ACN 081 472 102 Pty Ltd v Quality Value Cabinets Pty Ltd - [2007] SASC 290

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
ACN 081 472 102 PTY LTD & ANOR v QUALITY VALUE CABINETS PTY LTD
[2007] SASC 290
Judgment of The Honourable Justice David
6 August 2007
SALE OF GOODS - CONDITIONS AND WARRANTIES - IMPLIED CONDITIONS AND WARRANTIES - QUALITY OR FITNESS FOR PARTICULAR PURPOSE - MERCHANTABLE QUALITY
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - POINTS AND OBJECTIONS NOT TAKEN BELOW - WHEN NOT ALLOWED TO BE RAISED ON APPEAL - QUESTIONS NOT RAISED ON PLEADINGS OR IN ARGUMENT - PARTICULAR CASES - QUESTION OF LAW
Magistrates Appeal – contract law – purchase of wooden frames – sample provided prior to contract – frame joints unable to withstand force – frames delivered allegedly different from frames ordered - acceptance of frames by appellants - counterclaim - whether s 14 of the Sale of Goods Act 1985 (SA) provides implied condition as to fitness for purpose – whether s 4 of the Manufacturers Warranties Act 1974 (SA) provides implied condition of merchantable quality – whether respondent breached contract by failing to provide frames of the correct size and/or frames made from correct timber - whether both appellants parties to the contract - whether new issue can be raised on appeal.
Held: s 14(a) of the Sale of Goods Act 1985 (SA) only provides condition of fitness for purpose where goods have not been examined or where examination would not have revealed the defect – consideration of the definition of retail – in the Manufacturers Warranties Act 1974 (SA) retail means a sale to an ultimate consumer – where variation to a contract is accepted by the parties any right to terminate for such variation is lost - new issues can only be argued on appeal under exceptional circumstances - appeal dismissed.
Manufacturers Warranties Act 1974 (SA) s 4; Sale of Goods Act 1895 (SA) s 14, s 15, referred to.
Battye v Shammall (2005) 91 SASR 315; Bethune v Qconn Pty Ltd [2002] FCA 1485 (Unreported, O'Loughlin J, 28 November 2002); Electricity Trust of South Australia v Krone (Australia) Technique Pty Ltd (1994) 51 FCR 540; Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26; Sargent v ASL Developments Ltd (1974) 131 CLR 634; Southern Cross Homes (Broken Hill) Inc v Chapman [1999] SASC 491 (Unreported, Debelle J, 15 November 1999); Strauss v Canberra Commercial Development Authority (1983) FLR 22; Tyson v Brisbane Market Freight Brokers Pty Ltd (1994) 68 ALJR 304; Wendt v Bruce (1931) 45 CLR 245, applied.

WORDS AND PHRASES CONSIDERED/DEFINED
"retail"

ACN 081 472 102 PTY LTD & ANOR v QUALITY VALUE CABINETS PTY LTD
[2007] SASC 290
Magistrates Appeal
DAVID J.
Introduction

This is an appeal against the decision of a magistrate to enter judgment in favour of the respondent’s claim in contract and to dismiss the counterclaim made by the appellants. At first instance the respondent in this matter, Quality Value Cabinets Pty Ltd, was the plaintiff, the first appellant, a company, ACN 081 472 102 Pty Ltd, was the second defendant, and the second appellant, Neville Jordan, was the first defendant. The second appellant is the sole director of the first appellant company.
The first and second appellants appeal against the judgment on the ground that they have a defence to the claim under s 14 of the Sale of Goods Act 1895 (SA) and/or s 4 of the Manufacturers Warranties Act 1974 (SA). Following on from this, they appeal against the dismissal of their counterclaim. In the alternative, if these grounds of appeal are unsuccessful, the appellants argue that the damages awarded should be reduced. In addition, the second appellant appeals against the judgment on the ground that he was not a party to the contract and, therefore, judgment cannot be entered against him.
Background Facts
In early 2003, the second appellant approached a number of joinery companies, including the respondent, seeking quotes for the supply of square wooden frames. The appellants intended to thread elastic cord through holes in the frames, in a grid pattern, which would allow pieces of paper to be held between the overlapping cords. The frames would then be painted and sold to sporting clubs as noticeboards.
