Morton Seed and Grain Pty Ltd v Phillbourne Manufacturing Pty Ltd
[2018] WASC 386
•10 DECEMBER 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: MORTON SEED & GRAIN PTY LTD -v- PHILLBOURNE MANUFACTURING PTY LTD [2018] WASC 386
CORAM: PRITCHARD J
HEARD: 10 - 18 AUGUST 2017
DELIVERED : 10 DECEMBER 2018
FILE NO/S: CIV 2525 of 2013
BETWEEN: MORTON SEED & GRAIN PTY LTD
Plaintiff
AND
PHILLBOURNE MANUFACTURING PTY LTD
Defendant
Catchwords:
Consumer law - Australian Consumer Law s 18 - Misleading and deceptive conduct - Whether representations made - Whether representations misleading and deceptive - Oral representations
Contract - Express terms - Whether contract contained express term - Whether express term breached - Oral contract
Contract - Implied terms - Sale of Goods Act 1895 (WA) s 14(2) - Fitness for purpose - Particular purpose - Whether goods reasonably fit for purpose
Legislation:
Competition and Consumer Act 2010 (Cth), sch 2, s 18
Sale of Goods Act 1895 (WA), s 14(2)
Result:
Action dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr P G McGowan |
| Defendant | : | Ms P E Cahill SC & Ms C E Moss |
Solicitors:
| Plaintiff | : | Mills Oakley |
| Defendant | : | Jackson McDonald |
Case(s) referred to in decision(s):
Ackers v Austcorp International Ltd [2009] FCA 432.
ACN 068 691 092 Pty Ltd v Plan 4 Insurance Services Pty Ltd [2012] SASCFC 25; (2012) 112 SASR 329.
Agricultural and Rural Finance v Gardiner (2008) 238 CLR 570.
Ashford Shire Council v Dependable Motors Pty Ltd (1960) 104 CLR 139.
Ashington Piggeries Ltd v Christopher Hill [1972] AC 441.
Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 1904.
Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640.
Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191.
Baldry v Marshall [1925] 1 KB 260.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266.
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153.
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673.
Brown v Jam Factory Pty Ltd (1981) 35 ALR 79; 53 FLR 340.
Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653.
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592.
Butt v M'Donald (1896) 7 QLJ 68.
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410.
C Czarnikow Ltd v Koufos [1969] 1 AC 350.
Caffey v Leatt-Hayter [No 3] [2013] WASC 348.
Campbell v Backoffice Investments [2009] HCA 25; (2009) 238 CLR 304.
Caratti v Mammoth Investments Pty Ltd [No 2] [2018] WASCA 6.
Carlton & United Breweries Ltd v Tooth & Co Ltd (1985) 6 IPR 319320.
Centurion Industries Ltd v Industrial Progress Corporation Pty Ltd [1998] WASC 117.
Chand v Commonwealth Bank of Australia [2015] NSWCA 181.
Clark v Macourt [2013] HCA 56; (2013) 253 CLR 1.
Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337.
Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169.
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.
Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594.
David Clarke Airconditioning Pty Ltd v Quann [No 3] [2017] WASC 91.
David Jones Ltd v Willis (1934) 52 CLR 110.
Davmond Holdings Pty Ltd v Zaynah Pty Ltd [No 2] [2018] WASC 11.
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640.
European Bank Ltd v Evans [2010] HCA 6; (2010) 240 CLR 432.
Gemini Energy and Minerals Pty Ltd v Luff [2017] WASC 190.
Gharibian v Propix Pty Ltd [2007] NSWCA 151.
Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; (2013) 249 CLR 435.
Grainger v Williams [2009] WASCA 60.
Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49.
Hadley v Baxendale (1854) 9 Ex 341.
Handbury v Nolan (1977) 13 ALR 339.
Hardwick Game Farm [1969] 2 AC 31.
Hasell v Bagot, Shakes & Lewis Ltd [1911] HCA 62; (1911) 13 CLR 374.
Henjo Investments v Collins Marrickville (No 1) (1988) 39 FCR 546.
Huntsman Chemical Co Australia Pty Ltd v Narellan Pools Pty Ltd [2011] FCAFC 7.
Johnson v Perez (1988) 166 CLR 351.
Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14; (2016) 49 WAR 347.
Liverpool City Council v Irwin [1977] AC 239, 254 ‑ 255.
Mackay v Dick (1881) 6 App Cas 251263.
Macks v Viscariello [2017] SASCFC 172; (2017) 130 SASR 1.
March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506.
Marcus Clark (Victoria) Ltd v Brown [1928] HCA 12; (1928) 40 CLR 540.
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494.
Medlin v State Government Insurance Commission (1995) 182 CLR 1.
Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507.
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357.
Miller v Karaman Pty Ltd [2003] WASCA 249. ,
Morrison v Town of Victoria Park [2007] WASCA 164.
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274.
Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388.
Narellan Pools Pty Ltd v Huntsman Chemical Co Australia Pty Ltd [2010] FCA 267.
North East Equity Pty Ltd v Proud Nominees Pty Ltd [2012] FCAFC 1.
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451.
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191.
Pavich v Bobra Nominees Pty Ltd [1988] ANZ ConvR 556.
Payzu v Saunders [1919] 2 KB 581 CA.
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. ,
Re Ku-ring-gai Co-op Building Society (No 12) Ltd (1978) 36 FLR 134.
Robinson v Harman (1848) 1 Exch 850.
Rolfe v Katunga Lucerne Mill Pty Ltd [2005] NSWCA 252.
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596.
Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79.
Sherson & Associates Pty Ltd v Bailey [2000] NSWCA 275.
Slater v Finning Ltd [1997] AC 473.
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272.
TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 180 CLR 130.
Tipperary Developments Pty Ltd v The State of Western Australia [2009] WASCA 126.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165.
Tranquility Pools v Spas Pty Ltd v Huntsman Chemical Co Australia Pty Ltd [2011] NSWSC 75.
Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627.
Tre Cavalli Pty Ltd v Berry Rural Co‑Operative Society Ltd [2013] NSWCA 235.
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603.
Vickery v Waitaki International Ltd [1992] 2 NZLR 5864.
Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514.
Watson v Foxman (1995) 49 NSWLR 315.
Wenham v Ella (1972) 127 CLR 454.
Westpac Banking Corporation v Lee [2013] NSWCA 375.
Yorke v Lucas (1985) 158 CLR 661.
Zuvela v Geiger [2007] WASCA 138.
PRITCHARD J:
Morton Seed and Grain Pty Ltd (MSG) operates a business of purchasing, processing and selling oats[1] for human consumption, and processing by-product for use as animal feed. At all relevant times it operated facilities at Wagin (Wagin facility) and Bibra Lake. In 2013, it also commenced operating from a facility in Hope Valley. Mr Jonathan Morton is the director of MSG.
[1] In the course of the trial, some of the witnesses, and counsel, used the term 'grain' interchangeably with the term 'oats'. In the course of these reasons, any references to the 'grain' should be understood as a reference to 'oats'.
In the course of its processing operation at the Wagin Facility, it was necessary for MSG to store large quantities of oats. It stored the grain in large sheds and in bunkers covered with tarpaulins.
Phillbourne Manufacturing Pty Ltd (Phillbourne) operates a business to develop, manufacture and sell farm equipment. Mr Laurie Phillips is a director of Phillbourne.
In late 2011, MSG and Phillbourne entered into an oral agreement (Agreement) pursuant to which Phillbourne was to supply and install a bunker for the storage of oats at the Wagin Facility for $95,000 plus GST. In these reasons, as in the trial, I refer to that bunker as the Phillbourne bunker. The Phillbourne bunker was to be covered by tarpaulins joined together using a joining mechanism (Joint system), and the tarpaulins were to be drawn over the oats in the bunker using rollers (Rotary Drum system), designed by Mr Phillips. In these reasons, I refer to the entire means by which the Phillbourne bunker was covered by tarpaulins, joined together using a joining mechanism, rolled over the bunker using rollers, and secured, as the 'tarping system'. Phillbourne installed the Phillbourne bunker at the Wagin facility during December and January 2011.
By mid January 2012, MSG had completed filling the Phillbourne bunker with oats, and the bunker was covered with tarpaulins and secured.
MSG alleges that on various occasions in early 2012, the tarping system on the Phillbourne bunker failed, and the oats were exposed to rain.
There was no dispute that the tarping system 'failed' in the sense that the joins in the tarpaulins covering the Phillbourne bunker came apart on some occasions. When they came apart, and whether the oats in the bunker were then exposed to rain, or sufficient rain, to cause damage to the oats, was vigorously disputed.
In March 2013, the Phillbourne bunker was 'opened' by lifting the front edge of the tarpaulins, and it was discovered that the oats inside had sustained water damage. The Phillbourne bunker was then re-sealed with the tarpaulins and was not opened again until June 2013. Between June 2013 and November 2014, MSG removed the oats from the Phillbourne bunker, sold some of them, and discarded the remainder, which it says were so badly damaged that they could not be sold.
MSG alleges that in the course of the negotiation of the Agreement, Phillbourne, through Mr Phillips, made a number of representations warranting that the tarping system had been trialled, that the joins in the tarpaulins covering the Phillbourne bunker would not pull apart, and that the tarping system would be suitable for the storage of oats and grain (Representations).[2]
[2] Further Amended Statement of Claim (FASOC) [9].
MSG also alleges that the Agreement contained an express, or alternatively an implied, term, namely that the tarping system used on the Phillbourne bunker would suitable for the purpose of storing oats and grain, and fit for that purpose.[3]
[3] FASOC [11A] - [11C].
MSG says that the Representations were false, and that Phillbourne breached the express or implied terms of the Agreement, in that the tarping system failed and the tarpaulins on the Phillbourne bunker came apart, exposing the oats inside the bunker to rain, and that the resulting water damage to the oats caused MSG to suffer loss and damage in the amount of $2,515,355.25.
Phillbourne denies that it made the Representations, or that they were false or misleading, disputes the alleged terms of the Agreement, denies that it breached any terms of the Agreement, and says that MSG has failed to prove any causal link between its alleged breach of the Agreement or any alleged misrepresentation, and the damage to the oats. Further, Phillbourne says that MSG has failed to establish the entirety of the loss claimed, and says that MSG failed to mitigate its loss and damage.
For the reasons which follow, MSG has not established, on the balance of probabilities, that the Agreement contains the express term it claims. MSG has established that it was an implied term of the Agreement that the tarping system would be reasonably fit for the purpose of storing oats and grain, but MSG has not established that it is more likely than not that Phillbourne breached that term. Nor has MSG established that the Representations were made, or that they were misleading. Furthermore, MSG has not established, on the balance of probabilities, that the damage to the oats was caused by any breach by Phillbourne of the terms of the Agreement, or any misleading Representation by Phillbourne.
In case I am wrong in those conclusions, so that it would be necessary to assess MSG's loss, Phillbourne has not established that after March 2013, when MSG became aware of damage to the oats, it failed to act reasonably to mitigate its loss and damage, so that the loss and damage for which Phillbourne would otherwise be liable must be reduced. Had it been necessary to assess damages for the loss and damage suffered by MSG for which Phillbourne is liable, I would have assessed those damages at $1,623,010.43.
Consequently, MSG's claim must be dismissed.
In these reasons for decision, I deal with the following matters:
(a)Overview of the evidence;
(b)Overview of the parties' pleaded cases;
(c)Factual findings;
(d)Determination of the breach of contract claim:
(e)Determination of the misleading and deceptive conduct claim:
(f)Did the alleged conduct by Phillbourne in breach of the terms of the Agreement or the false representations cause damage and loss to MSG?
(g)Did MSG mitigate any loss and damage it suffered?
(h)Provisional assessment of damages.
(a) Overview of the evidence
The lay witnesses
MSG relied on the evidence of:
•Mr Jonathan Morton,[4] the director of MSG;
•Mr Jason Reed,[5] an employee of MSG and its manager of the Wagin facility between 2008 and November 2014;
•Mr Peter Vowles,[6] the accountant for Mr Morton and the companies which he owns, including MSG;
•Mr Kevin Jones,[7] a marine surveyor, whose witness statement was admitted into evidence without the need for cross examination; and
•Mr Austin Gorman,[8] who carried out repairs to the tarpaulins on the Phillbourne bunker during 2012 and 2013.
[4] Exhibit 3.
[5] Exhibit 6.
[6] Exhibit 7.
[7] Exhibit 10.
[8] Exhibit 4.
Phillbourne relied on the evidence of:
•Mr Laurence Phillips,[9] a director of Phillbourne; and
•Mr Terry Robartson,[10] the operator of a business known as Merredin Maintenance, which was engaged by Mr Phillips to construct the Phillbourne bunker.
The credibility and reliability of the witnesses
[9] Exhibit 22.
[10] Exhibit 23.
There has been a considerable delay in the provision of these reasons. That is regrettable. However, the delay did not impact on MSG being compensated for any losses it claimed as a result of damage to the oats in the Phillbourne bunker. It made an insurance claim and received an insurance payment in March 2014 for those losses it claimed.[11] The present action was, in substance, a dispute between MSG's insurer and Phillbourne's insurer.
[11] Exhibit 1.159.
