Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4)
[2009] FCA 522
•20 May 2009
FEDERAL COURT OF AUSTRALIA
Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) [2009] FCA 522
CONTRACT — Contract for provision of an olive oil processing line — Purported termination for breach — Alleged failure to comply with contract specifications — No failure outside scope of repair or replacement clause — Held termination not validly invoked.
CONTRACT — Acceptance by electronic mail — Effect of electronic contract — Formation of an electronic contract in relational contract settings — Consideration of postal rule and instantaneous communication form rule — Held contract made at place where acceptance was received.
CONTRACT — Application of international law to — Contract between Australian and German companies — United Nations Convention on Contracts for the International Sale of Goods — Incorporation of an international convention into Victorian law — Sale of Goods (Vienna Convention) Act 1987 (VIC) — Express contractual exclusion of the application of the international convention to the contract — Held exclusion permissible.
TRADE PRACTICES — Misleading or deceptive conduct — Warranties in agreement — Representations as to future matters — Implied representations that respondent had an intention to carry out contractual promises — Whether if false may constitute misleading or deceptive conduct per se — Held respondent had a genuine intention to fulfil its contractual obligations — Held respondent had reasonable grounds for making representations — Held no misleading or deceptive conduct — Trade Practices Act 1974 (CTH) ss 51A, 52, 87
CONTRACT — Particular terms — Withdrawal clauses — Provision for purchaser to seek reduction in price or withdrawal from contract each after allowance of a reasonable period of grace — Separate obligation and entitlement of vendor to repair or replace within a reasonable period of time goods not compliant with contractual specifications — Construction and reconciliation of such terms — Held period which constituted reasonable period of grace must necessarily be beyond reasonable time for effecting repair or replacement.
Trade Practices Act 1974 (Cth) ss 51A, 52, 87
Sale of Goods (Vienna Convention) Act 1987 (Vic) s 5
Sale of Goods Act 1979 (UK)
United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention) Articles 6, 46(3), 47, 48, 50Accounting Systems 2000 (Developments Pty Ltd) v CCH Australia Ltd (1993) 42 FCR 470 applied
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 applied
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 applied
Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 applied
Express Airways v Port Augusta Air Services [1980] Qd R 543 applied
Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 applied
JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 applied
Long v Lloyd [1958] 2 All ER 402 cited
Olivaylle Pty Limited v Flottweg GMBH & Co KGAA (No 3) (2008) 76 IPR 152 cited
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 applied
Reardon Smith Line Ltd v Hansen-Tangen; Hansen-Tangen v Sanko Steamship Co (The Diana Prosperity) [1976] 1 WLR 989 applied
Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11,106 applied
Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592 applied
Roder Zelt-Und Hallenkonstruktionen GMBH v Rosedown Park Pty Ltd & Eustace (1995) 57 FCR 216 cited
Shevill v Builders Licensing Board (1982) 149 CLR 620 cited
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 applied
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 applied
W A Dewhurst & Co Pty Ltd v Cawrse [1960] VR 278 appliedChristensen S, “Formation of Contracts by Email Is it Just the Same as the Post?” (2001) 1(1) Queensland University of Technology Law and Justice Journal 22
Nicholas B, “The Vienna Convention on International Sales Law” (1989) 105 Law Quarterly Review 201
Benjamin’s Sale of Goods (7th ed, A Guest (ed), Sweet & Maxwell, 2002)
Chitty on Contracts (30th ed, H Beale (ed), Sweet & Maxwell, 2008)
Meagher RP, Gummow WMC and Lehane JRF, Equity Doctrines & Remedies (4th ed Butterworths, 1992)OLIVAYLLE PTY LTD (ACN 080 670 640) v FLOTTWEG AG (FORMERLY FLOTTWEG GMBH & CO KGAA) (ABN 95 101 547 424)
SAD261 of 2006
LOGAN J
20 MAY 2009
BRISBANE (HEARD IN ADELAIDE)
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD261 of 2006
BETWEEN: OLIVAYLLE PTY LTD (ACN 080 670 640)
Applicant
AND: FLOTTWEG AG (FORMERLY FLOTTWEG GMBH & CO KGAA) (ABN 95 101 547 424)
Respondent
JUDGE:
LOGAN J
DATE OF ORDER:
20 MAY 2009
WHERE MADE:
BRISBANE (HEARD IN ADELAIDE)
THE COURT ORDERS THAT:
1.The application is dismissed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SAD261 of 2006
BETWEEN: OLIVAYLLE PTY LTD (ACN 080 670 640)
Applicant
AND: FLOTTWEG AG (FORMERLY FLOTTWEG GMBH & CO KGAA) (ABN 95 101 547 424)
Respondent
JUDGE:
LOGAN J
DATE:
20 MAY 2009
PLACE:
BRISBANE (HEARD IN ADELAIDE)
REASONS FOR JUDGMENT
The origin and nature of the present dispute
At an age when the limit of many a man’s ambition is frequently little more than a long and tranquil retirement, Jorge De Moya (Mr De Moya) embarked upon a bold, new project – the establishment of a large olive grove near Wallowa in the Mallee Country in Central Western Victoria, the on site production of olive oil of the highest quality from the fruit of the grove and the exporting of that product to an apprehended market in the United States of America.
To observe Mr De Moya as I did closely, especially during his time in the witness box, but also during his regular attendance in the course of a lengthy trial, as well as to learn in evidence something of his background, is to gain an understanding of why such a limit proved utterly foreign to him. He is an articulate man of great natural dignity, obvious intelligence and no little pride. He approached the undertaking of the project with drive and determination. I formed the clear impression that in so doing and characteristically he set high standards for himself and expected the same of those who came to be engaged in the project. An awareness of Mr De Moya’s character and background assists in understanding the origins of the present litigation and the claims that have come to be made.
Mr De Moya was born in Santiago, Cuba in January 1932. He was educated in the United States, graduating from the Massachusetts Institute of Technology in 1953 with a Bachelor’s Degree in Civil Engineering. After graduation Mr De Moya returned to Cuba, where he practised as an engineer in a private company between 1953 and 1960. In 1960, shortly after Fidel Castro came to power, Mr De Moya quit Cuba suddenly with his wife and their then six children. The family arrived in Miami, Florida in the United States of America with neither money nor other assets. Initially, Mr De Moya was forced to engage in menial employment just to support his family. Gradually, he secured employment in the field of engineering. Over the course of the ensuing decades Mr De Moya came eventually to hold the position of chairman of a very successful private civil engineering company called the De Moya Group, which to this day engages in the construction of roads and bridges, principally in the State of Florida. Mr De Moya’s now seven children are the shareholders in the De Moya Group.
By 1997, Mr De Moya was semi-retired from his involvement with the operations of the De Moya Group. He came to Australia on holidays. Our country soon came greatly to attract him. When in Adelaide in the course of his holiday he was provided with a Department of Primary Industries brochure concerning the growing of olives for olive oil. Even though he was without prior experience in the growing and processing of olives, the challenge of doing this intrigued and appealed to him. He undertook further research and this, in turn, led to his embarking on a tour of Europe, particularly its Mediterranean regions, where he made further investigations of the olive oil industry. This further research and tour confirmed his interest in the growing of olives and in the associated production of olive oil. Even at this stage he envisaged the exporting of the olive oil to the United States.
In November 1997, Mr De Moya caused the Applicant, Olivaylle Pty Ltd (Olivaylle), to be incorporated in South Australia. In its name, Olivaylle recalls a purpose it has come to fulfil, “valley of olives”. Following Olivaylle’s incorporation, a unit trust known as the Olivaylle Unit Trust was settled of which Olivaylle became and remains the trustee. All of the units of the trust are held by the Atalaya Corporation, a company incorporated in the Cook Islands, which is controlled by the members of the De Moya family. Mr De Moya has been the managing director of Olivaylle ever since its incorporation. On the evidence, there can be no doubt that he exercises a high degree of control over it in its corporate trustee capacity. There is no suggestion on the evidence that Olivaylle has acted other than in that capacity.
These preliminaries completed, Mr De Moya embarked upon a search for a suitable site for the olive grove. He came to select a property of some 800 hectares at Telopea Downs near Wallowa. His investigations disclosed that the region in which it was located had a “Mediterranean” climate – long, wet winters and dry, hot summers. Further, the property’s soil was sandy, offering, as he saw it, good drainage and preventing the threat presented to the viability of olive trees if their roots are kept damp (“wet feet”). Olivaylle acquired the property on 8 April 1998.
When acquired by Olivaylle the property was in a very raw state. There was mallee tree scrub to be cleared, service roads to be planned and built, related road base to be quarried, sheds for plant, equipment and other uses to be constructed, housing for employees permanent and seasonal to be established, water licences to be acquired and a bore to be sunk, olive groves and associated irrigation to be designed and laid out and a planting programme to be devised and embarked upon. All of this took time and money.
To date, Olivaylle has expended in excess of $A12 million in the acquisition and development of the property as an olive grove and in the acquisition and commissioning of an on-site olive oil processing line and bottling plant. Funding for these acquisitions and activities has come by way of loans from the Atalaya Corporation to Olivaylle.
Over the course of 1999 and 2000 the first stage of the olive grove was planted. A variety of olive tree types was selected for planting – Nevadillo Blanco, Corrgiola and Paragon (Frantoio). Almost 80,000 olive trees were planted.
After planting olive trees take about 3 years to start to bear fruit. They do not reach full fruit bearing maturity until about 7 or even 10 years after planting. This imposed both a necessary lag on the project but also, as I find, as the prospective fruit bearing maturity date approached, lent a degree of urgency on the part of Olivaylle and Mr De Moya in particular to the satisfactory commissioning of a plant for the processing of the olives.
One task which Mr De Moya undertook while waiting for the first stage of the grove to reach maturity was the investigation of the type of plant and equipment used internationally by olive oil processors and manufacturers. Once again, his inquiries were principally directed to processors in Mediterranean countries. That direction of inquiry was not co-incidental. Olives have been grown and processed for oil in such countries for centuries. He came to learn of the following manufacturers of equipment for the processing of olives – Hiller, Palacin, Westfalia, Pieralisi, Alfa Laval and the Respondent, a company now known as Flottweg AG (Flottweg).
Flottweg is a long established, successful German company. It is headquartered in Vilsbiburg, 60 km Northeast of Munich. Increasingly over the course of the last half century it has come to specialise in the design, development and manufacture of industrial separators – decanter centrifuges. Most of its production is for the export market. Its separators have a range of industrial applications including in the production of olive oil. Of the thousands of separators that Flottweg had produced, by 2003 it had produced about 600 for use in olive oil processing, especially for producers in various Mediterranean countries – Greece, Spain, Italy, Syria and Tunisia. On the evidence I am quite satisfied that there was then and remains considerable corporate knowledge within Flottweg of separation technology and its industrial applications, including in the processing of olive oil.
By the second half of 2003 Mr De Moya had drawn together the results of his investigations. He produced for Olivaylle a document entitled “New Olive Oil Plant Equipment Design Criteria” (the Design Criteria Document). Though it will be necessary later to consider the Design Criteria Document and its role in this matter in greater detail, on its face the document gives the impression of reflecting wide ranging research and bears the hallmarks of an author with formal qualifications and experience in engineering.
In late 2003 Olivaylle circulated the Design Criteria Document to various companies soliciting interest in the supply to it of a production line for the processing of its olives into olive oil. As a result, and via Flottweg’s Spanish agent, Palacin, the Design Criteria Document came to Flottweg’s attention in November 2003.
In the result, it was Flottweg with which Olivaylle came to enter into contractual relations. Negotiations and exchanges of correspondence directed to that end commenced in December 2003 and continued throughout 2004. These negotiations were both extensive and intensive. They ranged across both the mix of equipment that would comprise the production line, the characteristics of that line, both as desired by Olivaylle and as Flottweg was prepared to offer, and related costs. They were undoubtedly conducted at arm’s length on behalf of two companies controlled by persons well experienced in business.
Fully to detail the ebb and flow of these negotiations, their form and participants, as charted in the evidence, written and oral, would add unnecessary length to these reasons for judgement, unnecessary because it could not, as I find, alter their culmination or assist in the construction of the contract that was that culmination. It will though be necessary to refer in the course of this judgement to some aspects of the anterior negotiations and correspondence in light of particular submissions made by the parties and for the insight they offer in relation to the attitudes and behaviours of particular key representatives of the parties.
It is admitted on the pleadings that these negotiations culminated in Olivaylle’s entry into a written contract with Flottweg on 8 February 2005 (the Contract). In form, on 8 February 2005, Flottweg’s Export Manager in Germany, Ms Barbara Hofer, sent by email from Germany to Dr Stuart Paterson, Flottweg’s Australian representative, based in Roseville, New South Wales, a detailed quotation. This quotation was, in turn, sent by Dr Paterson to Olivaylle under cover of an email of 10 February 2005 addressed to Mr De Moya. There is no doubt that Olivaylle agreed with the terms specified in this quotation or that it was in response to this that Olivaylle came to make its further payments to Flottweg. As it has not been submitted by either party that anything of significance turns on the giving of a more precise description to the date of agreement between the parties and of character of the document dated 8 February 2005, I propose to act on the basis of the admission made by the parties on the pleadings, even though strictly, the date of communication of the quotation to Olivaylle was 10 February, not 8 February, 2005. An analysis of the application of the law with respect to the formation of the Contract and a lengthy excerpt from it appear later in this judgement.
