Hardchrome Engineering Pty Ltd v Kambrook Distributing Pty Ltd
[2000] VSC 359
•13 September 2000
| SUPREME COURT OF VICTORIA | |
| COMMON LAW DIVISION | Not Restricted |
No. 7810 of 1996
| HARDCHROME ENGINEERING PTY LTD (ACN 005 291 083) | Plaintiff |
| v | |
| KAMBROOK DISTRIBUTING PTY LTD AND JULIAS INVESTMENTS PTY LTD v | Defendant No. 4599 of 1998 Plaintiff |
| KAMBROOK DISTRIBUTING PTY LTD (in liquidation) (ACN 005 307 282) and HARDCHROME ENGINEERING PTY LTD (ACN 005 291 083) | Defendants |
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JUDGE: | Gillard J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2-4, 8-11, 14-18, 21-25, and 28-30 August 2000 | |
DATE OF JUDGMENT: | 13 September 2000 | |
CASE MAY BE CITED AS: | Hardchrome Engineering Pty Ltd v Kambrook Distributing Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 359 | |
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Sale of goods – terms of contract – condition of merchantability – alleged defect in electrical appliance – fire – defect in fryer caused fire – negligence in selling defective product – contributory negligence by consumer – landlord and tenant – breach of lease by tenant – negligence by vendor of fryer causing damage to landlord.
No. 7810 of 1996
APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr W. Lally QC with Mr M. Thompson | Anderson Rice |
| For the Defendant | Mr C. Gunst QC with Mr P. Cawthorn | Ligeti Partners |
No. 4599 of 1998
APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr M. Wheelahan | Minter Ellison |
| For the 1st Defendant | Mr C. Gunst QC with Mr P. Cawthorn | Ligeti Partners |
| For the 2nd Defendant | Mr W. Lally QC with Mr M. Thompson | Anderson Rice |
HIS HONOUR:
There are two proceedings before the court. In the first proceeding, No. 7810/96 the plaintiff seeks damages from the defendant for breach of contract and negligence arising out of the sale of an alleged defective electrical appliance which allegedly caused the fire to premises occupied by the plaintiff.
In the second proceeding the plaintiff who was the landlord of the said premises seeks damages from its tenant (the plaintiff in the first proceeding) for breach of a lease, and also the defendant in the first proceeding for negligent supply of a defective product which caused the fire.
Parties
The plaintiff in the first proceeding, Hardchrome Engineering Pty Ltd ("Hardchrome") had for some years prior to 1990 been engaged in the business of advanced surface engineering, that is, applying coating processes, mainly chrome, to a variety of surfaces.
In 1990 it added to its business a Techvac titanium nitride coating process. This process applied ultra-hard gold coloured coatings to moulding, pressing and dye‑cast tools, cutting tools and many other specialised engineering applications where component wear is a problem. The object is to apply titanium nitride to cutting edges for high wear resistance.
In 1990 it occupied premises situated at 5-9 Normanby Road, Notting Hill ("the premises). Part of the premises comprised a factory area called Factory 1 ("factory") where the titanium nitride coating process was carried out in a purpose built room.
The defendant in the first proceeding, Kambrook Distributing Pty Ltd (in liquidation) ("Kambrook") in the period 1990-1992 supplied and sold in Australia a variety of electrical appliances.
Prior to 1990 it had been selling the products for many years in Australia and enjoyed a good reputation as a manufacturer of electrical domestic appliances. On the 24th day of November 1997 it went into voluntary liquidation.
The plaintiff in the second proceeding, Julias Investments Pty Ltd ("Julias Investments") was the owner of the premises during the period 1990-1992, and during that period leased the premises including Factory 1 to Hardchrome. Hardchrome carried on its business in the premises which comprised an office and factory premises. On 24 October 1991, Julias Investments as landlord executed a lease with Hardchrome, as tenant, in respect of Factory No. 1,for a period of two years, four months and 14 days commencing 16 December 1991.
The two defendants in the second proceeding are Kambrook and Hardchrome.
Basic facts
The basic facts which led to the disputes between the various parties in the proceedings can be briefly summarised.
In about March 1990, Hardchrome purchased from England and installed in the factory a titanium nitrate coating process machine. Some months later a decision was made to apply a wax‑type coating to the hardened articles to protect them against damage during transport. The wax coating was Crocell. In order to perform the process it was necessary to heat the Crocell until it melted at a temperature somewhere between 160º and 180º Celcius. Hardchrome dipped the finished product in the liquid Crocell and after dipping, the Crocell quickly solidified and created a protective covering on the finished article.
In order to heat the Crocell, Hardchrome purchased, on 22 November 1990, a Kambrook KD53 deep fryer saucepan ("the fryer"). The fryer saucepan was of a type usually used to deep fry food, such as chips. It was powered by electricity.
Hardchrome used the fryer in the course of its surface engineering business. The fryer was turned on at 5.45 a.m. and turned off at 3.15 p.m. It was also turned on at 5.00 p.m. and turned off at 7.00 p.m. giving a total of 11½ hours per day. This had been the system for months prior to the fire. It appears that over some weekends the power was turned off. The electrical cord to the fryer was attached to an extension cord which was attached to a timer. This in turn was attached to a double adaptor which was inserted into a double electrical plug on the side of a electrical power cabinet.
Each working day the cycle was that at 5.45 a.m. the power to the fryer turned on, it commenced to heat the Crocell to a liquid form and at 3.15 p.m. the fryer was turned off. The fryer was also operated between 5.00 to 7.00 p.m. The reason for this was not explained.
The weekend commencing Saturday 7 March 1992 was the Labour Day long weekend. On the Monday, 9 March 1992, a fire broke out in the factory premises some time prior to 11.56 a.m. and substantial damage was done to the premises, and contents.
