Reid Lalor Sales Pty Limited v Steve Ellery Printing Pty Ltd
[2006] NSWDC 3
•7 September 2006
CITATION: Reid Lalor Sales Pty Limited v Steve Ellery Printing Pty Ltd [2006] NSWDC 3 HEARING DATE(S): 05/12/05-08/12/05, 20/02/06-24/02/06, 27/02/06,01/03/06-03/03/06
JUDGMENT DATE:
7 September 2006JUDGMENT OF: Phegan DCJ DECISION: 1. Verdict and judgment for the defendant in the plaintiff's claim; 2. Verdict and judgment for the cross-claimant in the cross claim for the amount of $7,500; 3. Plaintiff/Cross-Defendant to pay the defendant/cross claimant's costs in the proceedings consistent with interlocutory costs orders but not including costs incurred in connection with written submissions from 6 March 2006. Costs not to include second counsel; Exhibits returned to parties on 07/09/06. CATCHWORDS: contract - breach - repudiation - termination - damages - implied warranties of fitness and unmerchantable quality - misleading and deceptive conduct LEGISLATION CITED: Sale of Goods Act 1923 (NSW)
Trade Practices Act 1974 (Cth)CASES CITED: Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1
Speedway Safety Products Pty Ltd v Hazell & Moore Industries Pty Ltd [1982] 1 NSWLR 255
Bill Acceptance Corp Ltd v GWA Ltd (1983) 78 FLR 171
Fink v Fink (1946) 74 CLR 127 at 143
Marten Ltd v McManus Childs Ltd [1969] 1AC
Aerial Advertising Co v Batchelor's Peas Ltd (Manchester) [1938] 2 ALL ER 788
Jones v Dunkel (1959) CLR 295PARTIES: Reid Lalor Sales Pty Limited T/as Reid Lalor Displays (Plaintiff/Cross-Defendant)
Steve Ellery Screen Printing Pty Ltd (Plaintiff/Cross-Claimant)FILE NUMBER(S): 1150/04 COUNSEL: Mr M Thompson (Plaintiff/Cross-Defendant)
Mr P Larkin (Defendant/Cross-Claimant)SOLICITORS: Joanna Brouwer & Associates (Plaintiff/Cross-Defendant)
Fox & Staniland (Defendant/Cross-Claimant)
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JUDGMENT
1 HIS HONOUR: In April 2003 the plaintiff company was contacted by Artel Group Pty Limited (POP Productions) acting as agent for Amatil (Coca Cola) regarding the production of three point of sale items for the promotion of an Amatil product known as “NESTEA Ice Tea”. The three point of sale items to be made of moulded plastic were “bottle glorifiers”, plastic sheets vacuum formed into the shape of a mountain with platforms at different heights on which samples of NESTEA bottles would be placed as a product display; plastic trays bordered by a moulded frame; and “fridge attachments”. All three items were to be manufactured by the plaintiff from PETG plastic sheeting with a pattern to resemble ice, known as an “ice effect”, printed on the display side of the sheeting.
2 Following discussions with Mr Steven De Lorenzo from Artel on Thursday, 24 April 2003, Mr Stephen Thompson, the plaintiff’s design development manager, gave directions to the plaintiff’s estimator, Mr Neil Jennings, to make up cost estimates based on Artel’s requirements. On the same day Mr Jennings telephoned Mr Steven Ellery, the managing director of the defendant company, and asked him to prepare a quote for the printing of the ice effect on the plastic sheeting.
3 On the following Monday, 28 April, Mr Jennings faxed the job specifications to Mr Ellery and the defendant based its first quote on the use of 915 x 915 plastic sheets. There was a second quote based on a combination of 610 x 610 and 1220 x 813 sheets. The date of the second quote is unclear, a problem created by Mr Ellery’s practice of amending quotes by altering previous ones without altering their dates. In fact there were further amended quotes extending into early July 2003, but all bore the date 28 April. On the face of the quotes it is impossible to determine not only their actual dates, but also the order in which they were dispatched or whether they were dispatched at all.
4 The system of printing employed by the defendant is known as “process” printing in which four standard colours are used: cyan (blue), magenta (red), yellow and black. The colours are applied, through screens (stencils) one for each colour and using either dot or line form, onto the surface of the clear plastic sheets. The screens are prepared from film for each colour based on a chromalum (photographic) proof. In this case the ice effect which the ultimate print was expected to represent was depicted in the chromalum proof. Cyan, was to be modified by magenta, in order to produce the required overall blue colour of the print. Black was to be added in very small quantities primarily to improve the sharpness of the image. A white coating was then to be applied to the back of each sheet, in order to enhance the icy appearance. Before the printing commenced, it was decided that yellow was not needed.
5 After a delay of about one month, telephone contact between Mr Jennings and Mr Ellery resumed, although there is a dispute between them about both the time and the content of their conversations. On about 20 May 2003 Mr Ellery sent a PETG printed plastic sheet for the purpose of a test run on the plaintiff’s vacuum forming process. The test print was an advertisement for Mortein insect spray depicting the character Louis The Fly. When the sheet was vacuum formed the inks cracked and separated, a fact which Mr Jennings immediately reported to Mr Ellery by telephone.
6 Messrs Jennings and Ellery also disagree on whether, prior to the provision of the test print, Mr Ellery had been told that it would be vacuum formed. What is not disputed is that, as a result of the unsuccessful test, Mr Ellery recommended the use of an ink designed especially for vacuum forming known as “Omniplus” for the purpose of further testing. Mr Jennings asked Mr Ellery whether he had any sample with ice in the design to which Mr Ellery replied that he had a screen for an advertisement of “Canadian Club” with an ice design in the background. It was agreed that Mr Jennings would send some clear PETG plastic sheeting on which the Canadian Club advertisement could be printed and then subjected to vacuum forming in order to test the resilience of the Omniplus ink.
7 On 3 June 2003 Mr Jennings arranged for some clear PETG sheets to be couriered to Mr Ellery and the delivery was confirmed in an email from Mr Jennings. Mr Ellery prepared a further amended (third) quote adding the additional cost of the Omniplus ink. Nine days later the completed second test print sample was returned by the defendant and vacuum formed by the plaintiff. On this occasion the print withstood the vacuum form process and showed no signs of cracking and separation. On 18 June 2003 Mr Thompson emailed Artel with the plaintiff’s final quote and advised Artel of the plaintiff’s intention to “commence in reasonable quantity in four weeks”.
8 On 19 June 2003 Mr Jennings telephoned Mr Ellery, at Mr Thompson’s request, to advise him that the NESTEA project was going to go ahead and that a start would need to be made on the film work. Mr Jennings told Mr Ellery that the client (Artel) wanted to supply the film. There is some conflict in the evidence with regard to exactly what was said by Mr Ellery in response. However, it is not disputed that Mr Ellery was concerned about the reliability of film prepared by an outside film house and stressed the importance of ensuring that the film was of the required quality. It was his experience that film houses rarely got it right the first time and that, in order to minimise the prospect of any such problem, he would send Mr Jennings his specifications for the film. On his part Mr Jennings stressed the urgency of the project because of the pressure now being placed on the plaintiff by Artel. Mr Ellery’s response was that the defendant was exceptionally busy at that time. It was therefore all the more important that the film be prepared as quickly as possible.
9 According to Mr Ellery he also explained to Mr Jennings, in the course of their conversation on 19 June, that he preferred line form printing. For a large job line form would be much easier to print than dot form. However, film houses often did not know how to select line form and, if the film house used by Artel was not familiar with the process, then the defendant would use dot form notwithstanding Mr Ellery’s preference.
10 Following that telephone conversation Mr Ellery wrote out the specifications using four colours: cyan, magenta, yellow and black. Mr Ellery included alternative sets of specifications for dot and line form printing but included a note to the effect that line was easier to print. He included explicit instructions for the production of line form by selecting the dot function and then defaulting to line. The specifications were sent by fax to Mr Jennings on Thursday 19 June 2003. These were passed on, through Artel, to the film house.
11 On the following Monday, 23 June, the plaintiff received a production order from Artel. On receipt of the production order Mr Thompson proceeded to issue a purchase order (13108), dated 23 June 2003, to G E Polymer Shapes Pty Ltd for quantities of 2440 x 1220 PETG clear plastic sheeting of varying thicknesses (1, 1.5 and 2mm). Purchase order 13111, dated 24 June 2003, was issued to the defendant for corresponding quantities of printed plastic sheeting using the four colour process. Because its earlier quotes were based on the assumption that the defendant would be providing its own film for printing, an amended quote was drawn up by the defendant and sent to the plaintiff deleting the cost of film. Following a further conversation in which Mr Jennings advised Mr Ellery that Artel was “dropping yellow out of the job”, a further revised (fifth) quote was sent to the plaintiff by the defendant.
12 In the course of the week beginning 23 June 2003, there was a flurry of emails among Maria Papanastasiou and Mr De Lorenzo from Artel, Mr Thompson representing the plaintiff and Mr Ellery concerning delays in the delivery of the plastic sheets and the film, both of which the defendant needed before the screen printing could be scheduled. There were also a number of telephone calls primarily between Mr Jennings and Mr Ellery. On Friday 27 June Mr Jennings telephoned Mr Ellery to tell him that Artel had advised him that the film would be ready by 1 July and, as Mr Ellery had requested, would be sent directly from the film house in Melbourne to the defendant’s factory in Ingleburn, New South Wales. The chromalum proof was supplied with film of corresponding size by Artel to the film house which, following the preparation of the new film, delivered the proof along with the new film to the defendant. The film supplied to the defendant was approximately 1220 x 813mm, about twice the size of the chromalum proof (600 x 400mm) and the original film.
13 At about 5.30pm on Tuesday 1 July 2003 the shipment of film together with the chromalum proof arrived by courier at the defendant’s factory. Mr Ellery telephoned Mr Jennings to advise him of the arrival of the film and expressed his surprise that the film appeared to be satisfactory. Contrary to previous experience it would not require further work to be done on it before the defendant went ahead with the printing. On the day following the arrival of the film and chromalum proof, the plastic sheeting was delivered to the defendant’s premises and during the course of the rest of that week there followed a series of telephone calls between Messrs Jennings and Ellery concerning the start of the print job. On 2 July 2003 Mr Thompson left on two weeks leave and Mr Jennings was left to carry on with the day to day conduct of the project in his absence.
