Daycone P/L v Emrich Industries P/L - [2015] SADC 99

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
DAYCONE P/L & ORS v EMRICH INDUSTRIES P/L
[2015] SADC 99
Judgment of His Honour Judge Cuthbertson
24 June 2015
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
- SALE OF GOODS - IMPLIED CONDITIONS AND WARRANTIES - FITNESS FOR PURPOSE
The plaintiff contracted with the defendant for the defendant to supply biscuit manufacturing machinery to the plaintiffs' business.
HELD: The defendant was not obligated to supply the machinery until successful testing with the plaintiffs' product had been completed as a condition precedent. As the defendant was not obligated to supply the equipment in the event of failure to successfully test the equipment, no implied term that the equipment would be reasonably fit for its purpose was to be implied unless and until testing was successful.
The defendant made no false representations in relation to its performance of the contract or as to the time taken to successfully test the machinery.
The defendant did not act negligently in failing to successfully test the equipment which was to be supplied.
The case for the second plaintiff must fail as it is parasitic upon the case for the first plaintiff.
Alternatively there is no evidence that S Tucker was acting as agent for the second plaintiff at the time that the contract was concluded.
Alternatively the second plaintiff is not able to rely on the contract concluded by the first plaintiff with the defendant due to the doctrine of privity of contract.
There is an implied term in the contract that in the case of failure to successfully test the equipment funds paid by plaintiff under the contract will be refunded and property in the machinery remains with the defendant, full payment by the plaintiff not having been made.
Sale of Goods Act 1895 (SA) s 14, referred to.
Painaway Australia Pty Ltd v JAKL Group Pty Ltd (2011) 249 FLR 1; Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Kennedy v Verco (1960) 105 CLR 521; Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; Allen v Carbone (1975) 132 CLR 528, considered.

DAYCONE P/L & ORS v EMRICH INDUSTRIES P/L
[2015] SADC 99
Introduction

At all relevant times the first plaintiff Daycone Pty Ltd is a company that carries on business as a biscuit manufacturer. The second plaintiff, D Tucker, is the father of S Tucker who is the Managing Director of Daycone. The defendant, Emrich Industries Pty Ltd is an Australian company that specialises in sourcing and selling packaging machines, principally to the food industry.
At the relevant time, Daycone’s business was overwhelmingly confined to production of a single item namely a wafer or biscuit used with savoury dips. The wafer is triangular in shape, approximately 150 mm long and about 30 mm wide at its wide end and 10 mm at its narrow end. It is a thin, baked product. Due to its thinness, as it bakes it assumes a somewhat irregular shape and becomes quite brittle. Daycone sold the product through an intermediary to food stores and supermarkets.
The product, once baked, was manually packed into a plastic tray which then had a cellophane film placed across the top of the tray to seal it. It was then placed in a cardboard sleeve for presentation for sale.
Daycone wished to reduce the labour costs in packaging the wafers by obtaining a machine to package the product automatically.
The first plaintiff, through S Tucker, its Managing Director, approached Emrich to supply such a machine. Emrich, through its representatives, knew the nature of the product from having previously seen it[1] and from having received descriptions of it from Tucker.[2]
[1] T536.
[2] T506-T514; T536.
Emrich suggested that Daycone might consider a certain type of machinery which was being manufactured in China by a company with which Emrich did business.
It must have been obvious to both Daycone and Emrich that the type of product in question would create some difficulties in packaging as its irregular shape, rough and distorted texture and brittleness would mean that it would not flow readily through a packaging machine and could be subject to breakage when handled.
It must have been apparent to Emrich that the machinery it nominated would require not insignificant modification and adaption if it was successfully to package the plaintiff’s product, hence the proviso ultimately appearing in the terms of the contract.
Nature of the complaint
Daycone complains that, having ordered the product, there were lengthy delays in providing the machinery, lengthy delays in modifying it to work satisfactorily and that, ultimately, the machinery did not work satisfactorily.