In the course of Olivaylle’s closing oral submissions, it was alternatively submitted that the contract for the supply of the production line was made in October 2004 and confirmed in February 2005.
It is true that, in 2004, Olivaylle had paid the sum of €137,864.10, which was described as a deposit, to Flottweg in response to an earlier version (Revision E) of the quotation and a related Flottweg invoice of 3 August 2004.
An exchange of emails which occurred thereafter in October 2004 is revealing for its highlighting the origins of what, I am quite certain on the whole of the evidence, including my observation of him in oral evidence, was a distrust that Mr De Moya came to develop in respect of assurances given to him by those acting for or on behalf of Flottweg. The project was, as Dr Paterson counsels in this exchange, a complicated one. It was, for this reason alone, fraught with a need for the making of adjustments, based on on-site observation, to the production line after its delivery. The Contract came to anticipate as much in its allowance for on-site modification. In the result and in ways upon which I elaborate below, difficulties were experienced with the project. Some, as I find, truly may be attributed to Flottweg, others may not. In a climate where there is a disposition to distrust, all can seem jaundiced to a jaundiced eye. What is also revealed by the exchange is the importance placed by the parties’ respective key representative, Mr De Moya for Olivaylle and Dr Paterson for Flottweg, on the terms of the prevailing written quotation and, ultimately, the Contract.
The exchange of emails was as follows (with sender or addressee names substituted for email addresses and addition of explanatory identifying detail where necessary):
From:Dr Paterson
Sent:Friday 8 October 2004, 11:00AM
To:Mr Lorenz, Mr Nieuwkerk
Subject:FW: Olivaylle quote version F
_________________________________________________________________
Dirk, Martin
I think it is time for Martin to make it clear to Jorge that we have not tried to be tricky. We have put everything in writing according to our understanding.
Stuart
_________________________________________________________________
From:Mr De Moya
Sent:Friday 8 October 2004, 6:59AM
To: Stuart Paterson
Subject:Re: Olivaylle quote version F
Hello Stuart
I read you loud and clear.
Neither you nor Dirk informed me of your unilateral change of our discussed and agreed oxygen content and warranty. That you passed them by me unannounced goes on your record. I note that you have waited until I initialized you latest quote version F to inform me of your intentions. Another point for you.
If you want to play by the letter and not the spirit of the agreement, so be it. Two can play the game.
Cheers
Jorge[Emphasis added]
________________________________________________________________From:Dr Paterson
To:Mr De Moya; Flottweg
Cc:Mr Nieuwkerk: Mr Lorenz; Christiane Yeardley
Sent:Thursday 7 October 2004 4:26PM
Subject:RE: Olivaylle quote version F
Jorge
I have had a look in the files and make my comments below regarding the points we discussed this morning:
1 Oxygen
In quote 040080 revision E (3-8-04), we had inserted (for the first time) the level of oxygen of under 1 – 2 % as a process warranty. This was on the basis of having enough nitrogen of sufficient purity available. The reason why we wrote it as under 1 – 2 % was because we had no idea if getting under 1% would be feasible even though Dirk thought it might be.
On 10-8-04, we invoiced Olivaylle for a 20% deposit according to quote version E and this deposit was paid. On this basis, we naturally assumed that the warranty as written in version E, was accepted.
I will now ask Martin Lorenz if he is prepared to increase the warranty to less than 1% oxygen in the gas space of all sparged vessels and ask him too officially inform you.
2 Warranty
Warranty of 16 months from commissioning or 2 full olive seasons or 24 months from date of readiness for dispatch – whichever is sooner was written in quote version E – upon which you paid a deposit. This same warranty was written in quote version D (28-7-04).
I remember there was some discussion of 120 days and 3 seasons but the above warranty is what we believed was the agreed warranty at the end of the meeting where warranty was discussed. I will ask Martin if he now accepts 120 days operation (ie: 3 seasons).
3 Other
As you have now today (7-9-04) signed and returned quote version F (dated 1-Oct-04), we will supply all items as mentioned in this document. We will do our utmost to ship the whole project by 28 Feb to meet the olive season and also get duty free import (single shipment). Martin will have to now tell us if he can meet this deadline. Where you have written in changes to the warranty period, this will not be accepted by Flottweg unless Martin formally accepts it in writing. Same comment for oxygen levels. The word “station” on page one of the quote version F is Ok as it was just a typo.
As discussed, this is a very complicated project and there have been and will be many more discussions. However, none of these discussions can take precedence over written communications as we might from time to time have different understandings of what has been discussed.
Regards
Stuart Paterson
_________________________________________________________________
From:Christiane Yeardley [an Olivaylle employee]
To:Dr Paterson
Sent:Thursday 7 October 2004 9:08AM
Subject:Fw: Olivaylle quote version F
Hello Stuart,
We have just discussed these items on the phone.
The items on which we agreed are so marked on the initialized version of quote “F” which I am faxing to you now. The ones where you wanted my thoughts in writing to send to Germany follow:
Acceptable oxygen content in the inertized portion of the processing line. We discussed and agreed to less than 1% (One Percent), not 1-2% (One to Two Percent)
We had aso agreed to 120 working days warranty for the equipment. Since our olive harvest/processing must take no longer than 35 days, the warranty of 120 working days is therefore in effect three olive seasons.Cheers
Jorge
_________________________________________________________________
From:Stuart Paterson
To:Mr De Moya
Cc:Mr Lorenz; Mr Nieuwkerk
Sent:Friday 1 October 2004 12:56PM
Subject:Olivaylle quote version F
Jorge
As discussed today (1-10-04), see attached the quote version F. This incorporates all variations as detailed in my variations letter dated 29-9-04.
Please print it and if OK, initial each page and fax back to our Sydney Office (02-9410-2255).
Please take action soonest so we have no delays.
Thanks
Stuart Paterson
Flottweg
[sic]
Mr De Moya made handwritten alterations to Flottweg’s Revision F of 1 October 2004 which were sent back to Flottweg. After yet further discussions between the parties’ representatives, Mr De Moya for Olivaylle and, on that occasion, Mr Dirk Nieuwkerk (of whom more later) for Flottweg, which occurred on 21 October 2004, Flottweg came to send its quotation dated 8 February 2005, which took up such of Mr De Moya’s alterations as it was prepared to adopt. That Flottweg would respond in writing in the terms set out in the 8 February 2005 quotation seems to have been anticipated by the October 2004 discussions. The sum of €137,864.10 was not refunded in the period between October 2004 and February 2005. Rather, it seems to have been consensually regarded as able to be applied as against the price specified in the quotation of 8 February 2005.
I do not characterise that quotation as a confirmation of an agreement made in October 2004. The effect of what occurred is that, whatever acceptance of an earlier offer made by Flottweg may be evidenced by the payment of a deposit, the parties agreed wholly to replace that agreement by an agreement set out in the terms of the quotation of 8 February 2005. In the body of that document the word “offer” is used. Olivaylle did not return to Flottweg a signed “acceptance”. One way of characterising events is that this document was in form and substance an offer with Olivaylle’s acceptance of it to be inferred from its acquiescence in Flottweg’s retention of the amount specified in this document as already paid by way of deposit (recorded as €125,331 plus GST “already paid”), its payment of the balance of the purchase price, its receipt and acceptance of the delivery and installation of the machinery referred to in the quotation and in its commissioning of the requisite owner’s works to allow the installation of the production line. Another and, in my opinion, the preferable way of characterising events is that, after Mr De Moya’s handwritten alterations and the subsequent discussions a position was reached which in substance was that of a counteroffer by Olivaylle but one which was expected to be accepted by Flottweg in light of those discussions. Having regard to the assiduousness with which Flottweg had documented the evolution of its original quotation and to Me De Moya’s by then interest in “the letter of the agreement”, it is to be inferred that the parties expected that Flottweg would evidence its acceptance in writing. Thus, though the quotation of 8 February 2005 uses the word “offer” at its conclusion, it is in substance an acceptance of a counteroffer, reciting precisely the terms in which, after discussion, that counteroffer had come to be formulated. That is consistent with the titling of the quotation of 8 February 2005 as an “order confirmation”, with the reference in its opening paragraph to a position agreed between Mr De Moya and “Dirk” [Nieuwkerk] on 21 October 2004 and with the absence of any later written acceptance of this quotation by or on behalf of Olivaylle. There was no need for that because the document recited exactly what Olivaylle was expecting.
For these reasons, I reject the alternative submission made on behalf of Olivaylle. Instead, the case is one where Olivaylle should be held to the allegation it made on the pleadings, which Flottweg admitted.
Flottweg’s acceptance was communicated by email to Olivaylle at its olive grove in Victoria. Experience suggests that email is often, but not invariably, a form of near instantaneous communication. The parties seemed content to assume that the place of contract was either Victoria or New South Wales, content because the common law of Australia was the same in either place and so, too, was the only statute law considered material. There was no suggestion in submissions that the place of contract was, for example, Germany. As a result, the ramifications of the adoption by the parties of email for their written pre-contractual communications, particularly the acceptance, were not explored. As it happens, the subject of formation of contracts by email has been explored in depth in an article by a local academic, Christensen S, “Formation of Contracts by Email Is it Just the Same as the Post?” (2001) 1(1) Queensland University of Technology Law and Justice Journal 22. Ms Christensen details there arguments for and against the assimilation of email communications with “the postal rule” or with what one might term “the instantaneous communication rule” and also the local adoption of international convention which touches on the subject. Having regard to the position taken by the parties in this case, it is not necessary to give detailed consideration to the point. It is enough to observe that I consider that there are analogies to be drawn with the way the law developed in relation to telex communications in an earlier era where what I have termed “the instantaneous communication rule” came to be adopted, perhaps at the expense of scientific precision but not so in relation to common commercial understanding. Thus, by analogy with cases concerning the position with what were, or were treated as, other forms of instantaneous communication, I consider that the contract was made where the acceptance was received, ie in Victoria: Entores Ltd v Miles Far East Corporation [1955] 2 QB 327; W A Dewhurst & Co Pty Ltd v Cawrse [1960] VR 278; Express Airways v Port Augusta Air Services [1980] Qd R 543; Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11,106.
Identifying Victoria as the place of contract accords with one of the alternatives advanced on behalf of Olivaylle. The other was New South Wales. For the reasons given, the former of these alternatives is, in the circumstances, the correct place of contract.
The Contract was one for the sale of goods between a party with its place of business in Victoria, Australia and a party with its place of business in Germany. The Sale of Goods (Vienna Convention) Act 1987 (Vic) (Sale of Goods (Vienna Convention) Act) adopts as part of the law of Victoria the United Nations Convention on Contracts for the International Sale of Goods: see s 5. That convention was made in Vienna in 1980; hence the reference to it as “the Vienna Convention”. The terms of that convention form a schedule to that Act. Article 6 of the Vienna Convention provides, materially, that “The parties may exclude the application of this Convention”.
The Contract provides, “Australian law applicable under exclusion of UNCITRAL law.” The Sale of Goods (Vienna Convention) Act, being a law of a State is an “Australian law”. The contractual reference to “UNCITRAL” is reference to the United Nations Commission on International Trade Law, the acronym for which is “UNCITRAL”. In my opinion, for reasons which follow, “UNCITRAL law” is a reference to the Vienna Convention. That the Vienna Convention is an adopted part of the relevant Australian law does not mean that the contractual statement “Australian law applicable under exclusion of UNCITRAL law” is to be construed as thereby rendering applicable a convention that the parties to it sought expressly to exclude. Rather, the Contract evidences an intention to exclude the Vienna Convention altogether from application. So much is permitted by “Australian law”; relevantly, that convention as applied in Victoria by the Sale of Goods (Vienna Convention) Act.
A conclusion that the Vienna Convention as a whole is excluded accords with the construction of the Contract for which Flottweg contended. Olivaylle took a different view, submitting that the “exclusion of UNCITRAL law” should be construed as referring only to “an exclusion of United Nations Commission for International Trade Law (UNCITRAL) so far as it may affect issues of title”. The inspiration for this submission was that the reference in the Contract to the exclusion immediately follows a sentence which reads: “Flottweg will retain ownership and title to the delivered goods and equipment until Flottweg has received payment of all amounts owned by the buyer under the contract.” Each of these sentences appear at the conclusion of the Contract under the heading “Other Dispositions”, as the excerpt reproduced below evidences.
