Metalcorp Recyclers Pty Ltd v Metal Manufacturers Ltd

[2003] NSWCA 213

Reported Decision: (2004) ATPR (Digest) 46-243
(2004) Aust Contract Reports 90-186

Court of Appeal

CITATION:	Metalcorp Recyclers Pty Limited v Metal Manufactures Limited [2003] NSWCA 213
HEARING DATE(S):	15 July 2003
JUDGMENT DATE:	5 August 2003
JUDGMENT OF:	Handley JA at 1; Hodgson JA at 55; Gzell J at 60
DECISION:	1. Appeal allowed with costs; 2. Set aside the judgment of the District Court in favour of the defendant; 3. In lieu thereof enter judgment for the appellant for $254,164.74 together with pre-judgment interest from 2 February 2001 until the judgment of this Court; 4. Appeal listed for mention before Handley JA at 9.30 am on 19 August 2003 for the entry of judgment for an amount which includes the pre-judgment interest unless in the meantime agreed short minutes have been lodged with the Registrar; 5. The respondent to pay the appellant's costs of the proceedings in the District Court; 6. The respondent to have a certificate under the Suitors' Fund Act 1951 in respect of the costs of the appeal if qualified.
CATCHWORDS:	MISREPRESENTATION - silence - partial statement of the truth - a misrepresentation in context of established course of business - TRADE PRACTICES - misleading and deceptive conduct - silence - incomplete statement of the truth in context of established course of business - misleading and deceptive
LEGISLATION CITED:	Trade Practices Act 1974
CASES CITED:	Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Gould v Vaggelas (1985) 157 CLR 215 Henville v Walker (2001) 206 CLR 459 Smith v Chadwick (1884) 9 App Cas 187 Stead v State Government Insurance Commission (1986) 161 CLR 141 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
PARTIES :	Metalcorp Recyclers Pty Limited (Appellant) Metal Manufactures Limited (Respondent)
FILE NUMBER(S):	CA 40785/02
COUNSEL:	G Sirtes with J Hammond (Appellant) C Hodgekiss (Respondent)
SOLICITORS:	Bartier Perry (Appellant) Heard McEwan (Respondent)

LOWER COURTJURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 7049/01
LOWER COURT JUDICIAL OFFICER :	Gamble ADCJ

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

40785/02

HANDLEY JA
HODGSON JA
GZELL J

5 AUGUST 2003

METALCORP RECYCLERS PTY LIMITED

v

METAL MANUFACTURES LIMITED

CATCHWORDS

MISREPRESENTATION – silence – partial statement of the truth – a misrepresentation in context of established course of business

TRADE PRACTICES – misleading and deceptive conduct – silence – incomplete statement of the truth in context of established course of business – misleading and deceptive

FACTS

The appellant sold and delivered 77 tonnes of scrap copper cathode to the respondent. The companies had been doing business with each other for about 10 years. The copper had been stolen from Western Mining Corporation (WMC) by persons unknown but the seller acquired it in good faith from the third party it had previously dealt with without incident.

WMC informed the buyer about the theft and as a result it suspected that the copper it was buying may have been stolen. The buyer inspected the copper after delivery, noticed that less had been delivered than promised, and saw evidence that the copper had been manufactured by WMC. The buyer passed the relevant information onto WMC by fax at 8.51 am on 2 February 2001.

Under the established course of business between the companies deliveries of copper by the seller were quarantined until inspected and accepted and there was a procedure for dealing with quality disputes arising from an inspection.

During a telephone conversation between the seller and the buyer about 9 am on 2 February, the buyer said that it had inspected the copper and asked about the short delivery. There was no mention of any difficulties about quality. The seller told the buyer that it had delivered all the copper that was available. Although the buyer then believed that the copper had probably been stolen, nothing was said about title and the seller was not told about the theft from WMC, the evidence found on inspection, or that it had been passed on to WMC to enable that company to determine whether the copper had been stolen. Later that day WMC advised the buyer that the copper had been stolen.

As a result of the 9 am conversation the seller understood that the buyer, having only raised the question of the short delivery, had accepted the copper and intended to pay for it in due course. At about 11.30 am that day it gave a cheque to its supplier for the copper which was specially cleared. The buyer later refused to pay for the copper and the seller was unable to recover the money paid from its supplier.