Investigations were carried out and it is alleged by Hardchrome that a thermostat probe responsible for cutting the power in the fryer was defective in that the gap between the bi‑metallic spring and the contact arm was only .55 mm whereas the gap should have been 2.00 mm. Because the gap was so small arcing occurred between the gap with the result that small globules of iron were deposited on the main contacts which caused them to bond. The electricity supply continued. The fryer reached a very high temperature. It is alleged that as a result of the overheating, a fire occurred on or around the bench on which the fryer was located and this was the cause of the substantial damage to the premises and its contents.
On 13 November 1996 Hardchrome instituted a proceeding in this court against Kambrook by writ and alleged that it was in breach of an implied condition of the contract of sale, namely, that the fryer would be of merchantable quality and further alleged that Kambrook breached a duty of care it owed to purchasers of its products by distributing a product which was defective and potentially dangerous.
It claimed damages of some $819,000.
The quantum of the claim has been agreed between the parties at $630,000 for property damage and if Hardchrome is successful, issues of interest and the effect of GST on the said sum, have to be determined.
On 3 March 1998, Julias Investments instituted a proceeding in this court by writ against Kambrook and Hardchrome and sought damages from both defendants. It alleged that Kambrook was negligent in selling a product which was defective and it alleged against Hardchrome breach of terms of its lease and also negligence.
The quantum of its claim has been agreed at $87,000 and if successful, issues of interest and GST have to be addressed.
Progress of trial
At the end of a lengthy and detailed opening, I invited counsel for Kambrook to briefly state the issues. In the course of that discussion Mr C. Gunst QC who appeared with Mr P. Cawthorn of counsel for Kambrook raised a number of issues which had not been pleaded. They were first, that the thermostat probe which was alleged to have been defective and which was in the fryer on the day of the fire was not a Kambrook thermostat probe.
Secondly, in the alternative, if it was a Kambrook probe it had been substantially damaged prior to the date of the fire and the control button had been bent on its spindle and jammed at the maximum temperature. The third matter was an allegation that the cause of the fire was the inadequate and unsafe method used to supply electricity to the fryer, namely, by the use of an extension cord and that direct wiring should have been installed.
After argument I ruled that the defendant Kambrook should have raised these issues in its defence. In my opinion the surprise rule applied – see Rule 13.07(1).
Application was made by counsel for Kambrook to amend its pleading which was opposed.
It was necessary to adjourn for a period prior to the ruling to enable the plaintiffs Hardchrome and Julias Investments to investigate and consider these issues. On the resumption no objection was raised to the amendments and I granted leave to Kambrook to amend its defences in both proceedings. I ordered Kambrook to pay the costs brought about by the amended defence and the adjournment.
Issues
The pleadings in both proceedings and the rival contentions and submissions of the parties raise the following issues for consideration and determination –
(i) What were the terms of the contract of sale of the fryer?
(ii) Was the thermostat probe in the fryer at the time of the fire a Kambrook product?
(iii) What caused the fire at the factory premises on 9 March 1992?
(iv) Did Kambrook breach the term of the contract of sale that the fryer was to be of merchantable quality?
(v) If there was a breach, was it the cause of the fire and resultant damage?
(vi) Was Kambrook negligent in selling the fryer to Hardchrome?
(vii) If it was negligent, was the negligence a cause of the fire?
(viii) Was Hardchrome in breach of the terms of its lease with Julias Investments which caused the fire and damage to the factory premises?
(ix) Was Hardchrome negligent as a tenant and, if so, was the negligence a cause of the damage suffered by Julias Investments?
(x) Did Kambrook owe a duty of care to Julias Investments when it sold the fryer to Hardchrome?
(xi) If it did owe a duty, was Kambrook negligent in selling the product to Hardchrome?
(xii) If Kambrook was negligent was it a cause of the damage suffered by Julias as a result of the fire?
The issues stated above are general issues and there are sub‑issues of both fact and law to be considered and determined.
Kambrook in its defence has alleged that the contract of sale contained terms to the effect that the fryer was only to be used in a domestic situation and accordingly the breach of this term by Hardchrome relieved it of any obligation to Hardchrome.
Facts
Most of the facts are not disputed. What is very much in dispute are the inferences that the court should draw from those facts and the conclusions the court should find in accordance with the law.
Hardchrome has been in business for many years. Its business was the application of hard chrome plating to components for engineering applications. The object of the application of the chrome to components was to provide a high wear and corrosion resistant coating. Later it acquired other businesses.
In 1990 it was operating from the factory premises. In that year it commenced an additional operation which involved the application of titanium nitride to cutting tools in the main for high wear resistance. Titanium nitride is an ultra hard coating which is coloured gold. It is also applied to moulds and dyes for protection against wear.
Hardchrome purchased from Techvac in the United Kingdom the plant and equipment necessary to carry out the new process.
The basic unit was the coater unit. It was a stainless steel box about a metre cubed. It was a high technical piece of equipment using high voltage. The coating of titanium nitride was applied in a high vacuum within the chamber. The operation took about two hours though sometimes it could take longer.
It was essential to the success of the process that the equipment and its surrounds were dust free. Accordingly it was located in an enclosed room in the south‑west corner of the factory premises.
Once the components were covered with the titanium nitride they were hung in an area to allow them to finally dry.
The area occupied by Hardchrome was bigger than the factory premises. The factory premises were located on the western side of the building which also included offices and other manufacturing and processing areas. The area where the fire occurred ran north-south on the western side of the total premises. The titanium plant was located in the south-west corner and was an enclosed area as was the metals laboratory immediately to the north of it. The office which was immediately to the north of the laboratory was also an enclosed room. These three enclosed rooms occupied about half the length of the total factory premises on the western side. There were windows located down the western side of the brick building. Immediately to the north of the office was located a table and on the day of the fire, on top of the table were the deep fryer and to the west of it, an industrial oven. The southern end of the table was a matter of inches away from the northern end of the office. The balance of the factory premises were open to the ceiling. Other pieces of equipment were located in the area.
