M J H Chemicals v State Rail Authority

[1999] NSWSC 322

CITATION:	M J H CHEMICALS v STATE RAIL AUTHORITY [1999] NSWSC 322 revised - 31/08/99
CURRENT JURISDICTION:	EQUITY
FILE NUMBER(S):	2636/90
HEARING DATE(S):	5, 18-19 March 1999.
JUDGMENT DATE:	13 April 1999
PARTIES :	M J H CHEMICALS PTY LIMITED (FORMERLY BRACTON CHEMICAL CO PTY LIMITED) v STATE RAIL AUTHORITY OF NEW SOUTH WALES
JUDGMENT OF:	Bryson J at 1

COUNSEL :	PLAINTIFF: MR C J BEVAN DEFENDANT: MR R J WEBB
SOLICITORS:	PLAINTIFF: GELLS DEFENDANT: HOLMAN WEBB
CATCHWORDS:	DAMAGES; Breach of Contract; assessment of damages; nominal damages of $1.00 awarded.
DECISION:	SEE PARAGRAPH 14

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J

TUESDAY 13 APRIL 1999

2636/1990 M J H CHEMICALS PTY LIMITED (FORMERLY BRACTON CHEMICAL CO PTY LIMITED) v STATE RAIL AUTHORITY OF NEW SOUTH WALES


JUDGMENT (Inquiry as to Damages)