Delay can sometimes adversely impact on a trial judge's evaluation of the evidence. I have endeavoured to counter any possibility of that occurring by very carefully considering the witness statements, all of the documentary evidence, and the transcript of the trial, rather than relying simply on my recollection of the evidence. The one key area where delay can impact on a trial judge's factual findings arises from the judge's assessment of the credibility of the witnesses. In this case, I have not drawn any adverse conclusion about the credibility of the evidence of any of the witnesses based on their demeanour. My findings as to the credibility and reliability of the witnesses are set out below.
Some of Mr Morton's evidence was uncontroversial (for example, his evidence as to the general nature of the operation of the Wagin facility) and I have accepted it. However, I approached much of Mr Morton's evidence with caution, and I have not accepted some parts of his evidence, for the following reasons.
First, from [390] I discuss the evidence which largely emerged in the course of day 5 of the trial. In light of that evidence, I reached the view that Mr Morton had provided information to his solicitors and to MSG's loss assessor which he accepted was not correct, or which exaggerated the true position. For the reasons I explain below at [425] - [449], I formed the view that I should be cautious about the credibility and reliability of Mr Morton's evidence, especially in so far as his evidence touched on the cause of the damage to the oats in the Phillbourne bunker.
Secondly, in the course of other parts of his evidence at the trial, it was apparent that the claims Mr Morton made to Mr Phillips, or, through MSG's solicitors, to Phillbourne's solicitors, about the failure of the tarping system, and the consequences thereof, were clearly overstated or exaggerated. By way of example, in cross examination, Mr Morton was asked about an email he sent to Mr Phillips on 20 February 2012, in which he claimed that MSG had incurred considerable expense in repairing the tarpaulins on the Phillbourne bunker, which he claimed 'was almost lost in a summer rain storm'.[12] Mr Morton accepted that statement was not correct. He accepted that that was an overstatement on his part.[13] More significantly, Mr Morton accepted that he had overstated the position at the time because he wanted to get Mr Phillips to 'take some action'.[14]
[12] Exhibit 1.72.
[13] ts 134.
[14] ts 134.
Thirdly, in the course of his evidence, Mr Morton sought to advance explanations for statements he had made, which he later accepted were overstatements of the true factual position, and tried to explain why it was that his evidence in court was contrary to the position that he had communicated to Mr Phillips.[15] It was apparent that Mr Morton did so in an attempt to avoid his evidence at the trial being seen in a poor light.
[15] Cf ts 138.
These aspects of Mr Morton's evidence cast doubt on the credibility, and the reliability, of his evidence, especially in relation to the cause of the damage to the oats in the Phillbourne bunker. To the extent that Mr Morton's evidence was inconsistent with the evidence of other witnesses who I found to be credible and reliable, I have preferred the evidence of those other witnesses. To the extent that Mr Morton's evidence was inconsistent with the documentary evidence (the reliability of which was not in doubt), I have not accepted Mr Morton's evidence.
Turning next to Mr Reed, much of his evidence was uncontroversial, and I accept it. At [421] - [424] below, I address in some detail the evidence of Mr Reed's role in providing input into claims made by MSG about the likely cause of the damage to the oats. That evidence did not cause me to doubt Mr Reed's honesty, but I approached his evidence with caution, on the basis that his recollection of events may not have been reliable. Occasionally, I concluded that specific aspects of his evidence were not reliable (see, eg, [185]). However, in the end, much of Mr Reed's evidence was not inconsistent with the other evidence, and for that reason I have accepted much of his evidence.
Mr Vowles, assisted by Mr Reed, prepared the insurance claim on behalf of MSG, which then led to the present action (which, as I have said, appears to have been pursued by MSG's insurer). Most of Mr Vowles' evidence at the trial concerned his input into the calculation of the damages claimed by MSG, and it raised no issue of credibility or reliability, although I have not accepted all of his calculations concerning MSG’s loss and damage. The cross examination of Mr Vowles, on the fifth day of the trial, concerned his role in preparing information for MSG's loss assessor in 2013 about the likely cause of damage to the oats in the Phillbourne bunker. I have set out at [420] my conclusions as to Mr Vowles' role. That evidence did not cause me to doubt the credibility or reliability of Mr Vowles' evidence overall.
I accept the evidence of Mr Gorman and of Mr Robartson.
As for Mr Phillips, at times during his cross examination, he was very defensive. He was clearly quite sensitive to any express or implicit criticism of his design of the Joint System and Rotary Drum System.[16] At times he attempted to start answering questions, in order to advance his own defence of his actions from an assumed attack, without waiting for the completion of the question.[17] On other occasions, he sought to avoid answering questions directly, by indicating that 'I would rather not answer that'.[18] He clearly perceived the action (which proceeded on the basis of the failure of his design) as an attack on his competency as an inventor and designer, an occupation he has pursued throughout his life, and in which he clearly took some pride. However, having reflected on the content of the evidence Mr Phillips gave, nothing in that evidence caused me to doubt his truthfulness or the reliability of his evidence. I accept his evidence.
The expert witnesses
[16] See, for example, ts 593.
[17] See, for example, ts 584 and 588.
[18] See, for example, ts 590.
MSG and Phillbourne each relied on expert evidence in relation to the question of what steps could have been taken by MSG to mitigate its loss and damage. MSG relied on the evidence of Mr David Mighall.[19] Phillbourne relied on the evidence of Mr Don McDougall.[20]
[19] Exhibit 11 and 12.
[20] Exhibit 13, 14 and 15.
Mr Mighall and Mr McDougall conferred and prepared a report[21] setting out the matters on which they agreed and disagreed.
[21] Exhibit 16.
Mr Mighall has tertiary qualifications in business (agriculture) and accounting, and has had 16 years' experience in providing farm business management and financial advice, and grain marketing advice, to farmers and grain producers.
Mr Mighall had limited on-farm experience, to the extent that his interaction with farmers in relation to their financial, budgeting management and grain marketing affairs occurred on site, on their farms. He explained that in order to provide advice, he needed to understand the operation of a particular farm and its logistics and how the business operated,[22] and that understanding a client's business and providing advice about its management involved understanding matters such as crop selection.[23]
[22] ts 417.
[23] ts 417 - 418.
However, Mr Mighall accepted that he had very little experience in terms of on-farm experience in dealing with storage of grain in temporary or permanent bunkers.[24]
[24] ts 418.
Mr McDougall has tertiary qualifications in rural technology and has had 23 years' experience, as an agricultural loss assessor, in investigating and quantifying agricultural losses, including those arising from contaminated agricultural products.
Mr McDougall described himself as a 'specialist agricultural loss adjuster' and explained that he worked both for insurance companies and directly for agricultural companies as well.[25] Mr McDougall accepted that he had never been a commercial farmer himself.[26] He accepted that he had no experience or expertise in relation to grain processing.[27]
[25] ts 420.
[26] ts 421.
[27] ts 421.
In so far as there was a dispute between the experts as to the likely cause of the damage to the oats, I prefer the evidence of Mr McDougall to that given by Mr Mighall. I formed the view that Mr McDougall was better qualified to give an opinion on this issue. Mr Mighall confirmed that he has no agricultural science qualifications, nor had he actually operated a grain facility at any stage. His areas of expertise and competency were primarily related to commercial or business financial aspects of agricultural commodities and businesses.[28] Although Mr Mighall had canvassed some opinions as to the possible causes for the damage to the oats in the Phillbourne bunker, he acknowledged that it was not clear when the damage to the oats occurred or what caused the damage. He accepted that the basis for these opinions was not his own expertise but, rather, his experiences in dealing with farmers and farmer clients over time, in advising them about business aspects of farming and grain marketing.[29] In contrast, Mr McDougall has had experience in investigating temporary and permanent bunkers where problems have arisen with them.
[28] ts 358.
[29] ts 359.
I also preferred the evidence of Mr McDougall in relation to the storage of grain, the storage options available, the practicalities of grain storage over the longer term, and industry practices for avoiding or minimising the risk of damage to grain stored over the longer term, as he had more direct experience in relation to these issues than Mr Mighall.
However, Mr Mighall had greater expertise in respect of grain marketing, finance and business arrangements, although ultimately it was not necessary to resolve any difference in the views of the experts in so far as the quantification of loss and damage was concerned.
In addition, MSG relied on the evidence of Mr John Stone,[30] an engineer, who provided an expert opinion on the cause of the failure of the tarping system. I accept Mr Stone's evidence.
[30] Exhibit 9.
(b) Overview of the parties' pleaded cases
The breach of contract case
(A) MSG's pleaded case on the express terms of the Agreement
MSG pleads that in about September 2011, Mr Phillips met with Mr Morton and with Mr Reed, at the Wagin facility (September meeting). MSG says that at the September meeting, Mr Phillips showed Mr Morton and Mr Reed a sample of a tarpaulin joining system which was manufactured and sold by Phillbourne.[31]
[31] FASOC [7] ‑ [8].
MSG claims that at that meeting, Mr Phillips made the Representations, and thereby warranted, that:[32]
(i)The tarping system had been trialled the previous year by Co‑operative Bulk Handling (CBH);
(ii)The tarping system would not pull apart at the joins; and
(iii)The tarping system would be suitable to store oats and grain.
[32] FASOC [9].
MSG's claim is that in reliance on the Representations, MSG entered into the Agreement with Phillbourne, in September 2011. MSG says that the Agreement was for the installation of a bunker and tarping system for the Wagin facility, which was to comprise a steel retaining barrier approximately 1.3m high, new polyvinyl chloride (PVC) tarpaulins fitted to rollers for stretching over the grain bunker; and a rubber joining system to attach the tarpaulins and eliminate any gaps.[33]
[33] FASOC [10].
In MSG's pleading, it distinguishes between the bunker itself - namely the steel barriers which formed the sides of the bunker - and the 'tarping system'. It refers to the 'tarping system' as comprising the PVC tarpaulins, the rubber joining system to attach the tarpaulins together, the rollers by which the tarpaulins were rolled over the grain in the bunker, a tensioning system and the method of securing the tarpaulins to ensure they remained in place.[34]
[34] FASOC [10] and [18].
MSG's case is that the Agreement was an oral agreement, which comprised an offer made by Mr Phillips, on behalf of Phillbourne, in September or October 2011, which was accepted by Mr Morton, on behalf of MSG, in September or October 2011.[35] MSG says that the Agreement was for the bunker and tarping system to be manufactured and installed at the Wagin facility for $95,000 plus GST.[36]
[35] FASOC [11].
[36] FASOC [11].
MSG pleads that it was an express term of the Agreement that the tarping system would be suitable to store oats and grain and that it would be fit for that purpose.[37]
[37] FASOC [11A].
MSG initially pleaded that another term of the Agreement was that the bunker and tarping system would be installed by early November 2011, for the start of the 2011/2012 harvesting season in the Wagin area, and that Phillbourne breached that term in that the bunker was not completed by that time.[38] However that part of its case was abandoned at the commencement of the trial.[39]
(B) Phillbourne's defence to the express contractual terms pleading
[38] FASOC [12] - [16].
[39] ts 7.
Phillbourne does not dispute the existence of the Agreement, but denies that the Agreement was entered into in September 2011,[40] and also denies that the terms of the Agreement were as pleaded by MSG. Its pleaded case as to the sequence of events, and terms of the Agreement, was as follows.
[40] Further Amended Defence [12].
Phillbourne pleads that prior to meeting at the Wagin facility, Mr Morton spoke by telephone with Mr Phillips about MSG's grain storage requirements at the Wagin facility, and they also met at MSG's business premises in Bibra Lake (Bibra Lake meeting).[41]
[41] Further Amended Defence [7].
Phillbourne pleads that at the Bibra Lake meeting, Mr Phillips told Mr Morton that he had designed a system for connecting tarpaulin sections over crop storage bunkers (Joint System) and a system for rolling the tarpaulins on and off the bunkers (Rotary Drum System).[42] Phillbourne says that at the Bibra Lake meeting, Mr Phillips showed Mr Morton a sample of the Joint System.[43] It says that the Joint System comprised a wedge shaped PVC section that was heat welded to the edge of the lengths of the PVC tarpaulin, a round rubber joining piece which had a wedge shaped notch cut into each side and a round notch cut into the top, and a round rubber locking piece. The wedge shaped edge was inserted into the wedge shaped notches of the joining piece, and the locking piece was then inserted into the top of the joining piece.[44]
[42] Further Amended Defence [8].
[43] Further Amended Defence [8(b)].
[44] Further Amended Defence [8(a)].
Phillbourne also says that at the Bibra Lake meeting, Mr Phillips told Mr Morton that the Joint System had been successfully trialled in the winter months of 2011 at the CBH site at Kellerberrin.[45]
[45] Further Amended Defence [8(c)].
Phillbourne says that at the Bibra Lake meeting, Mr Morton told Mr Phillips that MSG was interested in purchasing a grain storage bunker that utilised the Joint System and Rotary Drum System for use at the Wagin facility.[46]
[46] Further Amended Defence [8(d)].
Phillbourne's case is that Mr Phillips subsequently met with Mr Morton at the Wagin facility, and that the purpose of that meeting was to discuss a possible location for the bunker. Phillbourne says that at that meeting, Mr Morton and Mr Reed showed Mr Phillips around the Wagin facility.[47]
[47] Further Amended Defence [9].
