Cranes Asphalting and Bitumen Sealing Pty Ltd v Gippsland Asphalt Pty Ltd
[2018] VCC 1957
•30 November 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-17-01461
| CRANES ASPHALTING & BITUMEN SEALING PTY LIMITED | Plaintiff |
| v | |
| GIPPSLAND ASPHALT PTY LIMITED & ANOR | Defendant |
---
JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14, 15, 16, 17, 20, 21 November 2018 | |
DATE OF JUDGMENT: | 30 November 2018 | |
CASE MAY BE CITED AS: | Cranes Asphalting & Bitumen Sealing Pty Ltd v Gippsland Asphalt Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1957 | |
REASONS FOR JUDGMENT
---
Subject: SALE OF GOODS
Catchwords: Sale of goods; asphalt supplied for the purposes of resurfacing netball courts; netball courts resurfaced with asphalt with acrylic surface; surface deteriorating with “cometting”, bubbling and pitting; cause of deterioration ferrous or ferric particles in asphalt mix; whether asphalt supplied of merchantable quality where ferrous or ferric particles would not be problematic where asphalt used for highway purposes; compliance with contract description not conclusive to establish merchantable quality; seller had notice of unusual use for netball court; goods therefore not of merchantable quality despite notice to seller of non-court use; judgment for the first defendant.
Legislation Cited: s19(b) Goods Act 1958 (Vic); s54 Australian Consumer Law; Australian Consumer Law and Fair Trading Act 2012
Cases Cited:George Wills and Co Ltd v Davids Pty Ltd [1957] HCA 6; (1957) 98 CLR 77; Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31; Cammell, Laird & Co Ltd v Manganese Bronze & Brass Co Ltd [1934] AC 402; Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387; Hardchrome Engineering Pty Ltd v Kambrook Distributing Pty Ltd [2000] VSC 359; Yachetti v John Duff & Son Ltd [1943] 1 DLR 194; Cheli v Cudahy Bros Co (1934) 267 Mich 690 255 NW 414; Heil v Hedges [1951] 1 TLR 512; McSpedon v Kunz (1936) 271 NY 131; 2 NE 2d 513; Farmer v Canada Packers Ltd (1956) 6 DLR (2d) 63, 76-7; Coppin v Tobler Bros Canberra Marine Centre Pty Ltd (unreported New South Wales Supreme Court), Miles J, 7 June 1985, BC 8500766
Judgment: For the First Defendant
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Deller | McKean Park Lawyers |
| For the First Defendant | Mr T Messer | Hall & Wilcox |
| For the Second Defendant | No appearance |
HIS HONOUR:
Background
1 This proceeding arises out of a project by Latrobe Shire Council to resurface a complex known as the Agnes Brereton Netball Courts (“Agnes Brereton”) in Traralgon. The work entailed in this project was carried out on 13 and 14 March 2014. The plaintiff, Cranes Asphalting & Bitumen Pty Limited (“Crane”), based in Bairnsdale in East Gippsland, was the successful tenderer for this work pursuant to Invitation to Tender No LCC-131. The contract arising out of the tender was made by written instrument dated 23 December 2013. (Court Book (“CB”) 300).
2 Mr Michael Crane is Crane’s General Manager, Operations and has served in that position for 12 to 15 years. He is responsible for running the company’s general operations involved with civil construction and surfacing projects with the company based in Bairnsdale. (Transcript (“T”) 132, L11-20) Crane’s business involves undertaking “subdivisional civil construction projects as well as road surfacing projects for Shire Councils, Vic Roads, developers, the like, and even private householders”. (ibid, L22-24) Crane has purchased asphalt from Gippsland Asphalt Pty Limited (“Gippsland”) which is based in Traralgon since 2010. The undertaking now carried on by Gippsland was previously operated by listed company Downer EDI. (T133, L3-14) Gippsland’s client manager, Mr Chris Lansdowne, performed the same role when the plant was operated by Downer EDI. (ibid, L21-30)
3 Another significant operator in road building in the Gippsland area is Matthews Quarries. Crane has purchased product from this quarry for nearly 30 years in the form of quarried aggregates and dust for use in Crane’s business in asphalting for resurfacing roads. (T134, L2-17)
4 Gippsland’s asphalt plant at Traralgon is now located in Rocla Road, “which is a brand new plant.” In 2014 when the resurfacing at the Agnes Brereton Netball Courts was being carried out, the plant was at 7-9 Janette Street, Traralgon. (T452, L13-21) The Matthews quarry is situated 24 or 25 kilometres outside Traralgon at Boola Road, Tyers. (T455, L13-18) On or shortly before 12 March 2014, Mr Lansdowne at the Gippsland plant received a telephone call from Mr Crane on behalf of the plaintiff company in which he “asked for an asphalt mix for the Agnes Brereton netball courts, could we supply.” (T459, L13-20) Mr Lansdowne referred this matter to Ms Stacy Parise, who was Gippsland’s administration officer for the issue of a written quotation. That quotation provided for a per ton rate for asphalt “7 mm type H or N” $149.50 plus $14.95 Goods and Services Tax for delivery “ex bin”, that is, collected at Gippsland’s plant by Cranes. Delivery by Gippsland was quoted at $8.10 plus 81 cents per ton with provision for a $58.00 per hour waiting fee after the first half hour “on site”. (CB 745) That quotation was, it seems, accepted and delivery took place on 13 and 14 March. According to Mr Lansdowne, the asphalt could be manufactured by Gippsland’s plant in 20 minutes. Asphalt consists of bitumen, aggregate and dust and sand. The sand was sourced from Latrobe Valley Sands located in Maryvale, which is about 8 or 9 kilometres from Traralgon. The bitumen component of the asphalt was acquired by Gippsland from Downer EDI with the aggregate and dust coming from the Matthews Quarry. (T455) The asphalt in this process is heated up by a gas burner and an aggregate dryer. It is popularly described as “hot mix”. (T461, L8-17)
5 In addition to the asphalt delivered by Gippsland, Cranes also used asphalt sourced from Eastern Asphalt, which is based in Bairnsdale. The reason for this measure, according to Mr Crane was as follows:
“It was purely a logistics decision where we had to run one of our own trucks from Bairnsdale to Traralgon, so it just made sense not to drive it down the road empty.” (T137, L31 – T138, L3)
