Hypax Pty Ltd (t/as Doneyco) v N and M Gangemi Pty Ltd

[1998] FCA 1102

FEDERAL COURT OF AUSTRALIA

CONTRACT – express representation harvester would be in “harvestable condition” on delivery – meaning of “harvestable condition” – whether breach of this condition.

DAMAGES – causation – operative cause of ordinary common sense and experience – whether defects attributable to harvester were an operative cause of damage – remoteness – whether hail storm could reasonably be contemplated in event of breach.

PLEADINGS – contractual condition as pleaded refers to expression “wheat crop” – no specification as to density of wheat crop – whether open to find breach of contract because harvester not able to harvest light density wheat crop – term “harvestable condition”.

Water Board v Moustakas (1988) 180 CLR 491, followed
Nescor Industries Group Pty Limited v Miba Pty Limited (1997) 150 ALR 633, followed
March v E & M H Stramare Pty Limited (1991) 171 CLR 506, followed
Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64, cited
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, cited

HYPAX PTY LIMITED (T/AS DONEYCO) v

N & M GANGEMI PTY LIMITED
WAG 132 of 1997

FRENCH, TAMBERLIN AND RD NICHOLSON JJ
PERTH (DELIVERED IN SYDNEY)
8 SEPTEMBER 1998

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAG 132 of 1997

ON APPEAL FROM A SINGLE JUDGE OF THE
FEDERAL COURT OF AUSTRALIA

BETWEEN:	HYPAX PTY LIMITED (T/AS DONEYCO) (ACN: 009 016 095) APPELLANT
AND:	N & M GANGEMI PTY LIMITED (ACN 008 848 422) RESPONDENT
JUDGES:	FRENCH, TAMBERLIN & R D NICHOLSON JJ
DATE OF ORDER:	8 SEPTEMBER 1998
WHERE MADE:	SYDNEY (HEARD IN PERTH)

THE COURT ORDERS THAT:

The appeal be dismissed with costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAG 132 of 1997

ON APPEAL FROM A SINGLE JUDGE OF THE
FEDERAL COURT OF AUSTRALIA

BETWEEN:	HYPAX PTY LIMITED (T/AS DONEYCO) (ACN 009 016 095) APPELLANT
AND:	N & M GANGEMI PTY LIMITED (ACN 008 848 422) RESPONDENT

JUDGES:	FRENCH, TAMBERLIN & R D NICHOLSON JJ
DATE:	8 SEPTEMBER 1998
PLACE:	PERTH (DELIVERED IN SYDNEY)

REASONS FOR JUDGMENT

The Court

This is an appeal from a decision of Carr J delivered on 31 October 1997, awarding damages of $35,706 against the appellant for breach of a contract for sale of a second-hand wheat harvester.

The grounds of appeal and submissions are essentially directed to five matters; namely, contentions that:

1.his Honour erred in finding that it was an express term of the contract for sale that the harvester would be delivered in a condition whereby it was able to harvest wheat;

2.the evidence was not sufficient to justify a finding that the machine was not in “harvestable” condition when delivered and thereby amounting to a breach of contract because there was no evidence as to the specific cause of failure;

3.the applicant had not shown the required causation between the damage alleged and the breach;

4.        the damages were too remote; and

5.the evidence did not justify the findings of particular damage made by his Honour.

We will address the matters in the order set out above:

Meaning of “harvestable” condition

After considering the evidence as to the representations, Carr J found that the evidence was not sufficient to establish that Mr Gangemi, on behalf of the buyer applicant, had made it clear to Mr Hyde, the sales representative of the respondent seller, that the harvester was required to harvest a particular density of wheat crop; namely, the light density crop which was the type of crop grown in the area of Mr Gangemi’s farm.

His Honour concluded, on this aspect of the case, that the seller had made an express representation that work would be carried out on the harvester so that upon delivery it would be in a condition such that it would be able to harvest wheat.  His Honour also found that the harvester was not in “harvestable” condition when delivered in the sense that it did not have the capability of harvesting any type of wheat crop in accordance with industry standards, irrespective of the density.

The first question which arose for determination by his Honour was the meaning of the expression “harvestable condition”.  The order form of 14 November 1995, which recorded the sale, bears a handwritten note which reads:

“Doneyco to make machine in harvestable condition”

By way of clarification it should be noted that “Doneyco” is the trade name under which the seller, Hypax Pty Limited, carried on its business.