The seller sued the buyer for damages for misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act. The District Court Judge dismissed the action. On appeal: HELD (1) The buyer’s conduct during the critical conversation was misleading and deceptive. What was said and not said against the background of the established course of business between the companies conveyed a representation to the seller that the buyer had accepted the delivery and intended to pay for it in due course Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 applied. (2) This was a misrepresentation which the seller acted on when it payed its supplier some hours later. (3) The seller was entitled to recover as damages the price it paid its supplier.

ORDERS

(1) Appeal allowed with costs.

(2) Set aside the judgment of the District Court in favour of the defendant.

(3) In lieu thereof enter judgment for the appellant for $254,164.74 together with pre-judgment interest from 2 February 2001 until the judgment of this Court.

(4) Appeal listed for mention before Handley JA at 9.30 am on 19 August 2003 for the entry of judgment for an amount which includes the pre-judgment interest unless in the meantime agreed short minutes have been lodged with the Registrar.

(5) The respondent to pay the appellant’s costs of the proceedings in the District Court.

(6) The respondent to have a certificate under the Suitors’ Fund Act 1951 in respect of the costs of the appeal if qualified.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

40785/02

HANDLEY JA
HODGSON JA
GZELL J

5 AUGUST 2003

METALCORP RECYCLERS PTY LIMITED

v

METAL MANUFACTURES LIMITED

Judgment

1 HANDLEY JA: This appeal from a decision of Gamble ADCJ on 9 August 2002 arises out of the sale of 77 tonnes of copper cathode by the appellant to the respondent on 31 January 2001. The companies had been doing business with each other for some ten years, with about one transaction a month. Apart from one delivery the previous year the seller’s deliveries of cathode copper were not tested for quality, although all deliveries were inspected to determine whether foreign material was present.

2 The subject copper was delivered to the buyer on 1 February and inspected for quality on the morning of 2 February. The seller had bought the copper in good faith but it was the property of Western Mining Corporation (WMC), having been stolen by unknown third persons from a yard in Villawood on 26 January. In March the respondent, as it was entitled to, refused to pay for the copper.

3 Mr Rye for the seller purchased the copper from C J Trade Consultants (CJT) as a result of negotiations with Mr Poulos. The seller accepted that it did not have title to the copper but it sued the buyer for what was alleged to be its misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act. The seller’s claim was based on the buyer’s failure to inform it during a telephone conversation at 9 am on 2 February (the critical conversation), after its inspection of the copper, that it believed it had probably been stolen and the seller would probably not be paid.

4 Later the same morning, some time after 11 am, the seller paid for the copper by giving a cheque for $254,164.74 to a representative of CJT. The cheque was specially cleared that day. In due course the seller obtained default judgment against CJT for the recovery of the price but it proved fruitless.

5 The sale was negotiated between Mr Rye, on behalf of the seller, and Mr Cook, on behalf of the buyer, between 29 and 31 January. Their evidence as to the course of their negotiations differed but nothing turns on the differences. The seller is a scrap metal merchant and the buyer a copper fabricator. The seller had to tender for the copper to CJT, and conducted its negotiations with the buyer in that context. Its tender was successful. The seller’s carrier collected the copper from a site at Moorebank on 1 February and brought it to its yard at Chipping Norton. The quantity available was less than that promised and when Mr Rye raised this with Mr Poulos the latter said that 20 tonnes had been stolen overnight. Approximately 3 tonnes were offloaded to ensure that the trucks were not overweight and the balance was delivered that day to the buyer at Port Kembla.

6 In the meantime about 12.30 on 30 January a Mr Griffin of WMC Adelaide, which was a major supplier of copper to the buyer, telephoned Mr Cook and in the course of a conversation about other matters mentioned that 150 tonnes of their new copper cathode had been stolen from a yard at Villawood on 26 January. Mr Cook mentioned his continuing negotiations with the seller for the purchase of 80 tonnes of scrap copper cathode. Mr Griffin asked Mr Cook whether he would speak to WMC’s private investigator, Mr Jennings, who was looking into the theft. Mr Cook agreed, and Mr Jennings telephoned him later that day (AB 51). Mr Jennings asked whether he could inspect the copper after it had been delivered, and Mr Cook agreed (52). On 1 February, after the delivery from the seller, Mr Cook informed Mr Jennings and then had a conversation with Detective Knox from Bankstown Police.