6 Once it had delivered its load of asphalt from Bairnsdale, the truck remained in Traralgon for the day shuttling loads of asphalt from the Gippsland plant to the Agnes Brereton site. (T138, L12-19) Eastern Asphalt receives its dust from Matthews Quarries and its hard aggregates from Whelan’s Quarry. (ibid, L23-24) Whelan’s Quarry is located in Bruthen, a township about 30 kilometres distant from Bairnsdale. (T134, L18‑23)
7 The parties were agreed that 13 per cent of the asphalt for the project was supplied by Eastern Asphalt and 87 per cent by Gippsland. (T20, L21-22) The result, therefore, was that of the 87 per cent of the asphalt supplied by Gippsland, some was carried from Gippsland’s plant to site by Gippsland’s trucks and some by the Cranes truck which was devoted to the Agnes Brereton project. (T141, L16-26) The Agnes Brereton court complex consisted of four courts in one cluster and six courts in another, with a car park in between. (Exhibit D; T142) Crane did no work on the car park at all. (ibid, L10-11) An acrylic coating was applied to the courts, as depicted in the aerial photograph (Exhibit D), both in the area coloured red and grey by an organisation then known as WM Loud (Aust) Pty Ltd (“WM Loud”). That company is now known as Hardkey Pty Ltd and is the second defendant in this proceeding. (ibid, L14-20) A Google photograph of the courts from street level following completion of the resurfacing project appears at CB 1095. A photograph at CB 926, once again from street level, depicts the court complex around Christmas 2014. (T143, L25-31) A further photograph at CB 928 depicts a grey coloured area described as the “run off” area of the court with extensive rust colour staining. This has been described in the course of the trial as “cometting”. The metaphor appears to derive from an initial eruption of a circular rust coloured stain which, following the flow of water in the direction of the slope designed to drain the courts, creates a linear rust coloured stain extending from the initial point. The entire staining can be seen as shaped like a comet with a head and a lengthy tail attached.
8 As a result of this staining, there were complaints from council and public criticism. One press report described the situation as “Courts in Ruins”. Mr Crane, on behalf of his company, inquired of WM Loud as to what process might be undertaken by way of rectification. A Mr Keogh of WM Loud (now Hardkey Pty Ltd) responded:
“Hi Nick, the process we would follow would be:
1. Grind the entire area to expose any ‘stain’ areas that may be sitting at or near the surface.
2. High pressure wash the entire area attempting to ‘Blast out’ any pockets that are exposed on the top of the surface
3. Apply 2 coats of the stain block material in opposite directions to ensure full coverage of the surface
4. Apply 1 coat of Acrylic Resurfacer to fill any porosity on the surface
5. Apply 2 coats of colour
6. Mark lines
… “ (CB 977)
9 On 19 February 2016, WM Loud provided a quotation to Cranes for rectification, according to this process, for $211,466 plus Goods and Services Tax. (CB 979-80) This was the amount which Crane was required to pay to meet rectification works insisted upon by council in accordance with the terms of its contract. Mr Crane said he felt like falling over. (T175, L14‑27) Crane commissioned the work and had it completed. (T176) Crane was required to pay $232,612.60 inclusive of Goods and Services Tax. (CB 902; T176, L28 -T177, L3) In its Amended Statement of Claim Crane seeks damages in the sum of $206,565.50 which represents its outlay on rectification work in accordance with the quotation given by WM Loud (now Hardkey Pty Ltd) for rectification works minus an amount received by Crane from Eastern Asphalt representing its 13 per cent share of the damages which Crane had sought to recover reflecting its supply of 13 per cent of the subject asphalt. When called upon to fund the rectification works, Gippsland responded in an email over the signature of Ms Parise, its office manager:
“Gippsland Asphalt Pty Ltd will not [sic scil be] accepting any invoices for the rectification of the above mention [sic] job. Gippsland Asphalt will not be passing on any invoices to our insurer. We are happy to take legal action on this matter to defend Gippsland Asphalt’s position.” (CB 964)
This proceeding
10 On 10 April 2017, solicitors acting for Crane commenced this proceeding against Gippsland. Pursuant to an order made by Judicial Registrar Tran on 7 May 2018, Gippsland amended its defence so as to rely upon Part IVAA of the Wrongs Act 1958, alleging that WM Loud (now Hardkey Pty Ltd) was a current wrongdoer and that any liability to which Gippsland might be subjected should be apportioned wholly or partly to Hardkey.
11 When the proceeding came on for trial, counsel for Gippsland, Mr Messer, informed me that the defences relied on by Gippsland under Part IVAA of the Wrongs Act would not be pressed. There was no appearance for Hardkey. As a result, the trial proceeded as a straight two-way contest. Accordingly, all references to “the defendant” are to Gippsland.
12 The final state of the plaintiff’s Amended Statement of Claim was reached at the close of evidence. This Amended Statement of Claim alleged that Gippsland sold asphalt by description and its sale of asphalt to Crane for the Agnes Brereton project was a sale by description. As a result, it was said, that by virtue of s19(b) of the Goods Act 1958, the contract included an implied condition that the asphalt sold would be of merchantable quality. It was said that the 377.77 tons of asphalt delivered was not of merchantable quality being either contaminated with pyrites or with some other deleterious material containing iron. Crane’s rectification outlay was therefore necessitated, it was said, by Gippsland’s breach of the condition of merchantable quality.
13 In its Amended Defence, Gippsland did not admit that there was an implied condition of merchantable quality but that if there were, the merchantable quality was to be judged “at the time of delivery to Cranes by Gippsland”. The Defence noted that the asphalt supplied represented only a percentage of the asphalt employed by Crane in the resurfacing project. It was said that any pyrite contamination that might have occurred occurred “after the delivery and collection of the said 7BNC Asphalt by Cranes from Gippsland.” Any staining, bubbling and rippling of the surface of the court was caused by the manner of transport and storage of the asphalt or the manner of construction of the netball courts.