14 According to Mr Ellery, in the course of the telephone conversation in which he advised Mr Jennings of the arrival of the film and chromalum proof, he had commented on the very small amount of black in the job, estimated at less than four percent. He suggested to Mr Jennings that the black might be left out altogether in order to save time and money. Mr Jennings said that he would get instructions from his principal (Artel) and requested a further revised quote in the meantime removing black as well as yellow from the colours to be used. Mr Ellery prepared a revised quote following his usual practice of amending the previous quote. For reasons explained earlier [3], the quote still bore the date 28 April 2003 notwithstanding the fact that it was now early July 2003.
15 Mr Jennings’ evidence was that he had told Mr Ellery, in the course of their telephone conversation following the delivery of the materials for printing, that Artel wished to check the first prints off the production line for final approval. The approval of the finished product prior to the full print run was known as “proofing”. Mr Ellery denied that there had been any such request and was even more emphatic in denying that he had agreed to such a condition. He acknowledged that he had been told by Mr Jennings that Mr De Lorenzo wanted to see the job once it was underway and that he explained to Mr Jennings that the sheets were printed one colour at a time so that, by the time the process would have reached the stage where the first panels were fully printed, the job would already be well advanced.
16 According to Mr Ellery the sheets were delivered in a plastic protective film which had to be removed before printing could begin. Mr Ellery put on extra staff to work over the weekend following delivery of the sheets in order to complete the removal of the protective film. The application of the first colour (process cyan) began first thing on the following Monday, 7 July 2003. During the course of that day Mr Ellery telephoned Mr Jennings to ask again whether the black could be dropped. Mr Jennings said that he did not yet have approval from Mr De Lorenzo. Mr Ellery also informed Mr Jennings that the job was not as easy as he had expected. He was having some static and gripping problems with the sheets. When Mr Jennings asked whether this would affect the production schedule, Mr Ellery replied that he had put an extra person on to lift the sheets and feed them into the dryer to overcome the problem so that it would not slow down the process too much.
17 There was no dispute between the parties that Artel had placed pressure on the plaintiff to complete the production of the point of sale items as soon as possible. This sense of urgency had been passed on to the defendant by the plaintiff. Messrs Jennings and Ellery had a further discussion by telephone on 8 July 2003 in which Mr Jennings raised the question of how soon Mr De Lorenzo could see the printed sheets. Mr Ellery suggested that, if black were not included, the print run restricted to cyan and magenta could be completed and then a few sheets hand printed with the white background in order to show them to Mr De Lorenzo. Mr Jennings agreed with the suggestion and later in the day sent the following email to Mr Ellery:
As discussed on the phone earlier could you please get as many sheets of the material fully finished printing so at least we can start to v/f [vacuum form]. You will still need to advise us when the client has to come & see if the black is required or not. Try & give him a bit of notice so he can get there if he wants to. Also will need to check a fully finished print.
18 During the course of Wednesday 9 July, Mr Ellery took a small number of sheets (1220 x 813mm) which had been printed with cyan and magenta and cut them into smaller sheets approximately 600mm square. He hand printed a panel of white on each sheet and delivered the completed prints to Mr Jennings together with the chromalum proof. The following day, Thursday 10 July 2003, Mr Ellery received a call from Mr Jennings complaining that the colour was too dark. Following that phone call Mr Ellery instructed the defendant’s employees to stop the printing job. By that time, 1827 full size sheets had been printed with cyan and magenta. Some hundreds of smaller size sheets had also been completed in the two colours. The contents of the telephone call on 10 July and conversations on Friday 11 July between Mr Ellery and either Mr Jennings or Mr Stephen Lalor, the plaintiff’s managing director, are in dispute. It will be necessary to return to these conversations when examining the evidence in more detail. What is not disputed is that on the day that Mr Jennings told Mr Ellery that the colour was too dark, 10 July, Mr Jennings sent to Mr De Lorenzo one of the flat sheets that had been delivered by Mr Ellery and on the following day another of the sheets which had been vacuum formed by the plaintiff.
19 According to Mr Lalor he became involved in the project at this stage because of Mr Thompson’s absence on leave and it was he who telephoned Mr Ellery on Friday 11 July, having been told by Mr De Lorenzo that Artel had rejected the “production samples”. Mr Lalor repeated the complaint made on the previous day by Mr Jennings that the colour was too dark. On the same day Messrs Jennings and Ellery had a pre-arranged social game of golf during which the subject of the Artel print order was raised. Although there is disagreement about how far the discussion went on that occasion, as distinct from a telephone conversation on the following day, Saturday 12 July, Mr Ellery denied that at any stage in conversations with either Mr Jennings or Mr Lalor he agreed with their claim that the colour was too dark. However, he did not dispute that in conversation with Mr Jennings he had said words to the effect that the cost to the defendant of redoing the job would be so great that he “may as well shut the doors and torch the place”.
20 On the following Monday, 14 July 2003, Mr Ellery suggested to Mr Lalor that he try giving the sheets “extra hits of white” in order to see if that would lighten the colour. If it did, Mr Ellery would print extra white on all of the sheets at no extra charge. However, it appears that the effect of extra layers of white was to make the plastic more opaque, thus giving the blue an even darker appearance. At the end of further discussions at the defendant’s premises Mr Lalor told Mr Ellery on 15 July 2003 that, because of Mr De Lorenzo’s continuing rejection of the samples, the plaintiff was going to have to go to another printer. The unprinted PETG plastic sheets, which had been supplied by the plaintiff to the defendant, were returned to the plaintiff. The job was referred to a Queensland printer by the name of Colorcorp Pty Ltd which, according to Mr Lalor, completed the job to Artel’s satisfaction.
The claim and cross-claim
the pleadings
21 The plaintiff’s Further Amended Statement of Claim was filed in Court on 6 December 2005. The plaintiff pleads that, under a contract concluded between it and the defendant on or about 24 June 2003, the defendant was to print on PETG plastic sheeting an “ice effect” to be achieved in accordance with the colours and shapes shown on the chromalum proof provided by the plaintiff to the defendant. The plaintiff was to supply the PETG plastic sheets together with film. It is pleaded that, although the plaintiff had supplied the plastic sheets and film in compliance with its contractual obligations, the printed sheets supplied by the defendant were not in accordance with the chromalum proof and did not depict an “ice effect”. In particular the printed product was generally too dark in appearance and in any event not in accordance with the chromalum proof. The plaintiff’s customer (Artel), to whom the finished product made from the plastic sheets was to be supplied, had rejected the product. It was also a term of contract that the defendant would not go into production until the printing had been proofed by the plaintiff’s customer in the form of a “full press proof”. In breach of that term, the printed sheets had not been proofed by the customer before the defendant went into production.
22 The contract was partly written and partly oral. The written part was made up of:
(b) the defendant’s quote 12427 dated 28 April 2003 [For reasons explained earlier in the judgment the number and date are meaningless. However, it was common ground that the quote referred to was the quote supplied by the defendant to the plaintiff on or about 24 June 2003 in which the yellow had been removed and allowance made for the supply of the plastic sheets by the plaintiff];(a) the chromalum proof;
(c) the handwritten specification supplied by Mr Ellery to Mr Jennings and the plaintiff’s purchase order 13111.
The oral part of the contract was contained in conversations between Messrs Jennings and Ellery up to and including 24 June 2003. The damages claimed by the plaintiff include the cost of the PETG plastic sheets, the additional cost of retaining an alternative printer, loss of profit, and freight and courier costs and charges connected with the delivery of the plastic sheets.
23 In the alternative, the plaintiff pleads a breach of implied terms and conditions under s 19(1) of the Sale of Goods Act NSW, in particular the term and condition that the product would be fit for the purpose of point of sale advertising as bottle glorifiers and the term and condition that the product would be of merchantable quality. The damages sought for breach of the implied terms under the Sale of Goods Act are identical to those sought in the primary claim for breach of contract. The plaintiff also pleads misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act (Cth) relying on alleged misrepresentations in terms identical to those pleaded as terms and conditions of the contract.
24 The Amended Defence and Cross-Claim were also filed in Court on 6 December 2005. In its defence the defendant admits the contract and the terms to the effect that the printed sheets were to depict the ice effect for the purpose of point of sale advertising as bottle glorifiers. The defendant also admits that the printed sheets were to be in accordance with the chromalum proof. However, the defendant denies that it was a term of the contract that the printed sheets had to be proofed by the plaintiff’s customer before going into production. The defendant further denies that it was in breach of any terms and conditions to which it admitted or that the plaintiff had suffered any loss or damage as pleaded in the Further Amended Statement of Claim.
25 The Amended Defence contains admissions and denials in response to the case pleaded under the Sale of Goods Act which broadly correspond to those pleaded in response to the case for breach of contract. With regard to the claim based on alleged contravention of s 52 of the Trade Practices Act, the defendant denies the representations attributed to it in the Statement of Claim, though it admits that if any such representations were made they were made in the course of trade or commerce. The defendant further denies that any representations made by the defendant were misleading or deceptive or likely to mislead or deceive.
26 In the Amended Cross-Claim the defendant/cross-claimant pleads that the refusal to accept delivery of the printed sheets on the part of the plaintiff/cross-defendant was without good cause and constituted a repudiation on its part of the contract. In response to the act of repudiation the defendant/cross-claimant terminated the contract and as a consequence is entitled to damages. In the alternative the defendant/cross-claimant seeks recovery, as a debt, of the amount of $12,366.91 due to it under the contract, being the amount owing under the invoice which formed part of the contract. On its part the plaintiff/cross-defendant denies the allegations of repudiation and any resulting termination and right to damages. It also denies the debt.
the issues
27 This is not a case in which the matters ultimately in dispute between the parties can be readily determined from the pleadings. This is not to say that the parties are entitled to assert any claim or defence not identified in the pleadings. However, assertions made in general terms in the pleadings can only be adequately understood on further elaboration with the aid of both the evidence and submissions.
