MCT Dairies Inc v Probiotec Limited - [2009] FCA 1385

FEDERAL COURT OF AUSTRALIA
MCT Dairies Inc v Probiotec Limited
[2009] FCA 1385
MCT DAIRIES INC v PROBIOTEC LIMITED (ACN 075 170 151)
NSD 2105 of 2007
RARES J
25 NOVEMBER 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 2105 of 2007

BETWEEN:
MCT DAIRIES INC
Applicant

AND:
PROBIOTEC LIMITED (ACN 075 170 151)
Respondent

JUDGE:

RARES J

DATE OF ORDER:

25 NOVEMBER 2009

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The respondent bring in short minutes of order to give effect to these reasons.
2.The proceedings stand over to 26 November 2009 at 9:30am.

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

The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 2105 of 2007

BETWEEN:
MCT DAIRIES INC
Applicant

AND:
PROBIOTEC LIMITED (ACN 075 170 151)
Respondent

JUDGE:

RARES J

DATE:

25 NOVEMBER 2009

PLACE:

SYDNEY

REASONS FOR JUDGMENT

MCT Dairies Inc is a cheese trading company based in New Jersey in the United States of America. In October 2003 MCT entered into a contract with Probiotec Limited to import 100 tonnes of cheese. The cheese was of a downgrade quality that was suitable for processing. In the contractual negotiations the parties agreed that it would be labelled as “Cheedam” or “Australian Cheedam”. There is a dispute whether the cheese was sold by that description. The negotiations for the contract were conducted by MCT’s president and chief executive officer, Ken Meyers, with Probiotec’s managing director, Wayne Stringer, and one of its directors, Rudi Ganter. The price for the cheese was USD1,250 per tonne, c.i.f. ex Sydney. The cheese was to be shipped frozen in five different containers for discharge at the Port of Los Angeles, California.
When the cheese arrived in the United States, MCT claims that it did not conform to the contractual description of “Cheedam”, but instead consisted of a variety of different cheeses and cheese product types of inconsistent and variable quality. MCT asserts that the cheeses was basically fit only for animal, and not for human, consumption and was not clean tasting. MCT also claims that Probiotec contravened s 52 of the Trade Practices Act 1974 (Cth) by engaging in conduct that was misleading or deceptive or likely to mislead or deceive. This was because Probiotec allegedly made representations to MCT that mirrored the contractual warranties on which it relied. Probiotec argued that it had in fact supplied what it had agreed to sell, namely, a variety of downgraded cheeses that were suitable for processing labelled as “Cheedam Cheese: cheese for processing”.
Probiotec brought a cross-claim for the balance of the amount due to it under various dealings it had had with MCT. There is no dispute that MCT owed Probiotec the sum USD33,398.88 sought in the cross-claim but that that sum may be subject to a set off against…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2009] FCA 1385
Decision Date: 25 NOVEMBER 2009

CaseChat Overview and Summary

In the matter of MCT Dairies Inc v Probiotec Limited, the primary dispute revolves around the quality and description of cheese products, specifically "Cheedam," supplied by Probiotec to MCT Dairies. Probiotec initiated a cross-claim for the balance of the amount owed to them under their dealings with MCT. Although there is no dispute that MCT owed Probiotec USD33,398.88, the amount could be subject to a set-off against any damages awarded on MCT's claim. The court was tasked with determining the contractual terms regarding the description and quality of the "Cheedam" cheese, whether the delivered cheese met the contractual specifications, and if MCT was entitled to any damages. The case hinged on interpreting the terms of the contract and assessing the quality of the delivered goods against these terms.

The legal issues required the court to scrutinise the nature of the contractual agreement, focusing on the specific terms and conditions concerning the description and quality of the "Cheedam" cheese. The court had to determine whether the parties agreed on specific characteristics or if the agreement was more general, allowing for some flexibility in the product supplied. Additionally, the court needed to assess whether the delivered cheese met the agreed specifications and whether any deficiencies justified MCT's claims for damages. The court's decision was heavily influenced by the credibility of the witnesses and the consistency of their testimonies with documentary evidence.

The court concluded that there was no clear agreement between the parties regarding the specific description or quality of the "Cheedam" cheese. The evidence indicated that Probiotec did not commit to supplying cheese that met the specific descriptions "Cheedam" or "Cheedam for processing." The court found Mr. Meyers, one of the key witnesses for MCT, to be unreliable, noting his tendency to overstate and exaggerate the facts to suit MCT's case. Furthermore, the court highlighted the importance of the labelling discussions between Mr. Meyers and Mr. Stringer, suggesting that they had more nuanced intentions than a straightforward sale by description. Based on these findings, the court ruled in favour of Probiotec on the key issues of contract terms and quality specifications.

The court's final orders included instructions for the respondent to prepare minutes of order to reflect the court's reasons and to stand the proceedings over to a later date for further directions. This decision underscored the necessity of clear and precise contractual terms, especially in international trade where misunderstandings can lead to significant disputes.