14 At trial Mr Messer on Gippsland’s behalf, announced it was not disputed that there was an implied condition in the supply arrangements between the parties that the asphalt would be of merchantable quality. Gippsland’s case was that its asphalt was of merchantable quality.
Cause of staining and surface deterioration
15 The plaintiff’s case as opened and pleaded at the commencement of trial was that the staining and surface deterioration was caused by pyrite contamination. In an expert report supplied by consultancy Cetec by its managing director and principal consultant, Dr Vyt Garnys, dated December 2017, it was reported following an inspection on 19 October 2017:
“• There are two (2) Netball Stations, with a total of ten (10) Courts. One station (Station 1 ), comprising four 4) Netball Courts, is located on the left hand side of the entrance walkway. The second station (Station 2 comprising six (6) Netball Courts, is located on the right hand side of the entrance walkway.
• Station 1 was built at a lower level compared to the surrounding land and the entrance ways. Station 2 was built at the ground level.
• All netball courts were displaying rust coloured stains with "comet-style" leachate tale.
• All concrete walkways and drainage swells around the netball courts were free of rust stains.
• Station 1 was displaying more rust coloured stains than Station 2.
• The Station 2 courts had already been repaired with new asphalt layer on many locations, but the rust coloured stains were recurring.” (CB 56)
16 According to the report, core samples from the asphalt when analysed, including analysis by electron microscope, indicated that the:
“asphalt aggregate was contaminated with ferrous iron rich mineral particles (iron oxides and sulphides which are usually found in the ‘ironstone’ aggregate) … [which] when exposed to oxygen and water/humidity … would cause rust staining, bubbling and rippling on the surface of the courts.” (CB 48)
17 According to the report:
“The presence of ferrous iron oxides, iron sulphides and rust which were clearly detected by EDX, [viz electron microscope], corroborated with the typical appearance of the stains observed on the surface of the courts, strongly [indicating] that the contamination of the laid 7BCN Asphalt with Ironstone aggregate particles was the cause of the staining, bubbling and rippling of the surface of the courts.” (CB 48)
18 It was said aggregate used in asphalt for these courts:
“should be free of ferrous iron oxides and/or ferrous sulphides.” (CB 48)
19 In his oral evidence, Dr Garnys said:
“The drill cores were done wet, which means that anything that was soluble, the weakness of that method is that anything that was soluble would have been washed away. The stains were not soluble, they were retained and they were quite firmly attached.” (T251, L11-16)
20 He continued:
“… it was clear it was not something to do with the top coat [viz of acrylic], it was something to do with whatever was happening underneath. The nature of the colouration was quite familiar to us. It was a typical mineral stain that was occurring, rather than an integrated polymer, keeping in mind that this has asphalt underneath and an acrylic polymer on the top and the colouration was indicative of iron, which is the generally oxidised iron or rust, rusty – rusty coloured. Other minerals would give different coloured staining … “ (T252, L1-10)
21 Describing the process of oxidation, Dr Garnys said:
“The longer it stays in contact with air, the redder it gets …” (T254, L4-5)
22 He said the staining was:
“… not typical of an organic stain, it’s not typical of titanium or chromium or copper, it is typical of iron and this sort of behaviour, which is this change of colouration from black to red and possibly to white was typical of ferrous or ferric particles.” (T255, L12-15)
23 He said the staining was:
“… not a clay in the sense that we can’t wipe it off or it doesn’t wash off easily, clay would sit as a particle whereas these are [the stains] are, if you like, chemicals that are forming on the surface.” T255, L29 – T256, L2)
24 This was in contrast he said to what:
“… iron does, it actually binds quite strongly to organic materials so when it does wash off and start to oxidise it actually becomes, if you like, a bonded pigment to the surface, so that it becomes much more durable.” (T256, L18-22)
25 Clays he said were:
“already weathered and stable.” (T255, L23-24)
26 As to pyrites, Dr Garnys agreed that the most mobile, that is, those most likely to reach the surface of the asphalt and leech across it, would be found in the crushed dust portions of the aggregate rather than in the larger particles. (T282, L1-26) He said that when the courts are washed down (or presumably affected by rain):
“… water which goes down the pores [of the acrylic surface] then reacts with the pyrites we have described and with the ironstone evaporates back out to the surface and causes the – whatever soluble drains away, like if it was sodium sulphate, like the iron sulphate is soluble and sodium sulphate would form. It leave then … these rust stains on top.” (T284, L15-21)
27 Iron pyrites, he said, derive from the magma which, as a result of lava flows, creates igneous rock. The magma contains the necessary minerals including sulphur and iron. Iron sulphides pyrites, he said, were:
“… quite commonly associated with gold deposits and these are the ones that are found in this region of Victoria as part of the gold mining. It’s quite a common occurrence … “ (T329, L27-30)
28 Whilst the tests which his company carried out related to the crusher dust portion of the aggregate, if pyrites were found in the dust, then they would be evident in the larger portions of aggregate because both derive from the same source rock. (T339)
29 Mr Ivan Mihaljevic, a geotechnical engineer specialising in pavement engineering, gave evidence on behalf of Gippsland. In his report dated 16 August 2018, Mr Mihaljevic said:
“Asphalt materials are manufactured using bitumen, sands, crusher dusts and aggregates. The solid aggregate elements are naturally occurring and are selected based on availability, supply logistics and cost. To limit the inclusion of deleterious materials, VICROADS 407 specifies plasticity index for materials less than 2.36mm in size and secondary mineral content assessment for source rock, which is typically assessed on 10mm size material. The material used to manufacture the asphalt placed on the Agnes Brereton Netball Court’s satisfied both criteria.” (CB 254, para 18)
30 In the next paragraph Mr Mihaljevic continued:
“The impurity content accepted by the VICROADS specification, is limited to ensure the adequacy of asphalt performance characteristics which are critical to VICROADS including strength, durability, resistance to moisture damage and other functional elements such as skid resistance and texture. (CB 254, para 19)
31 According to Mr Mihaljevic, where aesthetic consideration such as the avoidance of staining such as occurred here are significant.