28 Although the evidence of the witnesses on both sides was by way of affidavit and there was a substantial amount of documentary evidence, the hearing extended well beyond the three days predicted at its commencement on 5 December 2005. In fact, the hearing, including oral submissions, lasted for twelve days. An adjournment at the end of the first week was necessary in order to enable the evidence to be completed in late February and early March 2006. One development in the course of the hearing which contributed to the evolutionary nature of the evidence was the expansion of the expert reports. There was a substantial amount of oral evidence from the experts on both sides on matters central to the most fundamental issue in dispute between the parties, namely, the compliance of the sheets printed by the defendant with the chromalum proof.
29 It became clear by the end of the hearing that, in denying that it had not complied with the term of the contract which required compliance with the chromalum proof, the defendant was not asserting strict compliance but compliance consistent with industry practice. This allowed for some departure from strict compliance in order to take account of the unavoidable effects of the printing process including enlargement. The defendant adhered to its position that, contrary to the plaintiff’s principal allegation, the colours in the printed sheets, especially the cyan, were not “too dark” when compared with the colours in the chromalum proof and the plaintiff was therefore not entitled to reject the printed sheets.
30 The plaintiff either amended or abandoned some of its original claims. The most significant of these was the assertion that it was a term of the contract between the plaintiff and defendant that the defendant would not go into production until the printing had been proofed and approved by Artel. This aspect of the claim neither found support in the evidence nor was argued in submissions. As Mr Ellery explained, such proofing was a distinct and therefore expensive stage in the process. Had it been agreed upon, it would have been the subject of a separate cost item in the defendant’s invoices. This evidence was corroborated by the defendant’s expert, Mr Stephen Anderson. The repeated requests made on behalf of Mr De Lorenzo to inspect the finished print were not a condition of the contract. To treat them as such would have been inconsistent with the request by Mr Jennings, at the point when production commenced, to have a substantial quantity of the printed sheets completed and delivered as soon as possible and without prior approval by Artel in order to enable the plaintiff to start vacuum forming (see [17] above). The supply of the hand printed sheets by Mr Ellery for approval by Artel was for the purpose of resolving the outstanding issue of whether black should be added to the cyan and magenta, not for the purpose of proofing the completed product. Mr Jennings conceded in cross-examination that this arrangement was not equivalent to a request for a full press proof. In those circumstances the failure on the part of the defendant to “proof” the product in the strict sense ceased to be an issue. The plaintiff’s case in contract was narrowed down to the alleged non-compliance of the printed sheets with the chromalum proof.
31 It was also conceded by counsel for the plaintiff that the plaintiff could not rely on the Sale of Goods Act as an alternative claim to that based on contract. Given the supply of both the PETG plastic sheets and the film by the plaintiff, the contract between the plaintiff and defendant was not one for the sale of goods but rather for the supply of services. The only goods supplied by the defendant were the inks used in the printing process. However, it was the plaintiff’s submission that, while the Sale of Goods Act had no application, the plaintiff was still entitled to rely on implied terms corresponding to those contained in the Act (Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1).
32 One other aspect of the Further Amended Statement of Claim which requires at least some minor amendment is the amount of damages recoverable for the cost of the PETG plastic sheets supplied by the plaintiff. The sum claimed in the particulars was $31,330.30. This represented the estimated cost of the sheets processed by the defendant which were alleged to be of no further use to the plaintiff. This figure was based on a calculation contained on the copy of the purchase order from the suppliers of the PETG plastic sheeting annexed to Mr Lalor’s affidavit sworn 26 November 2004. The total cost of the sheets processed and not returned was estimated at $28,300 + GST. The addition of GST of 10% produces a figure of $31,130 which would appear to be the sum to which the plaintiff would be entitled if the plaintiff’s claim succeeded in this respect.
33 One other point relevant to clarifying the issues between the parties is that this is not a case in which the cross-claim can proceed by way of set-off if the plaintiff’s claim against the defendant is successful. The cross-claim is dependent on the defendant’s succeeding in defeating the plaintiff’s claim by proving that the plaintiff’s conduct and not the defendant’s constituted a repudiation of the contract. Implicit in the allegation of repudiation is the assumption that there was no breach of contract as alleged by the plaintiff on the part of the defendant.
34 When the above matters are taken into account the issues which remain to be determined are:
(ii) Were the printed sheets supplied by the defendant fit for the purpose for which they were intended and/or of merchantable quality?(i) Did the printed sheets supplied by the defendant comply with the chromalum proof supplied by the plaintiff?
(iii) Was the plaintiff entitled to terminate the contract on the grounds that the defendant was in breach of any of the above terms, express or implied?
(iv) Was the defendant engaged in misleading and deceptive conduct under s.52 of the Trade Practices Act (Cth)?
(v) If the plaintiff’s case succeeds on one or more of the above grounds, what are the damages to which the plaintiff is entitled?
(vi) Was the plaintiff’s refusal to accept delivery of the printed sheets, the subject of purchase order 13111, a repudiation of the contract between the plaintiff and defendant and, if so, did the defendant validly terminate the contract?
(vii) If the defendant validly terminated the contract, to what damages is the defendant entitled on the cross-claim?
(Questions (vi) and (vii) only have to be answered if the answer to (iii) is “no”).
The chromalum proof
35 According to Mr Ellery, at the end of the visit by Mr Lalor to the defendant’s premises on Tuesday 15 July 2003, when Mr Lalor announced that the plaintiff was taking the job elsewhere, Mr Ellery cut the chromalum proof in half and gave the left hand half to Mr Lalor. The right hand half of the proof was retained by Mr Ellery and was exhibited with his affidavit sworn 8 February 2005 (SE3). Mr Ellery cut from the top left hand corner a strip (approximately 113 x 35mm) which was exhibited separately with his affidavit (SE4). The left hand half of the proof, which had been handed over to Mr Lalor on 15 July 2003, found its way back to Mr Ellery through the plaintiff’s solicitors. It was also exhibited with Mr Ellery’s affidavit (SE5). A square piece (approximately 90 x 90mm) had been cut out before its return to Mr Ellery. No explanation was forthcoming as to what had happened to it.
36 With regard to the use made of the chromalum proof during the printing process Mr Ellery gave the following account in his affidavit:
…starting from the first print, and periodically thereafter, I compared the prints with the chromalin [sic] proof to match the colour hue of the proof. These comparisons were done either in daylight (i.e. – outside of the defendant’s factory) or under a daylight tube, which is a industry standard light designed to replicate the spectrum of light in natural daylight. On each occasion, in my opinion, the match was satisfactory. Throughout the whole of the printing process, we used 100% cyan and 100% magenta.
37 In the report attached to his affidavit, sworn 8 February 2005, Mr Anderson stated that it was normal practice in the printing industry to place a range of “printer’s marks” on the margin of the proof. Such marks included registration crosses, cut marks and colour bars. Mr Anderson noted that, although registration crosses and cut marks appeared on the margin of the proof in this case, there were no colour bars. However, from the appearance of the proof, 100% would have been the required percentage for both cyan and magenta. If anything less than 100% had been required, it should have been specified and Mr Ellery was entitled to assume that 100% colour was to be used. It was Mr Ellery’s evidence that at no time had he been instructed to use other than 100% process colours.
38 In his oral evidence Mr Anderson expressed the opinion that, in order to produce a product consistent with the proof, the product had to be checked against the proof throughout the printing process. This was most important at the beginning of the print run when the job was set up. Whatever the colour instructions on the proof, the printer would be expected to exercise independent judgment on whether the colour on the print matched the proof. Similar evidence was given by Mr Allan Wetherell, the expert qualified by the plaintiff.
Rejection of the printed sheets
39 According to Mr Jennings, Mr Ellery had said in the telephone conversation on 8 July 2003: “The cyan is really dark”. In the course of their game of golf on 11 July 2003 Mr Ellery had repeated that he had made the cyan too dark. On his part Mr Ellery denied that he had ever acknowledged that the cyan was too dark. He had always maintained that the print was a good colour match with the chromalum proof. He rejected Mr Jennings’ evidence that he had suggested that black was not needed because the cyan was already too dark. He maintained that the suggestion to leave the black off was because there was a very small quantity in the specifications, its absence would not be noted, and it was quicker and cheaper to leave it out.
40 Mr Ellery adhered to the view that he had taken care to match the printed sheets with the proof and that he could see no significant difference in colour. His offer to add layers of white was for the purpose of determining whether the client would then be satisfied with the result. When the subject came up in the course of his game of golf with Mr Jennings, Mr Ellery had declined to discuss the print job because he did not want it to interfere with their friendship. According to Mr Ellery it was on Saturday 12 July 2003 that he was telephoned by Mr Jennings to say that the print job would have to be done again. Mr Ellery became agitated and the following conversation took place:
E: Your are f***ing kidding Neil. What is wrong with the job? It’s not too dark. Who took the samples to your customer? Was it someone who could talk some sense into your customer? Neil, I may as well torch the place. We have been so busy. We put other jobs out in order to fit yours in. We can’t afford to pay for this stock. J: I’m sorry, mate. This de Lorenzo from Coke is a f***ing prick. If he was here I would smash him. He didn’t want the job to go to you in the first place. He wanted to send it to Colourcorp [sic]. We would have, but Colourcorp [sic] were too busy at the time and more expensive, too. We asked him a couple of times to come and view this job running and he didn’t want to. E: I wish you had sent it elsewhere. I don’t want to talk right now. I’m doing overtime trying to catch up. And this is all bullsh** Neil. It’s not too dark. Do you think it’s too dark? J: There’s nothing I can do Steve. He says it’s too dark. E: Neil, you’re my customer. But someone over there should grow some balls and tell this bloke that it’s OK. You guys should be supporting me. Does this bloke realise that we’ve printed over half the sheets? It’s a joke! I don’t want to talk about this any more. I’m too cranky.