Attached to these reasons and marked "attachment A" is a diagram of the layout of the factory at the time of the fire. The plan was prepared by Ian Stork‑Moore who has a Degree in Metallurgy and a Diploma in Building Fire Safety and Risk Engineering. He has had considerable experience as a fire protection engineer and has conducted fire risk assessments in relation to a number of different types of buildings and occupancies. His area of expertise is in fire cause and origin investigation. The arrows noted on the plan attachment A were drawn by him and accord with his evidence as to the direction of fire propagation. It will be necessary to return to this issue later.
Some months after the installation and commissioning of the titanium nitride plant a suggestion was made by one of the sales staff at Hardchrome that the finished product should be dipped in a wax material to protect the cutting edge from damage during transport. The employee had had experience with the application of a wax‑type covering and a decision was made to coat the finished product.
In order to apply the wax it was necessary to obtain a suitable vessel to heat the wax in, and maintain it at the right temperature.
In November 1990 Mr Murray Pratt was employed by Hardchrome as a driver whose duties included purchasing items for the business, collecting same and deliveries.
He had in the course of his duties purchased a variety of items from the Kambrook factory outlet in the Moorabbin area. Sometimes he paid cash, depending upon the amount, or by Bankcard or cheque. He was occasionally given an open cheque and filled in the amount.
Some time around 21 November 1990, Mr Pratt was told to purchase a Kambrook deep fryer and was given a cheque dated that day. On 22 November he drove to the Kambrook factory outlet in Moorabbin, parked his car and walked into the showroom. The showroom was set up with a cash register in a corner. There were a number of female assistants in the showroom. He went into the showroom, asked for the fryer and an assistant directed him to a stack of cartons. He moved to the stack which was only a few metres away, picked up a carton which contained the deep fryer, returned to the counter and paid for it.
He paid for the purchase by the cheque dated 21 November 1990. The receipt which he received is dated 22 November 1990. Other than saying that the fryer was in a carton he was unable to say what was written or depicted on the carton. He returned to Hardchrome's premises and deposited the fryer with the staff. Kambrook did not call any evidence of the circumstances of the sale.
Mr Pratt was uncertain as to who asked him to purchase the fryer. He had nothing to do with its operation.
Whilst Mr Pratt accepted that when an electrical unit is purchased there are usually instructions inside he was unable to say whether the carton had any instructions in it.
The wax‑type substance which was to be used in the protective coating process was Crocell Super SH25 ("Crocell"). It is a hot dip strippable plastic coating said to be extremely tough and flexible and will withstand rough handling. It is impervious to water.
It is supplied in 25kg nett cartons in blocks of approximately 0.2kg. It is supplied in Australia by Croda Surfactants which is a division of Croda Australia Pty Ltd.
It is necessary to melt the blocks of Crocell to form a liquid. The recommended minimum working temperature was 130ºC and its maximum working temperature was 160ºC. Its softening point was 105ºC.
Croda recommended that users use a special Crocell dip pot supplied at a cost of about $1,000 by Croda which is designed for the purpose of avoiding damage to the product. The dip pot is electrically heated and temperature controlled. It is constructed from anodised aluminium. The pot comprises an inner and outer surface and in between is located the heating element. This ensures that it is melted evenly. It is claimed by Croda that if it is heated too rapidly or the maximum temperature exceeded, it will degrade.
Hardchrome obtained the Crocell wax from a supplier who was not Croda but was in fact one of its customers.
Having acquired the Kambrook fryer, experiments were carried out by Mr Vasilios Sezenias an employee of Hardchrome to establish the proper working system. Mr Sezenias has the qualification of Bachelor of Chemical Engineering and is a Chemical Engineer. From 1989 to 1992 he was the chemical engineer at Hardchrome. His duties in 1992 were to operate and supervise the titanium nitrate facility. He had an assistant in 1992 called David Murphy and Sezenias was answerable to Mr Rex Bailey.
He experimented over a few days with the fryer to obtain the correct viscosity of the wax to efficiently and effectively perform the process. Once having established the proper working conditions, the temperature control was set at about 195°C and kept in that position. The molten Crocell did not bubble, burn, smoke or emit an unpleasant odour when kept at the working temperature.
The day of Mr Sezenias, as the man in charge of the new processing plant, started at 7.30 in the morning when after starting up various plant and equipment he switched on the titanium nitrating plant and removed from inside the plant any tools which had been coated the day before and put them on the racks inside the same room. He prepared the units which were to be coated that day, loaded them into the titanium plant and commenced its operation. He took the units which had been previously coated to the work bench where the deep fryer was. He then proceeded to coat them and prepare them for transport.
The process in the titanium plant commenced by creating a vacuum and then bombarding the units with gas at high velocity, the aim of the exercise being to clean them prior to coating them with titanium nitrate. If the product was drill bits there would be about 100 drill bits in an operation.
At the fryer the finished article was dipped by hand into the molten wax, removed and by the time the unit was placed on the table the wax had solidified. Once covered with the Crocell the unit was wrapped in coloured Hardchrome paper. Mr Sezenias described the paper as photocopy‑type paper.
Next to the fryer was a strip of absorbent paper some 600 mm wide. Its brand name was Roar, it was re-inforced, used in industrial activities and had a stippled surface. It was similar to kitchen paper in respect to its absorption qualities and was of the same order as ordinary paper for ignitability.
The table on which the fryer was located comprised a square tubular steel frame and the bench surface was made of chipboard painted with a light coloured acrylic paint. There was a wooden shelf underneath the top. A stack of wrapping paper was kept on the lower shelf. Wrapping paper was also left on the top of the bench.
Mr Sezenias was in charge of the fryer from the time it was purchased. He set it up and determined its proper operation specifications.
