TGM Civil Pty Ltd v ResourceCo Pty Ltd
[2008] SADC 53
•6 May 2008
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
TGM CIVIL PTY LTD v RESOURCECO PTY LTD
[2008] SADC 53
Judgment of His Honour Judge Chivell
6 May 2008
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - MATTERS NOT GIVING RISE TO BINDING CONTRACT
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - PARTIES - GENERAL PRINCIPLES
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE - ELECTION AND RESCISSION - LOSS OR WAIVER OF RIGHT TO RESCIND
ESTOPPEL - GENERAL PRINCIPLES
DAMAGES - GENERAL PRINCIPLES
Plaintiff and defendant had arrangement for daily hire of trucks and trailers - on 1 July 1999 defendant entered new arrangement with third party. Whether plaintiff had contract with defendant after 1 July 1999 or with third party. Whether arrangement between defendant and third party a joint venture. Whether plaintiff had contract with third party after 1 July 1999 or with joint venture. Whether defendant misrepresented to plaintiff. Whether defendant estopped from denying joint venture. Whether defendant in breach of contract - causation of damages - quantum of damages.
Trade Practices Act 1974 (C/W); Fair Trading Act 1987 (SA), referred to.
Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1981-82) 149 CLR 337; Abram and Another v AV Jennings Ltd (2002) 84 SASR 363; Shevill and Another v The Builders Licensing Board (1982) 149 CLR 620; United Dominions Corporation Limited v Brian Proprietary Limited and Others (1984) 157 CLR 1; Hadley v Baxendale (1854) 9 Exch 341; March v E. & M.H. Stramare Pty Limited and Another (1991) 171 CLR 506; Henville and Another v Walker and Another (2001) 206 CLR 459; Bennett v Minister of Community Welfare (1992) 176 CLR 408; The Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64, applied.
TGM CIVIL PTY LTD v RESOURCECO PTY LTD
[2008] SADC 53
In this action the plaintiff claims damages for breach of contract, misrepresentation, and for misleading and deceptive conduct.
Prior to 1997, Mr Tony Morbidelli operated his business of earthmoving cartage contractor as a sole trader. In 1997, TGM Civil Pty Ltd, the plaintiff, was incorporated to take over that business. Mr Morbidelli remains the managing director and sole shareholder of the plaintiff. His wife, Mrs Kirsten Morbidelli, acted as bookkeeper and office administrator.
Mr Simon Brown and a partner developed a business during the early 1990’s involving the recycling of building waste. ResourceCo Pty Ltd, which operates that business, was originally incorporated under the name Mobile Reclaimers Pty Ltd. Mr Brown is the managing director of the company. One of the products of the process developed by the defendant was concrete rubble which could be used in the same way as quarry rubble in civil engineering works. The defendant operated from the site of a former landfill site at Wingfield.
From late 1996 to 30 June 1999, the plaintiff was one of a number of cartage contractors engaged by the defendant to carry rubble from the Wingfield site to the site where it was to be used.
There is no dispute that the defendant gave first priority to the plaintiff in allocating cartage work from day to day. The expression “prime carter” was used in evidence by Mr Morbidelli, and “first cab off the rank” was the description used by Mr Brown. Mr Ray Hodkinson, a former employee of the defendant called as a witness by the plaintiff, used similar expressions (T534).
At some point in time prior to 1 July 1999, the defendant and CSR Limited entered into a written agreement, a copy of which is Exhibit P2 (“the CSR Contract”). The agreement is undated. In brief summary, and insofar as it is relevant to these proceedings, the agreement provided:
·CSR would purchase specific quantities of rubble, most of the defendant’s output, commencing at 260,000 tonnes in Year 1, increasing to 270,000 tonnes in Year 2 and 280,000 tonnes in Year 3 (paragraph 1);
·CSR would have exclusive rights to market and sell the product, under the name “CSR Recycled Products”. It undertook responsibility to transport and deliver the product to customers (paragraph 2);
·the parties would consult about marketing and development of new products. The parties would consult about sales and production plans on a monthly basis. The defendant nominated one representative to CSR’s sales team (paragraphs 5 and 6);
·the defendant was responsible for manufacture of the product in accordance with monthly production plans, for stockpiling the product at Wingfield, loading and weighing customer vehicles, and staffing at the Wingfield site (paragraph 9);
·product accepted by CSR became the property of CSR. It was paid for monthly upon records produced by CSR and presented to the defendant for reconciliation (paragraphs 11 and 12);
·the price paid by CSR was reviewed on a quarterly basis (paragraph 14); and
·the term of the agreement was five years from 1 July 1999, but was terminable by either party on the giving of three months written notice in the event of non‑compliance or failure to reach agreement about prices, production plans or marketing strategy (paragraph 15).
The CSR contract is pleaded in the Second Further Re‑amended Statement of Claim filed by the plaintiff. The pleading, however, is inconsistent with the terms of the contract. Paragraph 5 reads:
In or about June 1999 the defendant and CSR entered into an agreement (“CSR Agreement”) in which CSR would purchase 20,000 tonnes of concrete rubble per month from the defendant. It was a term of the CSR agreement that CSR would pay for 20,000 tonnes per month irrespective of what quantity of concrete rubble it actually took delivery of.
This is a significant inconsistency. There is no mention in the CSR contract of any arrangement such as the one pleaded. The amendments to the Second Further Re-Amended Statement of Claim (paragraphs 5.1-5.3) plead the actual wording in part of the contract, but paragraph 5 quoted above remains intact.
The Alleged Contract Between the Plaintiff and the Defendant
Paragraph 8 of the Second Further Re-Amended Statement of Claim alleges that an oral contract was entered into between the plaintiff, represented by Mr Morbidelli, and the defendant, represented by Mr Brown. The alleged contract is pleaded in a most curious fashion. I set out paragraph 8 in full:
8.In or about March 1999, Simon Brown, on behalf of the defendant, entered into an oral contract with the plaintiff in terms as appears hereunder and in the course of making the oral contract (“the Cartage Contract”) the defendant made the following representations (“the Representations”) to the (sic) Tony Morbidelli, on behalf of the plaintiff:
PARTICULARS OF THE REPRESENTATION
AND THE TERMS OF THE CARTAGE CONTRACT
(a) CSR and the defendant had entered into a joint venture which would trade under the name CSR Recycled Products;
(b) that the defendant would sell to CSR at least 20,000 tonnes per month of concrete rubble;
(c) that if CSR did not take delivery of all of that product within the month in question it would take the shortfall plus another 20,000 tonnes in the following month so that on average the plaintiff would cart 20,000 tonnes each month;
(d) that whilst the plaintiff would continue to work for the defendant it would be paid by CSR at rates agreed to by the plaintiff and CSR; and
(e) that the contract would operate for a period of five years from 1 July 1999.
A number of preliminary observations arise from this pleading:
·paragraphs (a), (b) and (c) are said to be representations. It is not pleaded that such representations became part of the “oral contract”;
·the allegations in paragraphs (a) to (c) repeat the same misunderstanding of the terms of the contract as the one which formed the basis of the pleading in paragraph 5 of the Statement of Claim referred to above;
·paragraph (d) also seems more consistent with an alleged representation or conclusion rather than the term of a contract. It is not clear if it asserts a further contract between the defendant and CSR, or whether it was subject to an agreement between CSR and the plaintiff. The illogicality of CSR fulfilling ResourceCo’s alleged contractual obligations was not explained;
·paragraph (e) contains the only representation which may implicitly be taken to be a term of the oral contract. It is not clear, however, which contract is being referred to, the CSR contract with the defendant, or the “cartage contract” between the plaintiff and the defendant, or some other agreement between CSR and the plaintiff. In combination with paragraph (c), it asserts an obligation on CSR to purchase an average of 20,000 tonnes a month, over the entire period of the contract, whereas the CSR contract provides that CSR would purchase an increasing amount over the first three years, up to 280,000 tonnes in Year 3 (an average of 23,333 tonnes per month). No tonnages were specified after Year 3;
·it is also noteworthy that although the Statement of Claim alleges that the CSR contract gave rise to a joint venture between the defendant and CSR, it does not allege that the cartage contract was in some way part of the joint venture; and
·nowhere in this pleading are the alleged terms of the oral contact between the plaintiff and the defendant set out.
The Plaintiff’s Case in Contract
In his submissions (p21), Mr O’Brien, counsel for the plaintiff, summarised his client’s case as follows:
As I said at the outset the plaintiff’s case in contract is simple, and it primarily rests on the following passage from p.68 of the Transcript:
‘Basically Simon said ‘We’ve just entered into a joint venture with CSR. They’ve agreed to buy a minimum of 20,000 tonnes a month for five years’ and basically ‘We want you to cart it’ ..... and he had agreed that we should get the work but we’d obviously have to increase our capacity to cope with it ..... He asked me if I wanted to do it. I said ‘Absolutely, I’d be silly not to’.’
