Scootmore Holdings Pty Ltd v Bidvest Australia Limited - [2001] QSC 329

SUPREME COURT OF QUEENSLAND

CITATION: Scootmore Holdings Pty Ltd v Bidvest Australia Limited [2001] QSC 329

PARTIES: SCOOTMORE HOLDINGS PTY LTD
ACN 061 964 627
(plaintiff)
v
BIDVEST AUSTRALIA LIMITED
ACN 000 228 331 (FORMERLY MANETTAS LIMITED
ACN 000 228 231)
(defendant)

FILE NO/S: S 9934 of 1997

DIVISION: Trial Division

PROCEEDING: Civil Trial

ORIGINATING COURT:
Brisbane

DELIVERED ON: 7 September 2001

DELIVERED AT: Brisbane

HEARING DATE: 19/02/2001 – 9/03/2001
18/06/2001 – 29/06/2001

JUDGE: Holmes J

ORDER: 1. Judgment for the plaintiff in the amount of $4,619.76.
2. Parties to make submissions on costs.

CATCHWORDS:
CONTRACT – REPRESENTATIONS – COLLATERAL AGREEMENT - WARRANTIES - BREACH
TRADE PRACTICES – MISLEADING AND DECEPTIVE CONDUCT
Contract for sale of seafood factory – whether representations made as to availability of work – whether representations as to condition of plant and equipment and factory’s “A” rating constitute warranties and misleading or deceptive conduct – effect of failure to correct representation - whether reliance inferred – whether representations caused loss.
Robinson v Harman (1848) 1 Ex 850
Commonwealth v Amann Aviation Pty Ltd (1991) 74 CLR 64.
Hill v Tooth & Co. Ltd (1998) ATPR 41-649
Nemeth v Bayswater Road Pty Ltd [1998] 2 Qd R 406
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd
(1991) 23 NSWLR 571
Marks v GIO Australia Holdings (1998) 196 CLR 494.
Hanave Pty Ltd v LFOT Pty Ltd (1999) ATPR 41-687
Wardley Australia Ltd v State of Western Australia
(1992) 175 CLR 514
Trade Practices Act 1974, s 52(1), s 82(1)
Export Control (Processed Food) Orders 1992

Income Tax Assessment Act 1936

COUNSEL: J. Logan SC with him P. Hackett for the plaintiff
M. Stewart SC with him A. Duffy for the defendant

SOLICITORS: H Drakos & Co on behalf of the plaintiff
Freehills on behalf of the defendant

In September 1996 the plaintiff bought the defendant’s seafood processing factory in Margate in Tasmania. The sale comprised the factory premises and land, and plant and equipment. The negotiations leading up to the sale were carried out, in the main, by Mr John Georgiadis, a director of the plaintiff company, and Mr Nick Manettas, managing director of the defendant company. The two men had known each other for many years. The sale came about after Mr Georgiadis inspected the factory in June 1996, at Mr Manettas’ suggestion. A contract was executed shortly after, and the sale settled on 12 September 1996. This action is now brought by the plaintiff company alleging breaches of representations amounting to warranties, and misleading and deceptive conduct within s 52 of the Trade Practices Act 1974.

The representations alleged to have given rise to breach of warranty and to constitute misleading conduct can be divided, broadly speaking, into three groups: representations as to product to be purchased by the defendant from the factory after settlement, and as to the availability of processing and freezing work from the defendant and from another producer; representations as to the plant, premises and equipment being in good working order and properly maintained; and a representation as to the factory possessing an “A” rating from the Australian Quarantine Inspection Service (AQIS).

Background

The factory in question had been built about 1968 for Safcol, a major seafood producer. Later in its history it was occupied by a chicken processor, from whom the defendant acquired it in 1989. The defendant purchased the factory principally to process the catch of a vessel, the Megisti Star, which it had commissioned in order to fish orange roughy in the waters off Tasmania. As it happened, Mr Georgiadis had accompanied Mr Manettas to Tasmania in 1989 on the search for suitable premises, and had seen the factory at that time. After its acquisition, the defendant made modifications necessary to process fish, including the addition of a cold storage area and an effluent treatment plant.

In 1995, South African interests took up a major shareholding in the defendant, with a corresponding change in the membership of the board. The direction of the company changed towards food distribution rather than production and processing. Meanwhile, orange roughy catches had declined significantly. It was decided that the defendant should divest itself of the fishing vessel and the Margate factory. The real estate agency L J Hooker was appointed to try to sell the factory, and prepared a brochure and placed advertisements for that purpose. At the same time, the factory was marketed as a package with the trawler and its quota and licences, at a price of $5,500,000. In some of the advertising, the defendant expressed itself willing to buy back, from the purchaser, product from the trawler and factory.

In early 1996, the defendant was close to achieving a sale to Jordel Pty Limited, at the price of $5,500,000. An offer was drawn up which provided, among other things, for the defendant to undertake, over a three year period, purchase of all seafood product produced by the factory, subject to certain requirements as to quality; and also gave the purchaser the option to pay part of the purchase price as product supplied to the defendant. The price for any such purchase was to be agreed in ways described in the offer, but was essentially a market price. No contract eventuated, however, and it was decided that the vessel and factory would have to be marked separately. The defendant appointed Websters, a Tasmanian concern, in lieu of L.J. Hooker as its agent for sale of the factory, with instructions to attempt to sell it as a going concern up to 5 July 1996. If no sale was achieved, it was to be auctioned on 17 July 1996.

Mr John Georgiadis had been involved in the seafood industry for a number of years. He had been a buyer and seller of lobster in Sydney, and in that capacity had come to know Mr Manettas. In the late 1980’s he moved to Queensland and continued to sell lobster and spanner crab, to both domestic and export markets. In the early 1990’s he and his wife, Julie Theodosis, registered a number of companies through which to carry on the purchase and supply of seafood. In 1993 they registered the plaintiff company, Scootmore Holdings Pty Ltd, which held the assets for the group. They were its only directors and shareholders. It acquired premises in Queensland and also leased premises at Gepp Parade, Hobart in which it installed tanks to hold live lobster.

The businesses in Queensland and Tasmania were carried on by Royale Seafood Supplies (Qld) Pty Ltd and Royale Seafood Supplies (Tas) Pty Ltd respectively. Mr Georgiadis and the plaintiff held the shares in the former company in equal proportions, while a fourth associated company, Scootmore Corporation Pty Ltd, held the latter company’s shares. Mr Georgiadis and Ms Theodosis were, at all relevant times, directors of both the Royale companies. Royale Seafood Supplies (Qld) Pty Ltd bought and processed seafood, principally live spanner crabs, but also handled other products. Royale Seafood Supplies (Tas) Pty Ltd’s major product was lobster, which it sold mostly as live lobster, with small quantities of fresh cooked lobster and frozen cooked lobster. Both companies sold direct to local buyers, but for export sold through Scootmore Corporation Pty Ltd.

The Hobart premises had a holding capacity of between six thousand and eight thousand kilograms of live lobster. The volume of lobster being moved through the Hobart factory increased steadily, and reached an output of 150 tonnes in 1995. In that year, Mr Georgiadis decided, with the help of Mr George Gamble, the manager of the Tasmanian concern, to look for other premises large enough to permit an expansion of lobster storage capacity.

In the course of that search, a property at Mornington owned by Upton Holdings (which came to be referred to as “the Upton site”) was identified as a prospect. The area of land to be purchased was approximately 3,000 square metres with a 600 square metre iron clad shed on it. The price of the property was $147,000. Mr Georgiadis estimated that re-cladding of the shed and installation of a freezer processing room and storage room would cost about $200,000. The process of drawing up a contract began in mid February 1996. By letter of 15 March 1996 the vendor’s solicitors sent Mr Georgiadis an agreement for signature, requesting a cheque for the deposit. Mr Georgiadis did not execute the agreement, nor did he furnish the deposit. On his account, he was diverted from doing so by a telephone call from Mr Manettas, at about the end of March or the beginning of April 1996, suggesting he look at the Margate property.

The telephone conversations between Mr Georgiadis and Mr Manettas

Mr Georgiadis said that the first of the conversations about his looking at the Margate factory took place in late March or April; Mr Manettas, that it was about May of 1996 (working back by some three or four weeks from a meeting which took place on 19 June 1996). The significance of the timing is that the plaintiff asserts that it did not proceed with the Upton contract because of the Margate prospect; and that, it was contended, was an indication of the strength of the representations made by the defendant and the plaintiff’s reliance upon them. According to Mr Georgiadis, the conversation was initiated by Mr Manettas, who telephoned him to ask whether he had purchased a property yet. He explained to Mr Manettas that he was negotiating to buy a property but had not yet signed a contract. Mr Manettas responded by telling him he should look at the Margate property before signing anything, as it was up for sale, and it would be “worth your while”.

On Mr Manettas’ account, Mr Georgiadis initiated the conversation, much later than his evidence indicated, by asking about the progress of the sale of the property, and telling Mr Manettas that he proposed to spend $400,000 to re-fit leasehold premises. It was in response to that proposition that Mr Manettas suggested that Mr Georgiadis should look at the Margate factory, rather than spend money on a leasehold factory. Mr Georgiadis said, “you’re looking for too much money”; Mr Manettas told him not to worry about money, but rather to have a look at the factory first.

Mr Georgiadis’ version of the conversation and its timing are reflected in a paragraph of the further amended statement of claim, which was admitted by the defendant in its amended defence. Accordingly, I accept that account as correct. It does not follow, however, that I accept the plaintiff’s contention that it was this conversation which deflected it from proceeding with the Upton purchase. It seems to me improbable that, if as early as late March or early April Mr Georgiadis regarded the Margate property as so serious a proposition as to deter the plaintiff from proceeding with the Upton contract, he would have delayed his inspection until June 1996.

Mr Georgiadis said that after the first telephone call in which Mr Manettas suggested that he visit the Margate factory, there were other conversations between the two. In the course of them, Mr Manettas suggested that he obtain an L.J. Hooker brochure prepared in relation to the factory. On Mr Georgiadis’ account, Mr Manettas was anxious that L.J. Hooker not become aware of his interest, so as to avoid payment of commission; and asked him to obtain the brochure without alerting L.J. Hooker. Mr Georgiadis complied by arranging for his manager, Mr Gamble, to obtain the brochure discreetly and to forward it to him. Mr Manettas, in his evidence, denied having raised the brochure with Mr Georgiadis at all, although he could recall mention by the latter, at some stage, of having seen the brochure.

In April or May, Mr Georgiadis said, he visited Mr Manettas at the defendant’s Rozelle factory. He had, by that time, the brochure in his possession. Mr Georgiadis said that he asked Mr Manettas what he meant by saying that it would be worth his while to see the factory. Mr Manettas responded, according to Mr Georgiadis, that whoever bought the factory would process all the Manettas product that the factory was already processing, and would also supply to the Manettas Sydney operation. Current volumes of lobster required were between 20 and 25 tonnes of frozen cooked lobster per annum, between 15 and 20 tonnes of fresh cooked lobster per annum and two to three hundred kilograms per week of live lobster. The buyer would process the catch from the Megisti Star. Salmon freezing was another potential source of income. The representations said to have been made in that conversation (which was denied in its entirety by Mr Manettas) were relied on by the plaintiff both as constituting a collateral agreement, and as misleading and deceptive conduct under s52 of the Trade Practices Act.