7 On the morning of 2 February Mr Cook inspected the copper and saw evidence that it had been manufactured by WMC which he carefully noted. He gave the details to Mr Griffin by fax. At about 4 pm Port Kembla time a Mr McRae of WMC Adelaide telephoned Mr Cook and told him that the copper was part of the material that had been stolen on 26 January. Soon afterwards he had a conversation with Detective Knox.

8 The seller’s case is that by 9 am on 2 February Mr Cook believed that the copper was the property of WMC which the buyer would not be paying for, but said nothing about this to Mr Rye during the critical conversation. His silence was said to be misleading and deceptive and it caused loss to the seller when later that morning it handed over a cheque to CJT, and by the close of business had lost the chance of stopping payment.

9 Gamble ADCJ dismissed the seller’s action. The first 9 pages of her reasons for judgment contain a summary of the evidence of Mr Rye and Mr Cook without findings where that evidence conflicted or was challenged. However a lot of the evidence was not in dispute.

10 She was not satisfied by the evidence of either Mr Rye or Mr Cook and was not prepared to rely on it for the reasons she gave. She said that Mr Cook’s explanation of the circumstances in which he accepted, without comment, Mr Rye’s explanation for the short delivery (i.e. the theft of about 20 tonnes from his supplier) during the critical conversation, was “not reasonable” and was not justified by the fact that deliveries often varied from the quantity promised. Mr Cook was cross-examined to suggest that this explanation increased his suspicions about the source of the copper. The Judge said that Mr Cook gave no reason for his failure to discuss with Mr Rye the information he had received from Mr Griffin.

11 The Judge said that Mr Rye’s conduct was unreasonable in two respects. Firstly, there was his reliance on the buyer’s practice of quarantining deliveries for between 1 and 3 days and calling on the seller’s local representative if defects in quality were discovered. Secondly, there was his failure to have the load inspected at Chipping Norton. She was not satisfied that in authorising payment to CJT Mr Rye was influenced by Mr Cook’s silence about the theft or the buyer’s willingness to accept the copper. She found that Mr Rye went ahead and assumed the buyer would accept the load although the normal time for rejection had not passed. He also ignored the warning signs in Mr Poulos’s explanation for the short delivery.

12 She found that Mr Cook’s evidence was unreliable, and thought it was more consistent with him having co-operated with those investigating the Villawood theft, rather than having no suspicions about the source of the copper until he discovered the WMC markings, as she thought, after the critical conversation.

13 The seller contended that the undisputed facts, the facts found by her Honour, and other facts incontrovertibly established, made out a case which entitled it either to judgment or a new trial.

14 A finding of misleading or deceptive conduct is open where that conduct, by word or deed, conveyed a misrepresentation (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514). In this case the misrepresentation is said to have been conveyed by silence, but that is an inadequate and incomplete description. The relevant principles were felicitously summarised by Black CJ in Demagogue Pty Limited v Ramensky (1992) 39 FCR 31, 32:

“Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive ... to speak of ‘mere silence’ or a duty of disclosure can divert attention from that primary question. Although ‘mere silence’ is a convenient way of describing some fact situations, there is in truth no such thing as ‘mere silence’ because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed”.

15 The misleading and deceptive conduct relied upon was that of Mr Cook during the critical conversation. As Black CJ said, silence that is capable of being misleading or deceptive never stands alone. In the absence of some positive duty to speak, silence can only be misleading or deceptive against a background of other facts known to both parties which make what is actually said so incomplete that it conveys a misrepresentation.

16 The critical conversation took place against the background of the long-standing business relationship between these companies and the negotiations and communications leading to this delivery. The business relationship had generated a substantial degree of mutual trust based on the buyer’s confidence in the integrity of the seller. Mr Cook had no reason to think that Mr Rye was knowingly dealing with stolen copper. Moreover there was a well understood practice for dealing with the occasional quality dispute which involved deliveries by the seller being quarantined until inspected by the buyer and accepted.

17 When Mr Griffin told Mr Cook about the theft, Mr Cook mentioned the offer of either 80 or 100 tonnes of cathode copper made by Mr Rye the day before. Thus despite his denials, which the Judge rejected, he made the connection. Mr Griffin did not think the link was farfetched or fanciful, because he asked Mr Cook whether he would talk to Mr Jennings.