At some time prior to or shortly after the acquisition of the fryer Mr Bailey obtained some technical literature on the Crocell but does not recall reading it. He says he must have at the time. The Crocell was in cubed blocks, which weighed somewhere between one to two kilograms. The dimensions were about 150 mm x 150 mm. It was the right size and placed straight into the fryer to melt. When melted it did not bubble and it emitted a faint odour. The level of the Crocell dropped in the pot during the coating process and Mr Sezenias replaced the Crocell when it dropped in level to about two inches above the bottom of the fryer. When it was topped up the level was about an inch and a half from the top after it had gradually melted.
The drill bits and other items coated were extremely clean after the titanium process and the factory was kept in a clean condition.
Having established the system, Hardchrome melted the Crocell in the fryer over the period from 21 November 1990 through to the date of the fire, Monday 9 March 1992. The electricity to the fryer was through the lead attached to the fryer, and an extension lead which was attached to a Kambrook timer. The timer was attached to a double adaptor inserted into a doubt power plug of the domestic type.
The timer was set to provide electricity at 5.45 a.m. and was turned off at 3.15 p.m. It was also activated at 5.00 p.m. and turned off at 7.00 p.m. The reason why the fryer was also turned on at 5.00 p.m. and off at 7.00 p.m. was not explained.
Mr Sezenias said that the whole process was very clean and there were very little in the way of droppings of wax during the dipping process. Mr Sezenias at no stage referred to any of the manufacturer's literature concerning the wax.
Although Mr Sezenias said that it was his routine to turn off the power to the fryer over a weekend, on the weekend prior to the fire he did not do so.
Hardchrome did not have in place any system of checking to see that the lid was kept on when the fryer was not being used, nor did not have any system in place to check the appliance or to check the thermostat inside the bakerlite covering.
At no stage was the fryer ever emptied and cleaned out, the procedure being that when the level dropped to about two inches or thereabouts a new cube of Crocell wax in solid form was placed in the fryer.
The heat was applied from the bottom of the fryer and the new block gradually melted.
The normal temperature setting for the deep fryer was 195 degrees. The actual control knob revealed a scale at 190 and 215 degrees and hence the setting of 195 was an estimate. But on the evidence the temperature scale was fixed at the upper end of the range.
Mr Sezenias did not recall reading the instructions on the fryer because as he said it was a fairly straightforward device.
The fryer comprises a pot and lid. The pot was made of aluminium, was 140 mm high and had a capacity of five litres. Its diameter is about 230 mm. It was supported on four plastic or bakerlite legs about 40 mm in length. Underneath the pot enclosed in an aluminium jacket which was welded to the base is a heating element.
The pot comes with a metal strainer, a book of instructions and a warranty card.
The pot was sold encased in a plastic bag which is enclosed in a cardboard carton.
On the outside of the carton enclosing a unit purchased in 1994 is depicted pictures of the fryer containing chips. It is uncertain whether the carton which enclosed the unit purchased by Hardchrome had the same appearance but Mr Arnold, an employee of many years at Kambrook, stated that at some stage the carton described the fryer as "Mr Chips" and to the best of his recollection had pictures of a fryer containing chips.
I am satisfied that on the carton which contained the fryer purchased by Hardchrome, was a display of the fryer containing chips.
A thermostat probe was inserted into the side of the base of the fryer to supply electricity to the heating element and also to control the temperature of the pot by controlling the flow of current to the heating element.
The thermostat probe was encased in a bakerlite covering and on the top of the unit was a control knob.
Attachment "B" to these reasons is a photograph of the bakerlite covered thermostat probe.
At one end of the bakerlite unit was an electrical cord which at the other end had a three point plug. Within the bakerlite unit was the thermostat.
Attachment "C" is a photograph of an undamaged thermostat probe.
It had a dual purpose. Power was fed to the probe and after passing through the probe passed into a socket (female) which when inserted into the base of the fryer received a male contact to ensure the flow of electricity.
The other purpose of the probe was to regulate the temperature of the contents of the fryer by the interruption of the power supply when a certain temperature was reached.
Attachment "D" to these reasons is a diagram of the thermostat probe. The diagram shows the probe upside down with the spindle for the control knob being at the bottom.
The thermostat control mechanism operates in accordance with basic scientific laws. The simple but efficient process depends upon the expansion thermal coefficient of two different metals. If two different metals are welded together to form a bi-metallic strip and exposed to heat, one of the metal strips will expand at a greater rate than the other resulting in the strip bending. The bending motion is used in thermostats to open and close electrical contacts. Thermal expansion was used in the fryer thermostat probe to regulate the temperature by opening and closing the electrical contacts.
One of the strips which contained the extension and the ceramic button was stainless steel. The other strip was not identified but was probably brass.
Electrical power was supplied through the cord to the thermostat with the neutral conductor going to one of the sockets which is inserted into the heating element in the fryer. The active conductor was affixed to the main contact arm which is the bottom arm. The earth went to the top of the thermostat probe. In order for the electricity to travel through into the other connector to the element it was necessary to bring two contacts together. They are called the load contact which is on a moveable contact arm and the main contact which is on a fixed contact arm. The contacts are like small round cakes and are made of silver. In order to cause the electricity to flow through to the heating element in the base of the fryer pot it is necessary to turn the control knob that is on a brass spindle which has the result of the two contacts being brought together and the current flows. The temperature probe itself is inserted into the area underneath the fryer pot and absorbs the heat which causes the temperature inside to rise. Located inside the temperature probe and extending out of its opening is the bi-metallic strip which is extended at the end of the steel strip. Located at the end of the stainless steel extension is a ceramic button. As the current is applied to the heating element the pot becomes hot, the temperature probe is heated by the heat at the base of the pot, the two metals in the bi-metallic strip expand at different rates with the result that the extension at the end of the strip bends in an upward motion causing the ceramic button to come into contact with the moveable load contact resulting in the moveable load contact being forced up thereby breaking the electrical circuit. This stops the current flow to the heating element.