I am not convinced that the situation is as simple as Mr O’Brien suggests. For example, it is not clear whether the alleged promise of five years’ cartage work, if it was made, was supported by consideration. Pursuant to the cartage contract, the rubble, once paid for by CSR, was no longer the defendant’s property. Transport was CSR’s responsibility. It was of no concern to the defendant whether the plaintiff increased its carrying capacity. It was the concern of CSR and the plaintiff if the plaintiff was unable to meet CSR’s requirements.
Mr O'Brien’s submission anticipated this question by asserting:
Obviously there was a standard cartage contract but that was the contract which the plaintiff made with CSR. One might classify this contract as a collateral contract, whose principal term is the giving of a warranty of cartage work for five years at an average tonnage of 20,000 tonnes. However, in my submission, one should not try to squeeze this contract into some standard pigeonhole, but rather treat it as it is, even if it is a thing unto itself. It is nothing more and nothing less than what its express terms state, namely:
1.A promise of cartage work for five years at an average tonnage of 20,000 tonnes per month,
2.in return for an increase in capacity so as to cope with the extra volume, and
3.the entry into a cartage contract with CSR at rates acceptable to them.
This is most unsatisfactory. There is no mention of a collateral contract in the Statement of Claim. There is mention of a joint venture, but only one of the alleged joint venturers is a party to the action. It is not alleged that any benefit accrued to the defendant as a result of the plaintiff contracting with CSR to cart rubble.
In any event, these submissions are inconsistent with the basic pleading, namely that there was a simple oral contract between the plaintiff and the defendant, the terms of which were not pleaded.
This vague and unsatisfactory drafting of the Second Further Re‑Amended Statement of Claim has failed to concentrate Mr Morbidelli’s mind on the real issue in this case, namely what were the precise terms of the alleged contract between the plaintiff and the defendant. An inability to identify the precise terms might have led to an inquiry with whether indeed there was any contract between them at all after 1 July 1999.
Because of its inability to identify the precise terms of the alleged agreement, the plaintiff embarked upon a great deal of evidence as to the historical relationship between the plaintiff and the defendant, and relied upon conversations between Mr Morbidelli and Mr Brown, both before and after the alleged formation of the contract in an attempt to suggest that there had been some acknowledgment of the existence of the contract by the defendant.
Unfortunately, this has made it necessary that I detail this history in these reasons, when much of this evidence may well have been inadmissible if the terms of the agreement had been clearly specified (see Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1983) 149 CLR 337 at 352).
To the extent that the evidence was tendered to overcome any ambiguity, including as to the identity of the parties to the contract, it may have been admissible (see Abram and Another v AV Jennings Ltd (2002) 84 SASR 363 at 272). If that was its purpose, it wholly failed to identify the precise terms of the alleged agreement between the plaintiff and the defendant.
Further, it was apparent from the start of the case that the plaintiff did not understand the terms of the CSR contract between the defendant and CSR, and was therefore drawn into using expressions such as joint venture without evidencing a clear understanding of what the real contractual relationship between those two parties was. In those circumstances, the plaintiff’s attempts to “piggyback” its case on the joint venture have been unsuccessful.
The Evidence of a Contract
Mr Morbidelli said the plaintiff began carting for the defendant in late 1997 or early 1998. At that time his fleet included three semi‑tippers, and one or two tandem trucks (T60). Each semi carried about 27‑28 tonnes, and each tandem carried about 14 tonnes.
Mr Brown confirmed that the plaintiff was one of several companies carting for them in those days. He said that the arrangement was that the contractors were paid on an hourly hire basis (T677).
Mr Morbidelli said he had a number of conversations with Mr Brown which he regarded as significant. I set out each one in turn.
November 1998 - Pooraka Markets
Mr Morbidelli said that on an occasion in November 1998, Mr Brown approached him on a job site at the old Pooraka Markets. He said:
He was impressed with our work and he basically wanted me to do all their work and sort of focus on them.
As to the use of subcontractors, Mr Brown allegedly said (T65.4-9):
It was a gist of if we did use them, to get them to work our way, you know, to try and get them to do things the way we did things because he was happy with the way we were doing things and there were a few other contractors he had which were making mistakes or not doing things the right way and he wanted things done our way.
This evidence was confusing in that Mr Morbidelli was referring to subcontractors to the defendant, not the plaintiff. Quite how he was to “get them to do things the way we did things” was not made clear.
Mr Brown said he had no memory of any such conversation. In fact, he had no memory of ever having been at the Pooraka Markets (T782). He conceded that he may have said in passing that he thought Mr Morbidelli “did a good job”. He said:
..... we are not in the most sophisticated business, if you’ve got someone that is willing to work and put in the hours and be there, that’s all we are looking for in this industry.
(T783)
March 1999 - Boardroom at Wingfield
Mr Morbidelli said that on a day in March 1999 he was “called” into Mr Brown’s boardroom at ResourceCo for a meeting. He said Anthony Green and Ray Hodkinson, both ResourceCo employees, were also present. Mr Green was Marketing Manager and Mr Hodkinson was the Weighbridge Clerk. Mr Morbidelli said the conversation was as follows (T68.21 - T69.8):
Basically Simon said ‘We’ve just entered into a joint venture with CSR. They’ve agreed to buy a minimum of 20,000 tonnes a month for five years’ and basically ‘We want you to cart it’. I said to Simon ‘Well, I can’t work for CSR because they’re contracted to Linfox’, and Simon said ‘Well, Linfox don’t want the work - either don’t need it or don’t want it’ and he had agreed that we should get the work but we’d obviously have to increase our capacity to cope with it. And I then said ‘Well, CSR’s in competition, how do you know they’re not just going to, you know, buy you out and shut you down?’ because I was worried I would then lose my work. He said ‘That’s not going to happen here’. He fully expected it to go full term and when he said ‘minimum of 20,000 tonnes a month’, he made it sound like that was the bare minimum, like we were going to get a lot more. He asked me if I wanted to do it. I said ‘Absolutely, I’d be silly not to’. Then he said ‘Well, the only thing is CSR want the rates transferred from hourly hire to per tonne - per kilometre/per tonne’, so to basically translate our hourly rate to that new pay structure, and I was asked that I had to do that with CSR and he also said that CSR would take over the payments but he made it quite clear ‘You’re still working for us, you’re still going to be carting out of Wingfield but they’ll just pay you’.
Mr Morbidelli prepared a schedule of rates on a per tonne/per kilometre basis and said that, at Mr Brown’s suggestion, he submitted that to Mr Marc Sneddon, Sales & Marketing Manager for CSR in Adelaide, for approval. He said Mr Sneddon told him he would get back to him in a couple of days (T222). He said he was unable to recall if it was Mr Sneddon or Mr Brown who told him later that the rates were acceptable (T226). Either way, it is clear that it was CSR’s decision about that, not ResourceCo’s.
Mr Brown agreed that he would have discussed the new arrangements with Mr Morbidelli. He said he also had the same discussions with the other subcontractors, including Giannini Bros, Day’s Plant Hire, and Edgar Transport (T681).
Mr Brown said that he simply informed Mr Morbidelli that when the new arrangements commenced, CSR would take over all responsibility for cartage of recycled product, that CSR paid their carters by the tonne, and that he needed to work out his cartage rates with Mr Sneddon at CSR. He said the conversation ended on the basis that Mr Morbidelli would go and speak to Mr Sneddon (T681).
In particular, Mr Brown denied that he said anything about a minimum of 20,000 tonnes a month (T681). He said that he had no interest in Mr Morbidelli’s dealings with CSR in relation to cartage after that, and had no authority from CSR to arrange anything (T695). He had no knowledge of how much carting TGM were doing for CSR, or how much CSR were paying them - he said all these matters were the sole province of CSR (T690). He said that Mr Morbidelli did not seek to discuss any of these issues with him after 1 July 1999 (T691).
Mr Sneddon said that Mr Brown “asked if we could look at” using TGM Civil as a carter, along with a couple of other companies, when the CSR contract commenced on 1 July 1999 (T892). There was clearly no doubt in Mr Sneddon’s mind that cartage of CSR Recycled Product involved an agreement between the plaintiff and CSR alone. He said he agreed with Mr Morbidelli to put a CSR sign on his truck. He discussed with Mr Morbidelli the possibility of getting more work from CSR (T895). He denied that the plaintiff ever asserted that he had an entitlement to cart 20,000 tonnes per month (T896). He denied that he made any such promise to Mr Morbidelli as Mr Morbidelli asserted in his letter to CSR, dated 19 February 2001 (Exhibit P14), or that he was told to “gear up” as alleged in the same letter (T899).
One issue which I suspect has caused some confusion in Mr Morbidelli’s mind about these arrangements is that after 1 July 1999, the plaintiff did some cartage work within the defendant’s site, and was paid an hourly rate by the defendant for doing so. This involved shifting rubble from one part of the site to another.
It is possible that this may have led to a comment by Mr Brown such as “you’re still working for us”, meaning “in addition to the CSR work”, but Mr Brown denied that it was said (T887). I do not need to resolve the question whether the conversation took place.
