA quoted with approval the following passage from his judgment in Tatmar Pastoral Co Pty Limited v Housing Commission of NSW (1984) 58 ALJR 553: "But, subject to matters such these, the basis of the decision of a trial judge or of an intermediate Court of Appeal should be made apparent. This does not mean that the reasons given need be elaborate: An elaborate argument may not require an elaborate answer. Reasons need be given only so far as is necessary to indicate to the parties why the decision was made and to allow them to exercise such rights as may be available to them in respect of it."

At 271C in Soulemezis his Honour said: "In my opinion, the law does not require that a judge make an express finding in respect of every fact leading to, or relevant to, his final conclusion of fact; nor is it necessary that he reason, and be seen to reason, from one fact to the next along the chain of reasoning to that conclusion."

At 273G his Honour said: "The weight which a judge will give to the evidence of the witness will often be not capable of rationalisation beyond the statement, having heard him, I am not satisfied that I should accept what he says." 31 On a similar subject McHugh JA in Soulemezis said at 280B: "Where the resolution of the case depends entirely on credibility, it is probably enough that the judge has said that he believed one witness in preference to another; it is not necessary "for him to go further and say, for example, that the reason was based on demeanour": … The position will usually be different if other evidence and probabilities are involved. A superior court, considering the decision of an inferior tribunal, should not be left to speculate from collateral observations as to the basis of a particular finding."