The respondent made two prototype frames, one from oak and the other from pine. The prototypes were constructed using mitre joints, ie the corners of the frames were cut at 45 degree angles and secured using nails and glue. The second appellant collected these prototypes, to compare them to prototypes provided by other manufacturers and to test their appropriateness for use as a noticeboard once threaded with elastic cord. The respondent then provided a quote to the appellants setting out the price which would be charged per frame if the frames were to be made from oak ($22), pine ($19) or meranti ($20.50). Further discussion took place about the cost of producing “double” frames, ie frames twice the size of the square frames, in a rectangular rather than square shape. The appellants were advised that these would cost 50% more per frame than the quote provided for square frames.
Following this, in mid‑February 2003, the appellants ordered 50 frames from the respondent at a cost of $1,283.70 and paid a deposit of $600. The second appellant collected these frames in early March 2003. Shortly thereafter, a second order was placed, this time for 100 frames at a cost of $2,508. A deposit of $1,200 was paid. There is some dispute about the composition of these orders, which I will discuss in due course.
When the second appellant collected the second lot of frames, he also returned a few of the frames from the first order. Some of the joints had come apart and he wanted them repaired. The respondent repaired the frames and returned them to the appellants. At this time, no request was made by the appellants to alter the way in which the frames were joined at the corners. All the frames were collected by the end of March 2003.
The venture to sell these frames as noticeboards was unsuccessful. While 150 frames were manufactured, only six noticeboards were sold.
There was no further communication between the parties until 15 August 2003, when the respondent sent a statement of account for the outstanding amount of $1,991.70. In response to this statement, a letter was sent from the appellants to the respondent, dated 1 September 2003. In summary, this letter stated that several of the frames had fallen apart at the corner joints and the appellants did not intend to pay the outstanding amount.
The respondent brought a claim in contract for the outstanding sum of $1,991.70. In response, the appellants brought a counterclaim for $13,357, this amount being for the deposits paid, and expenses and lost profits associated with the failed business venture.
Appeal Grounds
The appellants’ notice of appeal lists 15 ground of appeal. However, at the hearing, it was determined that there were four main points being made by the appellants:
·both appellants have a defence to the respondent’s claim, under s 14 of the Sale of Goods Act and/or s 4 of the Manufacturers Warranties Act;
·the magistrate was in error in dismissing the counterclaim;
·the frames provided under the contract did not match what was ordered and, therefore, if the other appeal grounds are unsuccessful, the quantum of damages should be reduced; and
·the second appellant appeals against the judgment on the ground that he was not a party to the contract, and judgment cannot therefore be entered against him.
I will address the grounds of appeal in that order.
Section 14 of the Sale of Goods Act is titled “[i]mplied conditions as to quality or fitness” and states:
Subject to the provisions of this Act, and of any Statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:
(a)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: 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;
(b)where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed;
(c)…
(d)…
In order for s 14(a) to apply, the appellants would need to show that the respondent knew the purpose for which the frames were required, and knew that the appellants relied on its skill or judgment.[1] When the appellants requested that the respondent prepare prototypes of the frames, they provided specifications and diagrams. The specifications stated:
This document contains the specification and drawing for the frame.
The frame drawing shows holes in the frames at 100 mm intervals. A rubber cord will be threaded through the holes into a lattice work and the frame needs to be strong enough to retain its shape, strength and durability with a 5 mm diameter rubber cord threaded through it as described and extended by about 40 per cent.
We do not know, and rely on the Joiner for this specification but suggest that the frame needs to be made of wood a minimum of 20 mm thick and 40 mm wide to be of adequate strength. It may require something even stronger.
We have not been unable [sic] to present the holes in an accurate and reliable way in the drawing. They need to be evenly distributed at 100 mm centres, centred longways on the frame edge. The holes need to be between 7 and 8 mm diameter and all the same size chosen.
The appellants argue that these specifications show that the respondent was advised of the purpose for which the frames were required and that reliance was placed on the respondent’s skill and/or judgment.
[1] Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49, 60.