In brief terms it is asserted that the machinery did not operate satisfactorily in that there would be frequent and major blockages to the flow of the product and that this would lead to the inevitable dumping of large amounts of product at the one time such that the weighing apparatus which weighed the amount of product to go into each individual package, within certain tolerances, could not operate effectively. As such, the machine was not reasonably fit for its purpose, the defendant had acted negligently by not successfully testing the machinery with the plaintiff’s product and by its earlier representations had engaged in misleading and deceptive conduct.
The contract to purchase the equipment was almost entirely in writing.[3]
[3] Exhibit P4; Exhibit P5.
The terms were remarkably few. Daycone did not indicate what specifications it required to be met. Emrich did not specify any performance criteria.
Daycone complains that there has been a breach of the implied warranty of fitness for purpose pursuant to s 14 of the Sale of Goods Act 1895 (SA) and that representations were made by the defendant that the machine constituted a solution to Daycone’s packaging requirements and that such representations were misleading.
It also relies on an action in negligence in relation to the advice the defendant gave in recommending appropriate machinery and in arranging appropriate design, construction and testing of the machinery to be supplied to Daycone.
Was there a contract between the plaintiff and the defendant?
The determination of whether there was a contract formed between the plaintiff and the defendant depends on an interpretation of the quotation contained in Exhibit P4, dated March 31, 2009, and in particular the passages under the heading Contract of Sale and the plaintiff’s reply email dated Tuesday, 5 May 2009, 11:41 am.[4]
[4] Exhibit P5.
For there to be a contract it is a requirement that the parties reach agreement sufficient for the formation of a binding contract which is done with the “objective common intent that such consensus should constitute an immediately binding contract”.[5]    The question is to be determined objectively having regard to the respective communications and the context in which they took place.[6]
[5]    See Painaway Australia Pty Ltd v JAKL Group Pty Ltd (2011) 249 FLR 1, 44 [195], 52 [232]; Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309.
[6]    See Allen v Carbone (1975) 132 CLR 528.
In this case no party argued that a binding agreement had not been formed and I will proceed on that basis as I find it to be supported by the objective facts.
Condition precedent to the making of a contract or condition precedent to the obligation to perform
The proviso in the contract in Exhibit P4 is either a condition precedent to the making of a contract between the plaintiff and the defendant or is a condition precedent to the obligation of the defendant to perform.
Mason J in Perri v Coolangatta Investments Pty Ltd said:
There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on non-fulfilment. In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement, though the obligation of a party, or perhaps of both parties, to perform depends on fulfilment of the condition and non-fulfilment entitles him to terminate. [7]
[7] (1982) 149 CLR 537, 551.
His Honour also said:
Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the detail settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.[8]
[8] Ibid 552.
The confirmation of order sent by the plaintiff on 5 May 2009 was in response to the offer made by the defendant by letter dated 31 March 2009.
The offer contained the following clause:
The contents of this quotation are subject to confirmation by the Emrich Industries Technical Division after successful testing of the machinery with the customers’ finished product. The written confirmation only will be used as the basis of a specification for the contract of sale.[9]
[9] Exhibit P4; Exhibit P5.
In my view, the condition precedent under the heading “Contract of Sale”[10] is a condition precedent to the performance of the contract and not to the existence of the contract as the parties contemplated a deposit and further transfers from one to the other with the order and there was an expectation that the defendant would make all endeavours to successfully test the machinery.
[10] Exhibit P4.
Did the defendant promise that the condition precedent would be fulfilled?
Where such a promise is made, whether by vendor or purchaser, specific performance may be decreed against the promisor without waiting for fulfilment of the condition: but where the occurrence of an event upon which the obligations to complete are contingent is not promised, the mere non-occurrence of the event is no breach of contract, and the Court will not decree completion of the contract absolutely. In such a case, a decree must be limited to the performance of any promise affecting the occurrence of the contingency, and further performance decreed only subject to the contingency [...][11]
[11] Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, 566.