Phillbourne denies MSG's allegation that during the meeting at the Wagin facility, Mr Phillips told Mr Morton that the tarping system (as MSG defines it in its pleading) had been trialled in 2010 by CBH. However, as I have already observed, Phillbourne's case is that during the Bibra Lake meeting, Mr Phillips told Mr Morton that the Joint System had been successfully trialled during the winter months of 2011 at the CBH site at Kellerberrin.[48]
[48] Further Amended Defence [11(a)].
Phillbourne denies that Mr Phillips made any representation (or in any event that such representations constituted warranties) that the tarping system would not pull apart at the joins, or that it would be suitable to store oats and grain.[49]
[49] Further Amended Defence [11(b)].
Phillbourne also denies that it agreed to manufacture all of the components for the bunker and tarping system, including the Joint System,[50] and denies that Mr Phillips made any representation that Phillbourne manufactured the Joint System. It says that the components of the Joint System were manufactured by a third party in Victoria.[51]
[50] Further Amended Defence [13].
[51] Further Amended Defence [9].
Phillbourne says that in November 2011, Mr Morton attended at Phillbourne's premises in Merredin to inspect farming equipment sold by Phillbourne, and on that occasion, he told Mr Phillips that a location for the new bunker at the Wagin facility had not yet been identified.[52]
[52] Further Amended Defence [10(b)].
Phillbourne says that later in November 2011, Mr Reed told Mr Phillips that MSG had identified a site for the new bunker at the Wagin facility, and that the dimensions of the site were 85m x 30m.[53]
[53] Further Amended Defence [10(c)].
Phillbourne's case is that Mr Phillips subsequently made an offer, orally, to Mr Morton that Phillbourne would supply and install a grain bunker for the Wagin site for $85,000 plus GST, to be paid in 3 equal instalments in December 2011 and January and February 2012, and that Mr Morton orally accepted that offer.[54]
[54] Further Amended Defence [10(d) and (e)].
Phillbourne also says that Mr Reed later orally informed Mr Phillips that the size of the bunker would need to be increased to 105m x 30m, that Mr Phillips orally informed Mr Morton and/or Mr Reed that the price would increase a result, and that Mr Morton and/or Mr Reed orally accepted that the price would increase.[55] Phillbourne says that MSG agreed that the price would increase to $95,000 plus GST.[56]
[55] Further Amended Defence [10(f), (g) and (h)].
[56] Further Amended Defence [13].
Phillbourne does not dispute that the terms of the Agreement included that Phillbourne was to install a bunker with a tarping system at the Wagin facility, which was to comprise a steel retaining barrier approximately 1.3m high, new PVC tarpaulins fitted to rollers for stretching over the grain bunker; and a rubber joining system to attach the tarpaulins and eliminate any gaps, and that that tarping system incorporated the Joint System.[57] It denies that it was a term of the Agreement that Phillbourne was to manufacture all of the components for the bunker and tarping system, including the Joint System.[58]
[57] Further Amended Defence [12(b)].
[58] Further Amended Defence [13(c)].
However, Phillbourne does not admit that it was an express term of the Agreement that the tarping system would be suitable to store oats and grain and thus that it would be fit for that purpose.[59]
(C) MSG's case on implied terms of the Agreement
[59] Further Amended Defence [13A].
In the alternative to its case concerning the express terms of the Agreement, MSG pleads that it was an implied term of the Agreement that the tarping system would be reasonably fit for the purpose of storing oats and grain and that it would be suitable for that purpose (implied term). MSG pleads that that term was implied by law to give business efficacy to the Agreement, and that that term was implied by reason of s 14 of the Sale of Goods Act 1895 (WA) (SG Act).[60]
[60] FASOC [11B], [11C].
Subsection 14(2) of the SG Act provides:
Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose …
Phillbourne does not admit that the implied term was implied into the Agreement.[61]
(D) MSG's case as to the breach of the terms of the Agreement
[61] Further Amended Defence [13A].
MSG says that the tarping system was not suitable for the purpose of storing oats and grain, in that the locking mechanism was unable to bear the weight of the tarpaulins under wind load, causing a loss of tension. As a result, there was an increase in the movement of the tarpaulins, which, in turn, resulted in water and moisture entering the Phillbourne bunker under the rollers. It also caused the tarpaulins to pull apart at the seams, further exposing the oats to moisture, rain and weather damage.[62]
[62] FASOC [22].
Phillbourne denies any breach of the express or implied terms of the Agreement.[63]
(E) MSG's case as to the failure of the tarping system during 2012, and causation of loss and damage
[63] Further Amended Defence [21].
MSG claims that between 3 and 12 January 2012, it filled the Phillbourne bunker with 9,640.03 tonnes of oats.[64]
[64] FASOC [17].
MSG claims that on about 20 January 2012, 1 February 2012 and 8 February 2012, some of the tarpaulins covering the Phillbourne bunker came apart at the joined seams, and that during 2012, all of the tarpaulins progressively came apart. MSG says that when that occurred, the tarpaulins were covered with smaller tarpaulins which were attached to the existing tarpaulins by stitching and sealing them with sealant, and they were then weighted, clamped and strapped to the existing structure of the Phillbourne bunker to get maximum tension for the tarpaulins.[65]
[65] FASOC [18].
MSG says that the exposed oats were covered by smaller tarpaulins on about 20 January 2012, 3 February 2012, 11 May 2012, 7 November 2012 and 12 January 2013.[66]
[66] Particulars of Claim dated 23 June 2014.
MSG says that Castle Industries undertook the work of covering the exposed oats with smaller tarpaulins. MSG says that in January and February 2012, Castle was instructed to do so by Phillbourne.[67]
[67] Particulars of Claim dated 23 June 2014.
MSG claims that when the tarpaulins came apart, the oats were exposed.[68]
[68] FASOC [18].
MSG claims that as a result of the failure of the tarping system it suffered loss and damage.[69]
[69] FASOC [23].
The components of MSG's claim for loss and damage are set out later in these reasons.
Phillbourne does not dispute that after installation of the Phillbourne bunker was completed, MSG filled it with oats (although the amount of oats involved is not admitted).[70]
[70] Further Amended Defence [19].
Phillbourne does not admit the allegations that the tarpaulins came apart at the seams, on any particular dates, or that they had to be covered with smaller tarpaulins.[71]
[71] Further Amended Defence [20].
Phillbourne denies that MSG suffered any loss or damage for which it is liable.[72]
The misleading and deceptive conduct case
(A) MSG's pleaded case on misleading and deceptive conduct
[72] Further Amended Defence [25].
MSG advanced an alternative case, namely that Phillbourne knowingly engaged in misleading or deceptive conduct, in breach of s 18, schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL).
MSG's case[73] is that during the course of the Wagin meeting, Mr Phillips made the Representations, and thereby warranted, that:
•The tarping system had been trialled the previous year by CBH;
•The tarping system would not pull apart at the joins; and
•The tarping system would be suitable to store oats and grain.
[73] FASOC [9].
MSG says that the Representations were made in the course of trade and commerce.[74] It says that the Representations that the tarping system would not pull apart at the joins, and that the tarping system would be suitable to store oats and grain, were representations with respect to future matters.
[74] FASOC [20].
MSG says that the Representations were false, in that:
(i)The tarping system trialled by CBH did not include the rollers and the tensioning system, including the locking mechanism, used to secure the tarpaulins to ensure that they remained in place on the Phillbourne bunker;
(ii)The tarping system failed because the locking mechanism was unable to bear the weight of the tarpaulins under wind load. The failure of the locking mechanism caused a loss of tension which then resulted in an increase in the movement of the tarpaulins, causing them to pull apart at the seams, and exposing the oats to rain and weather damage;
(iii)MSG claims that the failures of the tarping system coincided with the dates on which the repairs to the tarpaulins (which were undertaken by Castle Industries) were required, namely 20 January 2012, 3 February 2012, 11 May 2012, 7 November 2012 and 12 January 2013.[75]
[75] FASOC [21]; Particulars of Claim dated 23 June 2014.
As I have already noted, MSG's claim is that in September 2011, and in reliance on the Representations, MSG entered into the Agreement.[76]
(B) Phillbourne's defence to the misleading and deceptive conduct case
[76] FASOC [10].
Phillbourne admits that Mr Phillips told Mr Morton that the Joint System (as opposed to the tarping system) had been successfully trialled during winter 2011 at the CBH site, that the trial was conducted between June and August 2011, and that the design and materials of the Joint System used in the trial were the same as those used in the Joint System which would be used in the new bunker.[77] However, as I have already noted, Phillbourne says that that representation was made at the Bibra Lake meeting.[78]
[77] Further Amended Defence [8] and [11].
[78] Further Amended Defence [8] and [11].
Phillbourne denies that Mr Phillips made the other alleged Representations (namely, that the tarping system would not pull apart at the joins, and that the tarping system would be suitable to store oats and grain)[79] and it denies that those Representations were made in trade and commerce.[80]
[79] Further Amended Defence [11].
[80] Further Amended Defence [21].
Phillbourne denies that the Representations were false, as pleaded by MSG.[81]
MSG's claim for loss and damage
[81] Further Amended Defence [22].
MSG claims that it suffered loss and damage as a result of Phillbourne's breach of the Agreement, or the false Representations, and that its loss and damage had a number of components, namely:
•Loss of the value of the oats damaged in the Phillbourne bunker;
•Interest charges;
•Cost of repairing and replacing the tarpaulins on the Phillbourne bunker;
•Settling customer claims for inferior quality oats;
•Costs in sorting and separating the damaged grain; and
•Storage costs.
The total loss claimed by MSG is $2,515,355.25, although the quantum pursued at the end of the trial was a lesser amount.[82]
[82] FASOC Schedule A; Exhibit 2.64; cf MSG Closing Submissions [5.1].
Phillbourne denies that MSG suffered any loss or damage for which it is liable, but says that if MSG suffered loss and damage, it failed to mitigate that loss by allowing the oats to remain in the Phillbourne bunker after the alleged damage occurred.[83]
[83] Further Amended Defence [26].
In so far as it claims for the loss of the value of the oats damaged in the Phillbourne bunker, MSG claims that these losses were $1,558,461.31, calculated as follows:[84]
•$1,906,901.87 - being the cost of the purchase of 8947.93 tonnes of oats which were stored in the Phillbourne bunker;
•Less a deduction of $95,238.86 for 446.9 tonnes of oats which were used in production;
•Less the amount of $253,201.70 recovered from the sale of a total of 4,519.27 tonnes of damaged oats to Macco Feeds Australia Pty Ltd (Macco Feeds) in October and November 2013, and between May and November 2014.
[84] FASOC Schedule A; Exhibit 2.64.
The particulars of that claim are explained in more detail below.
MSG says that the market rate for processed oats during this period (namely, the amount actually paid for processed oats by customers) was $212.19 per tonne.[85] MSG says that the market rate for animal feed during the same period (namely, the amount actually paid by customers for oats used for animal feed) was $140.00 per tonne.[86]
[85] Particulars of Claim dated 23 June 2014.
[86] Particulars of Claim dated 23 June 2014.
MSG says that between February 2012 and June 2013 there was no market for the grain to be sold as animal feed. It says that the 2012/13 grain harvest in Western Australia was a bumper harvest with the result that there was no market for grain to be sold as animal feed. MSG says that it had no other locations to store the oats and maintained them in the Phillbourne bunker during this period.[87]
[87] FASOC [23(B)]; Particulars of Claim dated 23 June 2014.
MSG says that in the period June to September 2013 there were further rain events. MSG says that those further rain events occurred on the following dates in 2013: 9 - 12 June (9 mm), 17 June (4 mm); 24 - 26 June (4 mm); 10 July (6 mm); 16 / 17 July (11 mm); 24 - 31 July (30 mm); 5 - 11 August (32 mm); 13 - 17 August (5 mm); 26 - 31 August (15 mm).[88] MSG says that as a result of these further rain events, further damage was sustained to the oats in the Phillbourne bunker, that it then had to cease selling the oats as animal feed, and that it closed the Phillbourne bunker in about September 2013.[89]
[88] Particulars of Claim dated 23 June 2014.
[89] FASOC [23(C)]; Particulars of Claim dated 23 June 2014.
MSG claims that the Phillbourne bunker was again opened in November or December 2013 but says that there was no market for the oats as animal feed or otherwise at that time.[90] MSG says that was due to the bumper harvest[91] and to the fact that its two major customers for oats for animal feed in Western Australia - Milne Feeds and Macco Feeds - did not wish to purchase the damaged oats.[92]
[90] FASOC [23(D)].
[91] Particulars of the 'bumper harvest' are set out in the Particulars of Claim dated 23 June 2014.
[92] Particulars of Claim dated 23 June 2014.
