Killingworth Quarries Pty Ltd v Titan Transport Engineering Australia Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 7360 of 2000

KILLINGWORTH QUARRIES PTY LTD (ACN 078 637 840)	Plaintiff
v
TITAN TRANSPORT ENGINEERING AUSTRALIA PTY LTD (formerly known as Titan Readymix Concrete (Aust) Pty Ltd) (ACN 078 876 623)	First Defendant
and
JAMES MANDIKOS	Second Defendant

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JUDGE:	DODDS-STREETON J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	18-21, 24-27, 31 March, 1-3, 7-8, 10 April 2003
DATE OF JUDGMENT:	3 September 2003
CASE MAY BE CITED AS:	Killingworth Quarries Pty Ltd v Titan Transport Engineering Australia Pty Ltd
MEDIUM NEUTRAL CITATION:	[2003] VSC 324

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CONTRACTS – Contract for supply of goods – Breach – Purchaser failed to order and purchase minimum quantity of goods required by agreement –Alleged breach of supplier of express and implied terms of agreement, failure to comply with relevant Australian Standards and industry standards - Allegation of non‑compliance with consistency with alleged submitted sample – Whether product incapable of “stand alone” use breached term as to quality – No submitted sample or grading – No consistency requirement – No breach of industry standards – Conditions of fitness for purpose or merchantable quality – Failure of product to comply with contractual conditions of quality not established – No breach by supplier – Breach of agreement by purchaser established – Supplier’s loss and damages – Whether too remote - Trade Practices Act 1974 (Cth) s.53(1); Fair Trading Act 1985 (Vic) s.12(a).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr G.A. Devries	Mahons
For the Defendants	Mr M.E. Bruce	O’Donnell Frampton Salzano

TABLE OF CONTENTS

THE PROCEEDING.......................................................................................................................... 1

THE PARTIES.................................................................................................................................... 1

THE PLEADINGS.............................................................................................................................. 1

Further amended statement of claim......................................................................................... 1
Amended Defence and Counterclaim........................................................................................ 3

SUMMARY OF CONTENTIONS................................................................................................... 5

BACKGROUND AND SUMMARY OF FACTS.......................................................................... 9

CREDIT.............................................................................................................................................. 24

Mr Mandikos............................................................................................................................... 24
Mr Cruden.................................................................................................................................... 25

Titan’s Construction of Supply Agreement................................................................................ 27

Clause 13 of the Supply Agreement............................................................................................. 28

Was there a submitted grading?............................................................................................... 36
Was there a submitted sample?................................................................................................ 38

EXPERT EVIDENCE....................................................................................................................... 49

The Plaintiff’s Experts................................................................................................................ 49

Mr Newbegin........................................................................................................................... 49
Mr Mudge................................................................................................................................ 51
Mr Buffington.......................................................................................................................... 53

The Defendants’ Experts............................................................................................................ 54

Mr Heath.................................................................................................................................. 56
Mr Smith.................................................................................................................................. 56

Stand Alone Sand............................................................................................................................ 57

BREACH OF SUPPLY AGREEMENT......................................................................................... 58

LOSS AND DAMAGE OF PLAINTIFF....................................................................................... 60

MAGISTRATES’ COURT COMPLAINT No. NO1319036 – ALLEGED SHORT WEIGHT OF GOODS SUPPLIED......................................................................................................................................... 65

Short Weight................................................................................................................................ 65
The Loader Scales....................................................................................................................... 67

MAGISTRATES’ COURT COMPLAINT No. P00238612........................................................ 70

CONCLUSION................................................................................................................................. 74

HER HONOUR:

THE PROCEEDING

In this proceeding the plaintiff, Killingworth Quarries Pty Ltd (“Killingworth”) seeks damages for breach of contract from the first defendant, formerly named Titan Readymix Concrete (Aust) Pty Ltd but now known as Titan Transport Engineering Australia Ltd (“Titan”) and damages for breach of guarantee against the second defendant, James Mandikos, a director of Titan.

THE PARTIES

The plaintiff company was registered on 22 May 1997. Its directors are Mr Charles Cruden, his wife Mrs Alexena Cruden and their daughter and son-in-law, Mrs Thelma DeVries and Mr Gregory DeVries. The second defendant, Mr Jim Mandikos, was a director from the date of Killingworth’s registration until his removal on 20 March 2001 pursuant to a resolution of the members of the company.

Charles and Alexena Cruden and Thelma and Gregory DeVries each hold 135,000 issued shares in Killingworth. Titan holds 60,000 issued shares in Killingworth.

The first defendant, Titan Readymix Concrete (Aust) Pty Ltd has changed its name to Titan Transport Engineering Australia Pty Ltd (ACN 078 876 623). The name of this proceeding should be amended accordingly. The second defendant, Mr Dimitrios (“Jim”) Mandikos is a director of Titan. Mr Mandikos gave evidence that Titan is no longer active. Its business has been sold. The principal equity holder of Titan is or was Mr Eustratios (Stan) Mandikos, the father of Mr Jim Mandikos.

THE PLEADINGS
Further amended statement of claim

By further amended statement of claim dated 17 October 2001, Killingworth pleads that on or about 1 July 1997, Killingworth and Titan entered into a written supply agreement (“the Supply Agreement”) which included a term that Titan was to purchase from Killingworth sand, screenings and packing sand (“goods”) on a monthly basis.

The Supply Agreement was for a three year term, commencing on 1 November 1997. It required Titan to purchase, in the first 12 months, a minimum of 16,500 tonnes of any mixture of the goods, provided that the 16,5000 tonnes included a minimum 13,2000 tonnes of sand and screenings and for the remaining term, a minimum of 27,500 tonnes of the goods, a minimum of 80% of which was to comprise sand and screenings.

The price of $8.00 per tonne for the sand and screenings and $4.00 per tonne for packing sand was to be indexed annually, in accordance with movements for the preceding 12 months in the weighted average of All Groups Price Index Numbers for the eight capital cities of the States and Territories published from time to time by the Australian Bureau of Statistics.

Killingworth was entitled to invoice Titan, and Titan was required to pay Killingworth, for the minimum goods required to be purchased by Titan, whether or not Titan ordered or collected them.

Killingworth alleges that Mr Mandikos, a director of Titan, executed a continuing guarantee guaranteeing Titan’s liability under, or arising from, breach of the Supply Agreement.

It alleges that under the Supply Agreement, Titan was required to order 66,916.67 tonnes of goods by 31 August 2000, 69,208.33 tonnes of goods by 30 September 2000 and a total of 71,500 tonnes by 31 October 2000, but in breach of the Supply Agreement, ordered only 34,158 tonnes by 31 August 2000 and an estimated 36,088 tonnes to 30 September 2000.

Killingworth further claims $16,601.78 for goods sold and delivered to Titan pursuant to the Supply Agreement during October and December 1999 (Magistrates’ Court Matter No. NO1319036) and $16,775.11 as the balance of moneys owing for goods sold and delivered pursuant to the Supply Agreement between 1 September and 31 October 2000 (Magistrates’ Court Matter No. POO238612).

Killingworth claims that it made a profit of $7,8456 per tonne on the sale of the goods to Titan.

It claims a total of $257,001.42 in damages in relation to the principal breach of the Supply Agreement and the sums of $16,601.78 and $16,775.11 in relation to the uplifted Magistrates’ Court Complaints.

Amended Defence and Counterclaim

By amended defence and counterclaim dated 25 October 2001, the defendants admit the Supply Agreement on the terms alleged and the execution of a guarantee, although they deny that was a continuing and irrevocable guarantee.

The defendants allege that at the time the Supply Agreement was entered into, Titan made known to Killingworth that it intended to use the goods in Titan’s ready mixed concrete plant to produce ready mixed concrete for sale to customers, so as to show that it relied on Killingworth’s skill and judgment.

The defendants allege that by clause 13 of the Supply Agreement, it was an express term that the sand and screenings would:

· Meet the Australian standards imposed or required by NATA Laboratories;

· meet all applicable building regulations from time to time;

· be suitable for use in a ready mixed concrete plant;

· be suitable for use in Titan’s business for the purpose of producing ready mixed concrete for ultimate sale to Titan’s customers.

They further allege that it contained an implied term that the sand and screenings would be of merchantable quality, reasonably fit and suitable for the purposes, correspond to their description in the Supply Agreement and comply with concreting industry standards and guidelines. The basis of implication of those terms is alleged to be ss.18, 19(a), 19(b) and 19(c) of the Goods Act 1958 (Vic) and the need to give business efficacy to the Supply Agreement.

The defendants admit that Titan placed oral orders for sand and screenings between 1 November 1997 and 31 October 2000, which were collected by Titan from Killingworth’s premises and totalled 36,153 tonnes of sand and screenings. Approximately 95.99% represented screenings and 4.01% represented sand.

The defendants contend that in breach of the alleged express and implied terms of the Supply Agreement, the delivered sand did not meet the requirements of clause 13 of the Supply Agreement, in that it did not meet the Australian standards imposed or required by NATA Laboratories, did not meet applicable Building Regulations 1.7, and was not suitable for use in a ready mixed concrete plant. Further, in breach of implied terms, it was not suitable for use in Titan’s business and in particular, for the purpose of producing ready mixed concrete for ultimate sale to its customers. It was not of merchantable quality, was not reasonably fit and/or suitable for the purposes, did not correspond with its description in the Supply Agreement and did not comply with concreting industry standards and guidelines.

In particular, the defendants allege that the sand was not properly washed, was not properly sieved to the correct size, was too coarse and was deficient in fines (fine particles). Further, the concrete produced from the sand appeared harsh, segregated, manifested excessive bleeding, was difficult to pump, and was difficult to finish or trowel. Substantial additional cement needed to be added in order to produce concrete from the delivered sand, with the consequence that the concrete mix thereby produced would not trowel satisfactorily.

The defendants claim that by reason of Killingworth’s breach of the Supply Agreement, Titan was entitled to refuse to order or accept further sand or screenings, and is not liable for additional sand or screenings which it refused to order or accept.

The defendants further claim contravention of s.53(a) of the Trade Practices Act 1974 (Cth) and s.12(a) of the Fair Trading Act 1985 (Vic), in that Killingworth falsely represented that the sand and screenings which it proposed to sell to Titan were of a particular standard, quality, value, grade or composition.

The particulars of the false representations are a repetition of the allegations of Titan’s making known its purpose for the product, the terms of the Supply Agreement, and allegations of non-compliance, together with the further allegation

“that prior to the Agreement being signed Charles Cruden on behalf of the Plaintiff showed [Mr Jim Mandikos] a sample of sand from Yea Sand and said that the sand the Plaintiff could supply was the same standard grade and quality. The sand supplied by the Plaintiff to [Titan] was not the same standard, grade and quality as the sample from Yea Sand.”

By counterclaim, Titan claims a total of $ 701,293 in loss and damage sustained by reason of the alleged breach by Killingworth.

SUMMARY OF CONTENTIONS

The plaintiff claims that Titan breached the Supply Agreement dated 1 July 1997 in that it failed to order the minimum quantity of product specified in clause 3. The total minimum quantity of goods to be ordered over the three year term of the Supply Agreement was 71,500 tonnes. Titan ordered only 35,709.85 tonnes of product, leaving a shortfall of 35,790.15 tonnes. The plaintiff asserts that as a result of the breach, it lost profit of $280,795.20. It also claims in relation to two lots of goods allegedly sold and delivered to Titan pursuant to the Supply Agreement, being $16,601.78 for the period from October to December 1999 and $16,775.11 for the period from September to October 2000. Those claims were made in proceedings originally issued in the Magistrates’ Court and were subsequently uplifted and joined to the present proceeding.

