Tickner v Bropho
[1993] FCA 208
•1 Apr 1993
IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY
) No. QG35 of 1986 GENERAL DIVISION 1
BETWEEN: BRUCE WAYNE S-MALLACOMBE
First Applicant
AND: CARMEL MERCIA SMALLACOMBE
Second Applicant
AND: SWANWOOD PTY LTD '
Third Applicant
AND: LOCKYER INVESTMENT CO PTY LTD Respondent
AND: LOCKYER INVESTMENT CO PTY LTD
Cross Claimant
AND: CROWN-PACIFIC PUMPS, IN€
First Cross Respondent
AND: THUNDERBIRD IRRIGATION, INC
Second Cross Respondent
MINUTES OF ORDER
JUDGE MAKING ORDER: Spender J . l5 APR 1993
DATE OF ORDER: 1 April 1993 WHERE MADE: Brisbane THE COURT ORDERS THAT: NOTE: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules. 1. Judgment be given for the applicants against the respondent in the sum of $326,000.00.
2. The respondent is entitled to an indemnity from the second cross-respondent in the amount of the judgment debt ordered in the applicants' favour.
IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY
) No. QG35 of 1986 GENERAL DIVISION 1
BETWEEN: BRUCE WAYNE SMALLACOMBE
First Applicant
AND: CARMEL MERCIA SMALLACOMBE
Second Applicant
AND: SWANWOOD PTY LTD
Third'Applicant
AND: LOCKYER INVESTMENT CO PTY LTD
Respondent
AND: LOCKYER INVESTMENT CO PTY LTD
Cross Claimant
AND: CROWN-PACIFIC PUMPS. INC
First Cross Respondent
AND: THUNDERBIRD IRRIGATION. INC
Second Cross Respondent
C O W : Spender J . PLACE : Brisbane DATE : 1 April 1993 REASONS FOR JUDGMENT
This is an application against the supplier of a pursuant to S. 82 of the Trade Practices Act 1974, or
Thunderbird rolling sprayline irrigation system for damages
alternatively damages for breach of contract, said to arise as a consequence of misleading or deceptive statements about the system prior to its acquisition.
There is a cross-claim, should the claim of the
applicants against the respondent be successful, for an
indemnity against Crown-Pacific Pumps, Inc. ('crown pumpsr),which is the American supplier of most of the components of the Thunderbird system and against Thunderbird Irrigation, Inc. ('Thunderbird'), the American manufacturer of those components.
The respondent, Lockyer Investment CO Pty Ltd, trades in Queensland under the name Agricultural Requirements (A.R.). It has been operating since about 1948 and its principal business activities relate to the sale and service of farm machinery including tractors, planters, ploughs, harvesters etc., irrigation equipment, chemical application equipment and crop protection chemicals and farmers' hardware. The company is one of the largest importers of horticultural machinery in Australia. According to M r Roley Cook, the Managing Director of A.R., the company has branches in Gatton, Biloela and Ballarat and in 1983, in addition to those branches, had branches at Toowoomba, Mareeba and Warragul.
Mr Cook, who is an important witness in the Manager, Water Equipment, for A.R. He commenced employment
respondent's case, between 1983 and 1985 was the Marketing
with A.R. in 1980 and prior to that had been working with various forms of water equipment (other than the Thunderbird system) for approximately two years.
Crown Pumps has not appeared and an order was made
on 10 August 1989 that:
" The cross-claimant recover against the first cross-respondent the amounts, if any, for which the cross-claimant is liable to the applicants herein, including costs; "
Thunderbird has been in existence since 1958. The Thunderbird rolling sprayline is a sideroll sprinkler irrigation system extensively marketed in the United States and many thousands of systems have' been sold. The system consists of 12 metre long X 100 mm. or 125 mm. diameter aluminium pipes, supported on wheels with each pipe carrying a sprinkler for irrigating. Water under pressure runs along the pipes which is distributed through each of the sprinkler heads to irrigate in long strips approximately 20 metres wide. Irrigating is carried out when the unit is stationary and when sufficient water has been applied the line is rolled to its next position. The rolling motion is created by a small petrol engine approximately the size of that fitted to a lawnmower, rotating a drive shaft which runs along the length of the unit to simple chain and sprocket drive style driving transmissions.
On shorter lines up to approximately 200 metres in length, only a single driving transmission is employed. However, on longer lines multiple transmissions are used to balance the power along the length to assist in rolling the line as evenly as can be achieved.
Mr Donald Jensen, the son of M r Art Jensen the
inventor of the Thunderbird irrigation system, says that the
system is different in that most other systems have an engine that sits in the centre of the line and 'torques' the pipe at that position. The Thunderbird system has two movers instead of one in the centre, evenly spaced on the line and a driveshaft that runs down the length of the line. The advantage is that the operator does not have to walk down to the centre of' the line to shift the pipe every time he operates the system from the end when he hooks it to the main line. Also the two movers allow less torque to be applied on the pipe in one place. The multiple movers enables the length of the system to be expanded beyond 200 metres. Some systems in Canada operate up to approximately 800 metres, where four 'movers' are in the line.
The applicants' case, in summary, as set out in the final version of the Statement of Claim, filed 13 May 1991, is that in about April 1983 Mr Smallacombe, on behalf of himself and the other applicants, had a conversation at A.R.'s
showroom in Toowoomba with staff members of A.R.
The staff members represented that: 1. A Thunderbird rolling sprayline system consisting of four systems together with associated pipes, transmissions and equipment would be suitable to irrigate the farming property which the applicants were then contemplating purchasing; and
2. That the system would move in a straight line when being moved from one place to another.
In its original form the Statement of Claim, filed on 23 April 1986, asserted that the farming property was one "conducted by the Applicants" at Emerald. The original allegation remained unchanged in an amended Statement of Claim filed 15 March 1989. The significance of the change will be considered later.
By an amendment contained in the statement of claim filed on 15 March 1989, a further representation is alleged by the applicants to have been made by the respondent when it "handed or sent" to Mr Smallacombe a brochure entitled
" Thunderbird Raining Profits for You I " . That brochure, the
front and back of which are predominantly blue in colour, contains a pictorial representation of the Thunderbird end- drive side-roll irrigation system, and immediately above that picture the statement:
" STRAIGHT LINE MOVEMENT: Clog-free wheels
provide maximum traction while mu1 tip1 e movers permit straight line movement even on the most
di fficul t terrain. "
The representation is said to be that the irrigation
system would perform by moving in a straight line even on the
most difficult terrains.The blue brochure on the back page carries the
statement:
'l The Thunderbird End-Drive irrigation is covered by a warranty against defects in material or workmanship for a period of 1 year from date of
installation. Under this warranty Thunderbird Irrigation, Inc. agrees to replace any defective part, which when examined by the factory, shall prove to have been defective. "
The brochure on the back page has printed on it a logo under which appears "CROWN-PACIFIC PUMPS, Irvine, California, U . S . A . " with a phone and telex number. An adjoining box is headed "Your dealer is:" but that box, in the document which became Exhibit 2, is blank.
The applicants say that in reliance on those representations the applicants entered into a lease with Lease Industrial Finance Limited of the irrigation system for a period of five years commencing on 9 September 1983 at a six- monthly rental of $21,460.84. Moreover, and importantly, the applicants assert that in or about mid-1983 the applicants purchased a farming property, Portion 128, at Moffatt Rd. near Emerald, Queensland in reliance on the representations.
According to the applicants the representations were misleading and deceptive, in that the irrigation system was
totally inadequate and was unable to operate as a rolling
system because the wheels of the spraylines were unable to travel in a straight line, which resulted in fractures of the spraylines, failure of the quill shaft, failure of bearings within the system, failure of drive chains within the system, failure of chain sprockets, distortion by bending of the drive unit frames and failure of wheels, with the result that the system became in a practical sense useless.
The applicants thereby suffered loss and damage, it was said. Two bases are particularised. The first asserts that by reason of the applicants' purchasing the farming property they suffered total losses sustained in respect of the farming venture of $531,026 and loss of opportunity to make an alternative investment of $91,838, making a total claim on this basis of $622,,864. Alternatively, the applicants say that as a result of entering into the lease of the irrigation system and attempting to farm the property by means of that system, they have suffered losses (other than finance costs) from operations using the irrigation system of $284,741 and finance costs of $128,228, loss of profits of $137,203, and a capital loss of $189,406, making a total claim of $739,578.
| . . | - . |
The applicants also assert that both oral and written representations constituted contractual warranties.