41 In his original affidavit sworn 26 November 2004 Mr Jennings made no reference to any telephone conversation on 12 July 2003. According to Mr Jennings it was during the game of golf on 11 July that Mr Ellery had said: “I may as well just shut the doors and torch the place”, [if the job had to be re-done at the defendant’s cost]. It was during this conversation, according to Mr Jennings, that Mr Ellery had also said, for the second time, that the cyan was too dark. In his affidavit in reply to the affidavit of Mr Ellery, in which the latter deposed to the above conversation, Mr Jennings did not deny that such a conversation had taken place but asserted that it was always his belief that Mr Ellery was at fault. When the above conversation was put to Mr Jennings, in the course of cross-examination, he agreed that it had taken place in the terms deposed by Mr Ellery, although he denied that he had used the expletives in his references to Mr De Lorenzo or that he said that he would “smash him”. He did not deny that he had distanced himself from Mr De Lorenzo but sought to explain that on the basis that he was trying to placate Mr Ellery who was obviously distressed.
42 The inconsistencies between the evidence of Mr Jennings and Mr Ellery call for some comment. I was invited by counsel for the plaintiff to attach particular weight to Mr Jennings’ evidence as a genuinely independent witness. Mr Jennings ceased to work for the plaintiff in March 2005, well before commencement of the hearing. By that time he no longer had any personal interest in the outcome, although it is to be noted that he was still an employee at the time he swore his principal affidavit in November 2004. While I accept that Mr Jennings had the advantage of a degree of independence, he nonetheless came across as an apologist for the plaintiff and, in a number of important respects, an unreliable historian. Notwithstanding his stake in these proceedings Mr Ellery impressed me as a witness with a good memory. His recollection of the details of his conversations with both Mr Jennings and Mr Lalor was in stark contrast to the comparatively limited recall by both in their original affidavits. It was left to Mr Ellery to remind them of much of what he and they had said.
43 There were occasions on which Mr Ellery’s grasp of detail was deficient and he was at times defensive in the witness box. On these occasions his evidence was inclined to be overly protective of the defendant’s interests. However, with respect to the conversations which took place between Mr Jennings and Mr Ellery over the period from 8 to 12 July 2003, I have generally preferred the evidence of Mr Ellery. I do not accept, for example, that Mr Ellery ever agreed with the proposition that the colour on the print was too dark and I accept that he reacted disbelievingly to such a suggestion from the time it was first put to him. Most importantly, when the conversation quoted above [40], which Mr Ellery alleged took place on the telephone, was put to Mr Jennings he substantially agreed with what Mr Ellery deposed. Mr Jennings’ attempt to explain away his efforts to distance himself from Mr De Lorenzo was totally unconvincing, a matter on which I will have more to say later.
44 According to Mr Lalor, in the course of the telephone conversation between him and Mr Ellery on 11 July 2003, the following exchange took place after Mr Lalor had told Mr Ellery that the print samples had been rejected because they were “much too dark”:
45 In his affidavit dated 8 February 2005, Mr Ellery denied much of the above. His version of the same telephone conversation was as follows:
L: My name is Steve Lalor. I’m the Managing Director of Reid Lalor. We’ve got a problem with this job that you’re doing for us. My customer thinks that you’ve printed PMS 300 and not process cyan. It’s too dark. E: That’s not correct. I’ve used process cyan. L: My customer’s not happy. It’s too dark. E: We matched your proof.
L: My customer believes it’s too dark. Is there anything you can do to help me? E: Well, maybe, I can try to put a couple of layers of white on it. That might lighten it up. L: You should try that. E: I’ll try that.
46 There were substantial differences in the original versions of events which occurred during the week following Friday, 11 July. Mr Lalor and Mr Ellery agreed that in the course of a telephone conversation on Monday 14 July 2003, Mr Ellery agreed to reprint extra white at no extra charge if this was effective in reducing the darkness of the blue colour. However, Mr Ellery denied the assertion made by Mr Lalor that following this conversation Mr Lalor arranged for further plastic PETG sheets to be forwarded to Mr Ellery.
47 It was the evidence of Messrs Lalor and Ellery with regard to what occurred on Tuesday 15 July that most substantially diverged. According to Mr Lalor, after he concluded a meeting with Mr De Lorenzo, he telephoned Mr Ellery and said: “POP’S [Artel] rejected the samples. I’m going to have to go to another printer”. According to Mr Ellery, on 15 July 2003, which Mr Ellery mistakenly identified as a Wednesday, Mr Lalor attended the defendant’s premises early to mid morning. On Mr Lalor’s arrival he was introduced to Mr Ellery’s brother-in-law, Oliver Mauri, who was employed by the defendant at the time. Mr Lalor had with him a number of the sample sheets, some of which had been vacuum formed by the plaintiff and some of which remained in the condition in which they had left the defendant’s factory. Mr Lalor stood them up against the front of the defendant’s premises and said that the plaintiff’s customer was rejecting the job as too dark. In an apparent reference to Mr De Lorenzo, Mr Lalor said that “he” had said the colour which the defendant had used was not process cyan but “PMS 300”. Mr Ellery replied that the defendant did not even have the colours to make PMS 300 at that time. The Omniplus inks which included the 100 percent process cyan had been bought especially for the job and were very expensive.
48 According to Mr Ellery it was in the course of this conversation that one of the sheets to which extra white had been applied was examined and he observed that it made the blue look stronger because it was stopping the light coming through the colour. Mr Lalor agreed. Mr Ellery then put the chromalum proof alongside the original sample sheets and asked Mr Lalor what the problem was. Mr Lalor replied: “My customer doesn’t like it”. At this point Mr Adam Hartley, the owner of a business adjoining the defendant’s premises, walked past and Mr Ellery called him over. After introducing Mr Hartley to Mr Lalor, he asked Mr Hartley to compare the chromalum proof with the printed sheets and to see if he could tell any difference between them. When Mr Hartley asked what he was supposed to be looking for, Mr Ellery said: “My customer believes it is too dark. What do you think”? Mr Hartley’s reply was: “It looks fine to me”. Mr Ellery then further questioned Mr Lalor about what the problem was and Mr Lalor continued to assert that Mr De Lorenzo said it was too dark. He then said:
You don’t need this problem, do you? I can arrange to get this job done elsewhere. I’ll take the job away from you and you won’t have to worry about it.
49 Mr Ellery took a printed sheet from his own stock and attempted to dilute the ink with solvent. He showed the result to Mr Lalor and expressed his concern that the solvent might react with the plastic during the vacuum forming process but suggested that Mr Lalor may still want to try it out. There is no evidence of any reply to this from Mr Lalor who reiterated his offer to take the job elsewhere. At this point Mr Ellery asked him if he was going to send it to Colorcorp because Mr Jennings had said that was where it should have been sent in the first place. Although Mr Lalor did not offer a direct answer, he did say that he would pick up the unprinted stock and send it to Colorcorp’s print works in Queensland. The conversation then came to an end. Before Mr Lalor left the defendant’s premises, Mr Ellery cut the chromalum proof in half as described earlier [35]. Mr Lalor collected up the samples and took them with half of the chromalum proof to his car. He then drove away.
50 With regard to what occurred on 15 July 2003, the evidence unfolded in a way strikingly similar to the evidence of conversations between Messrs Jennings and Ellery. Notwithstanding the considerable length of Mr Ellery’s description of these events in his affidavit, which occupied a total of seven paragraphs in contrast to the few lines given to it by Mr Lalor in his original affidavit, Mr Lalor made no comment on Mr Ellery’s version in his affidavit in reply. When Mr Ellery’s version was put to Mr Lalor in the witness box, like Mr Jennings he conceded almost all of what had been described by Mr Ellery as having taken place. As Mr Jennings had done, Mr Lalor acknowledged the accuracy of Mr Ellery’s recollection when it was directly put to him. Like Mr Jennings, Mr Lalor displayed a conspicuous lack of memory for detail when compared with Mr Ellery. For very similar reasons to those given with regard to the evidence of Mr Jennings, I cannot accept Mr Lalor’s assertion that Mr Ellery acknowledged that the cyan was “too dark” when they first spoke on the telephone.
51 Generally Mr Lalor’s presentation in the witness box was flat, even when confronted with inconsistencies in the evidence which exposed inaccuracies in this own recollection. This was in contrast to Mr Ellery’s much more volatile presentation. But Mr Ellery’s presentation, marred as it sometimes was by some errors on detail and overly defensive responses, was not affected by the large gaps and inaccuracies in recollection which marked the evidence of Messrs Jennings and Lalor. Overall his version of events was the more substantial and convincing.
The contract claim - evidence of non-compliance
52 As foreshadowed earlier in the judgment, the breach of contract claim was ultimately narrowed to the question of whether the printed sheets supplied by the defendant matched the chromalum proof supplied by Artel. In particular the plaintiff relied on the allegation that the colour in the printed product was too dark. There was some reliance in submissions on the more general claim that the printed product had failed to achieve the required “ice effect”, but beyond the lack of colour resemblance the evidence was sparse on any other aspect of the ice effect which it was alleged the printed sheets failed to achieve. The alleged difference in colour accounted for almost all of the evidence; claims that the colour was too dark were the only complaints made by Messrs Jennings and Lalor leading up to the purported termination of the contract. The Statement of Claim was pleaded in sufficiently broad terms to embrace a failure to depict the ice effect. However, the conduct of those representing the plaintiff, in particular Messrs Lalor and Jennings, and the way in which the evidence evolved limit the plaintiff’s claim to the allegation that the colour was too dark. They do not leave any alternative open to the plaintiff such as a claim that the printed product had lost the resemblance to ice readily apparent in the chromalum proof.
lay evidence
53 As already noted [43] and [50], I cannot accept the evidence of Messrs Lalor and Jennings that Mr Ellery had agreed with them that the colour on the sheets printed by the defendant was too dark when compared with the chromalum proof. In his oral evidence Mr Jennings adhered to his assertions on affidavit that Mr Ellery had volunteered the comment on 8 July 2003 that “the cyan in really dark”, and agreed with Mr Jennings on 11 July 2003 that he had made the cyan too dark. However, Mr Jennings conceded that, in the conversation between himself and Mr Ellery on 12 July 2003, Mr Ellery had said, “what is wrong with the job, it’s not too dark”. In his affidavit of 26 November 2004 Mr Lalor alleged that, when he spoke to Mr Ellery on Friday 11 July 2003, Mr Ellery had said, “I know the cyan’s too dark” [43]. However, in the course of his cross-examination Mr Lalor conceded that Mr Ellery was substantially correct in his different version of that telephone conversation [44].
