Norco Co-operative v Dianne Russell

[2007] NSWDC 68

CITATION:	Norco Co-operative v Dianne Russell [2007] NSWDC 68
HEARING DATE(S):	05/04/06, 11/04/06 - 13/04/06
JUDGMENT DATE:	26 April 2007
JURISDICTION:	Civil
JUDGMENT OF:	Phegan DCJ
DECISION:	1. Verdict and judgment for the plaintiff in the plaintiff's claim in the sum of $19,721.95 together with interest from 1 November 2001 to the date of judgment; 2. Verdict and judgment for the cross-defendant on the cross-claim; 3. The defendant cross/claimant pay the costs of the plaintiff/cross-defendant
CATCHWORDS:	international sale of goods - fas contracts - responsibility of seller/buyer for condition of goods in transit
LEGISLATION CITED:	Sale of Goods Act 1923 (NSW) Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (NSW) Evidence Act 1995 (NSW)
CASES CITED:	Beer v Walker [1874-80] All ER Rep 1139 Bowden Bros and Co Ltd v Little [1907] 4 CLR 1365 Ollet v Jordan [1918] 2 KB 41 at 47 Mash & Murrell v Joseph I Emanuel Ltd [1961] 1 All ER 485 Cordova Land Co Limited v Victor Bros Inc [1966] 1 WLR 793
PARTIES:	Norco Co-operative Ltd v Dianne Russell t/as Russell and Cohen
FILE NUMBER(S):	163/04
COUNSEL:	Mr G Radburn Mr G Hooper
SOLICITORS:	Bourke Love McCartney Young McKerns Lawyers

JUDGMENT

facts not in dispute

1 The plaintiff Norco Co-operative Ltd (Norco) is a manufacturer of stock feed at its mill in South Lismore. The defendant Dianne Russell (Russell), trading under the business name of Russell and Cohen, is an export trader. Between November 2000 and September 2001 the plaintiff supplied the defendant with pig feed in the form of “pig grower pellets” for export to customers of the defendant particularly in the Pacific Islands. On 11 September 2001, a purchase order was faxed to the plaintiff’s stock feed mill by the defendant requesting three container loads of “16% pig grower pellets” packed in 40 kg bags (Exhibit A). The order also included a quantity of phostoxin, a chemical used for fumigation of the containers.

2 The purchase order provided for delivery “C/- P & O. Fisherman’s Island, Qld” for shipment to Pohnpei LP Gas in Kolonia, Pohnpei, an island in the Federated States of Micronesia. The defendant’s customer and the principal of Pohnpei LP Gas was Mr William (Willy) Hawley. It was explained in a letter accompanying the purchase order that the ship would be sailing for Pohnpei on 22 September and the final delivery had to be at the Fisherman’s Island Terminal on the previous day at the latest. The purchase order provided for delivery between 17 and 20 September.

3 On 17 September 2001 the defendant sent three “export receival advices” (ERAs) to the plaintiff containing details of the supply and delivery of the shipping containers (Exhibit C). The nominated transport company was Smith Bros and the shipping line was Squire Shipping. The containers were to be picked up from the Moreton Bay Container Park. As each container was packed, the plaintiff inserted the relevant details in the ERA for that container and returned the document in its completed form to the defendant (Exhibit D). The three containers were packed with a total of 1513 forty kilogram bags of “Pig Grower Pellet Export” and delivered for shipment on 17, 19 and 20 September. The plaintiff invoiced Russell and Cohen for a total amount of $19,721.95 on 25 September 2001. An undated copy of the invoice was in evidence (Exhibit B).

the history of the proceedings

4 The proceedings were commenced by way of a Statement of Liquidated Claim, filed on 5 November 2003 in the Local Court at Lismore, against Dianne Russell and Norman Brian Russell. The plaintiff claimed the sum of $19,721.95, the amount invoiced by the plaintiff on 25 September 2001, as well as interest and costs. The defendants filed a defence and cross-claim in which the debt claimed by the plaintiff was denied. On the grounds that the goods supplied by the plaintiff were of no use to the defendants, they sought damages for loss of profits in the cross-claim. In a subsequent Amended Notice of Grounds of Defence the defendants added the allegation that the goods were not in accordance with the contract as the reason they were relieved of any obligation to pay for the goods. On 13 May 2004 the proceedings were transferred to the Local Court at Taree on the defendants’ application on the grounds that the defendants’ address was at Hallidays Point near Taree, and a number of witnesses resided in the Taree area.

5 In October 2004 the matter was transferred to the District Court at Lismore on the grounds that the amount sought in the Amended Cross-Claim exceeded the jurisdiction of the Local Court. Following the filing of further amended pleadings the matter was set down for hearing in the Lismore District Court and the hearing commenced in Byron Bay Court on 11 April 2006. On that day a Further Amended Notice of Grounds of Defence and an Amended Defence to the Cross-Claim were filed in court, together with a Notice of Discontinuation of Proceedings against the defendant, Norman Brian Russell, leaving Dianne Russell as the only defendant.

6 Throughout the history of the amended pleadings the defendant has maintained her defence in which liability for payment of the debt claimed by the plaintiff is denied. The substance of the defence is found in those parts of the cross-claim which allege failure on the part of the plaintiff to comply with its obligations under the contract between the parties. In addition the defendant as cross-claimant seeks damages for loss of profit arising out of the alleged breach of contract on the part of the plaintiff. The framework of the cross-claim is found in a Notice of Cross-Claim dated 9 November 2004, filed in this Court following the transfer of the matter from the Local Court. This Notice of Cross-Claim replaced an earlier Amended Cross-Claim filed in the Local Court. The Notice of Cross-Claim was expanded in an Amended Cross-Claim dated 27 October 2005.