UNCITRAL is an agency of the United Nations established by the General Assembly in 1966. It has as its mandate from the General Assembly the progressive harmonisation and unification of the law of international trade. It has fostered the development of a number of international conventions and model laws which range in subject from the international sale of goods through to cross-border insolvency and, as Ms Christensen’s article (supra) reminds, electronic commerce. When this fact and that the Vienna Convention “governs only the formation of the contract of sale and the rights and obligations of the seller and buyer arising from such contract; in particular [the Vienna Convention] is not concerned with the effect that the contract may have on the property to the goods sold” (Roder Zelt-Und Hallenkonstruktionen GMBH v Rosedown Park Pty Ltd & Eustace (1995) 57 FCR 216 at 222) are taken into account, it is an unlikely construction of the Contract that the sentence referring to “UNCITRAL law” is to take its meaning from the sentence which precedes it. Given the nature of the Contract, the fact that a party to it, Flottweg, was and was known by Olivaylle to be a company which sold its wares internationally and the reference to the exclusion of “UNCITRAL law” appearing at its conclusion under the heading “Other dispositions”, the more likely construction of “UNCITRAL law” is that it was intended to be a reference to the particular UNCITRAL convention that governed the international sale of goods, ie the Vienna Convention. “Other dispositions” looks to me to be a heading which describes miscellaneous, unrelated terms of general application to the goods sold. The positioning of the sentence at the end of the Contract further supports a construction that it was meant to govern all of its terms.
The Contract provided for the supply by Flottweg to Olivaylle of an olive oil production line more particularly described as a “Continuous Flottweg Special 5 TPH in sealed N² Version Olive Oil Line”. “TPH” refers to tonnes per hour. N² is a reference to nitrogen. In this production line nitrogen gas was used as a means of displacing oxygen from the line. It was thought by Mr De Moya that this would yield qualitative benefits in the production of olive oil.
In its initial form, the production line was delivered to Olivaylle’s olive grove at Telopea Downs in April 2005.
In all, Flottweg received a total of €678,606 in respect of its supply of the production line to Olivaylle.
Olivaylle contends that the production line was defective in that it failed to comply with what it alleges were the following contractual specifications:
(a)that the line would process 5 tonnes of olives per hour whilst recovering a minimum of 85% of the oil contained in the olives (respectively, “the processing speed term” and the “oil recovery term”);
(b)that the line would be nitrogen flushed to displace oxygen; and
(c)that the oxygen levels in the gas phase of all equipment comprising the line starting at the malaxeurs would be under 1% v/v ( (b) and (c) collectively being “the oxygen levels term”).
Flottweg does not accept that this formulation of the contractual specifications is correct and, in any event, denies that the line was defective in the ways alleged.
Further or alternatively, Olivaylle contends that, during the period of pre-contractual negotiations and in order to induce it to enter into the Contract, make payments thereunder and procure a bank guarantee for the payment of monies under the Contract, Flottweg made representations to it in like terms to those which it alleges were contractual specifications. These representations are said to constitute misleading or deceptive conduct contrary to s 52 of the TPA. To the extent that the alleged representations were as to future matters, Olivaylle relies upon s 51A of the TPA.
Flottweg denies making the alleged representations and alternatively alleges that it had reasonable grounds for such as may have been made.
Olivaylle also alleges that the Contract had the following further features:
(a)that, in the event that Flottweg failed to make repairs of or modifications to any defective equipment, Olivaylle was entitled to withdraw from the Contract:
(i)upon the expiry of a reasonable period of grace;
(ii)specified in writing by Olivaylle; and
(iii)stating its intention to exercise its right of withdrawal in the event that Flottweg failed to carry out its obligations;
(b)provision for a bank guarantee with a first class bank (in the result, the Wachovia Bank) to be presented to Flottweg 30 days before the delivery of the production line and for Flottweg to draw upon that guarantee upon the attainment of certain contractually specified milestones.
Flottweg does not accept that Olivaylle has correctly summarised the provision in the contract for its withdrawal from it. It does accept that the Contract made provision for a bank guarantee in respect of the payment of the purchase price for the production line.
It is Olivaylle’s case that, in order to give business efficacy to the Contract, it was and is to be implied into it that, in the event that Flottweg failed to carry out its obligations and Olivaylle exercised its right to withdraw from the Contract:
(a)Olivaylle was entitled to a refund of any monies paid to Flottweg under the Contract;
(b)Olivaylle was not obliged to make, and Flottweg had no entitlement to receive, any further payments otherwise due under the Contract (whether by conversion of the bank guarantee, or otherwise); and
(c)Flottweg would retake possession of the production line.
For its part, Flottweg denies that any such terms are to be implied into the Contract.
Olivaylle gave what purported to be a notice to remedy defects to Flottweg by a letter dated 21 February 2006. It required the remedying of the alleged defects in the production line by 30 June 2006, failing which Olivaylle signified that it would withdraw from the Contract, seek the return of monies paid and withhold payment of €132,412, the final payment due under the Contract in respect of the production line.
When 30 June 2006 passed without, as Olivaylle saw matters, the rectification of the alleged defects in the line, it purported to “withdraw” from the Contract and demanded that the production line be removed and the purchase price refunded (letter from Wallmans, solicitors for Olivaylle, received by Flottweg on or about 25 July 2006). Its ability to take this course and any obligation to meet these demands was made controversial by Flottweg. In November 2006, these proceedings were commenced by Olivaylle.
Originally, it was estimated that the trial would take two weeks. In the result, it was not until the seventh week of hearing that evidence and submissions concluded. Even viewed in prospect I doubt, with respect, whether the estimate of length of trial given to the then docket judge by the parties had a reasonable foundation. The impact of that underestimation was not only to necessitate an episodic disposition of the hearing upon the expiry of the originally allocated hearing time but also to erode time which would otherwise have been available for earlier preparation of a reserved judgement in this matter. The efficient and equitable allocation of finite judicial resources amongst litigants generally is dependent upon the accuracy of such estimates.
I now proceed to consider the issues raised on the pleadings.
The Contract
Having regard to the issues on the pleadings, and because of the helpfully detailed description offered of the items sold, it is desirable to set out a somewhat lengthy excerpt from the Contract:
1.Continuous FLOTTWEG special 5 TPH in sealed N2 version OLIVE OIL LINE
Note that this line is N2 flushed starting at the malaxeurs, it has one 5-6 TPH de-pitter and a 5-6 TPH mill, and the leaf blower/olive washer is one single 10-15 TPH unit (Palacin) which also has a continuous olive belt weigher as part of it (up to 10 tonnes/hr weighing).
We have also included for the larger decanter (Z53 for 5 TPH olives) in gas sealed version. Please note that only one AC1500 disc centrifuges will be needed for 5 TPH olives (approx 1200 LPH oil).
It should be noted that if olives are de-pitted the capacity of the decanter will fall by at least 50%. In the case where 50% of the olives is pit, the total feed to the plant will still be 5 TPH olives even though the decanter will feed at only 2.5 TPH of mash.
If olives are not de-pitted and Flottweg instructions are followed for each unit operation, Flottweg guarantees that the min oil yield will be 85% of the oil in the olives. If olives are de-pitted, this min % oil yield can not be given and it is expected to drop.
Continuous special Line Flottweg-Palacin Type for 5000 KGS/h Olives
with the following machinery description:
1 off Main system for leaf blowing, stone removal, cleaning and washing and weighing of olives – Palacin type for 10-15 tonnes/hr olives
Note: fruit to be supplied to the Flottweg washer/blower by clients own belt conveyor. Please note that this conveyor must be adjustable in throughput, either by manual gear drive or by frequency converter as it will set the feed rate to the entire plant.
Fruit separation by difference of density. Automatic system to select the washing or not washing the olive. Made all parts in contact with the olive in stainless steel INOX-304.
…
This is a dual purpose machine which de-leafs and washes it also removes sticks.
·Special weigh belt conveyor system for the continuous weighing of olives. This system has the possibility to weigh up to 10 TPH olives with an accuracy of +/- 1-2%. Including computer, printer and weighing software. This belt weigh conveyor will be suitable for olives. The weigh belt conveyor also has software/hardware and a frequency converter to allow it to speed up or slow down depending on the amount of olives being fed to the plant and thus to increase accuracy of weighing at lower feed rates.
With belt conveyor to transport the olives from the weighbelt to the hammer mill/de-pitter station with a light tubular stainless steel chassis. Installed power 1.5 HP, with motor AEG, 1400 rpm (with freq converter), 400 V, 50 Hz and gearbox with a relation to 93.3 rpm, length 7 m, capacity about 6000-8000 kg/h max.
Price FOB EUR 29.000, -- Price of special additions to weigh belt conveyor, FOB EUR 4,000, -- Additional 5 meter long conveyor to receive olives from the washing machine and transport them through the wall to the weigh belt conveyor. Extra price as agreed EUR 5.650,-- SUB TOTAL EUR 38,650,-- 1 off Multipurpose hammer mill and de-pitter feeding system …
For olive flow splitter EUR 2.500,-- For walkway with barrier fence and ladder – all in painted mild steel EUR 2.500,-- For olive slide EUR 500,-- SUB TOTAL EUR 5,500,--
1 off Hammer mill JP 40 R Main drive motor 37 kW, 400 V, 50 Hz Built entirely in stainless steel inox, with little chute and injector. Motor of 1.5kW (2 HP) with reduction gear. With rotating sieve, scraper, support and injector of 1.1kW (1.5 HP). The unit includes a security permanent magnet for retention of metallic parts. The mill is built on top of the paste distribution screw. Capacity of mill is 6 TPH Price FOB EUR 10.000,-- Cost of a longer screw conveyor (3.5 meters longer) so hammer mill can be installed in a different room (rather than above malaxeur # 1), FOB EUR 2.450,-- Cost of a mild steel frame to install the hammer mill over the long screw, FOB EUR 1.500,-- SUB TOTAL EUR 13.950,-- 1 off 5-6 TPH De-pitter station Stainless steel de-pitter capable of handling up to 5-6 TPH olives. The mash from the de-pitter falls into a hopper and is pumped by a mono type pump (2-5 TPH capacity) to the distribution screw above the malaxeurs. Pits ejected clients bin. The de-pitter has a permanent magnet to protect from mild steel getting in. Price for de-pitter, FOB EUR 39.000,-- Price for the hopper with level control and mono type pump, FOB EUR 6.500,-- Price for the permanent magnet, FOB EUR 600,-- Two sets of spare paddles/blades for the de-pitter will be included in the emergency spare parts. One piece of different hole size sieve to be supplied for EUR 2.990,-- SUB TOTAL EUR 49.090,-- 1 off Greek style, big batch malaxuers, in N2 flush construction – automated – of total volume of 10 m3 4 side by side heatable malaxeurs in stainless steel of volume 2500 litres each on a steel frame(s).
The malaxing system is complete with feed distribution screw, product out screw, water flow meter and auto butter fly valves. Each malaxeur has its own drive system and is covered for N2 flushing.
Each malaxeur has its own temperature probs on heating jacket water (in and out) and feed in and out and level probes (high, low level).
This batch system can be run automatically based on level control and sequencing or manually via the control panel.
Each malaxeur has solenoid valves and flow meter for gas purge in and two way (to oxygen measurement or vent) solenoid valve for N2 out.
Each malaxeur will have its own stainless steel lid, view window and CIP system (CIP liquid make up and supply not included).
Price FOB EUR 137.600,-- SUB TOTAL EUR 137.600,-- 1 off Eccentric screw pump (mono type) For feeding the decanter. Motor power of 5,5 KW. It includes connection hoses and accessories for feeding the decanter. This pump easily pump 5 TPH of olive mash or up to 10 m3/water for CIP. Two temp probes in the pump discharge. Variable feed rate through freq converter. Price FOB EUR 5.300,-- SUB TOTAL EUR 5.300,-- 1 off Flottweg 2 phase olive oil decanter Z53-4/454 SIMP-DRIVE® in sealed N2 version. The Z53-4/454 SP4, 21 decanter has a 530 mm inner bowl diameter and 2120 mm bowl length. The decanter can be run with up to 3100 G force and is really big enough for 5 TPH of olives. The cone angle of the decanter is 15 degrees so that there will be no problems in conveying de-pitted olive paste out of the decanter (much more difficult than milled whole olives). The bowl and the scroll are made from spun cast stainless steel (min 316Ti grade) and the whole decanter is made in Germany by Flottweg.
The decanter itself has a weight of some 4350 kg.
The decanter has a main motor of 30 kW and a scroll drive motor of 18.5 kW. The SIMP gear box and controller allows the differential speed to be automatically adjusted (on torque regulation) or manually set at between 7 and 20 RPM.
The decanter uses two Danfoss frequency converters (30 and 18.5 kW) for the bowl and scroll motor drive. These are included.
The scroll is hard faced with frame spayed tungsten carbide.
The decanter is mounted on a frame and a hopper with mono pump is included to pump (5 TPH) away the wet solids outlet. The pump can discharge up to 12 bar pressures is and a three stage pump.
The decanter has a N2 flow meter with flow regulation and solenoid valves to allow a controlled amount of N2 to be bled into it.