In my view the wording of the proviso and the history of the plaintiff and defendant’s dealings demonstrate the fulfilment of the contingency was not one promised by the defendant.
Further there is no evidence of any representations or conduct on the part of the defendant which could possibly be construed as a promise to successfully test the machinery with the finished product.
The defendant did not know whether the machinery would be able to successfully package the rather difficult and fragile product of the plaintiff and that was the very reason for the insistence by the defendant on the proviso in the contract.
There was no representation or contractual obligation that the testing would be successful.
Was there an obligation on the defendant to make reasonable attempts to successfully test the machinery with the plaintiff’s product?
In my view there was an implied promise by the defendant in the contract that it would do all that was reasonable to attempt to modify the machine to successfully test with the plaintiff’s product.[12]
[12] See Kennedy v Verco (1960) 105 CLR 521, 526.
By email dated 6 August 2009[13] Emrich informed Daycone that testing has been done but that the machine manufacturer in China (Highdream) was not satisfied with the level of breakage of samples.
[13] Exhibit P11.
The email continues:
Your product is unique and without proper testing there is no way that anyone could know how it would perform. I think Highdream have done the right thing and now it remains to be seen if you are also satisfied with the resultant samples.
If you are happy with the samples and want them to proceed, they will try to push it through as quickly as possible, but delays are inevitable.[14]
[14] Exhibit P11.
It continues:
I will spend a large deal more to satisfy your requirement but I will not countenance penalties for delays caused for what effectively is R & D on the packaging of your product.[15]
[15] Exhibit P11.
Although this email cannot alter the terms of the agreement between the parties already made it is entirely consistent with the quotation, Exhibit P4 which was accepted by Daycone, with the proviso included.
By email dated 7 August 2009, Highdream advised Emrich that samples were being sent from China to Daycone.[16] This email was on forwarded on the same day to Daycone.[17]
[16] Exhibit P12.
[17] Exhibit P12.
By email dated 11 August 2009 Daycone advised Emrich that the samples had arrived:
It is very difficult (if not impossible) to make a well founded decision.[18]
[18] Exhibit P12.
Daycone continues:
Given this I am going to have to throw the responsibility for ensure [sic] the machine meets our requirement back onto Emrich as based on what we have been provided we couldn’t safely or soundly make a call either way.[19]
[19] Exhibit P12.
On 12 August Emrich emailed Daycone to say:
We understand the responsibility to provide the best possible line.[20]
[20] Exhibit P12.
The machine was finally delivered to Daycone in early December 2009.[21]
[21] T46.
Some work on commissioning the equipment was conducted before Christmas and then work was adjourned for the Christmas period.[22]
[22] T46.
Krebs, for Emrich, returned from the Christmas break in late January 2010 to do further work on the commissioning.[23]
[23] T47-T48.
In February, Tucker had a conversation with Krebs about the commissioning. At that time they had been unable to get the machine to operate properly.[24]
[24] T49.
By email dated 9 February 2010 from Krebs to Tucker it was indicated that there had been problems which they found “are proving too difficult to solve”.[25]
[25] Exhibit P8.
It read in part:
Just to give you feedback regarding the problems that have been found that are proving too difficult to solve. During the initial discussion it was stated by Steve in writing that it would be difficult to avoid any breakage. Being a large fragile product there is always going to be a level of breakage related to the drop of the product through the weigher, etc. It was also indicated that it would not be possible to have the product simply fall into the tray perfectly (regimented) and some conditioning would be required by hand.[26]
[26] Exhibit P8.
It concluded:
As Steve had indicated in the beginning, you have a unique product and packaging requirement. We have spent a great deal of time and money on R & D to achieve the optimal results. As per our earlier offer, if you are unhappy with the finished results after our best efforts, we are happy to now accept return of the line for a full refund.[27]
[27] Exhibit P8.