Titan admits that it failed to order 35,480 tonnes of goods (the figure derived from the statement of Stephen Lewis). Further, it admits that it did not pay the sum of $16,556.68 for goods sold and delivered between October 1998 and December 1999 (the balance outstanding of the invoices in the statement of Wendy Body which differs slightly from the plaintiff’s figure of $16,601.78). Titan admits also that it did not pay the sum of $16,771.61 for goods sold and delivered by Killingworth between September and October 2000.

The principal issue in dispute relates to the alleged breach of the Supply Agreement. The defendants assert that the admitted failure to order the minimum quantity of goods was justified, due to Killingworth’s breach of clause 13 of the Supply Agreement. The defendants assert that Killingworth’s product failed to comply with clause 13 of the Supply Agreement, and with terms implied by the Goods Act to the effect that goods be of merchantable quality, be reasonably fit for a particular purpose (s.19(a) and s.90, Goods Act) and conform to a sample. (At trial, the allegation of failure to comply with implied statutory terms as to a sale by description (Goods Act s.19(b)) was withdrawn.) The defendants contend that the quality of the Killingworth product offered for supply was so unsatisfactory that it amounted to repudiation or fundamental breach of the plaintiff’s obligations under the Supply Agreement.

In relation to the two uplifted Magistrates’ Court claims, the defendants claim that the first amount of $16,556.68 (Titan’s figure) represents payments justifiably withheld due to short weight in delivery and the second amount of $16,771.61 represents payments justifiably withheld due to the unsatisfactory quality of the product. In relation to the first Magistrates’ Court claim, the defendants claim that the plaintiff employed inaccurate loader scales at the Killingworth Quarry, which delivered short weight, rather than a weighbridge, which the defendants had allegedly been promised from the outset. In relation to the second Magistrates’ Court claim, the defendants claim that the plaintiff’s screenings (pebbles or coarse aggregate) were oversized and dirty, which rendered them unfit to use in the production of readymix concrete.

The plaintiff denies that the defendants insisted on a weighbridge from the outset. It contends that although its stated aim was to install a weighbridge as soon as possible it was not a term of the Supply Agreement. Further, the parties’ understanding that a weighbridge would be installed as soon as possible was dependent on Titan’s contribution to Killingworth of goods or services to the value of $8,000 due under the shareholders’ agreement. The defendants deny that the installation of the weighbridge was conditional on Titan’s provision of goods or materials to Killingworth to the value of $8,000.

In summary, the plaintiff denies any breach of clause 13 of the Supply Agreement. It claims that it was willing to, and capable of, continuing to supply goods of the required quality. The plaintiff claims that there were never any representations or assurances in relation to the quality or suitability of its product, other than those set out in clause 13 of the Supply Agreement. It asserts that its product complied with the requirements of clause 13 as properly construed and, in so far as applicable, any terms implied by the Goods Act. The plaintiff further contends that there was no sample provided or associated with the Supply Agreement, no additional contractual specifications as to the composition of product, and no submitted grading of the product was provided.

Further, the plaintiff contends that, on a proper construction, clause 13 of the Supply Agreement does not contain any requirements as to the consistency of successive consignments in the absence of an agreed sample. At most, it imposes a requirement of only extremely broad ranges of gradings (or size of the constituent particles) under the Australian Standard relevant to concrete aggregates. Further, clause 13 does not contain a requirement that the sand supplied under the Supply Agreement must be capable of use as a “stand alone” product. Similarly, an implied term that the sand be reasonably fit for the purpose does not require it to be capable of “stand alone” usage. It contends that Titan did not make known to it any particular purpose for which the goods were required other than use in a readymix concrete plant, and did not rely on the plaintiff’s skill and judgment. The plaintiff contends that its sand could be used in a readymix concrete business if mixed to an appropriate design mix, although the addition of fine sand might be necessary to achieve a satisfactory result. It submits that no trade usage required sand to be capable of use “stand alone”.

The defendants, in contrast, contend that clause 13 must be construed by reference to various alleged representations and the common understanding of Mr Cruden and Mr Mandikos as to the requirements of the concrete industry. They allege that suitability for use in a readymix concrete plant would be understood in the industry to entail the capacity to produce satisfactory concrete without blending. Further, they contend that the Supply Agreement related to a sale by sample which was delivered by Killingworth to Titan on 25 June 1997 (prior to the execution of the Supply Agreement on 1 July 1997), and to representations of suitability for Titan’s particular business for which Titan, to the plaintiff’s knowledge, relied on the plaintiff’s expertise. The defendants contend that Titan, to Killingworth’s knowledge, required sand capable of being used as a “stand alone” product, as Titan had no facilities at its plant for blending different types of sand. However, the plaintiff’s product was too coarse to be used alone to produce satisfactory concrete for Titan’s readymix concrete business. Further, the product supplied did not conform to the sample, and the composition of successive consignments varied excessively.

The present case does not raise complex legal questions. It primarily relates to factual disputes.

The credibility of witnesses is an important issue. There is a stark conflict between witnesses for the plaintiff and witnesses for the defendants in relation to a number of important factual matters. In particular, there is conflict over what stipulations were made by Mr Mandikos in the course of several conversations with Mr Cruden and other persons who ultimately, on its incorporation, became officers and associates of the plaintiff. There is a conflict over what assurances or representations were made by Mr Cruden to Mr Mandikos prior to the execution of the Supply Agreement on 26 June 1997 (and indeed, prior to the incorporation of Killingworth.) There is a conflict between the evidence of the witnesses for the plaintiff and the defendants in relation to whether in about August 1998 there was an effective variation of the Supply Agreement requiring the plaintiff thereafter to measure the Killingworth product by metric volume, rather than by weight as provided by the Supply Agreement. There is also conflict over the accuracy of the loader scales at Killingworth Quarry.

Further, there is a direct conflict between the defendants’ witnesses’ assertion that Mr Cruden, on 25 June 1997, delivered some sample sand and screenings to Titan’s premises in Kilsyth, and the plaintiff’s witnesses’ denial that such a delivery took place. The parties’ evidence on whether or not that delivery occurred is irreconcilable. This is an important issue which will determine whether or not there was a submitted sample to operate as a bench mark against which all future consignments of the Killingworth product delivered under the Supply Agreement must conform.

BACKGROUND AND SUMMARY OF FACTS

Mr Charles Cruden and his wife, Mrs Alexena Cruden, owned and conducted an earth moving business from approximately 1967, through a corporate vehicle, Cruden Excavations Pty Ltd (“CEPL”). That business concentrated on earth moving operations for municipal road builders.

From approximately 1986, the Crudens conducted a readymix concrete plant at Yea in Victoria. That business traded as “Yea Concrete”. The sand (“fine aggregate”) and screenings (pebbles, sometimes called “coarse aggregate”) used by the Yea Concrete business were extracted from Killingworth Quarry, also operated by the Crudens, pursuant to a licence obtained from the relevant State government department.

While the quarry was operated by CEPL, the undisputed evidence is that the quarry was a simple or somewhat primitive operation. Almost all of its product was used by the Yea Concrete plant. The Yea Concrete plant used Killingworth Quarry sand and screenings almost exclusively to make its readymix concrete, save for a period of a couple of months between 1994 and 1997 when some sand purchased from the Barro Group was used. The evidence of Mr and Mrs Cruden, which I accept, was that the Yea Concrete plant used only its own sand, unblended, in making readymix concrete for 13 years. Mr Cruden gave evidence that during that time he received no complaint about the quality of the concrete.

The Yea Concrete plant made concrete in accordance with various design mixes (essentially recipes or formulae) developed by a government department, and other organisations, including Vicroads, Independent Cement Ltd (ICL) and Geelong Cement.

At a date variously said to be 1992, 1994 and 1995, CEPL acquired a further 60 acres adjoining the site and obtained an extractive industries licence for the land.

The Crudens lacked the necessary capital to upgrade the plant and to develop a new business. They at first decided to sell both the quarry and the readymix concrete business.

In 1996 the quarry and the readymix plant were advertised for sale in various publications such as “Deals on Wheels” and “The Age”.

The advertising led to a visit by Mr Jim Mandikos, who was at that time managing a business known as Re Truck Engineering, an engineering business specialising in tipping bodies and trailers, situated at Kilsyth. Mr Mandikos was also in the process of designing and constructing a new readymix concrete plant at Kilsyth on the same site as the engineering business. Previously, from 1984 to 1988, Mr Mandikos had managed a readymix concrete plant known as Wynville Readymix Concrete, which was owned by his father and employed about 15 people. Mr Mandikos designed the new concrete plant and superintended its construction.

Mr Mandikos’ stated that he was not favourably impressed by either the Yea readymix concrete plant or the quarry on his first visit to inspect them, which took place around late 1996. He stated that his principal interest was the readymix plant, advertised in “The Age” on 13 April 1996. Mr Cruden’s evidence was that Mr Mandikos had more interest in the quarry which was advertised with the readymix plant in “Deals on Wheels” in late 1996.

On Mr Mandikos’ initial visit to Yea the parties discussed the possibility of Mr Mandikos’ family interests acquiring a 50% interest in the business. According to Mr Cruden, Mr Mandikos expressed interest in buying product from the quarry for the proposed new readymix concrete plant.

Although neither party gave precise evidence about the dates, a number of subsequent visits or contacts between Messrs Cruden and Mandikos took place. It would seem that Mr Cruden took the principal initiative. On at least one occasion during the early negotiations, he visited Mr Mandikos at the Titan plant in Kilsyth.

The sale of a 50% interest in the Crudens’ business assets to Mr Mandikos’ interests was initially discussed. At that date, Killingworth had not yet been incorporated. Mr Cruden thought that the business assets were valued at $600,000 and Mr Mandikos thought that they were worth less. The purchase of Killingworth product by Titan was also discussed. Mr Cruden said a price of $12 per tonne for sand and screenings was initially discussed. According to Mr Mandikos, the price initially discussed was $8 per tonne.

Mr Mandikos and Mr Cruden dispute what was said in their negotiations leading up to Titan’s ultimate acquisition of an interest in Killingworth and the execution of the Supply Agreement on 1 July 1997.

Mr Mandikos, in his witness statement and oral testimony, asserted that he expressly stipulated an extensive list of detailed requirements for the Killingworth product. He also stated that Mr Cruden had assured him that he had identified, and would soon install, a secondhand weighbridge, in response to Mr Mandikos’ expressed concerns about the absence of a weighbridge at the quarry.

According to Mr Mandikos, Mr Cruden initially stated at a meeting at the quarry that he had top quality material, a lot of good raw material (from fine to coarse) which he could blend to any specification on site. He also stated that the plant could crush larger pebbles to any size and wash the aggregate as well. Mr Cruden agreed that he stated that the quarry could crush larger pebbles and could wash the product, but otherwise denied the alleged statements. Subsequently, in oral testimony, Mr Mandikos expanded on the alleged conversation in great detail.

Mr Mandikos stated that at a further visit to the Killingworth Quarry, he again stipulated to Mr Cruden a number of specific requirements about the quality of product he needed. He stated that he required washed pebbles of the correct and consistent size for use in aggregate. He also stated that he expressly informed Mr Cruden that he could only use one grade of concrete sand at his plant, as he would not have facilities to mix different sands. Therefore, he needed one kind of sand already blended, with the required mix of coarse and fine sand to produce readymix concrete. Mr Mandikos said that he specified at that meeting that the sand had to comply with the “Australian Standards” and must be of “Melbourne Market Quality”. He also claimed that he told Mr Cruden that the composition of the successive consignments of sand must not deviate from each other by more than 5% to 15%.