I have no doubt that this work was entirely separate from the cartage of CSR Recycled Products stock to customers, which was paid for by CSR on a tonnage basis.
What I do say, however, is that I prefer, on the balance of probabilities, Mr Brown’s version of this conversation. It is consistent with the clear terms of the CSR contract. It makes no sense that Mr Brown would want to entangle himself in transport issues which were entirely the province of CSR. Mr Brown impressed me as a shrewd and intelligent businessman. His evidence was straightforward, and was not shaken in cross-examination. On the whole, I was given no reason to doubt the credibility or the reliability of his evidence. It is highly improbable that he would misunderstand the terms of the CSR contract so fundamentally that he would make the statements attributed to him by Mr Morbidelli in this conversation. I reject Mr Morbidelli’s evidence where it conflicts with that of Mr Brown on this topic.
September 1999 - ResourceCo Site at Wingfield
Mr Morbidelli said that around this time he “caught up” with Mr Brown and raised his concerns that the tonnages being carried were too low, and that the stockpile was increasing in July, August and September. Mr Morbidelli said (T81.19-26):
I just caught up with him in front of the weighbridge and I said ‘It doesn’t look like CSR actually wants to sell this product because we are not selling enough of it’ and he goes ‘Don’t worry, we’ve got some big jobs coming’, that’s when he said the Outer Harbor job, and he said that was a couple of hundred thousand tonnes and he said ‘You’d better be ready for it so when we do that, you can do it’ .....
Mr Morbidelli was clearly confused about this conversation. At one point he referred to the fact that “they were planning on winning a job at Outer Harbor” (T79), and referring to the same conversation only four pages in the transcript later, he alleged (T83.33-35):
He said that they had won it and it was going to start over Christmas and that I had to get ready for it. To quote his words ‘You’d better be ready for it’.
This is a good example of the imprecision and vagueness of Mr Morbidelli’s evidence. There is a very significant difference between planning to win a contract and actually having won it.
The plaintiff alleges an oral contract and oral misrepresentations. Its case relies solely on Mr Morbidelli’s evidence. Mr Morbidelli’s evidence should be able to establish, with at least some degree of precision, the terms of the contract and/or representation. Instead, all it demonstrated to me was that Mr Morbidelli had only limited recall of these events, and that his recall was imprecise, and unreliable.
One matter which causes great concern about the reliability of Mr Morbidelli’s evidence is that it is clear from the plaintiff’s own records that in August 1999 the plaintiff was paid $44,439.87 by CSR. It was agreed that, by using the payment rates applicable at the time, this represented cartage by the plaintiff of 18,351 tonnes of recycled product for CSR.
This is quite close to the 20,000 tonnes per month figure that Mr Morbidelli alleges was the plaintiff’s entitlement. That being the case, it makes no sense that Mr Morbidelli would be complaining in September 1999 that the tonnages being carried were below expectations when they were so close to 20,000 tonnes, particularly where it was his understanding that he would be picking up the shortfall the following month.
March 2000 – ResourceCo Site at Wingfield
Mr Morbidelli said that he had further conversations with Mr Brown about his concerns that the expected volume of work was not being achieved. He said that the stockpile of rubble at the site had grown even further. He said:
I said ‘I’m concerned that we are not doing the volume’ and I said ‘It seems clear to me that CSR have just - they just basically want to stockpile this recycled product and they don’t want to sell it because they want to promote their own product’ and he said ‘Don’t worry about that, the stockpile’s getting bigger and we’ve got to move it, you’ve got to move it’ (T84.30-37)
Mr Morbidelli said that as a result of these conversations, he believed that his company would be the one moving the stockpile, and doing the Outer Harbor job, and that he needed extra capacity to do so. So he said he embarked upon a programme of purchasing more trucks and trailers from July 1999 to the end of 2000 (T88). He said that the schedule (Exhibit MFI P11) represents the trucks and trailers purchased during this period (T89). Mr Morbidelli’s attitude was summarised in his evidence at T107:
Well, we had a five year contract and we needed those trucks to serve the contract and the stockpile was getting bigger and we needed them to get rid of the stockpile. (T107.1-4)
Mr Morbidelli said he relied upon the fact that TGM had a five year contract with ResourceCo when he decided to buy the extra equipment. He said he would not have done so otherwise (T124).
The topics of the stockpile and the Outer Harbor job were not pleaded in paragraph 8 of the Second Further Re-Amended Statement of Claim as terms of the contract, or as representations which allegedly led to the formation of the contract. This evidence is relevant only to the claims of misrepresentation pleaded in the Second Further Re-Amended Statement of Claim which are alleged to give rise to actions under the Trade Practices Act 1974 (C/W) (“TPA”) and/or the Fair Trading Act 1987 (SA) (“FTA”), which I will discuss later.
At this point, it is necessary only to observe that Mr Brown conceded that he may have said that the stockpile had to go “in passing” in the yard at some point (T888), but denied ever telling Mr Morbidelli that he had better be ready for it (T887).
Again, the evidence of Mr Brown is more in line with the known facts than that of Mr Morbidelli on this topic. The stockpile consisted of product owned by CSR. CSR had the responsibility to transport it, and would pay the carter accordingly. It is highly unlikely that Mr Brown would assume responsibility for arranging or preparing to arrange for moving the stockpile when he had no authority or responsibility to do so. If he was concerned about the size of the stockpile, for environmental or other reasons, that was a matter to be taken up with CSR, since moving the stock was their responsibility. In my opinion, Mr Morbidelli’s beliefs about this issue also arise from a basic misunderstanding of the terms of the CSR contract.
“Prime Carter”
Mr Morbidelli made much of the fact that he was told that his company was the “prime carter” of CSR Recycled Products. Mr Sneddon, CSR’s sales and marketing manager, agreed that he told Mr Morbidelli that at some point after July 1999 (T897). He said that the term implied no more than that the company was the “preferred supplier” of cartage (ibid). Mr Hodkinson, the defendant’s ex‑employee called by the plaintiff, said that the term meant “first cab off the rank”, although he thought it was Mr Morbidelli’s responsibility to arrange trucks if he could not meet the demand (T534). This was denied by Mr Sneddon, who said that he engaged other carters as well (T911). Mr Brown also acknowledged that the plaintiff was the “prime carter”, although he said that the expression was not commonly used in the industry (T780-2). He insisted that this did not mean that there was any exclusive relationship between the plaintiff and the defendant, or between the plaintiff and CSR after 1 July 1999.
I am satisfied that the relationship between the plaintiff and the defendant before 30 June 1999, and between the plaintiff and CSR after 1 July 1999 went no further than that the plaintiff was “first cab off the rank”, that each job of cartage was governed by an individual contract based upon the hours worked or, after 1 July 1999, the tonnes carried, and the agreed rates of remuneration based upon those criteria. I entirely reject the notion that the plaintiff had a five year contract with either the defendant or CSR. I accept Mr Brown’s evidence that such an arrangement is not the way it is done in the industry. He said at p849:
I don’t think - a prime carter is purely someone or a company that has a carrying capacity, as you’ve called it, and they just get the first phone call. There is probably, you know 30 companies in Adelaide that transport these types of materials about the place, and all of the quarries including us use them, but every company has preferred suppliers, it’s like all businesses, you have companies that you like to deal with and support them before others. But in regards to giving them exclusive rights to your materials, you just can’t operate that way.
At p857, he added:
There was a prime or first cab off the rank arrangement and when it ended, it ended.
I accept that evidence. So far as the defendant was concerned, the arrangement with the plaintiff to carry recycled product off‑site ended on 30 June 1999.
Issues Arising From Cross‑Examination
As I have already mentioned, TGM was doing cartage work not only for CSR Recycled Products, but also some internal work for ResourceCo carting material from one part of the Wingfield site to another. The plaintiff was paid at an hourly rate for that work by ResourceCo (T161).
It became apparent during cross-examination that in relation to the carting of recycled product, TGM were being paid by Linfox Transport, who were CSR contractors (T164). At one point Mr Morbidelli insisted that he negotiated this subcontract with Mr Brown (T165), but later admitted that he was confused about that. He said he had made a mistake and that he was not being paid by Linfox for carting recycled product, but for other work (T168). Mr Slattery made the valid point that Mr Morbidelli automatically implicated Mr Brown in this arrangement, without evidence.
Mr Morbidelli admitted that TGM was not the only carter working for CSR Recycled Products after 1 July 1999, although he asserted that TGM was doing the “bulk of the work” (T202). He said that TGM was not in a position to cart 20,000 tonnes per month at that point (T205). As I have already indicated, this has been proved to be wrong since they carried almost that much in August that year. I will return to this topic when considering damages.
Mr Morbidelli acknowledged that in relation to recycled product, TGM received ‘Delivery Dockets’, such as those in Exhibit D20. They carry CSR’s emblem. They state that they are “for CSR use only”. They related to product owned by CSR, being delivered to CSR customers, and payment to the carrier, at the rates approved by CSR on presentation of the documents, was made by CSR (T240).