In my view, the defendant had made fair and reasonable efforts to get the machine operating satisfactorily and had failed to do so, and in concluding that testing results were unsatisfactory, they were entitled to take into account the expressions by the plaintiff that performance requirements were not being met,[28] in particular in relation to the amount of breakage and the packing of the wafers into the tray without any human intervention.[29]
[28] T589.
[29] T589, Exhibit P8.
In the circumstances they were entitled to rely on the proviso in the contract which had been accepted by the plaintiff.
There was never any written confirmation, because the plaintiff considered the testing unsatisfactory and hence there were no specifications for a contract of sale. The defendant was entitled to regard the testing as unsuccessful and not likely to be made successful by further modifications. Both the plaintiff and defendant had mutually recognised that testing of the machinery with the customers finished product was not successful.
The terms of the contract by implication, required the defendant to test the machinery with the plaintiff’s finished product and make a genuine effort to modify the machinery so that the testing would be successful. Having done its best and having failed to “successfully test the machinery with the customers finished product”[30] it was not bound to perform but rather, it was entitled to take back the machinery property not being passed to the plaintiff in accordance with the contract, and reimburse the plaintiff for the amounts it had paid for the machinery.
[30] Exhibit P4, Exhibit P5.
I agree with the plaintiff’s contention that at this stage the machinery was not working satisfactorily. The defendant was unable to adduce any evidence that the machine had reached a stage where it was working satisfactorily as their sole representative who saw it working while located at the plaintiff’s premises is overseas and unable to give evidence. The evidence of S Tucker and the plaintiff’s expert, Gemmell, convinces me that the machinery had not reached a stage where it could be said to be operating appropriately.
The defendant genuinely formed the view that with the plaintiff’s expressions of how it expected the machinery to operate that successful testing was not going to occur to the satisfaction of the plaintiff.
The defendant had done its best. The contractual proviso that a specification for the contract of sale was only to occur “after successful testing of the machinery”[31] was not met as there was no successful testing of the machinery.
[31] Exhibit P4, Exhibit P5.
I hold that the defendant had taken all reasonable efforts to achieve successful testing of the product but had failed.
Was there an obligation on the defendant to perform testing within a reasonable time?
In my view, although no time specification was sought by the plaintiff save for the expression of a hope that the machinery might be operational by the end of the financial year for “taxation purposes”,[32] a reasonable time is to be implied in the contract[33] for the defendant to successfully test the machinery with the plaintiff’s product.
[32] Exhibit P5.
[33] See Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1, 13.
Although the plaintiff has not pleaded an unreasonable delay in testing it is appropriate to deal with the question as I have held there was no duty cast on the defendant by the contract to provide a machine reasonably fit for its purpose as opposed to a duty to test the machine with the plaintiff’s product and to do so within a reasonable time.
The question is whether there was unreasonable delay in performing testing of the machinery with the plaintiff’s product and not whether there was a delay in providing a satisfactorily working machine. The defendant had only agreed to do the former and not the latter, subject to the fulfilment of the contingency.

There was no specification by the defendant as to the time the machinery would be ready to conduct testing or whether testing would be successfully completed on the machinery installed.
A reasonable time must take into account the fact that the machinery is being ordered and purchased from China, must undergo and pass certain testing in China, must be transported to South Australia and must undergo certain testing procedures with the plaintiff’s product in South Australia.
Given the complicated nature of the machinery and the task being undertaken by the defendant, in the circumstances, I do not think that at the time that the defendant’s employee Krebs ceased working on the project it has been proved that the amount of time taken to test the machine was unreasonable.
The contract was not concluded until 5 May 2009.[34]
[34] Exhibit P5, T41, T614.
In August the results of testing in China by Highdream were available and were not altogether satisfactory[35] and had involved an inadequate amount of product for proper testing.