The LJ Hooker brochure

Mr Georgiadis said that he went to the premises at Margate on 12 June 1996 armed with a copy of the brochure prepared by L.J. Hooker in relation to the property, which his manager George Gamble had obtained for him. That brochure described the property and its improvements in some detail and contained the following statement:

“The factory under Australian Quarantine Inspection Service (AQIS) FPA is a rating “A” facility.”

That statement is also said to constitute a warranty and misleading and deceptive conduct.

The plaintiff’s alleged reliance on the L J Hooker brochure is the subject of conflicting evidence. The claim by Mr Georgiadis that Mr Manettas told him to obtain the brochure surreptitiously to avoid any purchase coming to the agency’s attention becomes somewhat dubious when one considers that L J Hooker’s instructions were withdrawn by the defendant by letter dated 8 March 1996. Mr Gamble said that although later, in about mid-June, he obtained a Websters brochure for Mr Georgiadis, he did not set out to obtain the L J Hooker brochure at Mr Georgiadis’ request. It came instead to his office, as many such brochures did, with a fishing magazine; and although it was possible that Mr Georgiadis had seen it there, Mr Gamble did not give it to him. (This evidence contradicted an admission in the amended defence that Mr Gamble gave or sent the brochure to Mr Georgiadis.) Mr Trevor Jackson, the manager at that time of the Margate factory, said that Mr Georgiadis had no such brochure with him when he inspected the factory.

In the face of that collection of evidence, I reject Mr Georgiadis’ assertions as to his having obtained the brochure at Mr Manettas’ suggestion, and his reliance on it. However, a rejection of his evidence as to reliance on the brochure is not fatal to the plaintiff’s claim as to the AQIS rating. It is not disputed that Mr Jackson repeated the representation that the premises had an “A” rating in the course of Mr Georgiadis’ inspection of the property.

The inspection of the Margate premises

What occurred on the inspection was the subject of evidence from Mr Georgiadis and Mr Jackson. According to Mr Georgiadis, it commenced with the main processing area, which was dark, with only one bank of lights out of three or four in operation. Mr Jackson and he looked at the blast freezer leading off the processing area before going on to the cold room, which could not be entered because the access door was iced up. Instead they entered it by going to the dispatch area and using the main freezer door. They went on to look at two plate freezers and from there into a quality control area. From there, they proceeded to the carton room on the mezzanine floor, and the men’s and ladies’ change rooms on the same floor. After that, Mr Georgiadis was shown the ice room, which contained two ice machines and a chiller. They examined the lunch room, and returned to the processing area where Mr Jackson gave him details of two large cookers. From there they visited the switchboard room and the compressor room, going on to the live fish holding tank. They then left the plant and walked down to the water’s edge, passing the effluent treatment plant, and examining pumps which were used to pump salt water to the fish holding tanks. According to Mr Georgiadis, the factory was dirty; this caused him to ask Mr Jackson whether it was AQIS rated “as per the brochure”. Mr Jackson assured him it was an “A” rating.

Mr Georgiadis said that he went on to confirm with Mr Jackson the quantities of product processed by the defendant. Mr Jackson gave him the same figures for fresh and frozen cooked lobsters as Mr Manettas had supplied. He also told Mr Georgiadis that the factory undertook a good deal of contract freezing of salmon for Tassal. About 340 tonne had been frozen in the last year at 37 cents a kilo, providing an income of about $140,000. The factory also processed hundreds of tonnes of fish from the Megisti Star, with a charge out rate of between $1 and $1.50 a kilo on the fillets. Mr Georgiadis asked him about the equipment in the factory and Mr Jackson told him it was in good working order and condition and was properly maintained. He advised him that some computers and some radio equipment in the factory actually belonged to the Megisti Star and would not be part of any sale.

The statements said to have been made by Mr Jackson in the course of the conversation are relied on by the defendant as supporting a number of the representations alleged in the further amended statement of claim: as to the factory’s “A” rating; the plant and equipment having been well maintained and being in good working order and condition; the factory having performed contract freezing for Tassal in the amount of about 340 tonnes in the proceeding year with a profit of $140,000; and the processing of lobster, in the quantities said to have been referred to by Mr Manettas, and all the fish caught by the Megisti Star.

Mr Jackson’s account of the inspection varied slightly as to the order in which parts of the premises were visited. There were more significant divergences as to the content of their conversation. Mr Jackson said that Mr Georgiadis made comments about the state of the floor in the factory area. He (Mr Jackson) pointed out that it was not a new floor, and that it was repaired as required from time to time by AQIS. His words, he said, were:

"Well, you know, it's an old building. AQIS is certainly happy with it. I am happy with it. It's not a new building. It's not a new floor. Whenever AQIS wants me to do something to the floor, we do. We actually can't be - you know, we maintain an A rating, which really isn't too much to do with the structure of the building at all."

(Mr Georgiadis denied in cross-examination that there had been any reference to the state of the floor).

Mr Jackson said that he suggested that Mr Georgiadis might be interested in buying the Megisti Star as well as the factory. Mr Georgiadis responded that he would like to do so but had not the necessary funds. Mr Jackson did not, he said, discuss amounts of lobster processed through the factory. He told Mr Georgiadis that the factory undertook contract freezing of salmon for about 36 cents per kilo, and explained what the process involved. Mr Jackson said it was Mr Georgiadis who raised the fact that the factory processed hundreds of tonnes of fish from the Megisti Star; he did not mention any charge-out rate for the fish. There was, Mr Jackson said, some discussion of the maintenance of the factory and its equipment, and he told Mr Georgiadis that Paul Sward (a refrigeration mechanic) was employed to undertake maintenance. He agreed to having told Mr Georgiadis that the equipment was properly maintained and in good working order and condition; and the amended defence contains an admission to that effect in respect of the plant and equipment.

I find that representations were made by Mr Jackson, in the terms in which he gave evidence, as to the factory’s “A” rating with AQIS, and as to the plant and equipment being properly maintained and in good working condition. For reasons which will be explored further later in this judgment, I do not accept Mr Georgiadis’ account of having been given figures in tonnes for production of fresh cooked and frozen cooked lobster. On the strength of Mr Jackson’s evidence, I accept there was discussion of contract freezing for Tassal and the charging rates involved, and some mention of the hundreds of tonnes of fish processed from the Megisti Star, but not the charge out rate for it.

The contract negotiations

It is common ground that Mr Georgiadis’ inspection of the factory was followed within a couple of days by a meeting with Mr Manettas and others at Rozelle, at which the plaintiff’s purchase of the factory was negotiated. There are, however, significant differences as to what was discussed and by whom. Mr Georgiadis’ account follows.

The plaintiff’s version of contact negotiations

Mr Georgiadis said that the meetings went over two days: either the 17^th and 18^th of June or the 18^th and 19th. Initially he met Mr Manettas. The first topic of discussion was the supply of lobsters. Mr Manettas said that the plaintiff was to process 20 to 25 tonnes (per annum) of frozen cooked lobsters to be packed in cartons supplied by the defendant and delivered to a cold store in Tasmania. The defendant would pay $5 above beach price. Fifteen to twenty tonnes of fresh cooked lobster were to be processed, packed in the plaintiff’s own boxes and air freighted to Sydney. They were to be charged at $5.50 above beach price landed in Sydney. Between two and three hundred kilos per week of live lobsters were to be supplied, packed in the plaintiff’s cartons and landed at Sydney. For these, the defendant would pay $6 per kilogram above beach price.

Mr Georgiadis said he told Mr Manettas of Mr Jackson’s advice that the salmon freezing was undertaken at about 37 cents a kilo. Mr Manettas said that this was guaranteed income for the factory at about $140,000; and he would make the necessary arrangements with Tassal to obtain the work for the plaintiff. The factory was to process all the product presently being processed by the defendant. The fish from the Megisti Star would be processed at a rate of $1 to $1.50 above expenses per kilogram of processed fillets. The factory would also process any other Manettas requirements such as mussels. The defendant would leave cartons printed with its brand name at the factory so that the frozen cooked lobsters and fish fillets could be packed in them.

For convenience’ sake, I will refer to the arrangements Mr Georgiadis said were made for the factory to process and/or supply fish and lobster to the defendant, together with the promise of Tassal freezing work, as the “processing and supply agreement”. The relevant representations were, like those said to have been made earlier by Mr Manettas and Mr Jackson, relied on by the plaintiff as constituting collateral warranties and misleading and deceptive conduct. It was to be implied from a number of factors, it is pleaded, that the representations would be fulfilled for a period of, at the least, one year, and at the highest, so long as both plaintiff and defendant remained in business. (At trial, the plaintiff limited its claim for loss of profit in respect of the alleged agreement to a period ending in April 2001, when Royale Seafood Supplies (Tas) Pty Ltd disposed of its Tasmanian business.)

According to Mr Georgiadis, he agreed with Mr Manettas that Mr Jackson would stay on at the factory to assist with the fish filleting and salmon freezing, since Mr Georgiadis had no relevant experience. The defendant would pay his wages until the beginning of the lobster season, when the plaintiff would assume responsibility for his salary.

There was then some discussion about price. Mr Georgiadis began with an offer of between six and six hundred and fifty thousand dollars, but ended by agreeing to pay eight hundred and fifty thousand dollars, provided he could borrow between two hundred and two hundred and fifty thousand dollars from the defendant. Mr Georgiadis said that he asked Mr Manettas on this occasion to put the supply and processing agreement in writing, but Mr Manettas explained that to do so would delay matters, since the South African members of the defendant’s Board would have to consider the issue.

Because Mr Georgiadis was uncertain as to how an offer should be put to the company, Mr Manettas introduced him, he said, to Mr John Diacopoulos, a solicitor associated with the company, who assisted him by drawing up a hand written offer. At the same time they went through an inventory of plant and equipment. Two items on that inventory, relating to radio equipment and a computer used for the Megisti Star rather than the factory, had already been ruled through as not forming part of the sale. At about this stage of negotiations he met Mr Andrew Manny, the defendant’s general manager, who mentioned the factory’s “A” rating with AQIS.

Mr Georgiadis sent the hand written offer prepared by Mr Diacopoulos by facsimile to his Brisbane office for typing. A typed offer to purchase with an attached copy of the inventory of plant and equipment was then forwarded to the defendant by facsimile. The offer to purchase provided for $250,000 of the $850,000 purchase price to be paid within 24 months, secured by an unregistered second mortgage. Mr Georgiadis agreed that he knew that the offer to purchase had to be approved by the defendant’s Board. It was, Mr Georgiadis said, accepted about a week later, with alterations. They included a reduction in the period for payment of the $250,000 to 12 months, and removal of a Trio fish skinning machine and three trucks from the sale inventory. According to Mr Georgiadis, he rang Mr Manettas about the deletion of the fish-skinning machine and was told that he would not need the machine, since the skinning of the fish could take place at the defendant’s Sydney factory. At the same time he repeated his request of Mr Manettas to put the processing and supply agreement in writing, but Mr Manettas repeated his earlier concern about delaying matters with the Board.

The defendant’s version of contract negotiations

It became clear, however, that Mr Georgiadis was mistaken in his recollection of the personnel present at the negotiations at Rozelle. Mr Diacopoulos gave unchallenged evidence that he at no time attended the Rozelle premises. Instead, he was contacted by Mr Noel Drake who asked him to prepare the offer, which he forwarded by facsimile. Mr Drake and Mr Manettas both gave evidence, which I accept, that it was Mr Drake who went through the inventory of plant and equipment with Mr Georgiadis.