The specifications clearly show that the appellants relied on the respondent’s skill and/or judgment with respect to the thickness and strength of the timber used, but provide only limited support for a finding of general reliance on the respondent with respect to the overall strength of the frame. In these circumstances, it is important to put the wording of these specifications in the context of the events which occurred.
The appellants sought quotes and prototypes from a number of different companies. The prototypes prepared by the respondent were made using mitre joints whereas those provided by other companies used other, perhaps stronger, joint techniques. The appellants had the benefit of viewing these different designs and testing them as to their appropriateness for their intended purpose. They then chose to contract with the respondent, without making any request for the joints to be strengthened or for a different joint technique to be used.
In these circumstances, I cannot find that the appellants acted in such a way as to show the respondent that reliance was placed on its skill and judgment with respect to the strength of the frames. The appellants took the prototypes away to test whether or not they were suitable for the purpose required, thereby eliminating any reliance that may have otherwise been placed on the respondent’s skill and judgment.[2] I therefore find that s 14(a) does not provide a defence to the respondent’s claim in contract.
[2] Southern Cross Homes (Broken Hill) Inc v Chapman [1999] SASC 491 (Unreported, Debelle J, 15 November 1999) [16].
While not argued on appeal, I am reinforced in this view by s 15(2)(c) of the Sale of Goods Act. This section relates to the sale of goods when a sample has been provided (as occurred in this case by way of the prototypes), and states:
there is an implied condition that the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.
This section suggests that the legislation, as a whole, is not intended to provide protection to purchasers where any defect rendering the product unmerchantable could have been detected prior to purchase. In this case, there is no suggestion that the frames delivered under the contract were in any material way different to the prototypes. The suggested defect, namely that the joints were unstable due to the use of mitre joints, should have been evident to the appellants on examination of the prototypes.
My view is that s 14(b) of the Sale of Goods Act is not applicable to this case. This section specifically states that no condition of merchantability will be implied into a contract if the goods have been examined and that examination ought to have revealed the defects.[3] In this case, the goods could be viewed prior to purchase, by way of the prototypes provided, and the suggested defect, namely that the joints were unstable due to the use of mitre joints, should have been evident to the appellants on examination of the prototypes. In addition, this section is limited to goods bought by description. That is not the situation in the present case.
[3] Bethune v Qconn Pty Ltd [2002] FCA 1485 (Unreported, O’Loughlin J, 28 November 2002) [90].
I turn now to s 4 of the Manufacturers Warranties Act which states:
(1)Where any manufactured goods—
(a)     are sold by retail in this State; or
(b)     are delivered, upon being sold by retail, to a purchaser in this State,
the manufacturer warrants—
(c)     that the goods are of merchantable quality; and
(d)     where the goods are of a kind that are likely to require repair or maintenance, that spare parts will be available for a reasonable period after the date of manufacture.
No definition is provided for the term “retail”. However, its meaning was considered in Electricity Trust of South Australia v Krone (Australia) Technique Pty Ltd.[4] In that case von Doussa J canvassed the various definitions of retail, and determined that, in this Act, retail means a sale to “an ultimate consumer”.[5] The goods in this case were not sold on a retail basis but on a wholesale basis, with the appellants stating that they intended to further modify the frames and then sell them to sporting clubs as noticeboards. For this reason, the Manufacturers Warranties Act provides no assistance to the appellants in this case.
[4] (1994) 51 FCR 540.
[5]    Electricity Trust of South Australia v Krone (Australia) Technique Pty Ltd (1994) 51 FCR 540, 551.
As such, the first ground of appeal must fail.
The second ground of appeal relates to the appellant’s counterclaim. This claim was for refund of the deposits paid, reimbursement of business expenses (wages for an employee to paint the frames and marketing expenses), and lost profits associated with the failed business venture (calculated on the basis that all the noticeboards would have been sold). The appellants claimed that these losses resulted from the supply of unsuitable frames. The counterclaim therefore relies on a finding that the respondent breached the contract by providing unsuitable frames. As is evident from the preceding discussion about the first ground of appeal, this is not the case. I therefore find no need to consider the merits of the counterclaim and dismiss this ground of appeal.