In his oral evidence, Mr Mandikos stated that Mr Cruden assured him that the Killingworth sand and screenings would be suitable for Titan’s readymix concrete business. He stated that Mr Cruden told him that in 13 years of business, he had had no problems with the Killingworth materials. He said he emphasised to Mr Cruden that there must be consistency in the product supplied. He said that Mr Cruden assured him of Killingworth’s compliance on all such matters and indicated that there would be consistency in consignments of the sand.

Mr Cruden denied that in his discussions with Mr Mandikos he made the above representations or assurances.

Mr Cruden also denied that, in about February 1997, Mr Mandikos called to express concern about the absence of a weighbridge. He stated that he did not say, at that stage, anything about obtaining a cheap weighbridge.

Mr Cruden said Mr Mandikos did not ask him about the quality of Killingworth aggregates, but did say they would be used in concrete and would have to be washed and of consistent size.

Mr Cruden agreed that he told Mr Mandikos that he had been using the Killingworth aggregate and sand for 13 years and had never had any problems. He said that they had no discussion about the quality of concrete or mixing or blending of concrete sand. Nor did they discuss Melbourne Market Quality. Mr Cruden stated that he did not understand that term. A 5‑15% maximum deviation in the grading of consignments of sand was not mentioned. Mr Cruden denied that he represented that the sand would be good quality, contain the correct amount of “fines”, would be consistent, comply with the Australian Standards and be ready for use on pick up.

The representations allegedly made by Mr Cruden are said to constitute pre‑contractual misrepresentations, misleading and deceptive conduct and the basis for the implication of an implied term of quality and fitness for a particular purpose under s.19 of the Goods Act. Further, Mr Bruce, Counsel for Titan, submitted clause 13 of the Supply Agreement was vague and ambiguous. In reliance on Codelfa Construction Pty Ltd v State Rail Authoirty (NSW)[1] he submitted that such ambiguity could be resolved by reference to extrinsic circumstances.
[1][1982] 149 CLR 337.

Mr Bruce further submitted that the principal negotiators, Mr Cruden and Mr Mandikos, were both experienced in running a readymix concrete plant. They were therefore aware of the need for quality sand and screenings and of the industry requirements for “stand alone” sand with the appropriate gradings to make merchantable concrete.

In the present case, there is a written contract between Killingworth (an entity not incorporated at the date of the relevant discussions) and Titan. It is not clear on what basis any representations or promises made by Mr Cruden at a date when Killingworth did not exist could properly be attributed to it, for purposes of modifying express terms of the written agreement or constituting misleading or deceptive conduct for which Killingworth is liable.

It is unnecessary to determine that question, because I am satisfied that Mr Cruden did not assure Mr Mandikos that Killingworth sand would be suitable for use “stand alone” in a readymix concrete plant, would not deviate more than 5 – 15%, would be of “Melbourne Market” quality, comply with Australian Standards and could be blended at the Killingworth site.

I am satisfied that Mr Cruden did not understand the term “Melbourne Market quality” and had no detailed knowledge of the Australian Standards. Mr Mandikos’ evidence on when he personally learnt of the Australian Standards was very inconsistent. At one point, he testified that he learned of the Australian Standards for the first time as late as June 1997.

At the time of the alleged negotiations and discussions in late December 1996 and early 1997, Mr Mandikos had not yet been requested to execute a Supply Agreement. There was no obvious purpose for such detailed legalistic stipulations by the prospective purchaser, who had no commitment at that stage. Mr Mandikos also testified that, as an experienced businessman, he would insist that all matters which he recognised as important be included in the written contract. Many of the allegedly essential requirements were ultimately not included in the written Supply Agreement. Both parties were legally represented. The conditions and requirements the defendants seek to imply could readily have been included.

In late December 1996, while negotiations with Mr Mandikos were proceeding, the Crudens engaged Mr Stephen Lewis, an accountant. They discussed outside investment in the quarry in exchange for sale of a part interest. Whereas initially they had intended to sell the quarry and the readymix concrete business, they now decided to explore the possibility of obtaining a contribution of capital from outside investors. In January 1997 Mr Lewis prepared an Information Memorandum for distribution to a small group of potential investors, including Mr Mandikos and the Crudens’ daughter and son-in-law, Mr and Mrs DeVries.

The Information Memorandum dated January 1997 referred to the proposed incorporation of a company to purchase the assets of Mr and Mrs Cruden. It referred to the Crudens’ intention to retain a controlling interest. In paragraph 31, it identified some of the products produced by the quarry as “Product 2: screenings - product use is general”; “Product 3: Aggregate – (10 – 20ml) round and/or crushed aggregate have general use in concrete product and drainage line”. Product 6: concrete sand – for use in concrete readymix”. In paragraph 3.4.2, it stated: “in the future it is planned that the following requirements will exist – weighbridge upgrading”.

The Information Memorandum contained an express disclaimer as to the accuracy or completeness of the material it contained and stated that it made no representations or warranties.

By about February 1997, Mr and Mrs Cruden had agreed with their daughter and son‑in‑law, Mr and Mrs DeVries, that the DeVries would acquire a 45% interest in the proposed new Killingworth enterprise and the Crudens would also take 45%. Although in the initial discussions, the acquisition of a 50% interest by Mr Mandikos had been proposed, that plan was revised. A share of only 10% in Killingworth was now offered to Mr Mandikos/Titan, for $60,000. Titan’s entry into a supply agreement was also now required. Mr Lewis’ evidence was that, as at February 1997, Mr Mandikos himself raised the possibility of a supply agreement for Killingworth product at $8 per tonne for sand and screenings and $4 per tonne for packing sand.

A Heads of Agreement was prepared by Mr Lewis. It set out the proposal to allocate 10% of the shareholding in Killingworth to Mr Mandikos or his nominee for $52,000 in cash and a further $8,000 to be contributed by the supply of storage bins and/or other equipment, as agreed to by all the shareholders.

Clause 3 of the Heads of Agreement referred to a supply contract with Jim Mandikos or a nominee, for a three year term. It set out the minimum purchase quantities and price, and stated “Concrete sand and screenings are to meet minimum specifications in use for readymix concrete plant”.

Mr Lewis stated that following discussions with Mr Mandikos’/Titan’s lawyer, Mr Venezilakos, certain alterations were made to the draft Heads of Agreement. The Mandikos interests were ultimately prepared to pay only $46,000 cash and $8,000 contribution in kind (that is, a total value of $54,000). Titan had originally been required to pay a total of $60,000. The Crudens agreed to make up the additional $6,000 themselves, by way of a rebate.

On 25 May 1997 Killingworth was registered. On 27 March 1997 the Heads of Agreement in final form was executed. It did not reflect the Crudens’ agreement to pay the rebate to Titan.

Mr Mandikos stated that early in 1997 he attended a meeting at the offices of Mr Lewis. At that meeting he was told for the first time that he would be expected to sign a supply agreement in return for acquiring a 10% interest in Killingworth. He stated that on learning of that requirement, he made it clear that he would not sign a supply agreement without real assurances that the materials would be suitable to his concrete plant. It would also have to be of Australian Standards, of merchantable quality and satisfy minimum consistency requirements. While Mr Mandikos’ evidence was that the Supply Agreement was imposed upon him, Mr Stephen Lewis’ evidence, which was not challenged on cross‑examination, was that the initial proposal for a supply agreement came from Mr Mandikos himself.

A meeting occurred in March 1997 at Mr Lewis’ offices, which was attended by Mr and Mrs Cruden, Ms Wendy Body, Mr DeVries, Mr Lewis and Mr Mandikos. Also present was Mr Stan Mandikos, Mr Mandikos’s father. Mrs Body, Mr DeVries, and Mr Cruden denied, in their further witness statements, that Mr Mandikos stated the alleged requirements at the meeting. They were not cross-examined on that issue. Mr Stan Mandikos gave no evidence on the issue.

Various supplementary agreements were necessary to complete the transactions establishing the new Killingworth enterprise. Mr Mark Black of the Crudens’ solicitors, Mahons, had the principal carriage of drafting those agreements. Mr Black gave evidence that he circulated updated drafts of the various agreements, including the Supply Agreement, to Mr Mandikos and Titan’s solicitor, Nick Venezilakos. Mr Black’s instructions came principally from Ms Body, Killingworth’s administrative officer, and from Mr Lewis.

A further meeting between the parties was held at Mr Lewis’ offices on 20 June 1997. Mr Mandikos, his father (Mr Stan Mandikos), Mr and Mrs Cruden, Ms Body, Mr and Mrs DeVries and their accountant, Mr Black, and Mr Lewis attended. According to Mr Mandikos, this meeting was also attended by his solicitor, Mr Venezilakos. Mr Mandikos stated that at that meeting, he made known the purpose for which the product was required. The defendants did not call Mr Venezilakos to give evidence. Mr Mandikos asserted that he had fallen out with Mr Venezilakos.

Mr Black stated that he had no independent knowledge of the Australian Standards. The drafting of the Supply Agreement was a work in progress, which was altered and updated from time to time, at the suggestion of the various parties involved. Mr Black stated “Australian Standards was not a reference inserted in the Supply Agreement at the behest of Killingworth Quarries. It was put in as a result of a request from Nick Venezilakos on behalf of Titan”. I accept that evidence.

Mr Black testified that (at the suggestion of the DeVries’ accountant) he informed Mr Venezilakos by letter dated 23 June 1997 that a guarantee by Mr Mandikos of Titan’s obligation under the Supply Agreement was required. There was initial resistance to that proposal, but a guarantee was ultimately provided.

A letter dated 26 June 1997 of Venezilakos to Mahons stated that Mr Mandikos was not prepared to sign a guarantee of Titan’s obligations under the Supply Agreement.

Clause 3 of the letter states:

“Quality Clause 13
Jim is concerned about the quality of the goods and especially that of the sand. He simply wishes the goods to meet the [sic] required by the industry and suitable for his concrete business. In the circumstances we suggest that the word “minimum” be deleted and the clause be amended to reflect the following:
The vendor acknowledges that the goods are required to meet the Australian standards imposed or required by NATA Laboratories and or the current Building Regulations and should be suitable for use in a Readymixed Concrete Plant.”

By letter to Venezilakos dated 26 June 1997, Mahons referred to a telephone conversation with Nick Venezilakos. It stated that a guarantee was required. It also stated “Amendments in respect of quality of materials should be acceptable subject to final approval of all parties.”

Under a facsimile cover bearing an imprint 09.44 26 June 1997 from Anacon Laboratory Services (Barro Group Pty Ltd) to “Jim” or “RTE” from “Danielle”, a letter from Barro Group was sent to Jim Mandikos (Re Truck) containing “results of tests on samples delivered to our laboratory”. It made no reference to the source of the samples. It stated that “We have included the specification requirements from AS 2758.1 Concrete Aggregates for your information. However, the testing carried out is not extensive and to ensure the materials meet all aspects of the Australian Standard, further testing, particularly with regards to durability needs to be carried out … “

The Anacon letter set out a table with series of gradings for pebbles and sand. Mr Mandikos maintains that the Anacon test dated 26 June 1997 was performed on Killingworth sand and screenings, which were delivered by Mr Cruden to Titan’s premises on the afternoon of 25 June 1997, to serve as an agreed benchmark to which all future supplies of Killingworth product to Titan under the Supply Agreement must conform. According to Mr Mandikos, his father then delivered the samples to the Anacon Laboratory in Port Melbourne for testing late in the afternoon. Mr Cruden denies that such a delivery occurred, or that any agreed sample was ever supplied by Killingworth to Titan. Mr Mandikos contends that he insisted on the delivery of the sample as a precondition of entering into the Supply Agreement a few days later. This is discussed in detail below.

