Clyde Industries Pty Ltd v Golden West Refining Corp Ltd & Anor Daly Laboratories Pty Ltd v Golden West Refining Corp Ltd & Anor
[1996] FCA 823
•12 Sep 1996
CATCHWORDS
TRADE PRACTICES - misleading or deceptive conduct - gold refiner requiring hydrochloric acid in substantial quantities - important that such acid not contain fluorine - regular supplier usually sourced acid from plant producing fluorine free acid - when acid from that plant not available, regular supplier obtained substitute acid from interstate on several prior occasions - on such prior occasions substitute acid satisfactory - further occasion for supply of substitute acid from same interstate source - this time acid contained high level of fluorine contamination - equipment damaged and gold lost - whether implied representation that substitute acid reasonable substitute - whether gold refiner acted in reliance on implied representation - whether misleading or deceptive conduct - whether loss suffered as a result of misleading conduct - whether negligence.
Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA) s 7
Sale of Goods Act 1895 (WA) s 13; sub-s 14(1)
Trade Practices Act 1974 ss 52, 82; sub-s 82(1)
J.C. Campbell, Q.C., "Contribution, Contributory Negligence and section 52 of the Trade Practices Act" (1993) 67 ALJ 87
Bennett v Minister of Community Welfare (1992) 176 CLR 408
Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 (CA)
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Gould v Vaggelas (1985) 157 CLR 215
Hawkins v Clayton (1988) 164 CLR 539
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Ltd (1993) 41 FCR 229
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Suosaari v Steinhardt [1989] 2 Qd R 477
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
Thompson v Johnson and Johnson Pty Ltd [1991] 2 VR 449
Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514
CLYDE INDUSTRIES PTY LTD V GOLDEN WEST REFINING CORPORATION LIMITED AND DALY LABORATORIES PTY LTD
WAG25 OF 1995
DALY LABORATORIES PTY LTD V GOLDEN WEST REFINING CORPORATION LIMITED AND CLYDE INDUSTRIES LIMITED
WAG37 OF 1995
LEE, DRUMMOND, COOPER JJ
PERTH
12 SEPTEMBER 1996
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY )
GENERAL DIVISION )
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
NO. WAG25 OF 1995
B E T W E E N: CLYDE INDUSTRIES PTY LTD
Appellant
and
GOLDEN WEST REFINING CORPORATION LIMITED
First Respondent
and
DALY LABORATORIES PTY LTD
Second Respondent
NO. WAG37 OF 1995
B E T W E E N: DALY LABORATORIES PTY LTD
Appellant
and
GOLDEN WEST REFINING CORPORATION LIMITED
First Respondent
and
CLYDE INDUSTRIES LIMITED
Second Respondent
MINUTE OF ORDER
JUDGE MAKING ORDER: LEE, DRUMMOND, COOPER JJ
DATE OF ORDER: 12 SEPTEMBER 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
In Appeal No. WAG25 of 1995 the appeal be dismissed with costs.
In Appeal No. WAG37 of 1995:
a)in respect of the appeal from the judgment on the application:-
i)the appeal be allowed with costs;
ii)the judgment be varied by setting aside all orders made therein against the appellant and in lieu thereof it be ordered that the application be dismissed against the appellant with costs and that the second respondent indemnify the first respondent in respect of such costs as the first respondent is obliged to pay to the appellant;
iii)the second respondent indemnify the first respondent in respect of such costs as the first respondent is obliged to pay to the appellant on the appeal.
b)in respect of the appeal from the judgment on the cross-claim:-
the appeal be dismissed with costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY )
GENERAL DIVISION )
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
NO. WAG25 OF 1995
B E T W E E N: CLYDE INDUSTRIES PTY LTD
Appellant
and
GOLDEN WEST REFINING CORPORATION LIMITED
First Respondent
and
DALY LABORATORIES PTY LTD
Second Respondent
NO. WAG37 OF 1995
B E T W E E N: DALY LABORATORIES PTY LTD
Appellant
and
GOLDEN WEST REFINING CORPORATION LIMITED
First Respondent
and
CLYDE INDUSTRIES LIMITED
Second Respondent
CORAM: LEE, DRUMMOND, COOPER JJ
DATE : 12 SEPTEMBER 1996
PLACE: PERTH
REASONS FOR JUDGMENT
LEE J:
I have had the opportunity of perusing the reasons for judgment prepared by Cooper J. I agree with those reasons with the exception of his Honour's conclusion that no loss was suffered by Golden West by reason of the conduct that contravened s52 of the Trade Practices Act 1974 engaged in by Daly.
As explained by Cooper J, Daly was under a duty of care to Golden West to take reasonable care to ensure that the hydrochloric acid supplied to Golden West was fluorine free. It appears, however, that Golden West, unknown to Daly, was prepared to accept hydrochloric acid that contained up to 100 ppm fluorine, such a solution still being suitable for use by Golden West in its gold refining process. The question that arises is whether the preparedness of Golden West to accept acid with minimal fluorine content, denied the conclusion that Golden West relied upon the conduct by Daly that was misleading in respect of the quality of the acid supplied by Daly to Golden West.
His Honour the trial Judge found, with respect, correctly, that Daly engaged in conduct in trade or commerce that was misleading by delivering to Golden West acid that held a high concentration of fluorine whilst representing that
acid to be of the same standard as that last-supplied to Golden West by Daly, being acid that was either fluorine free or acid with a minimal level of fluorine. The foundation for Daly's representation was the erroneous belief that the manufacturer of the acid, Ajax Chemicals, produced a product that was fluorine free.
Daly was engaged by Golden West to supply hydrochloric acid of a particular standard. Daly was not a mere conduit through which Golden West placed an order with a manufacturer for the supply of acid of specified quality. Having advised Daly of the quality of the acid to be supplied by Daly it would be appropriate to infer that Golden West, at least, had some expectation that Daly would obtain hydrochloric acid of the required standard and that Golden West would rely upon a representation implicit in the delivery of acid to Golden West by Daly that the acid obtained from Ajax Chemicals was of the same standard as acid obtained from that manufacturer and supplied to Golden West on previous occasions.
Once the conduct was found to be misleading the question to be asked was what happened as a result of that conduct. The most favourable answer to that question, from Daly's point of view, was that Golden West's reliance on Daly's representation as to the quality of the product was fortified by Golden West's belief, based on prior experience, that acid produced by Ajax Chemicals would meet the standard required by Golden West. However, any reliance on Daly's conduct even if coupled with reliance on other matters, would provide a sufficient causal link between the loss and that conduct. (See: Gould v Vaggelas (1985) 157 CLR 215.) It was open to his Honour to find that Golden West did so rely on Daly's conduct and that if Daly delivered acid to Golden West that was not of the standard represented by Daly and that product caused damage to Golden West's plant, Golden West suffered loss by reason of that conduct by Daly. If Golden West believed that the acid obtained from Ajax Chemicals and supplied by Daly may have contained a minimal amount of fluorine, the existence of that belief was not inconsistent with a conclusion that Golden West relied upon Daly's representation that the acid supplied was of the same standard as that delivered previously.
This was not a case in which the judgment of Golden West was not affected by any misleading conduct engaged in by Daly. (cf. Ricochet Pty Ltd v Equity Trustees Executors and Agency Company Limited (1993) 41 FCR 229.) In Ricochet disclosure of the nature of the misleading conduct would not have caused the party which claimed to have suffered loss by reason of the misleading conduct that occurred in that case, to have altered its position. Revelation of the true number of customers that patronized the shopping centre from week to week would have produced no change in the decision to establish the business of a pharmacy in the shopping centre, being the decision that, it was claimed, inflicted loss.
It is obvious that if Golden West had been made aware that the representation that the acid supplied was of the same standard as previous deliveries was false, the acid would have been rejected.
With regard to Golden West's claim in negligence against Daly, I agree that the duty of care owed by Daly to Golden West was broader than the duty described by his Honour the trial Judge and that Daly was in breach of that duty.
I also agree, however, that the breach of such a duty did not cause Golden West to suffer loss and, therefore, no action in negligence arose. In that respect it may be noted that the claim in negligence is not coterminous with the claim made under s82 of the Act. Daly was not bound to test the product pursuant to the duty of care it owed to Golden West but it was obliged to enquire whether the product was free of fluorine. If it had done so it would have been told that it contained up to 100 ppm fluorine and would have received instructions from Golden West to deliver the product. Therefore, the breach by Daly of the duty of care did not cause the loss suffered by Golden West.
With regard to his Honour's findings that Clyde was liable to Golden West for loss suffered by reason of Clyde's misleading conduct and negligence those conclusions were appropriate for the reasons stated by his Honour.
In respect of the cross-claim by Daly against Clyde, his Honour found that the cross-claim succeeded in that Clyde had breached a duty of care it owed to Daly such breach occasioning loss to Daly by causing Daly to contravene s52 of the Trade Practices Act and to incur liability to Golden West by reason of that conduct. Again, that finding was correct for the reasons stated by his Honour. As a result of that finding his Honour found it unnecessary to deal with that part of the cross-claim which had sought to recover loss suffered by reason of conduct by Clyde that contravened s52 of the Trade Practices Act.
As to the cross-claim by Clyde against Daly, his Honour found that no duty of care was owed by Daly to Clyde in the terms pleaded and, therefore, no liability in negligence had been proved. His Honour also found that Clyde had no claim in contract to pursue against Daly. His Honour's reasons support those findings.
The remaining question is the so-called question of contribution.
His Honour found that Daly had not failed to exercise care for its own well-being to such an extent that it had contributed to the loss it had suffered. That conclusion was patent on the facts as found.
The judgment obtained by Golden West directs that Daly is entitled to contribution from Clyde to the full extent of any amount, including interest, that Daly is obliged to pay under the judgment entered against Daly and Clyde jointly. Further, the judgment provides that Clyde is to indemnify Daly in respect of any costs paid by Daly to Golden West. By its cross-claim Daly recovered judgment against Clyde for the amount of loss Daly sustained, being the sum it was required to pay to Golden West to discharge liability for the judgment sum and costs under the judgment obtained by Golden West. As held by his Honour, in those circumstances, no question of any order for contribution or indemnity under the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 fell to be considered. Given the terms of the judgment Daly obtained against Clyde on the cross-claim, Clyde could not claim that it was entitled to claim contribution from Daly as a party under a coordinate liability with Clyde to discharge the judgment entered against Daly and Clyde by Golden West. (See: J.C. Campbell, Q.C., "Contribution, Contributory Negligence and section 52 of the Trade Practices Act" (1993) 67 ALJ 87.)
I would dismiss each appeal with costs.
I certify that this and the preceding seven pages are a true copy of the Reasons for Judgment of his Honour Justice Lee.
Associate:
Date:
FEDERAL COURT OF AUSTRALIA No. WAG 25 of 1995
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
ON APPEAL FROM A JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: CLYDE INDUSTRIES PTY LTD
Appellant
AND: GOLDEN WEST REFINING CORPORATION LIMITED
First Respondent
AND: DALY LABORATORIES PTY LTD
Second Respondent
FEDERAL COURT OF AUSTRALIA No. WAG 37 of 1995
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
ON APPEAL FROM A JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN: DALY LABORATORIES PTY LTD
Appellant
AND: GOLDEN WEST REFINING CORPORATION LIMITED
First Respondent
AND: CLYDE INDUSTRIES LIMITED
Second Respondent
CORAM: Lee, Drummond and Cooper JJ
DATE: 12 September 1996
PLACE: Perth
REASONS FOR JUDGMENT
DRUMMOND J:
I agree with the orders proposed by Cooper J and, subject to what follows, I agree with his Honour’s reasons.