The respondent's response to these allegations is that there were no such oral representations, nor was there
any reliance on any such oral representation. So far as
written representations were concerned the respondent's response is that it had not been shown that the blue brochure emanated from A.R., there was no reliance on it or, alternatively, if there was reliance, A.R. is not liable for its contents as being a mere conduit. Further, the respondent says that if the representations as asserted by Mr Smallacombe are found to have been made, while there may have been a
breach of S. 52, the applicants fail because there was no reliance; if the court does not accept Mr Smallacombe's account of what occurred, there was no scope for a reconstruction which permits a more reasonable or probable representation by Mr Cook.
Further, it was said that the representation concerning the straight line behaviour does not constitute a breach of S. 52. As to the claim for contractual warranties, the respondent asserts that there is no scope for implication of the terms or warranties alleged.
The respondent in its pleading also relies on exemption clauses on the back of the quotations given by A.R. to Mr Smallacombe and it is further said on its behalf that the applicant failed to mitigate its loss or damage in ways that are particularised.
A most important meeting for the purposes of this office of A.R. in Toowoomba when Mr Smallacombe had a
litigation occurred in either March or April 1983 at the
conversation with Mr Cook in relation to the Thunderbird irrigation system. The determination of what occurred at that meeting is the central matter for resolution between the parties.
There are very many areas in which the evidence of
Mr Smallacombe has been shown to be seriously unreliable.Mr Cook, on the other hand, had the benefit of diary entries in respect of some relevant events and in some areas his evidence is clearly to be preferred to that of Mr Smallacombe, as I will indicate. Nonetheless, I am satisfied that the oral representation relied on by the applicants was made by Mr Cook to Mr Smallacombe in Toowoomba.
I am not satisfied the written representation contained in the blue brochure was made by A.R. to him prior to the agreement to acquire the irrigation system by lease.
I am satisfied that the oral representation was a factor inducing the entry into those lease agreements. I am not satisfied that that representation, or the representation relied on from the blue brochure, was a factor in the decision by the applicants to acquire Portion 128, the property at Moffatt Road, Emerald. I am satisfied that the decision to acquire Portion 128 was made by Mr Trout and Mr Smallacombe prior to the meeting between Mr Cook and Mr Smallacombe.
Before considering that meeting, there were some
earlier events which have a bearing on my conclusions.
On Tuesday, 10 August 1982, Mr Cook made a checklist in preparation for his visit to a property at Biloela where Mr Colin Anderson had a Thunderbird irrigation system. In late 1982 A.R. entered into a dealer arrangement with Mr Anderson by which A.R. became the sole Queensland dealer but Mr Anderson retained the right to distribute Thunderbird
systems elsewhere in Australia. This checklist was prepared before Mr Cook had received either the brochure, or a green coloured brochure which also promoted the Thunderbird system, or seen the Thunderbird system in operation. The list is comprehensive but includes the following:
How does power move operate"; "straight alignment", "what condit. contours, slopes, crops", "bare soil ", "winds", "shifting time",
and other matters. On that day, Mr Anderson's system was inspected by Mr Cook. In November 1982 M r Cook commenced to prepare advertising literature for the Thunderbird system. In a memorandum of 22 November 1982, an advertisement in the "Queensland Country Life" of 25 November 1982 by A.R. is referred to, as is an A.R. advertisement in the "Queensland Country Life" of 16 December 1982 and the "Queensland Graingrower" of 1 December 1982. The memorandum notes:
" There is a reasonable quantity of brochures and additional information coming from the United
States - It will be circulated when available. "
An example of performance capacity of the system was included and each sales person was advised to study performance figures. At about that time Mr Cook had been involved in the organisation of Australian-made high torque aluminium tube to be available for use with the system. Mr Cook made it plain that provision of that heavy wall aluminium tube was not done by arrangements with Thunderbird. Mr Cook said, "We had no
I1
d e a l i n g s w i t h Thunderb i rd . . . " The following questioning of Mr Cook occurred in the evidence:
" Now, p u b l i c a t i o n you d idn ' t h a v e a n y r e f e r e n c e to a n y
by T h u n d e r b i r d a t t h a t p o i n t when
you were a r r a n g i n g for t h a t , d i d you?---No.
You knew, d i d n ' t y o u , t h a t you m i g h t be
c h a n g i n g some component o f the s y s t e m t h a t was proposed t o be sold?- - -Yes , t h a t ' s why I
a d v i s e d Colin Anderson .
... And i t was t o C o l i n Anderson t h a t you looked
i n s e e k i n g a s s u r a n c e s a b o u t how the s y s t e m
m i g h t o p e r a t e w i t h t h a t change?---Colin was the
A u s t r a l i a n d i s t r i b u t o r . W e were a d e a l e r , so
m y o b l i g a t i o n was to Co l i n Anderson . "
Mr Smallacombe had come to Queensland in 1968, originally settling in the area now called Gregory Mine and moving then to the Capella district, approximately 60 kms. from Emerald. Since that move he has known Mr Peter Trout. Ultimately Mr and Mrs Smallacombe and Swanwood Pty Ltd, as trustee for the Peter Trout family trust, purchased Portion 128 in the County of Dennison, Parish of Selma, being an area 221.8 hectares for $250,000, and Portion 149 in the County of
Denison, Parish of Selma, containing an area of 236.2 hectares for $362.500. Portion 128 was the farm on which the Thunderbird rolling system was later installed. M r Smallacombe was running his own engineering
workshop which manufactured farm machinery and also had a farm approximately 100 miles north of Clermont, which Mr Smallacombe owned in partnership with others and on which cattle were reared and grain grown.
Mr Smallacombe regularly attended field days as a machinery agent for tractors and the like and in early 1982 saw the Thunderbird rolling sprayline irrigation system working on a property at Biloela. He was impressed by its simplicity and says that he saw it rolling perfectly up and down in its tracks. He said that the system struck him at the time as having considerable potential. He said:
" I believed that with manual drive straight
through there would be no movement, you can't
get out of line, nothing can go wrong. "
After inspecting Portion 128 Mr Smallacombe thought of acquiring it and irrigating it by means of spray irrigation. He went to the office of the Department of Primary Industries and obtained from them a contour plan of Lot 128 which also showed soil types. According to the legend on that plan, one of the soil types whose physical description was "uniform texture, seasonal cracking clay soil " was described as suitable for "wide range of crops". Two other types of soil identified on the property and occupying a
significant part of it were described as "hard, alkaline, duplex soil" which was said to have "restricted crop suitability". A "duplex" soil is a description of soil which comprises two layers, a description Mr Smallacombe says was not his understanding of the term. No enquiries were made concerning the improvement of Portion 128 for flood irrigation purposes nor was any analysis of soil types made. There was no discussion by Mr Smallacombe with anyone other than Kr Trout concerning the suitability of Portion 128, which was a
f l o o d i r r i g a t i o n b l o c k , for s p r a y i r r i g a t i o n . Mr Smallacombe was a s k e d :
" When d i d you and M r T r o u t make the d e c i s i o n t o
p u r c h a s e 128 and 149 i n r e l a t i o n t o y o u r visit
t o those p r o p e r t i e s w i t h M r T r o u t ? "
H e answered :
" . . . we. . . went over the block and I showed h i m
w h a t - I t h o u g h t was a n i d e a and then he g o t
wrapped i n i t and d e c i d e d t h a t we m i g h t b u y
t h e m both, and we went t o the b a n k and
d i s c u s s e d what we c o u l d g e t t h e m for.. .we
a c t u a l l y took o u t a - what d o y o u c a l l it - a n
o p t i o n over t h e m and the next d a y a f t e r t h a t , I
was coming t o B r i s b a n e b e c a u s e m y w i f e was
g o i n g t o h o s p i t a l and t h a t i s when I went on
w i t h a l l m y i n v e s t i g a t i o n s t o see w h e t h e r we go
a n y f u r t h e r w i t h i t . . . "
What i s r e f e r r e d t o a s an " o p t i o n " by Mr Smallacombe i s a n
"Agreemen t for S a l e " , w i t h a 6 0 d a y subject t o f i n a n c e c l a u s e .