Mr Manettas said that Mr Drake was present throughout the entirety of the negotiations with Mr Georgiadis which took place in a single day, June 19th. Their meeting began, Mr Manettas said, with his proposing a purchase price of $955,000 on behalf of the defendant. There were discussions based on the inventory, and deletion of some of the items contained in it, which led to a new figure of $850,000. Mr Drake confirmed that the price was reduced by going through items in the inventory and removing some not necessary to lobster production, so as to reduce the price. There was agreement at that time that the trucks and the skinning machine would be removed; as to the latter, there was general assent that Mr Georgiadis would not require it for his operations. Mr Drake and Mr Georgiadis endorsed the inventory to reflect those deletions by ruling through the items in question and adding their initials to the alterations.

On Mr Manettas’ evidence, Mr Georgiadis suggested that some of the outstanding $250,000 might be paid in stock. He indicated in response that the Board would have to approve payment in that way. He and Mr Georgiadis agreed that the defendant would continue to buy product from the factory; but there was no promise made that any particular quantity would be purchased, nor were prices specified. Mr Georgiadis was told that the catch of the Megisti Star would be processed at the factory until the vessel’s sale; and, indeed, the subject of the boat came up at the meeting in the context of Mr Georgiadis’ expressing a mild regret that he could not afford to buy the boat himself. There was no promise that the Tassal freezing work would be available to the plaintiff, and Mr Manettas did not, he said, offer to make any arrangement in that regard. He undertook in that meeting to introduce Mr Georgiadis to other fish buyers, and subsequently did so.

The defendant’s cartons were, Mr Manettas said, left at the factory simply because it was not viable to transport them to its Sydney operation. Mr Jackson was kept on at the Margate factory at the defendant’s expense for the purpose of finalising the sale of the Megisti Star, not because of his expertise in fish processing; although he was also available to assist Mr Georgiadis generally.

Mr Manny gave evidence that he had seen Mr Georgiadis in passing on 19 June, and had congratulated him on his purchase of the factory. At the same time he had asked why the plaintiff was not also buying the Megisti Star, and Mr Georgiadis had told him that the funds were not available. He had not, to his recollection, mentioned the rating of the factory. It was he who had contacted Mr Georgiadis to tell him that the Board would not accept a 24 month period for payment of the final $250,000 and that a period of 12 months would have to be substituted for it. He was given the responsibility of ensuring that a formal contract was signed and delivered by Mr Georgiadis, and made a number of phone calls to the latter for that purpose. In the course of their conversations, he informed Mr Georgiadis that if the plaintiff had difficulty raising the necessary funds the defendant would accept part of the purchase price in the form of product. At no stage, said Mr Manny, did Mr Georgiadis refer to any agreement for the defendant to buy prescribed quantities of lobster at agreed prices.

The contract

Mr Georgiadis had a contract prepared by solicitors in Tasmania, acting as agents for his Brisbane solicitors. The contract, which was dated 12 August 1996, settled on 12 September. It included the following warranties:

“6. Warranty – Pending Completion
The Vendor warrants that prior to the Settlement Date the vendor will carry out repairs and maintenance to the Property and the Plant and Equipment in accordance with good commercial practice and standards of maintenance and as required under the terms under which they are held or owned.

…
Schedule E – The Warranties
…
5.Each item of the Plant and Equipment:

(a) is in good repair taking into account normal wear and tear;

(b) is in satisfactory working condition and capable of doing the work for which it is designed; and

(c) has been maintained in a manner that does not prejudice any rights under any maintenance contract in connection with any of that Plant and Equipment.”

The plant and equipment sold by the contract was itemised as Schedule B to the agreement.

The period between execution of the contract and settlement

In the period up to settlement Mr Georgiadis proceeded with the steps necessary to obtain finance from the Commonwealth Bank, dealing with Mr Kenneth Johnson from the bank. Mr Johnson’s notes of their discussions include a reference to $250,000 vendor finance “to be deducted as you process” and a note that Manettas was to “get out of “ fish production but that “Royale would continue to supply to him”.

Part of the funding sought from the Commonwealth Bank was for the purpose of constructing new tanks. Mr Georgiadis, in fact, set in train the construction of new lobster tanks in the period prior to settlement of the contract with the assistance of Mr Jackson, to whom he gave directions by telephone and facsimile. He had plans drawn up, obtained quotes for the work to be done, and undertook demolition of part of the premises to make way for the new lobster area.

On 27 June 1996, AQIS carried out an inspection of the factory and downgraded it to a “C” rating. Mr Georgiadis said that he was not informed of this event at any time prior to settlement of the contract. In cross-examination, Mr Jackson said that Mr Georgiadis had raised the factory’s loss of its “A” rating with him in August 1996 (before settlement of the contract). Mr Manny also suggested that Mr Georgiadis might have raised the issue with him prior to the change of ownership. However, given that the evidence of both men emerged for the first time in cross-examination and was not the subject of pleading, nor any question in

examination-in-chief, I regard it as unreliable, and possibly the product of wishful thinking applied to conversations occurring after settlement. I proceed therefore, on the basis that Mr Georgiadis was unaware of the factory’s change of rating prior to settlement of the contract.

According to Mr Jackson, AQIS regarded it as pointless undertaking a further assessment prior to the sale, since the defendant was no longer processing to any extent, and the factory would require a new inspection once ownership had been transferred. By the time he ceased employment in November 1996, no further formal assessment had been undertaken.

As well as entailing a further AQIS assessment, the change of ownership meant a new set of licences was required. Applications were made for a fish processing licence and a fish receiver permit. In the case of the first, Mr Jackson was shown as the “nominated natural person” and in respect of the second, as a contact person. He said that he was involved in the process of applying for the licences because he had been instructed to assist Mr Georgiadis wherever possible. Although he had signed a letter accompanying the fish processing licence application as “Manager Royale Seafood Supplies (Tas) Pty Ltd”, that was done with the motive of assisting, but did not mean that he had actually acted as a manager of Royal Seafood Supplies (Tasmania).

The Megisti Star

On 12 September 1996, the date of settlement, the Megisti Star unloaded a haul of fish, which was processed at the Margate factory. The defendant paid for the labour involved, but Royale Seafood Supplies (Tas) Pty Ltd was able to charge for, in effect, the use of its premises. Its fee was $4,823.95, at 84 cents per kilogram, a rate arrived at by Mr Jackson. Another catch from the Megisi Star was processed at the factory on 26 September 1996. On this occasion Mr Jackson calculated a charge to the defendant of $3.75 per kilogram delivered in Sydney based on processing costs to Royal Seafood Supplies (Tas) Pty Ltd of $2.15 per kilo.

On 5 October 1996, as the amended defence admits, the Megisti Star was sold. Mr Georgiadis said that from his point of view the sale was completely unexpected. He was informed of it by a telephone call from Mr Jackson who, he said, sounded upset. Mr Manettas confirmed the fact of the sale to him in a telephone conversation, but suggested that the quota for the vessel, which had been retained, might still be used as a source of processing work.

Mr Manettas, on the other hand, gave evidence that before the sale of the vessel had been finalised he had, as a matter of courtesy, informed Mr Georgiadis that items lying around the Margate factory (netting, rigging and other equipment) would be removed when the sale of the vessel took place. Mr Georgiadis was, he said, unconcerned. Mr Manettas denied any conversation about use of the quota as a source of product. Mr Jackson said that he spoke to Mr Georgiadis regularly in the period between settlement and the sale of the vessel, and was often asked by Mr Georgiadis how the sale was progressing. He told Mr Georgiadis of the sale either on the day of, or the day after, its occurrence. Mr Georgiadis was unperturbed and said that he was not interested in any case in processing orange roughy, as opposed to lobsters. Mr George Gamble, who had been manager at the plaintiff’s smaller Hobart premises, and who had moved after settlement to the Margate factory, said that he was made aware by Mr Jackson that the vessel was for sale. Mr Georgiadis did not express any concern to him when it was in fact sold.

The AQIS “A” rating

According to Mr Georgiadis, in September 1996 he applied for a new AQIS licence for the factory. It was after that Mr Gamble advised him that the factory had been downgraded to a “C” rating prior to its acquisition. He telephoned Mr Manettas, who said that he had been unaware of the downgrade; he advised Mr Georgiadis that he should fix whatever required repair at the defendant’s expense. Mr Manettas said, on the other hand, that although he had become aware after settlement that the company did not have an “A” rating, that information did not come to him from Mr Georgiadis at any stage, and he had not made any offer to meet the costs of restoring the rating.

Processing and supply after settlement

In about November 1995, Mr Georgiadis asked Mr Gamble to increase the numbers of boats supplying lobster to Royale Seafood Supplies (Tas) Pty Ltd. He was instructed to obtain as much lobster as possible. Mr Gamble set about the task by inviting the Tasmanian lobster fishing community at large to a barbeque to celebrate the opening of the new lobster tank room at the factory. The word soon spread as to their interest in acquiring more lobster, and in the first month of the season the business had procured about 15 tonne more than it had in the equivalent period in the preceding year.

On Mr Georgiadis’ account, he visited Mr Manettas at Rozelle towards the end of October, in order to discuss with him his concern that the Megisti Star had been sold with the resulting loss of processing work, and the lack of any freezing work emanating from Tassal; and to ask whether the frozen cooked lobster orders would be forthcoming. According to him, Mr Manettas said that he would try and arrange a transfer of the vessel’s fishing quota to Mr Georgiadis so that he could arrange for the catch to be made by other trawlers. He would then be able to process it for supply to the defendant. Secondly, Mr Manettas undertook to contact Tassal and find out what was occurring with the salmon freezing; and thirdly, he reassured Mr Georgiadis about the frozen cooked lobster orders. Mr Manettas denied that conversation. It was, however, common ground that on that visit to Sydney Mr Manettas organised meetings with Mr Zantey and Mr Mantikis, both of whom were buyers of lobsters and fish product, with a view to encouraging them to place orders with the Tasmanian business.

Mr Georgiadis said that from early December he began to pursue Mr Manettas to place the promised orders of frozen cooked lobster. The only order which came from the defendant for the frozen cooked lobster product was an order for 54 cartons, at 9 kilograms per carton, placed in early December 1996. In February 1997 he met Mr Manettas again at Rozelle. He asked why the frozen cooked lobster orders had not eventuated, and Mr Manettas responded that the “South Africans” did not want to hold stock. Mr Georgiadis asked about the Tassal salmon freezing. Mr Manettas said that Tassal had lied to him and they had taken their freezing work elsewhere. Finally, Mr Georgiadis raised the question of the fishing quota which had been proposed as a solution to his lack of fish processing work, but Mr Manettas was, he said, silent on the point. About a month later he offered Mr Manettas frozen cooked lobsters, but received no response.

Mr Manettas gave a different account. He said that the defendant had tried to obtain supplies of lobster from Mr Georgiadis’ business without success. On one occasion he was promised 400 cartons of lobster only to be told that they been sold elsewhere. Mr Manny said that he spoke almost daily to Mr Georgiadis in an effort to obtain lobster, but although some small quantities were supplied, the defendant was obliged to seek product elsewhere.

On Mr Georgiadis’ version, the Tasmanian business was left without any further work from the defendant, and had to make its own way in the lobster and fish processing industry. It was unable to take lobster from the additional boats enlisted by Mr Gamble to supply the factory. Consequently, prior to the end of 1995, he instructed Mr Gamble to cut back on purchases. Mr Gamble, on the other hand, said that the instruction to increase purchases had not been countermanded by the time he left the business’ employ in February 1996.