The s 52 case which Golden West pleaded and sought to make out at trial against Daly was that the latter impliedly represented to Golden West that Ajax acid was suitable for use in Golden West’s gold refining process and that Ajax acid “contained little or no hydrofluoric acid”. The learned trial judge, after a careful review of the evidence, found that when Golden West first approached Daly for hydrochloric acid for use in its gold refining process in early 1988, Golden West’s Managing Director directed one of its employees, Mr Spence, to ensure that any acid obtained from Daly would be free of hydrofluoric acid; his Honour also found that Mr Spence carried out that instruction and that at no time subsequent to those initial discussions, and in particular in December 1989 and January 1990 when Mr Hodge of Golden West authorised Mr Banovich of Daly to obtain the acid which caused the loss complained of from Ajax Chemicals, was there any further discussion between Golden West and Daly about the need for the hydrochloric acid supplied by Daly to be fluorine-free. His Honour rejected Golden West’s case in so
far as it asserted that Daly represented that the Ajax acid would contain little, as distinct from no, hydrofluoric acid.It was against this background of findings that the learned trial judge ultimately concluded that, in offering to supply the Ajax acid that caused the harm, Daly impliedly represented to Golden West that that acid was a reasonable substitute for the CSBP acid which Daly had initially supplied to Golden West and was suitable for use in Golden West’s gold refining process. All CSBP acid was fluorine-free. The learned trial judge found that, because of very high concentrations of hydrofluoric acid, the Ajax acid was not a reasonable substitute for the CSBP acid and that s 52 was thus contravened. His Honour said (AB1032):
“I do not think that the contravention depends upon the finding that Mr Banovich was told by Mr Spence, in February 1988, that there must not be any hydrofluoric acid in the hydrochloric acid which Daly Laboratories was then negotiating to supply to the applicant. The essence of the representation as to suitability for use in the applicant’s gold refining process was that, in summary, more of substantially the same acid would be and was being supplied. The acid supplied clearly was not more of the same or even more of substantially the same. It had approximately forty times the concentration of hydrofluoric acid as that shown as a typical analysis on the relevant Ajax Chemicals’ technical data sheet. In any event, should the finding as to what took place between Mr Spence and Mr Banovich be relevant, it has been made and it points in the same direction, so far as the outcome is concerned.
Mr Banovich, and hence Daly Laboratories, did not know that the acid supplied to the applicant was so unsuitable and I have no doubt that he believed it to be as suitable as the earlier deliveries of the Ajax Chemicals acid. This does not, in my opinion, prevent the conduct from being in contravention of section 52. ¼ Daly Laboratories knew that the alternative supplies had to be reasonably substitutable for the CSBP acid in Golden West’s gold refining operation. In making its implied representation to that effect there was no express or implied disclaimer ¼”
The critical instruction that Daly received from Golden West was that hydrochloric acid supplied to Golden West had to be fluorine-free. The trial judge accepted that Mr Banovich’s belief was that that was the position in relation to CSBP acid from the outset. His Honour also accepted Mr Banovich’s evidence that he believed that Ajax acid was produced by a fluorine-free process.
Against this factual background, I do not think it is correct to say that when Daly offered to supply the contaminated Ajax acid to Golden West, it impliedly represented only that it was a reasonable substitute for CSBP acid and was suitable for Golden West’s purposes: that conclusion ignores the fact that, in so far as Daly may have represented that that Ajax acid had those two characteristics, Daly made those representations in the belief that that was so because the acid in question was fluorine-free and therefore met what was Golden West’s standing requirement. Given that Golden West, at the outset, instructed Daly to supply it with fluorine-free acid and never qualified that instruction, Golden West can only have understood any implied representation Daly made to it with respect to the suitability of the heavily contaminated Ajax acid as also involving a representation that that acid was suitable for Golden West’s purposes because it was fluorine-free.
In identifying the representations which the learned trial judge held that Daly made, by its conduct in offering to supply the contaminated Ajax acid to Golden West, I do not think the relevant conduct on the part of Daly can be isolated from the fact that the only instruction Golden West gave Daly with respect to its requirements for acid supplied by Daly was that it had to be fluorine-free and the fact Daly
believed that all the acid it offered and supplied to Golden West, including the Ajax acid that caused the harm, met that requirement. Although the learned trial judge did not consider that the initial discussions between Mr Spence and Mr Banovich in early 1988 about the need for fluorine-free acid were relevant to the representations made by Daly to Golden West in late 1989/early 1990 with respect to the Ajax acid then supplied, for these reasons I think that they were relevant as fixing the context in which the representations of late 1989/early 1990 were made and thus the content of those representations. See Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199 and Taco Company of Australia v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202.In the context in which the representations were made, Daly represented that the Ajax acid was substitutable for the CSBP acid and suitable for use by Golden West because it met the requirement that Daly believed it had to meet of being fluorine-free; Golden West, because of that same context, can only have understood that that was what was being represented, even though it had a belief, not then communicated to Daly, that the Ajax acid, while not fluorine-free, contained only a harmless concentration of that contaminant.
Given Golden West’s own knowledge that Ajax acid could contain a small concentration of hydrofluoric acid, it cannot establish that, in deciding to accept the heavily contaminated Ajax acid offered by Daly, it acted in reliance on the only implied representations which I think Daly then made, viz, representations to the effect that the Ajax acid was fluorine-free. Golden West decided to acquire that acid
not in reliance on any representation that it was fluorine-free, but rather in reliance on its own belief that, while that acid was probably not fluorine-free, it contained hydrofluoric acid only in concentrations too small to be of concern to it.
[DW1]
I certify that this and the preceding five
pages are a true copy of the reasons
for judgment of the Honourable
Justice Drummond.
Associate:
Date: September 1996
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
No WAG 25 of 1995
On Appeal from a Judge of the
Federal Court of Australia
BETWEEN:
CLYDE INDUSTRIES PTY LTD
Appellant
AND:
GOLDEN WEST REFINING CORPORATION
LIMITED
First Respondent
AND:
DALY LABORATORIES PTY LTD
Second Respondent
No WAG 37 of 1995
BETWEEN:
DALY LABORATORIES PTY LTD
Appellant
AND:
GOLDEN WEST REFINING CORPORATION LIMITED
First Respondent
AND:
CLYDE INDUSTRIES LIMITED
Second Respondent
CORAM:Lee, Drummond and Cooper JJ
PLACE:Perth
DATE:12 September 1996
REASONS FOR JUDGMENT
Cooper J
Background to the Appeals
Golden West Refining Corporation Limited ("Golden West") carries on the business of refining gold at Kewdale, Perth. The process undertaken by Golden West is known as the "aqua regia refining process". This process uses glass-lined steel refining vessels ("the vessels") and glass condensers ("the condensers"). The process uses quantities of hydrochloric acid and nitric acid to form a solution known as aqua regia. Heat is applied to the solution wherein gold granules are dissolved. Once dissolved, the gold-bearing steam is passed into a condenser and rendered into a gold chloride solution which is decanted and placed in a plastic vessel. Sulphur-dioxide gas is then bubbled through the gold chloride solution to precipitate the gold as a metallic gold particle.
Hydrochloric acid may be produced as the by-product of either a chlor-alkali process or a fluorocarbon process. Hydrochloric acid produced by a chlor-alkali process contains no fluorine. On the other hand, hydrochloric acid produced by a fluorocarbon process will always contain some fluorine in varying amounts. This fluorine takes the form of hydrofluoric acid. The relevance of the presence or otherwise of hydrofluoric acid lies in the fact that it is one of the few substances which attacks glass significantly. The fluorine in hydrofluoric acid attacks and corrodes the silicates in glass. For the purposes of these reasons, the terms "fluorine" and "hydrofluoric acid" are used interchangeably. On occasions, the evidence refers to "fluoride" as having the same meaning.
Clyde Industries Pty Ltd ("Clyde Industries") is a manufacturer based in New South Wales and manufactures hydrochloric acid in a division known as Ajax Chemicals. Ajax Chemicals carried on business as a supplier of chemicals including hydrochloric acid in Western Australia.
Daly Laboratories Pty Ltd ("Daly Laboratories") carries on business as a wholesale supplier of hydrochloric acid. At all relevant times CSBP Farmers Limited ("CSBP") was a manufacturer of hydrochloric acid in Western Australia. CSBP produced hydrochloric acid as a by-product of a chlor-alkali process. Consequently, the hydrochloric acid it produced contained no fluorine.
From about April 1988 Daly Laboratories supplied Golden West with hydrochloric acid. The acid was supplied in 200 litre drums. Initially the acid was supplied by CSBP to Daly Laboratories which on-supplied it to Golden West. In about February 1989 shortages began to occur in the availability of hydrochloric acid from CSBP. At that time Daly Laboratories began to acquire drums of hydrochloric acid supplied by Ajax Chemicals to make up the shortfall in the supply from CSBP. Hydrochloric acid was supplied by Ajax Chemicals in February, April and May 1989 to Daly Laboratories and on-supplied by it to Golden West. The hydrochloric acid sourced from Ajax Chemicals, together with the hydrochloric acid sourced from CSBP, was used by Golden West in its gold refining operations without incident.
In December 1989 CSBP acid was again in short supply and an alternative source for hydrochloric acid was needed. Stuart Hodge (Golden West’s refinery manager) discussed the question of alternative supplies with Bryan Banovich, the managing director of Daly Laboratories. With Christmas/New Year approaching, Golden West needed enough acid from the alternative source to allow operations to continue during the holiday period.
On 11 December 1989 Golden West placed a purchase order for chemicals with Daly Laboratories which included twelve drums of hydrochloric acid. This order was filled by Daly Laboratories delivering to Golden West on 12 and 13 December 1989 four drums of hydrochloric acid sourced from CSBP and eight drums of hydrochloric acid sourced from Ajax Chemicals. On 20 December 1989 Golden West ordered a further thirty-two drums of hydrochloric acid. Twenty-four of the drums were supplied by Daly Laboratories sourced from Ajax Chemicals. The remaining eight were sourced from CSBP. Of the twenty-four drums sourced from Ajax Chemicals, eight drums were delivered to Golden West by Daly Laboratories from its own stocks and sixteen were delivered direct to Golden West by Ajax Chemicals from stock held by Ajax Chemicals. In total Golden West received thirty-two drums of hydrochloric acid sourced from Ajax Chemicals between 12 December 1989 and 15 January 1990.
After commencing to use the hydrochloric acid sourced from Ajax Chemicals and supplied in the period commencing 12 December 1989, Golden West suffered two accidents. The first occurred on 11 January 1990 when two condensers were damaged. The second occurred on 24 January 1990 when it was found that the glass lining on a vessel had been corroded. Upon inspection five other vessels and three condensers were found to be damaged. In the accidents there was a loss of solution containing gold.
The Case Below
It was common ground before the trial judge (Carr J) that hydrochloric acid sourced from Ajax Chemicals and supplied in the period commencing 12 December 1989
caused the damage to the condensers and the vessels because that acid contained fluorine in the form of hydrofluoric acid at levels up to 4000 parts per million ("ppm").
Golden West claimed damages against Daly Laboratories and Clyde Industries based on s 52 of the Trade Practices Act 1974 (Cth) ("the Act") and alternatively for negligence. Further, in the alternative, Golden West sought damages from Daly Laboratories for breach of contract.
Golden West alleged against Daly Laboratories that it impliedly represented that the hydrochloric acid manufactured by Clyde Industries was suitable for use in Golden West’s refining process and that it contained little or no hydrofluoric acid. Golden West further alleged that in reliance upon that representation it agreed to purchase thirty-two drums of the acid manufactured by Clyde Industries and used the same in its gold refining process thereby suffering loss and damage. The representation was alleged to be false and misleading and in breach of s 52 of the Act because the acid was unsuitable for use in the vessels and condensers due to the acid containing fluorine in the form of hydrofluoric acid in quantities significantly in excess of 100 ppm.