He s a y s t h a t he d e c i d e d t o p u r c h a s e Portions 128 and
149 a b o u t a month o r s o a f t e r h i s v i s i t t o the p r o p e r t y w i t h
Mr Trout. Accord ing t o Mr Smallacombe the i n t e n t i o n was t o
resel l b o t h blocks a f t e r t h e y had been se t u p . Portion 149
was b o u g h t for r e s a l e a t a p r o f i t . I n r e s p e c t o f P o r t i o n 128,
ME Smallacombe s a i d he wan ted t o se t it u p and " i t would h a v e
been w o r t h a l o t more money t h e n " .
A f ter M r T r o u t i n s p e c t e d Portions 128 and 149 w i t h
Mr Smal lacombe, he c o n t a c t e d so l i c i tors w i t h a v i e w t o h i s
t r u s t company, Swanwood Pty L t d , a c q u i r i n g i t s interest i n the
l a n d a s trustee. T h e t r u s t deed i s d a t e d 24 March 1983. Mr Trout described himself as a 'wheeler/dealerl and
said in cross-examination that he bought properties with a
view to resale at a profit. He said:
..
" I farm w e l l , and I believe I am an e f f i c i e n t
c a t t l e o p e r a t o r , b u t i f t h e o p p o r t u n i t y a r i s e s
where.. .I cou ld make a c a p i t a l gain i n t h o s e days o u t o f p r o p e r t y , w e l l I t o o k the c a p i t a l gain . "
Mr Trout made no financial analysis prior to purchase of the two blocks, nor is there any suggestion that Mr Smallacombe made any calculations concerning the income which might flow from crops which could be grown.
The "Agreements f o r S a l e " were signed for the
purchase of both blocks on 25 March 1983, the day after the Deed of Trust establishing Swanwood Pty Limited as trustee of the Peter Trout Family Trust was dated.
The contracts required:
"
T h e p a r t i e s h e r e t o s h a l l a s soon a s p o s s i b l e h e r e a f t e r e x e c u t e a f u l l and formal Agreement
f o r S a l e and Purchase embodying the terms and c o n d i t i o n s u s u a l l y embodied i n an Agreement f o r
S a l e o f a s i m i l a r p roper t y . "
Pyle & Purcell were shown on the agreement in respect of Portion 128 as the purchasers' solicitor, and Mr Smallacombe gave instructions for a copy of the agreements to be sent to his solicitors. There is no suggestion from Mr Smallacombe that he told the solicitors not to proceed with the agreements as required by those contracts. His solicitor in respect of these matters was not called.
According to Mr Smallacombe, it was after the signing of these contracts on 25 March 1983 that he "tracked him [Mr Anderson] down" and saw the Thunderbird system being used on his property. He says that this was "the day after we first looked at the land some time in March or April 1983".
After visiting Mr Anderson's farm, Mr Smallacombe went to see another farmer whose farm was between Mr Anderson's property and Biloela. It appears that this was the property of Mr Colin Abell.
There is a significant difference as to when the meeting between Mr Smallacombe and Mr Cook occurred.
Mr Smallacombe says that he left Emerald on the
morning after signing the contracts, visited W Anderson'sfarm after making enquiries in the town, stayed at Mr
between Mr Anderson's and Biloela township, and then drove Anderson's farm for about half an hour, visited the other farm from Biloela to Toowoomba, arriving at "dinner time or a bit later". The reference to "dinner time" is the meal in the middle of the day. The distance from Biloela to Toowoomba is 565 kms.
Mr Smallacombe says that his wife remained out in
the car while he visited the office and that Mrs Smallacombewas on her way to Brisbane for an operation. Mrs Smallacombe was not called as a witness. Mrs Smallacombe was admitted to the Mater Hospital in Brisbane on 28 March 1983 and discharged on 1 April 1983. Mr Smallacombe said he stayed about a fortnight in Brisbane and on the Gold Coast.
This recollection is to be contrasted with that of Mr Cook. Mr Cook says that Mr Anderson had telephoned him to inform him that Mr Smallacombe had shown considerable interest in purchasing a Thunderbird irrigation system. Mr Anderson, according to Mr Cook, gave Mr Cook a Gold Coast telephone
number on which he could contact Mr Smallacombe " t o work o u t
how much equ ipmen t he r e q u i r e d , b a s e d on h i s w a t e r i n g n e e d s " .
Mr Cook says he telephoned Mr Smallacombe, who told him that the farm was able to be flood irrigated and that he would call in at Toowoomba on his way home.
Mr Smallacombe admits the possibility of a telephone
call from Mr Cook whilst he was staying on the Gold Coast. Mr
between the visit of Mr Smallacombe to the Toowoomba office Cook's recollection is that it was only two or three days before he sent a quote in respect of the Thunderbird irrigation system. The quotation is dated 9 April 1983 addressed to Mr Smallacombe at Capella.
In respect of a 10 ft system, being the diameter of
the wheels of the rolling system, the quote was $102,412. An
alternative quote for a 7 ft system was $92,444. Thequotations included in the terms and conditions of sale, under
a clause headed "Warranty" , . the following:
" (i) The Vendor w a r r a n t s a l l or a n y p a r t o f the
goods m a n u f a c t u r e d by the Vendor a g a i n s t
f a i l u r e d u e either t o d e f e c t i v e workmanship
or d e f e c t i v e m a t e r i a l s or both. T h i s
w a r r a n t y s h a l l be l i m i t e d t o r e p a i r o r r e p l a c e m e n t , a t the option o f the Vendor , o f s u c h d e f e c t i v e goods or p a r t s p r o v i d e d
- t h a t the P u r c h a s e r s h a l l no t i f y s u c h
f a i l u r e t o the Vendor i n w r i t i n g w i t h i n
T h i r t y (30) d a y s from the d a t e o f d e l i v e r y
and t h a t the P u r c h a s e r s h a l l , a t the
P u r c h a s e r ' s own e x p e n s e , i f so r e q u i r e d by
the Vendor , i m m e d i a t e l y r e t u r n the
d e f e c t i v e goods or p a r t s t o the Vendor .
. . .
( v i i i ) S u b j e c t a s herein p r o v i d e d and t o the
' T r a d e P r a c t i c e s Act 1974' and the
'Consumer A f f a i r s Act 1970-74 ( Q l d ) ', the Vendor w i l l not ( u n l e s s o t h e r w i s e agreed i n
w r i t i n g ) be u n d e r a n y l i a b i l i t y for a n y
e x p e n s e loss or damage ( i n c l u d i n g c o n s e q u e n t i a l l o s s ) h o w s o e v e r caused and
this w a r r a n t y i s i n l i e u o f a l l other
c o n d i t i o n s or w a r r a n t i e s w h e t h e r e x p r e s s e d
or i m p l i e d by l a w and a l l other l i a b i l i t i e s
o r o b l i g a t i o n s on the p a r t o f the Vendor. "
I think it unlikely that the visit to the Toowoomba office of A.R. occurred as Mr Smallacombe says. Mr Anderson
more probable than not that the circumstances outlined by Mr had been the Australian agent for Crown Pumps and I think it Cook were those which preceded the meeting between Mr
Smallacombe and Mr Cook.Before dealing with what occurred at the meeting between Mr Smallacombe and Mr Cook, the subsequent events can be noted.