Although the word “harvestable” does not appear to be a word recognised by the compilers of either the Oxford or the Macquarie dictionaries, its general purport in the present context is readily discernible as being “able to harvest”. Considered in isolation the word could mean “able to be harvested” but that meaning is inappropriate when construed against the background of this case.  The question then addressed by his Honour was whether the expression meant able to harvest a specific type of wheat crop, such as a light wheat crop, or whether it meant able to harvest a wheat crop of any density?

His Honour favoured the latter alternative.

The evidence did not leave the question as to the meaning of “harvestable” in the abstract.  Specifically, Mr Morrison, a man with longstanding practical experience operating farm machinery, whose evidence his Honour generally accepted, gave evidence that the words “harvestable condition” conveyed a specific meaning to those in the industry.  It referred to a capability in a harvester to gather crops such that a grain loss in the order of only 1 to 2% was achievable irrespective of whether the machine was new or second hand.  In addition, Mr Foote, who also had extensive experience in the industry considered that an old machine in “harvestable” condition should have a grain loss in the order of only 1½ to 2%.  Mr Hyde, himself, did not appear to have any difficulty when giving evidence with the expression “harvestable” condition.  For instance, he gave evidence in chief that the machine initially was not in a “harvestable” condition.  Later he agreed that a machine in harvestable condition was one “capable of picking up about 99% of the stalks”.

A pleading point arose at the commencement of the hearing concerning the allegation that the harvester should be in “harvestable condition”.  Counsel for the seller, Hypax, referred to the Statement of Claim.  He pointed out that the contractual condition, as pleaded in the first Statement of Claim, referred to the words “the wheat crop” which he said was intended to be confined to the specific type of wheat crop of Mr Gangemi; namely, a light density crop.  Therefore, he submitted, it was not open to his Honour to find that there was any breach in this case because the harvester was not able to properly harvest any type of wheat crop regardless of density.  The allegation, he said, narrowed the issue to a question about whether the contract had been breached because it was not able to harvest light density crop.  His Honour having found that there was no representation to this effect then said it followed that the applicant had not made out its case as pleaded.

This submission should not be accepted for several reasons.

The first reason is that the express handwritten condition refers to “harvestable condition”.  It is silent as to whether the crop was light or otherwise. Consequently, when construed according to its natural and ordinary meaning, the expression should be taken to convey the meaning of being able to harvest crops regardless of density.  Consequently, if the harvester is unsuitable to harvest any type of wheat crop, whether light or otherwise, the requirement will not be satisfied.

It is helpful in the present case to recall the comments of the High Court in Water Board v Moustakas (1988) 180 CLR 491 in relation to the function of pleadings. In that case Mason CJ, Wilson, Brennan and Dawson JJ said at 497:

“In deciding whether or not a point was raised at trial no narrow or technical view should be taken.  Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet.  In cases where the breach of duty of care is alleged, the particulars should mark out the area of dispute.  The particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars should be amended to reflect the actual conduct of the proceedings.  Nevertheless, failure to amend will not necessarily preclude a verdict upon the facts as they have emerged.…

It is necessary to look at the actual conduct of the proceedings to see whether a point was or was not taken at the trial, especially where a particular is equivocal.” (Emphasis added)

See also the recent decision of the Full Federal Court as to the role of pleadings in Nescor Industries Group Pty Limited v Miba Pty Limited (1997) 150 ALR 633 at 638-644 per Davies J and R D Nicholson J at 647-648.

The present case is not in any way analogous to a situation, for example, where a person buys a second-hand luxury car and later complains (without any foundation) that it would not drive efficiently on sand dunes.  In such a case, the warranty would be taken to be that the sedan would operate on normal roads.  In this case the machine, when delivered, was simply not capable of performing on any density of wheat crop at all and fell far below accepted industry standards.  In substance this issue as to the total unsuitability of the harvester was litigated and determined.

We do not consider that the seller has any basis to claim that it was taken by surprise or subjected to any unfair disadvantage in the conduct of the proceedings.

The second matter in relation to the state of the pleading is that during the hearing, by consent, the statement of claim was amended by adding a new paragraph, which reads:

“13A   Further or alternatively it was an express term of the contract that the harvester would be in harvestable condition”.

