Tennant Creek Town Cncl v Papas Transport Engng PL No. Scgrg-99-831 Judgment No. S401

[1999] SASC 401

TENNANT CREEK TOWN COUNCIL V PAPAS TRANSPORT ENGINEERING PTY LTD

[1999] SASC 401

Magistrate’s Appeal

1 MARTIN J.               The appellant was the defendant in proceedings instituted by the respondent ("the plaintiff") in which the plaintiff claimed $9 301.97 being the balance of moneys owed for the supply of a cab/chassis truck fitted out as a refuse compaction unit ("the compactor") together with amounts owed for the supply of parts.  The defendant denied liability and counterclaimed for the amount of $21 826.52.  The Magistrate dismissed the counterclaim and awarded judgment in favour of the plaintiff for its entire claim.  The defendant appeals against the judgment.  It seeks orders that the plaintiff’s claim be dismissed and that judgment be entered for the defendant with costs. 
2 The defendant required a new refuse compactor vehicle.  It invited tenders and the plaintiff was the successful tenderer.  The compactor was delivered to Tennant Creek in 1996.  The defendant claimed that late delivery was a breach of the contract and that it suffered damages as a consequence.  In due course when it paid for the vehicle, the defendant deducted an amount it said represented the damages that had resulted from the late delivery, together with other amounts.  The plaintiff sued for the balance of the purchase price and other parts supplied.  The defendant filed a counterclaim for the damages previously mentioned and for other amounts it said were incurred for repairs to the compactor after delivery, which amounts it pleaded should have been paid by the plaintiff pursuant to a warranty provided by the plaintiff in connection with the vehicle.
3 The Magistrate formed a favourable view of the credit of Mr Chris Papas, the Managing Director of the plaintiff.  He formed quite the opposite view of the credit of Mr Ali Khan, the Chief Executive Officer of the defendant.  Recognising the difficulty of persuading an appellate court to interfere with findings of credit, counsel for the defendant nevertheless submitted that his Honour’s findings were against the weight of the evidence and that his Honour erred in his use of the evidence, particularly of correspondence passing between the two witnesses to whom I have referred.
4 The fate of the defendant’s counterclaim for damages based on a breach of contract hinges upon the terms of the contract.  In its final form, the defendant’s counterclaim alleged a contract between the parties for delivery by the plaintiff on or before 18 November 1996.  It alleged that delivery occurred on or about 18 December 1996, as a consequence of which the defendant incurred the cost of hiring an alternative vehicle.  The defendant said its claim was supported by conversations between Mr Papas and Mr Khan in December 1996 in which Mr Papas accepted liability for the hiring costs.  The plaintiff denied that the contract specified a date of delivery.  It also denied that Mr Papas admitted liability or undertook to meet the costs incurred by the defendant as a consequence of late delivery.  The Magistrate preferred the evidence of Mr Papas and found in favour of the plaintiff on this issue.
5 The defendant called for tenders for the supply and delivery of a cab/chassis and compactor by notice dated 12 July 1996.  The tender documents became an exhibit and it is fair to describe them as expressed in very general terms.  Paragraph 4.2 of those documents was as follows:
"4.2   ACCEPTANCE OF THE TENDER
The successful tenderer will be required to enter into an agreement with council for the supply and delivery of the items selected.  Such agreement shall consist of:
A copy of Council’s official purchase order
A complete copy of these specifications
The offer submitted by the successful Tenderer
The letter of acceptance by the Council
The form of the agreement shall be signed and sealed by the respective parties."
6 The parties agree that, for the purposes of cl 4.2, the plaintiff’s tender document was a document dated 7 August 1996.  That document specified delivery as "ten to twelve weeks".  The tender documents released by the defendant did not contain any reference to a warranty with respect to the compactor, but specified in respect of the cab/chassis that the tender should include a list of warranty repairers within the local area.  In a section of the plaintiff’s tender not related specifically to either the compactor or the cab/chassis, reference was made to a warranty of twelve months.  It was a bare reference to a warranty with no specifics provided as to the content of the warranty or the items to which it applied.
7 According to Mr Papas, together with the plaintiff’s tender document of 7 August 1996, he forwarded to the defendant two additional documents.  The first was titled "Condition of Contract" and it included a paragraph headed "Delivery" which specified:
"Any delivery period referred to in our quotation is an estimate given in good faith, but we shall not be responsible for any loss or damage caused by late delivery.  Unless otherwise stated, delivery is ex our works."
