WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd [2009] NSWSC 728 | Case summary

1 The plaintiff, which I shall call "WesTrac", conducts a business of letting on hire heavy mining equipment including dump trucks. In the course of that business, WesTrac purchased six tyres from the first defendant, which I shall call "Eastcoast". It needed the tyres for a Caterpillar 789B dump truck. 2 WesTrac contends that the six tyres, for which it paid $434,500, were worthless. It sues Eastcoast for damages on the basis of contravention by Eastcoast of s 52 of the Trade Practices Act 1974 (Cth) or, alternatively, breach of the warranty implied by s 19(1) of the Sale of Goods Act 1923. WesTrac also sues Mr Johnson, the representative and agent of Eastcoast, alleging accessorial liability under s 75B of the Trade Practices Act. 3 WesTrac's case is pleaded in a statement of claim filed on 8 December 2007. Eastcoast and Mr Johnson filed a defence on 8 April 2008. The defendants at that time had a solicitor acting for them, but the solicitor later ceased acting. When the matter came on for final hearing this morning, there was no appearance by or on behalf of either defendant. I was, however, taken to evidence that WesTrac's solicitors had caused affidavits sworn after the defendant's solicitor withdrew to be delivered to Mr Johnson's last known address, which is apparently the home of his parents. It was also established that genuine efforts had been made to communicate with Eastcoast and Mr Johnson through the parents with whom direct telephone contact was made. I am satisfied that the defendants were sufficiently on notice of the time and place of the hearing and that it was appropriate for the plaintiff to proceed to present its case despite their absence. 4 The negotiations and dealings by WesTrac with Eastcoast with respect to the supply of the tyres were undertaken by Mr Power, who was then WesTrac's Rental Fleet Maintenance Manager. The account of the facts I am about to give comes largely from Mr Power's affidavits. 5 When the need for the six tyres arose, a contact in the industry put Mr Power in touch with Mr Johnson who was, at all material times, a representative or agent of Eastcoast. That status is admitted in the defence. 6 Mr Power first spoke to Mr Johnson by telephone in September 2006. He inquired about the availability of tyres for a Caterpillar 789B dump truck. Such tyres were at the time in short supply because of heavy demand from mining operations throughout the world. Mr Power made it clear that the tyres were needed for a Caterpillar 789B dump truck. 7 On 4 October 2006, Mr Johnson, acting for Eastcoast, sent Mr Power an email to which were attached photographs of seven tyres. These were secondhand tyres which had been used and repaired. They were represented by Mr Johnson as such and understood by Mr Power to be of that condition. 8 The six tyres ultimately purchased by WesTrac were among those in the photographs. 9 Mr Johnson's email said, obviously referring to the seven tyres in the photographs, "all tyres are clean" and "whatever had needed to be repaired has being repaired". 10 Later on the same day, Mr Power telephoned Mr Johnson and expressed interest in six of the seven tyres. He asked if they were still available. Mr Johnson said he would check with his supplier and get back to Mr Power. I pause at that point to note that it was made clear at the very early stages that Eastcoast itself had a supplier and that it was, therefore, as it were, a middle man. In fact, Eastcoast sourced the tyres from Fordberry, an English company. 11 On 5 October 2006, Mr Johnson sent another email to Mr Power attaching a list of 21 available tyres. Mr Johnson said in the email, "They are all repaired ready to ship to port when invoice is paid". The six tyres ultimately purchased were among the 21. 12 Purchase orders were submitted by WesTrac to Eastcoast and invoices were generated by Eastcoast. There were three invoices, each for two tyres. WesTrac paid by two bank transfers, one for the first two invoices totalling $238,800 on 17 October 2006, and the second for the third invoice of $150,700 on 26 October 2006. The bank records showing the transfers are in evidence. 13 I should explain at this point that each of the six tyres purchased is identified by a distinctive number and that the numbers on the orders and invoices correspond with numbers shown as chalked or painted on the tyres in the photographs that accompanied the 4 October 2006 email. The subject matter was thus six particularly identified and existing tyres as distinct from unidentified tyres of a particular type or description. 