54 Although Messrs Jennings and Lalor’s evidence that Mr Ellery had conceded that the colour on the printed sheets was too dark cannot be accepted, their evidence of their own opinions remained consistent. As a preface to any further comment on that evidence, it is necessary to acknowledge the importance of one matter which was confirmed in the expert evidence and acknowledged in the cross-examination of both Mr Jennings and Mr Lalor. The only lighting conditions in which a true assessment of colour and therefore matching colours can be made is daylight, that is, sunlight, or artificially recreated light equivalent to sunlight, such as that produced by a 5000 degree Kelvin daylight tube. It was the latter which was used in the course of the hearing. The tube was contained in a “light box” in which light equivalent to sunlight could be created for the purpose of examining and comparing various exhibits for their colour content.
55 On his part Mr Jennings stood by his evidence that, when the trial sheets were sent by the defendant to the plaintiff on 9 July 2003, the colour was too dark. He adhered to that view when asked to make a fresh comparison in the course of cross-examination. When he was shown the chromalum proof alongside the product printed by the defendant his opinion was that the blue in the printed product was darker than in the chromalum proof. He was then invited to make a more detailed comparison from light through mid to dark tones. While Mr Jennings conceded that in the light and mid tone areas there was little difference in the colour, he maintained that the difference was still discernible in the darker areas. In his opinion the overall effect was that the printed product was darker.
56 In the course of his cross-examination Mr Lalor was taken through a very similar exercise to that undertaken by Mr Jennings. He was specifically asked to compare, under optimal light conditions, the half of the chromalum proof which had been retained by Mr Ellery (“SE3” to Mr Ellery’s affidavit), with a vacuum formed bottle glorifier made from one of the plastic sheets printed by the defendant (MFI 10, later Exhibit 6). His observations were almost identical to those of Mr Jennings, namely that, while he was not able to discern any significant difference in colour in the lighter to mid tone areas, in the darker areas the blue in the vacuum form product was darker than the blue in the hemalum proof.
57 In re-examination Mr Lalor was asked to make further comparisons between the chromalum proof and Exhibit L, a piece of printed plastic sheet approximately 200 x 175 mm cut from one of the sheets printed and supplied by the defendant. Little weight can be given to evidence based on this comparison because, as the hearing progressed, what Exhibit L represented became increasingly unclear. When Exhibit L was first tendered Mr Lalor described it as “the first piece of printed flat sheet that was taken to the client [Artel] for approval prior to…vacuum forming”. In his evidence in reply Mr Lalor conceded that he had no basis on which he could be sure that Exhibit L was ever sent to Artel. He was not able to say one way or the other.
58 It appears that in the course of pre-trial discovery Exhibit L was not discovered by the plaintiff. When it was produced to Mr Ellery in the course of his evidence he described it as “a dud sheet”. According to Mr Ellery it should never have been delivered to the client. This evidence was corroborated by the evidence of the defendant’s expert, Mr Anderson, who was not contradicted by Mr Wetherell, the plaintiff’s expert. Mr Anderson described Exhibit L as a “set up sheet”. The intensity of the colour was apparently the result of a “squeegee” problem caused by too much pressure:
…something like that would disappear within half of a dozen prints. That’s very common on the first print. A printer would not check the fist print because of that.
59 Both experts agreed that the chromalum proof which was in the form of a photographic reproduction could suffer from exposure to ultra violet light over time. One possible consequence of such exposure would be to reduce the intensity of colour in the proof giving it a lighter appearance. Such a possibility reduced the reliability of comparisons made in the course of the hearing between the chromalum proof and the printed product, even when the comparison was conducted under optimal light conditions. It follows that comparisons made, especially in appropriate light conditions at the time of production of the printed sheets, are likely to be the most reliable.
60 Two witnesses, Messrs Mauri and Hartley, gave evidence in the defendant’s case of comparisons between the proof and the printed product, either on flat sheet or vacuum formed, made on 15 July 2003 when Mr Lalor visited the defendant’s premises with samples of the recently printed flat sheet and vacuum formed glorifiers. While Mr Mauri was not as closely identified with the interests of the parties as Messrs Lalor and Ellery, he was both an employee of the defendant company and a brother-in-law of Mr Ellery [47]. He was less at arm’s length from the interests of the parties than Mr Jennings, but, unlike Mr Jennings, he showed a capacity for clear recollection of detail in his affidavit and was unshaken in his oral evidence.
61 According to Mr Mauri the following conversation took place between Messrs Lalor and Ellery:
L: The problem with this job is that you’ve used PMS 300, not process cyan. E: We used processed cyan. We bought specific ink for that job. It’s not PMS 300. We’d have to mix PMS 300. We didn’t do that.
When a vacuum formed sample was compared with the proof, Mr Mauri did not agree with Mr Lalor’s claim that the sample was too dark. According to Mr Mauri, the sample and the proof were in direct sunlight when the comparison was made. He suggested that the objects be taken into the shade and the comparison repeated. It was at this point that Mr Adam Hartley walked past.
62 Mr Hartley’s evidence was that he was called over by Mr Ellery and asked to look at what he described as “two samples of what appeared to be printed material”. When asked if he could see any difference between them, his answer was “no”. This was the extent of Mr Hartley’s evidence on affidavit and he was not called to give oral evidence. According to Mr Ellery, the conversation with Mr Hartley had included more than Mr Hartley had deposed in his affidavit. When Mr Ellery showed the chromalum proof and one of the printed products to Mr Hartley, he asked if he could tell any difference between them to which Mr Hartley responded:
…what do you mean? What am I looking for? Is it meant to be bigger?
Mr Ellery then told Mr Hartley that Mr Lalor believed it was too dark and asked Mr Hartley’s opinion. It was at this point that Mr Hartley said: “It looks fine to me.”[48]
63 In addition to Mr Ellery’s recollection, Mr Mauri recalled Mr Hartley saying at one stage:
…one of them looks glossier than the other one. They’re printed on different materials.
I had occasion to comment earlier on the reliability of Mr Ellery’s recollection of the detail of conversations [42]-[43] and was equally impressed with that aspect of Mr Mauri’s evidence. When asked in cross-examination whether the conversation recorded by him in his affidavit was his own recollection, his evidence was that, at Mr Ellery’s request, he had made notes of the conversation, “in my own words”.
64 Mr Mauri corroborated Mr Ellery’s evidence that the latter did not concede that the printed product was too dark. However, he observed that Mr Ellery appeared worried about the position Mr Lalor was taking and to be trying to do what he could to meet Mr Lalor’s complaints. Mr Mauri, who at all times was firm in his view that the printed product was not too dark, had said to Mr Ellery after Mr Lalor left that Mr Ellery had done nothing wrong and he did not understand why Mr Ellery was concerned. Mr Mauri also commented on Mr Lalor’s apparent lack of conviction concerning the inadequacy of the printed product. Although Mr Ellery had told Mr Mauri that Mr Lalor thought the job was too dark, Mr Lalor appeared to Mr Mauri to be agreeing with Mr Ellery. This impression is consistent with that created by the evidence of both Mr Jennings and Mr Lalor, namely that their opinion that the printed product was too dark was driven by the conviction of Mr De Lorenzo from Artel, which Messrs Jennings and Lalor felt bound to adopt in their communications with Mr Ellery. Given its importance, Mr De Lorenzo’s role is a matter to which I will return later in the judgment.
65 Mr Allan Wetherell, the plaintiff’s expert is Programme Manager in Printing and Graphic Arts at the Business Arts and Information Technology Curriculum Centre of TAFE. Prior to becoming a teacher and later administrator in technical education, he worked for some years in the printing industry. He holds tertiary qualifications, both in education and in the printing trade. His evidence was in the form of an affidavit sworn November 2004 to which his report was annexed. His report contained observations, made at the request of Mr Thompson from Reid Lalor, of comparisons between a portion of the chromalum proof and samples of the defendant’s printed product based on the proof. His conclusion was:
…the unfortunate situation with the printed sample, was that during both stencil preparation and printing, there has been an increase of image area by around the 20% or more. This means that the customer approved image on the proof and the printed job have a difference of around 20% in colour. This additional colour difference is generally considered to be well beyond any acceptable tolerance in that it alters the appearance significantly.
66 Mr Wetherell explained, in his oral evidence, that the 20% increase in image area referred to in his report was a description of the effect of the printing process on the line format. The 20% difference was a proportionate increase in the lines of colour measured against the spaces between each line. This was referred to, more often than not, as “dot” gain, a term more appropriately applied to dot form printing rather than the line form used by the defendant. The effect of such gain was to give the appearance of a darker colour on the printed product.
67 Mr Wetherell was cross-examined at length on his methodology and invited to make a fresh comparison using a cyan film (part of MFI 3) and a printed sheet with cyan and magenta applied to it but without any white background (MFI 13, and later Exhibit 8). In undertaking the fresh comparison Mr Wetherell conceded that the earlier comparison, which had formed the basis of his report, was prone to error for at least two reasons. First, he compared a photographic proof with the finished printed product. Their physical characteristics made it impossible to make an accurate comparison of line size. Secondly, the comparison was further compromised by the fact that the chromalum proof was enlarged to twice its size in the production of the film on which the printed product was based. By contrast, the comparison of the film supplied to the defendant with a sheet of the defendant’s printed product of the same size was likely to produce more reliable results. Because both were on transparent material they could be directly compared by placing one over the other, and because they were the same size there was no risk of loss of accuracy in the comparison.
68 Mr Wetherell undertook the fresh comparison in the company of Mr Anderson, the defendant’s expert. Following the comparison Mr Wetherell was invited to report on it. He described how the film was placed on top of the printed sheet and aligned as closely as possible. The lines were then examined through a magnifying glass. Although the experts did not have an instrument which enabled them to make precise measurements, they agreed that there was very little difference between the line sizes, probably around 1-2% increase on the printed product. Mr Wetherell agreed that such a minor discrepancy supported the conclusion that the printing had been of a very high quality. Upon further questioning Mr Wetherell conceded that the comparison undertaken with Mr Anderson was a more accurate method of assessment than that carried out by Mr Wetherell for the purpose of his report.