Notwithstanding all these factors, Mr Morbidelli resolutely stuck to the idea that he had a contract with ResourceCo. He said:
As far as I’m concerned I had the contract with CSR Recycled Products ..... CSR Recycled Products was partly ResourceCo. Nothing changed for us. We still carted out of Wingfield. The only thing that changed was who paid us and that was a minor thing. As long as you get paid you don’t care who is going to pay you. (T240).
This is further evidence of Mr Morbidelli’s fundamental misunderstanding of the arrangement between ResourceCo and CSR. ResourceCo did not have an interest in CSR Recycled Products. CSR Recycled Products was not “partly ResourceCo” at all.
It is established that TGM did purchase more trucks and trailers after July 1999. Mr Morbidelli conceded that the plaintiff had the capacity to cart 20,000 tonnes per month in August 1999 (T270). However, he was aware that other carters were also working there (T258).
This evidence demonstrates merely that Mr Morbidelli had a plan to grow his business as fast as he could on the basis of his own assessment of the opportunities the contract between CSR and ResourceCo offered him. He conceded that at no point did he tell Mr Brown, or Mr Sneddon, from CSR for that matter, that he planned to purchase more trucks or that he was relying upon their representation before doing so (T294).
Mr Morbidelli was quite unable to explain why, on the basis of his evidence, he purchased another truck and trailer on 22 May 2000 (a Scania tipper) when he already had the capacity to carry 20,000 tonnes per month. The only month that more than 20,000 tonnes was carried was in March 2000, and yet he went ahead and purchased more equipment (T337).
He said he did so because he needed to “gear up to get rid of the stockpile” (T338).
Mr Morbidelli agreed that the same considerations apply to his later purchase of a Volvo prime mover on 2 June 2000, a Scania prime mover on 30 June 2000, and a Stoodley trailer tipper on 24 August 2000 (T341). He said:
If he hadn’t told me in September about the Outer Harbor job, I probably would have stopped with the capacity I had there. Then again, when the stockpile is getting bigger if he hadn’t told me I was going to shift it I definitely would have stopped but I didn’t. I had the promise I was going to shift that stockpile.
Mr Morbidelli then conceded in cross‑examination that he had not been told explicitly that the plaintiff would be the only carter to move the stockpile, and that he merely made an assumption about that (T343). By July 1999, when the CSR contract commenced, it was obvious that other contractors were involved, yet Mr Morbidelli continued to purchase more equipment.
Significantly, at no time did Mr Morbidelli approach Mr Brown, or Mr Sneddon from CSR, and seek clarification of the position before committing his company to these purchases (T349), nor did he seek advice from his accountant (T345). He did not perform any kind of cost/benefit analysis or do any kind of financial planning before undertaking these substantial commitments. He conceded he could have met any opportunities presented by the stockpile by using subcontractors rather than purchasing more vehicles (T355).
Termination
On about 2 November 2000, Mr Morbidelli said he received a telephone call from Mr Sneddon advising him that Linfox would be taking over the carting of all recycled product, and giving him three months’ notice of that.
Mr Morbidelli said he was “fairly devastated” to receive the news, and said to Mr Sneddon “Well if that’s the case, I might as well go now” (T112).
Following this communication, Mr Sneddon wrote a letter to the plaintiff confirming the previous advice. The letter (Exhibit D27), dated 2 November 2000, reads:
Dear Tony,
As discussed as of 6 November Linfox will be the cartage contractor responsible for all our delivery needs form (sic) CSR Recycled Products at our Wingfield site.
I would like to thank you for your efforts over the last 16 months and I have appreciated the manner in which you embraced the Recycled Products venture.
I have held discussions with Linfox regarding your organisation being given every opportunity to subcontract to them and they were very positive in this regard.
I wish you well in your future endeavours.
Yours sincerely
CSR Recycled ProductsMarc Sneddon
Sales and Marketing Manager
In the meantime, Mr Morbidelli discussed the matters with his wife, and telephoned Mr Sneddon the next day and said that he would “take the 3 months” (T113).
Mr Sneddon then wrote a further letter to the plaintiff, dated 14 November 2000 (Exhibit P12), as follows:
Dear Tony,
As discussed TGM Civil will resume responsibility for cartage at our Wingfield site until 10 February 2001 at existing rates. Linfox will then assume responsibility from 12 February.
This provides TGM Civil with 3 months notice of our intention to employ Linfox to be responsible for all CSR’s cartage requirements in Adelaide.
I would again like to thank you for your endeavours and I would like to wish you all the best for your future.
Yours sincerely
Marc Sneddon
Sales and Marketing Manager
What is obvious from these communications is that, contrary to the assertion in paragraph 12 of the Second Further Re-Amended Statement of Claim, it was CSR, through Mr Sneddon, and not the defendant who terminated the contract.
Even if the plaintiff did have a five year contract with CSR, by accepting the three month notice period and failing to terminate the contract, arguably it forfeited its rights to damages for the breach (Shevill and Another v The Builders Licensing Board (1982) 149 CLR 620). It is obviously not necessary to determine that issue now, since CSR are not a party to this litigation.
I mentioned earlier in these reasons, that Mr O'Brien submitted that the plaintiff’s contract was “collateral” in some way with the CSR contract, although that was not how the contract was pleaded. He submitted that I should not try and “pigeon hole” the contract.
Even if that submission is accepted, the collateral contract could not have been, in the commercial context of the CSR contract, more extensive than the CSR contract itself. If that is so, then the so‑called “cartage contract”, like the CSR contract, was terminable on three months’ notice being given by either party in the circumstances outlined in paragraph 15 of the CSR contract.
In those circumstances, the acceptance by Mr Morbidelli of the three months’ notice of termination of the contract, and the working out of that notice may also mean that the plaintiff forfeited any right to damages for breach of contract. This point was not argued fully, and it is not necessary to determine the issue now, since I have found that there was no such contract between the plaintiff and the defendant.
I find that the plaintiff’s failure to raise the issue of termination of the contract with the defendant, or even speak to Mr Brown about it at any time, to be another very important matter which damages the credibility of the plaintiff’s assertion that it had a contract with the defendant in the first place.
Mr Morbidelli conceded that both letters (Exhibit D27 and Exhibit P12) confirm that the plaintiff was working for CSR Recycled Products throughout (T370).
He then retreated from that position, saying that he believed that Mr Sneddon “would have had to have gone through Mr Brown first” (T382). This is another assumption. At no stage was that proposition put to Mr Brown in cross‑examination. It is significant that at no stage did Mr Morbidelli approach Mr Brown about the position and seek to have the decision reviewed. Instead, he dealt with Mr Sneddon at CSR.
For his part, Mr Brown said that he was not consulted by CSR about the decision to terminate the plaintiff’s services in November 2000 (T698). I accept his evidence about that, and note that there is no evidence to the contrary.
Mr Morbidelli said he ceased carting on or about February 2001. He said he tried to find sufficient work for all the extra equipment he purchased, but he was unable to, and so he disposed of most of it in accordance with the Schedule, Exhibit P13.
On 19 February 2007, Mr Morbidelli wrote a letter on behalf of TGM to Ms Sandra Kudnig, Cartage Administrator, CSR Construction Material (Exhibit P14). The first two paragraphs of the letter read:
In June 1999 T.G.M. Civil Pty Ltd was asked to be the prime carter for CSR Recycled Products. T.G.M. Civil was promised 20,000 tonnes a month to be delivered, and was told that this was to be the minimum cartage per month. If it was not achieved it would be made up in the following months. E.g. if 15,000 one month the next would have to be 25,000 to keep the minimum up. In fact 9,000 tonne was the average in eighteen months.
The promised make up tonnage never happened. T.G.M. Civil was told to gear up for the make up of tonnage about a year ago and did so. Unfortunately it never came through causing us to make a loss of $180,000.
Later in the letter, Mr Morbidelli wrote:
We are now seeking to recover costs for losses sustained and damages for the working conditions we were subjected too (sic) and also we are looking for reinstatement of our promised 5 year term.
The most significant aspect of that letter is the fact that Mr Morbidelli looked to CSR to redress to the “losses sustained”. This again is inconsistent with his assertion that his company had a contract with ResourceCo.
On the evidence, the first communication between the plaintiff and the defendant about these issues following the termination was by letter from the plaintiff’s solicitors to the defendant, dated 7 May 2001 (Exhibit D29). However, the claim foreshadowed in the letter was not based upon an alleged contract, but rather upon alleged price‑fixing/lessening competition in contravention of s45 of the TPA.
Later, by letter, dated 19 September 2001, Mr Morbidelli, on behalf of the plaintiff, wrote to CSR Limited at its head office in Sydney (Exhibit D39). The first two paragraphs read:
In June 1999 CSR Ltd and Resoursco (sic) formed a joint venture company called CSR Recycled Products. At that time T.G.M. Civil Pty Ltd was asked by the new company to be the prime carter. Resoursco insisted that T.G.M. Civil Pty Ltd be the prime carter because of the excellence and commitment it had given Resoursco (formally Mobile Reclaimers) and was knowledgable and skilled in recycled products delivery.