As a result of cutting the electricity to the heating element, the temperature of the pot drops, as does the temperature in the probe, which has the effect of reducing the expansion in the bi-metallic strip and the bend decreases to a point where eventually the two contacts come together again and the current commences to flow.
The temperature scale on the control knob is calibrated from 115ºC to 215ºC. The calibration is far from precise and the temperature 190ºC appears in a rectangular‑type area which is rounded, and approximately 7 mm in length. It would be difficult for the user to determine precisely the temperature and no doubt it is expected that the user would rely upon observation of the contents of the pot to determine the appropriate temperature.
I am satisfied from tests performed by Mr John Marshall, a fire investigator, that a thermostat setting on a Kambrook deep fryer produced greater temperatures than those indicated on the thermostat setting.
He tested the temperature of cooking oil in the pot when the setting was in the halfway point of the 190ºC position. The actual temperature was 198ºC. At the mid point position in the 215ºC setting it produced an actual temperature of 226ºC. I accept his evidence that if the knob was turned to the extreme position of each setting that the temperature could increase up to another 12ºC. This would result in actual temperatures of the order of 210ºC in the thermostat setting 190ºC, and 240ºC with a setting of 215ºC.
On Saturday 7 March 1992 Mr Sezenias was the only person who worked that day. He left the factory at about midday and left the fryer on. The timer would have cut the power at 3.15 p.m.. It came on at 5.00 p.m. and stopped at 7.00 p.m.. The timer would have activated the power the following morning at 5.45 a.m. and this would have continued through to 3.15 p.m. It would have activated again at 5.00 p.m. and turned off at 7.00 p.m. on that evening. All told the fryer was operating for 11.5 hours per day.
On the Monday morning the power would have come on at 5.45 a.m.
Some time prior to 11.56 a.m. on Monday 9 March, a fire commenced in the vicinity of the fryer. It was initially a slow burning fire.
At 11.56 a.m. a call was placed to the Metropolitan Fire Brigade and a fire truck was sent to the factory premises.
By about 1.30 p.m. the fire had been extinguished and Senior Station Officer R.G. Undy from the Fire Investigation Unit of the Metropolitan Fire Brigade arrived at the premises and carried out investigations into the fire, and in particular to determine the point of ignition and the cause of same. He was soon joined by Mr Michael McCumisky, the senior electrical fire investigator who was also a member of the Fire Investigation Unit. He also examined the area and performed investigations into electrical matters.
Mr Undy found the few burnt remains of the fryer which he described as – "the deep fryer was just a molten metal with wires coming off it". The remains were retrieved from an area underneath the bench and examined.
Both men examined the thermostat probe at the scene. They observed that there was considerable arcing damage to the ends of the contact arm strip and the bi-metalic strip. The contact points were fused together which led them to the conclusion that the thermostat failed prior to the fire with the result that power continued to be applied to the appliance causing it to overheat and cause a fire.
It will be necessary to closely consider the evidence of both of these fire investigators. Attachment "E" is a photograph of the arcing damage to the thermostate probe and a photograph of an undamaged probe.
Mr McCumisky's report is short and to the point. He wrote –
"Precise cause unable to be determined due to damage incurred.
Fire apparently emanated in the area of a deep fryer appliance, possibly due to the temperature cut out failing and allowing the contents and pan to overheat. The unit was located on a work bench outside the north wall of an unused office on the west side of the factory."
Loss adjustors called in SGS Forensic, to carry out an investigation to determine the origin and cause of the fire. On the following day, 10 March, Mr Ian Stork‑Moore, (then known as Mr Moore) a forensic metallurgist employed by that firm, attended at the site. Mr Cox, an experienced fire investigator, also from that firm, attended in a supervisory role. About one week later Mr Stork‑Moore attended at the Fire Investigation Unit and took possession of the remains of the deep fryer, including the thermostat probe.
Mr Moore prepared a report dated 31 March 1992. He ceased employment with SGS Forensic in August 1992 and another member of that firm, Mr John Marshall, a professional engineer who specialises in the forensic investigation of fires and explosions and metallurgical failures was employed to carry out further tests and provide expert opinions on a range of matters.
Messrs Moore, Cox and Marshall gave evidence concerning the origin and cause of the fire. Their evidence is to the effect that prior to the fire, the gap between the main contact arm and the bi‑metallic strip was too narrow, that arcing occurred between the two points causing damage to the end of both arms, that the heat generated caused molten steel to lodge between the contacts which solidified, bonding the two contacts together with the result that the electricity continued to flow causing the pot to overheat to a very high temperature. A fire ensued.
It will be necessary to closely consider their evidence and the evidence of two experts called by Kambrook.
Contract - Terms
Mr Pratt in the Kambrook factory shop took the carton containing the fryer from a shelf, approached a cashier, paid for the goods and received a receipt.
Clearly an offer was made, it was accepted, consideration was paid and it was the intention of the parties to enter into a contract.
Section 6(1) of the Goods Act 1958 provides –
"6(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property and goods to the buyer for a money consideration called a price. … "
Section 6(3) provides –
"(3) Where under a contract of sale the property and the goods is transferred from the seller to the buyer the contract is called a sale; but where the transfer of the property and the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell."
It is clear from s.6(4) the agreement to sell ripens into a sale when, inter alia, the conditions are fulfilled.
Mr Pratt on behalf of Hardchrome entered into a contract of sale with Kambrook when he paid for the goods, received them and obtained a receipt.
At that moment in time the terms of the contract of sale between the parties were established.
As is typical in the sale effected at a shop, the express terms were few. Nothing was said or done by the Kambrook employees to incorporate particular terms into the contract.
Hardchrome has pleaded that there was an implied condition of the contract of sale that the goods would be of merchantable quality.