Golden West also alleged against Daly Laboratories that it was negligent in :-
Failing to take any or any adequate steps to test or verify the level of fluorine in the Clyde Industries acid before it was supplied to Golden West;
Supplying Golden West with acid containing fluorine in excess of 100 ppm;
Failing to warn Golden West that the acid did not merely contain hydrochloric
acid but also contained fluorine in excess of 100 ppm;Failing to warn Golden West to test or verify the level of fluorine in the Clyde Industries acid before it was used;
Failing to take any or any adequate steps to ensure that the drums of acid supplied to Golden West were labelled with an accurate statement of the level of fluorine in the acid.
In respect of the contracts for the sale of goods (the hydrochloric acid) between Golden West and Daly Laboratories constituted by the purchase orders and supply of the acid, Golden West alleged that each contract contained a warranty that the acid would be reasonably fit for the purpose for which it was intended to be used - use in Golden West’s gold refining process - and a warranty that the acid supplied would correspond with the description “technical grade hydrochloric acid”. It was alleged that each of these warranties was breached because the acid supplied, which was sourced from Ajax Chemicals, contained fluorine in quantities significantly in excess of 100 ppm.
The trial judge found that at the time Daly Laboratories was to commence supply of hydrochloric acid to Golden West in 1988, Damian Spence, the then laboratory manager of Golden West, told Banovich that the hydrochloric acid to be supplied should have no fluorine in it and that at all material times Daly Laboratories, by Banovich, was aware of that requirement.
Although his Honour found that the subject of fluorine contamination was not
raised in discussions between Hodge and Banovich as to alternative sources of supply other than CSBP in February 1989, there remained the knowledge of Daly Laboratories that the hydrochloric acid was to be fluorine free and that the acid then being obtained from CSBP satisfied this requirement. The supply of Ajax Chemicals hydrochloric acid in February, April and May 1989 by Daly Laboratories had been in substitution for CSBP acid which had been used satisfactorily in Golden West’s gold refining process. In this context his Honour found :-
"... In my view, in those circumstances to re-offer and to supply the Ajax Chemicals acid was to represent that the acid, which it proposed to supply, and did in fact supply, was a reasonable substitute, for use in the applicant’s gold refining process, for the CSBP acid. It will be remembered that the first order, for 12 drums, was satisfied by delivering 4 drums of CSBP acid and 8 drums of Ajax Chemicals acid and the second order, for 32 drums, was filled by delivering 8 drums of CSBP acid and 24 drums of Ajax Chemicals acid. This conduct, in my opinion, buttresses the assessment that Daly Laboratories was representing Ajax Chemicals acid as a reasonable substitute for the applicant’s purposes. That representation carried with it the representation, as pleaded by the applicant, that the Ajax Chemicals acid which it was offering to supply and was supplying was suitable for use in the applicant’s gold refining process. Both parties knew that CSBP acid was suitable for use in that business. When Ajax Chemicals acid was offered and supplied in February, April and May of the same year it seems likely that similar implied representations were made. On those occasions the representations were accurate and there was thus no misleading or deceptive conduct. It is abundantly clear that the acid which Daly Laboratories offered to supply and did in fact supply in December 1989 and January 1990 was, in contrast with the earlier supplies, not a reasonable substitute for the CSBP acid. It was totally unsuitable because it contained large amounts of hydrofluoric acid which is extremely corrosive. This case was not conducted on the basis that the representation involved a prediction about future events, for example that the Ajax Chemicals acid when it was eventually delivered would be a reasonable substitute for the CSBP acid and that Daly Laboratories had reasonable grounds for making that representation. Section 51A of the Trade Practices Act was not pleaded or relied upon. That seems to me to have been quite appropriate in the circumstances. The implied representation was a continuing one from the time when the offer of supply was made through to the time when the drums of acid were delivered to Golden West’s refinery. The supply itself and the continued representation constituted by such supply were
parts of the relevant conduct. In my opinion the first respondent’s conduct was misleading and deceptive and thus in contravention of section 52."
His Honour found that the conduct was causative of loss because, although Hodge did not rely upon Banovich to make technical judgments about the type of acid Golden West required when Hodge placed the purchase orders, Hodge did rely upon Banovich’s implied representation that the Ajax Chemicals acid was a reasonable substitute for the CSBP acid, which representation carried with it the representation that Ajax Chemicals acid was suitable for use in Golden West’s gold refining process.
His Honour did not find that Daly Laboratories owed a duty of care to Golden West in terms of that alleged by Golden West. Rather, his Honour found that Daly Laboratories’ duty of care to Golden West only required that it select a reputable supplier of technical grade hydrochloric acid and that in selecting Clyde Industries in its Ajax Chemicals supply business, Daly Laboratories had satisfied that duty of care. In consequence, Golden West’s claim in negligence failed.
The claims based on alleged breaches of the warranties said to have been implied under the Sale of Goods Act 1895 (WA) also failed. The trial judge held that when Hodge ordered the acid in December 1989 he did not descend with sufficient particularity as to the use of the acid in a process involving glass components to make out the conditions necessary for s 14(1) of the Sale of Goods Act 1895 to operate. Further, his Honour accepted the evidence that the description “technical grade hydrochloric acid” related to a
grade of acid at the bottom of the quality range with a composition which was variable and a specification which was very wide. The Ajax Chemicals acid supplied by Daly Laboratories fell within the relevant description and thus his Honour found no breach of the warranty implied by s 13 of the Sale of Goods Act 1895.
Golden West alleged against Clyde Industries that it represented to Daly Laboratories that Ajax Chemicals hydrochloric acid contained fluorine to a maximum of 100 ppm and by labelling the drums containing the acid in such a way as to fail to disclose the presence of any significant level of fluorine, Clyde Industries thereby represented that each drum did not in fact contain any significant level of fluorine. Those representations, Golden West alleged, were false and misleading in that the acid supplied by Clyde Industries contained significant concentrations of fluorine in excess of 100 ppm. Golden West alleged that in reliance upon those representations it purchased and used the Ajax Chemicals acid and suffered loss and damage.
Golden West also alleged that Clyde Industries owed a duty of care to it in like terms to that owed to it by Daly Laboratories and that that duty of care was breached in the same way as set out earlier in respect of Daly Laboratories.
The trial judge found that Ajax Chemicals technical grade hydrochloric acid in December 1989 typically contained no fluorine, or, if it did contain fluorine, the fluorine content would not exceed 100 ppm. His Honour further found that to label the drums as Ajax Chemicals technical grade hydrochloric acid without any warning that they contained
high levels of hydrofluoric acid (4000 ppm) was misleading and deceptive conduct. His Honour continued :-
"... The labels on the drums contained a catalogue number (2223). Ajax Chemicals’ technical data sheet for the hydrochloric acid corresponding to catalogue number 2223 showed a typical analysis of fluorine of 100 parts per million. The acid which it supplied, and which caused the loss in this matter, had a concentration of fluorine forty times this strength. Again the context is important. The context was that Ajax had supplied its technical grade hydrochloric acid in February, March and April 1989 with little or no hydrofluoric acid in it. It will be remembered that the evidence was that the acid which was delivered in December 1989 and January 1990 originated from a differing manufacturer using a fluorocarbon process. The acid originated from a consignment of 743 tonnes purchased during 1989 from PCI whereas the evidence strongly suggests (and I so infer) that the earlier supplies had been manufactured by ICI. The second respondent did not carry out any chemical analysis of the consignment from PCI. In fact, the evidence is that the second respondent never carried out chemical analyses of its purchases of bulk acid. Nevertheless it was not suggested or pleaded that the second respondent was unaware that hydrochloric acid from PCI would contain significant levels of hydrofluoric acid.
The second respondent claimed that the information contained on its label was correct in that the acid was technical grade hydrochloric acid. The problem with that submission is that the label contained only a half truth. It may well have been technical grade hydrochloric acid but it was very different to the technical grade hydrochloric acid which had been supplied under that label earlier in 1989. In my view, to supply and label that product in exactly the same manner when it contained such a corrosive constituent was misleading and deceptive conduct.
In my opinion by causing or allowing these drums of hydrochloric acid, so labelled, to be delivered to Golden West’s refinery, Clyde Industries was making a misrepresentation that the acid was no different to the acid which had been supplied in February, April and May. ...
.....
The fact that hydrochloric acid with such a high hydrofluoric acid content was usually used for a limited number of purposes of a robust nature such as pickling metals, cleaning bricks and treating sewerage together with the drastic consequences which might flow from using it in the normal run of purposes has assisted me to conclude that in the circumstances of this matter Clyde Industries engaged in misleading or deceptive conduct in connection with the supply of this acid. To supply acid contaminated to such a high degree with such a corrosive substance with no warning in drums labelled in the same manner as the drums of acid supplied earlier in 1989 which did not
have this contamination was, in my view, to engage in misleading or deceptive conduct."
On the issue of negligence, his Honour found that Clyde Industries knew that hydrochloric acid produced by Pacific Chemical Industries (“PCI”) was produced by a fluorocarbon process. Clyde Industries also knew that PCI’s commercial grades of hydrochloric acid had a hydrofluoric acid content ranging from 100 to 1800 ppm and from 12,000 to 20,000 ppm depending upon the grade. In the context that Ajax Chemicals technical grade hydrochloric acid typically had a listed fluorine content of 100 ppm, his Honour found that it was negligent of Clyde Industries not to test the bulk acid supplied by PCI for fluorine content and to label the drums in such a way as to identify the acid as a type of technical grade hydrochloric acid which had a very high fluorine content.
Daly Laboratories, by its cross-claim, alleged that the acid supplied by Clyde Industries did not comply with the description “technical grade hydrochloric acid”, was not of merchantable quality and was not reasonably fit for use in Golden West’s gold refining process. As such, Daly Laboratories alleged, Clyde Industries had breached each of the implied warranties arising under the Sale of Goods Act 1895. His Honour rejected each of these allegations.
Daly Laboratories further alleged that the relationship between it and Clyde Industries was such as to give rise to a duty of care and an implied contractual term to take reasonable precautions. By paragraph 10 of its cross-claim, Daly Laboratories alleged that
Clyde Industries breached the duty or term by failing to take any, or any reasonable, precautions whatsoever to ensure :-"(a)that the acid was suitable for the uses and/or purpose to which the said acid was to be put by the Applicant;
(b)that the First Respondent was informed of the content of fluoride present in the acid;
(c)that the First Respondent was informed of the types of process in which the acid could not be safely used;
(d)that the acid did not contain more than 100ppm fluoride;
(e)that the acid containers were clearly and sufficiently labelled to delineate the fluoride content;
(f)that the First Respondent was given notice that the acid was different in substance from that of previous sales;
(g)that the acid conformed in substance with the Second Respondent’s technical data sheets as to the quantity of fluoride contained therein."
On this issue, the trial judge said :-
“In my view, there existed a duty under the common law of negligence on the part of Clyde Industries to take reasonable care in the supply of this hydrochloric acid to Daly Laboratories. The content and incidents of the implied contractual term pleaded by Daly Laboratories were identical to the duty of care which it pleaded. In those circumstances, I can see no rational basis for implying such a term into the contract between these two parties: Hawkins v Clayton (1988) 164 CLR 539 at p 583. I hold that there was no such implied contractual term.
For the same reasons which I have outlined in respect of the applicant’s claim against the second respondent I consider that the second respondent breached its duty of care to the first respondent. The particular breaches of duty were those particularised in sub-paragraphs 10(b) (c) (d) (e) (f) and (g) of the first respondent’s cross-claim. In terms of causation, I have no doubt that but for this negligence on the part of the second respondent the first respondent would not have been caused to contravene s 52 of the Trade Practices Act, the
applicant would not have suffered any loss and the first respondent would not have become liable in damages to the applicant.”