The Supply Agreement was executed on 1 July 1997. It relevantly provided:

“Minimum orders
3.1For the first 12 months of this agreement the purchaser undertakes to purchase 16,500 tonnes of any mixture of the goods which must include a minimum of 13,200 tonnes of sand and screenings. After the expiration of 12 months from the commencement of this agreement the purchaser undertakes to purchase a minimum quantity of 27,500 tonnes per annum of the goods.
…

Term
9.This agreement shall commence on the First day of November 1997.
…

Quality
13.The vendor acknowledges that the goods are required to meet the Australian standards imposed or required by NATA Laboratories and/or by the current building regulations and should be suitable for use in a Readymix Concrete Plant.
…

Amendment
16.This agreement shall not be amended except in writing signed by each of the parties.”
By Item 1 of the Schedule, Goods are defined as:

Price (ex-bin at quarry site)

sand

$8.00 per tonne

screenings

$8.00 per tonne

packing sand

$4.00 per tonne

The Supply Agreement was executed by Killingworth and Titan.

A guarantee containing many handwritten amendments was executed by Mr Mandikos on 1 July 1997. Subsequently, a guarantee document incorporating the handwritten amendments was executed by Mr Mandikos on 18 July 1997.

A Shareholders’ Agreement and various related agreements were also prepared and executed by the parties.

Settlement was scheduled for 11 July 1997. Mr Lewis, by letter to Mr Mandikos dated 10 July 1997, set out the schedule of payment as follows:

11/7/97 55% of 52,000 28,600

11/1/98 25% of 52,000 13,000

11/7/98 20% of 52,000 10,400

Provision of equipment as discussed. $8,000

Titan (Mr Mandikos) paid the first instalment on 11 July 1997. The remaining two cash instalments were also subsequently paid. I am satisfied that Titan did not provide the $8,000 worth of equipment. Further, I am satisfied that the Crudens paid the agreed rebate of $6,000 in three instalments.

Although by clause 9 of the Supply Agreement the stated commencement date of the Supply Agreement was 1 November 1997, the Titan plant was not completed by the expected time. Mr Mandikos was not ready to commence ordering Killingworth product. It was not until February 1998 that Titan began to collect aggregate.

In February 1998 CRL provided a number of design mixes to Mr Mandikos, based on samples of sand and screenings collected by Mr Mandikos from Killingworth Quarry in December 1997. Mr Mandikos stated that in December 1997 he visited the Killingworth Quarry and took six buckets of samples, which he provided to Independent Cement to prepare design mixes. Mr Cruden stated that he believed that Mr Mandikos had taken some samples from Killingworth Quarry, although that course had not been pre‑arranged or agreed. The plaintiff’s witnesses were uncertain whether the samples were taken in December 1997 or at a slightly later date. Mr Cruden and Killingworth staff played no role in the taking of the samples by Mr Mandikos.

In February 1998 a representative of Independent Cement visited Titan’s plant at Kilsyth and collected the samples. Anacon Laboratories analysed and graded the sampled materials and provided gradings to Independent Cement. Independent Cement subsequently provided design mixes for readymix concrete on the basis of the gradings. I am satisfied that Titan continued to use the design mixes, or substantially the same design mixes, for quite some time. I am also satisfied that Mr Mandikos acted independently in such matters to protect Titan’s interests. He did not rely on Killingworth’s skill or judgment.

Following Titan’s commencing to order Killingworth material, the amount of product collected was below the minimum contractual requirement. By letter dated 5 March 1998, Mr Lewis wrote to Mr Mandikos of Titan on behalf of Killingworth. The letter stated that Titan’s minimum scheduled order to 28 February 1998 should have been $36,000 but in fact, Titan had collected goods to the value of only $650.80. The letter noted that “Charlie, Ena, Greg and Thelma are all extremely concerned”. An invoice for $36,000 was enclosed.

Soon after commencing to order product, Mr Mandikos began to express dissatisfaction with the quality of the Killingworth sand. He claimed that it was too coarse. He was concerned that it was not producing good quality concrete. He also expressed dissatisfaction with the means of weighing the product. He contended that a weighbridge should be installed. Killingworth responded that the delay in acquiring a weighbridge was due to Titan’s failure to provide its contractual contribution of $8,000 value in goods or services.

In May 1998 Mr Mandikos commissioned CRL to take and test some more samples of product, which he identified as being sourced from Killingworth Quarry. On 15 May 1998 Mr Newbegin (an expert in concrete technology then associated with CRL), attended the Titan plant and took samples. A CRL report dated 28 July 1998 was prepared by other CRL personnel while Mr Newbegin was overseas. The CRL report dated 28 July 1998 compared the alleged Killingworth sand (described in the report as “Yea” sand) with a sample of Lang Lang sand. It commented that the Yea sand was coarse in comparison with the Lang Lang sand and in relation to CRL’s recommendations. The report stated that the use of the Yea sand on its own could lead to a harsh mix which was difficult to pump. It stated “on this basis we would not suggest using the sand on its own”.

Mr Mandikos then consulted his solicitor about his concerns over quality. The letter of Mr Venezilakos to Mr Mandikos dated 30 July 19987 referred to clause 13 of the Supply Agreement and to the CRL report dated 28 July 1998, which Mr Mandikos had furnished to Mr Venezilakos. It advised Mr Mandikos to notify Killingworth that “unless they are able to supply you with the required quality within your standards you will not place any orders for sand but only for the screenings”.

I accept the evidence of the plaintiff’s witnesses that upon receiving Mr Mandikos’ complaints about the quality of the concrete produced by the Killingworth sand, various Killingworth personnel offered Titan assistance with expert advice on design mixes, which was not taken up. Mr Mandikos relied on his own skill and judgment. Killingworth did not accept that Titan’s complaints about the quality of its product were soundly based. Mr Mandikos determined to cease ordering sand from Killingworth.

The letter of Venezilakos to Killingworth dated 3 August 1988 referred to the Supply Agreement. It stated “We have been instructed by our client the sand supplied by the Supplier does not meet Titan’s required quality standards (Clause 13 of the agreement) and therefore no orders for sand will be placed in future.” It enclosed a copy of the concrete standards report by CRL dated 28 July 1998 and noted that complaints had already been received from builders who were supplied with concrete made from the sand supplied. The letter noted that only screenings would be ordered in future.

From August 1998 continuing disputes between the parties over various issues occurred. In particular, the quality of the Killingworth product and the means of weighing it were disputed. Those issues were not resolved. Titan did not order the amount of product required under the Supply Agreement. Both parties obtained various expert reports on Killingworth’s product, or product said to be sourced from Killingworth. Despite a round table conference between the parties in March 1999 and a letter of Venezilakos dated 3 June 1999 stating that Titan would honour its obligations under the Supply Agreement, further disputes over alleged “short weight”, the method of weighing the product and the quality of the product, continued.

In one instance in about March 2000 Killingworth conceded that it had supplied oversize screenings (pebbles). It credited Titan with $1,944.40 for four unsatisfactory loads. I accept the evidence of the plaintiffs’ witnesses that those credited loads were not made available for collection by Killingworth, but were used or disposed of by Titan.

The parties’ relationship further deteriorated. The minimum contractual orders were not placed. In September and October 2000, Titan complained that Killingworth’s screenings were dirty and oversized.

Further expert reports on Killingworth product (or product identified as being sourced from Killingworth Quarry) were obtained by both parties and a number of site inspections occurred.

On 22 June 2000 Melbourne Magistrates’ Court Proceeding No. NO1319036 was filed by the plaintiff seeking payment of $16,621.78.

On 26 October 2000 the plaintiff issued Supreme Court proceedings.

On 31 January 2001 Melbourne Magistrates’ Court Proceeding No. PO238612 was filed by the plaintiff seeking payment of $16,775.11.

CREDIT

As credit of witnesses is important to the determination of this case, it is appropriate to consider the credit of the two principal witnesses, Mr Cruden (for the plaintiff) and Mr Mandikos (for the defendant).

Mr Mandikos

Mr Mandikos was not an impressive witness. He was unresponsive in his general approach, professing an inability to understand or remember some issues, which was at odds with his great grasp of detail on others. He presented as confident, alert and forceful, and at points, aggressive. I am satisfied that he was possessed of considerable experience in the management of medium scale business enterprises. He appeared articulate and mentally acute. He was accustomed to retaining professional services and advice.

His evidence on several important issues was shifting, evasive, and inconsistent with all contemporaneous documentation. For example, his attempts to explain the total failure to advert to the Anacon Report of 26 June 1997 in any correspondence or pleadings until after his discussions with Mr Newbegin were self-serving and unconvincing. This is discussed in detail below.

Mr Mandikos’ evidence on his own knowledge of the Australian Standards was also shifting and inconsistent. In his witness statement and in oral evidence, he gave elaborate accounts of his insistence on detailed compliance with the Australian Standards, including the consistency standards, in the initial early negotiations with Mr Cruden. Under cross-examination, he asserted that he had not heard of the Australian Standards in relation to concrete until 20 June 1997 or thereabouts. First he stated that this was through Anacon Laboratories. He then said that he learnt of the Australian Standards from his then solicitor, Mr Venezilakos.

Mr Mandikos also failed to disclose or discover the Newbegin Report of 15 February 1999 which contained material likely to compromise his case by reason of its reference to the absence of any submitted sample or grading.

His explanations for the failure to disclose the Newbegin report to his legal advisers were unconvincing. I am satisfied that he also failed to discover the ICL design mixes obtained in February 1998.

Mr Mandikos also failed to discover a report by Incode, addressed to Jim Mandikos, dated 1 May 2002 which stated “We are advised that you still have a sample of the submitted sample at your premises and that witness statements could be arranged to attest that the submitted sample tested by Barro Group Limited in their report dated 26 June 1997 was supplied by Killingworth Quarries Pty Ltd”. The report was prepared by Mr Heath of Incode, who was called by the defendants as an expert witness. Mr Heath, in cross‑examination, stated that he had prepared a new version of the Incode report dated 1 May 2002, which, at the request of Mr Mandikos, deleted any reference to the arranging of witness statements. Only the amended version of the Incode report was discovered.

Regrettably, I formed the view that no confidence could be placed in the veracity of Mr Mandikos’ evidence or in his approach to the preparation and conduct of the litigation.

Mr Cruden

Mr Cruden was not an impressive witness in some respects. He frequently failed to respond directly to questions. His evidence appeared somewhat confused at points. In some instances, he gave different answers in rapid succession. His sudden assertion of the existence of a submitted grading (discussed below) might be viewed as self‑serving and opportunistic. However, having observed him carefully, I am of the view that Mr Cruden was inclined to respond in a compliant manner to authoritative suggestions during cross‑examination, although it was contrary to his self‑interest. For example, he agreed that he had a clear understanding of his obligations under the Australian Standards 2758‑1. The obligations were put to him on the basis of the current Australian Standards 2758‑1, rather than the version of the Australian Standards 2758‑1 which applied at the relevant time. For reasons discussed below, I have found that the obligations to which Mr Cruden assented did not apply.

Mr Cruden was also cross-examined on his understanding of the terms of the information memorandum and the Heads of Agreement. He gave evidence that he considered the term “Concrete sand and screenings are to meet the minimum specifications in use for a readymix concrete plant” referred to “minimum sand and screenings suitable to readymix concrete”. He said that this indicated a certain grading within a range from 2½ mil to .6, which he understood from tests.