69 Throughout a lengthy cross-examination, Mr Wetherell maintained that there were a number of reasons for an increase in the line size which would result in a darker colour during the screening and printing process. He did not for that reason explicitly abandon the conclusions reached in his report. However, his evidence in this respect remained entirely speculative and he was unable to substantiate his conclusion that there had been an actual increase in the intensity of colour as a consequence of some failure in the screening and printing process used by the defendant. It was submitted by plaintiff’s counsel at the conclusion of the evidence that Mr Wetherell’s original comparison with the chromalum proof was more relevant to the plaintiff’s claim than the later comparison with the film. This submission was undermined by Mr Wetherell’s own admission that error in the preparation of the film was highly unlikely.
70 Mr Wetherell spent three days in the witness box, partly as a consequence of his reluctance to give direct answers to questions put to him in cross-examination. In fairness to Mr Wetherell this reluctance may have been in part a product of his concern to avoid answers that were overly simplistic, but some of his evidence bore the hallmarks of evasion which had been characteristic of the evidence of both Mr Jennings and Mr Lalor. All three witnesses were inclined to avoid direct answers where they perceived that a direct answer would be damaging to the plaintiff or, in Mr Wetherell’s case, to his professional judgment. It must also be said that his written report lacked many of the qualities expected of a properly prepared expert opinion. It was scant in detail and there was no exposition of methodology. As Mr Wetherell conceded in cross-examination, this was largely because there was no methodology. Absent also was the detailed explanation that one might hope to find in an expert report in a highly technical area was absent.
71 During the course of further cross-examination Mr Wetherell was invited to undertake a second comparison in the company of Mr Anderson. On this occasion the experts were given one half of a vacuum formed bottle glorifier, made from one of the plastic sheets printed by the defendant, and the two pieces of the chromalum proof. Mr Wetherell subsequently reported on their agreement that in the vacuum formed product there had been “a slight loss of both magenta and cyan”. The colour lines had been reduced in size but only in very localised areas”. The only explanation that they were able to offer for the loss of colour was that it was a result of the vacuum forming process. There was also a line gain in cyan in some “shadow areas” although its extent was the subject of disagreement. Mr Anderson estimated the gain at about five percent. Mr Wetherell thought it was between ten and fifteen percent. However, both agreed that some colour increase in the printing process was inevitable and Mr Wetherell conceded, when it was put to him, that it was mostly in the areas of darker colour.
72 Mr Wetherell was cross-examined at length about the range of colour in the films which he had examined separately. In his specifications for cyan [10] in line form, Mr Ellery had included the following instruction:
65 line - C – 120 - Range 12 – 90%
Mr Wetherell agreed that in compliance with such instructions the film house should not have produced film which exceeded 90% colour at the darkest point. He conceded that if the film exceeded 90% cyan in some places and, particularly if the colour was as high as 98%, some line gain was “inevitable”. Since there was no perceptible gain from proof to printed product below 90%, and since any gain above 90% would have been an error in the production of the film which could not be avoided by the printer, Mr Wetherell conceded that the print job was “one of high quality”. In any case it was more likely than not that any line gain or line loss observed on the vacuum formed product was caused by vacuum forming.
73 Mr Wetherell also agreed with the general proposition that a small percentage line gain would be much more noticeable at the higher end. For example, a five percent increase at 90% would close the ten percent gap between each line of colour, producing a block of 100% colour. A five percent increase at the lower end would have minimal effect on the overall colour in that area which would still be dominated by the larger gaps of “non-colour”. In this respect, and in his evidence on the results of the second comparison made with Mr Anderson [80], Mr Wetherell’s conclusions were compatible with the non-expert observations of Messrs Lalor and Jennings in the course of their evidence. If there was any increase in colour in the finished product it was only at the dark end of the spectrum, and Mr Wetherell conceded that such increase could have been a consequence of matters outside the defendant’s control, either in the film house or in the vacuum forming process.
74 Mr Stephen Anderson is Head Teacher, Graphic Arts (Screen Printing), School of Graphic Arts. Although he is junior to Mr Wetherell in the TAFE hierarchy, Mr Wetherell, to his credit, conceded that in technical matters relating to screen printing he would defer to Mr Anderson’s judgment. Mr Anderson’s report, dated 8 February 2005, was an annexure to his affidavit of the same date. He described the methodology used by Mr Wetherell in his report as “flawed”. He went on to explain as the only way to determine an image increase was to adopt the procedure which he and Mr Wetherell later undertook at the invitation of counsel for the defendant, namely to:
…compare the film positive with the finished flat product by over-laying the two.
75 Adopting that procedure under magnification using a 10x linen tester, Mr Anderson found minimal change in image area between the film and printed sheet. If anything there was a slight loss of colour, but overall there was “a very high degree of correlation”. Mr Wetherell substantially agreed with that conclusion in his oral evidence following the first joint exercise undertaken with Mr Anderson. Mr Wetherell’s subsequent attempts to salvage the contrary opinion in his own report were unconvincing. To the extent that the expert evidence went beyond visual impression and relied on measurement, it proved that, at the time of printing, the product was not “too dark” when compared with the chromalum proof. Mr Anderson conceded that, by the time of the hearing, the printed sheet did have an overall darker appearance than the chromalum proof. However, his evidence was that this may have been a consequence of some loss of colour in the proof due to fading. According to Mr Anderson it was “still the same colour…100 percent cyan”.
76 After the printing job was taken away from the defendant, it was handed over to and completed by Colorcorp Pty Ltd, a Queensland screen printer [20]. A bottle glorifier printed by Colorcorp and vacuum formed by the plaintiff was exhibited with Mr Stephen Thompson’s affidavit (ST2). It later became exhibit F. A label, attached to exhibit F and bearing the date “24th JULY 03”, contains the following handwritten note:
FINAL AS PER APPROVED BY CLIENT.
VERY SATISFACTORY: NOTE:
DOT FORMAT
As the note suggests Colorcorp had used dot format not the line format used by the defendant.
77 The chromalum proof supplied to Colorcorp (Exhibit 1) was available to Mr Anderson at the time of his report. He compared the Colorcorp proof with the proof supplied to the defendant. According to Mr Anderson they were significantly different in appearance. The Colorcorp proof was “much lighter in hue”. When Mr Anderson was asked to make the same comparison in the course of his oral evidence he described the Colorcorp proof as slightly darker. However, he rejected the suggestion put to him in cross-examination that this contradicted his earlier finding. He again referred to the possible effect of UV light on the Ellery proof which would reduce the colour difference between the two proofs.
78 The following observation about the Colorcorp proof was also contained in Mr Anderson’s report:
The C o lorcorp proof contains colour bars which show that Colorcorp was specifically instructed to reduce the strength of the process colours by 30%. That is, the colour bars show that Colorcorp was instructed to use 70% cyan and 70% magenta for their job. These are significantly lighter than the 100% process colours employed by the defendant.
According to Mr Anderson the absence of any corresponding colour bar on the Ellery proof would normally be understood to require 100% colour. In the light of that evidence it became important to assess the colour on exhibit F, the bottle glorifier vacuum formed from a sheet printed by Colorcorp.
79 Mr Anderson compared Exhibit F with Exhibit H, a sample sheet on which two bottle glorifiers had been vacuum formed. It was put to Mr Anderson by counsel for the plaintiff that the Colorcorp product was a “far closer match” to the Ellery proof than the Ellery product. Mr Anderson disagreed. Exhibit F was lighter than the proof. Although he later modified that to “slightly lighter” following further comparisons under optimal light conditions, he adhered to his general view that, on visual inspection, the Colorcorp product was lighter and the Ellery product was darker than the proof.
80 In the course of Mr Anderson’s evidence on the Colorcorp proof and product there emerged a different basis of comparison of colour from the light/dark comparison. His evidence was that colours could differ in what could be described as “hue or “tone”. Although “hue” had been used by Mr Anderson in his report as interchangeable with light/dark, he said that it could be used to distinguish a difference in colour produced by varying the colour mix. Alternatively the word “tone” could be used to avoid confusion. As an example of a change in tone, 100% cyan could be made to appear a different blue by adding or subtracting magenta. More magenta would give the blue a more “red-tone”, less magenta would leave the blue with more “green-tone”. His reason for using the word “hue” in an apparently indiscriminate way was that a “green-tone” blue tended to look lighter than a “red-tone” blue. It followed that if, as Mr Anderson surmised, the Colorcorp product was the result of a 70% reduction in cyan and magenta, this would not only make the blue look “lighter” but would also give it a “greener” appearance because of the absolute reduction in the red (magenta). Similarly a different more “greenish” blue would be produced by adding yellow, a possible explanation for a change in the colour of the Ellery proof. Mr Anderson discerned a “yellowing” in the photographic paper used for that proof which could have been caused by exposure to UV light.
81 In fairness to Mr Wetherell, it has to be acknowledged that on some matters Mr Anderson qualified and even contradicted opinions expressed in his own report and there were instances of vagueness and evasiveness in his oral evidence, matters highlighted by counsel for the plaintiff in submissions. However the flaws in his evidence were in those areas where judgment was based on visual impression where Mr Wetherell was even less convincing. Unlike Mr Wetherell, he was successful in defending his methodology and, with respect to the Colorcorp product, offered cogent reasons for rejecting it as a basis of comparison in assessing the compliance of the Ellery product with the chromalum proof. Other reasons for discounting the relevance of the Colorcorp product included the retention of black in the Colorcorp product and the use of a different “screen pattern”, 175 instead of 65 “dots” per inch, which gave the image in the Colorcorp product a finer, less “grainy” appearance than the image in the Ellery product. This difference, like the “lighter” colour, was the result of different instructions given to the printers.
colour tone
82 Mr Anderson’s evidence on change of colour [80] was primarily given in response to questions from me. He made no reference to it in his written report; nor did Mr Wetherell. To the inexpert eye the blue in the Colorcorp product, Exhibit F, was not the same blue as that in the Ellery product, Exhibit H. According to the experts neither looked the same as the blue in either chromalum proof. The Colorcorp product had a “lighter” appearance; the Ellery product a “darker” appearance”. If the measurement-based evidence was accepted that the cyan in the Ellery product was not significantly different from the cyan in the chromalum proof, one possible explanation for the apparent colour difference was one of tone (more green/more red), not hue (lightness/darkness). Although this was not put to any of the plaintiff’s lay witnesses, it is possible that what they described as a “darker” blue in the Ellery product was 100% process cyan “mixed” with relatively more 100% magenta than was in the chromalum proof.