The claim for damages

The plaintiff’s claim for damages proceeded on two bases. The first was that there had been misleading and/or deceptive conduct within the meaning of s 52 of the Trade Practices Act, in the form of the oral representations as to product to be purchased, and the representations, said to be both written and oral, as to the factory having an “A” rating and its plant and equipment being in good working order and condition. Damages in this regard were calculated by the plaintiff’s accounting expert, Mr Cooper, on the basis of what was said to be the difference in the contract price and the actual value of the property, with an “A” rating and if its plant were in good working order, together with the costs necessary to achieve that position, and the costs associated with the purchase of the property, giving credit for profit made from sales to the defendant.

The second basis relied on the same representations as warranties, those as to the condition of plant and equipment being contained within the contract, and the remainder being collateral promises. In this regard, Mr Cooper calculated damages consisting of the costs of achieving an “A” rating and restoring the plant to good working order, together with the loss of profits from product processing and supply. In respect of the latter, calculations were made for loss of profits on varying lengths of time from one year to five.

The alleged processing and supply agreement and the loss of profits claim

Mr Cooper calculated loss of profits in respect of each of the lobster products (frozen cooked lobsters, fresh cooked lobsters and live lobsters), processing of salmon from Tassal and processing of the Megisti Star catch. For his calculations in relation to the lobster product, he relied on the figures said to have been given by Mr Manettas to Mr Georgiadis as to the amount to be purchased and the purchase price. For the Megisti Star catch, he based his figures for volume to be processed on the catch of a roughly comparable vessel, the Saxon Progress. (The limitation on that evidence was that the figures for the Saxon Progress’ catch were available only for the period between 7 July 1997 and 9 January 1999. According to Mr Collins, who was a director of the company which owned the Saxon Progress, and produced its records, that was a relatively productive period between earlier and later periods of decline in catch.) Mr Cooper used a figure of $1.25 per kilogram as falling in mid range of what was said to have been promised to Mr Georgiadis. As to the salmon processing, he adopted the figures said to have been supplied to Mr Georgiadis, of 340 tonnes per year at 37 cents per kilogram.

Mr Cooper’s evidence was the subject of a critique by Ms Armstrong, an accountant who gave expert evidence for the defendants. His report was criticised for its reliance on Mr Georgiadis’ instructions, for example, as to the amount of labour required to process particular quantities; for his underestimating of overheads (a deficiency which had in the main been addressed by the time his final report was produced); and for his assumption that the plaintiff would have had sufficient working capital to meet the additional costs associated with the work for the defendant. As to the last, Mr Norling, a consultant with a commerce and accounting background and experience in the fishing industry, gave evidence which I would accept as to the adequacy of the plaintiff’s access to capital.

A fourth issue was whether the plaintiff, by virtue of the corporate structure in which it existed, would have been capable of receiving the profits contended for, since the Tasmanian processing work was carried out, not by it but by Royale Seafood Supplies (Tas) Pty Ltd. It was argued that, were the latter company to attempt to transfer the profits to the plaintiff in the guise, for example, of a management fee, it would rapidly find itself the subject of action by the Commission of Taxation under Part IVA of the Income Tax Assessment Act 1936. Mr Logan for the plaintiff argued that the plaintiff was entitled to use its trademark, the benefit of the contract, its ownership of the premises and its expertise as a means of requiring and receiving payment equivalent to the profits to be generated by the Margate factory. Alternatively, the plaintiff could itself have acquired the necessary licence to process and generate the profit itself. I would be inclined to accept the proposition that the plaintiff could, without ramifications, have received the Tasmanian profit stream; but for reasons which will become obvious it is not necessary for me to decide the point

Findings on the “processing and supply agreement”

For a number of reasons, I do not accept Mr Georgiadis’ account of the promises said to have been made to him by the defendant in relation to lobster purchases or processing work. Firstly, the agreement alleged is so fundamental that one would expect to find it in the principal contract; and one would expect a businessman of the experience of Mr Georgiadis to refuse to execute any contract which did not contain it. I do not consider Mr Georgiadis’ explanation, of having been dissuaded by Mr Manettas’ concerns about delay if the matter had to be considered by the South Africans, to be plausible. Nor is his professed willingness to accede to such a course consistent with his admitted knowledge that the contract had to be approved by the Board. One would, moreover, expect that had such an agreement been made it would have been communicated to the solicitors acting on his behalf; and that they would have been astute to ensure that it was included in the contract.

I consider it significant, too, that although there were references to continued supply to Manettas, the details of the agreement do not appear to have been communicated to Mr Johnson, the bank officer through whom the plaintiff sought finance. The existence of such an agreement, clearly, would have been an important factor in ensuring the bank’s willingness to lend; and one might have expected all the features of the arrangement to have been set out as part of the loan application.

So far as it is alleged the promise of product purchase was first made by Mr Manettas in a conversation in late April or May 1996, it is telling against the plaintiff that the conversation in question was not pleaded until the filing of the plaintiff’s amended statement of claim in May 2000. The original statement of claim had been delivered in December 1997 and further particulars of it provided in February 1998, each without reference to any such conversation. An amended statement of claim was delivered in March 1999 followed by a certificate of readiness for trial delivered in June 1999. Another amended statement of claim was filed in September 1999 and a further amended statement of claim on 6 April 2000. None of these amended statements of claim contained any reference to the conversation in question. Its sudden coming to light for inclusion in the further amended statement of claim in May 2000 is, in my view, suspect. I note, too, that although Mr Georgiadis claimed to have recounted the figures given to him in that conversation to Mr Jackson when he inspected the Margate factory in June 1996, Mr Jackson denied having such a conversation with him. (Generally speaking, other than for the reservations already expressed as to his claim to have discussed the loss of the AQIS rating prior to settlement, I accept Mr Jackson as a witness of truth.)

The further amended statement of claim of May 2000 also alleges that similar representations as to the purchase of lobsters, with further representations as to processing of salmon and the catch of the Megisti Star, were made in “a number of telephone conversations” between Mr Georgiadis and Mr Manettas between 14 June and 19 June 1996. Mr Georgiadis’ evidence however, contained no reference to any representations being made by Mr Manettas by telephone in this period.

As to the allegation that the representations were repeated in the mid-June meeting at Rozelle, I prefer Mr Manettas’ account of the meeting for a number of reasons. They include, as well as the improbability of the representations not being reduced to writing, the fact that Mr Drake, who I find on the balance of probabilities was there for the entirety of the meeting, did not hear any such representations being made. Even had it been the case that Mr Drake was present for only part of the meeting and that Mr Manettas wished to make the representations without his knowledge or that of other employees of the defendant, it would have been foolhardy to make the promises in his absence on the assumption Mr Georgiadis would not refer to them again later in his hearing. It also seems improbable that Mr Georgiadis, had those promises been made to him without Mr Drake present, would not at least have sought to have them confirmed in his presence, particularly if, as he says, he believed Mr Drake to have been the lawyer, Mr Diacopoulos.

Moreover, there are particular aspects of the alleged representations which lack credibility. The lobster prices were said to have been based on “beach price”, a term which was the subject of a good deal of discussion in the case. I think it is fair to say that the consensus which emerged was that beach price was the price paid on the wharf to fishermen for their catch. As a basis for price agreement it was unworkable. Although I accept that those in the industry would have knowledge of what beach price might mean at any given time, it was capable of varying by the day or even by the hour. It would be impossible therefore, for the defendant to confirm that any particular consignment had been bought at any particular price; a difficulty compounded by the plaintiff’s admitted mixing in his tanks of lobsters purchased at different times. It seems to me most improbable that the defendant would have agreed to purchases made on the basis of a price as to which it was utterly dependent on the plaintiff’s word. Nor do I think it probable that the defendant would have entered such an agreement without qualification as to size and quality of product.

If, indeed, an agreement had been made for purchase of specific volumes at beach price it would seem obvious that the plaintiff’s employees who would ship the goods would have been informed. Neither Mr Gamble nor Mr Jackson was told of any agreement or any such charging basis, and none of the employees of Royale Seafood Supplies (Qld) Pty Ltd was called to give evidence of any practice of invoicing on the basis of beach price. The invoices themselves contained no reference to such a practice, as might have been expected were the defendant to be charged on that basis. Nor were the plaintiff’s inventory histories of sales and purchases consistent with such a charging basis; there were instances in which the sale price was well above the margin over beach price alleged to have been agreed.

Mr Georgiadis and Mr Gamble concurred in their evidence that Mr Gamble was given an instruction in late 1995 to buy as much lobster as he could. They differed as to whether that direction changed. I accept Mr Gamble’s evidence that the instruction remained on foot into February 1997. That fact is consistent with Mr Georgiadis’ intention to expand his lobster business being independent of any anticipation of supply to the defendant, and unaffected by any failure on the latter’s part to place orders. It makes me all the readier to accept Mr Manettas’ and Mr Manny’s complaint that they could not obtain supplies from Mr Georgiadis when they wanted them. The evidence is not consistent with Mr Georgiadis’ considering the plaintiff to be a party to a supply agreement with the defendant.

So far as the alleged agreement that the plaintiff would process the catch of the Megisti Star is concerned, I consider it most unlikely either that the vessel’s impending sale was unknown to Mr Georgiadis, or that the defendant could have assumed that it was, in dealing with him. The sale had been widely advertised over a considerable period of time. Mr Manettas would have been optimistic indeed to suppose that he could make representations about the vessel’s future catches to someone already involved in the Tasmanian fishing industry, without word of the vessel’s being on the market coming to his ears.

I accept the accounts of Mr Manettas, Mr Drake, Mr Manny and Mr Jackson, all of whom say that the intended sale of the vessel was discussed with Mr Georgiadis. I consider it of some significance that there was no attempt to keep the impending sale from the knowledge of Mr Gamble, although that significance is diminished by the brevity of the period during which he might have come to know of the sale, that is, from the time he began at the Margate factory on 1 October to the date of sale on 5 October. On the other hand, one would expect that had Mr Georgiadis anticipated processing of the catches of the Megisti Star for the indefinite future, he would have made this expectation known to Mr Gamble and Mr Jackson. Both deny being told anything to that effect; and Mr Jackson, of course, was in a position promptly to set Mr Georgiadis straight on the matter.

The question of the Trio fish-skinning machine deserves some attention. The defendant argued that its removal from the inventory of items to be purchased was inconsistent with any intention on the part of the plaintiff to undertake processing of orange roughy. However that may be, I do not accept the evidence of Mr Georgiadis to the effect that it was an unexpected removal of the item after the making of his offer to purchase. It is very clear looking at the inventory, which is exhibit 31, that the item relating to the machine was ruled through and initialled by Mr Georgiadis and Mr Drake, just as were other items to be taken out of the sale. Mr Georgiadis did not suggest that the initialling by him could have happened at any other time than during the contract negotiations at Rozelle. It is obvious that the item was, as Mr Manettas and Mr Drake testified, removed from the list as part of the contract negotiations, and not later.

Even were it not obvious from the document itself that that was the case, the account of Mr Georgiadis, that Mr Manettas proposed that the machine would be used at Rozelle to skin fillets sent up from Tasmania, is not capable of belief. Apart from the issues raised by Mr Manettas as to the effect on the fillets of leaving the skin on, the suggestion that the defendant would cheerfully accept the double handling and processing entailed is not credible. I conclude, therefore, that Mr Georgiadis was wrong about when the item was removed, and untruthful in the account of the conversation with Mr Manettas, which he offered to explain the machine’s removal. The motive for his lie is not clear, but it seems likely it was an attempt to avoid the defendant’s suggestion that the deletion of the machine was inconsistent with an ambition to process orange roughy. In any event, his evidence in this regard is adverse to his credit.