The third ground of appeal is that the magistrate made an error in the quantum of damages awarded. The appellants do not dispute the fact that the first order was for 50 frames and the second was for 100 frames. However, they argue that what they ordered is not reflected correctly in the tax invoices and that the respondent failed to provide the frames that were ordered. As such, the appellants argue that they should not have to pay the full amount outstanding, but a reduced amount based on the frames actually ordered and received. In particular, they argue that the amount should be $280.30 rather than $1,991.70.
The first tax invoice, dated 17 February 2003, is for 30 single pine frames, 14 double pine frames and six double oak frames. The appellants argue that this tax invoice does not reflect what was ordered. They argue that the order was placed on 24 February 2003 by way of letter. The relevant sections of the letter say:
Thank you for your quote of 12^th February which I confirm and our meeting of the 17^th of February here. I take this opportunity to provide you with this confirming letter setting out the details we discussed and also providing a record for the benefit of both of us… We agreed that the lot is 100 but also agreed that the first lot is 50. That lot is made up of 20 single frames x 2 and 5 double frames x 2. We want 2 frames made in each of the 4 shapes in oak and the balance in pine.
The appellants therefore argue that what was ordered were 36 single pine frames, six double pine frames, four double oak frames and four single oak frames. In addition, the appellants state that no oak frames were provided, but some meranti frames were provided.
At trial, Mr Paul Franks, a director of the respondent, gave evidence that he had met with the second appellant on 17 February 2003, at which time a verbal order was made and a deposit of $600 paid. He stated that after this meeting, he returned to the respondent’s premises and had a tax invoice prepared which reflected the verbal order. However, he also gave evidence he thought the appellants had ordered some meranti frames, something which is not reflected on the tax invoice.
With respect to the second order for 100 frames, the appellants submit that the tax invoice dated 10 March 2003 does not reflect what was ordered. That tax invoice is for 60 single pine and 40 double pine frames. The appellants argue that the correct details of the order are found in a letter from the first appellant dated 10 March 2003. This letter states:
Further to earlier communication, I take this opportunity to confirm that we will require an order of 100 frames ASAP, further to the initial order of 50.
There is no reference in this letter to what wood is to be used or what size the frames should be. The letter is therefore of no assistance in determining what was ordered.
Following the first delivery of frames, the appellants did not raise this issue but instead proceeded to order additional frames. The appellants again failed to make any mention of dissatisfaction with the respondent’s performance of the contract when the second batch of frames was collected. In addition, when the appellants sent their letter, dated 1 September 2003, in response to the statement of account, no issue was taken with the size of the frames delivered or the material with which they were made.
The magistrate found:
The defendant did not object to these mistakes and did not return any unordered frames, so it must be inferred that he accepted this variation to his order.
I agree with the magistrate’s finding on this issue. If there was any discrepancy between the frames ordered and the frames delivered, by accepting the frames, placing a second order, and not objecting to the provision of different sized frames or frames made out of different timber, the appellants have accepted any variation to the terms of the contract.[6] This ground of appeal therefore fails.
[6] Wendt v Bruce (1931) 45 CLR 245, 253; Sargent v ASL Developments Ltd (1974) 131 CLR 634, 655-656; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26, 38-39.

I turn now to the final ground of appeal, namely that the second appellant was not a party to the contract and therefore judgment should not have been entered against him. This issue was not agitated in the lower court, either on the pleadings or at trial. The second appellant suggests that the magistrate should have made a finding that he was not a party to the contract based on the exhibits tendered at trial, even though the issue was not specifically raised.
The public interest in the finality of proceedings demands that, unless there are exceptional circumstances, appellate courts should not entertain legal arguments on issues not raised at first instance.[7] There was no material presented to this Court identifying exceptional circumstances which would allow me to depart from this rule and I can see no real prejudice to the second appellant in not considering this issue. This ground of appeal must therefore fail.
[7] Tyson v Brisbane Market Freight Brokers Pty Ltd (1949) 68 ALJR 304, 307; Strauss v Canberra Commercial Development Authority (1983) FLR 22, 25; Battye v Shammall (2005) 91 SASR 315, 319.
Conclusion
The appeal is dismissed.