7 The defendant/cross-claimant relies on a number of alternative counts in the cross-claim: breach of warranties and/or conditions under the Sale of Goods Act 1923 (NSW) (SGA); deceptive or misleading conduct under s 52 of the Trade Practices Act 1974 (Cth) (TPA); breach of the consumer protection provisions of the TPA and Fair Trading Act 1987 (NSW) (FTA); unconscionable conduct under s 51A B of the TPA; breach of contract and negligence. The warranties and conditions under the Sale of Goods Act explicitly relied upon are those based on sale by description (s 18); fitness for purpose (s 19); and merchantable quality (s 19).

the issues

8 The ultimate issues between the parties are substantially narrower than indicated in the pleadings. First, at the commencement of the hearing counsel for the defendant conceded that there was no dispute that the goods were sold and delivered and not paid for. It followed that the substance of the dispute between the parties turned entirely on matters raised in the cross-claim, and the hearing was accordingly conducted on the basis that the defendant cross-claimant was, for all practical purposes, the plaintiff and the plaintiff/cross-defendant was the defendant. To avoid the risk of confusion in such circumstances, the parties will be referred to in the judgment as “Russell and Cohen” (the de facto plaintiff) and “Norco” (the de facto defendant). Secondly, the majority of the counts in the cross-claim were repetitive or unsustainable as a matter of law. For example, the claim for misleading and deceptive conduct was no more than a reframing of one or more of the alleged breaches of warranty or condition under the SGA. The same can be said for the common law counts in contract and negligence. In both of those actions the evidence of alleged breaches of duty is identical in whole or in part to the evidence of breach of warranty or condition under the SGA. In the negligence action there is the further requirement of proof of failure to exercise reasonable care.

9 The consumer protection provisions of the TPA and FTA have no application to an action between a manufacturer and exporter, because those provisions apply only to supply to a consumer or a person acquiring title from a consumer. No evidence was forthcoming to substantiate any foundation for a claim based on unconscionable conduct such as special disadvantage. The conclusion, that the range of issues substantially in dispute is adequately addressed by reference to the alleged breaches of warranty or condition under the Sale of Goods Act, is confirmed in the opening by counsel for Russell at the commencement of the hearing and in the written submissions on her behalf at its conclusion.

10 In his opening at the commencement of the hearing counsel for Russell and Cohen summarised the cross-claim in the following terms:

“…our case will be to establish that when the container loads of pig feed arrived at their destination they were spoilt at that point [and an inference should be drawn] from the condition of the pig feed at that time], that they weren’t fit to travel so that they would arrive in a condition fit for the purpose for which they would normally be used…to be eaten by pigs in Pohnpei…”

Counsel’s final submissions were similarly confined to implied warranties or conditions of fitness for purpose or merchantability.

11 On the cross-claim, as redefined in the course of the trial, the two questions requiring answers in order to determine whether the cross-claim succeeds are:

Has it been established on the evidence that the pig feed pellets were in the condition alleged by Russell and Cohen when they arrived at their destination in Pohnpei?

If the answer to the first question is yes, was that condition, on the evidence and as a matter of law, the responsibility of Norco?

Since no particulars or supporting evidence were provided by Russell and Cohen to support the damages claim, that aspect of the cross-claim was severed from these proceedings and will be the subject of a later hearing if the cross-claim is successful.

the initial complaint

12 Following the arrival of the shipment in Pohnpei in October 2001, Mr Hawley contacted Mr Brian Russell, Dianne Russell’s husband who assisted in the Russell and Cohen business, to complain about the appearance of the pellets. According to Mr Russell, Mr Hawley described the pellets as having a “terrible colour”. Mr Hawley also complained that the pigs would not eat it and customers were returning the pellets because they did not like the colour.

13 Mr Tim Kirk is an animal nutritionist who has been employed in that capacity by Norco since January 2001. He is responsible for the formulation of diets for animals, including pigs, and for the oversight of all technical matters at Norco’s stockfeed mill. Mr Kirk was contacted in October 2001 by Mr Russell, who advised him of Mr Hawley’s complaint about the colour of the pellets. According to Mr Kirk, Mr Russell asked him to contact Mr Hawley in order to reassure him. Mr Kirk accordingly contacted Mr Hawley by telephone and was told by Mr Hawley that the pellets were a different colour and customers were coming back to him because of their concern. He reassured Mr Hawley that there was nothing wrong with the pellets and explained to him the most likely reason for the change of colour. Immediately following the telephone conversation Mr Kirk sent the following letter by fax to Mr Hawley in which he confirmed what he had told Mr Hawley over the phone:

Dear Willy,

Please advise your customers that the last load of pig grower pellets that appear darker in colour are of a very good quality and will be good to feed to their pigs.

The reasons for the dark colour is that we had some very high specification pig grower pellets that were incorporated into the pellets sent to you. This has in no way diminished the nutritive value or freshness of your feed. The nutritive value of the darker coloured feed is higher than is needed. Please reassure your customers that Norco prides itself in making high quality feed and understands how important our export customers are. We apologise for the concern that has been caused by the darker colour and undertake to ensure that consistency in all respects be adhered to into the future.

Please contact me if I can be of further assistance.

Kind regards

Tim Kirk (Nutritionist) Norco Co-operative Ltd

14 In the course of cross-examination Mr Kirk was referred to the sentence in bold letters and underlined in the second paragraph of the letter. It was put to him that the reference to “freshness” was a response to a complaint by Mr Hawley that the food was stale. Mr Kirk denied that any reference had been made by Mr Hawley to staleness. He also denied that there had been any reference by Mr Russell or Mr Hawley at the time to the claim that the pigs would not eat the feed. Mr Kirk explained that the only reason for his reference to freshness was part of his reassurance to Mr Hawley of the quality of the feed, and not a response to any specific complaint. The only complaint communicated to him was directed to the change of colour.