He demonstrated some awareness of the existence of the Australian Standards, but appeared to believe “it’s whatever the client wants”. Despite Mr Cruden’s agreement in cross‑examination that the Australian Standards were at the forefront of his mind during relevant negotiations, and that he understood what the phrase “goods are required to meet Australian Standards imposed or required by NATA Laboratories” meant (which is admitted to be incomprehensible), I am satisfied that Mr Cruden had no detailed independent understanding of the requirements of the Australian Standards or of a supplier’s obligations under them. I am also satisfied, having observed Mr Cruden and estimated his grasp of technical detail and formal legal documentation, that despite his assent that “prior to executing the Supply Agreement, he drew to his mind and considered each and every clause” he did not do so. The response was inconsistent with the level of legal and technical understanding he plainly demonstrated.

Mr Cruden appeared to lack any significant expertise outside his usual experience of work in the quarry industry. I consider that he was not in a position to understand legal or technical documents. I am satisfied that he left such matters to his advisers or other Killingworth staff. His agreement to questions indicating a high level of understanding appeared to be due to deference. However, I consider that Mr Cruden was in essence an honest witness, although his grasp of matters was not impressive. I am satisfied that he was a witness of truth in all essential matters within his understanding. I accept that he did not represent that the Killingworth sand could be used on its own to produce readymix concrete. I also accept his denial of the alleged representations and assurances.

I am satisfied that Titan “drove” the issue of inclusion of clause 13, although Mr Cruden assented to its inclusion and his solicitors were charged with drawing up the Supply Agreement.

Titan’s Construction of Supply Agreement

Clause 13 of the Supply Agreement is central to the determination of this case. It states:

“13.The vendor acknowledges that the goods are required to meet the Australian standards imposed or required by NATA Laboratories and/or by the current building regulations and should be suitable for use in a Readymix Concrete Plant.”

Titan conceded that the phrase “imposed or required by NATA Laboratories” is a meaningless absurdity which must be disregarded. It contended that clause 13 should be construed as follows:

· That the supply of goods will satisfy the broad requirements of quality as set out in the Australian Standards.

· That the supply of goods upon the giving of a submitted grading or sample should comply with the consistency requirement as set out in the Australian Standards.

· That the supply of concrete will be suitable for use in the Titan Concrete Readymix Plant as a stand alone source and be consistent in its grading.

Titan submitted that the goods supplied by Killingworth were in breach of clause 13 thus construed, in that:

· The sand was not suitable for use as a stand alone source as it was deficient in fine particles and would produce unmarketable concrete unless blended with finer sand.

· The sand did not conform to the broad requirement of the Australian Standards.

· A submitted sample was delivered to Titan by Mr Cruden on 25 June 1997 and the sand subsequently supplied by Killingworth was not consistent with this or with the plaintiff’s own tests conducted in April 1997.

· A submitted grading was supplied (on Charles Cruden’s evidence) being the Con Test Report dated 8 December 1997. The Con Test report tested three samples and whether an average of the three samples, or one of them, is taken as the submitted grading, the subsequent supply did not comply with the consistency requirements under the Australian Standards.

If there were found to be neither a submitted sample nor a submitted grading, then Titan sought to rely on non-conformity with the recommended limits of gradings given by CRL, as an indication that the goods did not conform to industry standards.

In final addresses, Titan withdrew its allegation of failure to comply with the statutory requirements governing a sale by description, but sought leave to amend its pleadings to rely on other sections of the Goods Act, including s.89(2), (an implied term of merchantable quality in a contract for sale of goods in the course of business; and s.88, (an implied condition of correspondence to a sample). In each case, Titan relied on non‑conformity with the 25 June 1997 sample, which was capable of use as a “stand alone” source in that it had enough fine particles to produce marketable quality concrete. Those sections are contained in Part IV of the Goods Act which, by s.85, does not apply to contracts in the nature of the Supply Agreement.

Clause 13 of the Supply Agreement

The validity of the Supply Agreement is not disputed. It is not disputed that the plaintiff was ready and willing to supply the product. The defendants admit the failure to purchase the minimum quantity of goods, constituting a prima facie breach. Titan justifies its failure to comply with the minimum purchase requirements by alleging that the plaintiff was in breach of clause 13, in that the product offered for sale did not comply with the Australian Standards and was not capable of use as a single sand in making readymix concrete. The defendant bears the onus of establishing that the plaintiff was in fact unable, or apparently unable, to perform its fundamental obligations.[2]
[2]Rawson v Hobbs (1961) 107 CLR 466.

The terms of clause 13 were expressly dictated by the then solicitor for Titan and were included in the Supply Agreement at his behest. I do not accept the defendants’ submission that because Killingworth’s solicitors had the carriage of settling the draft agreement, the clause should now be construed against Killingworth, as containing a number of additional implied terms, inconsistent with the express terms and imposing more onerous contractual obligations on Killingworth.

The terms of clause 13 should be construed according to their plain, natural or common meaning or, to the extent to which a term relating to an ancillary matter is meaningless, it should be disregarded.[3]
[3]Shore v Wilson (1842) 9 CICF 355; 8 ER 450; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347.

Evidence of the “factual matrix” or surrounding circumstances in which the parties contracted may be admitted to assist in establishing the plain and natural meaning of the terms.

In the present case, the parties agree that no intelligible meaning can be ascribed to the requirement to comply with Australian standards “imposed or required by NATA Laboratories and/or building regulations.”

There are no Australian standards imposed by NATA Laboratories. No relevant building regulations have been identified. The reference to “imposed by NATA Laboratories and/or Building Regulations” is therefore severable. The court should attempt to uphold agreements and may disregard a provision relating to an incidental matter if it is meaningless, uncertain or too vague.[4]
[4]Whitlock v Brew (1968) 118 CLR 445 at 461; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352.

There are many Australian Standards applicable to a wide variety of activities and industries. Clause 13 does not identify any particular “Australian Standard”, and indeed the word “standard” is not capitalised. It is arguable that the entire reference to “Australian standards” in clause 13 (qualified as it is by reference to additional meaningless terms) should be disregarded as unintelligible.

However, counsel for the plaintiff conceded that the reference to Australian standards should be taken to refer to the version of AS 2758.1 – 1998 on Concrete Aggregates, applicable as at 1 July 1997. [That version of AS 2758.1 was AS2758.1 – 1985 which was subsequently superseded by the current version. It was only during the course of the trial that a copy of the version of AS 2758.1 current as at 1 July 1997 became available to the parties and to the Court.]

In the light of the plaintiff’s concession, Killingworth’s compliance with AS 2758.1 applicable as at 1 July 1997 will be considered.

It is undisputed that the relevant Australian Standard applicable at 1 July 1997, the date of execution of the Supply Agreement, was AS 2758.1 – 1985. “Aggregates and Rock for Engineering Purposes. Part 1 Concrete Aggregates.”

The AS 2758.1 relevantly provides –

“1.Scope. This standard provides a basis for specifying requirements for aggregates intended for use in concrete.
2.Application. This standard cannot be used on its own as a works specification for contract purposes. While a number of the requirements nominated are basic, the specifier shall make a selection from the options available in this standard, or from alternative test methods and limits (which may be from Australian standards or other appropriate standards) for incorporation into the works specification.
The basic requirements for all concrete aggregates are prescribed in clauses 8 to 14 of this standard.

By clause 4 ‘aggregate’ is defined to include both coarse aggregate, which complies with the grading requirements given in Table 1 and fine aggregate is defined as aggregate which complies with the grading requirements of Table 3.
By clause 6.1 it is provided that the sampling of an aggregate shall be carried out in accordance with the methods described in AS 1141, Section 3.
By clause 6.2 it is provided ‘when required by the purchaser, tender samples shall be provided as evidence of the quality and grading of the materials proposed to be supplied’.
Note. Alternatively, when required by the purchaser, the supplier may provide test data to indicate the quality and grading of the aggregate proposed for the supply.
By clause 7 it is provided that testing of aggregates shall be carried out in accordance with the relevant methods described in AS 1141 and AS 1012.
Clause 9 is headed “Dimensional Requirements”. By clause 9.1.1 Grading (particle size distribution) it is provided –
General. The supplier shall provide grading figures to indicate the average grading of the aggregate proposed for supply which shall be known as the submitted grading.
Alternatively, the supplier shall when supplied by the purchaser, submit a sample of the grading of which will be the basis for acceptance of the quotation, tender or source of supply. This sample is known as the ‘submitted sample’.
Reasonable consistent grading is necessary for aggregate supplied under any one contract to ensure practical control of concrete manufacture.” (see Note 1)
The “limits of deviation” (see Tables 2 and 3) is the maximum deviation between any of the deliveries of fine or coarse aggregate during the contract and the submitted grading or the submitted sample.
9.1.2 Coarse aggregate. When determined in accordance with AS 1141.11, the grading of coarse aggregate sampled during supply shall not deviate from the submitted grading or the grading of the submitted sample, by more than the maximum permissible deviations given in Table 2. Notwithstanding these provisions, the grading shall always conform to the respective over all limits for these materials given in Table 1 (see Note 2).
9.1.3 Fine Aggregate. When determined in accordance with AS 1141.11, the grading of the aggregate shall not deviate from the submitted grading, or the grading of the submitted sample, by more than the maximum permissible deviations given in Table 3. Notwithstanding these provisions, the grading shall always conform to the respective overall limits for those materials as specified in Table 3. (see Note 3)”.

The relevant provisions of the Australian Standards may impose two basic types of requirements on material supplied for use in concrete.

First, there is a basic grading requirement. Both coarse aggregate (pebbles and screenings) and fine aggregate (sand) must contain certain broad ranges of percentages of different sizes of pebbles or grains. Those gradings are measured by putting the product through a series of differently sized sieve apertures, and noting what percentage passes through them.

Secondly, there is a “limits of deviation” or consistency requirement, which is the maximum deviation between any of the deliveries of fine or coarse aggregate made under the contract, and any submitted grading or submitted sample.

While the basic grading or size requirements of the Australian Standards can apply without reference to any benchmark, the deviation limits cannot apply without a sample, grading or specification against which deviation can be measured. The consistency requirement of the Australian Standards is aimed at ensuring consistency of successive consignments. If there is no benchmark, the deviation limit requirement cannot apply.

Australian Standard 2758.1 is a provisional set of general requirements, that requires some input and individual specification by the contracting parties. It expressly notes it is only a basis for specifying requirements and that it cannot be used on its own as a works specification. It sets out some basic requirements, but many are presented as options or alternatives, one of which must be selected by the relevant parties for incorporation into a works specification. As different options and alternatives are included in AS 2758.1, it cannot have any comprehensive application until alternatives have been excluded.

In the present case, there was no works specification.

Table 1 of AS 2758.1 lists a number of sieve aperture sizes for coarse aggregate (that is, pebbles or screenings) in relation to various nominal sizes of graded aggregate and single size aggregate. The table shows the percentage of the various aggregates which should pass through the differently sized sieve apertures. Table 2 lists the limits of deviation (as percentages) for the various coarse aggregates.

Table 3 lists the grading requirements (the percentage passing through various sieve aperture sizes) and the limits of deviation for fine aggregate (sand), both crushed and uncrushed.

In the present case, there is a dispute over whether any submitted sample or submitted grading was given. The defendants contend that a submitted sample [tested by Anacon Laboratories on 26 June 1997] or alternatively, a submitted grading [the Con Test report grading dated 8 December 1997] was provided. They contend that there was a failure to comply with the deviation limits under AS 2758.1 1985 in relation to either the submitted sample or the submitted grading.

The plaintiff, in contrast, contends that there was no submitted sample tested by Anacon Laboratories on 26 June 1997 and no submitted grading represented by the Con Test report dated 8 December 1997.