This amendment is in the alternative and is clearly based on the handwritten note on the order form which was quoted earlier.  The words are not confined to “the wheat crop”.   They squarely raise the question as to the general suitability of the harvester.

We are satisfied that this issue was fully ventilated.

The Court notes that at the time when the above amendment was made, Counsel for the parties indicated that, in their view, the amendment was not designed to significantly change the nature of the claims made in the original statement of claim.  In other words, it was not intended that the amendment would introduce any new or additional cause of action.  We have taken this into account.  However, for the reasons given above, we consider the gravamen of the complaint made was that the harvester was not in any sense acceptable by industry standards relevant and applicable to wheat harvesting.

Having regard to the foregoing, we do not consider that there is any substance in the submission that it was not open to his Honour, on the pleadings, to consider whether the harvester was able to operate in respect of the harvesting of wheat crops in the general sense.

Was there a breach of contract?

The seller submits that in order to establish breach of contract there must be evidence of an actual attempted operation on heavier densities of wheat crops.  It is further said that the evidence indicated that an accepted “step by step” process must be followed in harvesting, in the sense of making regular adjustments to cope with the particular crop and conditions. It is said that his Honour did not take such an approach.  Counsel also submits that the evidence was insufficient to enable his Honour to find that the harvester was not in “harvestable condition” because this process was not followed and also that his Honour did not identify, as he was required to do so, the specific defect which led to the grain loss.

In considering this submission it is important to note that his Honour was furnished with a great deal of “expert” material as to the operation and condition of the harvester.  It is evident from the judgment that his Honour gave careful consideration to the weight he should place on the evidence of each of the expert witnesses called.  Although he considered that one of the buyers’ witnesses had a tendency to exaggerate, he nevertheless generally accepted the evidence of the buyers’ witnesses as to the condition of the harvester, rather than that of Mr Blanchard, who gave evidence for the seller.  He considered that the length and practical nature of their experience outweighed the expertise and experience of Mr Blanchard in important aspects.

The seller, in submissions before this Court, endeavoured to make good a case that the problem with the harvester was in the threshing machinery and not with the cutting machinery.  The importance of this distinction, it is said, is that the threshing machinery was capable of adjustment so as to enable it to operate effectively. It is said that the evidence was that no adjustment to the drum and concave threshing equipment had ever been carried out, and if this had been done the harvester may well have operated satisfactorily.

There are several difficulties with this argument.

The first is that there was evidence that even after the fitting of light crop “fingers” to the harvester, there was still a large percentage of grain being left behind.  The evidence of Mr Foote, a witness whose evidence was accepted by his Honour, was that the effect of the light crop “fingers” reduced the grain loss to in the order of 30-35%.  Mr Foote stated that before the “fingers” were fitted, the machine was actually cutting the wheat but not satisfactorily.  The effect of the “fingers” was to improve the cutting by about 25 or 30%.  The evidence was not to the effect that cutting problems had been eliminated.

In our view it was open to his Honour, on the evidence, to find that both the cutting and the threshing functions were performing in a sub-standard way even after the fitting of the “fingers”.

The second consideration is that there was evidence to the effect that the drum and concave components of the threshing machinery were significantly worn.  Mr Lester, who gave expert evidence for the buyer, considered that the grain loss problem could probably be explained by a very worn concave or drum.  He did not consider that there was any scope remaining to adjust the drum and concave in order to resolve the problems.  When he saw the harvester “in action” he identified a number of additional problems, such as the repeats elevator not working properly.  A lot of chains were found to be very worn and were stretched so as to jump over the cogs that were driving them.  Even with the light crop “fingers”, a 35% grain loss was on the evidence many orders of magnitude above the acceptable standard, which was variously expressed to range between a minimum of 1% and a maximum of 5%.

Another consideration is that although Mr Hyde agreed that the harvester was not in harvestable condition at the time of the contract but that it would be placed in such a condition by the time of delivery, the evidence indicates that, in fact, very little was spent on its restoration to meet the requirement and that the seller was reluctant to spend money on repairs or improvements.

In our view, there was sufficient evidence before his Honour to enable a finding to be properly made that when the harvester was delivered, it was not in harvestable condition.

Causation

The seller submitted that the relevant operative cause of the damage was delay on the part of the buyer, which exposed the crop to a severe hail storm on 27 December 1995, and that the expression was not due to any defect in the harvester.  It submitted that the light crop “fingers” should have been fitted earlier.