15 In the course of his oral evidence Mr Kirk also explained the reference in his letter to Mr Hawley to the inclusion of “very high specification pig grower pellets”. The inclusion of a high specification protein content referred to in Mr Kirk’s letter was the result of the use of ingredients originally intended for commercial quality pellets as distinct from export quality pellets. The higher protein content in commercial quality pellets was designed for pigs grown in Australia. Export quality pellets, despite their lower protein content, were suitable for “bush pigs” normally found in such places as Pohnpei. The higher protein content could produce a darker colour of the kind described by Mr Hawley.

16 Mr Keith Weston, Norco’s mill manager at the time, died before the hearing in this matter commenced. His sworn statement, in the form of a Statutory Declaration made on 3 January 2003, was admitted into evidence under s 62(2) of the Evidence Act 1995 (NSW) (Exhibit M). The statement included evidence of a three way telephone hook-up between Messrs Weston, Kirk and Hawley on 15 November 2001, to which I will return later in the judgment. In the course of the statement Mr Weston also explained the history behind the preparation of the pellets which were the subject of these proceedings. Prior to September 2001 an order for commercial quality pig grower pellets for Northern Bacon, a large commercial piggery which supplied pig meat to Singapore, was inadvertently duplicated. The surplus product, which according to Mr Kirk had been bagged a couple of days earlier, was holding up production space. There were about 8 tonnes of the surplus product, which it was decided would be blended into the 60 tonnes of export mix intended for Pohnpei LP Gas.

17 In the course of his evidence Mr Kirk described the production process which converts the relevant ingredients in powdered form into the finished pellet product. The ingredients include the protein content made up of vegetable and animal protein meal in the required proportion, in this case 16%, together with the other ingredients in the formula, such as grains, minerals and vitamins. Steam is then applied to the mixture which is forced through a pellet press in order to produce the pellets in the required shape. The pellets are then dropped through a cooler in order to reduce their temperature and water content. They are also passed through a shaker to remove the fines so that only whole pellets emerge from the completed process. At the end of the process the pellets are cool and hard. Provided that they retain the required moisture content of between 10 and 12%, they are difficult to break or crush. For the purpose of including the commercial quality pellets originally intended for Northern Bacon in the export order in this case, it was necessary to pulverise the already manufactured pellets in a hammer mill in order to return them to a powdered form for the purpose of processing the export quality pellets. As explained by Mr Kirk in his letter to Mr Hawley of 23 October 2001, the end result in this case was a feed of higher nutritive value than that normally contained in export quality pellets.

18 Notwithstanding Mr Kirk’s explanation and reassurances, Mr Hawley continued his complaints and refused to pay Russell and Cohen for the shipment. On 14 November, Mr Hawley despatched to Norco by courier a sample of the pellets about which he was complaining. According to Mr Hawley, Messrs Weston and Kirk had requested the sample. A copy of the DHL Shipment Airwaybill, dated 14 November 2001 and filled in by Mr Hawley, was in evidence (Exhibit 4). According to a note on the airwaybill made by Mr Hawley, a copy was faxed to Brian Russell. The fate of the sample remains a matter of conjecture. It was not in dispute that any agricultural product imported into Australia would be placed in quarantine for examination by the Australian Quarantine and Inspection Service (AQIS). It would therefore have been expected that the sample would have been taken into possession by AQIS on arrival in Australia. According to both Dianne and Brian Russell the fate of the sample was raised in a meeting with Mr Weston at Norco’s premises in October 2002 in which he was asked for a copy of the AQIS receipt which had been sent to Norco. Mr Weston said that the receipt had been lost. Their was no evidence of this conversation in Mr Weston’s statement.

19 On the day following the despatch of the pellet sample to Norco by Mr Hawley, 15 November 2001, the three way telephone conversation referred to earlier [16] took place between Messrs Weston, Kirk and Hawley. According to both Mr Weston and Mr Kirk, Mr Hawley’s complaints up to and including this occasion were confined to the darker than usual colour of the pellets when compared to those received in earlier shipments from Norco. The following account of what else was discussed in the course of the conversation is taken from Mr Weston’s statement:

During this conversation I asked Mr Hawley whether the pigs were eating the feed. His reply was yes. I also asked if the pigs were growing and the answer was yes. I enquired as to any metabolic problem such as diarrhoea and/or if pigs had become sick. His response was no and he said he thought he could now sell the feed.

According to Mr Kirk he asked Mr Hawley whether the pellets were making the pigs sick or the pigs were refusing to eat it and Mr Hawley replied that they were fine and were not refusing to eat it. According to Mr Hawley he told Messrs Kirk and Weston that customers were reporting to him that the pigs were refusing to eat the pellets. He also told them that the feed smelt really bad. It had been spoiled. Four or five weeks after the shipment had arrived, he disposed of the bags of pellets which remained in his possession at the town dump.