At 280G his Honour said: "Moreover, I agree with the statement by Mahoney JA in Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd (at 386) that the extent of the duty to give reasons is related "to the function to be served by the giving of reasons". Thus more elaborate reasons are required where legislation gives a right of appeal against a decision than where no appeal lies. In the first class of case, unless the basis of the decision is properly articulated, the losing party may be effectively deprived of his right of appeal. In a case where a right of appeal is given only in respect of a question of law, different considerations apply from the case where there is a full appeal. An ultimate finding of fact, which is not subject to appeal and which is in no way dependent upon the application of a legal standard, can be treated less elaborately than an issue involving a question of law or fixed fact and law. If no right of appeal is given against findings of fact, a failure to state the basis of even a crucial finding of fact, if it involves no legal standard, will only constitute an error of law if the failure can be characterised as a breach of the principle that justice must be seen to be done. If, for example, the only issue before a court is whether the plaintiff sustained injury by falling over, a simple finding that he fell or sustained injury would be enough, if the decision turned simply on the plaintiff's credibility. But, if, in addition to the issue of credibility, other matters were relied on as going to the probability or improbability of the plaintiff's case, such a simple finding would not be enough." 32 Thriving's specific complaint is that South Pacific's case depended upon invoices prepared by a labour hire company which set out the additional work which had to be carried out so that the packaging film delivered by Thriving could be used. Under cross-examination Mr Wachjo agreed that he had supplied information to the labour hire company from which it had prepared the invoices and that the invoices had been prepared in contemplation of this litigation. Those concessions were extracted from Mr Wachjo with some difficulty. Mr Wachjo, however, adhered to his evidence that the invoices had been paid and that they accurately recorded the extra work which had been performed. 33 Thriving submitted that as a result of these concessions in cross-examination, it was necessary for her Honour to treat the invoices which were the foundation of South Pacific's case with considerable scepticism and if she did not, to set out clearly why that was so. Thriving submitted that her Honour's reasons failed to reach that standard and were therefore inadequate. 34 Her Honour dealt with this issue on pp 3 and 4 of her judgment as follows: "It was submitted that as the invoices were prepared for the purpose of litigation they should therefore be given little weight. It was also submitted that the information on the invoices should be treated with caution as Mr Wachjo had provided it to the accountant of the staff hire firm. Mr Wachjo agreed that the invoices were requested for the purpose of litigation, however, they were prepared some time ago and were not for the purpose of supporting the cross-claim. The notation "extra services" on the invoices, in my view, is not suspicious. The cross defendant submitted that the invoices do not discriminate between the extra work performed and the usual work performed. These were the only invoices produced on a notice to produce. I do not find the invoices to be of little weight. Mr Wachjo was accepted as a witness of credit in the original hearing of the matter. On the evidence I accept Mr Wachjo's reasons for hiring extra staff. They were hired as a consequence of a breach and that cost is a loss directly and naturally resulting in the ordinary course of events from that breach. The cross defendant submitted that the amount claimed for additional staff is excessive and not supported by the invoices attached to Mr Wachjo's affidavit. There is some merit to this submission. In evidence Mr Wachjo agreed that the invoices cover a period when the extra services were provided but also all services (see transcript p 13). Originally 77,000 choc almond bars were to be provided to the customer however, only 48,000 were in fact provided. In evidence Mr Wachjo agreed that 10,000 of those food bars were covered with film already held in stock. (See transcript p 14.) In my view while I accept that extra staff was required to package and check the food bars, the amount claimed for additional staff must be reduced. Without any other break down of the additional services provided I must have regard to Mr Wachjo's evidence of the amount of work required to be undertaken by the additional staff, the number of food bars produced on the cross defendant's challenge to the amount claimed and I find that the amount for additional services must be reduced by one third …" 35 For completeness, I should also quote her Honour's findings in relation to Mr Wachjo in the judgment which she delivered on 30 January 2008 to which she refers. At p 5 of the judgment her Honour said: "It is not disputed that the defendant had a difficulty with the first order. Against this background I accept Mr Wachjo's evidence that he was concerned that the next order be correct and that there be no misunderstanding or confusion regarding printing or film content. This evidence was not contested. It was not disputed that Mr Lin prepared the purchase order for the defendant to sign. That signed document is attached to his affidavit. I accept that it was the structure of the film that was of importance to the defendant. I also accept Mr Wachjo's evidence that the film sent to him in late February early March was not a sample of film for testing but related to the second order for film and its makeup … The question is did Mr Wachjo orally agree to vary the contract to include BOPP in the make of the layers of film to be used in that machine. … Overwhelmingly the documentary evidence supports Mr Wachjo's contention that he specifically required a particular type of film for his packaging machine. The letter produced by Mr Lin does not and cannot remove the force of all the other documentary evidence that is in favour of the defendant. I accept Mr Wachjo's version of the evidence and reject Mr Lin's version of the conversations between them." 36 As previously indicated, under the Local Court Act appeals lie to this Court on a question of law or on a question of mixed fact and law. They do not involve a rehearing such as the Court of Appeal carries out in matters which come before it from lower courts in the normal course of events. As Mahoney and McHugh JJA pointed out, this fact is relevant when considering the extent to which reasons have to be given. 37 The basis of Thriving's complaint is that it is unhappy with her Honour's acceptance of Mr Wachjo as a witness of truth. It is difficult to challenge her Honour's conclusion in that regard given the acceptance over the years by appellate courts of the advantage of a trial judge in such circumstances and where as here, there is no evidence directly contradicting Mr Wachjo and where Thriving is relying upon her Honour drawing an adverse inference to him. 38 In a case where the countervailing evidence was of a much stronger character (Abalos v Australian Postal Commission (1988) 171 CLR 167 at 79) McHugh J said: "As I pointed out in Jones v Hyde, when a trial judge resolves a conflict of evidence between witnesses, the subtle influence of demeanour on his or her determination cannot be overlooked. It does not follow that, because her Honour made no express reference to the demeanour or credibility of either Professor Ferguson or Mrs Archer, demeanour or credibility played no part in her findings on the supervision issue. But in any event, no matter how impressive Professor Ferguson's evidence may appear, it cannot claim the consideration of an appellate court to the extent necessary to overcome the advantage which her Honour enjoyed in seeing and hearing Mrs Archer give evidence. There is simply no basis for concluding that, in so far as her Honour preferred the evidence and demonstrations of Mrs Archer to the evidence of Professor Ferguson, she failed to use or palpably misused the advantage which she had of seeing and hearing the witnesses" 39 I agree with counsel for Thriving that her Honour's reasons are somewhat briefly expressed and it would have been preferable had her Honour gone into more detail. Nevertheless, I regard those reasons as sufficient and certainly not such as would give rise to an error of law. At the heart of her Honour's finding is her acceptance of Mr Wachjo as a witness of truth. If that finding were open to her Honour without error of law arising, then her other findings follow logically from it. 40 The final complaint made by Thriving was that her Honour's deduction of one-third from the claim by South Pacific for extra work was arbitrary and that it was unsupported by the evidence. I agree that her Honour's finding lacks precision but the evidence before her was not such as would enable a detailed analysis of the issue. All her Honour could do was to make the best use of the evidence which was available. 41 A similar problem faced the trial judge in State of New South Wales v Moss [2000] NSWCA; (2000) 54 NSWLR 536. At 87 Heydon JA said: "87 In short, where earning capacity has unquestionably been reduced but its extent is difficult to assess, even though no precise evidence of relevant earning rates is tendered, it is not open to the court to abandon the task and the want of evidence does not necessarily result in non-recovery of damages. … The task of the trier of fact is to form a discretionary judgment by reference to not wholly determinate criteria within fairly wide parameters. Though the trier of fact in arriving at the discretionary judgment must achieve satisfaction that a fair award is being made, since what is involved is not the finding of historical facts on a balance of probabilities, but the assessment of the value of a chance, it is appropriate to take into account a range of possible outcomes even though the likelihood of any particular outcome being achieved may be no more than a real possibility." 42 I have concluded that Thriving's challenge to her Honour's reasons has not been made out and that an error in point of law has not been established.

Conclusion 43 Since I have refused to allow Thriving to rely upon its first ground of appeal and have rejected its second ground of appeal, its summons should be dismissed and it should pay South Pacific's costs of these proceedings. Since no submissions were made to me in relation to costs, I grant leave to the parties to approach the Court on 14 days' notice should they wish to make to submissions concerning costs or should either party seek a special costs order. 44 The orders which I make are as follows:

(ii) The plaintiff is to pay the defendant's costs of these proceedings.

(iii) I grant leave to the parties to approach the Court within 14 days if they wish to make fuller submissions as to costs. **********

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