Clyde Industries, by its cross-claim, alleged that Daly Laboratories owed a duty to take reasonable care in its dealings with Clyde Industries and that that duty required Daly Laboratories “... to take all reasonable precautions to ensure that the acid was suitable for the purpose/s or use/s to which it would be put by the applicant at the applicant’s premises.” Further, it alleged that there was an implied term in the contract of supply by it of the acid to Daly Laboratories that Daly Laboratories would take such precautions. His Honour found that no such duty existed and that no such term should be implied.
As between Clyde Industries and Daly Laboratories, his Honour found that Daly Laboratories had not been guilty of contributory negligence.
The trial judge ordered Clyde Industries and Daly Laboratories to pay Golden West the sum of $146,601.33 together with interest and the costs of the application to be taxed. His Honour ordered that Clyde Industries contribute to the full extent of any amount that Daly Laboratories was obliged to pay to Golden West by way of damages and interest and indemnify it for such costs as it was obliged to pay to Golden West. His Honour also ordered that Clyde Industries pay Daly Laboratories’ costs of its cross-claim and of Clyde Industries’ cross-claim to be taxed as one set of costs.
It is from these orders that Clyde Industries appeals in appeal WAG 25 of
1995 and Daly Laboratories appeals in appeal WAG 37 of 1995.
The Submissions on the Appeal
Clyde Industries submitted that there was nothing intrinsically misleading, deceptive or actionable in supplying technical grade hydrochloric acid in industry in response to an order for sale of that commodity by description where, in fact, the acid conforms to that description. It was submitted that, objectively, the variation in the levels of fluorine was irrelevant to the use of the acid as acid. The presence of fluorine was relevant because Golden West had stipulated that the acid be fluorine free and because of its gold refining process its equipment was particularly sensitive to fluorine in the acid used. The factors which made the presence of fluorine relevant were unknown to Clyde Industries. There was, it was submitted, nothing in the circumstances of the supply of the acid by Clyde Industries to Daly Laboratories to occasion it to monitor the level of fluorine in the acid closely. Thus, it was submitted, his Honour erred in holding that Clyde Industries represented that the acid supplied in December 1989 was, as to its fluorine content, the same or consistent with that supplied in February, March and April 1989 and in holding that Clyde Industries engaged in misleading or deceptive conduct by labelling the acid supplied early in 1989 in an identical manner to the acid supplied in December 1989.
It was submitted that because consistency as to the level of fluorine in the acid supplied in December 1989 to that supplied earlier in the year was not, as between Daly Laboratories and Clyde Industries, a relevant issue, his Honour erred in having regard to the Ajax Chemicals technical data sheet and its typical analysis of “technical grade hydrochloric
acid” as having fluorine to an amount of approximately 100 ppm. Likewise, it was submitted, his Honour erred in concluding that any inquiry of Clyde Industries by Daly Laboratories as to the fluorine content of the acid would have elicited a response that if it contained fluorine at all, it would be at a level no higher than 100 ppm.Clyde Industries further argued that the duty owed by Daly Laboratories to Golden West was wider than the duty found by his Honour and that the duty required Daly Laboratories to take all reasonable steps to ensure that the acid it obtained for on-supply to Golden West was free from fluorine. That duty, it was submitted, could only have been discharged by testing the acid for fluorine content, notifying the supplier that the acid must be fluorine free, checking the suppliers’ technical data sheet to ensure that it typically did not contain fluorine or notifying Golden West that the acid did or might contain fluorine and investigating with Golden West whether the level of fluorine was of any particular significance. As none of these steps was taken by Daly Laboratories, Daly Laboratories, it was submitted, was negligent and such negligence alone was causative of Golden West’s loss and damage.
It was submitted by Clyde Industries that a finding that Daly Laboratories was negligent, particularly in failing to advise Clyde Industries of the requirement that the acid be fluorine free, would establish that conduct as the commonsense and practical cause of Golden West’s loss to the exclusion of any conduct of Clyde Industries (March v E & M H Stramare Pty Ltd (1991) 171 CLR 506) or at least the predominant cause of that loss entitling Clyde Industries to seventy-five percent contribution under s 7 of the Law Reform (Contributory
Negligence and Tortfeasors' Contribution) Act 1947 (WA) as either a tortfeasor or as a party liable under s 52 and s 82 of the Act for the same damage as that for which Clyde Industries has been held liable.Clyde Industries further submitted that, having regard to his Honour’s finding that the acid supplied containing hydrofluoric acid in the quantities which it did complied with the description “technical grade hydrochloric acid”, his Honour erred in holding that there was any duty of care owed by Clyde Industries to Golden West to ensure :-
“(b)that the First Respondent [Daly Laboratories] was informed of the content of fluoride present in the acid;
(c)that the First Respondent was informed of the types of process in which the acid could not be safely used;
(d)that the acid did not contain more than 100ppm fluoride;
(e)that the acid containers were clearly and sufficiently labelled to delineate the fluoride content;
(f)that the First Respondent was given notice that the acid was different in substance from that of previous sales;
(g)that the acid conformed in substance with the Second Respondent’s [Clyde Industries] technical data sheets as to the quantity of fluoride contained therein."
It was submitted that it would be inconsistent to impose a duty of care based on the presence in the acid of fluorine at high levels when those levels did not take the acid outside the description applied to it by the purchaser.
In the absence of some knowledge on the part of Clyde Industries as to the
intended use of the acid or of the special sensitivity of Golden West to hydrofluoric acid in hydrochloric acid supplied for its use, Clyde Industries, it was submitted, was under no duty to do any of the acts which his Honour found Clyde Industries ought to have done in discharge of the duty.
In appeal WAG 37 of 1995 Daly Laboratories submitted that it was not open to the trial judge to find that it impliedly represented that the Ajax Chemicals acid supplied in 1989 and in particular, December 1989, was a reasonable substitute for the acid previously supplied by CSBP. The representation made, it was submitted, was no wider than that Daly Laboratories could not supply technical grade hydrochloric acid from its usual supplier but that it could supply technical grade hydrochloric acid from another well-known and reputable supplier, namely, Ajax Chemicals.
It was further submitted that because Daly Laboratories did not know the precise nature of the gold refining process used by Golden West, was not informed by Golden West of the particular use for the acid and supplied acid which conformed to the description “technical grade hydrochloric acid”, it was not open to the trial judge to find that Daly Laboratories represented that the Ajax Chemicals acid, which it was offering to supply and was supplying, was suitable for use in Golden West’s refining process.
Daly Laboratories also submitted that whatever the representation made by Daly Laboratories through Banovich, Golden West did not rely upon that representation and that any loss of Golden West was not causally connected to the conduct complained of. In
agreeing to accept and use Ajax Chemicals acid, Golden West, it was submitted, was relying upon the knowledge of Hodge and Ryan gained in Victoria in the mid-1980’s that Ajax Chemicals was a supplier of hydrochloric acid for gold refining and their knowledge of the typical specification for Ajax Chemicals hydrochloric acid. It was the reliance on that knowledge and the conduct of Clyde Industries in supplying acid with hydrofluoric acid as a component at levels significantly above its typical specification without warning which, Daly Laboratories submitted, was causative of Golden West’s loss.
Conclusions
The conduct of Daly Laboratories which Golden West alleged in its pleading was misleading and deceptive was a representation that the Ajax Chemicals hydrochloric acid was suitable for use in Golden West’s gold refining process and a representation that it contained little or no hydrofluoric acid (paragraph 3.2 of the re-amended statement of claim). It was alleged that the representation was false and misleading because the Ajax Chemicals acid contained significant concentrations of fluorine that were likely to, and did, cause damage to Golden West’s equipment (paragraph 13.1) and because the Ajax Chemicals acid was unsuitable for use in Golden West’s refining process (paragraph 13.2).
The causal connection alleged against Daly Laboratories by Golden West was that, acting in reliance on the representations pleaded in paragraph 3.2 of the re-amended statement of claim, in December 1989 Golden West purchased from Daly Laboratories, acid manufactured by Clyde Industries (paragraph 6) and on or about 10 January and 24 January 1990 placed the acid supplied by Daly Laboratories in its
condensers and vessels (paragraph 12.1) thereby causing damage to the condensers and vessels and the loss of the solution containing gold.The case sought to be made out against Daly Laboratories was thus one of reliance on representations. That is, the misleading and deceptive conduct alleged was the doing of an act which contravened s 52 of the Act. The acts done in reliance on the representations provided the causal link to the pleaded losses. If made out, such a causal connection is sufficient for recovery under s 52, as appears from the joint judgment of Mason CJ, Dawson, Toohey and Gaudron JJ in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 where their Honours said (at 348) :-
“In the context of contraventions of s 52(1) in the form of misleading conduct constituted by misrepresentations, acts done by the representee in reliance upon the misrepresentations amount to a sufficient connexion to satisfy the concept of causation. And, if those acts result in economic or financial loss, it will ordinarily be recoverable under s 82(1).”
Golden West did not plead or conduct the case on the basis that there was any omission or failure to act on the part of Daly Laboratories which, in the circumstances, constituted that conduct misleading and deceptive. This is important because if Golden West does not make out the causal connection pleaded it fails to establish liability against Daly Laboratories for the physical damage caused to the equipment by use of the acid supplied. The pleading as to a cause of action under s 52 and s 82 of the Act is to be contrasted with the allegations pleaded against Daly Laboratories in negligence which involve allegations of a failure to act. That the distinction is relevant to the nature of the inquiry to be undertaking on causation can be seen from the judgment of Gaudron J in
Bennett v Minister of Community Welfare (1992) 176 CLR 408 where her Honour said (at 420) :-
“Leaving aside cases involving some positive act and those in which an omission can be treated as a positive act, a case based on omission or a failure to act will, in certain respects, fall for analysis in a way that differs from that appropriate for a case based on a positive act. Thus, in the case of a positive act, questions of causation are answered by reference to what, in fact, happened. In the case of an omission, they are answered by reference to what would or would not have happened had the act occurred. (See, eg Duyvelshaff v Cathcard & Ritchie Ltd; Quigley v The Commonwealth (1981) 55 ALJR 579; 35 ALR 537. See also Hart and Honore, Causation in the Law, 2nd ed (1985), pp 59 - 61 where the authors identify the hypothetical nature of an inquiry as to the causal significance of providing or failing to provide a person with, or depriving a person of, an opportunity). In that exercise, the larger philosophical questions are brushed aside and the issue is approached on the basis that ‘when there is a duty to take a precaution against damage occurring to others through the default of third parties or through accident, breach of the duty may be regarded as materially causing or materially contributing to that damage, should it occur, subject of course to the question whether performance of the duty would have averted the harm’ (Sutherland Shire Council v Heyman (1985) 157 CLR 424 at p 467, per Mason J. See also Hart and Honore, op cit, p 38).”
Whether or not conduct in contravention of s 52 of the Act, in this case false and misleading representations, caused loss and damage for the purposes of s 82(1) of the Act is a question of fact to be decided on the balance of probabilities. This is because questions of causation under s 82(1) are to be dealt with according to the common law test (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525). They are to be decided in a commonsense and practical way (March v E & M Stramare Pty Ltd).