20 In January 2002, Russell and Cohen sent Mr Jason Steicke to visit Mr Hawley in Pohnpei. Mr Hawley gave him some photographs of the pig feed, taken in October 2001, to take back to Australia with him. According to Mr Hawley he also showed Mr Steicke some of the spoiled pig feed, but this was not mentioned in Mr Steicke’s evidence. With regard to Mr Hawley’s suggestion that Mr Steicke was shown the pig feed, it is noteworthy that this was alleged to have occurred approximately two months after he claimed he had disposed of the shipment at the local dump because he could not sell it. When Mr Steicke returned to Brisbane, arrangements were made for him to meet Messrs Weston and Kirk at the Big Prawn in Ballina on his way south to his home in Yamba. His recollection of the meeting was limited, although he did remember handing over the photographs. He had only “glimpsed” them and was unable to give any evidence of what they contained. He only knew that they were photographs of pig feed.

21 Mr Kirk gave evidence of the meeting, but according to him no photographs were handed over. Mr Kirk’s understanding was that Mr Weston arranged the meeting in order to get a better sense of the nature of Mr Hawley’s continuing complaints. However, when the question of the condition of the pig feed was raised with Mr Steicke, his response was that there was no problem. When this was put to Mr Steicke in the witness box, he was not able to remember any such conversation. According to Brian Russell, when he asked to see the photographs during the course of a meeting with Mr Weston in October 2002, Mr Weston’s reply was: “They’ve been misplaced. I don’t know where they are now”. There is no reference one way or the other to the photographs in Mr Weston’s statement.

22 Following a meeting with Mr Weston in August 2002, Brian Russell faxed a letter on behalf of Russell and Cohen to Pohnpei LP Gas, “Attention: Willy & Marla” (Exhibit J). The letter which was dated 6 September 2002 and referred to an email from Mr Hawley. A summary in the letter of Mr Russell’s discussion with Mr Weston included the following “main points”:

1. You were supplied with pig grower 1518 bag in all.
2. The colour is immaterial as we were shown a number of samples which varied in colour from different batches even on the same day.

3. The quality was better than normally supplied.

4. The batch was also used by Northern Bacon one of the biggest pig growers of export pork in Australia and he signed an affidavit that there was nothing wrong in any way, shape or form with the pig grower that was supplied to you.

5. They produced analysis sheets of the grower which shows slightly better protein content of the food you received.

The letter went on to state that the stock remained Russell and Cohen’s property until payment was made in full and asked Mr Hawley to honour his obligations and pay the account. Mr Russell concluded with the words: “I believe we must accept the facts”.

23 The reasonable inference to be drawn from that letter is that Mr Hawley’s continuing complaint was restricted to the change in colour of the pig feed, which had been explained by Norco as the result of the use of the surplus Northern Bacon order. Further evidence to support this conclusion can be found in emails from Mr Hawley to Russell and Cohen between November 2002 and January 2003 (Exhibit G). In those emails Mr Hawley makes repeated complaints about receiving pig feed intended for Northern Bacon and to his inability to sell the “darker feed”. In the concluding paragraph of his email of 10 January 2003, in which he responded to Mr Weston’s Statutory Declaration, there is no reference to complaints about smell or any other signs of deterioration. He complained of being sent Northern Bacon’s “left overs”.

the ultimate complaint

24 By the end of the trial, Russell and Cohen appeared to have abandoned the claim based exclusively on change of colour and to have accepted implicitly Norco’s explanation for the change. In his written submissions counsel for Russell and Cohen relied, not on colour change, but on a description of the pig feed as “in an advanced state of deterioration” on arrival in Pohnpei. The cross-claim, as ultimately framed, rests almost entirely on the evidence of Mr Hawley, including hearsay evidence from him of complaints made by his customers. No other witness saw the pig feed pellets after their arrival in Pohnpei. The samples returned to Australia by Mr Hawley never found their way to either Norco or Russell and Cohen. Mr Steicke, the only witness to visit Pohnpei after the shipment arrived, could not recollect seeing any pig feed when he visited Mr Hawley. As already noted, if Mr Hawley’s evidence is accepted, that the feed left in his possession was taken to the town dump four or five weeks after the shipment arrived, there would have been none to show to Mr Steicke.

25 Mr Hawley gave evidence that the three containers were transported to his premises on arrival and then opened up to gain access for the purpose of removing the bags as they were purchased by customers. When the containers were opened, the smell was horrible, “like rotten eggs”. The bags were discoloured on the outside from what appeared to be moisture coming from the feed. The bags felt wet and the feed inside was a dark green colour. The pellets were soft and crumbly, not firm as they were meant to be and as they had been in earlier shipments.

26 In the course of his evidence Mr Hawley produced six photographs of forty kilogram bags which he said were taken from the shipment which arrived in October 2001. There were between one and six bags in each photograph. All of the bags were sealed. On most of them there were patches of brown stain, although the extent of the stain varied. The dark orange Norco label, bearing the description “16% Pig Grower Pellets” (Exhibit L), could be seen attached to some of the bags. According to Mr Hawley the photographs, which he had given to Mr Steicke to take back to Norco in January 2002, included some showing bags opened exposing the spoiled feed. Although his evidence was not entirely clear on this point, it appears that the photographs tendered in Exhibit 5 were developed from negatives only three weeks before Mr Hawley gave evidence. He was not able to explain what had happened to the negatives from which the photographs given to Mr Steicke had been developed.

27 According to Mr Hawley he sold between 50 and 60 bags to a total of about thirty customers on the first day after the containers were transported to his store. Most of the customers returned the bags the following day complaining of the bad smell. Following lengthy legal argument, leave was granted to admit hearsay evidence of complaints made to Mr Hawley by six customers named in a Notice of Intention to Adduce Evidence under s 67 of the Evidence Act (Exhibit 3). In the course of his evidence Mr Hawley referred to four of the six persons named in the notice, all of whom had returned the bags which they had purchased with the complaint that the feed was spoiled and their pigs refused to eat it. They also complained of the bad smell. A fifth customer, Goodwin Etse, had complained of the dark green colour and the wet appearance of the feed.