[35] Exhibit P12.
The machinery was delivered to Daycone’s premises in December 2009 some 4 months later, having been shipped from China.
Work on commissioning took place prior to Christmas 2009 and then again in January of the following year.
It was perfectly reasonable that the testing as required under the contract should take place at Daycone’s premises after the machinery had been set up there and using the product of Daycone, which would have been available in sufficient quantity to make testing a meaningful process. Testing in China with a limited amount of product was hardly a substitute.
Given that the task was to produce a machine which had not been tried and tested on the plaintiff’s product and given that the plaintiff’s product was always going to be a difficult one for machine handling, I do not think the time taken by Emrich to conduct the testing was unreasonable and I hold therefore that there was no breach of contract by Emrich in this respect.
I find the defendant took all reasonable steps to endeavour to successfully test the machinery with the plaintiff’s product to arrive at a satisfactory performance level within a reasonable time.
Was the defendant negligent in being unable to achieve successful testing in accordance with the term of the contract?
The plaintiff asserts that the defendant did not achieve successful testing in a reasonable time or alternatively was negligent in preparing and modifying the machinery in order for it to successfully test with the plaintiff’s product. In short, it says that the failure of the contingency was the fault of the defendant.
Leaving aside the question of whether the defendant had a duty of care to the plaintiff, in relation to how testing was conducted, none of the heads of negligence have been made out.
There is no evidence that Emrich failed to take reasonable care in advising and recommending the appropriate machinery for the packing line. It is to be remembered that they made a suggestion that they thought that a product made in China would be suitable but with the proviso that it would need testing with the plaintiff’s product to be successfully concluded before they would be able to give any assurances or undertakings as to the appropriateness of the machinery to do its job.[36]
[36] Exhibit P4.
There is no evidence that they failed to take reasonable care to ensure that the packing line would be designed, constructed, tested and installed so as to operate as required nor that they failed to perform the testing in a reasonable time.
The need for the gantry on the machine to be at a appropriate height to meet Australian Standard 1657-1992 was a minor issue that could have been rectified at any time prior to installation of the machinery. It was not the reason the machinery failed to test satisfactorily.
The claim in negligence must fail.
Did the defendant undertake to have the machinery in place by 30 June 2009?
The plaintiff asserts that the defendant agreed or represented that the machinery would be in place and working by 30 June 2009 so that the second plaintiff could avail himself of certain taxation advantages applicable for machinery ordered and in place and ready to operate by 30 June 2009.
In response to the email from S Tucker of 5 May 2009:
I am hoping to get equipment supplied and if possible installed by 30 June for taxation purposes.[37]
[37] Exhibit P5.
Richardson from Emrich replied as follows:
It will be difficult with delivery. Once we get the deposit to the manufacturer we will try to put as much pressure on them as possible.[38]
[38] Exhibit P5.
This exchange of correspondence makes it plain that no undertaking was given as to when the machinery would be ready.
The plaintiff well knew that the machine was being constructed in China and that there were difficulties testing product made in Australia of a brittle nature in sufficient quantities in China for there to be an appropriate testing.
The plaintiff bears the onus of establishing that the term for delivery of the tested machinery was either a term of the contract or a representation made by the defendant. In my view it has not established either. The sole reference to the question of time in the evidence of S Tucker indicates that while the defendant expressed a hope in relation to the readiness of the machinery there is no evidence that anything was said indicating that it agreed or undertook to do so.
The contract itself specifies that the installation date was to be confirmed “when [the] machine has been tested and is complete”.[39]
[39] Exhibit P4.
This ground of the plaintiff fails.
Did the defendant engage in misleading and deceptive conduct?
I do not accept that the defendant engaged in any misleading or deceptive conduct as alleged in the Statement of Claim.
Not only were no specific representations made as to the specifications or capability of the machinery to be supplied, but at all stages Emrich made it clear that no specifications, for the purpose of the contract of sale, were to be made until such time as successful testing of the machinery had occurred.