8 The second document was headed "Warranty".  I refer to the terms of that warranty document later in these reasons.
9 The defendant denied that it received the documents headed "Condition of Contract" and "Warranty".  While Mr Papas maintained those documents were part of the contract between the parties, Mr Khan denied that proposition.  In his reasons the Magistrate referred to this aspect of the dispute and made the following finding:
"In respect of the so-called warranty provided by Papas, I believe the version of Papas.  I think that the warranty and conditions of contract were forwarded by Papas during the tender process and I do not believe Khan when he says that he had not seen them before, or if he did not see them before, that they had not been received by the Council."
10 As mentioned, his Honour formed a very unfavourable view of the credit of Mr Khan.  In addition, during examination-in-chief Mr Khan gave evidence of an understanding that the contract between the parties included a tender document presented by the plaintiff dated 19 July 1996, which was not the document upon which the parties proceeded.  His Honour correctly observed that a considerable portion of Mr Khan’s evidence had proceeded on a wrong understanding of the true contractual terms.  While the explanation for that misunderstanding was a little unclear, his Honour found it could well have been due to the fact that the plaintiff had dealt with a different officer of the Council for a considerable period leading up to and after acceptance of the tender.
11 The Magistrate found that the document headed "Condition of Contract" was part of the contract between the parties.  On that basis his Honour correctly found that under the terms of the contract the plaintiff was not liable for any loss or damage caused by late delivery.  In those circumstances, the defendant was not entitled to deduct the costs incurred as a consequence of the delay in delivery.  Unless there is some other basis demonstrated upon which this Court can properly interfere with the findings of credit made by the Magistrate, in my opinion this Court should not interfere with his Honour’s findings as to the terms of the contract.
12 The defendant argued that there are good reasons why this Court should interfere with his Honour’s findings.  First it is said that the conduct of Mr Papas demonstrated a belief on his part that he was liable for damages incurred by the defendant as a consequence of late delivery.  Further, the defendant argued that Mr Papas undertook to pay those damages.  The essential basis of the defendant’s claims in this regard is centred on conversations that occurred between Mr Papas and Mr Khan in December 1996.
13 On 5 December 1996 Mr Papas and Mr Khan had a telephone conversation.  According to Mr Khan they discussed the delay which Mr Papas explained was because of a delay in the delivery of the Isuzu cab/chassis.  He said they discussed the possibility of Mr Papas providing a compactor to the defendant free of charge, but they agreed to continue with the compactor that the defendant was currently hiring.  He denied that Mr Papas said he would speak to Isuzu and see what that company would pay, but that the plaintiff would not pay anything.  He maintained that Mr Papas agreed the plaintiff would pay the cost of hiring the compactor until delivery of the new vehicle.
14 Mr Papas said this conversation occurred in the context of an earlier conversation in which Mr Papas had said that he would do whatever he could to speed up delivery.  He said that in a conversation about this time he had offered the alternative compactor, but Mr Khan declined the offer.  Mr Papas said he told Mr Khan he would go back to Isuzu to see if they were prepared to "wear the cost", but he was not prepared to accept any cost.
15 In support of the version given by Mr Khan, the defendant tendered a letter from Mr Khan to Mr Papas dated 5 December 1996.  In that letter Mr Khan referred to the telephone conversation and conveyed the concerns of the defendant "regarding the abnormal delay and delivery of the compactor."  The letter then proceeded:
"As agreed between us today, Tennant Creek Town Council will be passing on to your firm the costs of leasing the current compactor in excess of 12 weeks which was originally accepted as delivery period."
16 As mentioned, Mr Papas denied that he had agreed to accept the costs as stated in the letter.  He said he was not impressed when he received the letter.  As to why he did not write back to Mr Khan, Mr Papas said:
"Because at that time we didn’t have the money because there was no progress payment, no deposit, no nothing.  We did let them down and we didn’t want to upset them any more."
17 The second conversation relied upon by the defendant occurred on about 19 December 1996, the day after Mr Papas personally delivered the vehicle to the defendant at Tennant Creek.  According to Mr Khan he made it very clear that unless Mr Papas accepted the cost incurred by the defendant as a consequence of late delivery, the defendant would decline to take delivery of the vehicle.  He said Mr Papas explained the delay had been caused by Isuzu, but Mr Khan was clear that the defendant had nothing to do with Isuzu and its contract was with the plaintiff.  Mr Papas could pass the matter onto Isuzu, but that was a matter between him and Isuzu and nothing to do with the defendant.  Mr Khan maintained that Mr Papas agreed to meet the costs incurred by the defendant as a consequence of the late delivery.