A VERBAL CONTRACT was made between CSR Recycled Products and T.G.M. Civil Pty Ltd. T.G.M. Civil was promised an average of 20,000 tonnes per month to be delivered and was told that the joint venture was to go on for 5 years.
In my opinion, this letter epitomises Mr Morbidelli’s belief, namely that CSR and the defendant, in a joint venture, formed a new company called CSR Recycled Products. This action by the plaintiff is based on this misconception. It has not been explained why CSR was not joined as a defendant. But in any event, Mr Morbidelli conceded somewhat reluctantly in cross‑examination that he now understands that CSR Recycled Products was solely owned by CSR. When this was put to him squarely, he said “I suppose” (T440.31). On the basis of this concession alone, and in light of the clear terms of the CSR contract, the conclusion is inescapable that there was no contract between the plaintiff and the defendant after 1 July 1999, and that the plaintiff’s action in contract should fail.
Estoppel
In paragraph 8A of the Second Further Re-Amended Statement of Claim, the defendant pleaded:
In the alternative to the plea in paragraph 5.4 hereof, by reason of the representations pleaded in paragraphs 8(a) and (e) hereof, and the subsequent reliance thereon, as pleaded in paragraph 9 hereof, the defendant is estopped from denying that there was a joint venture between itself and CSR. Had Tony Morbidelli, on behalf of the plaintiff, believed that its cartage contract was with CSR alone then the plaintiff would not have increased its capacity, as pleaded in paragraph 9 hereof, unless Tony Morbidelli, on behalf of the plaintiff, had negotiated with CSR a cartage contract for a term of not less than 5 years.
It is difficult to discern precisely the nature of the estoppel alleged. The defendant does not deny that it entered into a written contract with CSR, as I have already discussed. Whether or not this amounts to a “joint venture” depends upon the terms of the contract.
In United Dominions Corporation Limited v Brian Proprietary Limited and Others (1984) 157 CLR 1, Mason, Deane and Brennan JJ said at p10:
The term “joint venture” is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scot’s law, “adventure”) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership; such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a “joint venture” and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred.
On that basis, the pleading that the defendant “is estopped from denying that there was a joint venture between itself and CSR” begs the question. The precise nature of the contractual relationship between the defendant and CSR is not particularised.
In paragraph [6], I summarised the provisions of the CSR contract. It is plain that it did not create a partnership between the defendant and CSR. It merely creates a contractual relationship whereby CSR purchased most of the defendant’s product, CSR had the right to market it under the name “CSR Recycled Products”, and undertook responsibility to transport the product to its customers. The defendant had responsibility to manufacture agreed amounts of product each month, and to stockpile it until CSR sold it, and to load it onto customers’ vehicles. The only “joint” aspect of the arrangement was that the two parties would consult about marketing and development of new products, the defendant would supply a representative to CSR’s sales team, and they would consult about monthly sales and production plans.
What is abundantly clear is that the CSR contract provided that the product would be paid for by CSR monthly, and that property in the product passed to CSR. In no sense was the product jointly owned by CSR and the defendant once this occurred. The CSR contract is clear that it was CSR which would trade as CSR Recycled Products, not the joint venture.
The only way in which this pleading can raise a relevant issue is if there is an implication in it (which is by no means obvious) that the defendant is estopped from denying that it was a joint owner of CSR Recycled Products. I can see no evidence to justify such a conclusion, and the plaintiff has not pointed to any.
The apparent confusion in Mr Morbidelli’s mind about the CSR contract suggests to me that he fundamentally misunderstood the nature of his communications with Mr Brown. There was no reason why Mr Brown would bind the defendant to a contract with the plaintiff concerning cartage of recycled product when:
a) the product was owned by CSR;
b)CSR had the responsibility to transport the product to its customers; and
c)Mr Morbidelli negotiated the cartage rates with CSR alone, and the defendant had no role in that process.
For the above reasons, I find that there is no evidence to support the claimed estoppel. There was no joint venture to trade as CSR Recycled Products. There is no evidence that Mr Brown represented to Mr Morbidelli that there was. I have reached the firm conclusion that if Mr Morbidelli had a belief that the CSR contract created such a joint venture, then the belief was the result of his own misunderstanding rather than any representation made by Mr Brown.
The claimed estoppel has not been made out.
False Representations
Paragraphs 9 to 15 inclusive of the Second Further Re-Amended Statement of Claim assert that Mr Brown made a number of representations to Mr Morbidelli, in addition to those made prior to the formation of the contract alleged in paragraph 8. These representations were allegedly false, and the plaintiff appears to assert that they give rise to a cause of action in tort, and pursuant to the FTA and TPA.
In order to interpret the convoluted, poorly structured, and in some respects, self‑contradictory way in which the plaintiff has pleaded its case in this matter, I will attempt to distil the various asserted representations from the rest of the pleadings. They are as follows:
9.
On the basis of the Representations referred to in paragraph 8 hereof the plaintiff was induced to enter into the cartage contract, Simon Brown, on behalf of the defendant and the joint venture, advised Tony Morbidelli, on behalf of the plaintiff, that the plaintiff needed to ensure that it had the capacity to cart that quantity of rubble each month. On the basis of the Representations the plaintiff substantially increased its capacity so as to ensure that it was able to cart the quantities which had been projected. In the six months from June 1999 to December 1999 the plaintiff acquired approximately $250,000 worth of additional transport equipment, and it increased its carrying capacity from approximately 83 tonnes to approximately 170 tonnes.It is noteworthy that the “advice” from Mr Brown to Mr Morbidelli was allegedly made “on behalf of the defendant and the joint venture”. This is to be contrasted with the alleged representations in paragraph 8, which were allegedly made “on behalf of the defendant” alone.
Paragraph 9 then goes on to allege that the plaintiff increased its capacity “on the basis of the Representations”. “The Representations” were defined in paragraph 8 and do not include anything in paragraph 9. Presumably, then, the “advice” referred to in paragraph 9 is not an alleged representation giving rise to a cause of action.
11AIn the period on and after July 1999, from time to time, Simon Brown, on behalf of the defendant, made representations to Tony Morbidelli, on behalf of the plaintiff, that the plaintiff would be required to cart away the stockpile (“the First Further Representations”).
This is the “First Further Representation” alleged. Note that this was allegedly made by Mr Brown “on behalf of the defendant” alone. In fact, CSR owned the stockpile. Even on the plaintiff’s own case, the joint venture owned the stockpile. Why Mr Brown would make such a representation “on behalf of the defendant” is not clear.
11BDuring the year 2000, Simon Brown, on behalf of the defendant, represented to Tony Morbidelli, on behalf of the plaintiff, that the defendant and CSR as joint venturers expected to be successful tenderer in respect to some large projects which would involve the carting of very large quantities of concrete rubble (“the Second Further Representations”).
This Second Further Representations were allegedly made by Mr Brown “on behalf of the defendant” alone, but related to “large projects” being tendered for by the defendant and CSR as joint venturers.
12.As a consequence of the matters pleaded above the defendant breached the Cartage Contract and the plaintiff has suffered loss and damage.
as a consequence thereof, the particulars of which are pleaded in paragraphs 9 and 10 hereof.The “matters pleaded above” are the Representations, the First Further Representation and the Second Further Representation. Try as I might, I am unable to see how the alleged Representations can have constituted a breach of contract.
The plaintiff also asserts (paragraph 11C) that “in reliance on” The Representations, the First and Second Further Representations, the plaintiff “continued to acquire further trucks and trailers such that its carrying capacity had increased from approximately 170 tonnes in January 2000 to 270 tonnes by August/September 2000”. It is further asserted that the “cost” of these purchases was $534,000.00. It was not clear whether, by pleading this, the plaintiff is claiming damages in tort for misrepresentation. There is not even an assertion that the alleged representations were false. Even on the plaintiff’s own pleadings, I can find no cause of action in tort for misrepresentation.
The plaintiff then claims that the representations were misleading and deceptive or were likely to mislead or deceive within the meaning of s52 of the TPA and s56 of the FTA. The plaintiff then gives the following particulars of these claims:
15.In making the Representations
and the First and Second Further Representationsthe defendant did not have reasonable grounds for making the Representationsandthe First and Second Further Representationsor warrantieswithin the meaning of section 51A(1) of the Trade Practices Act 1974 (C’th) and section 54(1) of the Fair Trading Act 1987 (SA).PARTICULARS
15.1 Construction materials, such as paving materials, screenings, rubble and filler, are given one of three classifications in the industry, irrespective of whether the materials have been quarried or recycled. Class 1 which is either crushed rock or its recycled equivalent. Class 2 is either quarry rubble, or recycled rubble. Class 3 is non‑specific filling material. Prior to making the CSR Agreement the retail price of crushed quarry rock (being class 1 material) was approximately $11 per tonne, and quarry rubble (ie class 2) was in the order of $7.00 to $8.00 per tonne.