MSG claims that between August and October 2013 it processed and sold approximately 446.90 tonnes of oats from the Phillbourne bunker for human consumption but that it received significant complaints from its customers.[93] It claims that in the period September 2013 to December 2013, it received complaints from Pepsico India, Unigrain Pty Ltd and Baywest. The complaints were that the processed oats were of inferior quality and that there was a musty smell of rolled oats. MSG claims it had to settle the claims of its customers by crediting them for the price they had paid for the oats.[94] MSG claims it incurred losses of $32,987.66 in settling these customer claims for inferior quality oats.[95]
[93] FASOC [23(A)]; Particulars of Claim dated 23 June 2014.
[94] FASOC [23(A)] and [23(L)(vi)].
[95] Exhibit 2.64.
MSG says that it ceased processing and selling the balance of the oats by the end of October 2013. It claims that that was because the balance of the grain was no longer fit for human consumption.[96] In addition, MSG claimed that the oats in the Phillbourne bunker were unsuitable for sale for animal feed as they were unpalatable to livestock and were liable to contain toxins that would adversely affect the health of animals that ingested them.[97]
[96] Particulars of Claim dated 23 June 2014.
[97] Particulars of Claim dated 23 June 2014.
However, MSG also pleads that between April 2014 and November 2014, it was able to salvage and sell 3,531.75 tonnes of the damaged oats from the Phillbourne bunker by blending them with undamaged oats. Those oats were then sold to Macco Feeds.[98]
[98] FASOC [23(E)].
MSG also claims it incurred loss through additional interest charges it incurred, totalling $153,633.49.[99] The basis for that claim is as follows. MSG claims that in order to pay for the oats it acquired from its suppliers and which it stored in the Phillbourne bunker, it drew down on a loan facility it had with the National Australia Bank, which was dedicated to the acquisition costs of grain and paying the suppliers of the grain on delivery of the grain to the Wagin Facility. It says it drew down funds on various dates during 2013 and 2014, and incurred interest. It says it continued to incur these interest charges until 25 March 2014.[100]
[99] Exhibit 2.64.
[100] FASOC [23(H)], and [23(L)(iii)].
MSG claims $33,812.67 for the cost of repairs to the tarpaulins on the Phillbourne bunker. MSG claims it incurred these costs for repairing the tarpaulins when they separated in the wind on various dates in 2012.[101] MSG also claims it incurred costs and expenses in replacing the tarpaulins on the Phillbourne bunker with smaller tarpaulins during 2012 and 2013.[102] MSG claims that the repairs and replacement tarpaulins were undertaken by Castle Industries, and its claims are based on the invoices issued to it by Castle Industries.
[101] FASOC [23(J)] and [23(L)(v)].
[102] FASOC [23(G)].
MSG also claims that between June and November 2013, it incurred costs of $128,524.75 in sorting and separating the damaged grain from the Phillbourne bunker, and rehabilitating the Phillbourne bunker site. Those costs were said to have been the loss of the value of the work which would otherwise have been performed by one of MSG's employees, and the cost of the work performed by another worker who was engaged specifically to sort the damaged grain, the cost of rehabilitating the site, and the cost of using a front‑end loader to move the oats.[103]
[103] Exhibit 2.64; FASOC [23I] and [23(L)(iv)].
In so far as its claim for storage costs is concerned, MSG says that by late 2013, most of the grain from the Phillbourne bunker was not salvageable, but that it was not able to source a suitable dumping ground for the remaining damaged grain until 15 September 2014.[104] Its claim is that in the interim, the damaged grain occupied storage space at the Wagin facility which would otherwise have been used to store grain acquired in the 2013/2014 harvest. In turn, the latter grain had to be stored at CBH facilities at a cost to MSG.[105] The total loss claimed under this head of damage is $607,935.37[106] which comprises receival fees, freight, storage costs, out-turn fees and transport costs.
[104] FASOC [23(F)].
[105] FASOC [23(F)] and [23(K)].
[106] Exhibit 2.64.
(c) Factual findings
Findings as to the express terms of the Agreement
In this section of my reasons, I deal with the evidence, and make factual findings, on the following issues:
(A)MSG's operations and the Wagin facility;
(B)The Weighbridge bunker;
(C)Storage of grain in bunkers;
(D)Mr Phillips' business, and his knowledge of the use of bunkers to store grain;
(E)Design and trial of the Joint System at CBH's Kellerberrin site;
(F)Mr Phillips' design of the Rotary Drum System;
(G)Mr Morton's decision to install another permanent bunker at the Wagin facility;
(H)The discussions and meetings between Mr Morton, Mr Reed and Mr Phillips;
(I)Installation of the Phillbourne bunker.
(A) MSG's operations and the Wagin facility
The evidence given by Mr Morton and Mr Reed by way of an overview of the Wagin facility was largely uncontroversial, save in one respect which I explain below. Having regard to their evidence, I make the following findings.
MSG operated a processing facility at Wagin from 1994 until it was sold in late 2014. MSG also operated two sites at Bibra Lake, and from 2013 a site at Hope Valley.[107] MSG's facility at Hope Valley processed oats for human consumption as well as for animal feed.[108]
[107] Exhibit 3 [4] - [5].
[108] ts 226.
Throughout the events the subject of these proceedings, Mr Morton was based at MSG's head office in Bibra Lake and subsequently worked at its Hope Valley premises.
Mr Reed was the manager of the Wagin facility from 2008 until MSG sold the facility in about November 2014. As the manager of the Wagin facility, Mr Reed was responsible for the day to day running of the site, and supervised all of the workers employed at the site.[109]
[109] Exhibit 6 [4].
Mr Morton left the day to day running of the Wagin facility to Mr Reed. Mr Morton usually visited the Wagin facility around once a month, and otherwise on an 'as - needed' basis. However, Mr Morton and Mr Reed would communicate with each other regularly each day via email and telephone to discuss the operations at the Wagin facility.[110]
[110] Exhibits 3 [12] and 6 [4].
The Wagin facility processed between 50,000 to 75,000 metric tonnes of oats for human consumption per year, depending on seasonal fluctuations and market demands.[111] The processing plant at the Wagin facility cleaned, de‑hulled and processed oats which were sourced from various growers throughout Western Australia. The oats were purchased by MSG either under contract or a cash price.[112] The oat products which were processed and sold from the Wagin facility for human consumption were raw oats, groats, steel cut groats (which were cut to a standard size), and kiln‑dried whole groats.[113]
[111] Exhibit 3, [3].
[112] Exhibit 6 [6].
[113] Exhibit 3 [7].
While the Wagin facility produced oats primarily for human consumption, the by‑product of the processing of the oats for human consumption (including irregular sized oats, off-cuts and oat husks) could be processed to make pellets for animal feed.[114] The animal feed produced was sold to domestic and overseas customers.[115] The Wagin facility had a pellet mill which was able to produce approximately 15,000 metric tonnes of animal feed from oat husks per year.[116]
[114] Exhibit 6 [2]; ts 44 - 45 and 187 - 188.
[115] ts 45.
[116] Exhibits 3 [3] and 6 [2].
The harvest season for oats in Wagin is typically between November to January. During that period, the Wagin facility would receive unprocessed oats which it purchased from farmers. Mr Reed explained that at least prior to the harvest for 2011/2012, MSG would process all of the oats purchased during the harvest throughout the following months, so that MSG's stocks of oats would be gradually depleted throughout the year as the oats were processed and on-sold. Eventually, the point would be reached, by about September or October, when the Wagin facility would be ready to receive oats from the next harvest.[117]
[117] ts 197.
The one area of controversy concerning the evidence of the operation of the Wagin facility concerned the purpose for which the oats processed at that facility were sold. Generally speaking, the oats MSG purchased for processing at its Wagin facility were intended for human consumption. While some processors used standards established by Grain Trade Australia (GTA) for determining which varieties of oats were suitable for use for human consumption,[118] MSG used its own standards, based on its customers' requirements, for identifying the variety of oats which it would purchase for processing for human consumption.[119] The two varieties of oats MSG processed for human consumption were Dalyup oats and Wandering oats.[120] I accept Mr Reed's evidence that those oats (sometimes referred to by the classification OWAN1) were processed at the Wagin facility and sold for human consumption.[121]
Storage of oats at the Wagin facility prior to the 2011/2012 harvest
[118] Exhibit 3 [25] - [29].
[119] Exhibit 3 [25] - [29].
[120] ts 46.
[121] ts 202.
Having regard to the evidence of Mr Reed and Mr Morton, and to the expert evidence of Mr McDougall concerning the use of bunkers for the storage of grain, I make the following findings concerning the manner in which oats were stored at the Wagin facility prior to the 2011/2012 harvest.
Following the delivery of unprocessed oats to the Wagin facility, MSG would store the oats at the Wagin facility pending their processing. The Wagin facility had storage for up to 60,000 metric tonnes of oats on site.[122]
[122] Exhibit 3 [11].
Oats of different classifications were not necessarily segregated during storage, although that was sometimes done to make it easier for the dehulling process.[123]
[123] ts 202.
The storage facilities at the Wagin facility comprised permanent silos constructed of concrete and steel, two large bulk grain storage sheds, and numerous bunkers used for the short-term and longer-term storage of grain.
The silos were made of either concrete or steel and were permanent structures.[124]
[124] ts 87.
The two large storage sheds were known as the Dumbleyung shed and the Wagin shed. They were fixed, permanent structures with steel and concrete walls, a concrete floor and/or a bitumen floor and a steel roof.[125] Each of those sheds could store up to 17,000 tonnes of grain.[126]
[125] ts 86 - 87.
[126] ts 230.
In addition, each harvest season, numerous temporary bunkers would be set up and used for the storage of oats at the Wagin facility. Each of which could hold between 1,000 and 4,000 metric tonnes of oats.[127]
[127] Exhibits 3 [13] and 6 [10].
Mr Reed explained, and I accept, that the temporary bunkers were only ever used to store oats for a relatively short time from the beginning of a harvest in any one year until shortly after that harvest ended. Ordinarily, a temporary bunker would be prepared by grading a site with a slight camber to help with drainage. The sides or walls of the bunker would be made of earth, covered or lined with black builders' plastic.[128]
[128] Exhibit 6 [10].
As oats were delivered to the Wagin facility, each temporary bunker could be filled, and when it was filled to its capacity, tarping contractors would be called in to cover the bunker with tarpaulins.[129] The tarpaulins were made from PVC, and they would be stitched or glued together to cover the entirety of the bunker. The tarpaulins were placed over the grain and down the earthen sides of the bunker, secured using weights such as concrete and tyres and were then securely tethered to the ground.[130]
[129] Exhibit 6 [12].
[130] ts 88.
The temporary bunkers had the advantage that they could be made ready to receive oats within a few days and could be constructed for a minimal cost. However, they would usually be prepared only when the soil was completely dry.[131]
[131] Exhibit 6 [13] - [14].
Mr Reed explained that temporary bunkers such as this were usually the last storage facilities to be filled, and they were also the first bunkers to be emptied when the harvest ended. Usually this would mean that the temporary bunkers would be filled by the end of December and they would be emptied by the end of March each year.[132] His evidence, which I accept, was that MSG would not ordinarily keep oats in temporary bunkers after the winter rains began, because of the risk that the oats would be water affected. His view was that if the temporary bunkers were not emptied prior to the commencement of the winter rain, it would become 'practically impossible' to empty those bunkers without causing considerable damage to the oats as a result of contamination with mud and water as the bunkers were unloaded.[133]
[132] Exhibit 6 [15] - [16].
[133] Exhibit 6 [17] - [20].
Mr Reed explained that while processing oats from a bunker, he would also try to ensure that he reserved some space in one of the storage sheds for storage of the oats from that bunker. His objective was to ensure that the bunker could be emptied as quickly as possible, and to avoid the risk of unexpected rain damaging the oats while the bunker was uncovered and the oats were exposed to the elements.[134]
[134] Exhibit 6 [21] - [23].
In addition, prior to the 2011/2012 harvest season, MSG had one bunker at the Wagin facility which was regarded as a 'permanent' bunker (in the sense that it was not constructed and removed during each season). It was known as the Weighbridge bunker.
(B) The Weighbridge bunker
The Weighbridge bunker assumed some significance during the course of the trial, and it is convenient at this point to set out the limited extent of the evidence about the Weighbridge bunker.
Permanent bunkers for the storage of grain are typically constructed on a pad of gravel, with sides which are usually prefabricated and made of galvanised steel (or some similar material) which are affixed or anchored to the ground.[135]
[135] Exhibits 6 [10] and 13 [5.6]; Image 5.2.
The Weighbridge bunker had a base made of compacted stone, surrounds made of steel and a tarpaulin cover.[136] The Weighbridge bunker was covered in the same way as the temporary bunkers at the Wagin facility, namely that the tarpaulins extended over the steel sides of the bunker, were pulled as tight as possible, and secured by blocks of wood placed tightly into channels surrounding the bunker, and secured with clamps to hold the tarpaulins securely in place.[137]
[136] ts 87.
[137] ts 87 - 88.
The Weighbridge bunker had a capacity of approximately 5,000 metric tonnes.[138]
[138] Exhibit 6 [7] - [9].
The evidence of Mr Morton and Mr Reed was that the Weighbridge bunker was used for the long-term storage of oats.[139] When speaking of the long‑term storage of oats, each of them referred to storing oats from one harvest season into the next harvest season.[140] However, the evidence did not establish that that had been successfully done in the past, using the Weighbridge bunker.