18 While Mr Papas agreed that some topics mentioned by Mr Khan were discussed, he gave a different version.  The version given by Mr Papas was accepted by the Magistrate.  On the critical question Mr Papas said:
"I gave him the invoice - he told me that he was going to deduct $5 600 for the hire of the Hannon [Hansen] compactor and I said that’s okay, but I’ll have to go back to Isuzu and see if they were prepared to wear the cost.  We weren’t prepared to wear the cost.  Didn’t affect me one bit."
19 The defendant again sought to bolster the evidence of Mr Khan by reference to a letter dated 24 December 1996 from Mr Khan to Mr Papas.  The letter referred to the sale of the old compactor and concluded as follows:
"Please also note that $5 600 will be deducted as the agreed hire charge for the use of the Hansen Compactor."
20 As to why he did not respond to the letter, Mr Papas said :
"...I had no problems with him deducting $5 600, until I resolved things.  I just want the majority of my money.  In the meantime I was still negotiating with Isuzu.  I knew he was deducting it but it wasn’t going to stop there either".
21 When it was suggested to him that Mr Khan said "if you don’t agree we won’t accept the truck", Mr Papas responded that he would have driven the truck back, "simple as that".
22 The Magistrate was rather dismissive of the significance of the letters.  He referred to the only evidence of a documentary nature concerning the key conversations as found in the correspondence forwarded by Mr Khan after the event and he included reference to the letters I have mentioned.  In the context of a dispute concerning the terms of the warranty, his Honour said there was nothing in the correspondence "except self-serving assertions by Khan to substantiate the existence of such an arrangement or agreement.’  Although his Honour did not expressly apply the same reasoning to the letters of 5 and 12 December 1996, it is a reasonable inference that he dismissed those letters as being of little or no weight because they amounted to self-serving statements by Mr Khan.
23 The defendant contended that because the letters were written at the time of or soon after the events in question, they amounted to corroboration of Mr Khan’s version of the conversations.  In addition, the defendant argued that by his silence Mr Papas was acknowledging the accuracy of the statements contained in the letters.
24 The Magistrate did not regard the lack of reply by Mr Papas as any indication that he accepted the accuracy of the letters.  In essence, Mr Papas said he decided not to respond with a denial because he was anxious to recover the majority of the money that was owing and he did not want to create a dispute.  The plaintiff was owed in excess of $100 000.  The Magistrate accepted that evidence and it was open to him to do so.
25 The letters written by Mr Khan could not amount to corroboration of his evidence as to the conversations.  It was evidence of conduct that was capable of being viewed as consistent with his version as it was conduct that occurred soon after the events in question and at a time when no visible dispute about payment had arisen between the parties.  The correspondence was, however, written at a time when the defendant was seeking to claim costs from the plaintiff.  The weight to be given to the evidence was a matter for the Magistrate and, notwithstanding the different approach that he took to other similar evidence, I am unable to say that his Honour erred in determining that he should give little or no weight to this correspondence.
26 The Magistrate found that what happened in the conversation of 19 December 1996 and thereafter "represented a bold attempt by Khan unilaterally to impose conditions upon Papas, which conditions had never been agreed by Papas and which never came to the stage of contractual consummation."  His Honour went on to say he was fortified in that belief because Mr Papas only ever made one complaint in a letter he wrote dated 12 February 1997.  That letter was written after payment had been tendered by the defendant, but the amount tendered was less the amount claimed as damages caused by the late delivery.  Unlike his approach to the letters written by Mr Khan in December 1996 which the Magistrate described as self-serving statements, his Honour regarded the reaction of Mr Papas in the letter of 12 February 1997 as demonstrating a consistency and a ring of truth in the evidence of Papas.  His Honour said:
"In my view the very timing of that denial is in full conformity with the tenor of the Papas evidence that, in a way, he felt he was being held to ransom (those are my words not his) and that he would not be the recipient of the contract funds unless in some way he was amenable to the deduction of the $5 600 discussed on 18 December 1996.  The sheer timing of Papas’ riposte in February 1997, in my view, has a ring of truth about it and in my view substantiates Papas’s view that he was better off remaining silent about the deduction if he was ever going to receive any funds at all from the Council."
27 On one view, it could appear that his Honour adopted a different approach in principle to the relevance of such correspondence.  In my opinion, however, his Honour’s approaches to the correspondence do not reflect the application of different principles.  They reflect his differing assessments of the weight to be afforded to the correspondence.  He was entitled to reach those different assessments.  It was part of his function to assess the credibility of the witnesses and to determine what conclusions should be drawn from their conduct.