The trial judge found that by re-offering and supplying Ajax Chemicals acid, Daly Laboratories represented that that acid was a reasonable substitute for the CSBP acid
previously supplied, which representation carried with it the further representation that the acid was suitable for use in Golden West’s refining process. Having found that the making of such representations was in contravention of s 52 of the Act, his Honour turned to the question of causation. His Honour said :-
“I now turn to the question of whether there was a sufficient connection between the first respondent’s contravention of section 52 and the losses sustained by the applicant. The applicant submitted that portion of Mr Hodge’s evidence showed that he relied upon Daly Laboratories to find an alternative source and supply Golden West with its needs for hydrochloric acid. I have examined the relevant passages in the transcript (at page 49) and I note two matters. First, the questions in the examination-in-chief of Mr Hodge were put in a somewhat leading form. Secondly, it seems to me that there is some degree of ambiguity in the sense in which the word ‘rely’ is used in those passages. In cross-examination (at page 83) Mr Hodge said that he did not recall ever having any conversations with Mr Banovich other than to order technical grade hydrochloric acid. Mr Barker then asked the following question and obtained the following answer:
‘Yes.And to make the point more explicitly, though, you weren’t relying on him to make any technical judgments about the type of acid that your company required, just to fill the order as asked?---Yes.’
In terms of causation, I have concluded that despite this answer there was a sufficient causative link between Daly Laboratories’ misleading and deceptive conduct and the acquisition by Golden West of the contaminated acid and the loss which flowed from its use. It seems very likely, and I have already found, that Mr Hodge and Mr Banovich did not discuss the matter of hydrofluoric acid content when the December 1989 supplies were arranged. The situation was one where Mr Banovich had informed Mr Hodge of the impending shortage of the regular CSBP acid and had once again suggested Ajax Chemicals acid to fill the gap. Mr Hodge had to be consulted because the Ajax Chemicals acid was about 25% more expensive than the CSBP acid.
I find that although Mr Hodge was not relying on Mr Banovich to make any technical judgments about the type of acid which Golden West required, when Mr Hodge placed the reorders he relied upon Mr Banovich’s implied representation that the Ajax Chemicals acid was a reasonable substitute for the CSBP acid. The technical judgment as to the type of acid which Golden West required had been made in 1988 - that it should be hydrochloric acid of the type manufactured by CSBP, because it was free of hydrofluoric acid. I think it is also likely that the implied representation was the causa sine qua non of the purchases in the sense that but for Mr Banovich’s suggestion which
carried with it the implied representation, Mr Hodge would not have placed the orders on behalf of Golden West. It is no longer necessary for an applicant under s 82(1) of the Trade Practices Act to satisfy the ‘but for’ test; it is sufficient to show reliance: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at p 525; March v Stramare (E & MH) (1991) 171 CLR 605.”
The relevant evidence as to “reliance” was the evidence of Hodge referred to by the trial judge. Hodge said :-
“You had a conversation with Mr Banovich in December 1989?---Yes, I believe it was December. What - yes. CSBP weren’t going to be supplied so we were able to supply to Daly Labs, so that the next thing was to source another supplier for - or for Daly to tell us that we weren’t going to be going to get acid and he was going to source supply from somewhere else.
Well let me ask you this question. Over that period of months up to December 1989 when you were supplied with hydrochloric acid, did you rely on anyone to obtain and provide you with that hydrochloric acid?---Only Daly Labs.
Likewise when you were told that CSBP couldn’t provide it in December 1989, did you rely on anyone to find an alternate supply, an alternate source, and supply the refinery with its needs for hydrochloric acid?---Yes we did.
Who was that?---Daly Labs.
Did you have any discussions with anyone from Daly Labs apart from the discussion that you’ve described with Mr Banovich about an alternate supply of hydrochloric acid?---No, I don’t - no. All discussions at that time regarding the supply of the acid were to be done through Brian Banovich.
‘All discussions’?---Yes.
Right.So there were other discussions?---Yes, there were a number of them.
And what was the subject matter of those discussions with Mr Banovich?---The number of different suppliers that - the different suppliers that he’d found, pricing the different - - -
.....
MR HANCY: In December 1989 you’ve said Mr Banovich told you he couldn’t get the acid from CSBP?---Yes.
Was anything discussed about what Mr Banovich would or would not do
about sourcing some supply of hydrochloric acid?---Yes, Mr Banovich told me that he would look at other sources of hydrochloric acid and get back to me on pricing and availability.All right.Did you have subsequent discussions with Mr Banovich about that topic?---Yes, I did.
And when did you have those discussions?---Would’ve - it was during those first couple of weeks, I’d say, in December. I can’t remember the exact dates but prior to us saying - prior to me saying: yes, all right, we’ll take supply - Golden West will take supply of that acid. It was during those weeks. It probably would’ve been - there would’ve been three or four phone calls.
In the course of those telephone conversations what did Mr Banovich tell you?---Mr Banovich came back to me with pricing from the various suppliers where he’d been able to source some hydrochloric acid and also the availability of the acid.
Did he tell you where he may be able to get acid for you to use?---Yes, he did.
What did he tell you?---The most readily available acid was - would be from Ajax Chemicals.
Did you have any discussion about whether he would in fact arrange for you to get a supply of hydrochloric acid that came from the source of Ajax Chemicals?---Yes. Yes, I had that discussion with him.
What did you discuss?---He said to me that they could - that he could provide some hydrochloric acid that would be sourced by him at Ajax Chemicals. He also came back to me with suppliers overseas but we looked at the pricing structure and the time, the lead time, of getting it here and we decided that - or I decided, sorry, not ‘we’, I decided that in this case we would go with hydrochloric acid from Ajax.
Who was it who selected or discovered and suggested Ajax? Was it your company or someone else?---No, that was left in the hands of Daly Labs and Brian Banovich came back to me with the suggestions.
.....
Yes. Now, that order having been placed, do you recall that Mr Banovich contacted you again to indicate that it was going to be difficult to fill the whole of that order from local sources?---Yes.
And he spoke to you about that?---Yes, I think so, yes.
And, as in the case of the 11 December 1989 order, he again sought your okay to get acid from Ajax if he couldn’t get it locally, is that right?---That’s
correct.And again his concern was to make sure you were happy to pay the additional price that would be incurred if he did that?---That’s right.
And you gave the okay, that’s right, isn’t it?---I’d say so, yes.
And you didn’t at any time specify to him that any acid he got should be free from fluoride?---No, we would’ve just again - it would’ve been - even if it was said, it would’ve been just technical grade acid.
Yes. So it was pretty much a - I mean, you can see the picture of it can’t you, you - in general terms your company contacts his and says: get some more hydrochloride acid in, and he gets it in as he always has done, technical grade and there it is?---Yes. I mean, it’s the same as if you order anything, you don’t - - -
...
All right, then. Mr Hodge, when these orders were placed the simple fact was, wasn’t it, that your company didn’t rely upon Mr Banovich to make any assumptions about the particular chemical constituency of acid that he was asked to go and buy?---I don’t recall ever having any conversations with Brian and myself other than to order technical hydrochloric acid.
Yes. And to make the point more explicitly, though, you weren’t relying on him to make any technical judgments about the type of acid that your company required just to fill the order as asked?---Yes.”
In Ricochet Pty Ltd v Equity Trustees Executors and Agency Ltd (1993) 41 FCR 229 a Full Court of this court (Lockhart, Gummow and French JJ) said (at 235) :-
“A finding that a misrepresentation might have induced a decision will not of itself establish as a matter of probability that it did. Consistently with that finding, it may be that, on the balance of probabilities, a party was induced to make a decision by a combination of factors including the misrepresentation. Assuming a non-trivial contribution to the causative process by the misrepresentation, then it may be actionable.
Ultimately, the ‘causative threshold’ beyond which liability attaches to a misrepresentation which is one of a number of factors inducing a decision that produces loss, will be a question of judgment. This is a familiar process adverted to in various related contexts by Mason CJ in March v E & M H Stramare Pty Ltd (supra) and in this Court in Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 at 418 -
419 and Pavich v Bobra Nominees Pty Ltd [1988] ATPR 49,849. (See also Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 at 712). But the mere possibility that a misrepresentation might have induced a course of action by the representee can never of itself attach liability under s 82 to the making of it.”
The question then is whether the evidence supports such a finding of reliance as was made by the trial judge or whether the evidence only entitles one to objectively conclude that reliance by Golden West was a possibility rather than a probability having regard to the particular facts of this case. Stated in the negative, the question is whether, on the evidence available, it ought to have been concluded that Golden West, by Hodge, did not rely upon the representations found by his Honour to have been made by Daly Laboratories.
Having regard to the findings of fact of the trial judge and the evidence to support them, it is important to isolate the knowledge of Daly Laboratories through Banovich and the frame of reference in which the conduct of Banovich is to be judged. Likewise, the knowledge of Hodge and Ryan and their conduct must be separately considered. When such a course is adopted it is apparent that Golden West and Daly Laboratories conducted themselves against a different background of knowledge and with different beliefs as to the characteristics of the acid which was being supplied by Daly Laboratories under the Ajax Chemicals label.
Golden West told Daly Laboratories to obtain hydrochloric acid which was fluorine free. Banovich did this by obtaining supplies from CSBP which used a chlor-alkali
process. When supplies from CSBP became unavailable and alternative supplies were sought, Banovich sought hydrochloric acid produced by a chlor-alkali process. He believed that Ajax Chemicals hydrochloric acid was obtained from ICI which used a chlor-alkali process to manufacture the acid. Banovich did not know that Ajax Chemicals occasionally obtained supplies of hydrochloric acid from PCI and that such acid was produced by a fluorocarbon process. Nor did he know that the technical specification for the technical grade hydrochloric acid sold by Ajax Chemicals indicated the presence of 100 ppm of fluorine or thereabouts in a typical sample upon analysis.
Banovich’s evidence as to what occurred after the second accident at Golden West is instructive :-
“Well, after the acid in December ‘89 had been supplied including that which had come from Ajax, when was the first that you heard of any problem which had arisen at the applicant’s refinery allegedly by reason of the acid’s contamination with hydrofluoric acid?---I received a phone call from Stuart Hodge on 25 January 1990 advising me that they had a problem there with the possible cause being hydrofluoric acid contamination or HF contamination of the hydrochloric acid.
And, at that stage, were you asked to do anything?---Yes, yes. He asked me if there was any HF present in the acid. I advised him that I didn’t know. I advised him that I would contact Ajax Chemicals which I did. I rang Ian Hall from Ajax Chemicals and asked him to supply me or fax me a specification sheet for the hydrochloric acid that he’d supplied me to supply Golden West which, in due course of the day, came. I supplied that to Stuart Hodge. I can’t remember whether I faxed it straight through or I took it around to him but I did visit the refinery that day to inspect the damage.
.....
... The conversation we had during the day was that, as I explained, he advised me that they had a problem round there that some damage had been caused to the vessels and he suspected hydrofluoric acid contamination and that, and asked me if there was any - I believe he asked me whether there was any present or not. I was uncertain. I obtained the specification sheet off Ian Hall to clarify the matter.
All right.On that point - after all that - how did you contact Mr Hall, personally or - - -?---Telephoned him.
And what discussion did you have with him, can you recount that?---Yes. The discussion I had with Mr Hall was that the acid that we’d purchased from them and was supplied to Golden West Refining had caused some problems and damage to their vessels and it was suspected that it was a hydrofluoric acid contamination that caused the problem. I asked him if his acid had any fluorine or HF present as an impurity. He advised me that most of our acid was drawn from ICIs chlor-alkaloid plant in Sydney but occasionally they drew acid from a fluorocarbon plant. I must admit that he did advise me that it was not common practise to issue a technical data sheet on it. He had some reluctance in offering it to me or supplying me with it.
And ultimately, what happened?---Well, I received it. I received it from him and then got it to Stuart Hodge at Golden West Refining.”
Banovich’s evidence on this point is supported by a diary note he made of the events of 25 January 1990 recited above. The diary note contains the following :-
“Stuart Hodge GWR rang re HCL questioning contamination with HF. Glass lined vessels damaged. Acid supplied was ex AJAX - CSBP acid unavailable.
Rang Ian Hall - AJAX Re Spec Sheet. Advised majority of their acid is ex Chlorine Plant ICI - however do also obtain supplies from a Fluorocarbon Plant.