“Staining prevention is the best cure. In the first instance the asphalt could have been specified to limit deleterious mineral content.” (ibid, para 21)
32 He said:
“Source rock containing low volume of deleterious mineral content are available in Australia, however nature determines the content and also the location. The distance between such a source rock and manufacturing facility will influence supply logistics and also cost of the asphalt material.” (CB 255 para 22)
33 Under cross-examination by Mr Deller for Crane, Mr Mihaljevic was taken to the National Facilities Policy Version 02 March 2016 published by Netball Australia (Exhibit F). This document represented a republication and revision of Version 1.0 of the same document published in 2015. At paragraph 13.2 page 68 column 1, the policy states:
“If the asphalt is to be coated with an acrylic sports surface it is especially important that the aggregate material in the asphalt mix is free from Ferrous materials such as mineral Pyrites and Marcasite. It should also be free of wood particles, clay or other deleterious materials which may cause staining /discolouration or interfere with the planarity, structural stability or aesthetics of the netball court and/or an acrylic sports playing surface installation and expected lifespan. See Section 13.4.8 ‘Rust Stains/Pyrites’ in this manual for more information.”
34 Clause 13.4.3 identifying “deterioration failures” page 74 column 2 says:
“Deleterious or mineral particles in the courts (sic) base material, such as clay or Ferrous particles (also known as Pyrites or Iron particles) in asphalt. This can be especially damaging when asphalt courts are surfaced with an acrylic sports surface – rust stains, blisters and pitting can occur depending on the severity.”
35 Clause 13.4.8 page 79 columns 1 to 2 states:
“A secondary mineral such as ferrous particles (Pyrites) can be present in the asphalt mix of an asphalt base netball court. Asphalt containing these ferrous particles should be avoided especially when the court is to be surfaced with an acrylic sports surface.
This is naturally occurring in aggregates from certain geographical locations and can cause unsightly brown stains, blisters and pitting to appear on new acrylic surfaces.
This is seen too often in many areas of Australia. Caused by Pyrite (iron particles) in aggregates used in the manufacture of the asphalt mix. As rain falls on the courts the moisture permeates through the acrylic colour surface system which moistens the aggregate in the asphalt layer. If pyrites are present, the oxidation (rust) process is initiated and with time the particles migrate to the court surface and become evident by a rust colour observed above these aggregate particles. These rust spots and streaks can create merely an aesthetic issue or they can be capable of causing the localised surface and pavement failures when they swell and blister as it oxidises and subsequently pops through the surface.”
36 As part of his investigation, Mr Mihaljevic referred core samples from the Agnes Brereton Netball Courts for analysis to Geochempet Services, a firm providing petrological and geochemical consultancy services. The reports of these analyses were put into evidence as Exhibits 1 and 2. The sample portions were subjected to the petrographic analysis. The samples analysed consisted entirely of aggregate particles of a size larger than 4.75 millimetres. The rock was identified as olivine basalt containing a range of prime minerals and in one case 18 per cent yellow and brown clays of smectite style, some oxidised, and 1 per cent of calcite by way of secondary materials. Another sample referred to in Exhibit 2 was found to contain 17.7 per cent of smectite clay and 0.4 per cent of calcite. Amongst the primary minerals which he identified was “3 per cent opaque oxide”. As to this finding, Dr Garnys said, speaking of the process of petrographic analysis:
“… if you slice the mineral very thinly – some of it is transparent like quartz would be transparent but these black patches are called opaque oxides and they're not actually able to be identified. So they're just called opaque oxides. Now, they could be iron oxides or iron sulfates [sic] or chromites. (T281, L14-19)
37 Dr Garnys was asked:
“Q: Are you raising the possibility that petrographical analysis might identify a portion of material and designate it as opaque matter, and it could, for instance, be particles of pyrite?---
A: That’s exactly what I'm doing, yes.” (T297, L21-24)
38 He continued:
You can't really tell it's an oxide. It's – just light doesn't pass through. It's normally 1 called opaque matter or opaque oxide, as an assumption that this material has oxidised. But things like pyrite, chromite, ilmenite - there's a whole lot of minerals where light does not shine through. They're black.” (T297, L31 – T298, L5)
39 In her viva voce evidence, Ms Nix who carried out the Geochempet testing said that the 3 per cent did not contain any pyrite. (T379, L5-6) If the samples had contained pyrite, she said:
“There would be another line in the mineral count that would specify pyrite and it would have the percentage there, if it was apparent and I did count it.” (T379, L28-31)
40 She said the pyrites would have been separately counted. (T380, L1)
41 As to the statements relative to pyrites in the Netball Australia Facilities Policy, Mr Mihaljevic said he thought:
“Pyrite is being used as a generalistic term such as clay.” (T403, L10-11)
And incorrectly all the phenomena of deterioration were being blamed on pyrites. (ibid, L12-13)
42 I suggested to Mr Mihaljevic that the staining disclosed to the eyes of a lay person seemed obviously to be in the form of rust which would necessarily derive from the presence of some ferrous material in the aggregate. Mr Mihaljevic said:
“The staining that we see here is from degeneration of aggregate materials. The colour, obviously, is a browny-red, so it can be from a ferrous material.” (T405, L4-7)
43 I asked if there was any likely cause other than the presence of iron in the aggregates and he replied:
“… the level of our investigation tells us that there is iron within the raw material. Now, how that degenerates, iron elements, now whether that’s a pyrite, whether it’s a ferrous oxide or is a ferrous silicate, whatever it may be, it has degenerated and formed this particular problem.” (ibid, L9‑14)
44 Until the final amendment to the plaintiff’s particulars of un-merchantability, those particulars referred only to the presence of pyrites. The final amendment added a Particular that the asphalt “was contaminated with an deleterious material containing iron.”