Price FOB EUR 184.000,-- SUB TOTAL EUR 184.000,-- 1 off Vibrating screen for liquids in N2 flushed version Built in stainless steel AISI 304. For separation of the solids form the outlet of the FLOTTWEG decanter. Powered by one motor vibrator 200 with 0.2kW (0.25 HP). Eccentric screw pump for conveying the olive oil to the separator is included and with capacity of max. 2500 l/h. Price FOB EUR 16.300,-- SUBTOTAL EUR 16.300,-- 1 off Tank for feeding of the separator in N2 flushed version Built in stainless steel AISI 304 and of volume of 100 litres. Designed to obtain a stable feeding to the separator. It includes static decantation with purge valve as well as the support structure above the separator. Price FOB EUR 4.000,-- SUB TOTAL EUR 4.000,-- 1 off Separator Flottweg AC 1500 in N2 flushed version Max capacity on olive oil of 1800 LPH so big enough for 5 TPH olives. For the final purifying of the olive oil. Closed N2 flushed cover for feed with security device and rotating bowl in stainless steel. Powered by a soft start motor of 11 kW (15 HP). Automatic bowl cleaning. Capability of automatic discharges of the solids retained in the bowl. With piping in stainless steel and hose suitable for food type “aceiflex”. Metallic support for the whole group. Including deposit for evacuation of black water. Set of special tools. The water feed to the centrifuge has a temperature gauge and also a temperature probe/transducer (signal to electrical panel). Price FOB EUR 49.400,-- SUB TOTAL EUR 49.400,-- 1 off Tank for the purified olive oil from the separator in N2 flushed version Built in stainless steel AISI-304, for the reception of the olive oil from the outlet of the separator. Designed with divided decantation areas as well as purge valve and cleaning outlets. Level probe for automatic controlling an eccentric screw pump (also included) for conveying the oil to the stock. Motor power of 1.1 kW (1.5 HP) salmonic type to avoid emulsions). Volume of tank is approx 100 litres. Price FOB EUR 4.000,-- SUB TOTAL EUR 4.000,-- 1 off Oxygen measuring system The oxygen measuring system will be used too measure the oxygen content of any of the gas output lines of N2 spared plant or tanks. Data from the oxygen measurement unit to the Flottweg electrical panel. Cost of this system including inlet manifold for Flottweg supplied equipment, FOB EUR 3.500,-- SUB TOTAL EUR 3.500,-- 1 off Control panel – fully auto version – made at Flottweg works, Germany Stainless steel electrical panel (s) for auto or manual control (subject to safety interlocks) of all items mentioned in this quote using an Alan Bradley PLC with colour touch screen. The panel also contains:
- detailed software written to control the whole process via the PLC and software for the touch screen.
- solenoid valves for all air actuated valves
- all frequency converters for the various motor drives (belt conveyor speeds, decanter motors, pump motors, etc)
- auto sequential systems of motor start and valve positions
- digital indicators for temperature, amperage, voltage and counter for R.P.M.
- main switches and differential relay
- optical and audible security systems and synoptic of operating and control.
- Analogue modem for remote communication
Capability for automatic or manual operation of the whole process (subject to safety interlocks).
…
Price FOB EUR 55.200,-- SUB TOTAL EUR 55.200,-- … Engineering documentation Preparation of engineering documentation of Flottweg supplied goods such as detailed P&ID, layout drawings, cable list (client to supply cables), utility list, etc, is included as part of Flottwegs standard scope of supply for such projects. No additional cost. Installation, piping and connection To be done by buyer according to Flottweg supervisors instructions. It is estimated that client will need to supply two fitters with mobile workstations for two weeks each and an electrician will also be needed for min of two weeks. Emergency spare parts One set of emergency spare parts for one years operation for all items mentioned above including seals, bearings, V belts, lamps, 2 units of hammer for hammer mill, 2 units of sieves for hammer mill and de-plitter, 2 units of de-plitter blade, fuses, etc. It is not guaranteed that this set will cover all items that could wear out in 1 years operation. Price FOB EUR 12.800,-- SUB TOTAL EUR 12.800,-- Installation, commissioning, start-up and training supervision (three Flottweg technicians for two weeks each including airfares, hotels, meals and local transport). Price FOB EUR 22.500,-- SUB TOTAL EUR 22.500,-- SUBTOTAL, FOB European port EUR 601.790,-- Freight (3 containers 40”) & insurance to South Australian or Melbourne port EUR 12.500,-- Duty is zero Local Australian delivery and unloading EUR 6.000,-- Total price DDP (delivered, duty paid but without GST) including installation and start up assistance EUR 620.290,-- Plus GST Bordertown, SA including installation and start up assistance
Delivery time of all options quoted above
approx. 6-7 months ex works Germany unless otherwise individually specified after clarification of technical and commercial details, receipt of written order and payment of deposit. Please add 2 months to the ex works times to get realistic dates for delivery to site.…
Prices
Prices are FOB Germany – unless otherwise specifically mentioned. GST is not included for in any prices.
Exclusions
·any electrical cables other than those within supplied control panels
·installation of electrical cables and conduits between Flottweg supplied electrical panels and electrical items on the process line
·supply and installation of air lines (plastic or steel)
·welding, cutting and fitting of any client or Flottweg supplied pipes and fittings
·any concrete, civil or building works
·any venting lines or ventilation work in the building
·supply of any services (air, water, power, nitrogen, raw materials, CIP, etc)
·provision of hot water for malaxeurs
·supply of olives
·construction of any frames not supplied by Flottweg
·unloading at site
·removal of rubbish and packing materials from site
·obtaining of any certificates or inspectors acceptance that use of N2 purge gas meets Australia OH&S regulations
·any goods or services unless specifically mentioned in the offer
Note; Flottweg will supply all equipment according to European health and safety rules (excepting N2 purge). Any additional costs to modify equipment to meet Australian Health and Safety rules will be to clients account. This will largely relate to the venting of the plant atmosphere and measurement of oxygen level in the plant air for human safety.
Reservations
Flottweg reserves the right to carry out N2 gas purging modifications to all equipment (with exception of the decanter) in Australia rather than Europe if necessary. Final delivery time DDP (FOB plus 2 months) will not be effected.
Flottweg also states that even though equipment with N2 gas purging may in theory give better oil quality than using standard Flottweg olive oil equipment, this is not guaranteed.
Payment
20% deposit with order against invoice – 125.331,-- EUR plus GST already paid 40% with delivery to site (against bank guarantee) – 247.459,-- EUR plus GST 20% 6 months after delivery to site (against bank guarantee) – 123.750,-- EUR plus GST 20% 12 months after delivery to site plus 7% interest (against bank guarantee) – 123.750,-- EUR plus GST plus 8.662,-- EUR plus GST Instalments of total 80% to be covered by a bank guarantee in favour of Flottweg GmbH & Co. KGaA issued by a first class bank valid until 13 months after delivery to site. This bank guarantee has to be presented 30 days before delivery ex works Vilsbiburg, Germany.
Process guarantee: that all times of equipment supplied by Flottweg will function as per the descriptions in this quotation and oxygen levels in the gas phase of all equipment starting a the malaxeurs will be under 1% v/v – assuming client supplies sufficient Nitrogen gas of sufficient purity to make these levels of oxygen feasible.
Documentation
Included are 2 operating instructions and 2 maintenance manuals. The operating instructions will be forwarded after confirmation of order. The maintenance manuals will be supplied with the machine. Additional copies are charged as follows:
EUR 200,-- for the first, EUR 75,-- each for further copies.Warranty
Flottweg guarantees that the equipment will be in accordance with the contractual agreements in terms of its design and quality of materials.
Should the equipment not be in accordance with this warranty because it is defective, Flottweg shall be both entitled and obliged, at its option, to repair the defective parts free of charge, to supply replacement parts free of charge or to make good any services not carried out correctly.
This warranty shall not cover defects that did not originate in Flottweg’s equipment or services such as the consequences of installation, start-up or repairing of the equipment not carried out by Flottweg’s staff or authorised service personnel, improper operation as well as wear and tear. Warranty claims can only be asserted if at commissioning of the machine a workable service hour meter has been installed in the plant respectively in the switchboard.
Flottweg’s warranty shall be limited to a period which is the lesser of one of the following:
·16 months from the date of commissioning; or
·2 full local olive oil seasons during which the equipment is operated or;
·24 months from the date of readiness of the equipment for dispatch.
Should Flottweg fail to make repairs of or modifications to any defective equipment, the buyer shall be entitled to either carry out repairs or modifications themselves or have them carried out by a third party if Flottweg fails to meet its obligations within a reasonable period.
The buyer shall be entitled to exercise the right to a reduction in the purchase price or a withdrawal from the contract only on the expiry of a reasonable period of grace. The buyer shall be obliged to specify such period in writing, stating the right which they intend to exercise in the event of such period expiring without Flottweg’s carrying out of their obligations.
Late delivery
Damages for delay shall be limited – and excluding any further liability for delay – to 0.5% of the price of the delivered equipment or service effected by the delay, per each week of delay, and to a total maximum of 5% of the total price in respect of all cases of delay. Damages for delay may not be claimed if the delay does not exceed 2 weeks.
Limitation of liability
Flottweg’s liability is limited to the amount of damages that could reasonably be foreseen at the time of the conclusion of the contract. Flottweg shall in no case be liable for consequential or indirect damages, loss of profit and increased production costs. Flottweg’s liability howsoever arising should be limited to 5% of the contract price including damages for delay.
Other dispositions
Flottweg will retain ownership and title to the delivered goods and equipment until Flottweg has received payment of all amounts owned by the buyer under the contract. Australia law applicable under exclusion of UNCITRAL law.
This offer is based on our “General Conditions for Supply of Flottweg Products”.
The Design Criteria Document
It is desirable to introduce an assessment of the merits of the allegations made by Olivaylle as to the nature of the obligations imposed upon Flottweg by the Contract and whether it has breached those obligations by reference to what I have termed the Design Criteria Document. One reason for that is because, on any view, it was Flottweg’s receipt of a copy of this document which initiated dealings between it and Olivaylle. Another is because Olivaylle submitted that it was of more than historic interest.
On behalf of Olivaylle it was submitted that this document “is clearly an important part of the background to the Contract”. It is certainly part of that background; but in this case too much can be made of that fact. The role of such a document relative to the Contract is as described by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen; Hansen-Tangen v Sanko Steamship Co (The Diana Prosperity) [1976] 1 WLR 989 at 995-996, in a passage which commended itself to Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 and to Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462, [22]:
In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
By 8 February 2005 much had passed between Olivaylle and Flottweg. The Design Criteria Document is not overtly incorporated by reference in the Contract. Nor is it consistent with it. The Design Criteria Document envisages a two step extraction process with malaxation (a technical term of which more later) initially occurring at temperatures of 20°C to 25°C (or lower) and then later and additionally at 25°C to 30°C (or lower) – see para 8.2 of the Design Criteria Document. In contrast, the production line the subject of the Contract provides for one malaxation point in the line in four side by side heatable, “Greek style”, batch malaxeurs.
Accurate descriptors of the Design Criteria Document were offered by Mr De Moya himself as part of its title. It is of a preliminary nature and contains an amalgam of specifications, questions and comments. Its importance varied from individual to individual. Not unnaturally, the Design Criteria Document was an important one to Mr De Moya. It was the product of considerable investigation by him. It does not follow from this that the document necessarily must have had the same importance in the eyes of others, or that the credibility of others into whose possession it came is to be diminished by their not attributing like importance to it, much less that it underpinned the Contract.
Dr Paterson was taxed in cross-examination about the Design Criteria Document. While I thought that some of Dr Paterson’s answers concerning this document were affected by his not focussing precisely on the questions asked of him, when reflecting on his answers in cross examination about it, the very early stage of events when it was received by him and the nature and extent of subsequent meetings and correspondence concerning the proposed production line as well as the very nature and contents of the Design Criteria Document, I accept his account of the significance that the document had for him. To Dr Paterson, its purpose was “a client showing that he’d reviewed the literature”. Further, as he earlier remarked in respect of his first encountering the Design Criteria Document, “[It] was a document that normally I don’t receive from a client seeking a quotation. And as Flottweg is a manufacturer of equipment, normally we don’t engage in consulting services. And, looking at that document, I knew that it wasn’t a clear basis upon which to quote a product that we had.” Dr Paterson stated that he approached the document from the perspective that if a supplier received such a document it was more effective for both the supplier and the prospective customer to find out what the customer actually needed. This is exactly what occurred.
Via Palacin, the Design Criteria Document had also come to the attention of Mr Lorenz in Flottweg’s German Head Office by the end of 2003.
Mr Lorenz was not initially a witness whom Flottweg proposed to call. After the expiry of the time fixed by direction for the filing of evidence in chief and for that matter after Olivaylle had closed its case, Flottweg made application for leave to file an affidavit made by him upon which, as events transpired, he came to be cross-examined. For reasons which I gave in the course of the trial, I permitted Flottweg to adduce evidence from him: Olivaylle Pty Limited v Flottweg GMBH & Co KGAA (No 3) (2008) 76 IPR 152.
Mr Lorenz was at the time of his involvement with events of present relevance and remains by occupational title a sales engineer. From about 2003 he has had worldwide responsibility within Flottweg for that company’s dealings in the field of edible oils, which includes olive oil production. He had the benefit of being trained for his current role by his predecessor, a Mr Langenbrink, whom he replaced on the latter’s retirement and a Mr Ecker, the Group leader of Flottweg’s Edible Fats Oil Division, who retired in 2006. Each of Messrs Ecker and Langenbrink had extensive experience in the provision and servicing of production line machinery for the olive oil industry internationally.