18 In this situation the buyer was not running any commercial risk. If the copper was delivered on 1 February, as arranged, the buyer would not have to pay for it until the end of March. The seller was an established trader and a subsidiary of a listed public company. Mr Cook, having been made aware of a possible claim by WMC, could clarify the title question after delivery before using the goods or having to pay the seller. He had no reason to think that Mr Rye knew of the theft of the 150 tonnes, and neither Mr Griffin nor Mr Jennings said they would tell him. On the other hand Mr Cook had every reason to believe that the seller was about to take delivery of copper which might be stolen without having any idea of the risk it was running. Disclosure of that risk to Mr Rye involved no risk for the buyer, and none was suggested in argument.

19 It is necessary to determine the precise context of the critical conversation. Mr Cook said more than once in his evidence that he did not inspect the load until about 10 am, and thus after this conversation. The timing of the inspection is critical, because he did not speak to Mr Rye again until March.

20 If Mr Cook did not inspect the load until after the critical conversation, the knowledge he gained from his inspection would not be relevant in considering the effect of his silence during that conversation. The converse will apply if he inspected before the conversation.

21 The documentary evidence enables the Court to find, despite Mr Cook’s denials, that he inspected the load before 9 am, because he sent a fax message based on his inspection to Mr Griffin in Adelaide. Mr Cook typed this fax himself from notes made during his inspection. There are 3 copies of this fax in the appeal book (156, 162 and 173).

22 The copy at 173 contains a clear imprint of the transmission time from “MM Mt Kembla Management” of 8.51 am on 2 February. The same copy bears the imprint of a further transmission from WMC Group Supply at 10.52 am the same day. It is evident from another fax sent to the same number (158) that the copy at 173 was sent to Detective Knox at Bankstown Police. At 12.01 pm the same day the copy at 162 was sent to Mr Jennings together with a copy of the fax to the police (158). The imprint on the faxes from WMC Group Supply Adelaide is different from the imprint for “MM Mt Kembla Management”.

23 This evidence establishes incontrovertibly that Mr Cook’s fax was sent from Pt Kembla at 8.51 local time, shortly before his phone call to Mr Rye. The fax stated:

“There were 26 ‘bundles’ of cathode delivered yesterday from Metalcorp. Most were loose, with no steel strapping at all, and several appeared to consist of two or more original bundles. I have this morning inspected the material and have taken a note of the markings where there were any. A list of these markings is set out below”.

24 A lengthy list followed which need not be set out. The fax concluded:

“Please check the above markings against your records – our hope is that these will enable immediate identification (or elimination) of this material, obviating the need for samples. Please call me to discuss”.

25 Mr Cook‘s state of mind at the time of his conversation with Mr Rye is critical. In view of the Judge’s finding about the reliability of his evidence, attention must be focussed on his contemporaneous statements. The most important is his statement to Detective Knox at Port Kembla Police Station at 6 pm on 2 February (42). Referring to his telephone conversation with Mr Rye on 31 January about 5 pm, when they fixed the price, he said:

“Because of what I had been made aware from Western Mining Corp, I agreed to fixing the price. I did not really expect that we would ever pay for the delivery because I anticipated that it would be proven to be the stolen copper from BHP Villawood”.

26 On 21 February Mr Cook sent an internal memo, he typed himself (82), to three colleagues which stated:

“We were aware of the likelihood that it was stolen when concluding the deal with Metalcorp, and agreed with WMC’s investigator and the police to allow the material to be delivered so it could be checked and identified”.

27 Mr Cook said in his evidence that para 18 of his statement to the police, and this paragraph in his memorandum of 21 February, were incorrect, but since the Judge found that his evidence was unreliable she must have accepted his contemporaneous statements. Those statements establish that Mr Cook came to believe that the copper he was being offered had probably been stolen from WMC by the time he concluded the deal with Mr Rye on 31 January.

28 Mr Cook’s impressions, formed as the result of his inspection of the load, must also be derived from his contemporaneous statements. According to his fax to WMC, he identified their labels on bundles 6 (painted 725) and 10 (painted 723). There were other bundles where labels of the same size had been removed from the top sheets and the marks were visible.