15.2 In the Table below are set out the various prices charged by CSR and the defendant both before and after the CSR Agreement was entered into. Those prices have been obtained by the plaintiff from price lists.
CSR Recycled Products Mobile Reclaimers (ResourceCo) (prices valid until 31 December 2001) +10% GST (prices effective as at 1 November 1998) per tonne Equivalent per tonne PM 1/20 RM
Class 1, 20mm Recycled Material $11.00
Yes
PM 71 Crushed Rock
Class 1
$9.00
40mm Base Coarse Class 1
$11.00
No
40mm Rubble
Class 2
$7.00
PM 2/20 RG
Class 2/20mm Recycled Grade $8.00
Yes
20mm Recycled Rubble
Class 2
$7.50
40mm Sub Base Class 2
$8.00
Yes
40mm Rubble Class 2
$7.00
Average: $10 $8 NB: PM stands for paving material. 15.3 In respect to the prices which the defendant charged before 1 July 1999, it would often give significant discounts of between 10% and 20%. After 1 July 1999 it rarely gave discounts.
15.4 The demand for these types of construction materials is very sensitive to price. Thus recycled materials, which, as at 1 July 1999, was a new type of product needed to be price competitive with the more traditional product which was derived from quarried material. The prices which were set in Attachment A to the CSR Agreement were comparable to those in 2001, as set out in the Table above.
15.5 Simon Brown when making the Representations was familiar with all the facts referred to in paragraphs 15.1 to 15.4 hereof, and knew or should have known that if CSR were to sell recycled products at prices comparable to the prices referred to in the third column from the left in the Table above, then that would substantially reduce the demand for those recycled products.
15.6 Simon Brown knew or should have known that, by reason of the matters set out in paragraphs 15.1 to 15.4 hereof, CSR would only be able to sell substantially less than that which had been agreed to be produced under the CSR Agreement, and that the remainder would have to be stockpiled. Further in clause 9 of the CSR Agreement it was contemplated by the parties that recycled products would be stockpiled by the defendant.
15.7 It therefore should have been obvious to Simon Brown, at the time the Representations were made, that the plaintiff, on and after 1 July 1999, would not be carting on average 20,000 tonnes per month.
There is no evidence before me about the discounts referred to in paragraph 15.3, nor is there any evidence to support the assertion in paragraph 15.5 that the demand for recycled product would be reduced by the pricing structures adopted, let alone that Mr Brown was aware, or should have been aware, of that fact. The same applies to the assertions of fact in paragraphs 15.6 and 15.7.
Mr O'Brien submitted that the misleading and deceptive conduct relied upon by the plaintiff is:
1. that the plaintiff had a five year contract; and
2.that the plaintiff would cart, on average, 20,000 tonnes per month for five years.
(Submissions, p22)
For the reasons I have expressed earlier, I do not accept that any such statements were made by Mr Brown. At its highest, the only statement made by anyone involved in these events which even remotely resembles a representation to Mr Morbidelli was the statement made by Mr Sneddon that TGM was regarded as the “prime carter” for CSR Recycled Products. As I have previously outlined, that was not said by Mr Brown, the defendant had no legal interest in CSR Recycled Products, and any such statement does not found a cause of action against the defendant.
Mr O'Brien outlined the three elements of an action for misleading and deceptive conduct as:
1. the plaintiff must have fallen into error;
2.the error must, in whole or in part, have been induced by the conduct of the defendant; and
3.the conduct of the defendant must have been misleading and deceptive or capable of misleading and deceiving.
I am happy to adopt that formulation for present purposes. Having regard to the factual findings I have made, it is clear that Mr Morbidelli, on behalf of the plaintiff, fell into error. But it has not been proven that the error was in any way induced by the conduct of the defendant, let alone that any such conduct was misleading and deceptive.
Accordingly, the claims based upon s51A of the TPA and s54(1) of the FTA fail.
Damages
It follows from the above that the plaintiff’s action against the defendant must be dismissed.
However, in case I am wrong about that, I will now discuss the question of damages. That discussion falls into two parts - whether any loss was caused by the plaintiff, and if so, the extent of that loss.
The plaintiff’s claim is expressed in the Second Further Re-Amended Statement of Claim as follows:
16.By reason of the contraventions referred to in paragraphs 10, 12A and 14 hereof, the plaintiff has suffered loss and damage.
At the risk of repetition, the claim for damages is therefore based upon the following matters pleaded:
10.In the period from July 1999 to January 2001 the plaintiff in fact carted, on average, 12,000 tonnes per month for the defendant and CSR as joint venturers.
12A.In February 2001 the defendant, in breach of the Cartage Contract, terminated it.
14.As a consequence of the matters pleaded in paragraphs 10 and 12A hereof the Representations and the First and Second Further Representations were misleading and deceptive or were likely to mislead and deceive within the meaning of that expression as it is used in section 52 of the Trade Practices Act 1974 (C’th) and in section 56 of the Fair Trading Act 1987 (SA).
The particulars of damages are then set out:
16.1Had the defendant not breached the terms of the Cartage Contract, the plaintiff would have derived additional net profits before tax in the amounts and for the years set out in the table below.
YEAR NET PROFIT 2000 $14,611 2001 $182,761 2002 $131,146 2003 $151,544 2004 $172,031 The present value of those losses are $645,212.
16.2Had the defendant not made the Representations and the First and Second Further Representations, the plaintiff would have made net profits before tax in the amounts set out in the table below, whereas, by reason of their reliance on those representations they made net profits as set out in the table below, and, as a consequence, suffered losses as particularised in the table below:
Financial
Year
EndingProspective Net
ProfitsActual Net
Profits/LossesLoss 2000 $82,165 $120,077 -$37,912 2001 $82,165 -$29,650 $111,815 2002 $82,165 $42,536 $39,629 2003 $82,165 $22,505 -$59,660 2004 $82,165 $54,737 -$27,428 Total $200,620 16.3Had the plaintiff not incurred the losses set out in the Table above the plaintiff would have been able to retire a portion of the debt pleaded in paragraphs 16.4 to 16.7 hereof, and would have saved in compound interest $35,911.
16.4At the time the Cartage Contract was terminated the plaintiff had a carrying capacity of approximately 270 tonnes. In order to acquire that capacity the plaintiff had to borrow funds from various financiers who invariably lent money under a hire purchase arrangement. In respect to the fleet of trucks and trailers which the plaintiff had on hand at the time the Cartage Contract had terminated the plaintiff had borrowed $1,334,542, and had to make monthly repayments of $27,386, consisting of both principal and interest.
16.5The annual revenue which the plaintiff received under the Cartage Contract was approximately $310,000, which the plaintiff was unable to replace after that contract was terminated. The surplus trucks and trailers could not be disposed of by the plaintiff quickly unless they were sold at prices which were substantially less than their market value. At the time the Cartage Contract was terminated the payout amounts under the various hire purchase agreements was roughly comparable to the market value of the trucks and trailers.
16.6By reason of the matters stated in paragraphs 16.4 and 16.5 hereof the plaintiff was unable to dispose of the surplus trucks and trailers and was also unable to fund from its own revenue the monthly repayments (“the Cash Shortfall”). As a consequence the plaintiff had to finance the Cash Shortfall out of borrowings. The Cash Shortfall and the cumulative Cash Shortfall from year to year is set out in the Table below:
Year: 2000 2001 2002 2003 2004 Cash Shortfall $11,828 -$75,603 -$11,734 -$69,994 -$76,922 Cumulative Cash Shortfall $11,828
-$63,775
-$75,509
-$145,503
-$222,425
16.7In addition to having to fund the Cash Shortfall out of borrowings the plaintiff also has incurred further debts in the form of compound interest on those borrowings. By 30 June 2004 the cumulative amount of that compound interest was $59,203.
Causation of Damages
In his submissions, Mr Slattery referred to the well known passage from Hadley v Baxendale (1854) 9 Exch 341 @ 354:
Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things from such a breach of contract itself or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.
More recently, Deane J in March v E. & M.H. Stramare Pty Limited and Another (1991) 171 CLR 506 @ 522 said that the question is whether the defendant’s breach was so connected with the plaintiff’s loss or damage that “as a matter of ordinary commonsense and experience it should be regarded as a cause of it”.
In Henville and Another v Walker and Another (2001) 206 CLR 459, McHugh J pointed out that if the conduct of the claimant in incurring the loss was unreasonable, then that is relevant to causation, not to remoteness of damage. His Honour said at p505:
Nothing in the common law, in s 52 or s 82 (of the Trade Practices Act) or in the policy of the Act supports the conclusion that a claimant’s damages under s82 should be reduced because the loss or damage could have been avoided by the exercise of reasonable care on the claimant’s part. There is no ground for reading into s82 doctrines of contributory negligence and apportionment of damages. No doubt, if part of the loss or damage would not have occurred but for the unreasonable conduct of the complainant, it will be appropriate in assessing damages under s82 to apply notions of reasonableness in assessing how much of the loss was caused by the contravention of the Act. But that proposition is concerned with the items that go to the computation of the loss .....