Mr Lorenz also has what I regard as the benefit of having carried out technical repairs, servicing, start up testing and operator training in respect of Flottweg decanters, tricanters, belt presses and Veronesi separators (and the associated plant such as polymer stations and screw conveyors) over a period of some 15 years prior to assuming the role of sales engineer. He undertook this work on joining Flottweg after his completion of a trade apprenticeship with one of its competitors. His title “sales engineer” gives an accurate idea of his current role. He is not just an equipment salesman. He is able to and does bring to the task of equipment sales an ability to assess and advise upon the performance characteristics, limitations and other technical aspects of Flottweg’s machinery and production lines into which such machinery will be integrated based on both formal trade qualifications and, especially, years of relevant, practical experience with the machinery.
Overall, I found Mr Lorenz to be an impressive witness. His native language was German but he had acquired over time a command of English for business purposes. To my observation, while his command of English was not perfect, particularly in idiom, he was well able to give most of his evidence in English fluently and responsively. He gave what I thought was careful and accurate evidence.
Mr Lorenz remarked of the Design Criteria Document:
When I read this document I was thinking that it is overloaded and somebody who had not experienced was picking out the best of what he found or read, maybe in the Internet, in one package, and trying to get the best maybe possible what would be on the market. I have received similar things from people with not experience. [sic]
It seems that it was Palacin, whose premises Mr De Moya had visited with his brother while in Spain in late November and early December 2003 when conducting investigations, which endeavoured to answer questions which Mr De Moya posed in his Design Criteria Document (see Palacin email of 24 December 2003 to Dr Paterson, copied to Mr Lorenz, Ex JDM 11). Olivaylle has not sought to make anything of that initial Palacin response. Dr Paterson’s direct response to the Design Criteria Document seems to have been nothing more than to send some Flottweg brochures to Olivaylle along with a video concerning an olive oil processing line that Flottweg had recently supplied and commissioned in Griffith, New South Wales for a company known as Nugans (see his exchange of emails with Olivaylle’s then Project Manager, Mr Wilkes on 28 January 2004 and his email to Mr Lorenz of that date reporting on these dealings, Ex JDM 13 and Ex JDM 14). Those actions as recorded in contemporary correspondence are consistent with the oral evidence he gave concerning the importance to him of the Design Criteria Document.
It is significant that, after the receipt of this material from Dr Paterson and in making contact with him by email on 28 January 2004, Mr Wilkes does not refer to the Design Criteria Document. Rather, he envisages discussions by him and Mr De Moya with Dr Paterson and the possibility that “we can knock up a rough plant floor plan and a rough quotation”. I note that he does advert in his email to a need for the plant to be ready for the 2005/2006 season and to a need for it to have “the ability to use gas blanketing on the malaxers, decanters and separators” [sic].
Also significantly, it was the email from Mr Wilkes, not the receipt of the Design Criteria Document, which prompted Dr Paterson on 28 January 2004 to inquire of Mr Lorenz as to the following:
I will take these people from Olivale [sic] to Nugans on about 11 or 12 Feb.
Do you have any info on the use of an inert gas (like nitrogen) blanket to minimize activity of polyphenoloxidase?.
What I would like to know is as follows:
·which equipment can be blanketed and how?
·what effect does it has on product quality parameters and which ones (is just phenol & polyphenol content in final oil?)
·what rough costs would you expect to have N2 blanket starting at mill through to decanter?
“Polyphenoloxidase” is a reference to a process of oxidation leading to the generation of polyphenols in the production of olive oil.
Mr Lorenz responded to Dr Paterson later on 28 January 2004 (German time) in these terms:
To be honest nobody ever asked for this because it is much to expensive.
To start with, you should calculate minimum 140.000. – to 180.000, - more for this kind of equipment.
For a Tricanter Z4E-4/444 it is possible to get it in gas tight.
The other parts:
Hammermill: nearly impossible
Screwconveyors: the same
Malaxer: it is ca 75% closed but not air tight
Separator AT1600: is a open oneYou never know how much gas you have to use for such kind of plant and Flottweg would never guarantee any thing to the oil quality. There is no experience from our side and we are not interest in such a project.
We should stick to our standard plant and not have a second Nugan. Okay, Nugan is running now but the effort was to much at that time [sic]
This email also assumed some importance in cross-examination of Mr Lorenz and Dr Paterson and in other submissions made on behalf of Olivaylle, the merits of which I consider in due course.
By the time that Flottweg came to make its initial offer to Olivaylle in writing on 4 March 2004, Messrs De Moya and Wilkes and Dr Paterson had inspected the Nugan plant at Griffith on 11 February 2004 and held discussions as envisaged by Mr Wilkes in his email. That offer, like all subsequent ones made by Flottweg, was vetted by Mr Lorenz, who made his own soundings as he felt necessary within Flottweg as well as drew on his own experience. These offers were carefully and deliberately framed so as to set the limits of the obligations Flottweg was prepared to assume. The terms of the offers progressively made were also carefully vetted by Mr De Moya on behalf of Olivaylle: see, for example, the handwritten annotations which he made and sent back to Flottweg in respect of “Version F” of the offer dated 1 October 2004 (Ex JDM 45).
Even by March 2004, and certainly by 8 February 2005, viewed objectively, the course of events had overtaken the Design Criteria Document. A review of the correspondence which culminated in the Contract discloses that the Design Criteria Document was not an articulated premise upon which negotiations between the parties were conducted. Neither, again viewed objectively, was it even an unarticulated premise.
So viewed, it does not in my opinion have a role to play in the interpretation of the Contract. That is not to deny that the document did not have a continuing importance for Mr De Moya representing as it did the fruits of his research.
This submission disposed of, the merits of Olivaylle’s contentions that Flottweg has breached what it alleges were specifications in the Contract are best viewed against the background of a general description of the process by which the production line as installed produces olive oil. That the line as installed did in fact produce olive oil is common ground. What is not is whether the line performed in accordance with the Contract.
Olive Oil Production Process
I had the benefit in the course of the trial of viewing and having explained in oral evidence and by affidavit video footage and still photographs of the production line as well as having the stages in the line through which harvested olives pass leading to the production of olive oil. The line was also depicted diagrammatically in a general way (Exhibit 1). It assists an understanding of the stages in the line to reproduce that diagrammatic depiction in conjunction with a description of it, the latter largely based on that given by Dr Paterson.
The stages of production then are these:
·Stage I Receipt and washing of the olives
There are two distinct sub-stages in Stage I:
(a)Initially, harvested olives are conveyed from the grove and placed in an external receiver bin or “feed hopper”.
(b)From the receiver bin, olives move up an inclined conveyor to a machine which blows off leaves and twigs accumulated in the harvest with the olives and then washes the olives with water so as to remove dirt and sand.
·Stage II Weighing of the olives
The washed olives then move along another conveyor belt, entering the factory building in so doing to a further conveyor known as a weigh belt conveyor. The weigh belt conveyor continuously measures the tonnes per hour of olives being fed into the line and also calculates a total weight for any given production run.
·Stage III Flow-splitting
After the olives have passed along and been weighed by the weigh belt conveyor, a further conveyor takes them to a double screw conveyor which allows the feeding of olives along the production line to be split in two, hence the term “flow splitter” for the device. The flow splitter allows the line operator, if he desires, to split the further conveyance of olives such that a proportion of olives is conveyed to a depitting machine and a proportion is conveyed to a hammermill. It is possible to vary the respective proportions, if desired. This ability to bifurcate a production run is a custom designed feature of the Olivaylle production line. The common practice in the production of olive oil is not at all to use a depitter. In those rare cases when one is used it is usual for the depitter to be used for the whole batch of olives in a production run. The integration of the “flow splitter” and a depitter in Olivaylle’s production line is therefore one of the unique features of the line.
·Stage IV Hammermill/depitter
Depending on the choice made by the operator and the resultant operation of the flow splitter, olives next proceed by conveyor or the depitter (or a portion of a batch goes to one and the other portion goes to the other).
A depitter may be described a rotating finisher. It has a stationary barrel the sides of which are perforated. Inside the barrel are rapidly rotating blades. When olives are delivered to the depitter the blades push the flesh but not the pits of the olives through the perforations where it forms a paste. The paste of olive flesh is then directed by a screw conveyor to the malaxeurs. A separate shute removes from the barrel of the depitter the pits as they accumulate.
As its name implies, a hammermill uses fixed rotating hammers to hammer whole olives into a paste of disintegrated flesh and pits. This paste then falls by gravity from the hammermill into a screw conveyor which conveys it to the malaxeurs.
·Stage V – Malaxing
“Malax” is not a word in general use in Australia (It does not appear in The Macquarie Dictionary’s Online Edition.) The word is found in the Oxford English Dictionary (Draft Revision, September 2008) where its primary meaning is to make or soften, usually by kneading. As a term to describe the process whereby oil is liberated from cells in the paste of olive flesh (with or without crushed pits), it is in common use by those involved in or who understand the process of olive oil production. As so used, its meaning has an obvious heritage in that assigned to the word in the Oxford Dictionary as its ordinary meaning.
Thus a malaxeur is a device which causes the release of oil from cells in the olive flesh by a process of heating and kneading - malaxing. Inside each malaxeur is a “ribbon mixer” which gently turns over and mixes the olive paste. At the same time as the olive paste is mixed in this fashion it is able to be heated by hot water jackets which are fitted to the outside of the malaxeurs.
I have already mentioned when referring to a difference between the contract and the Design Criteria Document that the Contract provides for four “Greek style”, batch malaxeurs. They are connected in parallel.
“Greek style” is a technical term referring to a malaxeur which allows the separation of small batches of olives (5 tonnes or so) from other batches of olives. Such malaxeurs are commonly used in Greece. They permit small scale farmers to bring their olives to an olive oil production plant and have them processed by a production contractor independently of the produce of other olive growers. In this fashion the term “Greek style” malaxeur has evolved in the industry to describe such malaxeurs.
Another type of malaxeur, and one less complicated and hence less expensive to manufacture, is a “Spanish style” malaxeur which moves the paste from one malaxeur to such other malaxeurs as comprise the production line in the course of oil extraction by gravity, resulting in the indifferent mixing of the introduced olive paste.
Olivaylle’s four malaxeurs are fully enclosed with stainless steel covers which are gasketed so as to form a seal. This is another custom designed feature the intention of which is to permit a blanket of nitrogen to cover the paste while it is malaxing. Each malaxeur incorporates an inspection window.
Yet another custom designed feature of Olivaylle’s malaxeurs is that they are fitted with automatic valves which regulate the filling and emptying of each malaxeur. Usually “Greek style” malaxeurs are filled and emptied manually by an operator who opens and closes gates in a line so as to regulate the flow of olive paste.
The length of time it takes to liberate oil from the olive paste during malaxation is dependent on a number of variables which include olive variety, time of harvest and the temperature at which malaxation is conducted. It will be necessary to consider this subject in more detail later in these reasons in relation to an alleged breach of the Contract in relation to oil recovery.
Once the olive paste has been malaxed it is directed via an eccentric screw pump to the decanter. Instead of a stainless steel tube, an eccentric screw pump uses a rubber tube with a helical stainless steel rotor inside which, when turned, physically pushes the paste through the tube.
An advantage of having four malaxeurs arranged in parallel with each having valves is that it permits a continuous supply of malaxed paste to the decanter during a production run.
·Stage VI – Decanting
The decanter in the production line is a form of centrifuge. Essentially, it is a stainless steel solid bowl which rotates at a very high speed. In so doing it subjects the malaxed paste introduced to it to a force more than 3000 times that of gravity. This occasions a separation of the paste between oil, water and solids which is more rapid and complete than a process that, if the paste were left to stand, would occur naturally in any event to some extent by force of gravity alone by virtue of the differing specific gravities of oil, water and solids.
When operating the decanter continuously separates the olive oil from water and solids. The oil and the water and solids exit the decanter at different points on the machine. The water and solids fall into a hopper which is above another eccentric screw pump. They are then pumped away from the plant. The olive oil falls into a vibrating screen the purpose of which is to remove any remaining solids from the oil. From the vibrating screen the olive oil is pumped into a tank (the Pre-Separator Balance Tank) prior to its being “polished”.
The Flottweg supplied decanter is described as a sealed N² version. This decanter version allows for the introduction of nitrogen gas into the machine so as to displace any oxygen inside it.
·Stage VII – Polishing
“Polishing” refers to a process by which the raw olive oil is clarified. This occurs in a disc centrifuge, the “Separator” shown on the production line diagram. The disc centrifuge is a solid bowl which contains many stainless steel discs. These rotate and cause further separation of the raw oil. To assist that process of removing any remaining suspended solid particles from the raw oil water is added. From the separator the clarified oil is pumped, via another balance tank, to day tanks in which the oil is stored.