It was argued on behalf of the plaintiff that the defendant had shown itself willing, by its past advertising, to reach an agreement with a prospective purchaser to buy product. That offer was made in advertisements for the sale of the trawler and factory at $5,500,000. It is a large jump to assume it to be equally available to the sale of the factory alone, for a fraction of that price. It is noteworthy, moreover, that when the agreement with Jordel was being negotiated, the defendant sought the assistance of Mr Diacopoulos to draw up an offer stipulating the agreement for the purchase of product. It is not obvious why, if such an agreement had been made with Mr Georgiadis, Mr Diacopoulos would not have been asked to include similar terms in the offer to purchase which he then prepared.

Nor do I think there is much to be drawn from the Board’s preparedness to accept product as repayment of the outstanding $250,000. That is a very different thing from promising to take prescribed annual quantities of stock, at an agreed price for an unstipulated period, capable of amounting in value, on Mr Cooper’s calculations, in the millions. Mr Manettas’ evidence was that he indicated a preparedness to accept stock subject to the Board’s approval. That is consistent with what is contained in the minutes of the defendant’s Executive Committee Meeting of 9 July 1996, “250K to be paid in stock or cash over 12 months”.

Finally, a good deal was made of Mr Jackson’s staying on at the factory at the defendant’s expense. It was argued that it was consistent only with his being required to assist in the processing of orange roughy to be caught by the Megisti Star. However, it is clear from the evidence of Mr Manettas and Mr Jackson, supported by the minutes of the Executive Committee Meeting of 10 September 1996, that he was needed at Margate until the sale of the Megisti Star could be concluded. There appears to have been no objection to his making himself useful at the same time to Mr Georgiadis; but that is consistent with some benevolence extended by the defendant in the context of a long business association. Since the defendant needed his services, and had to pay for them in any event, it cost nothing more for him to be helpful to Mr Georgiadis at the same time. No doubt there was an incentive for Mr Jackson to give whatever assistance he could, in the hope that he might be kept on by the plaintiff after the defendant no longer had any need for his services. I do not therefore consider Mr Jackson’s continued presence or involvement in the work at the factory of obtaining of licences to be significant.

For the reasons given I do not accept Mr Georgiadis’ evidence about the processing and supply agreement; and, indeed, its effect is to make me hesitant to accept any of his evidence not supported in some independent and compelling way. For completeness, it should be said that even had I accepted Mr Georgiadis’ account of the agreement, his own statement in evidence that he knew that Mr Manettas could not bind the defendant without the authority of the Board, and that the Board had not given its authority to the processing and supply agreement, would preclude any finding that the alleged representations could amount to warranties.

There remain for consideration however, the issues as to the representations about the plant and equipment being in good working order and the factory possessing an AQIS “A” rating, which are the subject of independent evidence.

Representations as to plant, property and equipment

The representations as to the state of the factory and its equipment can be divided into two kinds: representations that proper repair and maintenance had been undertaken; and representations that the plant and equipment were in good working order.

Representations as to maintenance and repair

The contract contained, in Clause 6, an express warranty that the defendant would “carry out repairs and maintenance to the Property and the Plant and Equipment in accordance with good commercial practice and standards of maintenance and as required under the terms under which they are held or owned”. (No evidence was led as to any terms under which the property, plant and equipment were held.) Schedule E to the contract contained, at Clause 5, the warranty that each item of plant and equipment had “been maintained in a manner that does not prejudice any rights under any maintenance contract in connection with any of that Plant and Equipment”. (Again, there was no evidence as to the requirements of any maintenance contract.) In addition, Mr Jackson agreed that during Mr Georgiadis’ inspection of the factory he had told him that the equipment was “maintained properly”.

The evidence as to maintenance

The plaintiff called an engineer, Mr Herbert Gilbert, who had inspected the factory, its plant and equipment on a number of occasions in late January and early February 1999. To his observation the plant did “not appear to have been maintained to a good commercial standard”. Its condition suggested minimum maintenance. Mr Hickey, an engineering estimator who attended the factory with Mr Gilbert in early 1999 in order to give estimates of the value of equipment and repair costs, expressed the view that it had taken “more than two years” for the equipment to arrive at its condition as he saw it.

Mr Gilbert reported being informed by “personnel involved in the plant under previous ownership” that critical items had been “subject to a form of condition monitoring”. The only person within that category whom he identified as having spoken to him was Mr Paul Sward. Mr Sward, who had been responsible for maintenance at the factory prior to its sale to the plaintiff, denied having said anything of the sort. I should say at this point that I found Mr Sward a convincing and balanced witness, and accept his evidence in all respects.

Mr Sward was a refrigeration mechanic by trade. He had begun working as a factory hand at the Margate factory in 1979 when it was owned by Safcol. Over time, having undertaken a refrigeration mechanic’s course, he became a refrigeration and boiler attendant. In those capacities he was responsible for plant maintenance. In 1990, the defendant took over the factory and he remained on staff. He became responsible for maintenance of the factory as a whole. Mr Sward said that he applied preventative maintenance; that is, regular servicing of plant and equipment to prevent breakdown. Maintenance was his primary duty at the factory up until the time of settlement, although he had other roles in running the production line, looking after staff, and organising fish unloading.

Matters changed, Mr Sward said, after settlement of the contract. His position was reduced from that of a full-time employee, working between five and seven days a week, and on call when not working, to that of a casual employee working, initially, five days a week, dropping to three days by the time he resigned from employment at the factory in December 1995. More importantly, after the plaintiff took over the factory, maintenance was no longer his job. Instead, his duties were lobster collection, processing, and packing. No one was employed in his stead to undertake maintenance. Such maintenance as was carried out was on a break down basis; in other words, by way of repair when machinery actually ceased to operate.

After his departure from the factory in December 1996, Mr Sward returned on some occasions at the request of Mr Georgiadis, who was having difficulties with machinery and plant. On one occasion he was needed to show Mr Georgiadis how to start the sea water pumps, on another to start the effluent plant. On a third occasion, the ammonia pump which worked the refrigeration system had oil in it which had to be drained. On his returns the factory was, he said, in a messy condition.

For the plaintiff, it was suggested to a number of witnesses that the defendant had made a decision to run down maintenance at the factory during 1995 in the interest of saving costs. The source of that suggestion seemed to be a minute of the Executive Committee of the Board dated 6 May 1996, noting in respect of Margate that “overhead expenses have been reduced to a minimum”. Mr Manettas, however, said that, while the Board insisted on being informed of expenditure, there was no reluctance to continue maintenance of plant and equipment at the factory. That evidence was confirmed by Mr Jackson, who said that he at no stage received any instruction to reduce the level of maintenance, and Mr Sward, who said that even when the factory was winding down, the machinery, although not being used, continued to be serviced.

In contrast, Mr Gamble said that in early 1997, Mr Georgiadis told him that nothing was to be done by way of maintenance and repair unless a quote had been obtained for the work. Indeed, Mr Georgiadis was frank in admitting that there was no preventative maintenance performed under his management. Mr Sward was not replaced, but if there were any difficulty running the machinery he was asked to assist. As to the equipment, Mr Georgiadis said, “no one did the maintenance, but if anything broke down we just brought electricians or pump people out to fix it up”.

The conclusion I come to on the evidence is that, generally speaking, the plant and equipment were properly maintained up to the date of settlement. In this regard I prefer the evidence of those witnesses who were at the factory at the relevant time to Mr Gilbert’s assumption that if equipment was defective in early 1999, it was the result of poor maintenance prior to September 1996. Those aspects observed by Mr Gilbert and Mr Hickey which led them to conclude that there had not been proper preventative maintenance were, on the balance of probabilities, attributable to the period after the defendant’s acquisition of the premises. Accordingly I find that the warranty as to the plant and equipment being maintained in accordance with good commercial practice was not breached.

Whether the plant and equipment were in good working order

There were two sources of representations as to the condition of the plant and equipment. Firstly, Mr Jackson, as admitted in the amended defence, made the representation that the plant and equipment was “in good working condition”. Secondly, the contract itself contained the warranties already set out, to the effect that each item of the listed plant and equipment was “in good repair taking into account normal wear and tear” and “in satisfactory working condition and capable of doing the work for which it is designed”. Given the latter warranty in the contract, I do not find it necessary to make a finding as to whether Mr Jackson’s statement should be regarded as a separate and collateral warranty.

Extensive evidence was given about a number of items of plant and equipment. Mr Gilbert, in his report, dealt with the items he said were defective in two categories: those which had been fixed by the plaintiff within the first 12 months of operation, and those which remained to be fixed. I shall adopt his form of listing in considering the state of the various items.

Plumbing repairs

On 30 April 1997, some work was done by a plumber named Osborn. The items specified in his invoice as having been installed are a stormwater pump, 36 metres of stormwater piping, an overflow from the freezer with, in addition, repairs to a burst fire main on the roof at a total cost of $773. Mr Georgiadis said he was not there when the repairs were done. Mr Gilbert could do no more than speculate about the possible causes of the need for repair, although he thought that someone had told him that a blockage was involved. There is no evidence to warrant a finding that the need for these repairs was due to any defect in plant or equipment as at the date of settlement.

Forklift truck

According to invoices in evidence, the Lansing forklift truck which formed part of the sale required a new starter motor, at a cost of $161.00, in September 1996. On 1 October 1997, a new power steering ram was fitted. Mr Sward explained that the starter motor on the forklift had an intermittent fault, so that some times it failed to start; hence the replacement of the starter motor by an auto electrician. Although he did not specify when that fault became manifest, I am prepared to assume from the proximity of the replacement of the starter motor to the date of settlement that it existed at the time the property changed hands. It follows that the forklift was not, therefore, in good working order as at the date of settlement. As to the replacement of the power steering ram, the evidence for the plaintiff, at its highest, was that of Mr Gilbert that he would expect “for somebody to do something there was something wrong with it”; but he could not say what the problem was. Whatever the defect may have been, one cannot conclude that it was in existence as at the date of settlement.

Cray cookers

An invoice dated 5 December 1996 indicates that three gas heaters on one of the cray cookers in the factory were rebuilt in mid-November, with the replacement of three solenoids, at a cost of $404.00. Subsequently a cut gas line was repaired, a certificate of testing supplied, and a gas identification plate fitted at a cost of $504. In addition, Mr Gilbert reported his observation that the castors on the trolleys for the cray cooker baskets, used in association with the cookers, were frozen with rust and required replacement. He had received an estimate from Mr Hickey of the cost of replacing all 32 castors, at $3,520.00.

Mr Georgiadis said that only one of the two cray cookers worked when he attempted to use them in mid-November 1996 at the start of the lobster season. Mr Sward said that both cray cookers operated at the date of settlement, but there was a defect in the smaller one, in that its valve sometimes shut the gas off. That was remedied at 6 or 12 month intervals. The smaller and older cooker was cut from its gas line because Mr Georgiadis had decided to send it to his Brisbane factory; but after a change of heart it was reconnected to the gas line at the Margate factory. Mr Gamble said that on his move to Margate he found that the controls on the cooker were not working properly so it was necessary to have effective igniters (which seems another term for burners) fitted; but it seems from Mr Sward’s evidence that it was after its burners were disconnected and reconnected again that there was difficulty in using it. Mr Sward said that about half the castors on the cray cooker baskets were seized, because the defendant had not been using them.