(my underlining)
I think Mr O'Brien’s written submission on the basis of that authority that “it is simply not relevant that that reliance (on misleading and deceptive conduct) was imprudent and unreasonable. So long as causation is established unreasonable reliance is irrelevant” goes too far.
To the contrary, it is clear that it is necessary to consider whether any imprudent or unreasonable conduct on the part of the plaintiff was the real cause of the loss, rather than the plaintiff’s reliance upon the defendant’s conduct.
Issues of causation are questions of fact (Bennett v Minister of Community Welfare (1992) 176 CLR 408 @ 412-3). In order to make findings of fact, it will be necessary to consider again the credibility of the evidence proffered by the plaintiff in support of its claim, and that of the defendant in reply. Of course, the plaintiff bears the onus of proving its damage on the balance of probabilities, both as to whether it was caused by the breach, or by its reliance upon a misrepresentation, or by a breach of the TPA, and as to its quantum.
The defendant submitted that if the plaintiff suffered any loss, it was caused by the unreasonable conduct of Mr Morbidelli, and that nothing done or not done by the defendant was causative of any loss.
The evidence discloses that in August 1999, the plaintiff was paid $44,439.87 by CSR. It was agreed that, by using the payment rates applicable at the time, this represented the cartage of 18,351 tonnes for CSR.
In addition to that, the plaintiff also carted for other companies and earned from Nevarc Construction $10,158.75, Bardavcol $9,436.35 and ResourceCo $30,281 (this was for hourly work, unrelated to the CSR contract). All this work was performed with, on the plaintiff’s own figures, 137.5 tonnes capacity.
The defendant argued, and I accept, that this evidence demonstrates that the plaintiff had more than sufficient capacity to cart the 20,000 tonnes per month contemplated in its alleged contract.
It is true that the plaintiff subcontracted a small (3-4%) amount of this work during that month. However, it chose to do so in order to free up its own equipment to do other work. Either way, it was always able to subcontract if it chose to do so.
Mr Morbidelli conceded this point in cross-examination (T270). He was asked:
Q...... In other words you had the capacity to haul 20,000 tonnes of material. You didn’t need more trucks or trailers?
A.In respect of that month, yes.
The plaintiff sought to argue that August 1999 was an aberration because the average length of a trip during that period was 20% less than the average over 18 months, and TGM worked 70% in excess of normal hours. He submitted that this could not be sustained over a lengthy period. However, there was no evidence about any of this from Mr Morbidelli, or from either expert. This was Mr O'Brien’s own interpretation of the figures. The most that Mr McClaren, the accountant called by the plaintiff, could say was:
You Honour I’m not privy to any evidence that might have been given about August 1999, I simply understand the proposition that’s been put. I’ve made some preliminary calculations, and I’ve advised Mr Holmes that I have made some preliminary calculations. And those lead me to the view that one might form the view that August 1999 was an explicable one‑off month, where because of the days and hours and trips worked, one achieved a certain result. But when one looks at the full year, and allows for a whole range of down time, public holidays, certain weekends, other leave and a range of factors of that nature, the building industry and what happens in the building industry in January for example, I believe that there are explanations that show how one can reconcile August, the month of August 1999 to the other months that in fact took place. Such that when you allow for those, the extra performance, if I can put it that way, that was achieved in August might only be between maybe 1%. 2% to 10% above where it might have been for the other months. (T945-6)
That is insufficient evidence upon which to base a conclusion. The onus is on the plaintiff to prove the extent of his damage on the balance of probabilities. On the evidence before me, confused, conflicting and threadbare as much of it is, I am unable to make a positive finding that the plaintiff required any additional capacity to perform the CSR work.
In those circumstances, in my opinion, Mr Slattery’s submission must be upheld. On that evidence, none of the purchases of stock made by the plaintiff after the Hamelex was purchased in June/July 1999 was reasonably necessary in order to perform that work.
Mr Morbidelli was growing the business too fast - he conceded as much (T346). He had not performed any sort of financial cost/benefit analysis before embarking on the purchase of all these vehicles (T354), and it is arguable at least that the company was insolvent from about July 2000 (T345). Mr Morbidelli’s strategy was, it seems to me, one of purchasing as many vehicles and trailers as he could find finance for, assuming that he would find work, if not from the defendant or from CSR, then from other operators in the market.
This was most imprudent and, indeed, unreasonable conduct and was, in my view, the real cause of the plaintiff’s losses. Neither any breach of contract, nor any tort of misrepresentation, nor breach of the TPA or FTA was causative of the plaintiff’s loss.
In case I am wrong in those conclusions, I will now attempt to assess the quantum of damages claimed.
Quantum of Damages
The plaintiff’s claim in paragraph 16.1 above, based upon alleged breach of contract, is in the nature of “expectation loss”, in other words, loss of expected profits. In The Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64, Mason CJ and Dawson J said at p80:
The general rule at common law, as stated by Parke B in Robinson v Harman (1848) 1 Ex 850, at 855 [154 ER 363 at 365], is “that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed”. This statement of principle has been accepted and applied in Australia: see Wenham v Ella (1972) 127 CLR 454, per Gibbs J at 471.
The award of damages for breach of contract protects a plaintiff’s expectation of receiving the defendant’s performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as “expectation damages”. The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff’s expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation.
At [81]
..... It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.
..... If the performance of a contract would have resulted in a plaintiff, while not making a profit, nevertheless recovering costs incurred in the course of performing contractual obligations, then that plaintiff is entitled to recover damages in an amount equal to those costs in accordance with Robinson v Harman, as those costs would have been recovered had the contract been fully performed. Similarly, where it is not possible for a plaintiff to demonstrate whether or to what extent the performance of a contract would have resulted in a profit for the plaintiff, it will be open for a plaintiff to seek to recoup expenses incurred, damages in such a case being described as reliance damages or damages for wasted expenditure.
These two forms of damages are not mutually exclusive. In Amann, Mason CJ and Dawson J said it was not necessary for a plaintiff to elect which form he seeks. Their Honours said at p85:
In truth, as has been seen, damages for loss of profits and damages for expenditure reasonably incurred are simply two manifestations of the general principle enunciated in Robinson v Harman. So much at least emerges from the judgment of this Court in T C Industrial Plant Pty Ltd v Roberts Queensland Pty Ltd (1963) 37 ALJR 289, per Kitto, Windeyer and Owen JJ at 292-294. There the Court did not accede to the submission that the plaintiff was bound to elect whether it would pursue its claim for expenditure uselessly incurred as a result of the defendants breaches of contract or, in the alternative, its claim to recover for the loss of profits it would have earned had the crusher been fit for the purpose.
..... The manner in which a plaintiff frames his or her claim for damages will be dictated not so much by a choice of alternatives giving rise to an election but simply according to whether the contract, if fully performed, would have been and could be shown to have been profitable (even if the actual amount of profit is not readily ascertainable). If this can be demonstrated, a plaintiff’s expectation of a profit, objectively made out, will be protected by an award of damages. Otherwise, subject to it being demonstrated that a plaintiff would not even have recovered any or all of his or her reasonable expenses, a plaintiff’s objectively determined expectation of recoupment of expenses incurred will be protected by the award of damages.
An award of damages for expenditure reasonably incurred under a contract in which no net profit would have been realised, while placing the plaintiff in the position he or she would have been in had the contract been fully performed, also restores the plaintiff to the position he or she would have been in had the contract not been entered into. In this particular situation it will be noted that there is a coincidence, but no more than a coincidence, between the measure of damages recoverable both in contract and in tort.
(my underlining)
The judgment of Brennan J at p98 is to similar effect, as is that of Deane J at p115, Toohey J at p134, Gaudron J at p148 and McHugh J at p158.
The quantum of the plaintiff’s damages has been the subject of lengthy analysis. The two accountants, Mr McClaren retained by the plaintiff’s solicitors and Mr Holmes retained by the defence, have both produced several reports which have been tendered as a bundle (Exhibit P74).
At my urging, a number of conferences took place between the two experts with a view to them giving evidence to the court concurrently. This eventually occurred on 2 August 2007, after several false starts and logistical difficulties. At that time, a further bundle of material prepared by Mr McClaren was tendered (Exhibit P75).
What became clear is that there was little disagreement between the experts about the methodology of the calculation - the only real disagreement was about whether Mr Morbidelli’s wage should be treated as a fixed or a variable cost. The main difficulty has been the vagueness and multiplicity of the assumptions the experts were asked to make about the evidence, many of which proved to be incorrect at trial. This seems surprising since the plaintiff had more than six years to prepare his case for trial.
In any event, after the experts gave evidence, they prepared a further document (Exhibit MFI 76) which gave a range of values based upon a variety of assumptions.