45 Whilst the experts were divided as to precisely what type of ferrous or ferric particle caused the staining, they were agreed that some such particles did. In closing address, Mr Messer observed that all of the evidence was to the effect that these particles, whatever they were, were naturally occurring in the sense that they formed part of the rock which was quarried and crushed, rather than being an ingredient deliberately added after quarrying or inadvertently “picked up”. He said, therefore, it was an improper use of language to describe them as representing a contamination of the aggregate. Both Dr Garnys for Crane and Mr Mihaljevic for Gippsland, however, so far as I can see, were agreed that these particles had a deleterious operation in the circumstances and were also the result of a process of mineral degeneration. The plaintiff’s case that its loss and damage was caused by the composition of the asphalt sold and delivered to it by Gippsland has been made out. The next question is whether the facts which establish this proposition reveal the asphalt to have been un-merchantable as the plaintiff alleges.
Merchantable quality?
46 Section 19 of the Goods Act 1958 provides inter alia:
“Subject to the provisions of this Part and of any Act in that behalf there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows—
…
(b) where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not) there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods there shall be no implied condition as regards defects which such examination ought to have revealed;
… “
47 It is not in dispute between the parties that the condition implied by this statutory provision formed part of the contract between Crane and Gippsland.
48 Section 19 of the Goods Act is to be found in Part I of that statute which codifies the law of sale of goods in Victoria in non-consumer transactions. This formulation derives ultimately from the codifying Sale of Goods Act 1893 in England. Consumer sales transactions are now governed by the Australian Consumer Law which is operative as part of the law of the State of Victoria by virtue of the Australian Consumer Law and Fair Trading Act 2012.
49 In England, the 1893 Act was repealed and replaced by the Sale of Goods Act 1979 which by s14 provided sub-section (2):
“Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality …”
50 Sub-section 6 provided:
“Goods of any kind are of merchantable quality within the meaning of subsection (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances.”
51 By further amendment in 2015, the implied condition in ss(2) was modified so that it required the goods sold be of “satisfactory quality”. The Australian Consumer Law s54 now adopts an implied condition as to “acceptable quality” in consumer sales in lieu of the old implied condition as to “merchantable quality”. As to the meaning of the phrase “merchantable quality” in s19 of the Goods Act, there is no statutory definition and the meaning must be elucidated by case law. Given the legislative changes, whilst the phrase “merchantable quality” is hallowed by history and usage, there is very little contemporary case law, either here or in England, as to the meaning of the phrase, absent a statutory definition. A number of issues arise as to the meaning of the phrase in the present case.
52 Mr Messer on behalf of Gippsland submitted that in judging whether these goods were of merchantable quality, it was necessary to consider them by reference to the description under which they were sold. He referred to the judgment of the High Court of Australia in George Wills and Co Ltd v Davids Pty Ltd [1957] HCA 6; (1957) 98 CLR 77 where in a joint judgment, Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ said:
“Before goods can be characterised as unmerchantable it must be shown that, as goods of that description or character, they are defective though no doubt, in many cases, proof of their unfitness for some particular and obvious purpose may well establish that the goods are defective.” (1957) 98 CLR 77, 88
53 Mr Messer submitted, and this was not denied, that the reference to types of asphalt identified Vic Roads publications laying down standards and prescription. The evidence was that Vic Roads, as the primary road building authority in Victoria, dominated the asphalt industry. Most asphalt was provided by asphalt producers either directly to Vic Roads, to contractors undertaking work for Vic Roads or to local cities and shires whose roadwork was being supervised by Vic Roads. The Vic Roads standards were included in the head contract which Cranes had entered into with Latrobe Shire Council for the resurfacing of the courts, (CB 483) including Vic Roads Standards Section 407 for hot mix asphalt. This Vic Roads standard required source rock to comply with Section 801 of another Vic Road standard. (CB 486) As to igneous rock, such as olivine basalt, the 801 standard permitted a maximum of 25 per cent of secondary mineral content in source rock. (CB 647, Table 801.031) Therefore, said Mr Messer, the asphalt as delivered complied with the description and should be regarded as of merchantable quality in accordance with the principle laid down by the High Court in George Wills’ case.
54 Mr Deller on behalf of Crane submitted that the 25 per cent limit for secondary mineral material in source rock prescribed by Vic Roads Standard 801 ought not to be regarded as applicable to the description under which this asphalt was sold. He conceded that the reference to types did invoke Vic Roads Standard 407 but said that no more than the typed description should be regarded as “called up” into the description. In my view, reference to the Vic Roads material which stands as the background to the form in which this order was placed refers to an integrated whole. It would be artificial and misleading to exclude reference to Section 801 which is specifically referred to in Standard 407.03 for aggregate.
55 In considering the application of George Wills’ case to these facts, it is necessary to say something more as to the dispute which was then before the High Court. The goods the subject of the sale and whose merchantable quality was in question was a shipment of beetroot canned in vinegar. The evidence was that the use of the vinegar as the agent in which the vegetable was canned, whilst creating a more palatable product than the traditional canning in brine, because of the acidic nature of the vinegar, created a shortened shelf life. The product, when canned in vinegar, had a shelf life of one year in contrast to a three year shelf life where the canning medium was brine. The High Court held the shipment to be of merchantable quality because it was sold under the description of beetroot canned in vinegar, which necessarily dictated the shorter shelf life.
56 In the present case, whilst the Vic Roads standards imposed an upper limit on secondary mineral material in the source rock from which aggregate was to be crushed, it imposed no mandatory requirement that the source rock include pyrites or other ferrous or ferric particles. The analogy with George Wills’ case is not made out. In any event, acceptance of Mr Messer’s submission would have startling consequences. Asphalt which contained dangerous radioactive secondary minerals which might imperil the health of members of the public walking on footpath or road surfaces composed of that asphalt would be judged of merchantable quality so long as the radioactive particles did not exceed 25 per cent of the source rock.
57 A further reason for rejection of Mr Messer’s submission on this point is that absent the very special facts which presented themselves in the George Wills case it would leave the separate condition applied by s18 of the Goods Act 1958 that there is an implied condition in a sale of goods that the goods should correspond with the description with no work to do; or alternatively, that the implied condition as to compliance with description would be the dominant requirement leaving the condition as to merchantable quality with no additional work to do. Accordingly, I reject Mr Messer’s submission based on these matters.