83 In submissions counsel for the plaintiff sought to rely on such difference in colour tone as an alternative foundation for the case based on failure to match the chromalum proof. The difficulty with this submission is that there is no basis either in the pleadings or in the evidence on which such a case could be grounded. There is nothing in the expert reports; nor did any lay witnesses give such evidence. Having chosen to run its case on the basis that the colour was “too dark”, the plaintiff could not revamp its case to accommodate a definition of “darkness” which played no part in the evidence of any of its witnesses including its expert. It remained mere speculation whether, for example, the plaintiff could have proved that Mr Ellery had erred in his specifications by adding too much “red-tone”.
the line format
84 On 19 June 2003, in the course of his conversation with Mr Jennings concerning the need to provide the film house with detailed instructions, Mr Ellery said to Mr Jennings:
- …I would prefer the line form of printing. Not many film houses know how to select line. If they can’t do it, or you insist, we can do dot and I will give you the specs for dot as well. But I would prefer to use line. For such a large job, it will be much easier to print.
There is no dispute that the defendant used line form and, although the parties did not agree on the point of time at which Mr Ellery became aware that the printed sheets were to be vacuum formed, there is no doubt that he was aware of this well before his conversation with Mr Jennings on 19 June 2003.
85 In his affidavit of 26 November 2004 Mr Stephen Thompson referred to a conversation with Mr De Lorenzo of Artel in which Mr De Lorenzo asked if Mr Thompson was sure about the defendant. He said that Artel used Colorcorp on a regular basis and had no problem with them. They were able to do dot form printing. Mr Thompson replied that the plaintiff had been assured that Mr Ellery knew what he was doing and that he could do the job. Line form printing should not be a problem. The plaintiff had used Mr Ellery before. If, as Mr Thompson deposed, that conversation took place on 17 June 2003, there would need to have been some prior indication from Mr Ellery of his preference for line form printing. Alternatively one or other of Mr Ellery or Mr Thompson were mistaken about the dates, and the conversation with Mr Jennings recorded in the previous paragraph occurred before Mr Thompson’s discussion with Mr De Lorenzo. Chronology aside, it is clear that Mr De Lorenzo had a preference for dot form in contrast to Mr Ellery’s preference for line form.
86 On his return from leave in July 2003 Mr Thompson prepared a set of notes, dated 28 July 2004 (Exhibit D), summarising the history surrounding the plaintiff’s decision to take the printing job away from the defendant. On the subject of the form of printing which had been chosen, Mr Thompson referred to the test run undertaken by the defendant at the request of the plaintiff using Omniplus ink on the “Canadian Club” advertisement [6] - [7]. The vacuum formed test print sample which was in evidence (exhibit A) had a label attached to it bearing the date “12th June 03” with the following words:
2ND TEST PRINT
FROM STEVE ELLERY. VERY SATISFACTORY!
NOTE: “DOT PRINTING FORMAT”
In referring to that test print sample Mr Thompson made the following entry in the notes prepared on 29 July 2003 :
- NB. The printing was a “dot format”. Unfortunately Steve Ellery did not choose to print the production sheet in “dot”, but rather a “line format” that proved very unsatisfactory. The lines stretched and distorted in a completely different way to “dot format” printing. One would have hoped that Steve Ellery’s past experiences in “distortion printing” would have prevented him from recommending this format as it is a totally unacceptable distortion print/form format.
87 In the course of his cross-examination Mr Jennings was presented with the entry just quoted. It was put to Mr Jennings that, as far as he was aware, no complaint had been made by the plaintiff with regard to the choice of line form printing in these proceedings. Mr Jennings’ answer was that he was not aware of any such complaint. There was no evidence mounted in the plaintiff’s case, either lay or expert, to support the conclusion summarised by Mr Thompson. Like colour tone, this is another example of a possible difference between the chromalum proof and printed product not pursued in the proceedings. But, unlike colour tone, it is not complicated by the subtleties of the distinction between “hue” and “tone”. As Mr Thompson’s note suggests, the loss of “ice effect” in the course of the transition from the chromalum proof to the vacuum formed product was at least partly the result of the extent to which the line format became conspicuous on the vacuum formed product. The “stretch and distortion” was particularly obvious in the darker sections which detracted substantially from the ice effect when compared with the photographic image in the chromalum proof.
88 In making such observations I am not overlooking the fact that there are other factors, such as a different screen pattern [81] which may contribute to a loss of sharpness in the image in the course of printing and vacuum forming. However, both the vacuum formed test sample (Exhibit A) and the Colorcorp product (Exhibit F) were the result of the use of dot form printing. Both present a less distorted image than the one produced from sheets using line form (Exhibits 6,7,K and N). Once again, the insurmountable difficulty for the plaintiff is that, even if the choice of line form printing, which was adopted at the defendant’s suggestion, contributed to the loss of the ice effect in the vacuum formed product, the plaintiff’s case was conducted in such a way that the plaintiff has no evidentiary basis on which it could succeed in a claim based on that choice. Once again, the efforts of counsel for the plaintiff to overcome the evidentiary shortcomings in submissions were bound to fail.
Steven De Lorenzo
89 The spectre of Mr Steven De Lorenzo of Artel, or “POP” as it was known at the time, looms large in the evidence of all of the plaintiff’s lay witnesses. It was Mr De Lorenzo who was engaged in negotiations with Mr Stephen Thompson of Reid Lalor leading up to the contract between Artel and the plaintiff for the manufacture of the point of sale items which are the subject of these proceedings [85]. After Mr Thompson went on leave it appears that Mr De Lorenzo had very little, if any, direct contact with Mr Jennings who took over the day to day responsibility for the completion of the contract. However, Mr De Lorenzo’s name appears frequently in correspondence and conversations between Mr Jennings and Ms Maria Papanastasiou, Mr De Lorenzo’s assistant. It was Ms Papanastasiou who communicated to Mr Jennings, Mr De Lorenzo’s request to see a finished proof of the sheets printed by the defendant before giving his final approval [15]. When the contract between the plaintiff and defendant broke down in mid July 2003, Mr De Lorenzo had a decisive influence on in the plaintiff’s decision to abandon the defendant and take the job to Colorcorp. This is clear from the evidence of both Mr Jennings and Mr Lalor.
90 I have commented already on the extent to which Mr Jennings sought to distance his own independent judgment from that of Mr De Lorenzo. Although I accept that Mr Jennings did have his own opinion concerning the colour of the sheets printed by the defendant, I am satisfied that he was very much captive to Mr De Lorenzo’s determination, a situation clearly reflected in the conversation with Mr Ellery on 12 July 2003 [40]. On his visit to the defendant’s premises on 15 July 2003, Mr Lalor more than once referred to the instructions which he had received from “his customer” [46]-[47], an obvious reference to Mr De Lorenzo. I commented earlier on Mr Mauri’s perceptive observation that, while Mr Lalor was passing on the views of his client, he did not share his client’s conviction [64]. It was Mr De Lorenzo who formed the opinion that the defendant had used “PMS 300” instead of 100% process cyan, contrary to the specifications. This opinion, communicated to Mr Ellery by Mr Lalor, was not borne out on the evidence.
91 Although Mr Jennings sought to minimise the role of Mr De Lorenzo in the decision to take the job to Colorcorp, it is clear from the evidence of Mr Thompson, whom I found to be a generally straightforward and reliable witness, that Mr De Lorenzo had wanted Colorcorp to do the job from the outset and had only been dissuaded from that preference by Mr Thompson himself. It is also more likely than not that it was Mr De Lorenzo who was the author of the instructions to Colorcorp in July 2003 to reduce the concentration of colour, use dot form and change the screen pattern in order to achieve the desired ice effect which he clearly did not consider had been achieved by the defendant’s use of 100% colour, line format and a screen pattern of 65 rather than 175 dots to the inch. Given Mr De Lorenzo’s role, his evidence could have been expected to have assisted the Court in resolving a number of matters on which there was conflicting evidence or on which the evidence remained inconclusive. According to Mr Thompson, Mr De Lorenzo was still available to give evidence at the time of the hearing. He was clearly “in the plaintiff’s camp”. In such circumstances the rule in Jones v Dunkel (1959) 101 CLR 295 applies and I am entitled to assume that Mr De Lorenzo’s evidence would not have assisted the plaintiff.
conclusion
92 Mr Ellery’s evidence was that the defendant used 100% cyan and 100% magenta at all times. Throughout the printing process, Mr Ellery compared the printed sheets with the chromalum proof for colour (hue) match. On each occasion he did this either in daylight or under a daylight tube. It was submitted by plaintiff’s counsel that an inference adverse to the defendant should be drawn from its failure to call Mr Jimmy Wu, the defendant’s production manager, to rebut evidence that the wrong ink was used or there was some other error in the printing process. Such an inference would only arise if the plaintiff had proved, contrary to Mr Ellery’s evidence, that the wrong ink was used or that an error in the printing process had produced a blue which was darker than process cyan. It has not.