I will not discuss the unsatisfactory way in which matters proceeded from there. It is sufficient to say that for this method of taking expert evidence to achieve anything, it requires the parties to have sufficient faith in their respective experts that they can take a step back and allow them to give their evidence in a co‑operative fashion. Unfortunately, this did not occur in this case, and many impediments were put in their way before a result was achieved. Eventually, it was agreed between the parties that the mid‑point in the ranges suggested by the experts in Exhibit MFI 76 represent the quantum of damages on the basis of both expectation loss and reliance loss (T993).
As to “expectation damages”, adopting the agreed mid‑point figures (in brackets) in Exhibit MFI 76, the plaintiff’s damages would be:
1.If the Pre-Existing carrying capacity at March 1999 is found to be 137.5 tonnes, and the additional carrying capacity necessary to perform the CSR work is found to be 116 tonnes, the damages are:
c. At 33.25% margin = $365,832.50
d.At 40.4% margin = $724,181.00
2.If the Pre-Existing carrying capacity at March 1999 is found to be 123.5 tonnes, and the additional carrying capacity necessary to perform the CSR work is found to be 116 tonnes, the damages are:
e. At 33.25% margin = $468.308.50
f. At 40.4% margin = $827,006.50
3.If the Pre-Existing carrying capacity at March 1999 is found to be 109.5 tonnes, and the additional carrying capacity necessary to perform the CSR work is found to be 116 tonnes, the damages are:
g. At 33.25% margin = $476,288.50
h. At 40.4% margin = $836,702.00
The relevant “margin” depends upon whether I regard Mr Morbidelli’s wages as a fixed or variable cost. It is surprising that this issue has such a dramatic effect upon the outcome.
Mr Holmes’s opinion was that Mr Morbidelli was a driver, and his wages were a variable, or direct cost to the business, whether or not he was also a director or shareholder of the company (T939). On that basis the relevant margin is 33.25%.
Mr McLaren, however, gave the opinion that the figures stated for Mr Morbidelli’s salary were “tax driven”, and stated at around the $20,000.00 per year mark because for most of the relevant time that was the figure at which the tax rate changed from 17% to 30%. He said this did not reflect the reality of Mr Morbidelli’s earnings from the business (T944-5). He said those figures should be excluded, and that the appropriate margin is therefore as a fixed cost, that is 40.4%.
Of course, the burden of proving the relevant quantum is on the plaintiff. The plaintiff has not satisfied me that Mr McClaren is correct. Indeed, I prefer Mr Holmes’s approach. If the books of the company reflect those figures as being Mr Morbidelli’s wages, then, whether they are “tax driven” or not, those wages can be appropriately regarded as variable costs to the company for the purpose of assessing damages. After all, it is the extent of the company’s loss that is relevant here, so the way Mr Morbidelli’s wages were treated for tax purposes is relevant to the extent of its loss.
In my opinion, the appropriate margin is therefore 33.25%.
The next issue for me to determine is whether any, and if so which, of the other assumptions in Exhibit MFI 76 can be justified on the evidence.
Each of the scenarios outlined above depends upon a finding that “the additional carrying capacity necessary to perform the CSR work is found to be 116 tonnes .....”.
It is agreed by the plaintiff that, as at March 1999, they had a carrying capacity of 109.5 tonnes (T954). This was supplemented by the purchase of a Hamelex tipping trailer unit in June/July 1999 giving a further 28 tonnes capacity, giving a total, in August 1999, of 137.5 tonnes. There was much, very confusing discussion about other vehicles. I agree with the observation of Mr Slattery that “there are vehicles upon those exhibits about which nobody has been instructed and about which no evidence has been given, and it seems that we’re never going to get to the bottom of that” (T952).
I will accept, for the purpose of the discussion, that the plaintiff’s pre‑existing carrying capacity, as at March 1999, was 109.5 tonnes.
The final question is, therefore, whether, and if so, how much extra capacity was required by the plaintiff to perform the CSR work. I have already held that no extra capacity was required by the plaintiff to perform that work. As at August 1999, the plaintiff had ample capacity to carry the required stock.
In those circumstances, I have no material before me to demonstrate that the plaintiff has suffered any expectation loss as a result of any alleged breach of contract.
I reach the same conclusion in relation to reliance losses as a result of any breach of contract, or misleading and deceptive conduct associated with the CSR contract.
One further scenario in Exhibit MFI 76 which was agreed between the parties in the context of reliance loss was:
1.If the only consequences of relying upon representations concerning the CSR alleged available work, and the plaintiff had existing carrying capacity such that as at March 1999 and the Hamelex was the only vehicle acquired in reliance, then there is no loss (i.e. there was a net benefit).
That scenario reflects my findings above, namely that, on the plaintiff’s own figures, its capacity was 109.5 tonnes in March 1999, and the purchase of the Hamelex in June/July, taking its capacity to 137.5 tonnes, was the only purchase necessary in order to give the plaintiff capacity to do the CSR work. Accordingly, the plaintiff has proved no reliance loss based upon breach of contract or misrepresentation under either the TPA or FTA.
I was given no information as to the extent of any reliance loss arising from the First and Second Further Representations, separate from those I have already discussed. I note that Mr O'Brien refers to these as the “Second and Third Representations” in his written submissions, but that is not in accordance with his pleadings.
The First Further Representation was allegedly made in March 2000 and related to the need to shift the 100,000 tonne stockpile which had accumulated, on Mr Morbidelli’s evidence.
The Second Further Representation related to the Victor Harbor project, and, as Mr Slattery correctly pointed out, although Mr Brown denied he made any representation to Mr Morbidelli about it, in fact CSR did win the contract and supplied rubble for it.
The most Mr O'Brien could make of the figures was that the average amount of rubble shifted by CSR during the currency of the CSR contract during the five year period from 1 July 1999 to 30 June 2004 was 27,478 tonnes per month, during which the stockpile was shifted and the CSR contract fulfilled (submissions, p8).
However, Mr O'Brien argued that TGM would have needed to have had 282 tonnes capacity to service all of CSR’s work “and, at the same time, do its non‑CSR work as well”.
Even on the version of the evidence most favourable to the plaintiff, this does not follow. The plaintiff could have subcontracted either type of work if it did not have sufficient capacity. There is no evidence of what “non‑CSR work” it might have had during that period. It was the plaintiff’s own commercial decision whether to purchase more plant to do both categories of work itself. The defendant could not possibly be liable for any expenses incurred in servicing “non‑CSR work”.
So, what extra capacity was required to carry 27,478 tonnes per month? I have no specific evidence of that. Using the calculations used above for August 1999, if the plaintiff was able to earn $44,439.87 carrying 18,351 tonnes for CSR, and in total earned $94,915 for the month, then it had ample capacity to carry 27,478 tonnes in the month, even allowing for the fact that some of those earnings were on an hourly hire basis, and others were on a tonne/kilometre basis.
I am not satisfied on the balance of probabilities that the plaintiff suffered any reliance loss as a result of the First or Second Further Representations because the need to purchase more equipment over and above the capacity it had in August 2000 has not been proven.
Summary and Conclusions
In summary, I make the following findings and draw the following conclusions:
1.prior to 1 July 1999, the plaintiff had a relationship with the defendant as “prime carter” or “first cab off the rank” to cart its recycled rubble product;
2.to the extent that the relationship was contractual, it consisted of an individual contract in relation to each job of cartage;
3.any such relationship ceased as at 1 July 1999;
4.After 1 July 1999, there was no contract between the plaintiff and the defendant in relation to carting recycled rubble product from the Wingfield site, either for five years or at all;
5.after 1 July 1999, the plaintiff entered into a similar “prime carter” or “first cab off the rank” relationship with CSR and CSR alone;
6.that relationship was terminated by CSR in November 2000 on giving the plaintiff three months’ notice;
7.the plaintiff accepted the termination of the relationship by CSR and worked out the three months’ notice;
8.following the termination, the plaintiff looked to CSR in correspondence seeking compensation and not the defendant;
9.to the extent that the plaintiff’s pleading implies that the defendant is estopped from denying that it had an interest in CSR Recycled Products, no grounds for any such estoppel have been established;
10.I am not satisfied on the balance of probabilities that Mr Brown made the alleged representations in paragraphs 8, 9, 11A and 11B of the Second Further Re-Amended Statement of Claim;
11.for the same reasons, I am not satisfied that Mr Brown engaged in misleading or deceptive conduct within the meaning of the TPA or the FTA;
12.accordingly, I find that the plaintiff has no cause of action against the defendant on any of the bases in the Second Further Re-Amended Statement of Claim ; and
13.if those findings are in error, as to damages I find:
a) the purchases of further rolling stock after July 1999 was unnecessary and unreasonable and was the real cause of the plaintiff’s losses;
b) nothing done or not done by the plaintiff was causative of the plaintiff’s losses; and
c) on the basis of the expert evidence, because the plaintiff has failed to prove on the balance of probabilities that it required any additional carrying capacity necessary to perform the CSR work, the plaintiff has failed to demonstrate that it has suffered either expectation or reliance loss either as a result of a breach of contract, misrepresentation or misleading and deceptive conduct.
On the basis of those findings, there will be judgment for the defendant.
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