The question arises whether, and to what extent, a term in a supply agreement requiring compliance with AS 2758.1 1985 can have any operation where there is no submitted sample and no submitted grading.

In my opinion, the absence of a submitted sample or a submitted grading would not render a term in a supply contract requiring compliance with Australian Standards 2758.1 meaningless. A term requiring compliance with AS 2758.1 would confer on the purchaser the option to require a submitted sample or a submitted grading. If the submitted sample or submitted grading were provided, and agreed to by the parties, the subsequent deliveries would be required to conform to the limits of deviation. However, if the purchaser did not require a submitted sample or a submitted grading, or the supplier did provide one but it was not agreed upon, a term requiring compliance with AS 2758.1 could still be capable of some meaningful operation.

If the purchaser did not exercise its option under clause 6 to require either a tender sample or a submitted grading (or a submitted grading or sample was given but was not agreed on), then in my opinion, the consistency requirements set out in AS 2758.1 1985 would not apply. The consistency requirements presuppose the necessary benchmark of either a submitted grading or a submitted sample, against which deviation in subsequent supplies of material can be measured. That is made clear by clause 9.1.1 which relevantly provides that ““the limits of deviation” … is the maximum deviation between any of the deliveries of fine or coarse aggregate during the contract and the submitted grading or submitted sample”.

In my opinion, AS 2758.1 1985 (applicable to the Supply Agreement in this case) does not impose any obligation on the supplier to provide a submitted sample or a submitted grading unless the purchaser first requires it, as set out in clause 6. Clause 9.1.1 provides “the supplier shall provide grading figures to indicate the average grading of the aggregate proposed for supply, which shall be known as the ‘submitted grading’.” I consider that this is qualified by the preceding reference in clause 6.2 to the provision of samples and gradings “when required by the purchaser”. The primary provision is clause 6, which establishes that the entitlement to require a sample or grading is an option conferred on the purchaser. I do not consider that AS 2758.1 imposes an absolute obligation on the supplier to provide a sample or grading in the absence of the exercise of that option by the purchaser. (In some supply contracts, there might be neither a submitted sample nor a submitted grading, because an individual works specification, which AS 2758.1 contemplates as an essential, would apply.)

If the purchaser did not require either a submitted sample or a submitted grading (or a sample was provided but not agreed on), in my opinion, a term that required compliance with AS 2758.1 1985 would still have some limited operation. Compliance with the listed grading requirements for percentages of material passing through various sieve aperture sizes would be necessary.

It is not disputed that the AS 2758.1 grading requirements for material are extremely broad. While compliance with such broad parameters may not be of much assistance to purchasers in many cases, the grading requirements do impose ascertainable outer size limits. A term requiring such compliance would not be meaningless or illusory.

Mr Devries of counsel, for the plaintiff, suggested that if there were no submitted sample or submitted grading, the first delivery, or the first grading supplied or obtained, could perform the function. I am not persuaded that a contractual term requiring compliance with AS 2758.1 1985 would impose on the supplier an obligation to observe the limits of deviation in respect of the first delivery or test in cases where there was no submitted sample or submitted grading. That is because the concept of the submitted sample or grading implies agreement by both supplier and purchaser to its benchmark status. Circumstances may be envisaged where the supplier would initially provide exceptional or atypical material, and would not undertake a continuing obligation to supply it. Similarly, if the purchaser unilaterally took a sample (as Mr Mandikos did in this case) it might be atypical or of limited quantity, and the supplier might be unwilling to agree to provide that material on a continuing basis.

In summary, I consider that if there were no submitted sample and no submitted grading, a contractual term requiring compliance with AS 2758.1 1985 would impose only an obligation on the seller to supply material within the dimensions of the broad grading requirements, but there would be no obligation to observe consistency requirements. There may be further obligations in relation to other requirements of AS 2758.1 1985 which are not relevant to the present dispute.

Was there a submitted grading?

If there were a submitted grading agreed on by supplier and purchaser, then all subsequent deliveries would be required to fall within the specified deviation limits of AS 2758.1 1985.

Neither the plaintiff nor the defendants pleaded that there was a submitted grading. There is nothing to suggest the existence of a submitted grading in any of the correspondence or other documents tendered.

However, in the course of his cross‑examination Mr Cruden agreed that there was an obligation on a supplier to provide a submitted grading. He identified the Con Test report dated 8 December 1997 as the submitted grading.

Mr Cruden stated that he understood it to be a submitted grading “in compliance”.

He gave evidence that he believed that the Con Test report was sent to Titan. Ultimately, the effect of his evidence was simply that he presumed that it had been sent, but that he had no direct knowledge. It was put to Mr Cruden that in fact the Con Test report was not supplied to Titan until May 1998, when he visited Mr Mandikos at the Titan Concrete Plant. Mr Cruden could not recall doing that. I consider that he at no stage affirmed that he sent the Con Test report to Titan personally. Rather, his evidence was that he merely assumed that the Killingworth staff responsible for correspondence had done so.

According to the expert evidence of Mr Buffington, the Con Test report (which includes three separate tests of three different samples) could not function as a submitted grading. There is no indication in the report of which of the three test results was the submitted grading. Further, it would not be possible to take an average of the three test results in order to arrive at a meaningful submitted grading.

Mr Cruden was cross-examined about his understanding of a supplier’s obligations on the basis of the current version of AS 2758.1 1985. The 1985 version (which applied to the Supply Agreement) was produced to the Court only following the completion of his evidence on the issue. Mr Cruden was cross‑examined on the basis that there was an obligation on a supplier to furnish a submitted grading or a submitted sample. The current version of Australian Standards 2758.1 more readily supports such a construction. I consider that under the 1985 version of AS 2758.1, that obligation was conditional upon the purchaser requiring it. In response to questioning on compliance with the obligation which was submitted to exist, Mr Cruden’s evidence was that he merely assumed that Killingworth had forwarded the Con Test results to Titan.

Mr Mandikos asserted that he did not receive a copy of the Con Test report until May 1999. He adamantly rejected the proposition that it was a submitted sample or grading, pointing out that it was months after entry into the Supply Agreement. Mr Mandikos contended that Mr Cruden’s evidence on this issue was “total nonsense”.

If a submitted sample were agreed in June 1997 (as Mr Mandikos asserts) a subsequent submitted grading would be inconsistent and confusing, whether provided in December 1997 or May 1998, as the benchmark would already have been set by the sample provided in June 1997.

It would be necessary to clarify which sample or grading was the agreed benchmark. There is no evidence that any attempt to clarify such questions ever occurred.

Despite his concessions in cross‑examination as to his understanding of the Australian Standards, I do not consider that Mr Cruden, whether in 1997 or at the time of the trial, had any detailed or profound understanding of the Australian Standards requirements in relation to the provision of a submitted grading or the supplier’s obligations in relation to it. His awareness of the Australian Standards appeared derivative and superficial.

The evidence suggests that Killingworth Quarry sand may be, or may have become at certain times, relatively lacking in fines. Sand from a quarry or pit can vary according to what part of the quarry or pit it is taken from. That also necessarily means that the composition of sand and aggregate can vary over time, as it is extracted from different parts of a quarry. Nevertheless, the expert evidence uniformly establishes that on the basis of all relevant tests, Killingworth sand was capable of being used to make readymix concrete in a readymix concrete plant, although it would require blending in order to produce a satisfactory result.

BREACH OF SUPPLY AGREEMENT

The onus is on the defendants to establish that the sand and aggregate offered for collection did not comply at the date of its refusal to order further sand, and that a reasonable commercial person would have drawn the inference that the plaintiff would be unable to perform in future.[6]
[6]See Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 2 All ER 216.

There is no test evidencing the state of Killingworth sand at the date of Titan’s refusal to purchase further sand in August 1998. There is no test as at August 1998 purporting to establish the likely future quality of the product for a particular period. Further, some tests relied upon in the case are based on material which was merely asserted to come from Killingworth Quarry by Titan, rather than being directly sampled from Killingworth Quarry by the relevant expert.

There is no dispute that the sand tested in the Barro tests of February 1998 and the Con Test reports of 8 December 1997 came from Killingworth Quarry.

On the basis that Killingworth sand was broadly equivalent to the 1998 Barro tests or the Con Test December 1997 tests at the time of Titan’s repudiation, (or indeed any sand subjected to tests referred to in this case) the sand would have satisfied the grading requirements of AS 2758.1. Those grading requirements are very broad, and AS 2758.1 itself allows some further leeway.

In my opinion, the defendants have failed to establish that the Killingworth sand available for purchase at the relevant date did not comply with the “broad envelope” gradings of the Australian Standards. The defendants’ own expert, Mr Gladman, conceded that all sand he tested conformed to the broad grading requirements. Mr Buffington also gave evidence to that effect, although he ultimately conceded that the April 1997 test may not have conformed in all respects. In my opinion, the April 1997 test is irrelevant. It was taken prior to the execution of the Supply Agreement. There is no suggestion that it constituted a submitted sample or grading. It is also an isolated result. The defendants do not produce a test taken at the date of Titan’s rejection. They must therefore rely, at best, on an inference that if the Killingworth sand did not comply on other dates, then it did not comply at the date of Titan’s rejection of Killingworth product, and would be unlikely to comply in future. Isolated results cannot assist the defendants in that context. The vast majority of tests of various dates on material from Killingworth, or said to be sourced from Killingworth, conformed to the broad grading requirements. It can be inferred that, on the basis of probabilities, Killingworth sand satisfied those broad requirements as at August 1998, and was likely to satisfy them during the course of the Supply Agreement.

Further, there was no submitted sample and no submitted grading. There was no agreed benchmark against which deviation could be measured. No consistency requirement under the Australian Standards applied. All evidence on compliance or non‑compliance with a submitted sample or grading is therefore irrelevant. If, contrary to that conclusion, the first product taken unilaterally by the purchaser could constitute a submitted sample, supplies subsequent to the samples subject to the Barro test of 27 February 1998 satisfied the consistency requirements.

I further find, on the basis of the relevant expert evidence, that although Killingworth sand at the time of Titan’s refusal to purchase was too coarse to be used as stand alone sand for readymix concrete, it was capable of being blended for that purpose according to an appropriate design mix. It was therefore suitable for use in a readymix concrete plant.

There is no basis for concluding that the Killingworth product was not of merchantable quality or failed to satisfy any applicable implied terms of the Goods Act. In this context, I reject the defendants’ submission that more stringent standards applied by other organisations should apply, in the context of a contract which expressly refers to the Australian Standards.

I therefore find that the defendants have not established any breach by the plaintiff of the terms of clause 13 of the Supply Agreement.

The Supply Agreement, and the defendant’s failure to purchase the minimum goods, are not in dispute. Accordingly, I find that the plaintiff has established the breach of the Supply Agreement by the first defendant. It has also established the guarantee by the second defendant of the first defendant’s obligations under the Supply Agreement.

LOSS AND DAMAGE OF PLAINTIFF

The loss and damage suffered by the plaintiff is calculated in the Further Witness Statement of Stephen Lewis. Mr Lewis calculates the average sale price per tonne, from which the average variable production cost is deducted. The profit on the sale of by‑product per tonne is also added. That calculation produces a figure of 7.99 profit lost per tonne of product not ordered.

Mr Lewis has been a certified practising accountant since 1992. He possesses relevant tertiary qualifications and has worked in the public accounting field since 1982. I am satisfied that he is qualified to provide expert evidence in relation to the calculation of the plaintiff’s costs and profits.