Hardchrome relies upon s.19(b) of the Goods Act 1958 and s.71 of the Trade Practices Act 1974. Section 19(b) of the Goods Act implies a term into a contract of sale that "the goods shall be of merchantable quality" where it is established that the goods were bought by description from a seller who deals in goods of that description whether the seller be a manufacturer or not.
I am satisfied on the evidence that the goods were bought by description and that Kambrook, the vendor, dealt in goods of that description. It follows that in my opinion the contract of sale did contain an implied condition that the goods be of merchantable quality.
Section 19(b) contains a proviso that there will be no implied condition if the buyer has examined the goods and any defect ought to have been revealed by the examination. The proviso was not pleaded and no argument was put that Hardchrome had examined the goods. It does not apply.
In those circumstances it is unnecessary to consider whether there is a condition of merchantability implied by s.71 of the Trade Practices Act.
Kambrook in its second further amended defence alleged that there were terms of the contract of sale which were express or implied.
It is asserted that the contract contained the following terms –
(a)the deep fryer was to be used for household use only as a fryer of food;
(b)the deep fryer was not to be used for any purpose other than its intended use;
(c)the deep fryer would not be left on for continuous periods and left unattended;
(d)the defendant would not be liable for damage suffered by reason of any use of the deep fryer other than its use as a household deep fryer of food and by reason of the deep fryer being left on for continuous periods and left unattended;
(e)the defendant warranted the deep fryer against defects in workmanship and material for 12 months from the date of purchase;
(f)that warranty did not apply to any defect, deterioration loss injury or damage occasioned by, or as a result of the misuse or abuse, negligent handling, or if the product has not been used in accordance with instructions;
(g)all other warranties were excluded other than the mandatory conditions implied by the Trade Practices Act 1974 and State and Territory legislation.
(Emphasis added).
Kambrook states that terms (a), (b) and (c) above are express or implied and contained in written instructions for the use of the deep fryer, and are derived from the circumstances of the sale as an item for household use and to give business efficacy to the contract.
Contained within the carton were instructions for the use of the deep fryer. These instructions were not brought to the attention of Mr Pratt who purchased the fryer on behalf of Hardchrome, and there was no reference to them on the carton and no mention was made to them by Kambrook prior to the contract of sale.
In my opinion what is contained in the instructions are not terms of the contract of sale for the simple reason they were not referred to at or prior to the time of the contract. They were never discussed prior to sale.
Mr Gunst QC submitted that the terms would be implied by the conduct of the parties, namely, that it was a fact well known to all adult purchasers of goods of the electrical variety, that instructions accompany the goods at purchase. I accept that that was so, but that fact does not constitute any of the instructions as terms of the contract.
The instructions were not referred to prior to the contract and there is no evidence of agreement that the instructions would be terms of the agreement.
The law recognises a number of bases for the implication of a term in a contract. Whether or not the court will imply a term depends upon the circumstances.
A term may be implied by reason of some statutory provision or well established principle of law such as the conditions of merchantability and suitability in contracts of sale of goods. Further, a term may be implied by reason of custom or trade usage.
A third basis is to provide business efficacy to the transaction. In this regard the statement by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 is applied. The statement of principle has been applied in numerous decisions in the High Court. – for example, Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 351-352, and Hawkins v Clayton (1988) 164 CLR 539, at 571-73.
The Privy Council specified five conditions which must be satisfied before a court would imply a term into the contract. The majority of the Privy Council in that case said -
"Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
Although the principles have been applied in many cases in Australia, as has been noted in a number of cases, it does not apply to all contracts. The contract in the BP case itself was a formal written contract which was complete upon its face. The High Court has recently emphasised that the principles should not be slavishly applied and may not be appropriate in cases where there is no formal written contract.
In Byrne v Australian Airlines Ltd (1995) 185 CLR 410, Brennan CJ and Dawson and Toohey JJ emphasised the point when they said after referring to the BP case the following -
"In laying down those criteria, it was recognised there was a degree of overlap. Further as Deane J has observed, the cases in which the criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings have been applied in this court are cases in which there was a formal contract complete on its face. He pointed out that a rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention. And the test to be then applied was in a later case formulated by Deane J in these terms:
'The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties.'" (emphasis added)
In the same case McHugh and Gummow JJ at p.442 stated the approach to the issue when they said –
"In such situations, the first task is to consider the evidence and find the relevant express terms. Some terms may be inferred from the evidence of a course of dealing between the parties. It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied. Some terms may be implied by established custom or usage, as described above. Other terms may satisfy the criterion of being so obvious that they go without saying, in the sense that if the subject had been raised the parties to the contract would have replied 'of course'. If the contract has not been reduced to complete written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case; only where this can be seen to be true, will the term be implied."
(Emphases added).
In this case the contract of sale was a typical sale and purchase over a counter in a shop and accordingly there are few express terms and of course no formal contract.
In my opinion the terms which are set out above, namely, (a), (b) and (c) would not be implied into this contract of sale and purchase, nor would they be inferred from the circumstances of the sale or the pictures on the outside of the carton. In my opinion it is not obvious that if an electrical appliance is purchased that it can only be used in a domestic situation if it is sold as a domestic appliance.
The pleaded terms were not necessary to give business efficacy to the contract and not so obvious that "it goes without saying".
There was much debate during the case as to the difference between a domestic or household appliance and an industrial appliance. There is no definition accepted by any particular authority as to what is a household or domestic appliance and what is an industrial appliance. However, it was accepted by a number of witnesses that there is a difference between household and industrial appliances.
It is common knowledge that electrical appliances are sold for industrial use. By way of example vacuum cleaners, hair dryers and electrical drills. These items are sold for household use but they are also sold as industrial appliances. When they are sold as industrial appliances they are invariably much more expensive, made of more robust materials and have a longer use life and to be able to withstand rough treatment. But it is up to the consumer whether he pays for the expensive unit for use in a commercial setting and there would be no reason to preclude him from using a cheaper model in a commercial operation.