In May 1983 further promotional material was prepared by Mr Cook and a promotional brochure contains the statement:
" Unlike m o s t other s y s t e m s , the Thunderb i rd
i n c o r p o r a t e s a number of t r a n s m i s s i o n s or m o v e r s . . . T h i s f e a t u r e e n s u r e s maximum t r a c t i o n ,
and s t r a i g h t l i n e movement even i n the h e a v i e s t
c o n d i t i o n s so there i s no n e e d t o s t r a i g h t e n
( r e - a l i g n ) y o u r s y s t e m every t i m e it moves . B y r u n n i n g i n a s t r a i g h t l ine neither y o u r c r o p
nor y o u r mach ine i s damaged. " Other brochures prepared by Mr Cook refer to the use
of:
" ... m u l t i p l e t r a n s m i s s i o n u n i t s wh ich power the
d r i v e s h a f t t h r o u g h m a i n t e n a n c e free, s p e c i a l l y
d e s i g n e d b e a r i n g s . This means t h a t the entire
l ine l e n g t h t u r n s a t the same s p e e d e n s u r i n g
s t r a i g h t l ine movement and m i n i m a l s t r a i n . A
u n i q u e d e s i g n t h a t g i v e s y e a r s o f t r o u b l e free
o p e r a t i o n and g r e a t s t a b i l i t y i n a n y k i n d o f
t e r r a i n i n c l u d i n g u n d u l a t i n g c o u n t r y . " Another brochure with which Mr Cook was concerned
makes the statement:
" T h u n d e r b i r d s t a y s s t r a i g h t , there's no n e e d t o
r e - a l i g n . " On 24 June 1983 the property purchase of Portions
128 and 149 was completed. The total cost was $615,000, the
equity in the purchase was $200,000 and the amount financed was $415,000. The pro rata cost of Lot 128 is approximately
In September 1983 the parts for the Thunderbird irrigation system were delivered. On 9 September 1983 the irrigation system, together with two Deutz motor and pump units, was taken on lease by Swanwood Pty Limited and Mr and Mrs Smallacombe, trading as D. C. Development, for five years at six-monthly payments of $21,675.44, with a residual value on termination of' lease of $15,000.
In February 1984 the irrigation system was attempted to be used for the first time. The evidence suggests a 100 ha. sunflower crop was planned but not all of that was put in. In April 1984, 20 ha. of sunflower crop was harvested. On 26 March 1984, after complaints, the first repair visit by Mr Edward Ogden and Mr John Slater from A.R. was made. The second visit by Mr Ogden was on 7 May 1984. Mr Anderson was present on this occasion and on that visit it was noted that bearings had been placed incorrectly. On 14 May 1984 there was a meeting in Toowoomba between Messrs Cook, Ogden, Smallacombe and Trout at which there was a discussion as to
how the problems spoken about by Mr Smallacombe might be corrected. On 17-22 May 1984 there was a visit by Mr Ogden to the property and on that occasion Mr Art Jensen and Mr Greg Bennett from Thunderbird inspected the property with Mr Ogden in the company of Mr Smallacombe.
In May 1984, after that visit, there was a meeting in Brisbane and there is some dispute as to what precisely occurred. Mr Art Jensen, Mr Bennett and Mr Cook were present
2 0
at that meeting. I am satisfied that there was the suggestion made by officers of Thunderbird that in the interests of consumer relations Thunderbird would replace broken parts if
A.R. would take the system back from the purchasers. That
suggestion was not agreed in by A.R.
Mr Ogden visited the property for the fourth time on 13 June 1984 and in that month of a planned wheat crop of 100 ha., 30 ha. was planted. In early July Mr Smallacombe suggested a change to a 7 ft system. In August of that year bolts were inserted on the wheels by Mr Cook and in September 1984 there was a request by Mr Trout to Mr Ogden to take back the irrigation system. In that same month Mr Ogden replaced one of the two systems with 7 ft wheels. In January of the following year attempts to use the 10 ft system ceased. In February of 1985 a mung bean crop of 121 ha. was planned but only approximately 60 ha. was planted. In the middle of February 1985 the 7 ft wheels were installed on the other three systems and at about that time M r Ogden made his fifth
visit to the property. In about April 1985, a Mr Kerlin took over as a share farmer and the converted systems were used until then. M r Kerlin operated the systems without assistance. On 27 May 1985 Mr Smallacombe telephoned seeking A.R.'s assistance in disposal of the units. In June of that year a crop of 80 ha. of barley and oats was planned; 12 ha. of each were planted and were harvested in September 1985. Meanwhile, on 10 July 1985 there was a meeting with Mr Cook,
Mr T r o u t , Mr Smallacombe and a d i r e c t o r o f D e f i a n c e F l o u r , the
p a r e n t company o f A.R.
O n 25 June 1985 Messrs Purcell and A p p l e t o n ,
so l ic i tors f o r the a p p l i c a n t s , w r o t e a le t ter o f c o m p l a i n t t o
A.R. w h i c h s a i d i n p a r t :
" Our clients a d v i s e t h a t they purchased these
goods from y o u a f t e r c o n s u l t a t i o n w i t h members
o f y o u r company who w e r e a d v i s e d o f the
s p a c i f i c ( s i c ) p u r p o s e for w h i c h the goods w e r e r e q u i r e d and the p u r c h a s e was c o n c l u d e d i n r e l i a n c e on y o u r skill and judgement i n
s u p p l y i n g goods w h i c h would a d e q u a t e l y s u i t o u r
clients ( s ic ) i r r i g a t i o n r e q u i r e m e n t s .
As you a r e w e l l aware o u r clients h a v e
e x p e r i e n c e d c o n t i n u a l p r o b l e m s w i t h the goods
w i t h the r e s u l t t h a t they h a v e not been a b l e t o
i r r i g a t e the l a n d on w h i c h the goods h a v e been
i n s t a l l e d . The m a i n p r o b l e m s h a v e been t h a t
the s p r a y l ine does not move i n a s t r a i g h t l ine
a s i t i s d e s i g n e d t o d o and the t r a n s m i s s i o n s
k e e p b r a k i n g c h a i n w i t h the r e s u l t t h a t the p i p e s c r e w their e n d s o f f . Our cl ients h a v e
p e r s i s t e d t o t h i s t i m e i n e f f o r t s t o r e m e d y the d e f e c t s and y o u a r e o f c o u r s e aware o f these a s
y o u r r e p r e s e n t a t i v e s h a v e v i s i t e d the farm and
a t t e m p t e d t o rec t i f y the f a u l t s and i n d e e d
e a r l i e r on y o u had the inventor o f the mach ine
c a l l t o the farm t o i n s p e c t i t . "
Some evidence i s d i r e c t e d t o p l a n s , subsequent t o
the h a r v e s t i n g o f t he o a t s and b a r l e y c r o p i n September 1985
a s t o the p l a n t i n g o f p u r p l e p i d g e o n g r a s s b u t none was ever
p l a n t e d . T h e p l a n s e n v i s a g e d a f i r s t cut o f the p u r p l e
p i d g e o n g r a s s i n June 1985 and a second cut i n November 1985.
These p r o c e e d i n g s w e r e commenced on 23 A p r i l 1986
and a c r o s s - c l a i m i s s u e d on 28 A u g u s t 1987. On 28 January 2 2
1988 part of the irrigation system was sold for $7,500. In March 1988 Lot 128 was sold for $200,000 (approval for finance for $420,000 was required and a development agreement was entered into). The partnership between the Smallacombes and Mr Trout's family trust company was dissolved on 31 March 1988 and on 10 October 1988 further parts of the irrigation system were sold for $27,500 and the balance was sold for $3,750 on 28 October 1988. The total proceeds for sale of the parts of the irrigation system was $38,750.
As to the meeting between Mr Smallacombe and Mr Cook, there are parts of Mr Smallacombe's evidence which I do not accept. As instances corroborating the fundamental representation of straight line movement, Mr Smallacombe says that Mr Cook told him a story about the system being able to be operated around a telephone pole, rolling past a tree, going up and down the same wheel track. He said that Mr Cook told him that it would go past a pole or a fence or a telephone pole. I think that these examples of the system's
straight line operational capacity have been transposed from
stories that occurred at different times and with different
people.
Mr Ogden recalls an account by Mr Smallacombe of seeing the system walk on Mr Anderson's property and during the course of walking, it passed a power pole with a small amount of clearance, which amount did not vary. Mr Trout
2 3
recalls being told by Mr Ogden of a system walking up and down
beside a fence and keeping the same distance from a fence.However, I do accept that he discussed with Mr Cook automation of the irrigation system and his proposed operation of two systems on either side of a canal, on which a barge mounted with pumps and a motor floated, so that each side of the canal could be watered by the two systems. I accept that he told Mr Cook that the property contained varying soil types and the ground was not level and that he asked Mr Cook whether one line could go from the ditch to the actual perimeter of the property. I accept that there was a discussion about the unsuitability of the property for flood irrigation because of the varying soil types and I am satisfied that Mr Smallacombe made it plain that the system had to move in a substantially straight line for what M r Smallacombe wanted the system to do. I think it likely that the fourth gearbox was put at the end of the transmission because of the requirement that the system go up and down the field along the bank in a straight line.