The defendants submitted that Mr Lewis, as Killingworth’s accountant, was not independent. I accept in this context, the views expressed by Pagone J in Fagenblat v Geingold Partners Pty Ltd[7] in which his Honour held that the possibility of a witness having bias in favour of a party is a matter to be taken into account in relation to weight, rather than a ground for rejection.[8]
[7]BC 2001 07393 [2001] VSC 454.
[8]Ibid, at 3; see also Project Construction and Development Pty Ltd v Ellison [2002] NSWSC 372; Collins Thomson Pty Ltd (in liq) v Clayton BC 2002 02507 [2002] NSWSC 366.

Mr Lewis presented as a consistent, knowledgable and honest witness on matters within his expertise. His evidence was not shaken on cross‑examination. I did not consider that he was biased.

Further, the defendants called no evidence to rebut Mr Lewis’ assessment of damages although there was ample opportunity to do so. They did not plead any failure to mitigate damages. I ruled at trial that it was too late to introduce that issue at a late stage during the cross‑examination of Mr Lewis.

For the defendants, it was submitted for the first time in final addresses, that the plaintiff had no entitlement to damages for breach of contract unless it had first issued an invoice in relation to the minimum goods not ordered. As such, it was contended that the only remedy available to the plaintiff for breach of the requirement to purchase a minimum amount of goods was specific performance.

I do not accept that contention. An award of damages is the usual remedy for breach of contract. The right to a remedy of damages for breach does not depend on a contractual term to that effect. It arises by reason of the failure to discharge the primary contractual obligation, in the absence of a term to the contrary.[9]
[9]Mutual Export Corporation v Asia Australian Express Ltd (The Lakatoi Express) 1990 19 NSWLR 285 at 303; Rohophone Facilities Ltd v Blank [1966] 3 All ER 128 at 141; [1966] 1 WLR 1428 at 1446.

Further, while sub-clause 3.4 of the Supply Contract entitles the vendor to invoice the purchaser for the balance of goods unordered, sub-clauses 3.1, 3.2 and 3.3 expressly state that the purchaser “undertakes to purchase” and “must take” minimum goods. I consider that the contractual obligation to purchase and take goods is not conditional upon the vendor first issuing an invoice for unordered goods. It is a primary contractual obligation and nothing in clause 3 excludes the prima facie entitlement to damages for breach.

The general principle is that damage should place the plaintiff as nearly as is possible in the position it would have been in had the contract been satisfactorily performed.[10] The plaintiff bears the onus of proving the extent of loss and damage.[11]
[10]Robinson v Harm (1888) 1 Exch. 850 at 855; 154 ER 363 at 365 per Parke B.
[11]Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 301, 307.

In Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd[12] the High Court recently considered the issue of proof and calculation of damages in the context of a contractual dispute concerning mining operations. The appellant alleged that the respondent had inflated its cost estimates for performing the operations and had been overpaid. The trial judge had awarded the appellant a substantial sum by way of damages. The Full Court of the Supreme Court of Western Australia concluded that the trial judge had adopted an erroneous method of calculating damages and that there was insufficient evidence to enable a calculation on proper principles to be made. It awarded the appellant only nominal damages.
[12][2003] HCA 10 (March 11, 2003).

On appeal to the High Court, Hayne J in the leading judgment (with which Gleeson CJ, McHugh and Kirby JJ agreed), considered the principles applicable to calculation of damages. Hayne J accepted that the appellant bore the burden of proving not only that it had suffered damages as a result of the breach of contract but also the amount of the loss it had sustained on the balance of probabilities “and with as much precision as the subject matter reasonably permitted”[13]. His Honour acknowledged that estimation, if not guesswork, may suffice in some cases.
[13]Ibid, at 11-12.

He also acknowledged that there might be various legitimate ways in which damages might be calculated. In the present case, the method adopted by the appellant sought to compare the profit in fact earned with the profit that should have been earned. “The profit that should have been earned was 5% of the estimated costs. The calculation that was made took actual not estimated costs into account.”[14]
[14]Ibid, at 12.

Hayne J stated that once it was accepted, as the trial judge found, that estimated costs closely approximated actual costs, “the profit that should have been earned could be calculated with considerable, and for present purposes, sufficient precision.”[15]
[15]Ibid.

Further, once the victim of the breach demonstrated that the [respondent’s] estimated costs

“closely approximated its actual costs, it was for [the respondent] to show why some further adjustment of the figure was necessary … Only if the respondent introduced into the debate some new or additional occasion for adjustment were it for [the appellant] to go beyond the proof it adduced of the excessive profit which [the respondent] had received. Especially was that so where the appellant demonstrated not only that there was a very wide discrepancy between profit in fact earned and 5% of actual costs incurred but also that any productivity gains during the period when [the respondent] asserted that they were made were not ‘significant’. It was not enough for [the respondent] to answer this evidence by saying that there might have been some other unidentified reason for its profit being as large as it was, or by pointing to the possibility of adopting some other method of assessing [the appellant’s] damages. Yet in essence it was these two propositions that underpinned the Full Court’s conclusion that the appellant had not proved the amount that it had lost as a result of [the respondent’s] breach.”[16]

[16]Ibid, at 13.

Callinan J also observed that “in assessing damages a court does the best it can”[17] and even had the respondent co-operated “estimation rather than calculation was inevitable”.[18]
[17]Ibid, at 28.
[18]Ibid, at 29.

He also allowed the appeal and noted:

“Another way of viewing the respondent’s submissions in the Full Court and this Court is as a plea in the nature of a plea in mitigation of damages. The onus in this regard lies upon the party seeking the reduction.”[19]

[19]Ibid, at 31.

The defendants submitted that the use of the average sale price, albeit conservative, was not a valid basis for calculation, which must be governed by the contract price, which in this case was less than the average sale price. I accept that contention. In the present case, the contract price was $8.00 per tonne as to 80% of the goods and $4.00 per tonne as to 20% of the goods. It was not disputed that the plaintiff required the Supply Agreement because it had no subsisting market for the product. The defendants submitted that the claimed lost profit from by‑product allegedly not produced and sold due to the failure to order the minimum quantity of goods was too remote. The profit claimed for the by‑product exceeded the variable costs of production and if awarded would result in the plaintiff receiving a greater sum than the profit which would have been obtained directly from the satisfactory performance of the contract.

The purpose of an award of damages is to place the plaintiff in the position it would have been in if the contract had been performed. The plaintiff is not entitled to be placed in a better position than it would have been in if the contract had been performed. In this context, the plaintiff bears the burden of establishing the loss, that it was caused by the breach and that the damages claimed are not too remote. The rule in Hadley v Baxendale[20] requires that the damages claimed must be such “as may fairly and reasonably be considered as arising naturally, that is according to the usual course of things from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it”.[21]
[20](1854) 9 Exch. 341.
[21]Ibid,at 35A.

In the present case, the plaintiff has not, in my opinion, discharged the burden of proving that the loss of profit on the sale of by-product could fairly and reasonably be considered to flow in the natural course of things from Titan’s failure to order the minimum contractual quantity, or that such loss may reasonably be supposed to have been within the contemplation of the parties at the time they made the contract. The loss of profit on the sale of by‑product is therefore too remote.

In the present case Mr Lewis calculated the plaintiff’s loss at $283,485.20 on the basis of the reasoning and documents set out in full in his Further Witness Statement. There was no evidence in rebuttal. Despite the criticism of Mr Lewis’ methodology and failure to produce certain working documents, I accept his evidence on the extent of the plaintiff’s loss and damage, subject to the adjustments necessitated by the recognition (a) that Titan was contractually obliged to order only 80% of the shortfall as sand and screenings at $8 per tonne and was entitled under the terms of the Supply Agreement to order 20% as packing sand at only $4 per tonne and (b) that the loss of profit on the sale of by‑product is too remote. The amount attributable to the loss of profit on the sale of by‑product must be deducted from the plaintiff’s award. Further, the award must be reduced to reflect the fact that 20% of the shortfall should be estimated on the basis of a sale price of $4 per tonne.

MAGISTRATES’ COURT COMPLAINT No. NO1319036 – ALLEGED SHORT WEIGHT OF GOODS SUPPLIED

By a Magistrates’ Court Complaint No. NO1319036 filed 21 June 2000 Killingworth also claims from Titan the sum of $16,621.78 (plus costs and interest) for goods supplied to Titan between October 1998 and December 1999 pursuant to the Supply Agreement. The claim was heard in the current proceeding. At trial, the plaintiff accepted the defendants’ figure of $16,556.88.

Short Weight

The first defendant does not deny the supply of the goods. It admits that it did not pay the sum of $16,601.78. It asserts that Titan received short weight from Killingworth in the loads of goods supplied, due to its use of inaccurate loader scales which permitted material to fall from the buckets after the weight was registered but before the material was loaded into Titan’s trucks. Titan withheld payment for the alleged deficiency. The matter of alleged short weight was the subject of prolonged and intense dispute between the parties.

Mr Mandikos stated that due to his complaints about the inefficiency of the loader scales, including allegedly illegible print outs, the parties agreed in about September 1998 that goods would henceforth be measured by the cubic metre, by reference to lines painted in the trays of Titan’s trucks, rather than by weight as provided in the Supply Agreement.

The Supply Agreement by clause 16 expressly provides that “This agreement shall not be amended except in writing signed by each of the parties.”

From approximately July 1998 the first defendant sought an alteration in the basis of measurement. Mr Mandikos gave evidence that Killingworth agreed to charge for product on a different basis from the tonnage specified in the Supply Agreement. He stated that Killingworth agreed to charge by the cubic metre and agreed that it would charge according to a truck load as equivalent to 17 cubic metres.

Mr and Mrs Cruden gave evidence that, despite the demands of Mr Mandikos, there was at no stage any agreement by Killingworth to vary the contractual basis of measurement. However, they asserted that Mr Mandikos, in about September 1998, incorrectly informed Mrs Cruden that Mr Cruden had agreed to vary the basis of measurement. She then invoiced Titan according to metric volume for the following month. When it became clear that there was in fact no agreement to vary the basis of measurement, Killingworth reverted to the basis of weight. For a period after this incident, until approximately April 1999, a cubic metre equivalent to weight was shown on the invoices. This was arrived at by dividing the tonnage by a fraction which varied according to the type of product in question. In cross‑examination Mrs Cruden agreed that in some instances, Titan had been charged for 17 cubic metres at a point when Titan refused to pay for no more than 17 cubic metres, although the usual fraction would have produced a measurement of 18 cubic metres. I nevertheless accept the evidence of Mr and Mrs Cruden that Killingworth did not at any stage agree to vary the basis of measurement, although there was an attempt to placate Mr Mandikos by reference to dual bases of measurement and, in some instances, a surrender to his demands. I have previously referred to the credit of the relevant parties. Any effective variation of the Supply Agreement was, by clause 16, required to be in writing. There is no evidence of an agreement to vary that requirement. There is no basis for inferring that Mr Cruden, as a single director, would have the authority unilaterally to agree to a variation of the Supply Agreement. A resolution of the board may have been required.

The Loader Scales

During the relevant time, the Killingworth plant used Atlas loader scales, fitted onto the front end loader. A sensor notifies a computer on the scales, measuring the weight of the product in the scoop of the front end loader, and a printer on the scales prints out the weight of each bucket loaded into the back of the truck. The loader scales do not measure the load after it has been loaded into the truck. The loader scales were fitted to the front end loader by their manufacturer in 1996 or 1997.

The plaintiff’s evidence was that the loader scales were fitted as a result of a determination of the Board of Killingworth at which Mr Mandikos was present, in 1997 or 1998, prior to the commencement of supply under the Supply Agreement.

I am satisfied that the loader scales were fitted pursuant to an understanding agreed to by all parties.