28 When asked whether he could remember any other customer by name, Mr Hawley was unable to recall the sixth person on the list. His estimate of the total quantity of feed from the shipment which he was able to sell was about 10%, that is, 150 bags. Most of these were subsequently returned. It was the returns together with the unsold 90% which Mr Hawley said he subsequently disposed of at the town dump about four or five weeks later. His decision to destroy the feed was the subject of an explicit complaint in the faxed letter of 6 September 2002, from Brian Russell to Pohnpei LP Gas in which Mr Russell told him that he had no authority to dispose of the feed as long as it had not been paid for and remained the property of Russell and Cohen [23].

29 As already noted [24], there is no independent evidence to test Mr Hawley’s account of the condition of the pig feed pellets when they were opened following their arrival in Pohnpei in October 2001. No sample of the shipment was submitted for testing and analysis, nor did Mr Steicke have a recollection of seeing any pig feed. The evidence of the complaints made to Mr Hawley by customers who returned the bags of pig feed which they had purchased offers some corroboration. But the reliability of that evidence is affected by any adverse assessment of Mr Hawley’s credibility.

30 Mr Hawley did not make a positive impression in the witness box. He was evasive in some of his answers and generally conveyed the impression of a person who was anxious to present an account of events which would put him in the best possible light. His evidence was at times inconsistent. For example, part of his evidence was the assertion that Mr Steicke saw the spoiled pig feed at a time when, according to another part of his evidence and on the report which he had made to Mr Russell, he had already destroyed the feed by delivering it to the local dump. Another matter reflecting adversely on Mr Hawley’s credit was the subject of comment by counsel for Norco in the course of submissions. Mr Hawley failed to explain why, having known from the time bags were first removed from the containers that they were in the condition he described, he attempted to sell the feed to customers. Finally and most importantly, there is the absence of any reference of any smell, wetness or instability in the pellets in the early history of conversations and correspondence, to which Mr Hawley was a party following the arrival of the shipment.

31 In fairness to Russell and Cohen it must be acknowledged that doubts arising from the evidence are not confined to Mr Hawley’s testimony. The death of Mr Weston deprived Norco of the opportunity of adequately addressing some matters, including the meeting between Weston, Kirk and Steicke on Mr Steicke’s return to Australia in January 2001. Mr Steicke was not a good historian and there was much about his recollection that was vague and, on some matters, completely blank. However, he did not present as a dishonest witness and was categorical in his assertion that he had been given photographs by Mr Hawley which he handed over at his meeting with Messrs Weston and Kirk. While Mr Kirk’s evidence, which I had no reason not to accept, was that he saw no photographs, this does not exclude the possibility that the photographs were handed to Mr Weston at a time when Mr Kirk was not in a position to see that happen. There is also Mr Russell’s evidence, which again Mr Weston had no opportunity to counter, that at a subsequent meeting Mr Weston had told Mr Russell the photographs had been misplaced and he did not know where they were. On balance I am satisfied that the photographs were brought back to Australia by Mr Steicke, and that it is more likely than not that they found their way into the hands of Norco.

32 What remains a matter of conjecture is what the photographs showed given the unreliability of Mr Hawley who was the only witness in a position to say anything about that. In view of the onus which rests on Russell and Cohen as de facto plaintiff to prove that the goods were in the condition described by Mr Hawley, I am not satisfied that the case has been made out on the balance of probabilities. However, I am reluctant to conclude the judgment without addressing what I identified [11] as one of the two major issues in the case, namely, if the pig feed was in the condition described by Mr Hawley, was it the responsibility of Norco? What can be said without any doubt is that, if the pig feed was emitting a smell similar to that associated with rotten egg gas and the pellets were soft and wet and crumbled in the hand, feed in such condition was neither of merchantable quality nor fit for its intended purpose under the relevant provisions of the Sale of Goods Act.

the cause of the spoiling

33 Mr Kirk gave a detailed account of the manufacturing process. Although he played a role in the decision to recycle the surplus Northern Bacon order in the manufacture of the pig feed for Pohnpei LP Gas, he was not able to testify to the actual content and condition of the pellets destined for Pohnpei at the conclusion of the manufacturing process when they were bagged and placed in the three containers ready for shipment. However, he gave a detailed account of the system of quality control employed by Norco which supported his assertion that, to his knowledge, no pig feed had ever come out of Norco’s mill in the condition described by Mr Hawley.

34 Mr Kirk was not only responsible for determining the appropriate formula for pig feed to fulfil a particular order. He made regular checks of the quality of the pellets as they came out of the cooler and ensured that a sample was kept and retained. He also instructed the mill employees at the end of the production line on pellet quality. They were expected to inspect the pellets intended for export as they were bagged. Mr Kirk also made regular checks at the bagging bin. The manufacture of a quantity of pig feed as large as 60 tonnes would be likely would have been spread over a number of days because of the other demands on the mill. If that was the case, it was most unlikely that all of the feed shipped to Pohnpei would have escaped up in one of Mr Kirk’s regular inspections.

35 Norco relied on the expert opinion of Mr John Spragg, an animal nutritionist. During Mr Spragg’s twenty three years’ experience, he acquired an intimate knowledge of the stock feed manufacturing process. His report dated 6 March 2006 was in evidence (Exhibit K). He also gave oral evidence. His report expresses his opinion that Norco’s feed specification and manufacturing process were in accordance with best industry practice and designed to produce pellets suitable for their intended use in feeding grower pigs. It also confirms what had been asserted by Norco in response to the initial complaints about the colour of the pellets in the shipment: the darker colour was a result of the use of powdered commercial pig grower pellets in the export mix. The higher animal protein content (blood meal and meat meal) would have caused a change in colour, but no reduction in the nutritional quality of the feed.