The most important criterion of those mentioned is the longevity of the appliance. Most electrical appliances are manufactured to perform a maximum number of actions at which stage they wear out. A domestic vacuum cleaner may be expected to operate on a thousand occasions over ten years and wear out. The industrial version would be expected to be used say 10,000 times and last the same period.
The domestic appliance costs less, is built to last for a number of uses and to wear out.
In my opinion it goes without saying that it is unnecessary to draw attention to the purchaser of the appliance that it is sold for domestic use because that would be obvious in the circumstances. The parties would understand that fact.
In my opinion it was obvious in the circumstances in which Mr Pratt purchased the fryer that it was a domestic household appliance.
But that does not imply into the contract of sale and purchase that the deep fryer could only be used for household use and not for any other purpose. On determining its operational life that fact would be of relevance.
Alleged term (d) is said by Kambrook to have been implied from the instructions, the circumstances of the sale as an item for household use and to give business efficacy to the contract.
In my opinion whichever principles one applies to imply or infer a term in a contract they have not been satisfied. The term does not go without saying as being obvious, and on any view was not necessary to give business efficacy to the contract.
Alleged terms (e) and (f) set out above are said to be express terms and contained in a written guarantee.
There is no evidence that a warranty card was in the carton. A document headed "Kambrook Twelve Month Guarantee" was adduced in evidence and was in the carton containing the fryer purchased in 1994. For present purposes I will assume there was a card enclosed in the container of the fryer purchased by Hardchrome.
The first observation to make is that the guarantee is not given by the defendant Kambrook but by a company called MEC-Kambrook Pty Ltd. This is a different company to the defendant.
That is a short answer to the contention of the defendant in this proceeding.
But in any event the guarantee was not brought to the attention of the purchaser at any time prior to the entry into the contract and accordingly its contents could not be express terms. It simply never formed part of the contract.
In my opinion the terms could not be implied. Whilst I accept that most adult purchasers in this country would expect that an electrical appliance would have a guarantee, the terms of the guarantee are another matter. The court would not imply the terms of a guarantee into the contract on the basis that it should be inferred from the circumstances of the sale.
In my opinion the terms of the guarantee would not be implied because they are unnecessary to give business efficacy to the contract, and do not "go without saying". In my opinion, terms (e) and (f) as alleged are not terms of the contract.
It is pertinent to observe that the opening sentencing of the guarantee is in these terms –
"MEC – a KAMBROOK PTY LTD ACN 072 892 007 warrants the purchaser against defects in workmanship and material, for a period of 12 months from the date of purchase (three months commercial use)."
(Emphasis added).
That wording provides some support for the submission that at least Kambrook contemplated the fryer could be used in circumstances which were commercial and not domestic.
Alleged term (g) is said to be partly expressed and partly implied. It is asserted the express part is contained in the guarantee. For the reasons already stated the terms of the guarantee do not apply to the contract of sale entered into between Hardchrome and the defendant Kambrook. It is then said that it is implied by reason of the instructions, the guarantee, the circumstances of the sale as an item for household use and to give business efficacy to the contract.
I do not accept the submission. It cannot possibly be said that a term to the effect that all warranties were excluded other than mandatory conditions would be implied to give business efficacy to this contract of sale. Further, it could not be said that the term is so obvious "it goes without saying".
In my opinion the defendant, Kambrook, has failed to establish any of the terms pleaded in paragraph 4A of its second further amended defence.
At best there would be a term that the electrical appliance was a domestic one.
Burden of proof
The plaintiff alleges that the fryer was defective and hence Kambrook breached the condition of merchantability. It said that the defect was a cause of the fire which occurred on 9 March 1992 causing Hardchrome damage.
The plaintiff, Hardchrome, carries the burden of proving all the elements of its case. The standard is on the balance of probabilities.
There is no direct evidence with respect to either the alleged defect in the fryer at the time of or the cause of the fire.
Much evidence has been placed before the court and the plaintiff contends that there is primary evidence from which the court can legitimately infer that the fryer had a defect at the time of sale and that the defect was a cause of the ensuing fire and damage.
Although Hardchrome has the burden of establishing the elements of its cause of action on the balance of probabilities, it does not follow that it is necessary to prove each fact on the balance of probabilities. In the end the court, after considering all the relevant circumstances, must be satisfied on the balance of probabilities that the deep fryer when purchased was defective and the defect was a cause of the fire.
The approach of the court was discussed by the House of Lords in Rhesa Shipping S.A. v Edmunds (1985) 1 WLR 948.
That case was concerned with a claim by the owners of a ship against insurers for total loss of the ship by alleged perils of the sea. The ship in question was seriously run down and repaired in what was described as "an unmethodical way" and its plating was in a generally wasted condition. It took on a cargo in France and whilst proceeding in the Mediterranean opposite the coast of Algeria in a shipping lane there was a loud noise accompanied by vibration and large quantities of sea water gushed into the engine room through an opening in the plating. It eventually sank.
The trial judge had available to him direct evidence of those events.
The question was whether the loss was caused by perils of the sea and the owners put forward the cause as being a collision with a submerged object and ultimately the only serious possibility was collision with a submerged submarine. The trial judge held that the proximate cause of the loss was a collision with a submerged submarine and the Court of Appeal agreed with him.
The House of Lords reversed the decision, concluding that the only inference that could properly be drawn from the primary facts was that the true cause of the ship's loss was in doubt.
At p.951 Lord Brandon of Oakbrook who delivered the leading speech said –
"The question, and the sole question, which your Lordships have to decide is whether, on the basis of those primary findings of fact, Bingham J and the Court of Appeal were justified in drawing the inference that the ship was, on the balance of probabilities, lost by perils of the sea.