[139] Exhibit 3 [17]; ts 196.
[140] ts 196 and 198; Exhibit 3 [17].
Prior to the 2011/2012 harvest, MSG typically processed all of the oats it bought in a harvest, prior to the commencement of the next harvest. As I explain below, as the 2011/2012 harvest approached, Mr Morton decided to purchase more oats with a view to storing them in permanent bunkers until into the following harvest season. That represented a new approach to storing oats at the MSG facility.
Mr Reed explained that the use of permanent bunkers enabled MSG to keep oats safe over winter and meant that a decision could be made as to whether to use those oats before the next harvest or to store them for longer if necessary, in order to continue to meet customer orders.[141] That reflected the approach that Mr Morton had decided to take in the 2011/2012 harvest, and I did not understand Mr Reed's evidence to suggest that oats had been stored in the Weighbridge bunker for longer periods of time prior to then.
[141] Exhibit 6 [34].
Mr Morton's evidence was that the Weighbridge bunker was 'always the bunker that was opened last and the oats from that bunker were the last ones that MSG used'.[142] However, there was certainly no evidence of the period for which oats had been stored in the Weighbridge bunker prior to the 2011/2012 harvest season, or whether, and for how long, oats had been stored in the Weighbridge bunker without any deterioration or damage to their quality in the years prior to the 2011/2012 harvest.
[142] Exhibit 3, [62].
At one point, Mr Morton suggested that it 'had been [his] previous experience and was the case with the other permanent bunker that MSG had on the site [ie the Weighbridge bunker] - which was full throughout the whole of 2012 and into 2013, with no ill effects'.[143] He did not refer to any previous occasion on which he stored oats in the Weighbridge bunker for a lengthy period of time.
[143] Exhibit 3 [114].
I find that it was not until the 2011/2012 harvest season that oats were stored in the Weighbridge bunker for in excess of a 12 month period.
(C) Storage of grain in bunkers
It was not in dispute that the practice of storing oats in bunkers, as occurred at the Wagin facility, is common in the agricultural industry. Mr Morton explained that it is an industry norm to use bunkers and that the vast majority of grain stored in Western Australia is stored in bunkers.[144] However, he acknowledged that the use of bunkers, whether permanent or temporary, exposed the grain to greater risks of weather damage than storage in silos and storage sheds.[145]
[144] ts 89.
[145] ts 89.
The evidence established that storage of large quantities of oats in a bunker for any period of time carries with it some risk that the oats will become contaminated or their quality diminished. A variety of threats exist, including water damage as a result of the exposure of the oats to moisture, the development of hot spots (areas of high moisture caused by moisture migration in stored grain) and infestation by insects.[146] Mr McDougall explained that some facilities which store grain for long periods adopt a practice of turning over the grain in the bunkers or silos (that is, emptying the grain from one storage silo or bunker into another) to avoid the risk of developing hot spots within the grain.[147] Mr Reed accepted that grain stored in a bunker, without aeration or temperature control, especially during the summer, would be subject to a high chance of deterioration, which would affect the taste of the oats.[148]
[146] Exhibit 16, par 6.4.
[147] ts 377.
[148] Exhibit 1.117, ts 218, 220.
If the oats in a bunker are exposed to moisture, they may become mouldy and smelly.[149] Oats stored in temporary bunkers are particularly vulnerable to water damage because the oats are essentially piled into a stack on the ground. Mr Reed explained that that was the reason why he would not ordinarily store grain in temporary bunkers throughout the winter.[150]
[149] ts 189 - 190.
[150] ts 191.
As I have explained, whether a bunker is a permanent or temporary bunker, the means by which the oats in the bunker are protected from the elements is by covering the oats with tarpaulins made from PVC.[151] Self-evidently, it is particularly important that the tarpaulins are securely fastened so that the oats are not exposed to rain.
[151] ts 191.
Mr Reed explained, however, that in strong winds, there is a risk that the top of a tarpaulin will lift irrespective of how well the tarpaulin is strapped. The extent of that lift will depend on how well the tarpaulin is secured.[152] As I explain further below, if a tarpaulin lifts, that can place strain on the seams joining the tarpaulins covering the bunker, or place strain on the fastenings which attach the tarpaulins to the ground or the sides of the bunker, and give rise to a risk that the seams will come apart or that the tarpaulins will rip, exposing the oats to the elements. It was Mr Reed's evidence, which I accept, that this issue exists whether or not the bunker is a temporary or a permanent bunker.[153]
[152] ts 192.
[153] ts 193
That this is a well known risk in the agricultural industry, and one which not infrequently occurs during severe weather events, was evidenced by the fact that there are persons whose job it is to repair split or damaged tarpaulins which cover grain bunkers. Mr Reed explained that in the event that the seams of a tarpaulin came apart during a severe weather event, it is important to get a tarping contractor in quickly to fix the tarpaulin, especially if the weather continues to be poor, so as to minimise the risk of damage to the grain.[154]
[154] ts 192.
The risk of damage to, or deterioration in the quality of, oats stored in bunkers led to differences of view as to the maximum period for which a stack of oats could be stored in a bunker, covered by tarpaulins, without damage to the grain. Mr Mighall's view was that 'permanent' bunkers like the Phillbourne bunker and the Weighbridge bunker (that is, those with steel sides) could store grain for more than 10 months, if properly sealed and maintained.[155] However, Mr Mighall accepted that the features and advantages of permanent bunkers, as opposed to temporary bunkers, and their comparative strengths and weaknesses, were not within his area of expertise.[156]
[155] Exhibit 11 [5.1].
[156] ts 374.
Mr McDougall's evidence was that, to the best of his knowledge, 12 months was the maximum period for which grain would be held in long-term storage. Mr McDougall's view was that all bunkers should be regarded as temporary storage facilities for grain and, in his experience, grain was not normally stored in bunkers for longer than the period in between two harvests. In his experience, it was unlikely that grain would be stored in bunkers for any longer than 10 months.[157]
[157] Exhibit 13 [8.34].
In contrast, Mr Reed's evidence was that the maximum time which a stack of grain could be stored outside under tarpaulins would, depending on conditions, be a number of years,[158] and his view was that it should have been possible to store oats in a permanent bunker (like the Phillbourne bunker) for more than 12 months without any problems.[159]
[158] ts 192.
[159] Exhibit 6 [71].
Mr Morton's view was that permanent bunkers were suitable for long‑term storage of grain,[160] by which he meant up to a maximum period of 12 or 13 months.[161] However, he accepted that within the grain industry, the preference was to use grain stored in bunkers before the next harvest.[162]
[160] ts 92.
[161] ts 92.
[162] ts 89.
Mr Gorman's evidence, based on what he had seen as a tarping contractor, was that usually the maximum amount of time for grain to be stored under tarpaulins was about 12 months, but he had seen cases where grain had been stored for up to two years.[163]
[163] ts 122.
Having regard to the evidence, especially that of Mr McDougall and Mr Mighall, I find that within the agricultural industry, the maximum time during which it would be regarded as prudent to store oats in a 'permanent' bunker under a tarpaulin cover would be 12 months, but preferably not longer than 10 months, and oat processors would therefore regard it as preferable to process the oats obtained in one harvest season before the commencement of the next season. The time period represents a general rule of thumb, based on the experience of those in the agricultural industry who are engaged in processing and storing oats. It may be possible for oats to be stored for longer than that time period, provided they are stored in ideal conditions. Similarly, if the conditions in which the oats are stored are less than ideal - if the oats become exposed to moisture, if the weather is hot so that the oats inside the stack become too hot, or if insects manage to infest the oats ‑ then the quality of the oats may deteriorate in a shorter period of time than 10 to 12 months.
(D) Mr Phillips' business, and his knowledge of the use of bunkers to store grain
Mr Phillips has worked in the agricultural industry since 1966. In that time he has designed and built various items of farm equipment and machinery. Phillbourne was established in 1992. It primarily manufactures farm machinery for the agricultural industry, and designs and manufactures products to its clients' specifications.[164]
[164] Exhibit 22 [5] - [18].
Mr Phillips has no formal qualifications in engineering. He has employed engineers at various times, but at the time he was working on the development of the tarping system he was not employing anyone with engineering qualifications.[165]
[165] ts 580.
Mr Phillips accepted that he had seen bunkers for the storage of grain, mainly at CBH. Mr Phillips understood that a bunker and the tarpaulins which covered it, together formed one system.
I accept Mr Phillips' evidence as to his understanding of the purpose of a bunker for storing grain, and the tarpaulins which cover such a bunker. Mr Phillips' understanding of the purpose of a bunker was 'to hold the grain in one place to stop it running all over the ground' and understood that 'the tarpaulin does a bigger job in protecting the grain'.[166] His understanding was that bunkers were only covered when they were full of grain and uncovered when the grain was to be taken away, so that while the grain was being stored in the bunker for any length of time it would be covered by the tarpaulin.[167]
[166] ts 581.
[167] ts 581.
Mr Phillips clearly understood that the purpose of the tarpaulin covering was to protect the grain and to keep the wind and rain out of the grain. He accepted that when designing the tarping system in this case that was what he had in mind.[168]
[168] ts 581.
I find that Mr Phillips had this understanding of the purpose for which bunkers, covered by tarpaulins, were used in the storage of grain, at the time he developed the Joint System and Rotary Drum System.
Mr Phillips was also aware that because of the large size of grain bunkers, multiple tarpaulins are used to cover the grain.[169] He was aware that the usual way in which that was done was to lay the tarpaulins over the grain and then to stitch together the adjacent edges of the tarpaulins, using a portable stitching machine, or to weld together the adjacent edges by fusing them under the action of heat and pressure. The latter method is known as PVC welding.[170] Both the stitching and the PVC welding methods require a team of 3 to 5 people to work on top of the stack of grain to hold the tarpaulins together and operate the stitching machine or do the welding.[171]
[169] Exhibit 22 [28] - [29].
[170] Exhibit 22 [30].
[171] Exhibit 22 [31] - [32].
As a result of him having this knowledge, I find that Mr Phillips was aware, at the time he designed the Joint System and the Rotary Drum System, that in order to protect grain stored in bunkers from the elements, it was important that the tarpaulins be securely fastened to the bunker or the ground, and that if multiple tarpaulins were used to cover the grain, that the joins between them needed to be securely fastened, so that they did not come apart.
As a result of observing contractors undertaking repair work on tarpaulins, and which he regarded as dangerous work,[172] Mr Phillips decided to develop an alternative system for joining tarpaulins together. He explained that he came up with a design for the Joint System by which the edges of two tarpaulins could be welded to two PVC wedges which could then be wedged into opposite sides of a single rubber core, and locked into place by means of a rubber cord through the core.[173] Mr Phillips also designed a small machine to drive over the stack of grain and zip the rubber cord into the core, pulling the tarpaulins together.[174]
[172] Exhibit 22 [31] - [32].
[173] Exhibit 22 [40].
[174] Exhibit 22 [42].
Mr Phillips' unchallenged evidence was that Phillbourne did not manufacture the Joint System. Rather, he engaged a company located in Victoria, called Ambassador Industries Pty Ltd, to manufacture the Joint System. He prepared hand drawings of the Joint System and Ambassador then prepared more precise drawings of it, which were approved by Mr Phillips.[175] Ambassador manufactured the Joint System in Victoria and sent the components through to Phillbourne. Phillbourne then sourced PVC tarpaulins and welded the PVC wedges onto the edges of the tarpaulins using a plastic welding technique. This was done at Phillbourne's premises in Merredin.[176]
(E) Design and trial of the Joint System at CBH's Kellerberrin site
[175] Exhibits 22 [56] - [65] and 1.1.
[176] Exhibit 22 [68].
After Mr Phillips developed the Joint System, he discussed it with some of the management staff at CBH. They expressed interest in it, and permitted Mr Phillips to test the Joint System at the CBH site in Kellerberrin in the winter between June and September 2011.[177] Mr Phillips' evidence was that that was the first occasion on which the Joint System, which had been manufactured by Ambassador, was used.[178]
[177] Exhibit 22 [43] - [54].
[178] Exhibit 22 [66] - [67].
Mr Phillips' evidence was that Phillbourne installed the tarpaulins on an existing bunker at CBH. Phillbourne did not build that bunker. It was about 30 m wide, 100 m long and about 1.2 m high. That bunker was made of steel. The Joint System and the pre‑welded tarpaulins were delivered to Kellerberrin and were installed by Mr Phillips and three other employees of Phillbourne.[179] Mr Phillips recalled that when the Joint System was fitted to the bunker, the grain was already in the bunker, having been stored there during the harvest season, and covered with tarpaulins. Those tarpaulins were removed and the tarpaulins Phillbourne provided, which were joined together using the Joint System, were then installed. The tarpaulins themselves were then secured to the bunker in a conventional manner, by strapping them, and were tightened using lengths of timber. Mr Phillips' evidence was that the tarpaulins then remained in place on the bunker during the winter.[180]
[179] Exhibit 22 [72] - [76]; ts 584 - 585.
[180] ts 582.