93 The plaintiff can only succeed on the case pleaded and supported on the evidence, which was restricted to the claim that the colour on the printed sheets and vacuum formed product was too dark when compared with the image on the chromalum proof. Because the evidence failed to support that claim, the plaintiff has not proved a breach of contract on the defendant’s part.
damages
94 Given my findings in the defendant’s favour on liability, I propose to limit my comments on the damages which might have been recovered had the plaintiff’s claim succeeded. The damages claim included the cost of the PETG plastic sheets supplied by the plaintiff and used by the defendant in the print run [32], the cost of transporting the required quantity of plastic sheets and other materials to Colorcorp in Brisbane and the difference between the Ellery contract price and the Colorcorp price. Of the three items the first would be properly included in the damages recoverable. However, there are reasons why the other two items would not be recoverable. On the plaintiff’s own admission, no printers other than Colorcorp were approached after the job was taken away from the defendant, although it appears that there were other printing firms in Sydney which could have done the job. Had a Sydney printer been used, this would have avoided the transport costs to Brisbane. A similar conclusion based on failure to mitigate would apply to the price difference in the job. There is also another reason why the price difference could not be recovered. The different instructions issued to Colorcorp included the use of dot form printing which, on Mr Ellery’s evidence, would have been more expensive than line form. A simple comparison of the two prices could not be made in such circumstances.
Breach of warranty
95 It was noted earlier [31] that, while abandoning its claim pleaded under the Sale of Goods Act, the plaintiff sought to rely on warranties of fitness for purpose and merchantable quality equivalent to those under the Act. In Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1, Stephen J relied on the House of Lords decision in Marten Ltd v McManus Childs Ltd [1969] 1AC for the following proposition:
…a contract to do work and supply materials will, in the absence of special circumstances, carry with it two implied warranties, that those materials are of good quality, this warranty extending to their freedom from latent defects, and that they are reasonably fit for their intended purpose (at 8).
96 In the above passage the implied warranties of merchantable quality and fitness for an intended purpose are applied only to the materials which form part of a contract to do work and supply such materials. In this case the only materials supplied by the defendant were the inks used in the printing process. Given the finding that the plaintiff failed to prove that the inks used by the defendant were not 100% cyan and magenta as specified, the only remaining question to be resolved in this context is whether the inks were in some way not reasonably fit for their intended purpose. All of the evidence supports the conclusion that the type of ink chosen by the defendant, Omniplus, was suitable for printing on plastic to be vacuum formed. The ink did not crack or separate and proved, as Mr Ellery had intended, to be up to the task required of it.
97 As to whether the sheets were of merchantable quality, the plaintiff failed in any strict sense to address this question. No evidence was adduced to suggest that the printed sheets were not marketable. A closer examination of matters which have been held to be relevant to the question of merchantable quality does not advance the plaintiff’s case any further. The concepts of sale by “description” and “defect” (Speedway Safety Products Pty Ltd v Hazell & Moore Industries Pty Ltd [1982] 1 NSWLR 255) have no meaningful application to a case in which the principal complaint is the failure on the part of the defendant to match a proof supplied by the plaintiff. There is a perplexing artificiality in the attempt to adapt principles, developed for the purpose of constructing implied warranties in cases where the express terms of the contract are silent on such matters, to a case where what was required of the defendant could not have been more specific. Once the plaintiff’s claim for breach of contract has been found to fail, it is very difficult to see that the case can be salvaged by a resort in the alternative to the warranties of the kind implied under the Sale of Goods Act.
Misleading and deceptive conduct
98 As in the count based on implied warranties, the alternative count based on misleading and deceptive conduct under the Trade Practices Act ignores the essence of the plaintiff’s complaint. There was no evidence to support a conclusion that the defendant had engaged in misleading and deceptive conduct during pre-contractual negotiations. Whether any statement or representation was misleading or deceptive has to be determined as at the time it was made: Bill Acceptance Corp Ltd v GWA Ltd (1983) 78 FLR 171. Even if the plaintiff had been successful in proving that the defendant had failed to fulfil its undertaking to match the proof, that would not of itself make the defendant’s conduct misleading or deceptive.
99 Once again the attempt to reconstruct a case by way of pleading a count ill-suited to the facts has not assisted the plaintiff. The Trade Practices Act may well have had some application if the plaintiff had run its case, at least in the alternative, on an alleged representation that the adoption of line form printing would achieve as good an outcome as dot form. The plaintiff failed to pursue any such alternative. As the case was run, there is no basis on which the Trade Practices Act count could succeed.
The cross-claim
100 On the evidence the plaintiff/cross-defendant’s unilateral decision to refuse delivery of the sheets printed by the defendant was unjustified, and it therefore constituted an act of repudiation entitling the defendant/cross-claimant to terminate the contract. The right to terminate the contract depended upon whether the cross-claimant remained ready, willing and able to perform its part of the contract. It was submitted by counsel for the cross-defendant that there was no evidence of any explicit commitment on the part of the cross-claimant that it was ready, willing and able to complete the contract. I am not satisfied that any such explicit statement was necessary provided that the conduct of the cross-claimant was consistent with its readiness to complete the contract. It was Mr Ellery’s evidence that, after receiving Mr Jennings’ telephone call on 10 July 2003, he immediately stopped printing on the job and subsequently returned surplus unprinted sheets to the cross-defendant. In the face of the cross-defendant’s assertions that the printed sheets were unsatisfactory and its decision to “send the job elsewhere”, the cross-claimant’s actions were not inconsistent with a willingness to complete the printing job. Mr Ellery’s evidence was that at all times he remained ready to do so. That evidence is consistent with his adherence to the view that the printed sheets matched the chromalum proof and that the plaintiff was not justified in refusing to accept delivery. I find therefore that the cross-claimant’s conduct entitled it to terminate the contract.
101 It was further submitted by counsel for the cross-defendant that, even if the cross-claimant had a right to terminate, that right has never been validly exercised. While it is true that there is no evidence of any formal communication between the cross-claimant and cross-defendant in which the cross-claimant terminated the contract, the filing and service of the cross-claim is sufficient to amount to an act of termination. For these reasons I find that the cross-claimant is entitled to damages for the loss caused by the wrongful repudiation of the contract by the cross-defendant. The only question which remains to be determined is the quantum of damages to which the cross-claimant is entitled.
damages in the cross-claim
102 Following oral submissions at the end of the hearing, counsel were invited to write supplementary submissions addressing the question of damages recoverable in the cross-claim should it be successful. This was a matter which had been given very limited attention in the course of oral submissions. The cross-claim was framed, in the alternative, as an action in debt based on the contract price as evidenced in the cross-claimant’s quote of $12,366.91. It was counsel’s submission that, because the agreement to proceed with the contract for the supply of the printed sheets followed receipt of that quote, it became the agreed contract price and therefore the proper basis for any damages claim on the part of the cross-claimant. In the course of written submissions counsel for the cross-claimant withdrew that submission and conceded, correctly in my view, that the action was not one in debt but rather for unliquidated damages arising out of the breach. As counsel for the cross-defendant had submitted, an action in debt would only arise in circumstances where a liquidated amount was due and owing following the execution of the contract by the cross-claimant.
103 Although the action in debt was abandoned, the cross-claimant maintains that the proper amount of damages recoverable is that represented by the quote accepted by the cross-defendant at the time the contract was entered into. It was submitted that any subsequent events should not detract from the cross-claimant’s entitlement to the recovery of the quoted cost in full. It was therefore irrelevant, for example, that black ink had never been applied even to the proportion of the sheets printed with cyan and magenta. Nor was it relevant that white had not been applied to the sheets apart from the small number done by hand and supplied by way of sample.
104 While the failure to complete its part of the contract does not deprive the cross-claimant of its right to terminate, it must be a matter relevant to the assessment of damages. In circumstances where only part of the contract has been performed, the damages should not exceed the actual loss incurred by the cross-claimant. They would include, but not be confined to, the loss of profit reflected in the difference between the contract price and the actual cost of production. However, there is no evidence of the actual cost of production. Another difficulty for the cross-claimant arises from the fact that on the cross-claimant’s own evidence almost half of the agreed number of large sheets were not printed following the repudiation of the contract by the cross-defendant. There was a real saving to the cross-claimant in not having to proceed with the rest of the printing notwithstanding its willingness to do so. There would have been a saving in labour costs, even if the cross-claimant were held to be entitled to the cost of unused materials including the Omniplus ink purchased specifically for this contract. The practical difficulty in making an appropriate assessment is that no evidence was adduced in the cross-claim to identify either the expected profit margin or the actual cost incurred in the performance of the contract to the point of repudiation.
105 It was submitted by counsel for the cross-defendant that, in the absence of evidence of the real loss, the cross-claimant was not entitled to any damages on the cross-claim. However, there is authority to support the proposition that difficulty of assessment is not a bar to recovery: Fink v Fink (1946) 74 CLR 127 at 143. But, where damages are difficult to assess because a plaintiff, in this case the cross-claimant, has failed to produce sufficient evidence to permit a reliable assessment to be made, the plaintiff cannot complain if the award is not as high as it would have been had adequate information been produced: Aerial Advertising Co v Batchelor’s Peas Ltd (Manchester) [1938] 2 ALL ER 788.
106 A starting point for the assessment of damages on the evidence available is the revised quote omitting black from the printing process. It was submitted by counsel for the cross-claimant that, because there was never any agreement on the part of the cross-defendant to leave black out of the final product, the reduced quote should not be the basis of any damages for breach of contract. I do not find that a convincing argument given the preference expressed by Mr Ellery for the omission of black and the fact that the contract was terminated before any black was applied to any of the printed sheets. I therefore accept the sum of $10,627.81 as the best evidence of the price of the completed printing job rather than the sum of $12,366.91.
107 Although the sum of $10,627.81 is an appropriate starting point for the calculation of damages on the cross-claim, the cross-claimant’s evidence does not go far enough to justify the recovery of that amount in full. It was Mr Ellery’s evidence that, at the time when the contract was repudiated by the cross-defendant and printing of the sheets was stopped, 1827 full size sheets (out of a total order of 3680) had been printed with cyan and magenta and some hundreds of small sheets had been completed in the two colours. On this evidence more than half the job had been completed with cyan and magenta, but, as already noted, only a few sample sheets had the white applied. Some allowance should be made for the wasted ink purchased specifically for this contract, although no calculation can be made with any precision. Allowance should be made for the “start up” costs involved in adjusting the ink flow through the stencils in order to eliminate the kind of errors which were evidenced in Exhibit L. When all of the relevant considerations are taken into account, including loss of profit, my best estimate of the actual loss sustained as a consequence of the cross-defendant’s breach is the sum of $7,500.
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