Faxed Spec Sheet indicating 100ppm Fluoride (as HF). He indicated that they normally do not make spec sheets available.
Delivered 12 x CSBP 100L acid to GWR. Stuart Hodge showed me damage to glass vessels.
Rang Ian Hall at Ajax and advised that there could be in excess of $100,,000 damage. He advised that he had spoken to his superior who said that the chemist at GWR should have been aware that there is a possibility of HF being present in Tech Grade HCL and should have tested the acid before use. Ian advised that there was not anything AJAX could do about the matter.”
The extent of Banovich’s knowledge as to the presence or otherwise of
fluorine in Ajax Chemicals hydrochloric acid is best seen from the contents of a letter written by him on 9 May 1990 in response to a letter from Golden West’s insurer whereby the insurer indicated an intention to pursue recovery of Golden West’s loss against Daly Laboratories and/or Clyde Industries. Banovich’s reply, so far as is relevant, contained the following :-“1.We did not manufacture the Hydrochloric Acid in question. We purchased this Acid from Ajax Chemicals in good faith, and supplied this Acid to Golden West Refinery, acting in the capacity of an agent.
2.We have supplied Ajax Hydrochloric Acid only when local supplies became unavailable, as we had done with G.W.R. previously, without any problems whatsoever.
3.When we have supplied Ajax Hydrochloric Acid to G.W.R., we have done so at no financial gain. We have supplied the product at our cost, to assist our valued client, as it is considerably more expensive than local supply.
4.We were certainly not aware that Ajax Chemicals sometimes obtains Hydrochloric Acid supplies from a FLUORO CARBON manufacturing plant. As far as we were aware, the Acid was drawn from a CHLOR-ALKALI plant.
5.We supplied the product unopened as received from Ajax, thereby eliminating any possibility of the question of where contamination may have occurred. In fact, part of the shipment in question was delivered direct to Golden West Refining Corporation by Ajax Chemicals at our request.”
The reasonable inference to be drawn from the facts as found by the trial judge and the evidence referred to above is that Banovich believed that he was supplying and offering to supply hydrochloric acid which was fluorine free because it had been manufactured by a chlor-alkali process. Daly Laboratories did not know that Ajax Chemicals hydrochloric acid might contain fluorine and consequently gave no consideration to any
“safe” levels of fluorine in the acid.
There was no relevant change in the conduct of Daly Laboratories as to the basis upon which it was supplying, and in December 1989 offered to supply, hydrochloric acid. It did so on the basis and in the belief that the acid was from the usual source and the additional source was fluorine free because the acid from both sources was produced by a chlor-alkali process. Daly Laboratories in December 1989 was attempting to discharge the long-standing requirement to get for Golden West hydrochloric acid which was fluorine free. It provided the Ajax Chemicals acid, together with such CSBP acid as was available, for use in Golden West’s gold refining process in the belief that it was fluorine free. In these circumstances it is not reasonable to view the offer to supply and the supply of the Ajax Chemicals acid as no more than a representation that Daly Laboratories could not provide hydrochloric acid from CSBP but that it could supply technical grade hydrochloric acid from Ajax Chemicals, a reputable supplier. To do so is to ignore the context in which the offer of supply and the supply in fact occurred. That is, to ignore the existence of the mandate that the acid be fluorine free and Daly Laboratories' belief that it was discharging that mandate because Banovich believed Ajax Chemicals acid was fluorine free, as was such CSBP acid as was available to meet the order.
In the context in which the offer to supply and the supply occurred, the conduct of Daly Laboratories carried with it the two implied representations which the trial judge found it to have carried; firstly that the Ajax Chemicals was a reasonable substitute for the CSBP acid and secondly that it was suitable for use in Golden West’s gold refining
process. These representations were in fact based on Banovich’s belief that the acid was fluorine free.
The risk of harm to Golden West flowing from these representations was that Golden West would rely upon them and use the hydrochloric acid in the mistaken belief that it was fluorine free. In this respect the knowledge of Golden West through Hodge and Ryan becomes important for they, unlike Banovich, were aware that Ajax Chemicals acid may or may not contain fluorine.
Hodge and Ryan knew that Ajax Chemicals acid may contain fluorine which ordinarily would not exceed 100 ppm in its standard technical grade acid. They gained this knowledge from their experience in Victoria in a gold refinery using the same gold refining process as Golden West and using Ajax Chemicals technical grade hydrochloric acid in the process. Hodge, at that time, had seen or become aware of the contents of the Ajax Chemicals technical data sheet. Based on such experience they believed that at levels of 100 ppm the acid, if used on a non-continuing basis, could be used safely in the aqua regia process without causing any unacceptable degeneration of the vessels and condensers. Golden West did not accept and use the Ajax Chemicals acid in the belief that it was fluorine free and therefore a suitable substitute for the CSBP acid and suitable for use in its gold refining process. Because of the knowledge of Hodge and Ryan, it accepted the Ajax Chemicals acid in the belief that it may be fluorine free, or if fluorine was present, it would not exceed about 100 ppm. On this basis they believed the acid was safe to use in its gold refining process over the Christmas/New Year until CSBP acid could again be obtained.
This is demonstrated clearly by the evidence of Hodge :-
“That even minor quantities of fluoride could be dangerous to the Glasteel product?---The figure that was always, I mean, known since I worked at the previous refinery was that anything under 200 PPM you would be okay with, you would have some minor attack on the glass but if it wasn’t sort of subjected to it over a long period of time, you know, you could use it.
And where do you say you acquired that knowledge from specifically?---Well - - -
Firstly, you say you acquired it while you were working at Johnson Mathie?---Yes. Well, Englehard’s, yes.
Yes, the predecessors we’ve previously identified?--- Yes, yes.
And was it word of mouth or did you read documents?---I don’t recall whether it was from reading documents or whether it was from word of mouth from my superior at the time or what it was but - - -
Yes?---It was just a rule of thumb as such. I mean, I couldn’t put my hand on any documentation that says that but it was just the 200 PPM was a level that we worked to.
Yes. But you don’t recall ever having occasion to look at the manufacturer’s own documents about this?---It’s - that is - - -
Apart from looking at this document?---That is so long ago. Where the 200 level PPM came from: I don’t recall whether it was from some sort of document from the manufacturer or a document on the attack of HF on glass or whether it was by word of mouth from a superior or what, no.
.....
Yes. Well, you I gather didn’t have that specific knowledge or did you?---Well, there’s the 200 PPM level written there so whether it came from this document - I don’t know when this document was printed; whether I'd seen that at my previous employer, I don’t know.
But you worked on a rule of thumb that 200 parts per million would be satisfactory?---Which I believed was - if I hadn’t read it, it was sort of word of mouth and it was extracted from a document of this nature.
.....
As a refinery manager and a very competent one looking to put HCL into the most critical component with the life blood of the company being liquid gold, why didn’t you ask for a specification in this great state of uncertainty?---Because I believed it was coming from Ajax Chemicals and I thought - I believed at worst it would be 100 PPM fluoride.
But you’ve just said you didn’t know?---No, I didn’t know. I said that is what I believed.
Were you guessing?---Because the conversations between Brian Banovich of Daly Labs and myself said it was coming from Ajax Chemicals I just took it that, yes, it would be coming from Ajax Chemicals.
But you didn’t know which formula it would be, did you?---No. Well, I mean, other than technical grade.
And it could have had fluoride in it, it may not have had fluoride in it?---It may not have had fluoride in it but as a maximum it would have had no more - well, I believe no more than 100 PPM."
Ultimately, because of the presence or likely presence of fluorine in the Ajax Chemicals technical grade hydrochloric acid to the knowledge of Golden West, the question of whether to purchase it as a substitute for CSBP acid and whether it was suitable for use in Golden West’s refining process became a technical one: Did the likely presence of fluorine in the Ajax Chemicals acid render it unsuitable or unsafe to use in the aqua regia refining process used by Golden West? What Golden West relied upon in deciding to accept and use the Ajax Chemicals technical grade hydrochloric acid was its belief that if the acid contained fluorine it would not exceed a level of approximately 100 ppm which was not an unsafe level for its intended use of the acid. The acid was supplied and labelled as Ajax Chemicals ordinary technical grade hydrochloric acid and used by Golden West in the belief that it was just that. The belief of Golden West as to what was typically the level of fluorine in Ajax Chemicals technical grade hydrochloric acid was not the result of any conduct on the part of Daly Laboratories. The knowledge was acquired from the safe use over time of Ajax Chemicals technical grade hydrochloric acid in the aqua regia refining process in Victoria and Western Australia. The knowledge of Ajax Chemicals’ typical analysis of its technical
grade hydrochloric acid was probably obtained by Hodge from an Ajax Chemicals technical data sheet he saw in Victoria in the early 1980’s. The presence of hydrofluoric acid at levels forty times higher than Golden West believed would be present was the cause of the physical damage to the vessels and condensers.
The evidence of Hodge set out above that Golden West relied on Daly Laboratories to find an alternative source for acid as a substitute for the CSBP acid, and the discussions which he and Banovich had after Banovich identified Ajax Chemicals as a source, when taken in context, simply means that Golden West did not itself investigate alternative sources of supply and left it to Daly Laboratories to do such tasks and report back to Golden West as to price and availability. In that sense Golden West “relied” upon Daly Laboratories. However, this reliance was not reliance upon the continuing representations found by the trial judge to have been made by Daly Laboratories; it was reliance on Daly Laboratories only as to price and availability. Without the knowledge of Golden West that ordinary Ajax Chemicals technical grade hydrochloric acid might contain fluorine, it was open as a possibility that Golden West would rely on the representations that the Ajax Chemicals hydrochloric acid was a reasonable substitute for the CSBP acid and that it was suitable for use in Golden West’s refining process to purchase and use the acid in the belief that it was fluorine free. However, because Hodge and Ryan had the knowledge they in fact had, that knowledge and not the representations, became the basis of Golden West’s decision to purchase and use the acid. The process of reasoning as to the safety and suitability of Ajax Chemicals hydrochloric acid in Golden West’s refining process revealed in Hodge’s evidence set out above, was a process based upon the knowledge of Hodge and Ryan as to the possible
presence of fluorine in Ajax Chemicals technical grade hydrochloric acid. The representations made by Banovich on behalf of Daly Laboratories played no part in the reasoning of Hodge or Ryan on this issue. As reliance on the representations found to have been made by Daly Laboratories was the only basis upon which it was alleged that Daly Laboratories was liable under s 82(1) of the Act, it is irrelevant to the question of causation that if Daly Laboratories had tested the acid and found that it contained up to 4000 ppm fluorine and had conveyed that fact to Golden West, Golden West would not have purchased or used the Ajax Chemicals acid in December 1989 and January 1990. Golden West pleaded a case based upon reliance by it on representations made by Daly Laboratories. It did not plead a case based upon any omission on the part of Daly Laboratories which constituted misleading or deceptive conduct under s 52 of the Act as being causative of the loss and damage suffered by it.
Although the conduct of Daly Laboratories in making the representations was misleading and deceptive, it was not causative of the loss and damage suffered by Golden West. The risk of harm to Golden West flowing from Daly Laboratories’ conduct did not become a reality; the additional knowledge of Golden West prevented it from acting in the belief that Ajax Chemicals acid was or would be fluorine free. This is therefore one of those rare cases where, because of the superior knowledge and experience of the representee, he or she does not rely upon the representation but rather makes a decision or acts on the basis of his or her own experience (see for example Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 (CA) at 90 - 91).