The separator also is designed to allow nitrogen to be introduced into it. The design theory is that the introduction of nitrogen into the separator if adequately sealed so as to allow the creation thereby of a positive pressure inside it will both displace oxygen inside it and prevent oxygen being drawn into it from the outside. The creation inside the separator of a greater pressure than that in the outside atmosphere would prevent the outside air intruding into it.
Process 5 tonnes per hour while recovering a minimum of 85% of the oil contained in the olives
As pleaded, Olivaylle’s case overgeneralises and thereby overstates the nature of the obligations cast on Flottweg by the Contract in respect of the processing speed of the production line and its rate of recovery. Contrary to that pleaded case, Flottweg did not by the Contract assume an obligation to supply a production line which would process 5 tonnes of olives while recovering a minimum of 85% of the oil contained in the olives. The obligations it assumed both as to processing speed and oil recovery were qualified.
The processing speed term and the oil recovery term were each expressly qualified contractually by reference to whether or not the olives were to be depitted in the course of the processing operation. Assuming though that olives were not depitted in processing, I accept Olivaylle’s submission that the Contract provides not just for a minimum of 85% oil recovery but that this will occur while the line is operating at a rate of 5 tonnes per hour, ie that the two terms are conjunctive in their operation. The oil recovery term is not to be read in isolation from the production line speed term. Oil recovery is to occur in the context of the operation of the production line sold, not as a theoretical construct.
As to production line speed, it was made explicit in the Contract that the depitting of olives would reduce the speed at which the production line would operate by at least 50%. Why that was so was explained on the face of the Contract:
It should be noted that if olives are de-pitted the capacity of the decanter will fall by at least 50%. In the case where 50% of the olives is pit, the total feed to the plant will still be 5 TPH olives even though the decanter will feed at only 2.5 TPH of mash.
By this Flottweg was making it plain that depitting would slow the production line with the effect that depitted olives could not be fed into the decanter at a rate higher than 2.5 tonnes per hour.
As to oil recovery, it was not only an absence of depitting but also adherence to Flottweg’s instructions for the operation of each unit that expressly qualified the oil recovery term. Flottweg expressly refrained from assuming any contractual obligation as to oil recovery in the event that depitted olives were processed. All it did was to sound a cautionary note that its expectation was that the oil recovery could be expected to be less than 85% without in any way professing what the recovery rate might be.
What is entailed with not depitting olives is obvious enough on the face of the Contract, especially having regard to the units which comprise the production line and the provision made for optional flow splitting; but what of “Flottweg’s instructions” for each unit?
Olivaylle’s submissions in relation to the contractual specification in respect to oil recovery adopted what one might describe as a strategy of considered deflection. Thus, in its written submissions, it was submitted that the 85% recovery specification “should be interpreted on the basis that the olives would be processed at about the [Design Criteria Document] maturity and at an acceptable temperature which did not encourage oxidation and an adverse change in the polyphenol content” and “must also be construed in the context of accepted good Australian processing practice”. It became apparent in oral submissions that Olivaylle’s endeavour to deflect attention from the express contractual prescription that “Flottweg instructions are followed for each unit operation” was considered in the sense that it was grounded in a submission that “Flottweg instructions” were neither incorporated by reference in the Contract nor in any event evidenced in the case.
Flottweg took a different approach in its submissions in relation to the oil recovery term. Its submission was that the reference to “Flottweg’s instructions” meant that Flottweg was entitled to direct the manner of operation of each unit in a way to achieve 85% recovery. That manner was said to be evidenced by the draft testing protocol put forward by Flottweg in May 2006 but never, I find, adopted by Olivaylle. Alternatively, and seemingly on the assumption that such instructions as existed went only as to how to operate each unit in the line but not how to operate each in a manner so as to achieve 85% recovery, Flottweg submitted that the reference to 85% recovery should be construed as a reference to 85% recovery under “normal operating conditions”. The latter is an extension of the position pleaded in its Defence.
Under the heading “Documentation”, the Contract makes reference to the inclusion of two copies of Flottweg’s operating manuals. Flottweg did not, in relation to the oil recovery term, seek to make anything of whatever these manuals provided. I infer from this that those manuals have nothing expressly to say about how to operate the machinery so as to achieve 85% recovery.
I have already made reference to Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451. Later, in their joint judgement in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179, [40], Gleeson CJ, Gummow, Hayne, Heydon and Callinan JJ remarked of that case:
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
Approaching the matter in the way mandated in the passage and reading the Contract as a whole, it seems to me that the reference in the oil recovery term to the following of Flottweg’s instructions “for each unit” and the express inclusion by reference of operating instruction manuals is not coincidental. “Flottweg’s instructions” means the instructions referred to in these manuals. I reject Flottweg’s submission that its draft of the test protocol should be held to constitute “Flottweg’s instructions”.
The very nature of the production line supplied to Olivaylle by Flottweg is that it incorporated various custom designed features which I have described. It was though no part of these custom designs that they respond to any uniquely Australian conditions. Such uniqueness as is evident in the units supplied meets the requirements of a company which happened to be based in Australia, not requirements stemming from Australian conditions; witness for example the ability to split the flow of olives in the line or the modifications to permit N² flushing. Subject to particular custom designed features, the process of malaxation and the later decanter and disc centrifuge processing were to occur via the standard operation of these units, wherever in the world they might be situated.
On the evidence, there is an international market for the supply of olive oil production lines and for the supply of units for use in such lines. Flottweg operated in that market. That international market included the meeting of demand in Australia, as both this transaction and the earlier in respect of the Nugan plant evidence, but was hardly confined to Australia. Olivaylle and Mr De Moya in particular knew these matters when entering into the subject transaction. This was but one transaction on a wider, international market. It just so happened that Flottweg’s customer in this instance was Olivaylle, an Australian based company.
I reject therefore Olivaylle’s submission that the 85% oil recovery term is to be measured by reference to “accepted good Australian processing practice” in any sense of implying practices unique to Australia. There are accepted processing practices in Australia but these reflect practices adopted elsewhere in the world.
The more likely construction, having regard to the market in which the transaction occurred and the nature of the processing equipment selected and supplied for inclusion in the production line, is that the 85% oil recovery was intended to be measured by reference to operating conditions that were standard internationally for such processing equipment.
Even if, contrary to my opinion, it is not possible to reach that conclusion by an application of the principle of objectivity to the construction of the Contract, the same result follows, in my opinion, as a matter of implication in order to give the oil recovery term business efficacy.
In Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592 at 605, in a passage cited with approval by the Judicial Committee of the Privy Council in an Australian appeal, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283, Scrutton LJ said:
A term can only be implied if it is necessary in the business sense to give efficacy to the contract i.e., if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, 'What will happen in such a case?', they would both have replied: 'Of course, so and so will happen; we did not trouble to say that; it is too clear.
Lord Justice Mackinnon made observations to like effect in relation to the implication of a contractual term in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227 in a passage which also commended itself to the Judicial Committee in BP Westernport Case (ibid).
The specification of 85% oil recovery in conjunction with the 5 tonne per hour production line speed was clearly important to the parties. It was an inherent feature of the malaxeurs in the line that they were able to be heated and that it was possible to vary the heating temperature. On the evidence, what the parties were doing by excluding from the purview of the oil recovery and line speed specification the circumstance of processing depitted olives was excluding a manner of processing which was unusual in olive oil production internationally. What remained when this was excluded was a production line which, for all its other custom designed features, including N² flushing, was expected to extract olive oil in the usual way in which the machinery in the line would usually extract olive oil, which included the heating of the paste during malaxation. That is why the malaxeurs supplied had that capability. Olivaylle and Mr De Moya in particular believed that there may be beneficial effects in terms of oil quality from the processing occurring in a very low oxygen environment and at malaxation temperatures that were lower than was usual. The terms of the Contract do not associate the incorporation of N² flushing with the rate of oil recovery. Further, had it been intended that the oil recovery term would apply irrespective of malaxation temperature I am quite sure that this would have been expressly stated.
If indeed it is necessary in order to give business efficacy to the 85% oil recovery term by the implication of the particular circumstances in which recovery at that rate will occur, what, in my opinion, was “all too clear” was that this rate of recovery would be achieved and be achieved in a production line operating at a rate of 5 tonnes per hour if processing occurred at malaxation temperatures and in conditions which were normal internationally in the production of olive oil, not in idiosyncratic or experimental conditions.
As to normal operating conditions, I had the benefit of hearing from a number of witnesses. Of these, I found the evidence which Mr Pantelos and Dr Mailer gave on the subject helpful. On analysis, their views as to the usual range of malaxation temperatures were similar. That temperature range is 27°C to 35°C.
Mr Berlanda, who received his formal training and gained his initial experience overseas and who now consults to the Australian olive oil industry, also offered an opinion as to malaxation temperatures. In his report (p 10) he opined that it was “generally accepted that the malaxing temperature should be maintained within a minimum of 20°C and a maximum of 27°C”. This though is a temperature range suitable for oil that is intended to be classified as “cold pressed”. Dr Mailer highlighted this in his report (p 5), citing in support the European Commission’s Regulation No 1019/2002 on “Marketing Standards for Olive Oil” (see Articles 5(a) and 5(b)). I do not accept that, having regard to the evidence of Dr Mailer and Mr Pantelos, a malaxation temperature range of 20°C to 27°C is “generally accepted” for normal olive oil production. Mr Berlanda also opined (ibid) that, “temperature above 27°C decreases the oil quality”, referring then to the types of risk presented. Having regard to the evidence of Dr Mailer and Mr Pantelos, whose views I prefer where they differ from those of Mr Berlanda, one has to malax at considerably above 27°C before adverse effects occur. It was also apparent, when viewing the evidence of these two witnesses as a whole, that there was nothing uniquely Australian about malaxation usually being undertaken at this temperature range. Rather, it reflects the international position. I note in this regard that Mr Pantelos, who has held a representative position in a South Australian olive industry organisation, also had the benefit of overseas study trips in relation to olive oil production and that Dr Mailer brought to bear extensive research experience which embraced the position internationally as well as experience gained from consulting to the industry in Australia,
Though he had his own strong and I have no doubt sincerely held views as to how to produce olive oil of the very highest quality, Mr De Moya frankly conceded in cross examination that “normal” olive oil processing plants malax olive paste at about 30°C.
As I have mentioned, it was also evident that malaxation can be and is undertaken at lower temperatures than this normal 27°C to 35°C range, especially when the aim is to produce olive oil which is termed “cold pressed”. This though reflects a particular rather than a general or usual method of processing. Having regard to the way in which I have concluded the oil recovery term is to be construed or necessarily supplemented by implication, the 85% oil recovery specification does not extend to recovery for this purpose.
Important though it is, malaxation is but one facet of olive oil production. A number of other factors intrude. In his report of 26 October 2007 (Ex SCP1 to his affidavit), Mr Pantelos offers a comprehensive account of factors relevant to oil yield in olive oil production. An understanding of these is important to a determination of whether Flottweg breached the Contract in relation to recovery of olive oil.
Mr Pantelos gave what I regard, having had the benefit of observing him also give oral evidence, as reliable evidence in relation to factors which affect the performance of an olive oil processing line with respect to recovery of olive oil. In voicing that conclusion as to the reliability of his evidence, I bear in mind that he has not operated a plant with a 5 tonne per hour capacity, although he has observed a plant which operates at that speed in operation. The maximum capacity plant he has operated is a 2.5 tonne per hour plant. He first operated a plant of that capacity in 1999. At that time, that was the highest output olive oil processing line in Australia. Axiomatically also, because Olivaylle’s plant pioneered this in Australia, Mr Pantelos had not operated a plant which featured N² flushing. It seemed to me that Mr Pantelos’ evidence as to the olive oil recovery process and factors which impinge upon yield and oil quality were not affected by his not having operated a 5 tonne per hour capacity plant. What follows are what seemed to me to be key factors as derived from his report.
The key components of an olive from the perspective of olive oil production are the solid content, the water content and the oil content.
Oil yields from olives can vary widely depending on factors such as olive variety, irrigation and climatic conditions. Generally though, oil producers expect to extract between 80% and 90% of total available oil in an olive.
There are three key measures of olive oil quality:
(a)Low free fatty acid (FFA) level – This is relevant to the grade of the oil. To qualify as oil of the highest grade known as extra virgin olive oil, the FFA level must be less than 0.8%. As soon as an olive is harvested its oil quality starts to deteriorate, largely due to an increase in FFA.
(b)Peroxide level – The lower the peroxide level, the longer the life expectancy of the oil. Unlike some types of wine, olive oil deteriorates with age.
(c)Polyphenol content – This is a key determinant of flavour. In general, the higher the polyphenol content, the more flavoursome the olive oil.
An extraction plant itself cannot improve oil quality. Rather, apart from pre-processing factors such as harvesting techniques, storage conditions and time taken to commence processing, the extent to which the oil quality deteriorates depends on an operator’s choice of the main processing parameters. These are:
(a)temperature;
(b)amount of added water; and
(c)malaxing time.
These processing parameters are critical during malaxation and decanter separation.