From Mr Sward’s evidence I infer that the difficulties with the burners arose only after the machine had been disconnected. The rest of the items on the invoice seem to relate to what was entailed in reconnecting and testing the older cooker. The fault in the valve seems not to have affected the machine at the time of settlement, and I do not consider it to make the description of cooker as in “good repair taking into account normal wear and tear” inapt. Accordingly, I am not satisfied that there was any defect in the cookers as at settlement which would take them outside the terms of the warranty. As to the castors on the baskets, given Mr Sward’s concession, there is evidence to warrant the conclusion that about half were not, as at the date of settlement, in good condition.

Effluent plant

Mr Gilbert said that on his inspection one of the two dosing pumps to the effluent plant had been disconnected because it was inoperable, while the second was seized. The concrete tanks which held the effluent were cracked and required replacement; although, he conceded, it was possible that a comment in his report as to their leaking badly had come from Mr Georgiadis, rather than his own observation. Mr Georgiadis said that he had not used the dosing pumps until “a few years after settlement” because he had not been processing orange roughy until then. In the interim, no maintenance had been done on the pumps.

There is in evidence an invoice from PR & MF Taylor, dated 28 January 1997, which claims the amount of $1,927.85 for “repairs to waste water treatment”. A further invoice dated 6 October 1997 is for repairs to one of the pumps, in an amount of $179. More recently, in 2000, the tanks and associated pumps were replaced. A bundle of invoices for that work was tendered; the invoice amounts total $15,728.28.

At this point, I should note Mr Stewart’s submission, for the defendant, that the invoices were addressed to Royale Seafood Supplies (Tas) Pty Ltd and that there was no evidence the plaintiff had any liability for them. That argument was equally applicable to a number of other invoices. I would be prepared to infer from all the circumstances, including the plaintiff’s ownership of the property and its plant, that Royale Seafood Supplies acted as its agent in having the work done and that it was ultimately responsible for the cost.

Mr Gamble said that he could recall the work done by Mr Taylor in early 1997 and that it was necessary, although he gave no details of why it was necessary. Mr Georgiadis said that the compressor for the plant had corroded and had to be replaced. His source of knowledge as to the problem appeared, however, to be the contractor rather than anything direct.

Mr Jackson said that the effluent treatment plant was not used between the last processing of orange roughy on the date of settlement in September 1996 and his departure from the factory in December. Mr Sward said that the effluent treatment plant was operational at settlement. On one of the occasions that he had been called back to the factory after his resignation, he had started up the effluent plant for Mr Georgiadis. There was nothing defective about it on that occasion. As to the tanks, both Mr Jackson and Mr Georgiadis said that although there were cracks in the tanks which would leak when the plant was first started up, they would self-seal within a matter of hours. Any leakage went into a surrounding besser block holding tank, and was pumped back into the tanks.

I accept the evidence of Mr Jackson and Mr Sward, and conclude that the effluent plant was both in “good repair taking into account normal wear and tear” and “in satisfactory working condition and capable of doing the work for which it (was) designed” as at the date of settlement.

Seawater pump

Salt water was pumped from the Derwent estuary up to the lobster tanks in the factory. According to Mr Georgiadis, on the first occasion on which he attempted to fill his new lobster tanks, one of the two salt water pumps was not working. The second pump, which was operational, was used in filling the tanks until October 1997, when the faulty pump was repaired. An invoice dated 6 October 1997 shows repair to a pump at a cost of $164. Mr Gilbert said that on his inspection he attempted to turn the pump and found that it was frozen, although without stripping it he could not tell the cause of its condition. He assumed that it required rebuilding, at an estimated cost of $1,800.

Mr Jackson, however, said that the seawater pumps were operating properly at the time the tanks were first filled. Mr Sward also said that the pumps were not defective when he left the factory in December 1996. Again, he had been asked by Mr Georgiadis to return in order to show him how to operate the pumps, and had found no defect in them at that time. On the evidence of those witnesses, I conclude that there was no breach of the relevant warranties in this regard.

Ice Machines

The Megisti Star, when it was acquired by the plaintiff, was equipped with two ice machines. Because of difficulties operating them on board, they were moved to the factory. According to Mr Georgiadis, although they were repaired both before and after his purchase of the factory, they at no time operated properly. Defective seals at the point of entry of gas from the ammonia plant caused the ice itself to smell of ammonia. It was, he said, ultimately cheaper to buy ice rather than to spend more money in repairing the machines.

Invoices dated 15 and 18 November 1996 show that a new fitting was made up for an ice machine at a total cost of $53, and new o-rings were installed at a further cost of $502. On 31 December a bulb was re-positioned to prevent the compressor flooding with oil. (On the same occasion some work was done on a Mycom compressor.) On 22 January 1997, some leaks and a water control float were repaired and the system was recharged with refrigerant. This was, Mr Georgiadis said, the last occasion on which the machines were repaired. Thereafter he elected to buy ice. The machine had not been used, Mr Georgiadis said, until November 1996, and no maintenance had been done on it between settlement and that time. Mr Cooper said that when he examined an ice machine at the factory, it was in a poor condition with rust and, from his memory, some items missing from it. He considered that the machine should be replaced, at an estimated cost of $70,000.

Mr Sward gave evidence that there were two ice machines, one of which was run by its own motor and the other by the factory’s ammonia system. He had maintained the machines and they were operational at the time of settlement. There could be problems with the seals on the shaft of the ammonia-operated machine if freezing occurred between the drum and the side of the machine; but it was generally very reliable.

Mr Gamble’s view was that the need to replace the o-rings and a filter on one of the machines was the result of its having been left idle until November. He also observed that the machines were being worked over their capacity because, he said, the factory was selling ice to fishermen and to another processor as well as using it for its own production. In the light of that evidence, I am not prepared to find that any difficulties encountered with the machines existed as at the date of settlement.

Mycom, Wooldridge & Sinclair, and Werner compressors

There were three compressors used in refrigeration at the factory, whose makes were, respectively, Mycom, Wooldridge & Sinclair, and Werner. Mr Gilbert reported on the basis of information from Mr Georgiadis that minor repairs had been carried out to the Mycom compressor on a break-down basis for the first year, as repairs were expensive. There are invoices dated 13 and 20 January 1997 indicating firstly, work done to isolate the oil trap and clean the sump cover and oil filter on the Mycom compressor with installation of a solenoid and oil return line, and a change of the oil and, on the second occasion, filling the compressor with oil and starting up of the machine. The compressor was, Mr Gilbert said, operating on a very low oil pressure and consuming an abnormally large amount of oil.

Mr Georgiadis had told Mr Gilbert that the Wooldridge & Sinclair compressor had a noisy rattle which, Mr Gilbert was prepared to speculate, might be a warning sign of massive failure if the machine were to be used. Subsequently, Mr Gilbert said, the machine was stripped down and remained in pieces, unrepaired. He estimated a cost of $10,000 to repair it.

According to Mr Gilbert, the Werner compressor had minor repairs carried out to it on a break-down basis also. It was serviceable, but it had some oil leaks and other defects. Its condition could not be ascertained without dismantling it, but he had allowed in his estimates for its replacement at a cost of $15,000.

Mr Sward said that all three compressors were operating properly up to settlement. In the period after he left he saw the Werner and Mycom compressors operating, although not the Wooldridge & Sinclair. The Wooldridge and Sinclair compressor was unlikely to be used except with a small amount of product, requiring use of the blast freezer or the plate freezer. The Wooldridge & Sinclair compressor had a heater in its sump. If ammonia escaped into the sump it would sit there in liquid form until heated. If the machine were started in that condition the liquid would go into the valves and compression would produce a loud rattle which was capable of causing damage. It was necessary, given the design of the machine, that the heater be put on 12 to 24 hours before it was used.

The Werner compressor was designed with a gland packing lubricated by oil to prevent ammonia seeping out of its shaft. The dripping oil was caught by a tray which would then be baled out. Examining a photograph of the compressor taken in 2000, Mr Sward noted that the drip tray had not been emptied, so that oil had run down the sides of the machine and along its base.

There is no evidence which would support a conclusion that there was any fault in the Werner or Wooldridge & Sinclair compressors at the time of settlement. The rattle which developed in the Wooldridge & Sinclair compressor would appear to be accounted for by a failure to observe proper operating procedures. There is nothing to indicate that the January repairs to the Mycom compressor were other than what might be expected in the course of ordinary maintenance, as Mr Sward described. I accept Mr Sward’s evidence that all three compressors were operating properly at settlement.

Ammonia Plant

According to the invoices tendered, the ammonia plant which supplied the factory’s refrigeration equipment was the subject of attention from electricians Kibbey & Cooper on five occasions in between mid-October 1996 and

mid-January 1997. On the first occasion on 15 October 1996, a faulty safety valve was removed and ammonia was supplied to the plant. On 29 October 1996 another invoice shows the installation of a new safety valve and the removal of a faulty one. In mid-November, one repaired safety valve was installed and another supplied. A January 1997 invoice relates to the location of a loose connection in the ammonia system, and a February invoice refers to changing valves on a plate freezer and repairing a leak on an Ajax & Bock compressor. Mr Gilbert concluded from the first invoice that the failure of the safety valve must have caused a loss of ammonia which required replacement. He agreed that it was not apparent from the face of the 15 November 1996 invoice that the work done then in relation to safety valves related to the ammonia plant; and he was not able to assist with the reasons for which work the subject of the subsequent invoices was carried out.

Mr Sward said that the ammonia plant was operational at settlement, and continued to be operational on his subsequent visits to the factory. Given his evidence, and the absence of any evidence, beyond the existence of the invoices, as to the circumstances requiring work on the ammonia plant, I am not prepared to conclude that it was not in good working order at the time of settlement.

Freezer door heat tracing

The freezer doors at the factory were fitted with an electrically supplied heat tracing element designed to ensure that condensation did not freeze and seal them shut. Mr Gilbert said that he had been told that the heat tracing failed from time to time, but he could not recall who had told him that. He thought failing of the heat tracing might be attributable to leakage of water from the roof. Mr Georgiadis said that he could not recall whether he had seen that failure occur. There is a Kibbey & Cooper Pty Ltd invoice showing work done in January 1997 on the door heating which would, one assumes, involve the heat tracing. Mr Gamble said that the freezer door was iced up at that time. This was, he said a problem which could occur suddenly, unexpectedly, and often, in any door seal. Accepting Mr Sward’s evidence, which was that there was no difficulty with the heat tracing at the time of settlement, I am not prepared to find that this was an aspect in which the condition of the plant was defective.

Freezer

According to a Kibbey & Cooper invoice dated 31 October 1996, a faulty connection was located in a condenser fan. Mr Georgiadis was unable to give evidence about the need for the work and Mr Gilbert was equally unable to assist with the reason the work was carried out. Accordingly I am unable to make any finding in relation to this item.

There is an invoice from Kibbey & Cooper dated 20 January 1997 which refers to the installation of a runner track to a freezer door. Mr Georgiadis said he was not present at the factory at the time of the work, and Mr Gilbert was unable to assist with the reason for it. An invoice of 4 November 1996 from Derwent Park Glass & Aluminium specifies an amount of $350 for the installation of cool room panels and aluminium channels and trim. Mr Georgiadis could only say that panel and aluminium channels were used in an area of rust in the ice room and to fix a chiller door. He was unable to assist as to the actual occasion for the work done by Derwent Part Glass & Aluminium in relation to this invoice. Given the uncertainty of the evidence I am not prepared to make a finding as to any defect in the freezer.

Chlorination Pump

BR & MF Taylor attended on 9 February 1997 to upgrade the chlorination system by servicing the dosing pump, building new pipe work and repairing the flow controls. The chlorination pump was designed to administer chlorine into the water entering the factory to make it potable. Mr Sward said that the pump was not operational at the time of settlement, and that chlorination was being performed manually. According to Mr Gamble the matter was rectified by installing a pump brought from Gepp Parade. I accept, therefore, that the chlorination pump was not in good working order at the time of settlement, and that the invoice for repair at a cost of $444 represents the work done to return it to proper working condition.