I turn now to the question of negligence on the part of Daly Laboratories. As the supplier of the hydrochloric acid to Golden West for use in Golden West’s business, there was the requisite degree of proximity between Daly Laboratories and Golden West to give rise to a duty of care on the part of Daly Laboratories to take reasonable care to avoid a reasonably foreseeable and real risk of injury to Golden West (Suosaari v Steinhardt [1989] 2 Qd R 477 at 487 (FC); Thompson v Johnson and Johnson Pty Ltd [1991] 2 VR 449 at 490 (FC)). The role of proximity in fixing the content of that duty was considered by Deane J in Hawkins v Clayton (1988) 164 CLR 539 (at 579) :-
“The content of the duty of care in a particular case is governed by the relationship of proximity from which it springs. It may, in some special categories of case, extend to require the taking of positive steps to avoid physical damage or economic loss being sustained by the person or persons to whom the duty is owed. Apart from cases involving the exercise of statutory powers or where the person under the duty has created the risk, the categories of case in which a relationship of proximity gives rise to a duty of care which may, according to circumstances, so extend are, like those in which there is a duty of care to avoid pure economic loss, commonly those involving the related elements of an assumption of responsibility and reliance.”
(See also Mason CJ and Wilson J at 543 - 544).
In the instant case Daly Laboratories knew that there were two types of hydrochloric acid; one with fluorine as a component, the other without. It also knew that its mandate was to supply hydrochloric acid which was fluorine free. The relationship of proximity was such that Golden West was relying upon Daly Laboratories to discharge that mandate. Daly Laboratories also understood that Golden West was relying upon it to discharge the mandate as Daly Laboratories was itself attempting to obtain hydrochloric acid manufactured by a chlor-alkali process which would be fluorine free. In supplying the Ajax
Chemicals acid Daly Laboratories thought that it was supplying hydrochloric acid produced by a chlor-alkali process. There is nothing in the findings of the trial judge or the evidence which would lead to an inference that Daly Laboratories ever believed that Golden West was doing, or was going to do, its own testing for fluorine after supply and was therefore not relying on Daly Laboratories to supply acid which was fluorine free. Further, Daly Laboratories knew that the acid was for use in Golden West’s gold refining process and for that purpose Golden West required that it be fluorine free. In those circumstances it was reasonably foreseeable that Golden West may suffer damage in the carrying on of its gold refining business if the acid supplied contained fluorine.In my view, the duty of care upon Daly Laboratories was wider than the obtaining of supplies of technical grade hydrochloric acid from a reputable supplier. The risk of loss or damage which Golden West faced in reliance upon Daly Laboratories to supply acid which was fluorine free was that the acid would be used in its gold refining process in the belief that it was fluorine free. If in fact it was not fluorine free the risk was that the vessels and condensers may be damaged. The duty of care cast upon Daly Laboratories was to take reasonable care to avoid that risk. To obtain supply of technical grade hydrochloric acid from a reputable supplier would not of itself guard against the foreseeable risk. At a minimum, the duty must include the taking of reasonable steps which will guard against the foreseeable risk. In the absence of testing by or on behalf of Daly Laboratories of the acid supplied for fluorine, the minimum required of Daly Laboratories was to inquire of Ajax Chemicals, as a reputable supplier, whether Ajax Chemicals technical grade hydrochloric acid contained fluorine, or to have specified to Ajax Chemicals that any hydrochloric acid
supplied was to be fluorine free. It was not necessary, in my view, that Daly Laboratories test or cause to be tested the acid supplied by Ajax Chemicals in addition to making inquiry or setting a specification of fluorine free acid. In failing to make the inquiry or set the specification, Daly Laboratories breached the duty of care it owed to Golden West.Was this breach of duty causative of the loss suffered by Golden West? The trial judge found that if Daly Laboratories, by Banovich, had made inquiries of Hall of Ajax Chemicals prior to supply of the acid, he would have been told that Ajax Chemicals technical grade hydrochloric acid contained up to 100 ppm hydrofluoric acid. Having regard to the response of Ajax Chemicals to Banovich’s inquiry after the accident in supplying the technical data sheet, there was evidence to support the finding. It is unlikely that Hall would have offered to supply fluorine free hydrochloric acid if requested to do so. He did not know the source of the hydrochloric acid and was unable to say whether or not any particular batch of acid supplied to Ajax Chemicals in Western Australia contained fluorine. Having regard to the time of year (the Christmas period shutdown was approaching), and the limited supplies of hydrochloric acid available to Ajax Chemicals in Western Australia, the probability is that Hall would only have offered for immediate delivery Ajax Chemicals technical grade hydrochloric acid. This acid would have been offered as acid conforming to the specification in its technical data sheet for acid of that description. In the absence of an alternative supplier of fluorine free acid, the likelihood is that Daly Laboratories would have advised Golden West that Ajax Chemicals acid was available but that it may contain 100 ppm fluorine as stated in the technical data sheet. For reasons set out above, Golden West through Ryan and Hodge already had that information. The probability is that if the information had
been obtained by Daly Laboratories and conveyed to Golden West it would have done exactly what it did do: accept and use the Ajax Chemicals technical grade hydrochloric acid in the belief that it contained fluorine at a level not higher than 100 ppm and that it was safe to use hydrochloric acid containing that quantity of fluorine for a short time.In these circumstances, the discharge of the duty of care by Daly Laboratories would have resulted in Golden West acquiring information which it already had. Discharge of the duty would not have resulted in the order not being placed. Because Ryan and Hodge believed that hydrochloric acid containing up to 100 ppm of fluorine could be safely used on a non-continuous basis, they would have purchased and used the Ajax Chemicals acid to ensure continuity of supply over the Christmas/New Year period. Thus, the breach of duty of Daly Laboratories in failing to inquire as to fluorine level or to set a fluorine free specification was not the practical or common sense cause of the loss of Golden West. That loss was occasioned by the use of the Ajax Chemicals acid containing, as it did, forty times the level of fluorine Golden West believed would be present, if fluorine was present at all.
The failure of Daly Laboratories to make inquiry of Ajax Chemicals in Western Australia as to the presence of fluorine in its technical grade acid, or to specify that the acid should be fluorine free, did not lead Ajax Chemicals to supply acid other than its normal technical grade hydrochloric acid. When Hall on behalf of Ajax Chemicals supplied acid to Daly Laboratories, he thought he was supplying Ajax Chemicals ordinary technical grade hydrochloric acid which had the characteristics specified in the technical data sheet as to fluorine content. He did not suspect that he was supplying atypical Ajax Chemicals technical grade hydrochloric acid. Hall’s evidence on this issue was as follows :-
“All right. Well, let’s get on to this technical analysis of that material. Even when we get to that, for that category number of acid, the technical data sheet specifies a typical analysis 100 parts per million of fluoro, didn’t it?---Yes, correct. I haven’t got it here, but yes. I recall seeing the exhibit, yes.
Not 4000 parts per million?---That’s correct, yes.
So if in fact someone had come to you and asked for a typical analysis?---I would have issued that sheet.
100 parts? You wouldn’t have told them that your acid in fact had 4000 parts per million?---No, I wouldn’t have, because I wasn’t aware it had or I wouldn’t have been aware or known that it had 4000 parts per million.
Somehow this one, this batch that was 4000 just slipped through, did it?---Well, it must have, because I didn’t even know it had that amount of fluorides in it.
.....
Let me see if I can just understand your evidence correctly. If you’d been asked to specify what was in your hydrochloric acid you would have supplied the technical data sheet. It would have said 100 parts per million?---Correct.
But then you would have said: well we can’t be really sure, you test it yourself?---That’s what the disclaimer says, yes.
And you would then have supplied 40 times that level of fluorine in a drum and said to the customer: well that’s your problem, you didn’t do a test. Is that the attitude of Ajax?---No, I don’t think it is the attitude to Ajax and I don’t think Ajax would have actually received the batch or dispatched a batch knowing that the fluoride content was that high. It was obviously an accident or it could have been contaminated at various different stages, I suppose.
Right. It was an accidental contamination in that particular batch?---It could have been, yes. That’s only me surmising that’s how it occurred. I don’t think they would have deliberately supplied an acid with fluoride of those proportions. Well I definitely wouldn’t have.
So you consider that someone has made a mistake somewhere in the manufacturing process?---Well if the contents and the assay says that the fluoride content was that high, it was - - -
4000 parts per million?---4000 parts per million obviously it exceeds the assay of the typical analysis. So it must have been contaminated or supplied - supplied by Ajax’s supply to a wrong specification or it could have been
contaminated at the source it was being used, if there was hydrofluoric in the vicinity. It doesn’t take much hydrofluoric acid concentrate - 70 per cent - to contaminate a large quantity to those proportions......
Sorry, 4000 parts per million?---Well, you’re talking about a particular batch which exceeds specifications. I’m talking about our typical batches; typical batches it would be quite normal to use it, yes, at 100 parts per million. 4000 is an extraordinary batch.
All right. So that batch that got supplied with 4000 parts per million shouldn’t have been supplied as that batch with the label, isn’t that right?---If it was known to have that content, no, it shouldn’t have been.
But going back to fluorine hydrochloric acid, the people who were using the acid would want to know, wouldn’t they, that you were giving them hydrochloric acid with fluorine in it?---Yes, they would want to know. Yes.
They would want to know that so they would be extra cautious when they used that acid, wouldn’t they?---Well, not to the proportions of 100 parts per million. I meant, 100 parts per million is not in a very high content of fluoride in an acid.
So it’s not going to do too much damage to things?---Well, not in those proportions, it shouldn’t do too much. When you’re referring to brick cleaning, or the people using it, with rubber gloves now.
But 4000 parts per million, that’s a different story, isn’t it?---Yes, I suppose I’d be more cautious with 4000 parts per million. Yes.
And you wouldn’t want to go tipping it in your swimming pool, would you, unless it was a very, very very low concentration of fluorine?---Correct, but again you’re harping on 4000 parts per million which I wasn’t aware it had that content. If I had, I wouldn’t have even, you know, considered sending it out. I mean, looking at a typical specification with 100 parts per million and suddenly you saw 4000, you'd question that straight away, whether you’re a chemist or not. And if I knew it had 4000 it would not even have left the factory and I’m sure Sydney wouldn't have dispatched it. So you’re going around the 4000 - that’s foreign to me.
Yes. Well, you accept then, don’t you, that it couldn’t have been tested before it had that label put on it?---I think Ajax would have packed those drums in good faith. They were supplied with the specification of under 100 parts per million.
Without testing, first testing?---Well, I don't know what happens in Sydney.”
Robert Brownfield, the state manager for Ajax Chemicals was similarly at a loss to explain how Ajax Chemicals acid labelled technical grade hydrochloric acid came to be supplied containing fluorine to a level of 4000 ppm.
Had Daly Laboratories made the inquiry or stipulated for fluorine free acid Hall would, as a matter of probability in the first instance, have supplied the information in the technical data sheet. If an order had been forthcoming he would have supplied the acid in question in the erroneous belief that it complied with the typical analysis in the technical data sheet. That is in fact what occurred. Hall supplied the acid in that belief.
The evidence of Hall and Brownfield is fatal to the argument of Clyde Industries on the appeal that there was nothing intrinsically misleading, deceptive or actionable in supplying hydrochloric acid as technical grade hydrochloric acid where the acid complied with that description.
Clyde Industries did not simply supply a technical grade hydrochloric acid in industry. Clyde Industries had, over time, marketed a technical grade hydrochloric acid. It was marketed under the catalogue number 2223. The drums were labelled with blue labels which contained information for the intended user. That information identified the acid in the container as being hydrochloric acid catalogue number 2223. Acid so identified was Ajax Chemicals technical grade hydrochloric acid. There existed a technical data sheet in respect of such acid. That data sheet, which was available to intended users of the acid, gave a typical analysis of acid sold under that catalogue number. The fluorine content of the acid so
described was expressed to be approximately 100 ppm.