No representations were made either orally or in writing and, indeed, it was always clear that the quotation was to be “subject to confirmation [...] after successful testing of the machinery with the customers’ finished product”.[40]
[40] Exhibit P5.
Emrich had made it clear at all times that the contract was subject to successful testing and it never at any stage warranted or represented orally or in writing that the testing would ultimately be successful. It reserved to itself the ability not to proceed with the contract if it could not make the machinery perform satisfactorily.
The plaintiff sought to rely on a claimed representation that the defendant had a “solution” to the plaintiff’s packing problems.
The fact that Swanton, representative of the defendant, said he had a solution, or thought he had a solution, to the issue of packaging of the first plaintiff’s product was not a representation.
There is ambiguity as to whether Swanton claimed he had a solution or whether he claimed he thought he had a solution (emphasis added).[41] I do not find it proved that he claimed he had a solution. I prefer the evidence that he said he thought he had a solution. This is more in keeping with the tenor of the defendant’s approach throughout the negotiations.
[41] T32; T38; T40; T41.
This was long before any contract was entered into and Daycone was aware before signing any contract that there were issues as to how well the machine would operate to pack its product. When it finally agreed a contract on 5 May 2009[42] it could not have been based on anything said much earlier by Swanton on behalf of Emrich that he had or thought he had a solution to the packaging problem.
[42] Exhibit P5.
Tucker had been to their premises and seen a machine in action dropping the products into a plastic bag.[43] He did not proceed with that option.[44] He knew that there would have to be further testing of the machine to make sure it would work and that at that stage the defendant had nothing better to offer.
[43] T32-T34.
[44] T34.
Daycone agreed to the contract in the terms of Emrich’s offer and failed to protect itself by specifying any terms as to the capabilities of the machinery to be delivered.
It did not rely on any specifications other than what was contained in the offer in Exhibit P4. The contract specified that it was subject to successful testing of the product.
In the dealings between the plaintiff and the defendant no reasonable person could have been under the belief that the defendant was warranting or unequivocally asserting or representing that the machinery would necessarily turn out to be satisfactory. I prefer the evidence of Richardson insofar as it is in conflict as throughout his evidence, he has maintained a consistency and his evidence demonstrates a consistency with the terms of the contract and other written documentation.
I find that no misleading or deceptive conduct was engaged in by the defendant. In any event, no reliance was placed by Daycone on anything said by Emrich’s agents as to the capabilities of the proposed machinery prior to the signing of the contract. The contract explicitly provided that specifications would not be provided except upon receipt of written confirmation of the successful testing of the machinery with the customer’s finished product.[45]
[45] Exhibit P4.
Did the defendant validly terminate the contract?
If the event does not occur because of the default of one party the innocent party ordinarily has an option of avoiding the contract.[46]
[46] Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 441.
I have found that the defendant made all reasonable endeavours to have the machinery work properly and was not in default. The plaintiff made it perfectly plain what its expectations were in relation to the proper working of the machinery and made plain its view that the machinery had not been able to achieve that.
The proviso was clearly inserted in the agreement for the protection of the defendant. In working with the plaintiff’s product it was in unchartered waters. It was aware that the machinery would require considerable testing and alteration before it could be suitable for the plaintiff’s product. It was unable to do so to the satisfaction of the plaintiff. It had been unable to make the machinery operate satisfactorily.
Having made all reasonable attempts the defendant was entitled to rely on the provision placed in the contract for its own benefit and protection. The contingency had not taken place through no fault of its own.
The defendant exercised its right to terminate.
Thereafter it was not bound to supply the machinery to the plaintiff. The plaintiff in effect agreed testing had not been satisfactory.
Was there an implied term that the machinery would be reasonably fit for purpose?
In the event that I am wrong in my above findings I proceed to make findings on the issue of the implied term of fitness for purpose.