29 Bundles 15 and 18 did not have WMC labels but were imprinted 723. Bundle 7 was painted 722 and bundle 16 724. Since bundles 6 and 10 with 723 and 725 had WMC labels, the bundles with the same or adjacent numbers were also identified as WMC copper, packed about the same time. These six bundles were distributed across the load. Mr Cook said in his statement to the police:

“I inspected the copper cathode. I found some markings on the steel banding holding the sheets together were similar to what would be expected on a shipment from Western Mining Corp. I also found on the top of one pack a partial shipping note”.

30 In his oral evidence Mr Cook said that following his inspection he was concerned that “potentially it was Western Mining’s copper” (63), that the material could be the quantity that had gone missing (72, 74), that as a result of marks where labels had been removed he was starting to get concerned (73). The markings Mr Cook discovered on inspection [pars 28, 29], and what he said about them in his statement to the police [par 29], can only have strengthened his earlier “anticipation” that the copper “would be proven to be the stolen copper”, and his belief that it was “likely” it was stolen.

31 It is now necessary to consider the critical conversation. Mr Rye said in cross-examination (11) that he asked Mr Cook whether he had inspected the load. Mr Cook replied: “I’ve just inspected it and there’s only 77 tonnes”. There was no challenge in further cross-examination to this evidence. See 17 E-G. Later in his cross-examination (29 W-Y) Mr Rye said: “I’ve had a conversation with Murray Cook that the materials were there and he wanted to know where the rest was, so the assumption was yes they had [accepted delivery]”. See also 31L.

32 Mr Cook said in his statement (137) that he telephoned Mr Rye about 9 am and asked about the remainder of the delivery and was told that the seller’s supplier had suffered a loss through theft and the buyer had received all the copper it would be getting (see also 146).

33 Mr Cook did not deny in his oral evidence that he told Mr Rye that he had inspected the copper but there was an implicit denial because he said he did not make his inspection until after the critical conversation.

34 The Judge was not satisfied with the evidence of Mr Rye and was not prepared to rely on it but gave her reasons. These show, with one exception, she had not rejected his evidence on credit grounds or because it was unreliable, but because she considered that his conduct at the time was “unreasonable”. However she expressly rejected his evidence that he relied on Mr Cook’s “silence” when handing over the cheque to CJT.

35 In my judgment this Court can properly find that Mr Cook told Mr Rye during the critical conversation that he had inspected the copper. Mr Cook had in fact inspected it and it was common ground that he asked about the short delivery. At the trial Mr Cook sought to diminish the significance of the critical conversation. He rearranged the sequence of events so that the conversation preceded his inspection and so lacked the knowledge, derived from his inspection, that WMC was the original source of some of the copper. At the same time he repudiated statements of his belief made to the police on 2 February and to colleagues on 21 February.

36 His attempts to repudiate his contemporary statements were rejected by the Judge and his attempt to rearrange the order of events has been exposed by the fax he sent to Mr Griffin at 8.51 am. An express denial by Mr Cook in a new trial that he told Mr Rye he had inspected the copper when in fact he had done so, and admittedly asked about the short delivery would inevitably be rejected. In these circumstances the Court is not obliged to enter a new trial. Compare Stead v State Government Insurance Commission (1986) 161 CLR 141, 146-7.

37 The Court can now consider whether Mr Cook’s conduct was misleading or deceptive. It is said to have this character because of what was not said in the context of what was said. His conduct is said to have been misleading or deceptive because he misrepresented his state of mind to Mr Rye. Mr Cook believed at the time that it was likely that the copper had been stolen and that this would be established on the basis of the information he had sent to Mr Griffin in his fax. He expected that his company would not be paying the seller for the copper [paras 25, 26].

38 The established course of business between the companies was that a delivery was not accepted until it had been inspected by the buyer. If any problem was detected the seller was notified and a joint inspection was arranged during which agreement was reached on what was to be done.

39 The problems in the past had related to the quality of the copper and in the instant case the problem related to title but nothing turns on this distinction. What is relevant is that the established course of business involved inspection of deliveries by the buyer and notification of any complaint to the seller. In these circumstances Mr Cook’s statement that he had inspected the copper and his question about the short delivery was a representation to Mr Rye that this was the only problem Mr Cook had identified. Mr Cook’s statement and question were misleading or deceptive because they gave Mr Rye a misleading impression about Mr Cook’s state of mind following the inspection and lead him to think that the delivery had been accepted. A contravention of s 52 has therefore been established.