28 In my opinion, the approach taken by the Magistrate was well within the range of his discretion and cannot reasonably form a basis for a finding that he has misused his advantage.  In these circumstances the defendant’s attack upon the findings of the Magistrate must fail unless there is some other basis upon which this Court can properly interfere. 
29 Counsel sought to link the approach taken by the Magistrate to the second major issue concerning the warranty.  He attempted to draw from that approach the general proposition that his Honour misused his advantage and failed to make findings in accordance with the weight of the evidence.  In order to consider this contention, it is necessary to return to the sequence of events.
30 Mr Papas attended at the defendant’s premises in Tennant Creek with the vehicle on 18 December 1996.  Having observed an oil leak from the power take off unit, he sought advice as to the identity of a repairer.  As a consequence of the advice he received, Mr Papas took the vehicle to Mr Gannon, a person who was regularly contracted by the Council to carry out the repair work on Council vehicles.  He repaired the leak.  The Magistrate found that at the time that Mr Gannon repaired the leak, the vehicle had not been delivered to the Council.  After the repairs were completed, delivery occurred. 
31 As mentioned, his Honour found that as part of his tender Mr Papas forwarded a document to the defendant headed "Warranty" and that document became part of the contract between the parties.  As previously indicated, I see no reason to interfere with his Honour’s finding in that regard.  That document provided as follows:
"Papas Transport Engineering Pty Ltd (hereinafter referred to as the Company) warranty its manufactured equipment to be free from defects in material and workmanship for a period of 12 months from the date of delivery to the buyer provided original ownership has been maintained.
This Warranty is effective only where such equipment has been used in a normal manner, adequately maintained, and has not been subject to misuse, negligence, accident, or overload.
Normal wear and tear will not be considered as Warranty.
In the event of any part or parts of equipment manufactured by the Company providing to be defective within the terms of this Warranty the Company will replace or repair at its opinion such part or parts free of charge during normal working hours provided such equipment is returned to the Company’s registered address.
Where a failure occurs within the terms of this Warranty and because of distance it is not practical to return the equipment to the Company’s premises, the Company may authorise local repairs at its expense, providing prior notification is given to the Company."
32 The defendant’s case was, of course, that the document did not form part of the contract.  In addition, Mr Khan gave evidence that during the conversation of 18 December 1996, Mr Papas undertook and bound the plaintiff contractually to attend to all repairs and defects to the compactor for a period of twelve months.  His Honour observed that while this contractual warranty is referred to in the Council’s defence to the plaintiff’s statement of claim, "curiously" the question of this warranty had not been raised on the pleadings until the amended defence and counterclaim were filed on 5 February 1999.  His Honour concluded that this reinforced his view that this was an "afterthought and a construction" by Mr Khan.  His Honour accepted the evidence of Mr Papas concerning the warranty.  He said:
"It beggars belief to ask me to find that Papas in effect became an insurer for the Council for all defects manifested by the compactor during the first 12 months.  I cannot believe that any prudent commercial operator in the position of Papas would ever accede to any such agreement or arrangement."

33 I agree with his Honour.  I see no reason to interfere with his Honour’s finding in this regard.
34 The defendant’s counterclaim included a claim in excess of $11 800 as the cost of repairs incurred which the defendant said should have been met by the plaintiff pursuant to the terms of the warranty.  In view of his Honour’s findings, the terms of the warranty are those set out earlier in these reasons.  The warranty is limited to defects in material and workmanship.  In essence, the defendant claimed that repairs were necessary because of poor workmanship in not ensuring that the oil used for the hydraulic systems was free from contaminants.  In particular, it was the defendant’s case that small particles of weld spatter described as "weld balls" had contaminated the oil and prevented the effective operation of particular parts of the hydraulic system.  Reference was made to interference with a part known as a "pulsar", which is a mechanism designed to assist the flow of oil throughout the hydraulic system by opening valves and thereby permitting sufficient oil to flow for the operation of the hydraulic mechanisms of the compactor.
35 The defendant submitted that the Magistrate made errors in his assessment of the facts in connection with the claim based on the alleged warranty.  One of the issues concerned the absence of a cap for the hydraulic oil tank.  The absence of the cap was raised as a possible cause for dust entering the hydraulic system and causing it to malfunction.