Mr Phillips' evidence, which I accept, was that during the trial at Kellerberrin, none of the tarpaulins came apart.[181] I also accept his evidence that CBH did not report any issues with the Joint System nor, following the trial, did it make any complaints about the quality of the grain stored in the bunker.[182]
(F) Mr Phillips' design of the Rotary Drum System
[181] Exhibit 22 [72] - [77].
[182] Exhibit 22 [79] - [80].
After the CBH trial, Mr Phillips also designed the Rotary Drum System, for rolling sections of the tarpaulins on and off grain bunkers, so that the tarpaulins could be re‑used. The Rotary Drum System was not trialled at CBH.[183]
[183] Exhibit 22 [96].
Mr Phillips described the Rotary Drum System as having been designed to be attached to the sides of a bunker on one side of the vertical legs of a bunker wall's supports. When a bunker was filled, the tarpaulin could be unrolled from the rotary drums and secured to the wall on the opposite side of the bunker, using metal clamps on the edge of the tarpaulin. The tarpaulin would then be tensioned using a ratchet system which was part of the roller. The intention behind the ratchet system was to provide rigidity to the tarpaulin covering system and to minimise any movement along the joint line of the tarpaulins.[184]
[184] Exhibit 22 [83] - [88].
Mr Phillips' evidence was that he ordered the rotary drums from a company specialising in the manufacture of rotary drum systems.
Mr Phillips did not do any calculations in relation to whether the Rotary Drum System would be able to roll and unroll the tarpaulins of the size used on the Phillbourne bunker. Mr Phillips' evidence, which I accept, was that he asked an engineer, Mr Mattaboni, to provide him with advice on whether the length of the rotary drums that he wanted to use would be structurally sound, and sufficiently strong, having regard to its length, diameter and thickness. He sent some drawings of the Rotary Drum System to Mr Mattaboni. Mr Phillips' evidence was that he was told that there would be no trouble with the rotary drums holding up.[185] Mr Phillips did not receive any written advice from Mr Mattaboni to that effect.[186]
[185] Exhibit 22 [90] - [95].
[186] ts 593.
The engineering analysis which Mr Phillips requested, and which was undertaken, appears to have been very limited. (I say that without any criticism of Mr Mattaboni. There was no precise evidence as to the extent of the information he was given.) Mr Phillips acknowledged that he had not asked for any engineering advice on any other aspect of the bunker or the tarping system.[187]
(G) Mr Morton's decision to install another permanent bunker at the Wagin facility
[187] ts 609.
Prior to the 2011/2012 harvest, MSG would usually try to substantially sell all of the oats from the previous year's harvest, before the oats from the new harvest arrived, if it was possible to do so.[188] However, in the past MSG had sometimes struggled to purchase sufficient oats to meet the demands of its customers, especially in years where there was a drought or where the harvest was poor, as had occurred in the 2010/2011 harvest.[189]
[188] ts 194.
[189] Exhibit 3 [32] - [35].
In 2011, Mr Morton decided to adopt a different approach in the forthcoming 2011/2012 harvest season. His evidence, which I accept, was that it was his 'intention that the oats stored in the bunker … would have the ability to be carried over from one season to the next, as insurance against drought from one season to the next'.[190]
[190] Exhibit 3 [44].
He decided to increase the storage capacity at the Wagin facility by constructing another permanent bunker, in addition to the Weighbridge bunker.[191] His intention was to use the Weighbridge bunker, and the new permanent bunker, for the long-term storage of oats, of not less than 10 months and up to 18 months.[192]
[191] Exhibit 3 [32] - [36] and [45].
[192] Exhibit 3 [61].
Mr Morton also instructed Mr Reed to buy as many oats as possible, with a view to storing that grain over into the following harvest, until there was more certainty as to the likely outcome of the 2012/2013 harvest.[193] His intention was that if it appeared that the upcoming harvest would be a poor one, MSG 'would at least have a significant quantity of oats in the permanent bunkers which [it] could use to satisfy its production quotas for a considerable length of time in the next year, and satisfy a lot of the existing contracts that [it] had with its customers who wanted processed oat products'.[194]
[193] Exhibit 3 [38]; ts 194.
[194] Exhibit 3 [64].
Mr Morton started investigating options for another permanent bunker during July and August 2011. In October 2011, he and Mr Reed sought and obtained quotations from two other suppliers of grain bunkers, for the supply of a bunker for the Wagin facility.[195]
[195] Exhibits 1.16 and 1.17.
Mr Morton accepted, and I find, that if he had not purchased the Phillbourne bunker from Mr Phillips, he would have purchased a bunker of approximately the same size, namely 10,000 tonnes, from another source.[196]
(H) The discussions and meetings between Mr Morton, Mr Reed and Mr Phillips
[196] ts 100.
Mr Morton's evidence as to when he met with Mr Phillips and as to what was said during those conversations proved to be rather hazy. He did not recall very clearly the sequence of the meetings that they held. While the evidence in his witness statement (which became his evidence in chief) gave the impression that he clearly recalled what was said, in cross examination it became apparent that he did not recall what was said with a great deal of clarity, and he resorted to assertions about what he 'would have' said.[197]
[197] See, eg, ts 93 - 94.
In a number of respects, Mr Reed's recollection had also faded over time. By way of example, he could not recall whether Mr Phillips visited the Wagin facility before or after Mr Reed visited Phillbourne's premises at Merredin.[198] Both Mr Phillips and Mr Morton recalled that Mr Phillips visit to the Wagin facility occurred first. Mr Reed also accepted that he was now unable to recall precisely what was said during each of the conversations, at which he was present, with Mr Phillips.[199] However, he did recall some aspects of those conversations.
[198] Exhibit 6 [46].
[199] See eg, ts 199.
The total weight of the oats from the Phillbourne bunker, which must therefore have been used in production prior to January 2014 was 1,042.37 tonnes.
Mr Vowles' evidence was that during April to November 2014, a further 3,531.75 tonnes of damaged oats was sold to Macco's Foods as a blended product, by mixing damaged oats with higher quality oats to produce animal feed.[721] Mr Vowles calculated that the total amount recovered in respect of the damaged oats (having regard to the amount blended with other oats) was $114,498.90.[722] On that analysis, about 4,012.24 tonnes of oats remained from the Phillbourne bunker.
[721] Exhibits 7 [14], 2.71, 1.163, 1.168, 1.173, 1.177, 1.180, 1.187, 1.190, 1.194 and 1.197.
[722] Exhibit 2.71.
Mr Vowles used the Harley Dykstra survey and sales invoices to confirm that approximately 4,000 tonnes of damaged oats remained at the Wagin site by about November or December 2014.[723]
[723] Exhibit 7 [13].
That is also roughly consistent with information provided by Mr Reed to Mr Vowles in September 2014. By an email dated 19 September 2014 Mr Reed advised Mr Vowles that at that stage about 3,500 to 4,000 tonnes of the oats from the Phillbourne remained on the Wagin site.[724].
[724] Exhibit 1.185.
MSG has established, and I find, that the total number of tonnes of damaged oats from the Phillbourne bunker which remained at the Wagin facility as at November 2014 was 4,012.24 tonnes.
The total cost of the oats in the Phillbourne bunker, less the costs of recoveries and sales, as at November 2014 was therefore $1,519,195.10. I do not understand Phillbourne would dispute that figure.[725] It is calculated as follows:
[725] Phillboune's Closing Submissions (Schedule A [1.3]) suggest that the agreed net cost is $1,558,461.31. This appears to be an error. In any event, the lower figure on which I have relied is to Phillbourne's benefit.
Description Total Total cost of oats in the Phillbourne bunker $1,906,901.87 Cost of oats used in production (1,042.37 tonnes @ $213.11 per tonne $222,139.47 Less sales of oats to Macco Feeds in September 2013 $50,618.40 Less sales of oats to Macco Feeds in April to November 2014 $114,948.90 Total cost of damaged oats from the Phillbourne bunker which remained as at November 2014 $1,519,195.10
MSG has established, and I find, that the total value of the damaged oats which remained at the Wagin facility as at November 2014 was $1,519,195.10.
Cost of repairing and replacing the tarpaulins
MSG pleaded that it had to remove the defective tarping system and had to replace it with a conventional tarping system.[726] The position in fact appears to have been that Castle Industries stitched the existing tarpaulins back together, and used smaller tarpaulins to fill tears. In addition, the tarpaulins were secured using conventional strapping methods.
[726] FASOC [23 (G)] and [23 (L)(ii)].
Clearly, MSG would be entitled to recover for the cost of those repairs, in the event that Phillbourne had been found to have breached a term of the Agreement that the tarping system be fit for the Purpose. Phillbourne did not dispute that approach.
Initially, the total losses MSG claimed it had incurred in repairing and replacing the tarpaulins amounted to $33,812.67. That figure was calculated by Mr Vowles, having regard to invoices issued to MSG by Castle Industries.[727]
[727] Exhibits 7 [19], 2.64, 1.54, 1.66, 1.80, 1.83, 1.90 and 1.31.
By the end of the trial, however, MSG had revised the amount claimed in respect of these repairs. It had abandoned, correctly, any claim for the cost of repairs to the tarpaulins in May 2012. In addition, it had revised its claims based on some of the other issues by Castle Industries, on the basis that those invoices included charges for repairs to other bunkers. The claim made by MSG is now for $33,077, made up as follows:[728]
[728] MSG's Closing Submissions [5.3.3].
Exhibit No Invoice No Invoice Date Invoice Amount Amount Claimed 1.54 124087 18/1/2012 $16,875.00 $9,450.00 ‑ proportionate amount for installing tarps for new bunker system (for wasted expenditure) 1.66 124088 3/02/2012 $6,984.00 $6,984.00 ‑ repair new system bunker 1.83 01067 7/11/2012 $5,603.12 $412.50 ‑ repair new system bunker
$516.67 ‑ proportionate travel and accommodation (30%)1.90 01050 12/1/2012 $3,225.00 $1,350.00 ‑ repair stockpile/tarps 1.131 01093 30/11/2013 $14,364.50 $14,364.50 ‑ re‑tarp bunker TOTAL: $33,077.67
Phillbourne does not dispute the amounts now claimed by MSG, save for the first amount claimed. Counsel for Phillbourne submitted that the first invoice ‑ for work undertaken by Castle Industries on 18 January 2012 ‑ was for the initial work in covering the Phillbourne bunker and not for repairs to that bunker.
I am unable to accept that submission. Castle Industries did not install the tarpaulin covers on the Phillbourne bunker. I have found that Castle Industries attended in January 2012 and undertook repairs to the tarpaulins on the Phillbourne bunker when they first separated. In his evidence, Mr Gorman confirmed that on 20 January 2012, he had attended and repaired the seams where they had come apart and strapped the tarpaulin down.[729]
[729] ts 115.
It is apparent that the invoice which covers those repairs also covers other work on other bunkers which was undertaken by Castle Industries at the same time. MSG only seeks a proportionate amount for the repairs to the 'new system' (which is how Mr Gorman referred to the Phillbourne bunker). I am satisfied, on the balance of probabilities, that the amount claimed properly reflects the cost of the work done to repair the tarpaulins on the Phillbourne bunker on that occasion.
I note that MSG has conducted a similar apportionment in respect of the invoice issued by Castle Industries for the work done on 7 November 2012. No objection is taken by Phillbourne to that apportionment. I am satisfied that the amount claimed reflects the work done to repair the tarpaulins on the Phillbourne bunker on that occasion.
For completeness, I note that the invoice dated 30 November 2013 in the sum of $14,364.50, appears to relate to the cost of covering the stacks of oats which had been removed from the Phillbourne bunker, and segregated into different piles. Mr Gorman's evidence,[730] which I accept, was that he went to the Wagin facility in November 2013 and installed tarpaulins over a number of stacks of oats. Mr Reed also confirmed that the invoice for that work is the invoice on which MSG now relies.[731] I am satisfied that the amount claimed by MSG was a loss it incurred in consequence of the damage to the oats in the Phillbourne bunker. It was clearly reasonable for MSG to cover the stacks of oats which it had segregated, to prevent any further water damage to those oats, and preserve the prospect of further salvaging those oats.
[730] Exhibits 4 [8] and 1.131.
[731] Exhibit 3 [138].
MSG has established, and I find, that it incurred $33,077.67 in repairs to the tarpaulins on the Phillbourne bunker, and in covering the segregated stacks of the oats taken from the Phillbourne bunker.
Costs incurred in sorting and separating the damaged grain, and removing debris
MSG's claims under this head of damage comprise three elements: the costs of employees it says undertook the job of unloading the oats from the Phillbourne bunker and sorting them into separate piles; the cost of using a front-end loader to remove the oats; and the cost of ultimately disposing of the oats which could not be processed and sold, and rehabilitating the sites of the oat stacks.
Employee costs
MSG claims that between June and November 2013, it incurred costs in sorting and separating the damaged grain from the Phillbourne bunker, namely a loss in the value of the work which would otherwise have been performed by one of its employees, and the cost of the work performed by another worker who was engaged specifically to sort the damaged grain.[732]
[732] FASOC [23(I)]; [23(L)(iv)]; Exhibit 2.64.
The total claim for these losses amounted to $23,112.00,[733] made up as follows: [734]
[733] Exhibit 2.64.