40 The seller’s statutory cause of action arises if it suffered loss or damage “by” the buyers misleading conduct. Acts done by the representee in reliance on a misrepresentation satisfy this requirement. Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525-6.

41 The trial Judge was not satisfied that Mr Rye relied on his conversation with Mr Cook when he handed over the cheque later that morning. She said:

“The evidence is rather that Mr Rye went ahead and assumed [that the buyer] would accept the load despite the fact that the normal time for rejection had not passed. He also ignored the warning signs evident in Mr Poulos’s explanation of the reason for the short supply and did not take the opportunity to inspect the load before it was delivered to [the buyer].”

42 Mr Rye did not regard Mr Poulos’s explanation as a warning sign. He said the short delivery and the explanation did not make him suspicious and he accepted the explanation in good faith (9). He said that they get short deliveries or over deliveries all the time (11). This was the only indication Mr Rye received that could possibly throw doubt on CJT’s title. There was no evidence that he had heard of the theft from WMC. Mr Cook did not say that, by itself, the explanation for the short delivery was an indication that the copper had been stolen. Mr Rye had previously dealt with Mr Poulos and CJT without any problems. The payment on 2 February shows that Mr Rye did not suspect that the copper might have been stolen.

43 The failure by the seller to inspect the copper at Chipping Norton is entirely neutral. Mr Rye knew it would be inspected by the buyer and that any defects in quality would then be ascertained. He did not anticipate any problem with title and had no reason to think that title could be verified by an inspection. He did not have to pay for the copper until after it had been inspected by the buyer, and in normal circumstances if there was no objection he could safely pay CJT. The seller did not incur any commercial risk from quality defects by delivering copper to the buyer without inspection provided it did not pay its supplier until after the buyer had accepted the copper. The only inspection that mattered was that conducted by the buyer. Mr Rye said that he could not tell by looking whether the copper was defective (11).

44 Her Honour’s finding that “Mr Rye went ahead and assumed [the buyer] would accept the load despite the fact that the normal time for rejection had not passed” was based on her implicit finding that Mr Cook did not inspect the copper until after the critical conversation. On the findings made earlier in these reasons Mr Rye made no such assumption. Mr Cook had inspected the load, the normal time for rejection had arrived, no objection had been raised, and he had not been told that the load had been rejected.

45 There was no suggestion at the trial that Mr Cook thought that the seller would not pay its supplier on 2 February. Mr Rye was not cross-examined to suggest that it was not usual in the trade to pay for scrap copper so quickly and Mr Cook did not suggest otherwise. He did not tell Mr Rye about the title problem within the period of credit he believed was available to the seller, because he did not mention the problem until 19 March (187).

46 It follows therefore that the Judge’s reasons for finding that Mr Rye did not rely on the critical conversation cannot be supported. The question is whether this Court can substitute a positive finding in favour of the seller on this issue or must order a new trial.

47 I have held that the critical conversation conveyed a representation that the buyer on inspection had found no reason for rejecting the delivery, that it had accepted it, and intended to pay for it in the ordinary course. There can be no doubt what would have happened if Mr Cook had given a frank answer when telling Mr Rye he had inspected the copper. If he had said that he was awaiting advice from WMC as to whether the delivery was part of the copper stolen on 26 January, Mr Rye would not have handed over the cheque later that morning.

48 Mr Cook was not bound to volunteer information but he was not entitled to mislead or deceive Mr Rye. By telling him that he had inspected the copper and only raising the question of short delivery he represented that the delivery was otherwise in order, that it had been accepted, and that he intended to pay for it in due course. Had he said that the delivery had not been accepted Mr Rye must have the asked the reason. Even if Mr Cook refused to disclose his reason Mr Rye would have been alerted to the fact that there was a problem with the delivery.

49 He was then bound to ask further questions, at least to ascertain when it was likely that Mr Cook would decide whether or not the buyer would accept the delivery. This may have lead to the disclosure of the truth but if not it must have reinforced in Mr Rye’s mind an awareness that there was a major problem with the delivery.