58 Mr Messer’s next submission, however, demands more serious consideration. He referred to a passage in the speech of Lord Reid dealing with the provisions in the English Sales of Goods Act 1893 corresponding to s19(b) of the Victorian Goods Act. In Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31, 77, his Lordship said that he approved of the test for merchantable quality postulated by Lord Wright in Cammell, Laird & Co Ltd v Manganese Bronze & Brass Co Ltd [1934] AC 402, 430, modified so as to read:
“`What subsection (2) now means by ‘merchantable quality’ is that the goods in the form in which they were tendered were of no use for any purpose for which goods which complied with the description under which these goods were sold would normally be used, and hence were not saleable under that description.’ This is an objective test: ‘were of no use for any purpose …’ must mean ‘would not have been used by a reasonable man for any purpose.’”
59 Mr Messer noted that his Lordship proceeded to approve a test for merchantable quality postulated by Sir Owen Dixon in Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387, 413, where Sir Owen said:
“The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms.”
60 Lord Reid said he would modify that test by substituting the phrase “some buyers” for “a buyer”. [1969] 2 AC 31, 79.
61 In the present case, said Mr Messer, asphalt of the mineral composition delivered by Gippsland would be perfectly satisfactory for ordinary road making purposes because the staining was a cosmetic issue and, in any event, heavy vehicular traffic would rub it off. He referred to Mr Mihaljevic’s report to that effect, noting Mr Mihaljevic’s comment that the Vic Roads standards were concerned with structural integrity for asphalt rather than any aesthetic consideration. Proof that the asphalt was satisfactory for road making purposes, which is the most common use for asphalt, in itself and without more, therefore demonstrated its merchantability.
62 In Hardwick’s case, the plaintiff farmers bought compounded meals to feed to their farmed pheasants and partridges and their chicks which included a Brazilian groundnut extraction containing a toxin known as aflatoxin which proved fatal to the plaintiff’s birds. The House of Lords, Lords Reid, Morris of Borth-y-gest and Lord Guest (Lord Pearce dissenting and Lord Wilberforce expressing no opinion) held that the goods were merchantable. The meal was satisfactory as food for cattle. [1969] 2 AC 31, 76 per Lord Reid. Since the meal was not unsatisfactory for all purposes, the fact that it was useable for one of the usual purposes for such goods, excluded the possibility of its being un-merchantable. The analogy with the present case is clear enough.
63 Mr Deller, however, relied on a judgment of Gillard J in Hardchrome Engineering Pty Ltd v Kambrook Distributing Pty Ltd [2000] VSC 359. In that case, Hardchrome had been engaged in the business of surface engineering. According to his Honour: “that is, applying coating processes, mainly chrome, to a variety of surfaces.” Hardchrome purchased a titanium nitrate coating process machine imported from England. The relevant coating was known as “Crocell” which needed to be melted at a temperature between 160 and 180 degrees Celsius. Hardchrome purchased a Kambrook deep fryer saucepan to heat the Crocell. The usual purpose for which the deep fryer was used was to deep fry food such as chips. Because of what Hardchrome alleged was a defect in the thermostat probe responsible for cutting power in the fryer, the fryer overheated causing a fire. The plaintiff commenced proceedings against Kambrook alleging inter alia that there was a breach of the obligation to provide goods of merchantable quality.
64 As to the issue of merchantable quality, Gillard J remarked:
“Whether or not the goods are of merchantable quality or not is a question of fact. Whether or not they are merchantable falls to be determined at the time of sale.” [2000] VSC 359 [390]
His Honour noted at [396] that the seller submitted:
“… that there is no condition as to merchantable quality if the item is used in an abnormal way and not for its usual purpose.”
Kambrook contended that it was never contemplated that the fryer would be used as an industrial appliance ―
“… for unsupervised heating of a combustible industrial wax close to its flash point or fire point. It was emphasised that the fryer was sold in the expectation that any use of it would be supervised.” [397]
His Honour noted that Kambrook relied upon the statement by Professor Sutton in his work Sales and Consumer Law, 4th edition 1995:
“If the use is an abnormal one there is no condition as to merchantable quality, at least in the absence of notice of such an abnormal use.”
His Honour said that he disagreed with Professor Sutton’s statement. Referring to the footnoted authorities said to support the analysis in the professor’s book. Gillard J said:
“The authorities cited by Dr Sutton do not support the contention that abnormal use means that there is no condition as to merchantable quality.” [402]
His Honour said:
“It follows in my opinion that whether or not the condition of merchantability is breached will depend on whether or not the article is used in its normal and acceptable way and in accordance with what the parties would expect.” [409]
His Honour therefore found that there was a breach of the condition as to merchantable quality.
65 Mr Deller submitted that this was the most recent authority, postdating other cases such as Hardwick’s case. It was a decision of an Australian court and should be regarded as stating the situation under s19 of the Goods Act 1958 in preference to earlier authorities. Mr Messer conceded that the days when decisions of the House of Lords were regarded as binding precedents in Australia were long past. Nevertheless, Hardwick’s case was a highly regarded decision and highly persuasive. It should be regarded as “outranking” an unreported trial level decision such as Hardchrome.
66 It would be an interesting jurisprudential exercise to determine what, in accordance with current principle, is the duty of a judge of this court when he encounters inconsistent decisions of the trial division of the Supreme Court and the House of Lords. Upon consideration, however, I do not believe that Gillard J adopted any principle inconsistent with what was said by Lord Reid in Hardwick’s case. Gillard J was well aware of the decision in Hardwick ― see [389]. He said nothing to indicate that he disagreed with their Lordships’ decision or that he was adopting an analysis inconsistent with it. The issue as to merchantable quality in Hardwick’s case was that the meal in question was satisfactory for some usual uses, such as feeding cattle, but not for others such as feeding to pheasants. Its suitability for one usual purpose was, in the view of the majority of their Lordships, sufficient to render it merchantable. In Hardchrome, the finding was that the thermostat was defective. It was not suggested that it was satisfactory for household or kitchen uses but not satisfactory for industrial uses. Rather, the contention was that a defect which would have rendered the item unmerchantable if sold to a private consumer for use in his or her kitchen, did not render the item unmerchantable when it was sold to an industrial enterprise for use in its factory because this use was “abnormal”. Applying Lord Reid’s test, being a revision of the one originally postulated by Lord Wright in the Manganese Bronze and Brass case, a deep fryer with a defective thermostat would not be satisfactory for any of the usual uses of a deep fryer, and the fact that the use to which the item was in fact put might have been thought to be “abnormal” changed nothing. This was not a case where it could be concluded that the thermostat defect would not have been problematic in the allegedly “normal” use of the appliance.