His Honour referred to the causation principles discussed by the High Court in March v E & M H Stramare Pty Limited (1991) 171 CLR 506 at 522, where the appropriate question for determining causation is expressed to be whether:

“… as a matter of ordinary common sense and experience, it [the breach] should be regarded as a cause of it [the loss]”. (Emphasis added)

His Honour recognised that the March case concerned causation in tort but considered that it provided useful guidance in the present matter.  We agree.  Applying the March test, his Honour concluded that if the harvester had been in “harvestable” condition on delivery it could have commenced harvesting on 27 November 1995.  However, he found that notwithstanding other events, the defects attributable to the harvester were an operative cause of exposure to the hail storm.

In our view, given the exigencies of the circumstances in which Mr Gangemi was placed as a result of the delivery of the defective harvester, we consider that it was open to his Honour on the available material to find that the breach of condition was an operative cause of the loss suffered.

Remoteness

The question was raised whether damage by the hail storm could have been reasonably contemplated by the buyer and the seller as a consequence of a breach of the condition when the contract was entered into in November 1995.

In finding that the loss was not too remote, his Honour referred to the evidence of Mr Gangemi that there had been an earlier hail storm in October 1995, which was about one month before the order form was signed.  He clearly had such a contingency in mind.  There was also evidence that the seller’s representative, Mr Hyde, knew that the wheat crop of Mr Gangemi was in the order of 2,000 acres.  He also found that Mr Hyde was aware that farmers feared hail and insured against it.

As a matter of common sense it is reasonably apparent that once a crop is ready to harvest, any delay in harvesting must increase the exposure of the crop to a greater possibility of damage by adverse weather conditions, or other dangers, such as fire or disease.

Although there still remains a distinction between the test of “reasonable foreseeability” and the test of the “reasonable contemplation of the parties”, nevertheless the distinction is considered to be one of diminishing importance in the law of damages: cf Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 at 116 per Deane J. In any case, in the present circumstances the damage suffered by hail satisfies both formulations of the remoteness test.

In our view, although on any one day in the year the likelihood of hail may have been statistically small, it was open to his Honour, on the evidence, to find that the chance of damage as the result of exposure to hail as at November or December 1995 was within the reasonable contemplation of the parties in the event that the harvester was delivered in a non-harvestable condition.

Damages - quantum

In approaching the quantification of damages, the Court is bound to make the best assessment it can on the material before it.  At times, this material will be incomplete, or in some respects unsatisfactory, but this does not relieve the Court from making an assessment: cf Amann Aviation (supra) at 125 and McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411-412 per Dixon and Fullagar JJ.

In the present case, in our view, the generalised criticisms made by the seller in relation to quantum are lacking in substance.

It was submitted, in particular, that his Honour misunderstood the evidence of Mr Blanchard in suggesting that it would cost about $5,000 to repair the harvester and put it in “harvestable condition”.  It is said that the $5,000 was for the cost of modifying the harvester to suit light crop conditions by an additional attachment to the cutting functions.  However, the reasons of his Honour make it clear that although the damages evidence was not satisfactory, there was evidence in the form of an estimate from Mr Foote of a figure of around $10,000 for repairs and rectifications.  His Honour also adverted to the evidence of Mr Lester and Mr Meney as to the time and cost involved in repairing the harvester so as to restore it and put it back in “harvestable” condition.  His Honour mentioned Mr Blanchard’s assessment of approximately $5,000 and proceeded to conclude that in all the circumstances an award of $7,500 would be appropriate under this head.  The way in which the evidence was to be evaluated and the weight to be placed on it was essentially a matter for his Honour and there was available evidence on which his Honour could properly determine the amount of $7,500.

We are not persuaded that his Honour erred in any way in estimating the repair cost to be $7,500.

Conclusion

Accordingly, for the above reasons, this appeal should be dismissed with costs.

I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of the Court:

Associate:

Dated:             8 September 1998

Counsel for the Appellant:	Mr A J Camp
Solicitor for the Appellant:	Messrs Atkins & Co
Counsel for the Respondent:	Mr RHB Pringle QC & Mr WJ Chestnutt
Solicitor for the Respondent:	Mark Andrews & Associates
Date of Hearing:	23 July 1998
Date of Judgment:	8 September 1998