By trading the acid in the market as having a typical content in accordance with the technical data sheet, Clyde Industries built up an expectation and belief in the market through knowledgeable users that Ajax Chemicals technical grade hydrochloric acid may contain up to but not more than approximately 100 ppm of fluorine. That this was so is evidenced by the knowledge of Ryan and Hodge from their experience in Victoria in the early to mid-1980’s and the cross-examination of Hodge as to his knowledge of the disclaimer on the technical data sheet. At all material times relevant to the facts of this appeal, Ajax Chemicals in Western Australia believed it was supplying hydrochloric acid which complied with the technical data sheet. Importantly, Ajax Chemicals in Western Australia did not knowingly sell and would not have knowingly sold hydrochloric acid containing 4000 ppm of fluorine as technical grade hydrochloric acid. If Hall or Brownfield had known of such a level of fluorine in the acid, they would not have sold the acid under that description.
In supplying the acid between 12 December 1989 and 15 January 1990 in drums labelled in the same manner as acid supplied in February, April and May 1989 as ordinary Ajax Chemicals technical grade hydrochloric acid, Clyde Industries represented that the acid contained in the drums was not different in any relevant way to the acid previously and ordinarily marketed by Clyde Industries under that description. Because Clyde Industries had built up a market awareness of the typical analysis of its technical grade hydrochloric acid, including the level of fluorine and other constituents, that analysis and the level of the constituents were relevant characteristics. Daly Laboratories did not rely upon this
representation to purchase the acid from Ajax Chemicals and re-supply it to Golden West. As explained earlier, Banovich acquired and re-supplied the acid from Clyde Industries in the belief that it was manufactured by a chlor-alkali process and was therefore fluorine free. However, this non-reliance on the part of Daly Laboratories on the representation does not exonerate Clyde Industries from liability to Golden West.
As a knowledgeable user in the market for hydrochloric acid, Golden West was aware of the represented characteristics of Ajax Chemicals technical grade hydrochloric acid insofar as fluorine content was concerned. In the absence of a warning, Golden West relied upon the acid supplied under the Ajax Chemicals technical grade hydrochloric acid labels as complying with the reputed and represented ordinary characteristics of such acid, including that it would not contain more than approximately 100 ppm fluorine. The representation of Clyde Industries was, in the circumstances which occurred, false. In relying upon the representation that the acid contained no more than 100 ppm of fluorine and in the belief that acid containing fluorine at that level could be safely used by it, Golden West suffered loss and damage. That loss and damage was caused by conduct of Clyde Industries in contravention of s 52 of the Act which, for the purposes of s 82 of the Act, renders Clyde Industries liable for such loss and damage (Wardley Australia Limited v Western Australia at 525).
In addition to the issue of the implied representation there is the separate and further conduct in not warning of the presence of significantly high levels of fluorine in the acid.
Clyde Industries submitted that Golden West could not reasonably have had any expectation that it would be informed of the presence of fluorine of the order of 4000 ppm in the acid. Nor, it was submitted, could Clyde Industries have had any expectation that the fluorine level was relevant in the absence of inquiry or specification of fluorine content. The absence of those expectations, Clyde Industries submitted, meant that the failure to disclose the existence of such significant levels of fluorine was not misleading or deceptive conduct (Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 41). The absence of a warning leaves the conduct constituted by the implied representation with the characteristic of being false or misleading conduct. An appropriate warning as to the presence of fluorine at the level of 4000 ppm, if given, would have removed that characteristic. If there is in the circumstances, a reasonable expectation on the part of the intended user that a warning will be given, the absence of the warning may independently lead the user to believe that the risk against which the warning is not given does not exist. Whether or not such an expectation on the part of a user reasonably exists depends upon the context in which the product is supplied.
In the present case, Clyde Industries had conducted its business in the market place for some time on the basis that users could rely upon its technical grade hydrochloric acid as having a content generally in accordance with the technical data sheet for acid labelled to correspond with catalogue number 2223. Consistency had been marketed as a feature or characteristic of the product. It is objectively reasonable to find that knowledgeable users of the product, including Golden West, would expect that they could purchase and use the acid for all ordinary purposes for which the acid was suitable having regard to its typical analysis.
In those circumstances the reasonable expectation was that Clyde Industries would not depart from the pre-existing situation by abandoning the relevance of the fluorine levels in the hydrochloric acid as a relevant and known characteristic of Ajax Chemicals technical grade hydrochloric acid without warning users of any departure. Without a warning, the risk was that consumers would buy and use the acid in the expectation that it did not contain fluorine beyond approximately 100 ppm. By including a fluorine level of 100 ppm in the specification, Clyde Industries objectively believed that that level of fluorine had a significance to some users of the acid for the broad range of uses reasonably open for technical grade hydrochloric acid. That circumstance in itself denies to Clyde Industries the ability to maintain that it had no expectation in the circumstances of the sale to Daly Laboratories that the level of fluorine was or may have been relevant.
Further, the evidence of Hall that if he had known that the acid contained 4000 ppm hydrofluoric acid he would not have released it, is evidence that Clyde Industries itself regarded levels of fluorine as both relevant and as imposing limits on the use of the acid as Ajax Chemicals technical grade hydrochloric acid.
In my view, the trial judge was correct in finding that the conduct of Clyde Industries was misleading and deceptive and causative of loss and damage to Golden West.
Counsel for Clyde Industries conceded that it owed a duty of care to Golden West in Clyde Industries’ capacity as manufacturer or supplier of hydrochloric acid in the market for that product. The relationship of proximity between Clyde Industries and the
users of its product is affected by the manner in which it markets the product including the features or characteristics claimed by Clyde Industries for the product. The risk to a consumer who uses a product in reliance upon it having a represented characteristic is that, in the absence of the characteristic, the user will suffer loss or damage if the absence of the characteristic has the capacity to cause harm. In the instant case, fluorine levels significantly over 100 ppm had the capacity to cause harm to users, of which Golden West was one, who wished to use the acid in a glass environment. The duty of care reposed in Clyde Industries was to take reasonable steps to avoid that risk as a reasonably foreseeable and real risk of injury. That duty could only have been discharged in one of two ways. Either to test the acid to ensure that the acid did not contain more than approximately 100 ppm fluorine or to warn users in an appropriate way that the acid may have levels of fluorine substantially in excess of 100 ppm. Clyde Industries took neither step and in failing to do so breached its duty of care to Golden West.
Clyde Industries argued that such duty of care it had to Daly Laboratories was limited to taking such reasonable steps as would avoid foreseeable risk of harm to Daly Laboratories. As the acid supplied complied with the trade description “technical grade hydrochloric acid”, even with fluorine levels of 4000 ppm, there was, it was submitted, no impurity or defect in the acid by virtue of it containing fluorine at that level. Without more, it was submitted, it was not foreseeable that Daly Laboratories would not be aware that acid complying with the trade description may contain fluorine at those levels. Further, it was submitted, in the absence of disclosure by Daly Laboratories of the particular use for which the acid was required (ie in a glass environment), and of the on-purchaser’s requirement that
the acid be fluorine free, it was not foreseeable, having regard to the fact that it was notorious in the trade that hydrofluoric acid attacks glass, that Daly Laboratories would erroneously represent to Golden West that Ajax Chemicals acid was a suitable substitute for CSBP acid and suitable for use in Golden West’s’ gold refining process. Accordingly, it was submitted, Clyde Industries was not required in the discharge of its duty of care to Daly Laboratories to take all reasonable steps to guard against these risks. I agree. However, they were not the only risks of loss and damage to Daly Laboratories in the supply of the acid by Clyde Industries.
The real risk facing Daly Laboratories was that it would on-supply the acid packaged and labelled in the form of Ajax Chemicals technical grade hydrochloric acid catalogue number 2223 to someone who knew Ajax Chemicals acid and the characteristics claimed by the manufacturer as to its typical analysis and used it on that basis. That is what in fact occurred in the instant case. In order to discharge the duty, Clyde Industries was obliged to test the acid to ensure that it did not contain more than 100 ppm fluorine or to warn Daly Laboratories and any persons to whom Daly Laboratories re-supplied the acid as Ajax Chemicals technical grade hydrochloric acid in an appropriate manner that its technical grade hydrochloric acid no longer had a typical analysis of not more than approximately 100 ppm of fluorine and that the acid may have levels of fluorine substantially in excess of 100 ppm. Clyde Industries failed to take those steps and in consequence breached its duty of care to Daly Laboratories. Those failures fell within the duty as pleaded in paragraphs 10(d), (f) and (g) of Daly Laboratories’ amended cross-claim.
Because the conduct of Daly Laboratories, although misleading and deceptive and negligent, was not causative of any loss to Golden West, no occasion arises under s 7 of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA) to order contribution or indemnity from Daly Laboratories in respect of the damages and costs which Clyde Industries is required to pay to Golden West.
Outcome on the Appeals
The appeal by Clyde Industries fails on each of the grounds argued and should be dismissed as against Golden West and Daly Laboratories.
The appeal of Daly Laboratories against the orders of the trial judge that it pay to Golden West $146,601.33 and interest thereon, together with Golden West’s costs of the application to be taxed, has succeeded on the issue of causation. In consequence, the appeal should be allowed and the order set aside. In lieu thereof it should be ordered that the application be dismissed against Daly Laboratories.
Costs
In appeal WAG 25 of 1995 Clyde Industries has failed and ought to pay the costs of Golden West and Daly Laboratories as respondents to that appeal limited to the issues raised in its notice of appeal, such costs to be taxed if not agreed.
In appeal WAG 37 of 1995 Daly Laboratories abandoned its appeal against Clyde Industries from the dismissal of its claim that the acid supplied was not of
merchantable quality. The appeal was only abandoned a little over one working day prior to the hearing of the appeal. Clyde Industries should have its costs thrown away in the preparation of its case on the abandoned issue from Daly Laboratories.Daly Laboratories has succeeded in its appeal against the order for payment of damages, interest and costs to Golden West. It should have its costs of the application below and of the appeal. The question arises as to who should pay those costs.
Clyde Industries in its defence to Golden West’s application, particularly in sub-paragraphs 8A(ix), (x) and (xi), alleged that loss was caused by Golden West and Daly Laboratories either not obtaining information as to the hydrofluoric acid content by requesting and receiving a technical data sheet from Clyde Industries or in failing to test the acid supplied. Clyde has conducted its defence at first instance and its case on appeal on the basis that the sole or principal cause of the loss was the conduct of Daly Laboratories. In those circumstances, the institution of the proceedings and their maintenance against Daly Laboratories by Golden West was reasonable. Any costs of Daly Laboratories for which Golden West is liable as between Golden West and Clyde Industries were properly and reasonably incurred by Golden West.
Further, having regard to the conduct of the litigation by Clyde Industries in its allegations as to causation it is fair to impose the liability for those costs on Clyde Industries (Gould v Vaggelas (1985) 157 CLR 215 at 230). It should be ordered that Golden West pay Daly Laboratories’ costs on the application and its appeal to be taxed if not agreed
and that the costs to be paid to Golden West by Clyde Industries include the costs payable by Golden West to Daly Laboratories.I certify that this and the preceding forty-nine (49) pages are a true copy of the reasons for judgment of his Honour Justice Cooper.
Date:
Associate
APPEARANCES
Appeal No. WAG25 of 1995
Appeal No. WAG37 of 1995
Counsel for the Appellant: E.M. Heenan Q.C.
N.J. Mullany
Solicitors for the Appellant: Srdarov Richards
Counsel for the First Respondent: G.R. Hancy
Solicitors for the First Respondent: Phillips Fox
Counsel for the Second Respondent: J.A. Chaney
Solicitors for the Second Respondent: Fiocco Hopkins Rattigan
Dates of Hearing : 17, 18 July 1995
Date of Judgment : 12 September 1996
[DW1]CHECK THAT THE REASONS ARE IN DOUBLE LINE SPACING.
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