14 Some months elapsed before the tyres were delivered to WesTrac. The delivery seems to have occurred some time in the early part of 2007. By then, WesTrac had no urgent need to use the tyres and they were stored at its premises. In early April 2007, WesTrac staff developed concerns about the state of the tyres. There was an apprehension that repairs to the tyres were not satisfactory and that the tyres might be unsafe. It was decided to have the tyres inspected by a repairer. 15 Meanwhile, Mr Power contacted Mr Johnson by email and asked him who had carried out the repairs to the tyres. Mr Johnson acknowledged this email and said that he would make inquiries. 16 Shortly, afterwards, WesTrac received a report from Mr Harold of Marathon Tyres. He dealt with each tyre separately. In each case the tyre was found not to comply with the Australian Standard (which was at that time a draft standard, in fact adopted in early 2008). The previous repairs to each tyre were found to have been extensive and excessive. Mr Harold's recommendation was that the tyres be scrapped. 17 Mr Power advised Mr Johnson of the unsatisfactory state of the tyres. Ultimately, Mr Johnson made no substantive response. 18 A further appraisal of tyres was made in June 2007. The appraisal was made by Mr Williams of Will Fix. He reported on each tyre separately and then added a summary as follows: "All of these tyres would require a lot of work to even determine whether or not they would be serviceable. One would assume however that the repairs that have been carried out even though they do not meet our standards would have been carried out in such a way as to make the tyres serviceable. As far as we are aware the Australian Standards regarding tyre repair are only in draft form at this time. There is room within these standards for the repairer and owner of the tyres to make judgements regarding larger repairs after assessing the risks involved in order to place them back into service. This would need to be done in such a way as to ensure the risk to personnel is minimised or removed. The tyres would also need to be placed into positions that would ensure minimal or no risk. As a tyre repairer I doubt that the tyres could be returned to service and warranted for the 2000hrs that you require, this does not mean that the tyres cannot be returned to service however a lot more research would need to be carried out before this could be possible. However you must be made aware that at this point in time these tyres could be deemed as scrap ." (emphasis added) 19 To the facts I have related must be added others admitted or, more accurately, deemed admitted by the defendants by reason of their non-response to a notice to admit facts served on or about 1 December 2008 on the defendants' then solicitors who ceased acting in February 2009. The notice was served under rule 17.3 of the Uniform Civil Procedure Rules 2005 and dealt separately with each tyre. It resulted in deemed admissions of a number of matters of detail regarding past repairs to the tyres. 20 In each case there was an admission that the tyre was not suitable for use on either the steer axle or the rear axle of a Caterpillar 789B dump truck and that, at or before the time of purchase, neither Eastcoast nor Mr Johnson had disclosed to WesTrac certain characteristics of each tyre being the characteristics that made them defective, including the lack of suitability just mentioned. 21 The last element of the evidence that I need to mention is an expert report obtained by WesTrac from Mr Goh, a person possessing specialised knowledge of prices and values of secondhand tyres traded in Australia. Mr Goh's report has been prepared on the basis of assumptions set out in the report. The assumptions correspond with the content of the notice to admit facts and must, therefore, be taken to be validated by the deemed admissions before the court. Mr Goh's opinion, for which he gives detailed reasons, is that none of the tyres has any value whatsoever. 22 WesTrac's case against Eastcoast under s 52 of the Trade Practices Act is that Eastcoast, through Mr Johnson, engaged in misleading and deceptive conduct in that it falsely represented that the six tyres ultimately supplied were fit for use on Caterpillar 789B dump trucks, were in good condition, were satisfactorily repaired so as to be fit for the use described, and were free from the defects disclosed by the subsequent inspections. 