Low processing temperature, the addition of only minimal water in processing and a short malaxing time will maximise oil quality. Conversely, the adoption of this practice will heavily reduce yield. By the same token, increased temperature, water addition and malaxing time in processing will increase oil yield but reduce its quality. A balancing exercise is therefore involved. I interpolate that yet another factor arising from the choice of malaxing time is that the choice of time may impact upon the speed at which the line overall is able to operate, whatever may otherwise be its capabilities.
Mr Pantelos opined and I accept that both the quantity and the continuity of the supply of olives are relevant to the oil yields achieved on a production line. He observed of Olivaylle’s line and those like it that they were designed to operate continuously throughout a season. To achieve its maximum capabilities, such a plant needs to have a large and uninterrupted supply of olives. Further, such a plant needs a few hours to “settle”. By this I understood Mr Pantelos to mean time for the flow of olives to commence working their way along the production line, for malaxeurs to heat up and for the operator to observe the flow and make fine tuning adjustments to machinery as required based on observation. In practice, an operator would build up to a consistent 5 tonne per hour processing speed. Mr Pantelos’ opinion, which I accept, was that for a plant such as Olivaylle’s, a supply of at least 20 tonnes of olives would be needed so as to build up to a consistent 5 tonne per hour processing speed. During the building up phase lower yields would be expected. If a production run is interrupted by, for example, power failure, loss of oil can occur, as unseparated paste remaining in the cone of the decanter will be discharged. Further, temperatures levels in the malaxeurs would fall, which would impact adversely upon the breakdown of oil cells necessary for efficient oil separation.
With these factors in mind, I now consider the performance of the plant in the 2005 season, following its delivery and initial installation, and in the 2006 season.
This subject is best approached by reference to what Olivaylle has been able to do with the line and the properties with the properties that Olivaylle asserts it has.
The line is able to produce extra virgin olive oil. Dr Mailer said as much. It is able so to do at least in circumstances where there is a low level of atmospheric oxygen, not less than 1% v/v on Olivaylle’s case but, as I would find if I were disposed to accept Olivaylle’s evidence, within 1% to 2% of that in all likelihood. It is not necessary to achieve the contractually specified minimum in order to describe olive oil even as “gold medal” extra virgin olive oil. Nor is it necessary for there to be any nitrogen blanketing at all in olive oil production in order to achieve that quality description. That there may be some benefit by production in a low atmospheric oxygen environment in assisting in the achievement of oil of that quality is known but it is not in any way essential. There is no Australian or international standard to which production of olive oil in circumstances where the attainment of an atmospheric oxygen level of 1% or less v/v is essential. Nor, apart from quality standards, is there any separate commercial advantage attached to that descriptor in Olivaylle’s conjectured American market.
As to Olivaylle’s conjectured American market, I had what I regard to be the considerable advantage of receiving evidence from Ms Nancy Ash. The oral content of her evidence was received by video link. Making due allowance for the degree of remoteness introduced by that medium, I found her to be an engaging, candid, objectively detached, thoughtful witness. She readily made concessions or acknowledgements when appropriate in cross-examination, even when so doing involved at least a degree of controversy (the withdrawal of recognition in 2006 by the International Olive Oil Council of the accreditation of the accreditation of the testing panel of the California Olive Oil Council). All in all, she was a most impressive witness of significant relevant expertise. I have no hesitation in accepting and acting on her evidence. It is convenient here to set out the findings that I make based on her evidence, even though these extend beyond just the question of whatever advantages might adhere to being able to market olive oil in America as being produced on and from the stage of malaxation in circumstances where the atmospheric oxygen was 1% v/v or less.
Ms Ash has over two decades experience working in the specialty foods industry in the United States. In that time she has assisted either clients or employers with their sales and marketing efforts. In 1993 she began working with Manicaretti Italian Food Imports marketing high end extra virgin olive oils among other Italian artisanal food products. Since then she has been trained as an olive oil taster and taste panel supervisor in accordance with the International Olive Oil Council guidelines. In 2006 she purchased a business known as “Strictly Olive Oil”, an olive oil consulting and education business which has been operating since 1985. She is based in California. The current clients of her business include the California Olive Oil Council (a peak industry body) and various Californian olive oil producers including California Olive Grove, the largest olive oil producer in the United States.
It is no coincidence that she is based in California. Both her evidence and that of Dr Mailer are that almost all of the olive oil produced in the United States emanates from California.
Ms Ash was asked to make a number of assumptions for the purposes of furnishing the report she adopted in her evidence. She was asked to assume that:
(a)Olivaylle’s olive oil satisfies all International Olive Oil Council standards for the extra virgin olive oil classification;
(b)Olivaylle’s olive oil was produced with systems intended to minimise oxidation, under a nitrogen blanket that lowered the level of oxygen in the gas phases of the equipment to between 1% v/v and normal atmospheric levels at various times and at various times and in phases of the process;
(c)Olivaylle was to sell its olive oil in 500 ml bottles.
Ms Ash was briefed with costs and sales projections as detailed in her report and as derived from a report of Mr Jorgensen (an accountant who came to give evidence in Olivaylle’s case). She adopted for the purposes of her report an exchange rate between the Australian and United States dollars current as at 24 November 2007 (A$1 = US$0.88 and US$1 = A$1,14).
Based on Ms Ash’s evidence, I find:
(a)There are extra virgin olive oils sold in specialty stores throughout the U.S. at the retail price of USD$26.40.
(b)The stated retail price of AUD$30 for Olivaylle’s 500 ml extra virgin olive oil is unreasonable because this retail price is too low to realize a profit except when selling directly to the consumer via website or catalogue sales. If the retail price is increased to allow for a profit selling into hybrid supermarkets with a distributor and broker, it would then be priced too high for those retailers and their consumers.
(c)The most important factor in a consumer’s decision to purchase (or not) extra virgin olive oil is its price. The U.S. consumer is accustomed to 500ml of extra virgin olive oil being sold in traditional supermarkets for US$10-15 per bottle, and because of this level of pricing, consumers question why other brands of extra virgin olive oil in other stores sell for higher prices. For any increase in retail price over USD$15, the product will lose a significant number of customers.
(d)There are many factors that contribute to the success of a new product in the U.S., and some of these, such as general economic conditions and international exchange rates, are not in the control of the producer/importer. No one can accurately predict the success of any new product.
(e)Assuming that Olivaylle was successful in launching its 500ml extra virgin olive oil in the U.S., the sales volume (stated in Mr Jorgenson’s report) is not reasonable because it assumes that Olivaylle will capture an unreasonably large percentage of total extra virgin olive oil sales in the U.S.
(f)In order to attain the stated volume of unit sales, Olivaylle’s 500ml bottles would need to be sold in the traditional supermarket segment. However Olivaylle’s stated retail price of AUD$30 is too high for this market segment.
(g)The stated retail price of AUD$30 is too high for the traditional supermarket segment, yet not high enough to realise a profit when selling to specialty food stores at the wholesale price, or through a distributor to any retailer.
(h)Although the stated price of AUD$30 is profitable as based on Olivaylle’s assumptions as to cost of production when selling directly to consumers, the stated volume of units cannot be attained through direct website and catalogue sales alone. Internet sales account for some portion of producers’ total sales. A realistic quantity that could be sold through internet sales is less than 1,000 units per year.
As to whether marketing Olivaylle’s oil processing method as occurring in an “oxygen-free” (or even low oxygen) environment would add to its perceived value in the U.S. market, I make the following further findings of fact, based on Ms Ash’s evidence:
(a)All marketers aim to position their products as “unique and innovative”. Many marketers of extra virgin olive oil use descriptors, such as superior, premium, reserve, special selection, and limited to distinguish their product from others, however descriptors are not regulated and anyone can say anything, except for health claims, to position his product in the U.S. market.
(b)In general the U.S. consumer does not understand the differences between grades of olive oil (promace, pure, virgin, extra virgin), and does not understand enough about processing olive oil to judge whether the level of oxygen to which it is exposed affects the quality of the oil. Although consumers might find the nitrogen blanketing technology to be an interesting story, not many people would perceive it as adding value to the product and want to spend more on an oil that was processed using this technology.
(c)When U.S. consumers make purchasing decisions, first they consider product price, and then they consider the product’s flavour. A producer’s claim of superiority is far less important than either of these factors.
I further find, again based on Ms Ash’s evidence, that Olivaylle’s use in its labels of the descriptors “Olive Nectar” and “Non Plus Ultra” would have no real meaning to a US consumer and little or no impact in consumer purchasing decisions. I accept that these descriptors appeal to Mr De Moya but that appeal does not translate into market appeal.
Ms Ash’s evidence in respect of internet based sales of olive oil was that such sales were but a small proportion of a producer’s sales, a minor adjunct. This might be contrasted with the sales volumes projected by Olivaylle.
Based on her evidence, I find that whether launched in November 2005 or later and whether solely by internet or in some hybrid way, Olivaylle’s proposed marketing of its olive oil in the United States would have failed, yielding no profit whatsoever and more likely than not the incurring of substantial losses. Olivaylle lost no lucrative American market, as Mr De Moya asserted in his evidence.
Further, Olivaylle could not, even assuming in its favour that it had proved a breach of the oxygen level term, lawfully have marketed its olive oil as produced in an “oxygen free’ environment. So to do would have been misleading or deceptive. Even as contracted for, not all phases of the line were subject to the oxygen level term and those that were could have had up to 1% v/v of atmospheric oxygen. It is still able to market its product as produced in an “oxygen controlled” environment, for whatever commercial advantage that conferred. On the evidence, that is the labelling term it has adopted since 2007.
Mr De Moya asserted in his evidence that problems with the production line and in particular its inability to achieve the contractually specified oxygen level were the reason why Olivaylle abandoned its plan in late 2005 or early 2006 to launch onto the American market. Such a plan had been formulated by Mr De Moya with the assistance of a son-in-law, a Mr Richard Warren, who held a senior sales position with the clothier Polo Ralph Lauren. He was not called to give evidence in Olivaylle’s case. He was said by Mr De Moya to be an expert in matters of sales and marketing and to have had an extensive involvement in the formulation of the marketing plan that came to be abandoned.
The original plan involved the incorporation of a distribution company, “Say Gourmet” and the entry by Olivaylle into an exclusive sales and marketing agreement with that company. It was planned to establish a new quality level within the U.S. market for Olivaylle’s olive oil under the name “non plus ultra”. The projected sale price was set initially at $15.00 and then at $10.00.
This original plan was abandoned at a meeting of members of the De Moya family in Miami either in late 2005 or early 2006. I find that this abandonment was attributable to an appreciation that the projected sale price per bottle could not have yielded a profit because of distribution costs. Mr De Moya came to admit as much in cross examination. It was not attributable to any perceived production line difficulties.
A later “internet launch” strategy in respect of the olive oil was also abandoned as a result of a decision taken by members of Mr De Moya’s family. The reason for this was the disinclination by the family to incur projected launch costs of US$1 million to US$1.5 million. In so doing, the family over-ruled Mr De Moya. Having regard to the findings which I have made based on Ms Ash’s evidence, that family decision was prudent. I do not accept that the decision was attributable to an inability to guarantee production in an oxygen-free environment.
Neither the original “Say Gourmet” plan nor the later “internet” plan was made known to Flottweg prior to the contract.
The decisions to abandon U.S. product launches also demonstrate to me that, while Olivaylle has had the benefit of indulgent funding via the family controlled Atalaya Corporation, that funding cannot be presumed to be available just on Mr De Moya’s request. I infer that, though Mr De Moya is greatly respected within his family, there are limits as to the extent to which that will translate into financial indulgence.
As to other allegedly loss causative issues related to contractual specifications, such shortfall as there was in the processing speed of the line in the 2005 and 2006 seasons led to no delay in the processing of Olivaylle’s olives. The evidence is quite to the contrary. Mr Nieuwkerk’s evidence, which I accept, is that all olives were able to be processed within appropriate time frames. This was so even in circumstances where, any inability to process at a sustained rate of 5 tonnes per hour apart:
(a)Olivaylle chose to malax at abnormal temperatures thereby necessarily slowing the processing speed in any event.
(b)There were problems with the hopper and weigh belt to which I have adverted.
(c)Olivaylle’s harvester broke down, thereby interrupting the supply of olives.
I find that Olivaylle has lost no profits from its olive grove in either 2005 or 2006 as a result of any non-compliance with any of the contractual specifications. I also find that Olivaylle did not in the 2005 or 2006 seasons incur any extra processing costs attributable to any shortfall in the processing speed of the line. Even on Olivaylle’s case, the line was operating at nowhere near full capacity in either of those seasons.
As to oil recovery, even were I minded to accept that Olivaylle has proved non-compliance with the 85% contractual specification (and I am not), the shortfall would seem to me to be little more than 1% or 2%. In its submissions, Flottweg was able to demonstrate by example that, at the assumed selling price of A$30.00 per 500ml bottle and assuming 100 tonnes of olives per harvest, a 1% increase in yield would generate but $12,000 before bottling, marketing and transportation expenses were deducted. Yet further, the evidence is overwhelming that Olivaylle’s aim is to malax not just at “cold press” temperatures but at even lower temperatures. At such temperatures a yield of 85% is not possible. In those circumstances, whether or not at normal malaxing temperatures Olivaylle’s production line is able to achieve an 85% yield or even just 1% or 2% short of that is of hypothetical interest only.