There was a discussion as to how the system could be linked to the water source. Concerning Mr Cook, he had received from Mr Anderson a green coloured brochure entitled "Thunderbird - the mark of excellence in end-drive side-roll irrigation", about 27 October 1982. He read the contents of the brochure including the statements made about the Thunderbird system which included :
" The Thunderbird system of irrigation combines convenient end-drive mechanism with drive shaft and dual planetary transmissions to assure true lateral movement over the entire length of the line", "Patented, non-clogging, perforated tread" and "straight-line movement".
Mr Cook is unable to recall when the blue brochures
were received by A.R. A.R. requested Mr Anderson by telex on
2 December 1982 for "more brochures urgently" and Mr Anderson
was asked on the following day by telex:
" Please forward more supplies immediately. I
suggest an initial shipment of say 30 be sent
by priority paid air mail. "
The telex has handwritten on it "Sending airmail immediately
and bringing back one carton of brochures with him on return. "
I t is not possible for me to say whether the brochures referred to in December were the blue brochures, nor is it possible on the evidence to conclude at what time between December 1982 and November 1983, A.R. received copies of the blue brochure. I note that Mr Anderson was not called
by the respondent, nor was his absence explained. Mr Cook gave evidence that at least by the end of
1982 he was aware that the system did not deliver absolutely straight line movement, as a result of his inspection of the system on Mr Anderson's property. He said he understood that "straight line movement" indicated that the system could be moved from one watering position to the next watering position and be in such form that it was practically useful for
carrying out the next watering, allowing for effective
distribution patterns of the sprinklers.Mr Cook said that at the time of his discussions with Mr Smallacombe he did not understand that the ability of the machine to move in a straight line might be prevented by certain soil conditions such as those that were later encountered on M r Smallacombe's property. He had not at that time turned his attention to mud build-up or muddy conditions. He said that he believed it would provide straight line movement under all conditions that one would reasonably expect. He said that the words "positive traction" meant that even in a bog, there would be no hindrance to the operation of the wheels at all. He believed that the wheels had positive grip; that they did not slip even in a bog.
Mr Cook accepted that M r Smallacombe told him he
intended to automate the system and that Mr Smallacombe showedhim a hand-drawn sketch of his farm showing a ditch running up
the centre of the property. Mr Cook says that there were discussions about whether a system on either side of the ditch would be sufficient to supply water to the total area and that there was discussion as to how many lines and transmissions would be required. Mr Cook said that he knew that Mx Smallacombe wanted to automate the system so that it would move up and down parallel to the canal. His agreement was qualified by his sa;ing:
" In a broad sense, yes...[in a] practical sense, yes, I agree. "
While Mr Cook denies making any statement to Mr Smallacombe at the time of their meeting about the capacity of the Thunderbird system to pass over areas with power poles and valuable trees, he did admit that, in the promotional material with which he was later concerned, those claims were made. This may be a further source of transposition by Mr Smallacombe of those stories to the meeting with Mr Cook.
Mr Cook says, and I accept, that he himself relied on the information in the brochures from the United States. He did not rely on the brochures as representing the machine would move in a perfect straight line, but he believes that straight line movement was a characteristic of the machine, within reasonable tolerances, which was not qualified by soil types.
I am satisfied that Mr Cook was told by Mr Smallacombe of his plans in respect of the operation of the
, Thunderbird irrigation systems on the property discussed and that Mr Cook represented to him that a feature of the Thunderbird system was its ability to move consistently in a straight line and that he indicated that the system would be suitable for the farming property discussed. The representation about straight line movement is one repeatedly made by Mr Cook in the promotional material prepared by him subsequent to his meeting with Mr Smallacombe and in an 2 7
important admission, he said that the ability to move in a straight line was one of the most important things about the whole system that appealed to him.
The position as to the blue brochure which undoubtedly contained a similar representation is not so clear cut. On the evidence, I am not satisfied on the balance of probabilities that Mr Smallacombe received the blue brochure from A.R.
The brochure itself has "Crown-Pacific Pumps" on the reverse side and there is no mention of A.R. as the dealer, as one would expect if it were promotional material emanating from A.R. There is a strong possibility that Mr Smallacombe received it from Mr Anderson. Mr Cook gave evidence that it was his practice to have a dealer stamp on such brochures and to write his name and telephone number on them. Importantly, the representations in the brochure are not mentioned in the Statement of Claim filed on 23 April 1986,,nor in the amended
reference to the brochure in the solicitors' letter of Statement of Claim filed 8 March 1989, nor is there any complaint of 25 June 1985. Contrary to submissions by the respondent, that letter does directly and specifically point out the matter of the applicants' complaint. It says in part:
" The main problems have been that the sprayline
does not move in a straight line. . . "
Further, the evidence of Mr Smallacombe is that either he was handed the brochure in the office of A.R. at Toowoomba or he received it later in the post. That in itself is hardly convincing. There is a large measure of reconstruction in this aspect of his evidence and I am not able to conclude on the balance of probabilities that the blue brochure to which Mr Smallacombe referred in his evidence came from A.R.
Should I be wrong in this conclusion, I would have rejected the submission on behalf of the respondent that the respondent, if it passed on the brochure, did so without comment, such that its conduct was neither misleading or deceptive or likely to mislead or deceive. In circumstances where it was apparent that the respondent was not the source of the information in the brochure, the claim in short is that the respondent did nothing to adopt the contents of the brochure, relying on the observations in Yorke v. Lucas (1985)
158 C.L.R. 661 'at 666; The Saints Gallerv Ptv Ltd v. Plummer
NewsDauers Ltd (1984) 2 F.C.R. 82 at 92. As the subsequent (1980) 80 A.L.R. 525 and Global Suortsman Ptv Ltd v. Mirror history of M r Cook's promotional activity demonstrates, distribution of brochures was an integral part of the promotion of the Thunderbird system and I do not accept that the activity of A.R. in this process was as a "mere conduit".
There is evidence that Mr Abell and Mr Douglas
Gordon used the Thunderbird system on a number of farms
2 9
successfully and Mr Ogden gave evidence that he had observed hundreds of systems working in Australia but had seen only one with a problem. That matter is a reference to a Mr Schmorl on the Darling Downs.
I accept that the Thunderbird system generally is able to be usefully used as an irrigating system. It is clear, however, that that does not apply universally. There is no doubt that the system was quite unsuitable for use on the Smallacombe property. I accept the overwhelming evidence of Mr Smallacombe, M r Keller, Mr Michael Trout and Mr Peter Trout to this effect and it is significant to note that Mr Ogden, who laboured manfully in attempting to make the system work on the Smallacombe property, was unable to do so.
Mr Ogden agreed that he recommended to Mr Art Jensen that 10 foot systems with 5 inch pipes should be limited to systems of 20 chains length and then only on sandy soil.
On 16 November 1984, Mr Ogden wrote to Mr Donald Jensen of Thunderbird making specific reference to the problem of mud and mud-build up. He spoke of a reluctance to place v . restrictions on where systems can be sold. The letter said in part:
" You w i l l have n o t i c e d i n t h e pho tos ta t proof o f
t h e new Thunderbird l e a f l e t we have c a r e f u l l y
avoided o u t r i g h t r e f e r e n c e t o s t r a i g h t l i n e
t r a v e l which was s o predominant i n the o r i g i n a l
l e a f l e t . "
In cross-examination concerning the problem of 'snaking', Mr Ogden said that " ~ f
you
l e t i t go too f a r then
the s y s t e m c o u l d move i n a n y d i r e c t i o n " . To correct that it
was sometimes necessary to " s t r a i g h t e n the l i n e a t e a c h move.
At: other t i m e s i t c o u l d be done every t h i r d move, second or t h i r d move".
Mr Art Jensen, the inventor of the Thunderbird system, inspected the farm at Emerald and was asked:
" . . .you formed the v i e w , d i d n ' t you , t h a t the
Thunderb i rd j u s t w a s n ' t s u i t a b l e i n those c o n d i t i o n s ?
To which he answered:
" I would s a y no s y s t e m o f t h a t w i t h w h e e l s would
work on t h a t so i l .
It was then suggested to him that:
" I t c e r t a i n l y w o u l d n ' t be c a p a b l e o f work ing i n
a s t r a i g h t l i n e on t h a t s o i l , would it?. . . ."