23 It is submitted, and I accept, that because of Mr Power's initial contact with Mr Johnson, Eastcoast was aware from the outset that WesTrac was seeking tyres for a Caterpillar 789B dump truck. Knowing that, Eastcoast, through Mr Johnson, sent the email of 4 October 2006 stating that the tyres were "clean" and that whatever repairs needed to be made to them had been completed, while, in the email of 5 October 2006, Eastcoast said that all listed tyres (which included the relevant six) were "repaired ready to ship". The true position, as established upon post-purchase inspection and confirmed by Mr Goh's report, is that the six tyres were not properly repaired (and in that sense were not "clean"); were not ready to be shipped to anyone wishing to use them and were not safe or fit to use on the particular type of dump truck identified by Mr Power. The admissions, in particular, establish that the representations of Eastcoast were false. 24 It has not been shown that Eastcoast itself knew of the true position with respect to the tyres, or had the means of appreciating the inaccuracy of the representations made by it or, indeed, that Mr Johnson did. It seems that Eastcoast was on-selling, sight unseen, tyres that it was sourcing from Fordberry, and that the tyres were at a place outside Australia until such time as they were shipped from that place direct to WesTrac following its purchase from Eastcoast. 25 This, however, is beside the point when it comes to contravention of s 52. That is made clear by the following passage in the judgment of the Full Court of the Federal Court in Fraser v NRMA Holdings Ltd (1995) 127 ALR 543 at 556: "[F]or the purposes of s 52, if by reason of what was said and what was left unsaid the conduct of the corporation is misleading and deceptive or likely to mislead or deceive, a contravention would occur even if the corporation through its directors and officers did not have knowledge of the undisclosed facts which rendered the conduct in breach of s 52. A contravention of s 52 may occur without knowledge or fault on the part of the corporation, and notwithstanding the exercise of reasonable care: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd at CLR 197." 26 On this basis, the false statements made by Eastcoast through Mr Johnson were within s 52 and the state of Eastcoast's knowledge regarding the quality of the statements is beside the point. 27 The conclusion is, therefore, that the conduct of Eastcoast in making the misrepresentations through Mr Johnson was conduct in contravention of s 52. An entitlement to damages will therefore subsist in WesTrac in respect of loss or damage suffered "by" that conduct. The entitlement arises under s 82. 28 Central to this entitlement is reliance, such that contravening conduct was causative of loss or damage which is, accordingly, loss or damage "by" the conduct: Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514. A concept of remoteness based on reasonable foreseeability plays a part here: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459. 29 I am satisfied that WesTrac has established the relevant causal link. Mr Power has given evidence of the way in which he took Mr Johnson's statements into account when making, on WesTrac's behalf, the decision to buy the particular six tyres from Eastcoast. He regarded Mr Johnson as someone able to give him accurate information about the tyres. He was reassured by Mr Johnson's express words about the tyres being "clean", and having undergone all necessary repairs, and being ready to ship - words that made him think, as he was entitled to do, that, in the estimation of someone who knew about tyres and knew what WesTrac wanted, the tyres were serviceable such as to be put to productive use on the particular type of truck. 30 The reliance element and the causation link are established so far as Eastcoast's conduct and WesTrac's loss and damage are concerned. 31 I turn to the claim by WesTrac against Mr Johnson under s 75B of the Trade Practices Act. As pleaded, the s 75B claim is based solely on s 75B(1)(a) and the proposition that Mr Johnson aided and abetted the s 52 contravention by Eastcoast. 32 The relevant concept of aiding and betting was explained by Mason, Wilson, Deane and Dawson JJ in Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 667. It entails intentional participation in the contravention by someone who has knowledge of the essential matters that go to make up the contravention, even though the person may not know that those matters amount to a contravention. In this context "knowledge" means actual not constructive knowledge, but where there is a combination of suspicious circumstances and a failure to make inquiry it may be possible to infer knowledge (see Compaq Computers Australia Pty Ltd v Merry (1998) 157 ALR 1 per Finkelstein J). 