36 When Mr Spragg was shown the photographs taken by Mr Hawley he was unable to say whether the discolouration on the bags had come from the pellets inside or from outside. If the stain on the bags was mould caused by deterioration of the pellets, the most likely explanation was an unacceptably high moisture content in the pellets. Mr Spragg suggested that 18% moisture, compared with the prescribed maximum of 12%, would be sufficient to cause deterioration of the feed over a period of three weeks, the period it took for the shipment to reach Pohnpei. Such a concentration of moisture would also exceed the capacity of mould inhibitors, even if they had been placed in the containers to counter the growth of the mould.

37 Mr Spragg was of the opinion that “some significant event” would have occurred for the pig feed to have been in the condition described by Mr Hawley. Pig feed in such a condition and the wet surface on the bags could only have been caused by a significant amount of moisture contact. Some moisture, for example, from condensation inside the containers in hot weather, could have affected a proportion of the bags; but a thorough soaking of the whole shipment in water would have been needed for so much to have been affected in the way described by Mr Hawley. This could have happened, for example, if the feed had been left exposed to heavy rain. However, it is unlikely that the level of moisture required to contaminate all of the bags in the shipment would have been a consequence of any error in the manufacturing process.

38 Russell and Cohen relied on a report written by Dr Alan King and dated 5 March 2006 (Exhibit 6). The admission of this report into evidence was objected to by counsel for Norco on the grounds that Dr King, who was a veterinary surgeon by profession, lacked the necessary expertise to write a report on pig feed. However, Dr King’s curriculum vitae included post graduate qualifications in pig medicine and experience as the managing director of a pig breeding company, Hyfarm, described as the largest Australian exporter of breeding stock into the Asia/Pacific area. Dr King also spent six years as the director of the Australasian Pig Institute. I am satisfied that Dr King had the necessary expertise to express an opinion on the condition of the pig feed and its likely cause or causes. However, Dr King’s report was ultimately of limited assistance for reasons other than his expertise.

39 In the report Dr King concludes that the most likely explanation for the colour change and spoiling of the feed was to be found in the use of the high protein Northern Bacon product. He attributes the colour change to a high concentration of blood meal which is prone to deterioration and bacterial contamination. When combined with the effect of high temperatures and humidity of the kind likely to have affected the shipment to Pohnpei, it would lead to the deterioration of the feed to the condition described by Mr Hawley. This conclusion is based on assumptions about the composition of the feed, such as the concentration of blood meal which was unsubstantiated by any evidence. It is a highly speculative conclusion, particularly in view of the evidence of Mr Kirk about quality control at the Norco mill and the observations of Mr Spragg with regard to normal manufacturing processes.

40 Dr King also attaches importance to the apparent absence of mould inhibitors which, in his opinion, would have been an effective counter to the deterioration of the feed caused by high protein content. Although there is some common ground between the two experts on the reason for the development of mould, on Mr Spragg’s analysis and ultimate view, that the level of deterioration could only be explained by excess moisture content from a source outside the feed itself, mould inhibitors would have been ineffective. On balance I find Mr Spragg’s assessment the more persuasive.

41 There was also Mr Kirk’s evidence that there was “absolutely no way” the feed could have left the Norco mill so affected by moisture. Apart from Mr Kirk’s not allowing bags of feed to be exposed to rain in the course of loading into the containers, the AQIS officer would not have allowed loading to take place in the rain. An AQIS officer was always present to oversee the loading. It was after the officer had inspected a bag from every pallet that the containers were sealed. They remained sealed until arrival at the port of delivery. I am satisfied that the most likely explanation for the deterioration of the feed to the condition described by Mr Hawley, if it did occur, was the bags’ exposure to and penetration by rainwater after the containers were in Mr Hawley’s possession and the seals had been removed.

42 Mr Hawley gave evidence of how he normally picked up the containers on the day of arrival. Once they were in his shop yard he removed the seals with a hacksaw. After it was opened, each container was left on the “chassis”, on which it had been hauled to the yard from the wharf, and was covered with a tarpaulin to protect the shipment from heat and rain. When cross-examined about the rainfall in Pohnpei, Mr Hawley conceded: “…some days we get twenty four inches”. However, he was evasive when asked whether October was in the rainy season. He said that he could not remember. There is a real possibility that it rained heavily between the arrival of the container in Mr Hawley’s yard and the first customer sale. If it did, and if the rain got through the tarpaulins into the containers, this would explain the otherwise puzzling decision on Mr Hawley’s part to hide the contamination of the pig feed from his customers. However, for reasons explained later, it is not necessary to make a positive finding to this effect.

43 I cannot exclude one other possibility, namely, the penetration of seawater into the containers during the voyage. An accident or bad weather at sea may have destabilised and damaged the containers. The difficulty with taking this possibility any further is that there is no evidence of the conditions of the voyage. Such evidence could only have come from Russell and Cohen who arranged the shipment. Access to relevant shipping documents and other records of the history of the voyage was hampered by the apparent absence of any insurance taken out by either Russell and Cohen or Mr Hawley.

the extent of Norco’s responsibility

44 There is no dispute that the contract between the parties in this case was an fas (free alongside ship) contract. Under such a contract the obligations of Norco as the seller ended on the arrival of the shipment at the wharf at Brisbane in the condition required by the contract. While there was no real difference between the parties with regard to the nature of the contract and obligations of Norco in general terms, they were at odds when it came to how those obligations should be interpreted as a matter of law and how they applied to the facts. Russell and Cohen placed particular reliance on the decision of Diplock J in Mash & Murrell Ltd v Joseph I Emanuel Ltd [1961] 1 All ER 485. In that decision his Lordship relied on a passage in an earlier judgment of Atkin J in Ollet v Jordan [1918] 2KB 41 at 47:

…the condition that the goods must be merchantable means that they must be in that condition when appropriated to the contract and that they will continue so for a reasonable time.