And he replied:
" A s f a r a s I 'm concerned it was p r a c t i c a l l y
i m p o s s i b l e to move, t o r u n a wheel mover over
t h a t and k e e p i t s t r a i g h t . "
I am satisfied that overwatering was not the cause of the difficulties on Portion 128. No suggestion was made and, in particular there was not any suggestion by M r Ogden or
Mr Anderson who were experienced operators of the system who
visited the site, that the problem was one of overwatering.
Mr Cook in response to the question:
" . . . i t ' s the c a s e , i s n ' t i t , t h a t you wou ldn ' t
h a v e recommended th is s y s t e m for a n a r e a i f you knew it couldn't take high precipitation rates.
said:
" No. It's not a fact.. .I had no reason to consider that high or low precipitation rates would give cause to not providing this sort of system. "
The applicants and their operatives were
inexperienced irrigation farmers, but operator inexperience
also was not a cause of the difficulties on Portion 128.
There is an important admission by Mr Cook in a telex to Crown Pumps on 24 September 1985, which stated in part:
" WE ARE EXPERIENCING CONTINUING PROBLEMS WITH 10
FOOT SYSTEMS. I T APPEARS FROM OTHER SYSTEMS WE HAVE SOLD THAT THE PROBLEMS EXPERIENCED WITH BRUCE SMlLLLACOMBE AT EMERALD I S NOT AN ISOLATED CASE AT ALL AND DOES NOT SIMPLY RELATE TO HIS SOIL ChXRACTERISTICS. FROM REPORTS TO Me EVERY
10 FOOT SYSTEM SOLD I S DISPLAYING VERY POOR
ALIGNMENT I N BOTH BARE GROUND AND WITH CROPS UNDER THEM. OUR ORIGIN= ADVICES FROM YOURSELVES AND THUNDERBIRD WAS TO PLACE 3 TRANSMISSIONS I N 1 / 4 MILE SYSTEMS TO ENABLE SYSTEMS TO PERFORM BETTER. I N ALL CASES WE
HAVE FOLLOWED THIS ADVISE BUT THE SYSTEMS PERFORM VERY POORLY. I N ONE CASE A 1254 FOOT SYSTEM WITH 3 TRANSMISSIONS I S PERFORMING SO BADLY THAT THE MIDDLE TRANSMISSION IS ENDING UP SOME 20 FEET I N FRONT OF THE OUTER 2
TRANSMISSIONS I N 2 X 60FT SHIFTS. THIS I S
SIMILAR TO THE PROBLEM EXPERIENCED WITH SMALLACOMBE'S BUT IS IN VERY DIFFERENT CONDITIONS. I HAVE PERSONALLY VISITED THE S I T E AND UNLESS THE PROBLEM CAN BE RECTIFIED THE
GROWER WILL I N S I S T ON A FULL REFUND. "
On 2 December 1985 A.R. telexed the same person as was the addressee of Mr Cook's telex and said in part:
" SYSTEM HAS BEEN USED ON ONE CROP ONZY SO FAR. CROP WAS SOWN INTO BARLEY STUBBLE WHICH HAD BEEN SPRAYED FOR WEED CONTROL. EACH SYSTEM HAS
2 TRANSMISSIONS. SYSTEMS W I L L NOT STAY STRAIGHT AND WE ARE GETTING UP TO 60 FEET LATERAL MOVEMENT I N LENGTH OF PADDOCK. WE HAVE WATCHED I T OVER THE FULL LENGTH OF THE FIELD. LATERAL MISALIGNMENT USUALLY ONLY UP TO 5 FEET.
ALL 10 FOOT SYSTEMS SOLD SO FAR GIVE S IMILAR PROBLEMS. I T I S IMPRACTICAL AND GOES AGAINST YOUR LITERATURE THAT CUSTOMERS SHOULD HAVE TO CONSTANTLY REALIGN SYSTEMS. "
I accept that the straight line representation by Mr Cook was conduct that was misleading and deceptive in trade or commerce.
I am satisfied that the oral representation by Mr Cook was an inducing factor in the decision by the applicants to lease the Thunderbird irrigation systems and to purchase the pumps and motor and to construct the barge. The representation was intended to result in a sale of the irrigation system and, in my view, it achieved its object. It is true that Mr Smallacombe had earlier seen the system
operating on Mr Anderson's farm and Mr Abell's farm and I accept that he told Mr Ogden that he had bought the Thunderbird system because he had seen it operating on a property at Biloela. I am satisfied nonetheless that the representation by Mr Cook was a factor in the decision by the applicants to acquire the Thunderbird system and associated material.
I am not so satisfied in relation to the decision by the applicants to purchase Portion 128. I am satisfied that Mr Smallacombe and Mr Trout decided to purchase both Portions
128 and 149 because they considered that they were bargains
and could be resold at a profit in the short term. Mr
Smallacornbe said:
" W e were d e a l i n g w i t h t h e bank v i r t u a l l y . "
I am satisfied that Mr Smallacombe thought that Portion 128 could be made more marketable with a minimum of effort, if it were to be presented as an operating spray irrigation farm. I am satisfied that the decision to purchase Portion 128 was made before Mr Smallacornbe's conversation with Mr Cook.
This conclusion is supported by the consideration
that neither Mr Trout nor Mr Smallacombe had any previousirrigation farming experience, yet they purchased two
or crop yields. No analysis was made of financial yields from suitability of Portion 128 for spray irrigation, soil quality irrigation blocks without seeking any advice at all as to the crops so as to support a spray irrigation farming venture. Mr Michael Trout, who was in charge of running the property, was an inexperienced farmer responsible for making the day to day farming decisions in respect of Portion 128. Portion 149 was in large measure left idle while Portion 128 was farmed. I think it significant that the Thunderbird system was installed about September 1983 but no attempt was made to use it until about March 1984. When Mr Ogden first visited the farm on 26 March 1984 one system on one side of the canal had not been used at all.
It is also significant in my opinion that both properties were quickly listed for resale. This was in about April or May 1984, only about two months after the first attempt to use the irrigation equipment and probably before Mr Ogden's second visit on 7, 8 and 9 May. Concerning the publication of a sales brochure and listing of the properties for sale, Mr Smallacombe said that he thought that at that stage somebody was going to fix the sprayline, that it would work and that there would not be a problem with it. The property was listed with at least three agents, after another agent had been commissioned to prepare a sales brochure.
The report prepared by Farm and Resource Management
Pty Ltd of May 1984 says:
" The site is described as Portions 149 and the northern boundary of Emerald. . . The owners offer this parcel of land with the prospect of its suitability for future residential development- . To overcome the evident shortfall of building sites within the town. "
128. . . on
It is also significant that the original statement of claim referred to a farming property "conducted by the Applicants" at Emerald. After amendment the reference is to a property which the applicants "were then contemplating purchasing". This amendment has to be seen against a
3 5
background of the signing of the agreements for sale on 25 March 1983, before any conversation between Mr Smallacombe and Mr Cook, on any version of the matter.
Mr Smallacombe in his statement of evidence says
that he said to Mr Cook:
" I'm i n t e r e s t e d i n a s y s t e m f o r my farm. I have
a map h e r e showing t h e l a y o u t . . . "
When his reference to "my farm" was put to him in
cross-examination, he was asked whether he recalled saying to
Mr Cook "I'm i n t e r e s t e d in a s y s t e m for my farm", to which he
replied " I p r o b a b l y would have put i t t h a t way. " I am satisfied that the oral representation by M r Cook was not an inducing factor in the purchase by the applicants of Portion 128.
As to the warranties alleged by the applicants, in my opinion there was nothing said by Mr Cook to Mr Smallacombe
which was promissory in nature or which could reasonably have
been considered to be a contractual promise so as to give rise to a collateral warranty: J. J. Savaae & Sons Ptv Ltd v. Blakney (1970) 119 C.L.R. 435 at 442 and Hospital Products Limited v. United States Suraical Cor~oration (1984) 156 C.L.R. 41 at 61. That conclusion in my opinion is fortified by a consideration of the quotation form at the foot of the first page and the terms of clause 11 of the terms and
3 6
conditions of sale on the reverse of that form. Nor in my opinion is there any scope for any implied warranty. Any term that the goods were to be suitable for use on Portion 128, which Mr Cook had never seen and the terrain of which he was unaware except in the most general terms is not a term that "goes without saying", nor is such a term necessary to give business efficacy to the contract, nor is it reasonable or equitable to imply such a term.