50 The Court is not entitled to speculate about the precise course the conversation would have followed but in my judgment it is entitled to find that statements by Mr Cook that were not misleading or deceptive would have alerted Mr Rye to the risk the seller would be taking if it paid CJT before the buyer had agreed to accept the delivery.

51 Reliance on a misrepresentation, or as it is often described, inducement, involves a question of causation. It arises under the general law in cases of fraud and it has long been settled that reliance or inducement may be proved by circumstantial evidence. In Smith v Chadwick (1884) 9 App Cas 187, 196-7 Lord Blackburn said:

“I do not think it is necessary … that the plaintiff always should always be called as a witness to swear that he acted on the inducement … I think that if it is proved that the defendants … made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, and it is proved that the plaintiff did enter into the contract, it is a fair inference of fact that he was induced to do so by the statement … it’s weight as evidence must greatly depend upon the degree to which the action of the plaintiff was likely; and on the absence of all other grounds on which the plaintiff might act.”

52 Similarly in Gould v Vaggelas (1985) 157 CLR 215, 236, 238 Wilson J said:

“If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation … one can readily understand why it is in cases of deceit that a tribunal whose duty it is to find the facts may require a defendant to make some answer to the case that is put against him … in the general experience of mankind the facts speak for themselves … it is entirely accurate to speak of an onus resting on a defendant to draw attention to the presence of circumstances … to show that the inference of the fact of inducement which would ordinarily be drawn … should not … be drawn. But it is no more than an evidentiary onus.”

53 The only matters relied on to displace the natural inference of reliance were the failure to inspect and Mr Poulos’s explanation for the short delivery. Both preceded the misleading and deceptive conduct, and have already been dealt with. In my judgment the Court is entitled to rely on the circumstantial evidence and find reliance because in this case the facts speak for themselves.

54 The remaining answer to the seller’s case was based on Henville v Walker (2001) 206 CLR 459 and it was said by counsel for the buyer that the causal link between its contravention and the seller’s reliance was broken. The submission fails on the facts. Only 2-3 hours elapsed between the misleading and deceptive conduct and delivery of the cheque. Nothing happened during this period to alert Mr Rye to the risk he was taking. The matters relied on by the buyer occurred before the misleading and deceptive conduct and while they may constitute contributory negligence they are not capable, on the facts of this case, of breaking the causal link between that conduct and the seller’s reliance on it. The appeal therefore succeeds. I would propose the following orders:

(1) Appeal allowed with costs;

(2) Set aside the judgment of the District Court in favour of the defendant;

(3) In lieu thereof enter judgment for the appellant for $254,164.74 together with pre-judgment interest from 2 February 2001 until the judgment of this Court;

(4) Appeal listed for mention before Handley JA at 9.30 am on 19 August 2003 for the entry of judgment for an amount which includes the pre-judgment interest unless in the meantime agreed short minutes have been lodged with the Registrar;

(5) The respondent to pay the appellant’s costs of the proceedings in the District Court;

(6) The respondent to have a certificate under the Suitors’ Fund Act 1951 in respect of the costs of the appeal if qualified.

55 HODGSON JA: I agree with Handley JA.

56 I note that it was also submitted by the respondent that, even if “but for” causation was established, the action of the appellant in paying its supplier so quickly, and by handing a cheque to an unknown representative of the supplier who had called to pick it up, was so unreasonable and so unusual that the payment is not fairly regarded as having been caused by the appellant’s conduct.

57 This argument might possibly have had some force if there had been evidence that such quick payment was unusual or unexpected, and particularly if the respondent had subsequently, prior to the time when the appellant might have been expected to pay its supplier, advised the appellant that the copper had been or was suspected of having been stolen. In the absence of such evidence, and in circumstances where no such advice was given, causation of the loss by the misleading conduct was established.

58 Also, had there been evidence that the respondent suspected that the appellant itself may have been dishonestly involved in the theft of the copper, and particularly if such suspicion had been on reasonable grounds, there may have been a question whether the silence was correctly regarded as misleading or deceptive.

59 However, again, there was no such evidence; and in those circumstances, in my opinion, Handley JA’s conclusion that the respondent’s conduct was misleading or deceptive is correct.

60 GZELL J: I agree with Handley JA and with Hodgson JA.

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Last Modified: 08/05/2003