[734] Exhibit 2.64.
Exhibit No Claim Item and Description Amount 1.253 Labour costs of Diamund Rafter (employee) who worked 310.5 hours from 10/9/13 to 4/11/13. $10,470.06 1.253 Labour costs of Marek Truu, retained specifically for the task of sorting the damaged grain who worked 428.25 hours from week ending 11/09/13 to week ending 6/11/2013. $12,641.94 TOTAL: $23,112.00
Mr Vowles calculated these costs by reference to payslips for the employees involved.[735]
[735] Exhibits 7 [26], 2.47 and 2.64.
Phillbourne objected to this claim for damages, essentially on two bases. First, counsel for Phillbourne submitted that MSG had not proved that it hired additional labour to out-load the Phillbourne bunker. Secondly, counsel for Phillbourne submitted that the cost of employees out-turning and loading the oats from the Phillbourne bunker was a cost that MSG would have borne in any event.[736] They submitted that Mr Vowles had made no allowance for that in his calculations.[737]
[736] Phillbourne's Closing Submissions, Schedule A [1.17].
[737] Cf ts 305.
I accept those submissions. Mr Vowles' evidence in chief was that MSG had to hire additional labour for that purpose (that appeared to be a reference to Mr Truu) while an existing employee, Mr Rafter, was also involved in this work.[738] Mr Vowles agreed 'partially' that Mr Rafter's costs were costs MSG would have incurred in any event, because he was an existing employee.[739] He explained that Mr Morton used casual employees to top up the MSG workforce as required.[740] However, Mr Vowles admitted that it would be necessary to see the whole of MSG's payroll to understand whether or not this was a true additional cost over and above what MSG would have incurred in its employment of Mr Rafter in any event.[741] MSG has not proved that the amount claimed in respect of Mr Rafter's work in outloading the oats from the Phillbourne bunker was a cost which it incurred over and above any cost it would in any event have incurred as a member of its workforce.
[738] Exhibits 7 [26], 2.47 and 2.64.
[739] ts 304.
[740] ts 304.
[741] ts 304.
As for Mr Truu, Mr Vowles admitted that he had no personal knowledge of whether Mr Truu had been hired specifically to do this job, and he was not aware of any documentary evidence that would demonstrate that that was the case.[742] No such other evidence was adduced. However, Mr Morton's evidence was MSG used its own workers to segregate the oats into separate piles.[743] Similarly, in his evidence, Mr Reed referred to 'workers' who helped with segregation of the oats from the middle of September to the start of November 2013.[744] MSG has not established, on the balance of probabilities, that Mr Truu was hired specifically for the purpose of the task of unloading the Phillbourne bunker, so that all of his hours of work in the period claimed can be attributed to that task.
[742] ts 304.
[743] Exhibit 3 [145].
[744] Exhibit 6 [100].
In addition, while some labour was clearly involved in outloading the Phillbourne bunker, that cost would have been incurred even if the oats were not damaged. In so far as MSG sold the oats, that cost would no doubt have been recovered as part of the price for selling the oats. Accordingly, the true cost to MSG for outloading the Phillbourne bunker would be only a proportion of its total labour costs involved in that task.
For these reasons, I am not persuaded that MSG has established, on the balance of probabilities, that the costs it claims for labour were costs it incurred as a result of the damage to the oats in the Phillbourne bunker.
Front end loader costs
MSG claimed that the costs it incurred were the costs of removing the remainder of the damaged grain, included hiring a loader for the purpose of moving the grain.[745]
[745] Exhibit 2.64.
MSG claimed a total of $48,018.75 for the cost of using a front-end loader to unload the oats from the Phillbourne bunker. That cost was calculated by reference to a cost of $65.00 per hour to hire the front-end loader, for 738.75 hours.[746]
[746] MSG's Closing Submissions [5.4.3]; Exhibit 2.64.
That claim was not supported by the evidence. Mr Morton's evidence was that MSG used its own equipment to segregate the oats into separate piles.[747] In addition, Mr Vowles' evidence was that MSG utilised its own front-end loader to separate the damaged oats from the Phillbourne bunker. He calculated the costs of the use of the loader by reference to the charges, at commercial rates, to hire a front-end loader from an external provider.[748]
[747] Exhibit 3 [145].
[748] Exhibits 7 [26], 1.110 and 2.64.
Furthermore, while there was in evidence an invoice for the cost of hiring a front-end loader, that hiring was limited to a cost of $65 per hour for 95.9 hours, at a total of $6,233.50.[749] Mr Vowles' evidence suggests that he simply used that invoice as an example of hire costs for front-end loaders. In cross examination, he admitted that 'we didn't hire the loader. We used our own loader. I used a labour - a loader hire invoice to approximate the cost of our own loader.'[750]
[749] Exhibit 1.110.
[750] ts 303,
Counsel for MSG submitted that there was evidence that when the front-end loader was engaged in unloading the oats from the Phillbourne bunker, it was not being used as it would be for work in the ordinary processing of oats at the Wagin facility.[751]
[751] MSG's Closing Submissions [5.4.2] by reference to ts 305.
Even assuming that to be so, there was no evidence to suggest that MSG had had to hire another front-end loader to be used at the same time. Consequently, the cost of hiring a front-end loader does not reflect the cost actually incurred in using the loader to unload the Phillbourne bunker. The only additional costs incurred by Phillbourne in that respect would, presumably, have been costs such as fuel, and the depreciation of the loader itself. However, that was not the claim made by MSG and there was no evidence to ascertain what such costs may have been.
For these reasons, I am not persuaded that MSG has established, on the balance of probabilities, that the costs it claims for the front-end loader reflected the costs it actually incurred as a result of the damage to the oats in the Phillbourne bunker.
Transporting the oats for disposal, and rehabilitating the site
This part of MSG's claim is for the cost of transporting the oats which remained in November 2014, and which were unable to be used or sold, and which had to be disposed of, and in addition, for the cost of rehabilitating the sites on which those oats had been stored at the Wagin facility.
There was no dispute that 4,012.24 tonnes of oats were disposed of in 2014.[752]
[752] Exhibit 16 [7.3].
Mr Vowles' evidence was that MSG engaged Atcon Transport to rehabilitate the Wagin site and Road Tech Constructions to carry away damaged oats from the Wagin site. Mr Vowles calculated the total charges involved based on the invoices from those parties.[753]
[753] Exhibits 7 [24], 2.64, 1.165, 1.166, 1.169, 1.175, 1.176 and 1.184.
The costs claimed by MSG are set out below:
Exhibit No Claim description Claim amount 1.165 Atcon Transport: Rehabilitation of bunkers by regrading and replacing basis where contaminated grain was stored. Cost of delivering the gravel on site; some other minor works done; only 75% of full invoice value claimed. $1,890.00 1.166 Atcon Transport: As above and removal of old base clay spoils.
Cost of carting gravel to site; only 75% claimed; $2,880.00
Cost of carting away clay spoils: $720$2,880.00 1.169 Atcon Transport: Carting away rubbish and grain, preparing laydown areas, mobilise loaders for site (only 75%) and prepare dump pit for grain $7,920.00 1.175 Atcon Transport: Dispose of grain and deliver gravel on site (75%) $5,253.00 1.176 Atcon Transport: Deliver gravel on site (75%) $1,701.00 1.184 Road Tech Constructions: Removal of all damaged grain $37,750.00 TOTAL: $57,394.00
The invoices that MSG relied upon in support of this claim were in evidence.[754] Some of them do not refer to the oats from the Phillbourne bunker, but describe, in more generic terms, the work done, some of which makes reference to what appears to be the damaged grain, for example, 'load and cart general rubbish and reject grain'. Other invoices contain charges for several items of work, only some of which are the subject of the present claim.[755] Mr Vowles explained that he and Mr Morton had identified those invoices for work done at the time that rehabilitation was being done at the Wagin facility, and from those they identified the invoices that should be part of the present claim.[756] As that evidence was not contradicted by any other evidence, I am satisfied that it is more likely than not that those charges were incurred in respect of the damaged oats from the Phillbourne bunker. The amount in question is for the invoice at exhibit 1.184, which totals $37,750.
[754] Exhibits 1.165, 1.166, 1.169, 1.175, 1.176 and 1.184.
[755] See, eg, Exhibits 1.169 and 1.175.
[756] ts 307.
However, in respect of the remaining invoices, the claim made in this case represents an apportionment. Mr Vowles explained that apportionment in the following exchange in cross examination:[757]
You say you've claimed only 75 per cent of the invoice. So can you just explain how you've gone about apportioning 25 per cent to other works?‑‑‑I discussed it with [Mr Morton] and there was other work being done on the site at the time and we decided that was the closest estimate.
Well, you didn't know about the work being done on-site at the time. So you just - - -?---No. Not at the time the invoice was raised. No. I was ‑ ‑ ‑
So you just accepted what [Mr Morton] told you about that?---Yes.
[757] ts 306 - 307.
Most of the apportionment involved attributing 75% of the total amount charged on the invoice to the present claim,[758] although the amount claimed in reliance on the invoice at exhibit 1.175 is in fact less than 75% of the total amount billed on that invoice. The invoices themselves do not disclose why that apportionment was appropriate, and there was no evidence to indicate why that apportionment was appropriate. I am not satisfied that MSG has established, on the balance of probabilities, that these claims represent its actual losses in consequence of Phillbourne's breach of the Agreement.
[758] Exhibits 1.165, 1.166, 1.169 and 1.176.
I am satisfied that MSG has established that its losses under this head of damage amount to $37,750.00. It has not established its other claims under this head of damages.
Interest charges
MSG claims that it sustained a loss in that it incurred additional interest on a loan facility that it used to purchase the oats in the Phillbourne bunker, which in the ordinary course it would have paid off when it sold the oats in the Phillbourne bunker, but which it was delayed in repaying, due to the damage to the oats.[759]
[759] FASOC [23(H)]; [23(L)(iii)].
Initially, MSG claimed that this loss was in the sum of $153,633.49, but that figure was subsequently revised down to $149,662.12.[760] That figure was calculated by Mr Vowles. He explained the basis for that calculation in his evidence.
[760] Exhibit 2.64, MSG's Closing Submissions [5.5.4].
Between 3 and 12 January 2012, oats were delivered to the Phillbourne bunker. These oats were financed by the NAB loan facility.[761] Mr Vowles' evidence was that '[i]n the normal course of business [those] oats … would have been processed and sold prior to the end of October 2012. … However, in the 2012 financial year MSG received and held oats in excess of the season's processing requirements'.[762] Mr Vowles deposed:[763]
The loan facility from November 2012 until settlement of a claim for the damaged oats brought by MSG under its insurance policy with AIG Insurance Ltd was incurring interest at a higher level than if the oats remained undamaged and were sold in the ordinary course of business. The interest rate applied in my calculation is the rate charged on the loan facility by NAB during the period from November 2012 until 25 March 2014 when the claim was settled by the insurer. Due to the lost opportunity to sell the oats in the ordinary course of business MSG was unable to utilise funds that would otherwise have been available from the damaged oats to reduce its loan facility with NAB and accordingly the amount of interest paid on the loan facility.
[761] Exhibit 7 [20].
[762] Exhibit 7 [21].
[763] Exhibit 7 [22].
Mr Vowles' summary of his calculation is set out in the following table:[764]
[764] Exhibit 2.64; MSG's Closing Submissions [5.5.4].
| Exhibit 1.52 page | NAB Ref. No | Amount of loan | Date Range | Days | Rate | Amount of interest |
| 1734 | TX2013090257 | $1,906,901.87 | 1/03/2013 - 31/03/2013 | 31 | 8.95 | $14,495.07 |
| 1735 | TX2013165474 | $1,906,901.87 | 1/04/2013 - 30/04/2013 | 30 | 8.95 | $14,027.48 |
| 1736 | TX2013207571 | $1,906,901.87 | 1/05/2013 - 31/05/2013 | 31 | 8.89 | $14,397.89 |
| 1737 | TX2013251011 | $1,906,901.87 | 1/06/2013 - 30/06/2013 | 30 | 8.73 | $13,682.67 |
| 1738 | TX2013320949 | $1,906,901.87 | 1/07/2013 - 31/07/2013 | 31 | 8.75 | $14,171.15 |
| 1739 | TX2013351186 | $1,906,901.87 | 1/08/2013 - 31/08/2013 | 31 | 8.6 | $13,928.22 |
| 1740 | TX2013421612 | $1,906,901.87 | 1/09/2013 - 30/09/2013 | 30 | 8.51 | $13,337.86 |
| 1741 | TX2013469998 | $1,614,598.73 ($50,618.40 and $241,684.74 salvage sales deducted) | 1/10/2013 - 31/10/2013 | 31 | 8.5 | $11,656.08 |
| 1742 | TX2013519651 | $1,526,964.33 ($87,634.40 salvage sale deducted) | 1/11/2013 - 30/11/2013 | 30 | 8.52 | $10,692.94 |
| 1743 | TX2013580174 | $1,526,964.33 | 1/12/2013 - 14/12/2013 | 14 | 8.53 | $4,995.89 |
| 1743 | TX2013580174 | $1,026,964.33 (progress payment of $500,000 from AIG deducted) | 15/12/2013 - 31/12/2013 | 17 | 8.53 | $4,080.00 |
| 1744 | TX2014018983 | $1,026,964.33 | 1/01/2014 - 31/01/2014 | 31 | 8.53 | $7,440.00 |
| 1745 | TX2014052219 | $1,026,964.33 | 1/02/2014 - 28/02/2014 | 28 | 8.55 | $6,735.76 |
| 1746 | TX2014097789 | $1,026,964.33 | 1/03/2014 - 25/03/2014 | 25 | 8.56 | $6,021.11 |
| Total | $149,662.12 | |||||
The calculations in that table were not adequately explained by Mr Vowles in his evidence. By way of example, while the refinance schedule extracts which were in evidence stipulated the 'refinance amount' (the draw down amount), the 'discount interest' and a refinance fee, no attempt was made to explain how the draw down amount could be said to have related to the purchase of the oats in the Phillbourne bunker. Each refinance schedule stated the rate of interest used to calculate the ‘discount interest'. It appears that the amount that MSG claims was calculated using those interest percentage rates stipulated in the refinance schedules.[765] However, the basis for those calculations was far from clear.