45 Mash & Murrell involved a shipment of two thousand half bags of spring crop potatoes from Cyprus to England. The potatoes were loaded on board on the SS Ionian at the port of Limassol in Cyprus. On the evidence before Diplock J they were properly stowed and ventilated for the purposes of the voyage to Liverpool which was not expected to be in any way unusual. On the arrival of the vessel at Liverpool, about three weeks later, the potatoes were found to be suffering from “soft-rot” and wholly unfit for human consumption. On that evidence, and applying the principle enunciated by Atkin J in Ollet v Jordan, Diplock J found that the potatoes were not capable of withstanding a normal voyage to Liverpool and the seller was therefore in breach of the condition imposed by the Sale of Goods Act that the goods be of merchantable quality. It was submitted on behalf of Russell and Cohen that the facts in this case were not materially different, and it should be found accordingly that the pig feed was not of merchantable quality because its condition on arrival in Pohnpei was proof that it was not capable of withstanding the voyage from Brisbane to Pohnpei.

46 To succeed in its submission Russell and Cohen has to satisfy the Court that the principle applied in Mash & Murrell was intended to be of general application in all contracts of this kind irrespective of the particular facts in each case. While there are similarities between the two cases on their facts including the length of the journey by sea, there are also significant differences. For example, in Mash & Murrell there was no evidence, as there was in this case, of the possibility that the goods were rendered unmerchantable after their arrival at the port of destination. I am referring here to the possibility that the tarpaulins placed over the containers by Mr Hawley were insufficient to keep out heavy rain which could have caused the contamination of the feed.

47 A note to the report in Mash & Murrell ([1962] 1 ALL ER 77) refers to a subsequent appeal to the Court of Appeal, before which there was evidence that the ship in that case had been diverted to another port in Cyprus, Farmagusta, after the potatoes were placed on board at Limasol. On the evidence of what happened at Farmagusta, it was found on the balance of probabilities that the potatoes remained unventilated for as long as five days and nights in hot summer weather, and that the resulting heat asphyxiation was the initial cause of the deterioration of the potatoes. The voyage was not therefore a normal voyage and there were insufficient grounds for inferring that the potatoes, when placed on board at Limasol, were not fit to travel on a normal voyage so as to constitute a breach of the condition of merchantable quality.

48 In his judgment in Mash & Murrell, Diplock J also relied on the case of Beer v Walker [1874-80] All ER Rep 1139, on which Atkin J had based his statement of principle in Ollet v Jordan. In Beer v Walker the seller was a London based importer of rabbits from Ostend in Belgium. Under a contract with the buyer he sent weekly deliveries of rabbits from London to Brighton. The rabbits were transported by rail and the cost of carriage was paid for by the buyer. On the occasion in question two half casks of rabbits, which were in good condition when they arrived in London from Ostend, were dispatched on the same day to the buyer. They arrived at Brighton the following day and subsequently one of the casks was found to contain rabbits unfit for human consumption. This case was decided before the introduction of Sale of Goods legislation in England. However, the warranties and conditions on which the decision was based were essentially in the same terms as those which subsequently found their way into the legislation. Grove J, in the Common Pleas Division and with whom Lopez J concurred, held that there was an implied “guarantee” that the rabbits would be reasonably fit for the purpose of being consumed after their arrival in Brighton and within a reasonable time after that.

49 Not only is Beer v Walker a decision of some antiquity and one which pre-dated the Sale of Goods Act, but, more importantly, its facts are readily distinguished from those in the present case and from those in Mash & Murrell. In Beer v Walker the rabbits were transferred from London to Brighton by rail in a matter of hours and the likelihood of any deterioration in the condition of the rabbits in that short time was very remote. As already noted, in both this case and Mash & Murrell the goods were in transit for a period of approximately three weeks, most of which was spent at sea.

50 A more recent English decision relied on by counsel for Norco was that of Winn J in Cordova Land Co Limited v Victor Bros Inc [1966] 1 WLR 793. In that case a quantity of skins were shipped from Boston, USA, to Hull, England. On arrival the skins were badly damaged. Although the judgment contains some discussion of the decision in Mash & Murrell, it is of very limited relevance to this case, as it was concerned with the question of whether there was a breach of contract, on the part of a seller, in England as distinct from in the United States for the purpose of establishing the jurisdiction of the English Court. In his discussion of the decision of Diplock J in Mash & Murrell, Winn J made the following comparison between the facts before him and those in the earlier case:

…there is a real distinction between the obligations undertaken by a vendor who ships perishable goods and those undertaken by a vendor who ships goods such as skins, which though plainly vulnerable to some extent to deterioration in transit are not nearly so vulnerable as potatoes; the latter may, inter alia , mature and ferment [at 796].

The suggestion that the seller’s obligations may vary depending on whether goods are perishable or non-perishable is of limited assistance in this case. Manufactured pig feed falls somewhere between potatoes, which, as primary produce, would be particularly vulnerable to deterioration in appropriate conditions, and treated animal skins, which presumably would have had removed or neutralised any animal content susceptible to deterioration.