1 HIS HONOUR : These reasons relate to the inquiry as to damages ordered when judgment was given for the plaintiff for damages on 19 April 1996. I contemplated that the inquiry would be simple and could be conducted on affidavit in Private Chambers, but there was a large body of evidence including cross-examination and the hearing took about eight hours in total on 5, 18 and 19 March 1999. These reasons must be read with the judgment published on 19 April 1996. The order for the inquiry was:-
“1. Give judgment for the plaintiff for damages for breach of the first sub-paragraph of clause 4 of Terms of Settlement dated 25 March 1988 as ascertained and certified on inquiry.”
2 The breaches found consisted of including the names of two products of the plaintiff in two Stock Item Quotation forms which SRA sent to Maxwell Chemicals Pty Ltd on 12 July 1988 and in two Purchase Orders also sent to Maxwell Chemicals on 27 July and 14 September 1988. The Stock Item Quotations forms each included, at an inappropriate place, the name of one of the plaintiff’s products, and the Purchase Orders each included the name of a product of the plaintiff. These were breaches of the first agreement in Clause 4 of the Terms of Settlement of 25 March 1988 by which it was agreed that the defendant should not publish in any quotation, tender documents or specification any reference to the plaintiff’s firm name or brand name of its graffiti remover products “So Safe” and “So Safe Concrete” . I found that the purpose of this agreement was to prevent the association of the plaintiff’s firm name or brand name with any particular definition of product because by making that association SRA would indicate to anyone who saw the publication that the goods described and the plaintiff’s products were so close to being the same that the SRA was prepared to treat one as the other. It was communicated to Maxwell Chemicals that products supplied in accordance with the description and reference numbers given were regarded by SRA as the equivalent of the plaintiff’s products. After SRA had approved the Stock Item Quotations, the Purchase Orders showed Maxwell Chemicals that from the point of view of SRA Maxwell Chemicals product was the same as the plaintiff’s product.
3 Whether any loss to the plaintiff was caused by these breaches, the communication of the name of the plaintiff’s product to Maxwell Chemicals and the obvious inferences which Maxwell Chemicals could draw would depend on whether Maxwell Chemicals then knew of the plaintiff’s products and their names, then knew that the SRA regarded the plaintiff’s named products as conforming to the goods for which quotations were called and which were ordered, and, if in fact the events conveyed any information to Maxwell Chemicals which Maxwell Chemicals did not then know, what use Maxwell Chemicals made of the information. There was however no evidence which dealt with Maxwell Chemicals’ previous state of knowledge, or whether Maxwell Chemicals drew the inference, or made any use of the information.
4 The plaintiff under its former name Bracton Chemical Co Pty Limited carried on business as manufacturer and wholesaler of industrial cleaning chemicals and products. After a period of testing it had by early 1986 developed two graffiti removers, one called “So Safe Graffiti Remover For Concrete” or “So Safe Concrete” and one called “So Safe Graffiti Remover” or “So Safe Painted Surfaces” . The plaintiff embarked on marketing these products throughout Australia and retained a marketing sales consultant which was paid by commission on sales; the principal of the consultant was Mr Winkler. The plaintiff approached the SRA requesting that it be considered as a supplier of graffiti removal products about mid-May 1986 and after testing for safety SRA gave orders for the products from June 1986 onwards. The orders came from particular station masters or depot managers (called Local Purchase Orders) at first but from May 1987 onwards there were also bulk purchases through SRA’s central supply system. SRA Stores Depot allocated material identification (MI) numbers to the products; Mr Hunter’s evidence was:-
“The SRA’s Stores Depot allocates material identification numbers to each generic product it stocks and to products of each supplier.”
All dealings with central stores are required to use the MI number and product description allocated by central stores and these appear on containers.
5 The business of supply to SRA was very successful and by May 1987 there was no other supplier of graffiti remover to SRA. The plaintiff sold to other customers and its sales to other customers were assisted by the fact that people saw products in use by SRA staff. Sometimes customers referred to this when they telephoned with orders.
6 The proceedings settled by the Terms of Settlement were brought by the plaintiff in this Division by Summons filed on 24 February 1988 claiming an injunction restraining disclosure of a trade secret or confidential information being the chemical formula and/or specifications for the plaintiff’s products. The Terms of Settlement left it open to the plaintiff to bring other proceedings and to claim damages in respect of past or future disclosure of confidential information.
7 In April 1988 SRA issued invitations to quote for the supply of graffiti remover to Maxwell Chemicals and to the plaintiff, and sent them a specification prepared by SRA and not containing any reference to the plaintiff or its products; the specification indicated what the suppliers were asked to quote to supply. Maxwell replied, quoting to supply products of its own on the basis that they conformed to the specifications furnished by SRA. The plaintiff also submitted a quotation. SRA, having the competing quotations before it, made a decision to accept the Maxwell Chemical’s quotation, on the professed ground that the quotations were cheaper. They were indeed markedly cheaper. In my view there was no reason in the evidence to conclude that the professed ground for deciding to buy Maxwell Chemical’s products was not the true ground and no reason for finding that SRA had any motivation other than a wish to obtain product which conformed to its specifications at the best commercial terms available for sending its orders to Maxwell Chemicals. SRA then sent purchase orders to Maxwell Chemicals.
8 In July 1988 SRA again invited quotations in respect of two different products; these two invitations to quote are the first two of the four documents which have been found to be subject to breaches. Maxwell replied quoting to supply its own products, which were already known to SRA as a result of the earlier round of quotations. In its reply Maxwell used the name of its own products, and quoted the prices at which it was then prepared to supply them. The plaintiff also made quotations in this round, but was again severely beaten on price. SRA decided, as I find on the basis of price, to purchase Maxwell products and later sent out the second two documents which are the subject of findings of breaches so as to obtain product. SRA continued to buy from Maxwell for some years, and commercial opportunities in the market for the plaintiff’s products, including its relationship with its sales consultant, fell away from the plaintiff, so that those two products became much less commercially successful.
9 There is no indication in the evidence that by in effect telling Maxwell Chemicals that the plaintiff’s product fitted SRA’s specifications SRA brought about any change or alteration in Maxwell Chemical’s course or in its commercial behaviour. Maxwell Chemicals had already decided to quote and had quoted for the supply of its products on the basis of the SRA specifications and on prices with which the plaintiff did not compete. When SRA sent orders to Maxwell Chemicals, it supplied goods in accordance with those orders, and the standard which the goods had to meet was set by the specification by reference to which SRA had earlier invited quotations. The plaintiff had no contractual right to remain in supply, and ordinary commercial rationality shows that its expectations of continuing in supply were completely bound up with the price at which a rival product which SRA had decided to accept was available.
10 The plaintiff put forward an elaborate structure of claims for loss of profits and other consequential losses built on the foundation of allegations that SRA purchased from Maxwell Chemicals and not from the plaintiff not because of a price differential but because SRA was aware that it had committed breaches of the agreement of 25 March 1988 and that it might be sued for damages including damages in respect of earlier complaints on which the earlier proceedings had been based, and that this led SRA in some way to avoid dealing with the plaintiff. This structure was not supported by evidence or reasoning, and was not accommodated to the large price differences and the obvious sufficiency of the price differences as an explanation of SRA’s choice as to where it sent its orders. An aspect of this structure was a contention to the effect that Maxwell Chemical’s goods were in fact very unsatisfactory to SRA’s staff, from which it was to be inferred that SRA only bought them to spite the plaintiff. Evidence called by SRA shows clearly that it did buy significant quantities of unsatisfactory goods from Maxwell Chemicals, but it did so because SRA mistakenly ordered the wrong product, and then had to buy other product from Maxwell Chemicals and have the goods reformulated, using both sources and with the assistance of Maxwell Chemicals. There is no reason for thinking that if the ordering mistake had not been made, Maxwell Chemicals product would not have been satisfactory.
11 In any event even if SRA really had avoided purchasing the plaintiff’s products out of some consciousness that the earlier damages claim might be revived or a further damages claim might be brought, there could be no ground on which SRA’s behaviour of that kind could be seen as caused by the appearance of the names of the plaintiff’s product in the four documents referred to and the breaches thus constituted of the agreement in the Terms of Settlement.
12 Some complaints were also made of SRA using the same material information or MI number for references to the products of the plaintiff and of Maxwell Chemicals. There was no reason why this should be regarded as suspicious or an infraction of the plaintiff’s rights; and no reason why it should be regarded as relevant to the infraction of the plaintiff’s rights which gives rise to the present inquiry. It was also said that the breaches showed that SRA had come to treat the plaintiff’s trade names as generic of product; in my opinion the evidence does not show that this is correct, but if it were it would not be a breach of the rights which give rise to the present inquiry.
13 In my judgment the plaintiff has failed to prove any actual loss caused by the breaches as found. The plaintiff is entitled to nominal damages in respect of the four breaches, as they are breaches of contract, and I must give judgment for the plaintiff for a nominal sum.
14 ORDER:
Upon the inquiry directed by order 2 of the orders of 19 April 1996 I have ascertained and I certify that the damages recoverable by the plaintiff for breach of the first sub-paragraph of Clause 4 of Terms of Settlement dated 25 March 1986 are $1.00.

I certify that paragraphs 1-14 are the reasons for judgment of the Honourable Justice John Bryson.

Date: 13 April 1999. (J.Stevenson)
Associate

Last Modified: 06/30/2000