The goods were not sold by A.R. to the applicants but were leased by the applicants from Lease Finance Limited. The goods were purchased as a Thunderbird rolling sprayline irrigation system and in my opinion were of merchantable quality.
The conclusion I have reached is that they were not suitable for the conditions to be encountered on Mr Smallacornbe's property and did not have the characteristic represented by Mr Cook that the system would travel in a
straight line. As to damage, identifying what loss or damage flowed from the contravention of S. 52 by the respondent is not a simple task. The question under S. 82 is whether loss or damage was suffered "by" conduct in contravention of S. 52; that is to say, "by reason of" or "as a result of". For the reasons which I have earlier given, the losses which are claimed by the applicants are not losses which were caused by
3 7
the respondent's conduct. I think that the loss or damage caused by the respondent's conduct is to be assessed by having regard to the costs of the Thunderbird irrigation system and the costs of other associated equipment, and the cost of preparing the land fox spray irrigation using the Thunderbird system. All of those costs were incurred as a result of the S. 52 conduct of the respondent. Against the sum of those items is to be set off the realisation on disposal of the equipment.
I next have to consider the question of what would have been the position adopted by the applicants if they had not been induced by the respondent's conduct to purchase the Thunderbird system. That conduct did not affect or contribute to the decision to acquire Portion 128.
In my opinion, the applicants would have adopted
some other system of farming, either flood or spray or acombination, until their aim to sell Portion 128 as part of a
block for residential subdivision was achieved. I am not satisfied that any such method of farming would have been any more successful than the farming efforts engaged in using the Thunderbird irrigation system, particularly in the light of the evidence of Dr Brian Schafer and Mr Leon Wruck.
The applicants' claim for damages in this case was
attempted in two ways. The first was to assume the applicants
would have farmed the land using flood irrigation instead of
spray irrigation and the second is based on the assumption
that the applicants would not have acquired Portion 128 at
all. The second basis in the light of my findings as to thedecision to purchase Portion 128 can be put aside. As to the first method, the quantification adopted by m Michael Fallon from Kendalls K.B.M., Chartered Accountants, in my respectful opinion is like a house of cards, constructed on assumptions that are not established by the evidence or were contrary to it. In my opinion, it cannot be accepted. An essential component of that approach is the assumption that the planned plantings by the applicant would have been able to be achieved had the property been operated as a flood irrigation farm and that the area planned would in fact be successfully farmed. A gross income is derived based on unjustified price assumptions, leading to a forecasted gross profit. The net loss of operations for the financial years ending June 1984, June 1985 and June 1986 are calculated, leading to a total net loss before finance costs
of $284,741. Another large component of the exercise was the calculation of the loss of capital including a loss of capital appreciation totalling $120,595 as well as a capital loss on
other fixed assets of $68,811.What I see as a fundamental flaw in this approach is the assumption which is simply not established by the evidence that, had the applicants not acquired the Thunderbird system, the plantings planned for the property as a spray irrigation
farm would have been undertaken by flood irrigation methods
and would have been successful and profitable.The evidence led by the respondent, which I accept, shows that had the applicants operated the property by flood irrigation, they would nonetheless have incurred a loss. I do not accept that by conducting the farm as a spray irrigated one the loss which was incurred by the applicants was greater than the loss they would otherwise have suffered.
There are other serious criticisms of the approach of Mr Fallon. His approach is predicated on the respondent being liable for losses for the whole of the 1983-84 year notwithstanding that the first attempt to use the sprayline was in approximately March of 1984. During the first seven months of the financial year, part of the wheat crop was damaged by rain. The respondent cannot be held liable for this loss. Mr Fallon proceeded on the assumption that the D. C. Development financial statements were accurate. Not
only is that assumption not established, but in a number of serious respects is simply wrong. Income is seriously understated and some income is not included. Mr Fallon made the assumption, which is clearly and admittedly a wrong one, that all of the income came from Portion 128. It was said that this assumption was in favour of the respondent and should therefore not be the subject of legitimate complaint. However, allied with that assumption was an allocation of expenses on a 75%:25% split, an assumption which Mr Fallon
admits is fundamental to his calculation. It is conceded that this split is arbitrary, and on the evidence seems to be false. After Mr Kerlin left Portion 128 nothing was done on it so that for almost the whole of the 1985-86 tax year, Portion 128 was idle. Mr Fallon agreed that this would affect the 75%:25% split of expenses. The assumption of such a split of expenses is unsustainable.
The submission on behalf of the applicants illustrates some of the difficulty. It was submitted:
" Counsel for the Respondent also complain that 'other costs shown in the accounts are questionable and the accounts generally unreliable'. So much may be accepted. However, Mr Fallon has done the best that can be done to prepare a report based upon the unsatisfactory material available to him. Where the accounts are 'unreliable' there is no reason to suppose that the unreliability is in favour of the Applicants rather than the
Respondent . "
Similarly, in response to the criticism that the
planned programme of plantings could not be achieved on Lot
128 as a flood irrigation farm, it was submitted: " ... had the Applicants not been committed to the use of the Thunderbird system, there is no reason why part of their planned planting programme could not have been carried out on Portion 149. "
To test this submission one can rhetorically ask "Why was not in fact the unfulfilled part of the planning programme not carried out on Portion 149?"
4 1
I accept that the applicants, assuming them to be average irrigation farmers, would have suffered large losses on Portion 128 even if the Thunderbird system had operated perfectly. It is not possible from the evidence to determine what extra loss, if there be any extra, that the use of the Thunderbird system caused.
The fact of the matter is that Lot 128 was an inferior irrigation farm which had a particular disability relating to duplex sodic soils over much of its arable area. The 'gearing' adopted by the applicants for Lot 128 meant that it could not be operated profitably as an irrigation farm.
Notwithstanding that the Thunderbird system and associated equipment were leased, Mr Fallon had regard to their capital value and allowed finance costs on that value. The costs as set out in Item 1 of Appendix A to M r Fallon's report as the costs of the Thunderbird sprayline system and two Deutz motor and pump units a total of $150,000. Deducting
Thunderbird sprayline system of $42,500, makes a loss on this the amounts obtained on realisation of sales of parts of the aspect of the matter of $107,500. The accounts show the purchase of irrigation piping costing $4,561 in July 1983 and an irrigation dam costing $28,000 in September 1983. There are three exhibits (20, 21 and 22) relating to earthworks on the property which total $32,610. I am uncertain whether that amount relates to the construction of the ditch or canal or whether a distinction is drawn between that and the dam. I think an amount of $28,000 should be allowed for the costs of altering the farm so as to permit the Thunderbird system to operate.
There is evidence of a claim for investment allowance in respect of the irrigation system, the dam and the irrigation piping, but I am not prepared to bring that into account, preferring to treat it as an operational item. I am not prepared to allow any item for loss of profits or for a capital loss on the sale of Portion 128, particularly where the sale price and associated dealings is attended with such considerable dubiety.
The components I have referred to total $139,561, which I will round upwards to $140,000. I regard that as a fair estimate of the loss and damage suffered by the applicants as a result of the contravention of S. 52 of the Trade Practices Act by the respondent. I allow interest under
S. 51A of the Federal Court of Australia Act 1976 at 14%, being a fair averaged figure having regard to the fluctuating interest rates since that time. I will allow interest from
1 October 1983 notwithstanding that the disposal of many of the items was much later than that. Interest rounded comes to $186,000, making a total
judgment for the applicants against the respondent of$326,000. I turn now to the cross-claim. I have found this difficult. There are three broad bases of claim by the cross- claimant against the second cross respondent, Thunderbird, namely, liability imposed by Californian law, liability imposed under the Trade Practices Act 1974 and common law claims for breach of contract and/or negligence.
The only claim now relied on which depends upon Californian law is liability for express warranty constituted by the representations contained in the green brochure which was Exhibit 80. The other claims based on claims of strict liability and implied warranties are not pursued.
The Californian Commercial Code S. 2313 governing express warranties provides in part:
" E x p r e s s w a r r a n t i e s by the seller a r e c r e a t e d a s f o l l o w s :
( a ) A n y a f f i r m a t i o n o f f a c t or promise made by
the seller t o the b u y e r wh ich r e l a t e s t o
the goods and becomes p a r t o f the b a s i s o f
the b a r g a i n c r e a t e s a n e x p r e s s w a r r a n t y t h a t the goods s h a l l c o n f o r m to the
a f f i r m a t i o n or p r o m i s e .