I accept Mr Cruden’s testimony that he undertook regular test measures of the accuracy of the loader scales, using a pre‑weighed ball drop which produced satisfactory results. The defendants contended that I should draw inferences adverse to the plaintiff because the plaintiff did not call the installers of the loader scales, who were based interstate. This must be balanced against the defendants’ own failure to produce relevant evidence, discussed below.

Mr Mandikos alleged for the first time during cross‑examination that Mr Cruden operated the loader scales dishonestly. This was never put to Mr Cruden and I do not accept that allegation.

The defendants assert that Mr Cruden, prior to the entry into the Supply Agreement, orally assured Mr Mandikos that Killingworth would obtain and install a cheap weighbridge “soon”.

Mr Mandikos stated that it was agreed that this should be done “first thing”. However, he conceded under cross‑examination that it was evident that there was no weighbridge at Killingworth Quarry when Titan signed the Supply Agreement and when it received the first load of product in February 1999. The Supply Agreement did not specify that a weighbridge must be installed or used to weigh the product. Mr Mandikos stated that he was concerned to protect his interests and would not sign a contract without knowing what he was going to get. He did not satisfactorily explain why he did not insist on the inclusion of a term requiring a weighbridge if it were a matter of fundamental importance. I am satisfied that there was an informal understanding, which lacked contractual force, that a weighbridge would be installed as soon as possible. That understanding was based on the expectation of Titan’s agreed contribution of $8,000 “in kind” which did not eventuate, thus delaying the installation of the weighbridge.

Mr Mandikos commenced taking product from Killingworth in February 1998. Soon thereafter, Titan began to complain of short weight.

The defendants alleged that the loader scales were inaccurate, and sometimes issued illegible print‑outs and that there were deficiencies in the load. In consequence, they received short weight.

Mr Mandikos complained frequently to Killingworth of short weight. He alleged that he also told Mr Cruden and Killingworth that the use of loader scales was prohibited by a provision of the Trade Measurement Act 1995.

The defendants submitted that the use of loader scales was prohibited pursuant to legislation and statutory regulations and that Mr Mandikos alerted Killingworth to that in about 1999. Some officials of the relevant government department visited Killingworth Quarry and made inquiries about the loader scales. However, there was no evidence that any action, fine or prosecution eventuated. It was not submitted that any statutory or regulatory prohibition, if applicable, would have the effect of relieving purchasers from liability to pay for the produce supplied, in the absence of evidence that the loader scales were delivering short weight.

Mr Cruden, Mrs Cruden, Mr DeVries and Mr Lewis gave evidence that in an effort to resolve the continuing disputes and complaints about alleged short weight, Killingworth, on numerous occasions, proposed that Mr Mandikos should conduct a comparison of weights by using a weighbridge, for which Killingworth offered to pay. Killingworth undertook to address any deficiency upon receiving documentary evidence of short weight. However, Mr Mandikos never at any stage produced any weighbridge dockets establishing short weight.

Mr DeVries gave evidence that he once accompanied Mr Mandikos to a weighbridge at a date in 1997 for a check weighing and observed that it did not indicate that the loader scales were not providing full weight to the purchaser.

Despite the long drawn out and at points very acrimonious dispute concerning alleged short weight, Titan was unable to produce any weighbridge documents evidencing its claims of short weight. Mr Mandikos said that he “did not know” whether the opportunity to perform spot checks had been offered to Titan at Killingworth’s cost. He claimed that he could not understand questions relating to Titan’s failure to provide the agreed $8,000 contribution in kind, or could not remember.

He stated that he did not know whether he had been party to discussions about the need to produce weighbridge documentation evidencing short weight or whether he received a letter dated 17 November 1999 reminding him of those matters.

At another point, Mr Mandikos stated that he did not wish to waste time sending his truck drivers to weighbridges for test weighing. He could not credibly explain why this was not done. Ultimately, he claimed for the first time under cross‑examination that he had in fact test weighed loads three times prior to August 1998, had detected a deficiency, and had given documentation to Mr Cruden. This matter was not put to Mr Cruden. Mr Mandikos said he no longer had the relevant documents. He stated: “Mr Cruden has them”.

I consider that Mr Mandikos’ testimony in relation to short weight was evasive, inconsistent and unconvincing. It is not credible, if the claims of short weight were persistent, important and genuine, that it would be too troublesome for Titan to obtain and produce some documentary evidence; particularly, if, as I accept, Killingworth had offered to pay the cost of appropriate test weighing. It defies belief that a person of Mr Mandikos’ acumen and experience would obtain documentary evidence of his complaints on three successive occasions, yet fail to retain it.

Titan did not dispute the receipt of the relevant invoiced loads, or non payment, but asserted short weight as a defence to Killingworth’s claim. It bore the onus of proof in relation to that issue, which, in my opinion, it has failed to discharge. I am satisfied on the balance of probabilities that full weight was provided by Killingworth in relation to the relevant invoiced loads of product for which Titan has failed to pay in full.

In my opinion, the plaintiff has established the claim set out in Magistrates’ Court proceeding No. 13 190 36.

MAGISTRATES’ COURT COMPLAINT No. P00238612

By a Magistrates’ Court complaint P00238612 dated 30 January 2001 Killingworth claims from Titan the sum of $16,775.11 for goods ordered by and supplied to Titan between 1 September and 31 October 2000. That claim was heard in the current proceeding.

Titan does not deny that the goods were ordered and supplied. It admits the non‑payment, but alleges that it is justified because the goods were not of merchantable quality and were unfit for the purpose for which they were required, as they were oversized and dirty screenings (coarse aggregate or pebbles).

Titan bears the onus of establishing both that the goods were supplied oversized and dirty to a degree that rendered them unmerchantable and unfit for the purposes for which they were required, pursuant to the Goods Act.

It is necessary first to consider whether Titan has established, on the balance of probabilities, that the relevant screenings supplied to it by Titan were oversized and dirty. If that is established, the further question whether that rendered them of unmerchantable quality and unfit for the purpose must then be determined.

Mr Mandikos’ evidence was that, from commencing to take supplies from Killingworth in February 1998, he built up stockpiles of sand and screenings of Killingworth’s product at Titan’s premises.

Following its rejection of the Killingworth sand in August 1998, Titan continued to purchase screenings, but alleges that from a date which is not precisely specified, the screenings supplied were oversized and dirty.

Mr Gladman stated that he observed, from a visual inspection, that screenings in stockpiles (identified to him by Titan as containing Killingworth product) at Titan’s premises were dirty. However, the Killingworth product had been delivered to Titan some years before his inspection. Further, Mr Gladman simply assumed that it was Killingworth product on the basis of Titan’s identification.

The unpaid goods in the present claim were ordered and supplied in September and October 2000. As early as 22 March 2000, Mr Mandikos wrote to Killingworth stating that there had been “many complaints” about oversize of the 20mm screenings supplied to Titan by Killingworth.

It is not disputed that four loads of screenings were oversized. Killingworth credited Titan for four loads in the sum of $1,944. Mr DeVries’ evidence, which I accept, is that when Killingworth attempted to collect the rejected screenings (for which Titan had received a credit), they were not available for collection.

In October 2000 Titan received a complaint from Cincotta, a customer using its readymix concrete. The complaint was that its concrete was too bony and unpumpable. Mr Mandikos’ evidence is that the screenings from Killingworth had been used in the concrete Titan had supplied to Cincotta. He noticed, by visual inspection, that the screenings were bigger than they should have been. In consequence, Cincotta deducted $3,821.94 from the Titan invoice. Mr Rush, the foreman at the Cincotta work site on the relevant day, also gave evidence. He stated that his visual inspection gave the impression that the screenings were large, and blocked the pipes.

Mr Rush, in cross‑examination, at first said that he could not recall whether the pebbles were bluestone. Subsequently he conceded that a small proportion was bluestone. His assessment was limited to a visual inspection.

Although Mr Rush was not a qualified expert, I am satisfied that the concrete on that day did contain some large screenings. However, it was a visual inspection and Mr Rush testified that some bluestone was contained in the mixture. Bluestone does not come from Killingworth Quarry, so that indicates that, at the least, Killingworth material had been contaminated by, or mixed with, material from other sources.

By letter dated 25 September 2000, Titan complained to Killingworth of dirty screenings. Killingworth disputed that the screenings were dirty. On 29 September 2000, Mr Cruden and a technologist visited the Titan premises and took samples.

Mr Mandikos’s own evidence is that by October 2000 he had been acquiring screenings from alternative sources for some time. From August 1999 to June 2000, Titan had purchased large quantities of screenings from Castella Quarries and Yarra Valley Quarries.

There was further correspondence between the parties on the problems of allegedly dirty and oversize screenings. Killingworth sought the details of date, quantity, product and type and offered by letter dated 1 November 2000 to attend the Titan site with an expert on receipt of the information. Titan did not respond. Titan requested that the Killingworth materials be collected. Mr Mandikos ultimately dumped the Killingworth materials as land fill.

No expert for Titan gave any evidence on the size of screenings. In any event, it would be necessary for Titan to establish by testing that the particular screenings collected from Killingworth and not paid for were dirty and oversized. It is insufficient to establish generally that Killingworth screenings were “oversize” at different points of time, yet Titan’s evidence does not go that far.

I have referred to issues of credit in relation to Mr Mandikos’ evidence in some detail above. In the circumstances, I do not consider that Titan has made out its defence in relation to oversize screenings.

The further allegation of Titan by way of defence to Magistrates’ Court complaint No. P00238612 is that the screenings in question were dirty or not properly washed. The only evidence on behalf of Titan in relation to the question was given by Mr Mandikos and, indirectly, by Mr Gladman.

Mr Mandikos asserted that the screenings were dirty and hence unmerchantable. Mr Gladman’s evidence was that some screenings said to be sourced from Killingworth, which he visually inspected at Titan’s plant, were dirty. However, it was merely a visual inspection. He assumed on the basis of what he was informed that the screenings were sourced from Killingworth and he was unable to comment on the cause of any dirt.

Mr Newbigen gave evidence that “dirty aggregate” would not necessarily mean that it failed to conform with Australian Standards. It would depend on the degree and type of the contamination. He also gave evidence that the different colours of aggregate did not necessarily indicate whether it had been washed or not. It could be due to naturally occurring materials. Mr Mudge inspected some aggregate said to be sourced from Killingworth, but found no evidence that it was dirty. He conceded that if concrete did have excessive silt deposits which were not removed, it was undesirable and could adversely affect concrete strength.

Mr Bruce, for the defendants, in closing submissions relied on the letter of Titan to Killingworth dated 9 November 2000. There was some doubt as to whether the letter was received. In any event it constitutes mere assertion.

In my opinion, the defendant’s evidence falls far short of establishing that the screenings collected from Killingworth and unpaid for were dirty or oversize when collected. It is therefore unnecessary to consider the further question whether any such defects rendered the produce unmerchantable or unfit for the purpose.

The supply of the relevant goods and non-payment for them is admitted. The defences are not made out. The plaintiff has established its claim set out in Magistrates’ Court Complaint No. P00238612.

CONCLUSION

The plaintiff is entitled to judgment in the proceeding. The quantum of damages to be awarded is subject to the adjustments referred to in paragraph 298. The defendants’ counterclaim must be dismissed.

Price (ex-bin at quarry site)
sand	$8.00 per tonne
screenings	$8.00 per tonne
packing sand	$4.00 per tonne

11/7/97	55% of 52,000	28,600
11/1/98	25% of 52,000	13,000
11/7/98	20% of 52,000	10,400
Provision of equipment as discussed.		$8,000

[2003] VSC 324

3 September 2003