67 The decision in Kambrook does not resolve this issue.
68 A further submission by Mr Deller as to merchantability had it that this asphalt did not comply with the description as it incorporated s407 of the Vic Roads Standards because of a clay content of the source rock. In reliance upon s801, which is incorporated by reference into s407, and contrary to his primary submission that these provisions of the Vic Road Standards did not apply, Mr Deller said that, in accordance with the definitions in paragraphs 801 and 802, the rock should be regarded as unsound because it fell within paragraph (a) of the relevant definition which regards as unsound rock which is:
“(a)… soft, friable, or composed of clay or weathered rock, or which contains matter which degrades when alternately wetted and dried;”
Mr Deller referred to the finding of Ms Nix that the relevant sample of aggregate contained some 18 per cent of smectite clay. The contention was that therefore it should be regarded as “composed of clay”. In my view, the fallacy in this contention is to equate the proposition that the rock contains clay with the concept that it is composed of clay. If, for instance, a rock included 1 per cent of smectite clay, it could scarcely be contended that, for this reason alone, it should be regarded as “composed of clay”. There was no evidence which would enable one to draw the line as at what percentage content one moved from the situation of a rock containing clay to one which was “composed of clay”. In the present situation, there is no evidence at all that for purposes of structural integrity and durability, the asphalt is in any way unsound. In those circumstances, I am of the view that, according to Ms Nix’s findings, one could not conclude that this source rock was “composed of clay”.
69 One final perspective on the meaning of the phrase “merchantable quality” directs attention to a statement of principle in the book by the late Professor Sutton, Sales and Consumer Law, 4th edition 1995, p287, which was considered and rejected by Gillard J in Hardchrome. At p287, as part of paragraph [10.15], Professor Sutton said:
“If the use is an abnormal one there is no condition as to merchantable quality, at least in the absence of notice of such an abnormal use.”
70 The defendant in Hardchrome relied on this statement to support the proposition that the industrial use of its deep fryer, an appliance normally intended for domestic use, negated any implied condition of merchantable quality. Interpreted that way, it was unsurprising that his Honour rejected the proposition. It can, however, be understood differently as implying an obverse proposition; namely, that there will be a breach of the implied condition of merchantable quality even if the use to which the goods are put is unusual if the seller has notice of that use. The cases footnoted by Professor Sutton, which are referred to by Gillard J, are as follows: Yachetti v John Duff & Son Ltd [1943] 1 DLR 194; Cheli v Cudahy Bros Co (1934) 267 Mich 690 255 NW 414; Heil v Hedges [1951] 1 TLR 512. The professor also referred, by way of comparison, to a decision of the New York Court of Appeal, McSpedon v Kunz (1936) 271 NY 131; 2 NE 2d 513; Farmer v Canada Packers Ltd (1956) 6 DLR (2d) 63, 76-7; and Coppin v Tobler Bros Canberra Marine Centre Pty Ltd (unreported New South Wales Supreme Court), Miles J, 7 June 1985. The last case, an unreported decision of the Supreme Court of New South Wales Common Law Division, is to be found at BC 8500766. Miles J approved a passage from an earlier edition of Professor Sutton’s work which included the sentence already quoted. In context, however, his Honour’s judgment does not really raise the issues specifically dealt with by the Professor in that passage. Miles J found that a life jacket was not of merchantable quality. He said that the description “life jacket”:
“… gives rise in my view to a clear indication to the seller that amongst the intended uses was that of the jackets being worn on a boat proceeding to sea across a bar and hence in rough salt water. Insofar as that sort of use would ordinarily be encompassed within what would be expected as the range of use of any life jacket, (unless there were some specific reference to a restricted purpose), then the jacket is not of merchantable quality unless it is fit for that sort of use.” (BC8500766) at [17]
71 The earlier cases refer to the issue of pork sold with trichinosis infection which, according to the evidence, would be destroyed by cooking for a substantial period at a temperature not less than 137 degrees Fahrenheit. Where the pork in question was consumed without being fully cooked, generally the defendants escaped liability because of lack of notice of the unusual use; that is, consumption without the meats being fully cooked. In McSpedon v Kunz, the majority of the New York Court of Appeal went the other way. Crane CJ said:
“Our statute of implied warranties was passed for the very purpose of protecting and safeguarding the life and health of people like Mrs McSpedon and her little family and especially should this protection be afforded when there is a well-known means for the detection of trichinae in pork and a well-known method of killing the parasite before the pork is put upon the market.” (2 NE 2nd) 513, 515 (1936)
72 Lehman J dissenting adopted the same approach as the Court in Yachetti. What is implicit in these decisions is that where a seller has notice of an abnormal use for which the relevant goods are not suitable, there will be a breach of the implied condition of merchantable quality and this, despite the general proposition in Hardwick’s case as stated by Lord Reid. Mr Messer in final submission, needless to say did not embrace it. He contended, however, that even if Professor Sutton’s formulation were right:
“… it doesn’t assist the plaintiff because Your Honour this wasn’t a netball court. This was a netball court having a painted acrylic surface and Your Honour ought be satisfied on the evidence that there is a clear distinction to be drawn. [between an ordinary netball court and a netball court with an acrylic playing surface].” (T501, L2-8)
73 It is undoubtedly true that the cometting which has occurred here is far more problematic in cases of acrylic surfaced sporting courts because:
(a)the acrylic surface protects the staining from weathering and foot or vehicular traffic which might otherwise tend to rub it off; and
(b)the staining may damage the acrylic surface creating cracks, pitting and bubbling, thereby creating a more than cosmetic issue for the surface.