In 2007 Daycone began investigating the purchase of a packaging and weighing line with a view to reducing the labour costs for packaging its cracker product.[47] Daycone was aware that Emrich was a manufacturer of packing machines as it had previously supplied equipment to Daycone.[48]
[47] T29.
[48] T31.
S Tucker commenced discussions with Swanton, a representative of Emrich, whom he saw at the National Food Show which was in September 2007.[49] Swanton indicated that he thought he had a solution to the plaintiff’s packaging problem[50] and Tucker agreed to have a look at the proposed solution.[51]
[49] T31.
[50] T32.
[51] T33.
He attended the factory in Melbourne and saw machinery and a weighing machine set up for the product to be packed in plastic bags.[52] He did not regard the solution as suitable. He regarded presentation of the crackers laid out parallel in a cardboard container as more aesthetically pleasing.[53]
[52] T33-T34.
[53] T34; T506.
In October 2007 a quotation was received by Daycone from Emrich for the supply of an “RPM combination weigher” (the machinery).
In 2008 Tucker obtained quotes from other manufacturers.[54]
[54] T35.
In late 2008 a further quotation was forwarded by Emrich to Daycone for the supply of the RPM combination weigher.[55]
[55] Exhibit P3.
Tucker says that after considering three quotes he formed the view that Emrich having been a previous supplier and familiar to him, he would proceed to negotiate with Emrich and he resolved to ask them for their best price.[56]
[56] T36.
Emrich’s quotation was varied on 31 March 2009 to $84750 plus GST.[57] This was a reduction on the previous quotation.
[57] Exhibit P4.
Details were specified by a letter dated 31 March 2009.[58]
[58] Exhibit P4.
By email of 5 May 2009 Daycone confirmed the order subject to finance and expressed the hope that the equipment could be supplied and if possible installed by 30 June 2009 for taxation purposes.[59]
[59] Exhibit P5.
The contract as concluded does not contain any performance specifications whatsoever. The most the plaintiff could therefore expect by way of performance, absent any oral representations, would be that the machinery be reasonably fit for its purpose.
Had I formed the view that there had been successful testing of the product and that the condition precedent had therefore occurred I would have held that the plaintiff had proved reliance under the Sale of Goods Act 1895 (SA). I am satisfied that the plaintiff had made known to the seller the particular purpose for which the goods were required so as to show that it was relying on the defendant’s skill or judgment and further that the goods, namely the machinery, were of a description that it was in the course of the business of the defendant to supply. Pursuant to s 14 of the Sale of Goods Act 1895 (SA), there would have been an implied condition that the machinery should be reasonably fit for its purpose.
The implied term of fitness for purpose did not arise until the machinery had been supplied in accordance with the contract but that situation never arose as the obligation to supply machinery fit for its purpose did not arise until the fulfilment of the conditions precedent.
Was the machinery as supplied reasonably fit for the purpose of packaging the plaintiff’s wafer biscuits?
It is common ground that the defendant would have had to provide modifications and fine tuning of the machinery before it worked properly.
The defendant provided Krebs to perform this task.
I am of the view that at the time that Krebs had left the plaintiff’s premises the machinery was not working such that it was reasonably fit for its purpose.
On this issue, the defendant is somewhat at a disadvantage. One could only say whether or not the system was working by observing it over a period of time to see whether it malfunctioned. None of the defendant’s witnesses saw it operating over a period of time so as to be able to say whether it was working satisfactorily or not. On the other hand, two witnesses of the plaintiff, both S Tucker and his witness deposed to the system having numerous inadequacies. I accept their evidence.
This does not mean that it may not have been possible to further fine tune and alter the machinery so as to get it to operate satisfactorily. Indeed, the defendant admitted as much asserting that there was much scope for further fine tuning but that that never got to take place.