Strapping machines

Schedule B to the contract which sets out the plant and equipment, furniture and fittings being sold, includes a Gerrard strapping machine and a Akebono carton strapper. According to Mr Georgiadis the older of the two did not work at all while the other machine stopped intermittently. Mr Gilbert said when he attended the factory there was a strapping machine which had been scrapped amongst the equipment in the yard. Mr Jackson said of the machines that one was in “excellent” order and the other was “old and slow”. Mr Sward, on the other hand, said that both “gave trouble”. Neither item had been repaired, but a quote tendered in evidence suggested that the amount to fix both would be approximately $760. Given the evidence of Mr Sward, I think it must be accepted that neither machine was in good working condition as at the date of settlement.

Hot water system

The cylinder to a hot water system which supplied the employees’ showers was replaced on 14 November 1996 at a cost of $801. Mr Sward said that the cylinder was burnt out prior to settlement, and was not replaced because the showers were not used. The defendant made the point that the hot water system was not one of the itemised pieces of equipment in the schedule to the contract. However, the schedule contains headings which identify the area of the factory concerned (as, for example, “Amenities Room”) and in a number of instances there is a general description of the relevant plant and equipment under such a heading as “contents”. I think it is a reasonable inference that the hot water system was part of the contents of one of the identified rooms, probably the carton store (which appears to have been at the top of the stairs where Mr Jackson said the hot water system was located). Accordingly, I consider that the warranty extended to it, and was breached, since the system clearly was not in working order at the relevant time.

Pressure cleaner

Invoices from Kartec indicate the repair of a high pressure cleaner on two occasions, the first on 20 April 1997 and the second on 13 June 1997. Mr Georgiadis said that he had attempted in April 1997 to use the cleaner to clean lobster bins. It emitted smoke, so he desisted and left it to be repaired. According to Mr Sward the pressure cleaner was in working order as at the time of settlement. I accept that evidence.

Telephone line

Mr Georgiadis complained that there was a telephone line to the building which did not work. According to Mr Sward, the difficulty occurred when it rained. Since there is no evidence capable of establishing whether the fault was internal or external to the factory, it is impossible to say that this amounted to a defect in the condition of the telephone system as sold to Mr Georgiadis.

I conclude, then, that of the equipment at the factory the Lansing forklift, the cray cooker baskets, the chlorination pump, the strapping machines and the hot water system were not in “satisfactory working condition” or in “good repair taking into account normal wear and tear” at the date of settlement. The defendant was therefore in breach of the contractual warranties given by it in those regards, and the plaintiff should be compensated for that breach. It is entitled “to be placed in the same situation, with respect to damages, as if the contract had been performed”.[1] In the present case, that can be achieved by awarding the plaintiff the actual or estimated cost of repairs to the pieces of equipment identified as defective.
[1]Robinson v Harman (1848) 1 Ex. 850, at page 855 cited in Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 at 80, 98, 134 and 148.

However, there is a further question as to whether the defendant’s conduct was misleading or deceptive within the meaning of s 52(1) of the Trade Practices Act 1974, giving rise to damages under s 82(1). The conclusion I have reached is that the respects in which the items of equipment were defective were not sufficiently material to warrant the defendant’s conduct being characterised as misleading or deceptive.[2] In any event, had the conduct been capable of being classed as misleading, I do not consider that it can be said that the plaintiff’s belief that all the equipment was in good working order, as opposed to all the equipment other than those identified items, caused it to enter the contract. Put another way, there is nothing which would suggest that, had the plaintiff known of the specific defects identified, it would have refused to enter the contract; or, at the highest, done other than seek allowance in the contract price for the cost of having the items repaired. There is, therefore, no basis on which the plaintiff could recover more than is presently allowed to him in respect of breach of warranty, that is the cost of repair together with interest. The amounts involved are:
[2]For a similar approach see the decision of Einfeld J in Hill v Tooth & Co. Ltd (1998) ATPR 41-649.

Description of Item
Cost of Repairs

$

A. Lansing forklift truck (para 87) 161.00

B. Hot Water System (para 116) 801.00

C. Chlorination pump (para 114) 444.00

D. Strapping machines (para 115) 760.00

E. Cray Cooker Baskets (paras 89, 90, ½ of castors at $3,520 for all) 1760.00

Interest on items A, B, and C at 10% from 25.9.96 to judgment 693.76

TOTAL:

$4,619.76

The AQIS “A” rating

The plaintiff claims that the representation as to the factory having an “A” rating which, as I have found, was made by Mr Jackson, amounted both to a breach of collateral warranty and to misleading or deceptive conduct. It was entitled to be placed in the position it would have been in had the factory possessed an AQIS “A” rating as at settlement. That, it was argued, entailed meeting the costs necessary to put the factory in a condition in which it would meet all AQIS requirements.

There was no dispute that the factory had lost its “A” rating at the time of settlement. A report of AQIS’ 27 June 1996 inspection shows that five serious, nine major, and two minor defects were identified, and the factory’s rating level was, as a result, downgraded from “A” to “C”.

Was there a collateral warranty?

For a representation to amount to a collateral warranty, it is not sufficient that a representation was made by one party for the purpose of inducing the other to act on it and did induce him to act. The representation must also be “a promise or undertaking to be contractually bound to its factual accuracy or to its fulfilment” [3].
[3]Nemeth v Bayswater Road Pty Ltd [1998] 2 Qd R 406 at 417.

In the present case I do not think that Mr Jackson’s statement that the premises were “A” rated can be regarded as promissory. It was made in the limited context of the adequacy of the way in which the factory’s floor was kept in repair. It did not purport to be an assertion as to the merits of the factory at large; nor did it purport to be an assurance that the factory would retain that rating. Indeed it must have been evident to Mr Georgiadis from his own experience that ratings could fluctuate. The Gepp Parade premises had had seven changes of rating between “A” and “C” over three years of operation between July 1993 and July 1996. I do not, therefore, consider that Mr Jackson’s statement could be taken as indicating an intention on the part of the defendant to assume a contractual obligation to transfer an “A” rated factory.

Did the representation amount to misleading conduct?

The representation that the factory was “A” rated was clearly correct at the time it was made by Mr Jackson. It was not so at the date of settlement; but no step was taken by the defendant to advise the plaintiff of the change. If nothing had been said about the factory’s rating in the first instance, silence on the point could hardly constitute misleading conduct. However, the rating having been conveyed to Mr Georgiadis by the defendant’s agent, it was reasonable to suppose that any change in it would be disclosed. Failure to advise the plaintiff was, in the context of the original representation, misleading conduct[4] and contravened s 52 of the Trade Practices Act 1974.
[4]Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32; Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571 at 579-581.

Did the misleading conduct cause a loss?

The plaintiff, it need hardly be said, can recover in respect of the misleading conduct only if it can show for the purposes of s 82(1) of the Trade Practices Act that it suffered loss or damage by the conduct of the defendant. “That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct” [5]. It is necessary therefore, to consider the effect of the representation as to the factory’s rating and the extent, if any, to which the plaintiff relied on it.
[5]Marks v GIO Australia Holdings (1998) 196 CLR 494 at 510.

The significance of the AQIS ratings and the identified defects

To understand the significance of the defects and the downgraded rating identified in the June 1996 AQIS report, it is necessary to turn to the Export Control (Processed Food) Orders 1992, which govern the standards required of food processing establishments which export. Shortly put, orders 20 and 21 impose, respectively, structural requirements and operational requirements set out in Schedules 2 and 3 to the Orders. Order 39.1 sets in place a system for inspection under Schedule 7 to the Orders. Under Schedule 7, ratings ranging from “A” to “E” are prescribed. Relevantly for present purposes, by virtue of s 39.1 of the Schedule, an “A” rating would require inspection of the factory at four month intervals, whereas a “C” rating necessitated inspections at one month intervals. To attain an “A” rating, an establishment was not permitted to manifest any critical or serious defect; but it could have up to a maximum of five major defects and six minor defects. It would fall to a “C” rating if it had more than two serious defects, more than ten major defects, or more than seven minor defects.

As to what constitutes such defects, Schedule 7 explains the categories of defect as follows:

“Minor defect
28.1 A “minor defect” means failure to comply with the requirements of these Orders, but not a major, serious or critical defect.

Note:Defects that fall into this category could include: a minor failure to follow the Good Manufacturing Practices as outlined in Schedule 2 (Structural Requirements for Processed Food Establishments) and Part 1, Schedule 3 (Operational Requirements for Processed Foot Establishments) of these Orders.

Major defect
29.1A “major defect” means a failure to comply with the requirements of these Orders that could result in the production of unwholesome food or inaccurately labelled food but not a serious or critical defect.

Note:Defects that fall into this category could include: inadequate cleaning in food handling areas, failure to regularly collect waste from a food handling area, poorly pest-proofed doors and windows, construction of the premises is not sound, premises are not kept in good repair, inadequate draining, inadequate lighting, pressure or temperature of water supply inadequate, inadequate training of staff, failure to adequately supervise staff, inadequate stock rotation or equipment does not meet the requirements of the Orders.

Serious defect
30.1A “serious defect” means failure to comply with the requirements of these Orders that is likely to result in the production of unwholesome food or inaccurately labelled food but not a critical defect.

Note: Defects that fall into this category could include: ineffective pest control, inadequate cleaning program, serious non-compliance with hygiene aspects of Schedule 2 (Structural Requirements for Processed Food Establishments) or Division II, Schedule 3 (Operational Requirements for Processed Food Establishments), failure to label chemicals at the establishment, inadequate control of food or ingredients during preparation or processing, variation from the procedures documented on HACCP tables, inaccurate calibration procedures, or another defect which could comprise wholesomeness of processed food or result in inaccurately labelled food.

Critical defect
31.1A “critical defect” means a failure to:

(a) comply with the requirements of these Orders that is very likely to result in, or has resulted in, the production of unwholesome food; or

(b) comply with the requirements of these Orders with regard to labelling or the trade description of food; or

(c) comply with the requirements of a foreign country authority; or

(d) issue correct export certification.

Note: Defects that fall in this category could include: a severe breakdown in sanitation procedures, waste facilities contaminating food, water or equipment, use o water (including ice or steam) which is not potable in food handling areas, serious pest infestation, processed food submitted for export that do not comply with the product standards, a breakdown in procedures specified in the HACCP table, food under declared weight, food of the wrong declared grade or any non compliance which will compromise the safety or wholesomeness of the food.”

In the inspection of 27 June 1996, the five serious defects identified were the use of dip buckets in the process area; the failure of staff to wash their hands in entering the process area; clothing pockets containing items which should not be worn in the process area; inadequate identification of bins for inedible and edible product; and fillets in open-bottomed bins being placed directly on the floor. The nine major defects were the existence of dust and cobwebs on walls and ledges; dead insects in the lights and sky lights; plastic door strips which required repair; wearing of watches in the process area; stacking of bins for edible product on floors; ice bins not having lids in place before being stacked; cartons in the carton store being left on the floor; dust, cobwebs and dead flies on the ledges in the carton store; and the need for the carton store to be made pest and vermin proof. The minor defects were the need for repairs to the channels of a roller door in the process area, and the fact that the ends of the handles of squeegee mops were not sealed.