Orders

Orders of the court

1. The respondent bring in short minutes of order to give effect to these reasons.

2. The proceedings stand over to 26 November 2009 at 9:30am.

Note:

Background

Background to the litigation

Probiotec brought a cross-claim for the balance of the amount due to it under various dealings it had had with MCT. There is no dispute that MCT owed Probiotec the sum USD33,398.88 sought in the cross-claim but that that sum may be subject to a set off against any damages awarded on MCT’s claim. The substantial issues are:(1)What were the terms of the contract between MCT and Probiotec with respect to the description and quality of the cheese or cheese products described as “Cheedam”?(2)Did the cheese, as delivered, meet the contractual specifications?(3)Is MCT entitled to any damages?BACKGROUND There are substantial factual conflicts between the principal witnesses. At the outset of these reasons, I should make clear that I accept Mr Stringer’s evidence generally and, where it conflicts with their evidence, prefer it to that of the other witnesses. As I explain below, I did not find Mr Meyers or David Raff to be reliable witnesses. In these reasons, I have used the dates appearing on emails in evidence, but the precise timing of correspondence or telephone conversations is difficult to identify because of the variation between time zones in eastern Australia and New Jersey in the eastern United States. Mr Meyers’ principal duties at MCT included arranging the sourcing and purchase of its imports of cheese and cheese products. Mr Raff, is the other principal of MCT. His functions concentrated on the sales side of MCT’s business. Import quotas for cheese and cheese products had to be filled and product had to be imported into the United States by the end of each calendar year, or the right to import under the quota would be lost for that period. Thus, there was a commercial imperative on the United States quota holders and others which, like MCT, could exploit quota entitlements, to negotiate contracts for the importation of cheese into the United States in such a way that the contracts would be fulfilled and the cheese landed there by 31 December each year. One of Mr Meyers’ business objectives was to utilise quotas to which MCT had rights in respect of particular nominated grades of cheese. Some quotas were for categories of specific products, such as cheddar. Another category was that of “not specifically provided for”, being for cheese not within any identified category, but that met particular United States Department of Agriculture criteria. MCT imported the “Cheedam” sold by Probiotec under a quota in the category of cheese “not specifically provided for”. Mr Meyers had first dealt with Mr Stringer in 2002. On that occasion MCT purchased cheddar cheese from Probiotec utilising quota entitlements held in other entities’ names. That transaction had proceeded successfully. When Mr Stringer and Mr Ganter planned a business trip to the United States in August 2003 they arranged to meet with Mr Meyers to discuss possible business opportunities between the two companies. THE NEGOTIATIONS FOR THE CONTRACT FOR SALE OF “CHEEDAM” CHEESE(a) The Meeting of 23 August 2003

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

RARES J

By 1 March 2004 Mr Meyers was complaining that the Cheedam continued to pose issues and that some of it “is not even cheese … none of our customers will touch this garbage”. The sales difficulties for MCT appear to have continued. On 15 March 2004, Mr Meyers asserted to Mr Stringer that MCT had exhausted its ability to sell any more of the product. However, only in late March 2004 did MCT first write about a specific problem with the cheese. And then it did so in an internal email of 26 March from Mr Raff to MCT’s Jennifer Dolan. Mr Raff asserted there that he had some samples shipped to his office in New Jersey and when Mr Meyers sampled the cheese he almost threw up. Mr Meyers had emailed Mr Stringer on 12 May 2004 advising him that Chateaux was requesting a credit for the original shipment, would not touch the product and would sell the unusable portion as animal feed. Again, none of MCT’s emails to Probiotec up to this time gave any specifics about the supposed problem beyond generalised assertions that it was “garbage” or “unusable product” or “animal feed”. Ultimately, MCT asserted that the balance of the importation was sold as animal feed.CONCLUSIONS I am not satisfied that Probiotec agreed with MCT to sell cheese that conformed to either of the descriptions “Cheedam” or “Cheedam for processing”. First, I do not consider that Mr Meyers was a reliable witness. His oversight in early December 2003 and later that the shipment was for frozen cheese was signal. He had a tendency (as did Mr Raff) to overstate and exaggerate both his evidence and his earlier communications to suit MCT’s case. To my observation, Mr Raff accurately described Mr Meyers’ temperament in an email of 15 October 2004 saying:“He feels Probiotec is challenging him. I must explain to you Ken’s disposition. I recommend not challenging him. He thrives on this kind of situation and he is relentless. He would just assume use [sic]our court system to resolve this case. He feels comfortable there.” (emphasis added) Secondly, it was apparent to Mr Meyers from the early email exchanges of September 2003 that Mr Stringer did not even know how to spell “Cheedam” and he, (Mr Meyers), had to insist on the correct spelling. Thirdly, he and Mr Stringer spent some time in their correspondence at this time specifically agreeing how the shipment would be labelled. That would not have been necessary had this been a contract for a particular cheese sold by description. This conduct suggests that both Mr Meyers and Mr Stringer had something more in mind because they spent so much time on how they both wanted the product labelled. I am satisfied that the motivation for this correspondence was merely to ensure that MCT could use a “not specifically provided for” quota to import the downgrade varieties of cheeses under a label name of “Cheedam” that Mr Meyers had assured Mr Stringer was appropriate. Further support for my finding is in Mr Raff’s email to Chateaux of 19 February 2004, and the evidence of Mr Ernster and Ms Couch that suggested “Cheedam” was not generally understood as a particular variety of cheese but was used as a convenient word under which downgrade cheese could be appropriately labelled.

Ratio Decidendi

Legal Principle Established

Established by: RARES J

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 2105 of 2007

BETWEEN:	MCT DAIRIES INC Applicant
AND:	PROBIOTEC LIMITED (ACN 075 170 151) Respondent

JUDGE:	RARES J
DATE OF ORDER:	25 NOVEMBER 2009
WHERE MADE:	SYDNEY

JUDGE:	RARES J
DATE:	25 NOVEMBER 2009
PLACE:	SYDNEY