33 Because Mr Johnson was the person who was the actor on behalf of Eastcoast, it is obvious that he had actual knowledge of everything that passed between the two companies. His knowledge of all necessary aspects of the contravening of representations is therefore established. But there is nothing to show that he knew the precise state of the tyres and that they were useless and worthless. That aspect of falsity is not positively shown to have been within his actual knowledge. There is a question, therefore, whether, despite such a lack of positive showing, it may be inferred that Mr Johnson had actual knowledge. 34 It was recognised by the High Court in Pereira v Director of Public Prosecutions [1988] HCA 57; (1988) 63 ALJR 1 that knowledge may be inferred from circumstances surrounding the contravention. But the inference is available only if knowledge is "the only rational inference available". 35 I must say that I am not satisfied that knowledge on the part of Mr Johnson is the only (and I stress the word "only") rational inference available in this case. We do not know what Mr Johnson was told by Fordberry or anyone else about the quality of the tyres. He may have been given a false impression. We know enough to be confident that Mr Johnson himself had not seen the tyres which were outside Australia until shipped direct to WesTrac at Eastcoast's direction (Mr Johnson, it appears, lived and worked at Newcastle in New South Wales). On the whole of the evidence, I cannot find that knowledge by Mr Johnson of the true state and condition of the tyres supplied (and therefore of the falsity of the representation as to their quality) is the only rational inference available and is in that sense irresistible. 36 In the result, therefore, the claim under the Trade Practices Act succeeds against Eastcoast, but the accessorial claim against Mr Johnson does not. 37 Before addressing the question of damages I should make brief reference to the alternative claim in contract. That claim is brought by WesTrac against Eastcoast only. There was clearly a contract for the sale of goods within the Sale of Goods Act 1923. Given the evidence about the formation of the contract, there is no basis for finding any exclusion of the warranty implied by s 19(1) of the Act: "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 the seller be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose." 38 As I have said already, WesTrac made known to Eastcoast the particular purpose for which the goods were required, that is, for installation and use on a Caterpillar 789B dump truck. Moreover, with the buyer having no means of inspecting the tyres before purchase, it is clear that WesTrac was relying on Eastcoast's skill and judgment to ensure suitability for that purpose; also that Eastcoast was engaged in the business of supplying tyres of that particular description. The statutory warranty of reasonable fitness for the purposes of installation and use on the particular type of truck was therefore made operative by s 19(1). 39 And on the facts, of course, there was a breach of that warranty by Eastcoast so that WesTrac is entitled to recover damages for breach of contract. 40 When it comes to assessment of damages as against Eastcoast, the same approach is appropriately taken in respect of the Trade Practices Act contravention and the breach of contract. The assessment presents no difficulty. WesTrac paid $434,500 for goods that were then and are now worthless. It obtained no more than mere scrap for its outlay. Its loss is $434,500. It is, therefore, entitled to damages of that amount. 41 WesTrac also claims pre-judgment interest under s 100 of the Civil Procedure Act 2005. Interest should be awarded in view of the fact that the outlay from its very inception was entirely fruitless. The outlay of $434,500 was, as I have said, made by two payments, one of $283,800 on 17 October 2006 and the other of $150,700 on 26 October 2006. Interest on those respective amounts should be allowed at court rates from the date of payment until today. The relevant calculation is set out in Mr Williams' affidavit of 23 July 2009. 42 In the result, therefore, the orders of the court are as follows: (1) Order verdict and judgment for the plaintiff against the first defendant in the sum of $434,500. (2) Order pursuant to s 100 of the Civil Procedure Act 2005 that the first defendant pay interest to the plaintiff in the aggregate sum of $117,471.45. (3) Order that the first defendant pay the plaintiff's costs of the proceedings. **********

WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd

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