51 The one Australian decision, discussed in Diplock J’s judgment in Mash & Murrell and referred to in submissions, was that of the High Court in Bowden Bros and Co Ltd v Little [1907] 4 CLR 1365. In that case a firm of merchants carrying on business in Japan sold 450 tonnes of Japanese onions to a buyer in Sydney. The onions were shipped from Kobe in Japan to Sydney and part of the shipment, which was merchantable when the shipment left Japan, was found to have rotted and become unfit for sale during the voyage to Sydney. There was evidence that the only onions available from Japan at the time of year when the shipment was made, “carried very badly”. There was therefore a very great risk of deterioration during the voyage, a fact of which both parties were fully aware. The question of what condition the onions could reasonably be expected to be in at the conclusion of the journey was very much a matter of the intention and understanding of the parties at the time the contract was entered into.

…It cannot be implied, from the mere fact of a sale of goods to be shipped abroad, that the vendor enters into any warranty except that the goods shall be merchantable. The facts of the particular case may justify the implication of warranties of various effect. For instance, the circumstances might justify the implication of an absolute warranty that the goods shall be reasonably fit to undergo the risks of the particular voyage, or they might justify the implication of a warranty that the goods shall apparently be in that condition. Other warranties that might be implied from the circumstances are that the goods should be such in quality and condition as a reasonably prudent man, determined to make a shipment at that time, would ship on his own behalf, or that the vendors will take reasonable care that the goods when shipped shall be fit for shipment, or that they shall be as fit as is practicable with respect to such goods under the particular circumstances. But which, if any, of these or any other warranties that may be suggested, is the one which ought to be implied must depend upon the extent to which the buyer is shown by the facts to have trusted to the judgment and skill of the vendor.

…I express no opinion as to the proper warranty to be inferred in the present case, beyond saying that there must of necessity have been some obligation on the part of the shippers, not less than an obligation to ship onions merchantable in Japan (which the jury found they performed), and not greater than an obligation to ship onions reasonably fit in fact for the voyage to Sydney (per Griffith CJ 4 CLR at 1380-1381).

What is implicit in the concluding words in the quote is that the extent of any warranty and/or condition implied against a seller will depend on the facts of each case.

52 A particular matter, alluded to by counsel in their submissions and which may distinguish this case from most, if not all, of the above decisions arises out of the particular type of international sale of goods contract which was used by the parties. As already noted, the particular form of contract in this case was an fas contract in which the respective obligations of seller and buyer are similar to those in the more common fob (free on board) contract. The main difference between the two is that, whereas the buyer arranges the shipping space in an fas contract, the seller does so in an fob contract. However, in both forms of contract the seller is responsible for delivery of the goods at dockside and the buyer has responsibility for payment of freight and insurance. These characteristics are in contrast to those of a cif (cost, insurance, freight) contract, in which the responsibility for arrangement of insurance and freight rests on the seller and such costs are included in the total contract costs payable by the buyer. A variation of the cif contract is the c&f (cost and freight) contract, in which the seller, not the buyer, pays for insurance. In all of the cases discussed above, with the exception of Beer v Walker, either a cif or c&f contract was involved. Because in Beer v Walker the goods were shipped by rail from one part of England to another and it was therefore not an international sale involving shipment by sea, none of the forms of contract discussed above were used.

53 In an fas contract of the kind used in this case, the seller, Norco, has no responsibility whatsoever for arrangements concerning either the choice of the shipping company or insurance of the goods in transit. Those responsibilities are exclusively those of the buyer, in this case, Russell and Cohen. It could be argued that cases involving cif or c&f contracts, in which a seller has been held responsible for condition of goods on arrival, have no application to a case of an fob or fas contract, in which the obligations of the seller are comprehensively concluded at the point of delivery of the goods at the port of shipment. However, it is also arguable that the classification of an international sale of goods contract does not of itself assist in resolving the question which has to be decided in this case. Such classification is primarily relevant to the determination of such questions as title or ownership and transfer of risk, rather than the responsibility for the condition of the goods as between buyer and seller.

54 Even if the issue in this case cannot be resolved in Norco’s favour, on the basis of a distinction between cif and c&f contracts on the one hand and fob and fas contracts on the other, I am satisfied that none of the decisions discussed above lead to the conclusion that Norco is responsible for the condition of the goods on their removal from the containers in Pohnpei even if that condition was as described by Mr Hawley. When the facts in Mash & Murrell came before the Court of Appeal, there was evidence that the deterioration of the shipment of potatoes was a consequence of improper handling in transit. The evidence in this case cannot be taken that far. However, it is not inconsistent with anything said in the earlier decisions to require a buyer, in circumstances such as those in this case, to counter evidence of possible causes of the deterioration of the shipment either during the voyage or after arrival at the port of delivery.

55 The seller’s responsibility for the shipment came to an end when the goods were delivered to the port for shipment. Evidence of the kind which arose in this case must place, at the very least, an evidentiary burden on the buyer, particularly where there is no evidence to support the conclusion that the condition of the goods when removed from the containers was attributable to any fault in the course of manufacture or delivery to the port of shipment by the seller. Nor was there relevant evidence forthcoming from Russell and Cohen on what happened during the course of the voyage or on arrival at Pohnpei. Such lack of evidence not only adversely affects Russell and Cohen’s case based on the Sale of Goods Act but, even more clearly, excludes any possible claim in the tort of negligence in which the onus of proof is on the plaintiff. For these reasons the cross-claim fails.

1. Verdict and judgment for the plaintiff in the plaintiff’s claim in the sum of $19,721.95 together with interest from 1 November 2001 to the date of judgment.
2. Verdict and judgment for the cross-defendant on the cross-claim.

3. The defendant/cross-claimant pay the costs of the plaintiff/cross-defendant.

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