In theory, were the production line non-compliant with the contractual specifications but it had decided nonetheless to retain it and to sue for damages for breach of contract, Olivaylle would be entitled, as a head of damages, to an amount equal to the difference between the value of the production line for which the contract provided and the value of the production line in fact supplied. It is necessary to say “in theory” because there is no evidence of what that difference in value might be. As I have noted when highlighting difficulties of causation in Olivaylle’s claims in contract and under the TPA, the shortfalls in the contractual specifications seem at best in favour of Olivaylle to have been marginal, ie on its case the line nearly met the specifications. That is not a satisfactory basis upon which to embark upon even a robust assessment by inference. Rather, it highlights a failure to discharge a persuasive onus in relation to proof of loss. If such a marginal difference did sound in a capital loss, that was a matter for evidence.
The same may be said in relation to any claim for capital loss under the TPA. This would require a comparison between the price paid and the actual value of the production line. The one is known; the other is a matter only of conjecture.
I do not accept that Olivaylle, as claimed, wasted $454,833 of expenditure prior to 30 June 2006. Olivaylle was never going to operate its olive oil production line in the open. It was always going to construct the production facility to house its olive oil production line from whichever company it chose to purchase the same. It was always going to incur ancillary costs in relation to that production facility such as connections to utilities. What, if any, of expenditure for work performed by Bavaryan Staincraft, TCE and Mr Nieuwkerk should be treated as thrown away is, on the evidence, a matter of conjecture, not evidence. Mr Nieuwkerk and perhaps also Mr Carey might have been able to offer precision on this subject but none was sought from them. It was for Olivaylle to do this, for it has the onus not only of proving the elements of the causes of action it asserts but also the loss and damage it claims.
Olivaylle’s claimed loss of $10,867,040.00 required an acceptance not just of the reasoning adopted by the accountant it called, Mr Jorgensen, but also of the factual foundation for his report. The findings which I have made in relation to the absence of any lost market in the United States for Olivaylle’s olive oil themselves remove that foundation.
Mr Jorgensen voiced no opinion on the reasonableness of the factual assumptions on which he made his calculations. These assumptions were largely based on Mr De Moya’s original projections, not on actual events or their impact. Those original projections were those of someone who was both as an olive grower and marketer a layman.
There are a number of other facts which make the basis upon which Mr Jorgensen has come to express his opinion as to loss unreliable. In summary they are:
(a)There is an assumed continuance of indulgent financial support of Olivaylle by the Atalaya Corporation. That company appears to be but a conduit for the De Moya Group. The latter is not under the control of Mr De Moya but his wider family. The abandonment of both the “Say Gourmet” and internet based marketing plans shows that there are limits to the extent to which the wider family will indulge Mr De Moya, his chairmanship of the De Moya Group notwithstanding. Quite what those limits might be is uncertain. I was also left in some doubt as to whether the same drive would attend Olivaylle’s operations in the event of Mr De Moya’s demise. That is not a palatable prospect to contemplate for there is much to admire about his intellect and achievements. However and with all due respect, he is not a young man and his passing is not a remote contingency over the duration of Mr Jorgensen’s projections. It was for Olivaylle to prove an unlimited continuance of funding. It led no evidence of the worth of either the De Moya Group or the Atalaya Corporation. Nor did it lead any evidence from a member of the younger generation as to ongoing commitment. I find that Olivaylle will not be able to rely on funding from this source for the period of Mr Jorgensen’s calculations.
(b)I do not accept that there is any foundation for Mr Jorgensen’s making calculations based on a business plan which assumes for the years 2005 to 2007 inclusive production of 408,202 litres of olive oil. The evidence before me is that for that period 50,000 litres has been produced. An accountant called in evidence by Flottweg, Mr Samuel, was able to demonstrate (and I accept) that, of the difference between the business plan figures and the evidence, 9,000 litres was referable to Mr Jorgensen’s attributing the yield to 72% rather than 85%. Quite what the explanation might be for the remaining difference of 349,202 litres remains a mystery.
(c)Mr Jorgensen has not taken any account in his calculations of a failure in the Nevadillo trees in the grove to produce any olives until 2008. Yet 45% of the grove is comprised of olive tress of this variety. The trees of this variety had a genetic difficulty. Olivaylle was not unique in being unaware of this when laying out its grove. The result of the genetic difficulty was that the trees did not self-pollinate. Initially, they failed to produce olives at all. It was not until, over the course of 2005 and 2006, every fifth row of trees of this variety was removed and pollinator trees of different varieties were planted that the remaining Nevadillo trees started to bear any fruit at all. How much varies according to the proximity of the proximity of the remaining Nevadillo trees to the newly planted pollinator trees (in 2008 the estimate varied from nil to 15 kg per tree). Even so, as Mr Ravetti, an expert in olive tree horticulture explained, I find the genetic features of the Nevadillo trees are such that they will continue to produce fewer flowers from which olive fruit will set than other varieties of olive trees. As Mr De Moya conceded in a voice which I noted and well recall was heavy with irony, “I have no experience in Nevadillos producing. I have a lot of experience in Nevadillos not producing.” It was a significant moment during the trial. For all that, its impact has not been taken up by Mr Jorgensen. Neither has he taken account of the impact of Olivaylle’s plan, voiced in evidence by Mr De Moya, to uproot and replace all Nevadillo trees if the yields do not reach a satisfactory level.
(d)The actual production of olives at the grove has been less than that which Mr De Moya anticipated based on his study of grove yields internationally, as the following tabulation shows.
Year
2005
Projected Tonnage
160
Actual Tonnage
125 (but perhaps as little as 41, the latter better in keeping with then extent of the Nevadillo tree problem)
2006
300
144
2007
500
59
(e)The vicissitudes of nature have to date severely affected the grove. Hail and high winds affected the 2006 crop. Hot winds which blew in October and November 2006 blew most of the flowers off the trees in the grove, thereby reducing the 2007 crop of olives. There is evidence that high winds are not an isolated event, even if hot winds are not regular. On any view, there is a contingency of adverse crop yield impact from naturally occurring events. Mr Ravetti adverts to this and its predictable frequency in his report.
(f)As to the crop for 2008, this was at trial a matter for estimation, actual harvest figures not then being available. There was in this regard a correspondence of expert evidence. Each of Messrs Ravetti and Berlanda put the likely crop at 700 tonnes. Mr Ravetti gave an estimate of 272 tonnes for the 2009 crop (assuming no vicissitudes of nature). He offered a plausible explanation for this pessimism. New growth is essential to the amount of crop one can expect in the following year at a grove. He noted little or no growth on the Frantoio or Corregiola variety trees when he inspected the grove in 2008. Mr Ravetti struck me as a man who well knew his subject and who was trying as best he could dispassionately to give the Court the benefit of that knowledge. He also struck me as the keener observer of the grove than Mr Berlanda. I prefer Mr Ravetti’s evidence generally where it conflicts with that of Mr Berlanda. The statements made by Mr Ravetti in his report concerning the problems nationally experienced with Nevadillo trees and why exactly coincided with Olivaylle’s experience and provide another reason why I prefer his evidence. I accept his estimate in respect of the 2009 crop. I also reject the criticism made of Mr Ravetti’s evidence based on the timing of its introduction. That was a necessary reflection of the time at which Olivaylle had opened up subjects concerning the grove and its management in Mr Berlanda’s evidence. Olivaylle had, in my opinion, a reasonable opportunity in the course of the trial to address Mr Ravetti’s evidence.
(g)Vicissitudes of nature aside, the soils at the grove do not hold water well and have almost no naturally occurring nutriments. Olivaylle, prudently, has engaged an expert, a Mr Guerrero, to furnish it with advice in relation to irrigation and fertilisers. It has in place a system of drippers and lines to apply fertiliser. Nonetheless, recent soil and leaf analysis reports highlight that nutrient deficiencies remain. Further, the system mentioned has been affected by bacterial mud blocking the drippers and by roots penetrating irrigation lines. This has led to inconsistent tree growth at the grove and adversely impacted on its productivity. Mr Ravetti’s evidence, which I accept, is that for the each of the 2004/2005 and 2005/2006 years the grove received less than half of the water that a fully irrigated grove planted in 1999 should receive.
These factors persuade me that cash flow projections upon which Mr Jorgensen acted in making his calculations are quite unrealistically optimistic. Mr Jorgensen conceded in evidence that his choice of 40% as an appropriate discount rate was based on an assumption that the cash flows with which he was provided were conservative. He stated that, had he known they were not conservative, he would have selected a higher discount rate.
There are other flaws in the assumptions upon which Mr Jorgensen was briefed to express his opinion. He assumed a delay of 5 years in the implementation of Olivaylle’s plans. There was not a scintilla of evidence which would support such a lengthy postponement. On the findings I have made, the only remaining repair or replacement task that remained would have occasioned no delay whatsoever in the commencement of processing for the 2007 season, and this Olivaylle unreasonably refused to allow Flottweg to effect, notwithstanding the latter’s contractual right.
Mr Jorgensen was asked to (and did) assume production costs of $2.50 per bottle. This was much lower than the evidence of historical costs which were between $16.00 and $22.00 per bottle. As Mr Samuel explained, adopting the latter, which seems much more reasonable to me, would eliminate all of the forecast profits.
As to production costs, Mr De Moya accepted that those anticipated by Olivaylle were four to five those of some other producers in the market. He also acknowledged that its intended method of production was, “according to all people that have been doing this for years, too expensive for the market.” He stated, “Well that may be true, but we don’t believe it to the point where we have been willing to spend our own money to prove it”. I found that answer revealing. Mr Jorgensen’s calculations are based on Mr De Moya’s self belief, not facts or reasonable assumptions based on known facts and relevant experience. They are in short worthless.
Such is the inadequacy of the factual foundation for the calculations in Mr Jorgensen’s reports that it is unnecessary to refer to all other bases upon which Mr Samuel came to criticise them. He noted, for example, that there were inconsistent assumptions made by Mr Jorgensen as to the percentage of fruit producing trees. He also noted that no allowance had been made for ongoing repairs and maintenance requirements or for capital equipment in the residual value. These are legitimate criticisms. Further, I can see no basis for Mr Jorgensen’s having selected 1 January 2008 as a calculation point. That date has nothing to do with anything which is in any way material in this proceeding. Were it to matter, and on the findings as to liability and the absence of any lost American market that I have made it does not, such matters would persuade me to act on Mr Samuel’s critique and opinions rather than those of Mr Jorgensen. I accept that, fundamentally flawed though Mr Jorgensen’s opinions as to the amount of loss are, my rejection of them would not disentitle Olivaylle to an assessment of damages. Were I to find that there had been a loss of market then, difficult though the exercise might be, I should be obliged to do the best I could to assess damages, even if that involved a degree of guess work.
Were I to embark on any such assessment then I should be obliged to take into account in Flottweg’s favour the profits that Olivaylle has derived from its continued use of the production line. Mr Jorgensen stated that $615,000 had been made from sales of oil produced in 2005 and 2006. I accept that. I do not have exact evidence of what has been made in 2007 and 2008. Even so, what would stand in Flottweg’s favour is not just that which was made but that which ought reasonably to have been made.
Olivaylle at one stage sought an award of exemplary damages. I did not understand that claim to be pressed. Even if it were, such damages are not available either for breach of contract or under the TPA. Further, there is nothing in Flottweg’s conduct which would in any way warrant the making of an award of such damages if they were able lawfully to be claimed.
Concluding Remarks
Reflecting on and reconsidering for the purposes of preparing this judgement the evidence served to confirm for me an impression which I increasingly formed as that evidence unfolded in the course of a lengthy trial. Flottweg seems to me to have become the focus for Mr De Moya’s disappointment with a business plan that has not enjoyed the success for which he hoped and strove. That focus does not, as I have found, bear objective scrutiny of the facts. That Mr Jorgensen was instructed to base his calculations on figures in a business plan which, as I find, defied the course of events exemplifies the degree of Mr De Moya’s disappointment, not a basis for quantifying Olivaylle’s damages. It has suffered no compensable loss at Flottweg’s hands. I do not attribute dishonesty to Mr De Moya in the pressing of such a claim – the concessions against interest he made and volunteered in cross-examination were too readily and sincerely given for that (e.g. in relation to the failure of the Nevadillos) – only disappointed pride.
It only comes to this. I dismiss the application.
I shall hear the parties as to any particular costs orders which are sought.
I certify that the preceding two hundred and seventy-eight (278) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 20 May 2009
Counsel for the Applicant: Mr Whittington QC with Mr Teague Solicitor for the Applicant: Wallmans Lawyers Counsel for the Respondent: Mr Hoffmann QC with Mr Doyle Solicitor for the Respondent: Baker & McKenzie Dates of Hearing: 3 December 2007 – 14 December 2007
17 March 2008 – 4 April 2008
21 April 2008 – 23 April 2008
12-13 May 2008Date of Judgment: 20 May 2009
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