[765] ts 308; Exhibit 2.64, page 3395 - 3396.
Furthermore, the foundation for the assumptions which underlay the calculations, was contrary to the evidence, or not established by any evidence. Mr Vowles' calculations appeared to assume that the loan facility was a static account - that is, that funds were drawn down when the grain for the Phillbourne bunker was purchased, and repaid when the grain was sold. The evidence established that that was not the case. Mr Vowles deposed that in fact the loan facility was used for the purpose of acquiring all grain stock owned by MSG.[766]
[766] Exhibit 7 [20].
Further, in cross examination, Mr Vowles acknowledged that the loan facility was in fact used by MSG each fortnight, in that MSG would look at the business' needs, and anticipated payments, in order to determine how much MSG was required to draw down from the loan facility. That draw down amount would be paid into MSG's trading account. At the end of the fortnight, after sales and payments were made and processed through MSG's trading account, another draw down would occur. MSG would repay the difference between the first and second draw down (if any) to the bank.[767] Clearly, the activity on the loan account was not solely referable to the purchase of oats in the Phillbourne bunker. Furthermore, the evidence suggested that repayments and draw-downs from the account were constantly occurring, yet no allowance for that activity was made in Mr Vowles' calculation of interest.
[767] ts 309 and 311.
In addition, Mr Vowles noted that his calculations did not take into account any interest that MSG may have earned by its trading account, but he did not regard that omission as a significant error.[768] That alone confirms that the amount claimed is not accurately calculated.
[768] ts 311.
Mr Vowles agreed that additional documents would be required to accurately calculate MSG's claim for interest.[769] Those documents were not in evidence.
[769] ts 310 - 311.
Counsel for MSG submitted that the incomplete documentary evidence was not significant, as the movement in the trading account would have been the same regardless of the debt:[770]
In relation to the contention that's raised in relation to Mr Vowles' evidence about the interest on acquisition costs, I accept that the - the documentary evidence may be said to be incomplete.
But the reality is that the plaintiff financed the purchase of $1.9 million worth of grain and was held out of its capacity to realise that from when it took - from the period attributed to when commercially it would have realised it, namely March 2013, to the point at which the matter was finalised in 2014. So I just make that clear. We're not claiming that there is interest in respect to the time of purchase because we accept that the commercial strategy would not have led to its realisation until early 2013. It's from that point through until March 2014.
[770] ts 659.
By way of further example, initially Mr Vowles assumed that MSG would have sold all of the oats from November 2012, although the calculations ultimately relied upon claimed interest only from March 2013, when damage to the oats was discovered. In any event, the evidence was that MSG purchased the oats in the Phillbourne bunker, and stored them there, with a view to keeping those oats well beyond the 2012 year. Presumably, it was intended that those oats would be sold during 2013 at some stage (as were the oats in the Weighbridge bunker). MSG did not adduce any evidence to establish when the oats would have been sold, but for the damage to the grain. (For example, there was no evidence of any contract for the sale of those oats at a particular point in time, or evidence that those oats had been purchased with a sale to a particular customer in mind.) The calculations also assumed that all of the oats would have been sold at or by a particular point in time (November 2012), which at first blush appears to be a highly artificial assumption given the quantity of grain involved.
All of these deficiencies serve to clearly illustrate that MSG has failed to establish, on the balance of probabilities, that it incurred a loss in the form of additional interest it incurred in borrowing funds to purchase the oats in the Phillbourne bunker.
Settling customer claims for inferior quality oats
As I noted at [627], MSG sold some of the damaged oats from the Phillbourne bunker for human consumption. Mr Morton's evidence was that some of the customers who received supplies of oat products from the oats stored in the Phillbourne bunker ‑ namely Pepsico India Holdings Pty Ltd, Unigrain Pty Ltd and Baywest Nominees Pty Ltd ‑ were not satisfied with the quality of those oats and made claims against MSG.[771]
[771] Exhibits 3 [147] ‑ [148] and 1.203.
Mr Vowles' evidence was that MSG had to refund and settle those claims in the amount of $32,987.66. Those calculations were based on tax invoices showing credits to MSG's customers.[772]
[772] Exhibits 7 [27], 2.64, 1.137, 1.138, 1.139, 1.140, 1.141, 1.146, 1.160 and 1.167.
MSG claimed a total of $32,987.66 in losses under this head of damage.[773]
[773] Exhibit 2.64.
Phillbourne does not dispute this head of damage, or the amount claimed.[774]
[774] Phillbourne's Closing Submissions Schedule A [1.7]; ts 243.
I am satisfied that the amount claimed under this head was a loss incurred by MSG in its reasonable attempts to mitigate its losses.
Storage costs
MSG's claim for additional storage costs is for the costs is claimed it incurred in storing incoming oats, purchased during the 2013/2014 harvest, at CBH's facilities.[775] The basis for the claim is that the damaged oats from the Phillbourne bunker used space across the Wagin facility which otherwise would have been available for storing incoming oats. MSG says that in addition to storage costs, there were costs of transporting the oats to the CBH facility, outturn and receival fees.[776]
[775] FASOC [23(I)]; [23(L)(vii)].
[776] MSG's Closing Submissions [5.7.3].
MSG says that these costs were incurred in its reasonable attempts to mitigate its loss by separating the damaged grain from the Phillbourne bunker, and endeavouring to sell that grain between September 2013 and November 2014.
In his evidence, Mr Reed explained that the stacks of damaged oats were utilising space which otherwise would have been used for storage of incoming oats purchased in the 2013/2014 harvest. Mr Reed explained that it was not possible to use the site of the Phillbourne bunker to store any of the incoming oats because there was still residual damaged grain in that area and it was not practical to rehabilitate that area in time for the incoming oats from the 2013/2014 harvest during December 2013. Mr Reed organised for temporary bunkers to be built in the available space around the stacks of oats that had come from the Phillbourne bunker. However, his evidence was that there was insufficient space on which to build temporary bunkers to store all of the oats MSG purchased in the 2013/2014 harvest. Consequently, some of the incoming oats had to be stored at CBH's premises. Mr Reed's evidence was that MSG had to pay additional storage and transport charges for those oats.[777]
[777] Exhibit 6 [108] ‑ [110].
Mr Reed confirmed that the balance of the grain from the Phillbourne bunker that was disposed of in November 2014 went to landfill and agreed that that could have occurred before November 2014.[778]
[778] ts 231 - 232.
Initially, MSG claimed that its loss under this head of damage was $607,935.37,[779] which was calculated by Mr Vowles.[780] Mr Vowles' evidence was that he calculated the volume of oats affected by comparing the storage capacities of the bunkers used to store the damaged oats and the storage capacity at the Wagin facility in 2013.[781] The assumption on which the calculations was based was that 19,050 tonnes of storage space at the Wagin facility was taken up by the piles of damaged oats from the Phillbourne bunker.
[779] FASOC [23(L)(vii)], Schedule A.
[780] Exhibit 2.64.
[781] Exhibits 7 [29], 1.87, 1.147 and 2.64.
The overall cost of storage calculated by Mr Vowles included the costs and charges incurred in receival fees (namely the costs charged by CBH to growers for the storage of oats and subsequently invoiced by the grower to MSG[782]), growers' freight reimbursement (namely the additional freight incurred as a result of transfer of oats to CBH instead of the Wagin facility[783]), time‑based storage costs incurred from CBH for oats stored until October 2014[784]), out turn fees (namely the costs charged by CBH at $9.90 per tonne for all oats out loaded from CBH[785]), and transport costs incurred in transporting the oats temporarily stored at CBH to the Wagin facility.[786]
[782] Exhibits 7 [30], 2.50 and 2.64.
[783] Exhibits 7 [30], 2.51 and 2.64.
[784] Exhibits 7 [30], 2.54 and 2.64.
[785] Exhibits 7 [30], 2.54 and 2.64.
[786] Exhibits 7 [30] and 2.55.
However, in closing submissions, MSG sought the sum of $601,130.22. The calculation of that sum was set out in Schedule A to MSG's closing submissions.[787] That schedule was a very lengthy document, and I do not intend to reproduce it here. (There are some differences in the costs taken into account in that calculation as compared with that undertaken by Mr Vowles. The basis for the differences was not entirely clear, although Mr Vowles' calculations took into account some costs which were not reflected in invoices ultimately in evidence, and which Mr Vowles had noted were not able to be located.[788] That may be a possible explanation.)
[787] Schedule A to MSG's closing submissions.
[788] Exhibit 2.64.
I am not persuaded that MSG has established, on the balance of probabilities, that the total amount it claims in fact represents the loss it incurred in consequence of storing oats at CBH because they could not be stored at the Wagin facility. I have reached that view for the following reasons.
First, the evidence did not establish that the storage facilities at Wagin were not sufficient to store all of the incoming grain. That was largely due to the assumption which was the basis for Mr Vowles' calculations. Mr Vowles explained that he had used the weekly stocktake reports to calculate the storage capacity of the temporary bunkers constructed at the Wagin facility, and assumed that the amount of grain in those bunkers represented the maximum capacity of the bunker.[789] However, Mr Vowles also accepted that those bunkers could have held more grain than the stocktake reports indicated.[790] In addition, Mr Vowles also accepted that he did not consider whether there was other storage available at the Wagin facility. Finally, Mr Vowles did not consider whether the oats that were delivered to the CBH facility could instead have been added to other existing storage - whether in sheds or bunkers - at the Wagin facility.[791]
[789] ts 296 - 298.
[790] ts 297 - 298.
[791] ts 298.
There was evidence that the storage sheds at the Wagin facility could each hold about 17,000 tonnes of oats.[792] However, there was also evidence that that maximum amount of storage in the sheds did not take into account that within the sheds, oats might be separated into different piles.[793] For present purposes, the point is that given that the Wagin facility was constantly processing oats, the storage of oats was constantly in flux. MSG's storage claims appear to be based on the assumption that at no time when incoming oats were received was there any space to store any of those individual amounts at the Wagin facility at the time they were delivered by the growers. Yet some of the amounts of grain stored at the CBH facilities appear to have been quite modest. By way of example, MSG seeks storage fees for oats received from L and L Reynolds which were delivered to CBH on 26 - 28 November 2013. However, according to the invoice for that storage the total quantity of oats delivered was only 256.22 tonnes.[794] On another occasion, L and L Reynolds delivered a total 153.36 tonnes to CBH.[795] Similarly, MSG claims storage fees for oats received from DR and EC Parson which were delivered to CBH's facilities prior to March 2014. However, according to the invoice, only 58.88 tonnes of oats were delivered.[796] It is far from clear why it would not have been possible for such modest amounts to have been stored at the Wagin facility.
[792] ts 230.
[793] ts 301.
[794] Exhibit 2.50 (TB page 3122).
[795] Exhibit 2.50 (TB page 3134).
[796] Exhibit 2.50 (TB page 3128).
Secondly, MSG's storage claims include costs up to October or November 2014. However, as the Wagin facility received grain during the harvest (until about February each year) and processed grain throughout the year, it is far from clear why the oats which had been stored at CBH needed to remain there until so late in the year, rather than being brought to the Wagin facility for processing in advance of other oats which were stored at the Wagin facility.
These questions mean that I am not persuaded that the total amount claimed by MSG can be said to accurately reflect its actual losses incurred in storing oats at CBH rather than the Wagin facility. Consequently, I am left with the position that MSG has not established this aspect of its claim for damages.
Conclusion in respect of provisional assessment of damages
For these reasons, had I concluded that MSG had established its claim against Phillbourne, I would have assessed its damages as follows:
Description Amount Total cost of oats $1,519,195.10 Repairs to tarpaulins; covering stacks of damaged oats $33,077.67 Cost of removal of damaged grain and rehabilitation $37,750.00 Customer claims arising from supply of damaged oats $32,987.66 Total $1,623,010.43
Conclusion
For the reasons set out, MSG's action will be dismissed. I will hear from the parties as to the orders which should be made.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LF
ASSOCIATE TO THE HONOURABLE JUSTICE PRITCHARD10 DECEMBER 2018
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