In approaching this question it is important that two matters should be borne constantly in mind. The first matter is that the burden of proving, on a balance of probabilities, that the ship was lost by perils of the sea, is and remains throughout on the ship owners. Although it is open to underwriters to suggest and seek to prove some other cause of loss, against which the ship was not insured, there is no obligation on them to do so. Moreover, if they choose to do so, there is no obligation on them to prove, even on a balance of probabilities, the truth of their alternative case.
The second matter is that it is always open to a court, even after the kind of prolonged enquiry with a mass of expert evidence which took place in this case, to conclude, at the end of the day, that the proximate cause of the ship's loss, even on a balance of probabilities, remains in doubt, with the consequence that the ship owners have failed to discharge the burden of proof which lay upon them."
(Emphases added).
The trial judge approached his determination by considering the two contradictory cases put forward by the owners and the underwriters and having excluded the underwriters' submission concluded that the ship owners had established the cause of the sinking.
Lord Brandon at p.966 said –
"My Lords, the late Sir Arthur Conan Doyle in his book The Sign of Four, describes his hero, Mr Sherlock Holmes, as saying to the latter's friend, Dr Watson: 'How often have I said to you that, when you have eliminated the impossible, whatever remains however improbable must be the truth?' It is, no doubt, on the basis of this well known but unjudicial dictum that Bingham J decided to accept the ship owners' submarine theory even though he regarded it, for seven cogent reasons, as extremely improbable.
In my view there are three reasons why it is inappropriate to apply the dictum of Mr Sherlock Holmes to which I have just referred, to the process of fact finding which a judge of first instance has to perform at the conclusion of a case of the kind here concerned.
The first reason is one which I have already sought to emphasise as being of great importance, namely, that the judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averrment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. …
The second reason is that the dictum can only apply when all relevant facts are known, so that all possible explanations, except a single extremely improbable one, can properly be eliminated. That state of affairs does not exist in the present case: to take but one example, the ship sank in such deep water that a diver's examination of the nature of the aperture, which might well have thrown light on its cause, could not be carried out.
The third reason is that the legal concept of proof of a case on a balance of probabilities must be applied with common sense. It requires a judge of first instance, before he finds that a particular event occurred, to be satisfied on the evidence that it is more likely to have occurred than not. If such a judge concludes, in a whole series of cogent grounds, that the occurrence of an event is extremely improbable, the finding by him that it is nevertheless more likely to have occurred than not, does not accord with common sense. This is especially so when it is open to the judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of proving that event occurred lies has therefore failed to discharge such burden."
(Emphases added).
In Jones v Dunkel (1959) 101 CLR 298 Dixon CJ at p.304 stated the nature of the court's task in determining whether a conclusion has been satisfied on the balance of probabilities –
"In an action of negligence for death or personal injuries the plaintiff must fail unless he offers evidence supporting some positive inference implying negligence and it must be an inference which arises as an affirmative conclusion from the circumstances proved in evidence and one which they establish to the reasonable satisfaction of a judicial mind. It is true that 'you need only circumstances raising a more probable inference in favour of what is alleged'. But 'they must do more than give rise to conflicting inference of equal degree of probability so that the choice between them is a mere matter of conjecture'. These phrases are taken from an unreported judgment of this court in Bradshaw v McEwans Pty Ltd which is referred to in Holloway v McFeeters by Williams, Webb and Taylor JJ. The passage continues: 'All that is necessary is that according to the course of common experience the more probable inference from the circumstances that sufficiently appear by evidence or admission, left unexplained, should be that the injury arose from the defendant's negligence. By more probable is meant no more than upon a balance of probabilities such an inference might reasonably be considered to have some degree of likelihood.' But the law which this passage attempts to explain does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the other. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied."
(Emphases added).
That different minds, may arrive at different conclusions is amply demonstrated by the result in the case of Jones v Dunkel.
Much of the evidence in the present cases is circumstantial.
In Luxton v Vines (1952) 85 CLR 352, Dixon, Fullagar and Kitto JJ at p.358 said –
"The test to be applied in determining in cases like this whether circumstantial evidence suffices to support a finding that negligence for which the defendant is responsible vicariously or otherwise occasioned the injury complained of was restated recently by this court in Bradshaw v McEwans Pty Ltd and for the purpose of this case it is enough to set out the following passage from the judgment:
'Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities not with possibilities. The difference between the criminal standard of proof and its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is a mere matter of conjecture: see per Lord Robson, Richard Evans and Co Ltd v Astley. But if circumstances are proved to which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise'."
Conclusion
Kambrook breached the contract of sale with Hardchrome by supplying a deep fryer which was defective and not of merchantable quality. The defect, the inadequate gap in the thermostat probe, caused arcing which ultimately led to the contact points being welded and a continuous supply of electricity to the fryer. The fryer overheated and reached very high temperatures, probably in excess of 400°C. The overheating caused a fire at the factory premises on the morning of 9 March 1992 which caused substantial damage to the building and the contents.
I am satisfied that the breach of contract caused the fire which in turn caused the damage to Hardchrome. The damages it claims, namely, its own loss, together with the damages it is required to pay Julias Investments are recoverable from Kambrook.
I am also satisfied that Kambrook was negligent in selling a defective article to Hardchrome, that the negligent act was a cause of Hardchrome's damages but its entitlement to damages is reduced by 40% for contributory negligence.
Julias Investments has established its two causes of action against Hardchrome and also its cause of action against Kambrook and it is entitled to recover the amount of agreed damages.
Two further questions have to be addressed. The first is a question of interest and failing agreement between the parties I will hear submissions on the question of interest pursuant to the Supreme Court Act 1986.
The other question concerned the new GST which was introduced into Australia on 1 July 2000. The agreement between the parties concerning the quantum of damages is subject to any liability imposed by the new GST. As I understand the agreement, if GST is payable on the damages then it is expected that the party responsible for paying the damages is to pay the extra amount for GST.
I will hear submissions from the parties in respect to the question of GST applying to the damages, interest and costs.
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