The plaintiff says the defendant stopped working on the project when Krebs, its representative, walked out. The defendant says that there was no point in going any further because the machinery was never going to meet the expectations of the plaintiff that the machine be able to operate entirely on its own without any human intervention.
Whether that was truly the expectation of the plaintiff was a matter of dispute. There is no doubt that the plaintiff wanted and expected that the machinery would operate with a much reduced human input, but in my view the plaintiff was not expecting that the machine would operate without human oversight. Human intervention was always going to be required in placing the wafers in the machine at the commencement of the operation and perhaps by making certain adjustments to prevent a backlog of wafers collecting in a particular area on an occasional basis.
Whether the plaintiff’s expectations were too high or not the fact is that the machinery had not achieved the standard of reasonable fitness for purpose when the defendant ceased working on it. The condition precedent had not been fulfilled and so there was no obligation on the defendant for the machine to be supplied or to be reasonably fit for purpose.
I do not agree that the plaintiffs were making unfair and unreasonable demands concerning the capabilities of the machinery that was supplied. Expressions made by Tucker should not fairly have led to that conclusion by the defendant.[60] Many of Tucker’s expressions as to his expectations were not to be taken literally, but were made to emphasise that the plaintiff wanted properly working machinery.
[60] T589-T590; Exhibit D42.
The machinery as left by the defendant at the Daycone’s premises was not then reasonably fit for purpose. (emphasis added)
The claim of the second plaintiff
The second plaintiff’s claim must fail because it is subsidiary to the claim of the first plaintiff.
In addition to this, I find that there is no evidence that the first plaintiff or Mr S Tucker was acting as agent for the second plaintiff. The only evidence capable of touching on the matter, the evidence of Mr S Tucker and the evidence of Mr D Tucker, is silent on the point. It is true that a joint venture agreement was signed prior to the conclusion of the contract on 5 May 2009. Nevertheless the conclusion of the joint venture agreement does not require for its efficacy that the first plaintiff or Mr S Tucker was acting as an agent for the second plaintiff in concluding the agreement with the defendant.
Moreover, I am of the view that the doctrine of privity of contract still exists in Australian Law. In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd[61] there was no clear majority of Justices of the High Court for the proposition that the doctrine of privity no longer existed in Australian Law.
[61] (1988) 165 CLR 107.
The second plaintiff must fail on this basis as well.
Further, insofar as the second plaintiff’s claim for damages depends upon ownership of the machinery the fact of the matter is that property in the machinery never passed to the first plaintiff or the second plaintiff under the terms of the contract as final payment was never made. At all relevant times property in the machinery remained with the defendant.
Damages
The mutual obligations of the parties in the contract were discharged by the failure of the condition precedent. Neither side was bound thereafter to complete the contract.
The contract required the payment of certain periodic payments.[62]
[62] Exhibit P4.
Payment terms that were accepted by the plaintiff were as follows:
50% deposit with order. 40% with despatch and 10% balance with installation. Ownership of the machinery does not pass to the purchaser until full payment is received by Emrich Industries.[63]
[63] Exhibit P4.
It also provided that the ownership of the machinery did not pass to the purchaser until full payment was received by the defendant.[64]
[64] Exhibit P4.
The contract is silent on what happens to the monies paid if successful testing of the machinery by the Emrich Industries Technical Division does not occur.
In my view the contract was subject to an implied term that in the event of non performance of the condition precedent the funds paid by the plaintiff would be returned to it. As property in the machinery had not passed from the defendant, under the contract it would remain the property of the defendant.
Variation in the contract

It was suggested that an offer made by the defendant to refund the monies paid by the plaintiff and to take back the machinery was a variation in the terms of the contract.
This offer was never accepted by the plaintiff even though, in my view, it was nothing more than the consequence of the non fulfilment of the condition precedent.
The consequence is that the resolution of the issues of damages between the parties must be resolved under the existing contract.
Orders
I will hear the parties as to the appropriate orders consistent with my decision.