Mr Georgiadis’ evidence

In cross-examination, Mr Georgiadis said that if he had known of the change in the factory’s rating from “A” to “C” prior to settlement, he would have asked for a copy of the report of 27 June 1996. Having seen it, he said, he would have asked AQIS to conduct a full inspection of the factory of a kind which was done in January 1997, when the factory was inspected for the first time after settlement. On that inspection, four serious defects, sixteen major defects, and four minor defects were identified. Those defects which had implications for the condition of the factory building or its plant were as follows: the process floor required repairs to prevent pooling and sealing of cracks; plastic strips were needed over entry doors to prevent pests getting in; the front entry roller door required sealing, again to prevent dust and pests entering; protective covers to lights were needed; rusty galvanised tables had to be removed or treated, and their joins sealed; coving was needed at the junction of walls and floors; pooling of water on the process table required attention; drainage was needed where water was pooling in the chiller; and the carton store was to be made dust, pest and vermin proof. Other defects involved relatively minor cleanliness and management issues. Mr Gamble said, of the items identified in the report, that he thought there would not have been any difficulty in remedying them. “Just ongoing maintenance, daily maintenance, a bit of painting and dusting off and cleaning up was a lot of it”, he said.

Mr Georgiadis did not at any stage say that if he had known of the defects identified by either or both of the AQIS reports of June 1996 and January 1997 before settlement he would have refused to complete the purchase. That is not, of course, the end of the matter. An assertion of reliance is not, in any case, always to be accepted at face value; and it is proper for a court to consider the surrounding circumstances in deciding whether to accept an assertion of reliance, or, where none is made, whether to infer reliance[6]. I turn, therefore, to consider what other evidence there was as to the significance of the factory’s rating.
[6]Hanave Pty Ltd v LFOT Pty Ltd (1999) ATPR 41-687 at 42793.

Other evidence as to the significance of the rating

Two valuers, Mr Saunders and Mr Yannarakis, who were called on more general issues, gave some evidence as to the effect of a downgraded AQIS rating. Mr Saunders had adopted a capitalisation of rental income approach to valuation of the property, because of the scarcity of similar properties with which to make a comparison. He considered the “C” rating of significance: “Alternatively, had we been aware of a “C” or high risk rating due to deficiencies in the factory we would of [sic] made appropriate allowance in our valuation by either adopting a significantly higher capitalisation rate or deducting from a valuation with an assumed “A” rating the cost of achieving this rating”. He relied on Mr Gilbert’s figures for the cost of achieving an “A” rating, based on the latter’s identification of the items he considered necessary, to arrive at a figure for loss in value by reason of the premises being rated “C” rather than “A”.

Mr Yannarakis, a Commonwealth Bank valuer, whose approach to valuation I found generally more practical, had valued the factory in 1996 for lending purposes at $750,000, with a 5 percent range for error. He conceded that the existence of a “C” rating as opposed to an “A” rating would be a negative which would warrant a further inquiry. Although he recognised a downgrading in a rating as matter of concern, he had insufficient knowledge of the rating system to attempt any quantification of its effect. Like Mr Saunders, he considered that knowledge of the cost involved in achieving an “A” rating would be a factor in any revised valuation.

The valuation evidence was, however given in ignorance of how the AQIS rating system worked in practice, and in particular, it seemed, without recognition of the fact that a rating might be reflective of no more than the standard of procedures for maintaining hygiene. Mr Saunders based his estimate of the loss in value attributable to a downgrading on the evidence of Mr Gilbert, which thus warrants further consideration. Mr Gilbert in turn relied on a number of sources to determine what was required: the Export Control (Processed Food) Orders, as he interpreted them; information he had acquired in earlier work, from a general manager of Tassal; and AQIS reports including and subsequent to the reports of June 1996 and February 1997.

According to Mr Gilbert, some expenditure already undertaken was necessary to remedy defects preventing an “A” rating. He included in this category work described as “Upgrade of entrance doors, replacement of curtains and modification to plumbing” for which a firm called TPD Design Build had quoted an amount of $5,760, although it was by no means clear that the work had yet taken place. In addition, he included the cost, at $546, of a roll of plastic strips Mr Georgiadis said he had purchased to replace those damaged by forklifts; although it seemed entirely possible from evidence given by Mr Gamble that most of the damage was done during the work on the lobster tank area. He also allowed for the cost ($2,283) of a lighting upgrade in the process area, which at best was the subject only of an informal requisition as to which Mr Georgiadis gave hearsay evidence; and for replacement of a roller door (at $1,485) which fell into a similar category. Mr Gilbert also allowed for the cost of painting the process area, claimed by Mr Georgiadis at $10,000, on the basis of his understanding of the requirements of the Export Control (Processed Food) Orders. The remaining items allowed for, the installation of coving for sealing purposes ($344) and flashings over the freezer doors to prevent the collection of dust ($1,379), were the subject of mention on AQIS reports.

There were then a number of items identified by Mr Gilbert which required fixing to meet what, on his view, were AQIS requirements. The entire roof required replacement because it leaked. The roof sheeting material was no longer available so that repair could not be carried out. Accordingly, full replacement was required at a cost of $69,700. There was an electrical cable in the ceiling which gave shocks and required replacement at an estimated cost of $5,000. Holes in the walls required sealing. The building’s portal frames were rusted, and required sand blasting and painting. The piping trays for the refrigeration system did not drain properly and again required attention. There was an AQIS requirement for the plate freezers to be boxed to the ceiling; trays were required at all entrances to the process area; and the flashing at the entrance door required an upgrade. There were drains which blocked in the radio room and caused flooding, which required fixing; film was required to be applied to glass (presumably in windows), and a sliding window needed to be made non-openable. The floor in the chiller did not drain adequately and required repair, while the wall to floor junctions required sealing. (In respect of the pooling of water on the chiller floor it is worth noting Mr Sward’s evidence, which was to the effect that it was the blocking off of a doorway as part of the plaintiff’s alterations to the factory which obstructed its drainage.)In the process room, the filleting table pooled water and required reconstruction, and the floor was cracked and pitted and required filling and coating at an estimated cost of $68,460. Foot wash trays had to be provided, the suspended ceiling needed repainting because of mildew, the plate freezers required boxing to the ceiling, an area outside the lunchroom required draining, and the process room itself required painting at an estimated cost of $10,000. The carton store required sealing against pests and vermin, while the carton make-up area required a proper drainage system. The toilet, like the carton make-up area, flooded from freezer tray leaks and required proper drainage.

It must be remembered that an “A” rating is consistent with premises having major defects, although not more than five. On no view is it a guarantee that a factory is in perfect condition. Accordingly, Mr Gilbert’s approach of identifying every item that might, on his interpretation of the Export Control (Processed Food) Orders, lead to an AQIS requisition, and calculating the cost of repair or replacement is not necessarily appropriate. The reality was, as is evident from an examination of AQIS reports prior to the sale of the factory, that inspectors regularly gave the premises an “A” rating notwithstanding matters such as a leaking roof and a pitted processing room floor. Moreover, AQIS requirements could often be met by simpler means than replacement of offending items; for example, by mopping the pooled water on the filleting table; or keeping ledges clean, rather than fitting flashes.

Did the plaintiff rely on the representation as to rating?

On the whole, I do not think that Mr Gilbert’s evidence, nor that of the valuer, Mr Saunders, who relied on it, assists greatly in assessing what might have been drawn from the fact of the AQIS “A” rating nor how it might have affected the plaintiff. Mr Georgiadis, unlike the valuers and Mr Gilbert, had some familiarity with the AQIS rating regime. He understood, for example, that the reason for a “C” rating “might be minor, but it will either be production wise or plant wise. Just depends on what kind of inspection they are doing”, and appreciated that the report of June 1996 was “a processing report”.

It seems to me that the matter must be resolved by looking at what would actually have confronted Mr Georgiadis had he been made aware of the downgrade, and obtained a copy of the June 1996 AQIS report. I have some difficulty in accepting that had Mr Georgiadis obtained that report he would have taken his inquiries any further. On reading it, he would have discovered that almost all complaints were of a failure in hygienic procedures. The exceptions were the requirements for repair to plastic door strips, for the carton store to be made pest and vermin proof, and for repairs to the roller door channels, this last being identified as a minor defect. None of those matters, in my view, would have been cause for alarm. I consider it unlikely that they would have caused Mr Georgiadis any hesitation in proceeding with the purchase. Nor, indeed, does it seem likely to me that he would have felt it necessary as a result of what was contained in that report to seek a full inspection. Had he proceeded on the latter course, however, and obtained the results reflected in the January 1997 AQIS report, again I think it unlikely that he would have been deterred, on the plaintiff’s behalf, from the purchase.

There was, I conclude, an absence of material reliance by the plaintiff on the representation as to the factory’s rating. The defendant’s misleading conduct has not, therefore, given rise to any loss, and a cause of action under s 82 has accordingly not been made out.[7] The plaintiff’s claim in this regard therefore fails.
[7]Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 525.

Order

I give judgment for the plaintiff in the amount of $4,619.76. I will hear the parties as to costs.

CITATION:	Scootmore Holdings Pty Ltd v Bidvest Australia Limited [2001] QSC 329
PARTIES:	SCOOTMORE HOLDINGS PTY LTD ACN 061 964 627 (plaintiff) v BIDVEST AUSTRALIA LIMITED ACN 000 228 331 (FORMERLY MANETTAS LIMITED ACN 000 228 231) (defendant)
FILE NO/S:	S 9934 of 1997
DIVISION:	Trial Division
PROCEEDING:	Civil Trial
ORIGINATING COURT:	Brisbane
DELIVERED ON:	7 September 2001
DELIVERED AT:	Brisbane
HEARING DATE:	19/02/2001 – 9/03/2001 18/06/2001 – 29/06/2001
JUDGE:	Holmes J
ORDER:	1. Judgment for the plaintiff in the amount of $4,619.76. 2. Parties to make submissions on costs.
CATCHWORDS:	CONTRACT – REPRESENTATIONS – COLLATERAL AGREEMENT - WARRANTIES - BREACH TRADE PRACTICES – MISLEADING AND DECEPTIVE CONDUCT Contract for sale of seafood factory – whether representations made as to availability of work – whether representations as to condition of plant and equipment and factory’s “A” rating constitute warranties and misleading or deceptive conduct – effect of failure to correct representation - whether reliance inferred – whether representations caused loss. Robinson v Harman (1848) 1 Ex 850 Commonwealth v Amann Aviation Pty Ltd (1991) 74 CLR 64. Hill v Tooth & Co. Ltd (1998) ATPR 41-649 Nemeth v Bayswater Road Pty Ltd [1998] 2 Qd R 406 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571 Marks v GIO Australia Holdings (1998) 196 CLR 494. Hanave Pty Ltd v LFOT Pty Ltd (1999) ATPR 41-687 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 Trade Practices Act 1974, s 52(1), s 82(1) Export Control (Processed Food) Orders 1992 Income Tax Assessment Act 1936
COUNSEL:	J. Logan SC with him P. Hackett for the plaintiff M. Stewart SC with him A. Duffy for the defendant
SOLICITORS:	H Drakos & Co on behalf of the plaintiff Freehills on behalf of the defendant

Description of Item	Cost of Repairs $
A. Lansing forklift truck (para 87)	161.00
B. Hot Water System (para 116)	801.00
C. Chlorination pump (para 114)	444.00
D. Strapping machines (para 115)	760.00
E. Cray Cooker Baskets (paras 89, 90, ½ of castors at $3,520 for all)	1760.00
Interest on items A, B, and C at 10% from 25.9.96 to judgment	693.76
TOTAL:	$4,619.76