36 As mentioned, Mr Papas took the vehicle to Mr Gannon to effect repairs necessary to prevent a continuation of the oil leak from the power take-off unit.  Mr Papas said he went over the vehicle in some detail with Mr Gannon and the cap was not missing.  Mr Gannon was somewhat uncertain as to when he discovered the absence of the cap.  He thought Mr Papas was still in Tennant Creek, but he was not sure.  He said he discovered the absence of it while working to correct the problem with the power take-off unit and while it was in his workshop.  He said he usually noticed things like that and it would not have taken him long to discover that the cap was missing.
37 The vehicle was formally delivered to the defendant after Mr Gannon had completed his repairs.  The evidence tended to suggest, therefore, that the cap had been replaced before the defendant took delivery.  His Honour said he was unable to find that the cap was missing prior to or at the instant of delivery and concluded:
"It would seem that the cap went missing after delivery to the Council and I have no hesitation in finding that to be the case.  With the cap off the reserve tank and the compactor being operative in a dusty environment, it seems to me that the overwhelming inference that I can draw is that dust got into the system at that time and, in accordance with the Ridge evidence, such dust is harmful to the operation of an effective and efficient hydraulic system."
38 In my opinion his Honour fell into error as to the time at which the cap was discovered missing.  This led him to the erroneous conclusions that the cap came off after delivery to the Council and was a possible explanation for dust entering the hydraulic system.  In my opinion, however, this error does not affect the validity of the other conclusions reached by his Honour to which I have already referred. 
39 If the possibility that the defective operation and repairs were brought about by the fault of the defendant with respect to the oil cap is excluded, the defendant must nevertheless establish that the problems requiring repair were brought about by defects in material or workmanship.  The defendant relied upon the evidence of Mr Gannon that he found a weld ball in the pulsar which could only have come from work carried out during manufacture.  His Honour did not accept that evidence.  In order for the weld ball to be located where Mr Gannon said he found it, the ball would have passed through a ten micron filter.  His Honour reached the view that an object passing through such a filter would be so small as to be virtually incapable of detection by the unaided human eye.  In those circumstances, the defendant failed to make out its case that the problems were caused by faulty workmanship. 
40 Counsel for the defendant suggested that the expert witness called by the plaintiff, Mr Christopher Ridge, said the presence of the weld ball was the most likely explanation for the problems.  Mr Ridge accepted that if weld balls were present, he would expect the type of problems experienced to ensue.  He also said, however, that dust is sufficient to contaminate the hydraulic system.  Mr Ridge was given an overview of the problems that occurred and concluded that contamination was the most likely cause. In addition he explained that as seals wear through use more dust will enter.  Cleaning or replacing filters was essential because if they are clogged most filters have a bypass valve that lets the oil flow past the filter. 
41 In my opinion the defendant has not been able to demonstrate a basis upon which this Court could properly interfere with the finding of the Magistrate that he was not prepared to accept that Mr Gannon found a weld ball.  In those circumstances, the defendant has failed to make out a claim that the problems were caused by faulty workmanship.
42 The defendant’s claim for the cost of repairs faces a further difficulty.  The plaintiff paid for repairs prior to March 1997.  In March 1997 Mr Gannon inserted a high pressure filter which cured the contamination problem.  Mr Ridge confirmed that such a filter would quickly remove any contamination.  The defendant’s claim for the cost of repairs is based upon repairs carried out after the installation of the high pressure filter.  There was some debate among the witnesses as to whether these were matters of maintenance or not, but regardless of that debate there is no evidence from which the Court could have inferred that the defects requiring repairs after the installation of the high pressure filter were brought about by faulty workmanship.  In these circumstances the Magistrate was correct to dismiss the claim.  His Honour was entitled to reach the view that the further problems after the installation of the high pressure filter were probably the result of "incomplete, insufficient, improper or unsatisfactory maintenance of the relevant filters" for which the defendant was responsible. 
43 The plaintiff also sought to resist the claim for amounts said to be due pursuant to the warranty on the basis that the warranty was only applicable if prior notification of the failure was given to the plaintiff.  The defendant contended that the plaintiff appointed Mr Gannon as its agent for this purpose.  While the plaintiff appointed Mr Gannon as the person to carry out approved repairs pursuant to the warranty, I doubt that the defendant has established that Mr Gannon was appointed as the agent for the purposes of notification pursuant to the warranty.  However, in view of my earlier determinations it is unnecessary for me to finally decide this issue or to consider what effect, if any, the absence of direct notice to the plaintiff would have had on an otherwise proper claim under the warranty.
44 The appeal is dismissed.