74 Nevertheless, it is not the case that a non-road use for asphalt which suffers cometting is not problematic. The All Abilities Playground car park in Bairnsdale depicted at CB 1107 showed cometting and staining in a car park. There was no question of an acrylic coating. (T171, L24-31). According to Mr Crane, this asphalt job attracted a number of complaints from the Shire Council for which it was undertaken, though no legal proceeding or process requiring Crane to carry out or fund rectification work seems to have occurred. (T197)
75 Here, Gippsland had notice of the abnormal or allegedly abnormal use that the asphalt was being put to. The quotation and the invoice referred to Agnes Brereton Netball Courts. Gippsland’s plant manager, Mr Lansdowne, was asked in evidence-in-chief:
“Did you deliver asphalt, you being Gippsland Asphalt, to the Agnes Brereton netball courts?---Yes.” (T460, L26-27)
76 When I put the proposition from Professor Sutton’s book to Mr Messer, he did not deny that his client had notice that this asphalt was to be used for a netball court.
77 When I put Professor Sutton’s proposition to Mr Messer in the course of final submissions, his initial response was:
“I would submit that Your Honour should defer to the authorities rather than to Prof Sutton (sic) …” (T500, L25-26)
78 That is, he submitted, as a matter of authority, the matters upon which he relied should necessarily prevail over the quoted statement from Professor Sutton. He contended that the authority of Hardwick’s case, in particular the speech of Lord Reid, required the professor’s analysis to be rejected.
79 Hardwick’s case did not deal specifically with the question which now arises; viz, whether unsuitability for what one might describe as a minority, but perhaps not necessarily abnormal, use for goods sold could render them un-merchantable despite their being fit for the most typical use to which goods of that description are put, in this case highway construction, because the seller was aware of the use to which this asphalt was being put, namely off-road for a sporting court. In Hardwick’s case, Lord Reid said:
“If the description in the contract was so limited that goods sold under it would normally be used for only one purpose, then the goods would be unmerchantable under that description if they were of no use for that purpose. But if the description was so general that goods sold under it are normally used for several purposes, then goods are merchantable under that description if they are fit for any one of those purposes: if the buyer wanted the goods for one of those several purposes for which the goods delivered did not happen to be suitable, though they were suitable for other purposes for which goods bought under that description are normally bought, then he cannot complain. He ought either to have taken the necessary steps to bring subsection (1) [the implied condition as to fitness for purpose] into operation or to have insisted that a more specific description must be inserted in the contract.” [1969] 2 AC 31, 77
80 In this case there was no pleaded reliance upon the condition of fitness for purpose implied by s19(a) of the Goods Act. I inquired as to why that implied condition was not relied on by the plaintiff and its counsel, Mr Deller, replied:
“The case, Your Honour, has been pleaded as a merchantable quality case and in part that’s because, of course as Your Honour is aware, to bring a fit for purpose clause (sic) there has to be some reliance on decision making by the person against whom that term is sought to be implied. These two parties are both in the asphalt concrete industry so they’re in a slightly different purchaser/supplier-type arrangement. They’re both somewhat more informed than perhaps they may need to be in cases which involve a case which is put more as fit for purpose, Your Honour.” (T13, L19-29)
81 It has not been suggested that the description under which these goods were sold specified a use for an acrylic coated netball court or a netball court at all.
82 Hardwick’s case itself does not, upon its facts, raise the issue under discussion. The matter which proceeded to the House of Lords for determination was a third party claim brought between two wholesalers in the feed meal market, neither of whom by definition was aware of the final use to which the product would be put.
83 On one view, Professor Sutton is the most distinguished commentator on the law of sale of goods since Sir McKenzie Chalmers, who was the draftsman of the 1893 Act. Nevertheless, his view does not seem to have been accepted by others. In the 1974 Edition of Benjamin’s Sale of Goods, the last dealing with the 1893 Sale of Goods Act in England and the case law definition of merchantable quality, the learned editors state:
“Numerous cases on the unamended Act attempted to define ‘merchantable quality’. Starting from the proposition that “merchantable” means in general something like “commercially saleable”, it seems that efforts to explain the term are conditioned by the importance of steering between two extremes each of which is unacceptable. One is to require that the goods, to be merchantable, be saleable for the actual purpose for which the buyer bought them under that description. Such a rule would be too adverse towards the seller, for the goods should be regarded as merchantable if they would be saleable under the same description and at a similar price but for a different purpose (though, of course, the facts might involve a breach of s14(3)). The other is to regard something as merchantable if it can be sold for any purpose: on this basis an article will be merchantable unless it is totally unsaleable for any purpose, or unless the name given to it has ceased to apply. Such a rule is too adverse towards the buyer, for almost anything can be sold for some purpose.
84 They then referred to Hardwick’s case (sub-nom Henry Kendall & Sons v William Lillico & Sons Ltd). Concluding:
“A majority of the House of Lords held that the substance was merchantable in regard to all the sales on the ground that it was saleable under the same description, as groundnut extraction, at a similar price, though for a different purpose from that for which the buyers had actually bought it.” [795] 356-7
85 According to the editors, therefore, the view which would lead to success for the plaintiff was in their view “too adverse towards the seller”. This work does not refer to the Canadian and American authorities referred to by Professor Sutton. Heil v Hedges is referred to at [804] and [808] but in a different context. The Canadian cases do not state that goods are un-merchantable if the particular purpose for which the buyer intends to use them is communicated to the seller and the goods are not fit for that purpose. Rather, they find that unfitness for one purpose does not render the goods un-merchantable if the seller has no notice of that purpose. The authority is therefore somewhat indirect. The matter is not subject to binding authority in Victoria but the analysis in Lord Reid’s speech in Hardwick is highly persuasive. In the circumstances, I believe I should adopt it and give effect to it, which will require that there be judgment for the defendant.
Conclusion
86 There should be judgment for the first defendant.
Costs
87 I have heard no submissions on the question of costs and so I will reserve them.
- - -
0
3
0