( b ) Any d e s c r i p t i o n o f the goods wh ich i s made
p a r t o f the b a s i s o f the b a r g a i n c r e a t e s
a n e x p r e s s w a r r a n t y t h a t the goods s h a l l
c o n f o r m t o the d e s c r i p t i o n . "
The conflicts of law question is regulated by the
lex fori . A.R. wishes to invoke Californian law and
accordingly the onus lies upon it to show that Californian law
applies.There is no evidence led by it as to where and when and by whom the distribution agreement with Crown Pumps was negotiated or made. The contract for the acquisition of the particular parts supplied to Mr Smallacombe was made in Australia and it seems to me by reference to conflicts theory an Australian court would find that Australian law governed the relationship.
However, the Commercial Code of California provides for a contractual liability without privity. The concept is
somewhat unusual to Australian law though not unknown.
Assuming that in this case the court looks to Californian law
to ascertain whether some assistance from their choice of law
philosophy can be gained, the position is the same. It seems
to me there is not an appropriate relation to Californian law.
I accept the evidence of M r Ernest Gellhorn, practising
attorney, particularly his statement of the position in
paragraphs 5-9 inclusive contained in Exhibit 112: see
Asricultural Services Association Incorporated v. Ferrv-Morse
Seed ComDany, 551 F. 2nd 1057 (6th Cir. 1977). It seems to me that the relevant law is Australian. Four matters require consideration on the question of liability under the Trade Practices Act by Thunderbird to A.R. They are:
1. Whether the activities of the second cross respondent can be said to be in trade or commerce within the meaning of S. 52(1) of the Trade Practices Act;
2. Whether the conduct is misleading or deceptive and was relied upon by the cross-claimant.
3. If so, what order for compensation should be made.
4. Is the claim for compensation made out of time.
The evidence in this case is that Thunderbird sold all its equipment through dealers and did that deliberately. Before the present sale it was aware that Thunderbird systems were being sold into Australia. Thunderbird produced the blue brochure and the green brochure and distributed those brochures with the purpose and expectation that they be read by distributors and passed on to customers.
The company, Thunderbird Irrigation International Inc. was set up for the purposes of handling the shipping of machines built by Thunderbird to, inter alia, Australia. The evidence, particularly having regard to Exhibits 54 and 82, indicates that Thunderbird sold the system. The inference from Exhibit 55 is that Thunderbird Irrigation International
container to A.R. through the Port of Brisbane. Documentary Inc. attended to the shipping. The shipping was direct by exhibits relating to the sale and payment of this system indicates that Thunderbird was aware that the system would be shipped to Australia and caused it to be shipped directly to A.R.
By S. 4 of the Trade Practices Act the words "trade or commerce" mean trade or commerce within Australia or between Australia and places outside Australia. The submission by the cross-claimant is that the dissemination of a brochure for the purposes of being read by dealers and shown to their customers is conduct sufficiently within trade or commerce to fall within the description of the section.
Mr Fraser of counsel for Thunderbird contended that Thunderbird's conduct was not in trade or commerce either within Australia or between Australia and places outside Australia, because the evidence demonstrated that the goods were sold in California to Crown Pumps, and the brochures were provided in Australia by Crown Pumps and not by Thunderbird.
In my opinion it is not "in t r a d e or commerce be tween A u s t r a l i a and a p l a c e o u t s i d e A u s t r a l i a " for
Thunderbird to provide in California brochures to Crown Pumps, intending that they be sent to and distributed within Australia in the course of promoting sales of Thunderbird's product in Australia. What Thunderbird did was to deliver brochures to Crown Pumps in California, knowing that Crown
Pumps would distribute the brochures to dealers, and through them to customers. That conduct is not conduct by Thunderbird in trade or commerce between Australia and places outside
Australia.The representations in the green brochure are unqualified and absolute, conveying an assurance of true lateral movement over the entire length of the line. It represents that there will be straight line movement and
4 7
positive traction. Mr Cook did not rely upon the brochure as representing the machine would move in a perfectly straight line consistently, but he did rely upon it as representing that straight line movement was a characteristic of the machine within reasonable tolerances and that that was not qualified in any way having regard to the difficulty of or varying nature of the soil types which it encountered.
In my opinion the representation in the brochure is misleading; and if the trade practices claim were good the measure of compensation would be an indemnity of the damages A.R. is ordered to pay to the applicants.
There is a further reason why in my opinion a trade practices claim is not made out. Section 8 2 ( 2 ) provides that an action under S. 8 2 ( 1 ) may be commenced at any time within three years "after the date on which the cause of action accrued". No cause of action exists where there exists a mere potential loss as distinct from actual loss or damage. The
recovered by it is not suffered until A.R. suffers a loss or submission by A.R. is that the damage which is sought to be damage consequent upon judgment being given against it in
favour of the applicants.It seems to me that A.R., relying on the brochure, made representations to the applicants and caused them to purchase a Thunderbird system. It seems to me that A.R. suffered damage when it was obliged to spend time and money
4 8
and resources in attempting to rectify the deficiencies in the applicants' Thunderbird system and time began to run from then. At the time of institution of the cross-claim the trade practices claim was out of time.
As to the common law claims, in my opinion, the representations in the green brochure are not promissory in character and I do not find a collateral contract. The same considerations apply as in the case of the applicants against A.R.
As to negligence, in my opinion, it is clear that Thunderbird owed a duty of care to A.R. in the making of the statements contained in the brochure. Proximity in my opinion is established. Thunderbird distributes brochures through dealers. It knew and had approved A.R. as a sub-distributor of Crown Pumps and it knew in the instant case that the goods were being shipped to A.R.
For the reasons earlier expressed, in my opinion, A.R. did rely on the statements contained in the brochure and there was a breach in the duty of care owed by Thunderbird in the making of the statements. The unqualified statements in the brochure are false. Thunderbird, however, was aware of the significance of soil conditions and their effect on the machine. Mr Art Jensen, the inventor, expressed this as one of the very reasons why Thunderbird chose to operate through dealers. He said that an understanding of soil types was very important with respect to the operation of the system. There was then a failure by Thunderbird, notwithstanding that appreciation, to communicate it to A.R.
Contributory negligence is pleaded, it being asserted that there was a failure in A.R. to design appropriately the system, to commission the irrigation system properly or at all, to replace the system timeously when it was requested to do so by the applicants; alternatively, to advise the applicants that such a system was unsuitable for their land.
In my opinion, contributory negligence is not made out. The machine failed to operate adequately not because of any failure to design the system or to commission it properly even though there was some breakdown as a result of either the applicants' failure to grease or more probably because of a misassembly of the system. The failure by A.R. to advise in my opinion does not constitute contributory negligence in
circumstances where Thunderbird makes representations in
absolute terms and then seeks to say that the system cannot be
used on the applicants' land.
As to the alleged failure to replace the system when requested to do so by the applicants, whether this be contributory negligence or mitigation of damages, it seems to me that it is not made out. The same opportunity was open to Thunderbird after Mr Jensen had inspected the property and was aware of the deficiencies in the Thunderbird system. It did not itself replace the system and it seems to me it can hardly say that A . R . has failed to take reasonable steps to mitigate its loss by not doing that which it itself did not do.
In my opinion, on the ground of negligence, A.R. is entitled to an indemnity from Thunderbird in the amount of the judgment debt ordered in the applicants' favour.
I give judgment for the applicants against the respondent in the sum of $326,000.
I will hear the parties on costs, and on the form of the other orders I should make in the light of these reasons.
I cer t i fy t h a t t h i s and t h e
preceding for t y -n ine ( 4 9 ) pages
a r e a t r u e copy o f t h e reasons
Date: 1
1
Counsel f o r t h e app l i can t s : M Y R. I . ~&r Q.C. w i t h M r A.
J . H. Morris
i n s t r u c t e d by: Gilshenan' & Luton Counsel for t h e respondent
and cross-claimant: Mr J . Muir Q.C.
i n s t r u c t e d by: Feez Ruthning Counsel for t h e second
c r o s s -responden t : Mr D. Fraser
i n s t r u c t e d by: Lyons
Dates o f Hearing: 13-17 May 1991 20-24 May 1991 31 J u l y 1991 1 , 2 , 5 August 1991
21
0
0