| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : TLC EXPORTS PTY LTD -v- AUSTRALIAN FOODS COMPANY PTY LTD [2005] WADC 54 CORAM : CRISFORD DCJ HEARD : 6-8 APRIL, 6-9 SEPTEMBER, 1 OCTOBER 2004 DELIVERED : 24 MARCH 2005 FILE NO/S : CIV 1174 of 2001 BETWEEN : TLC EXPORTS PTY LTD (ACN 059 587 478)) Plaintiff
AND
AUSTRALIAN FOODS COMPANY PTY LTD (ABN 69 081 686)
Defendant
Catchwords: Contract - Breach of express terms - Exclusion clause - Loss - Mitigation - Damages - Appropriation of funds paid for the supply of unrelated goods
Legislation: Evidence Act 1906 (WA) s 79B - s 79G
Result: Plaintiff's claim allowed
Defendant's counterclaim dismissed
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Representation:
Counsel:
Plaintiff : Mr A P Hershowitz
Defendant : Mr G G Wells
Solicitors:
Plaintiff : Maxim Litigation Consultants
Defendant : In house counsel
Case(s) referred to in judgment(s):
Browne v Dunn (1893) 6 R 67
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Jones v Dunkel (1959) 101 CLR 298
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Case(s) also cited:
Alexander v Perpetual Trustees WA Ltd [2001] NSWCA 240
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
China Ocean Shipping Co Ltd v PS Chellaram & Co Ltd (1990) 28 NSWLR 354
Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642
Fink v Fink (1946) 74 CLR 127
GL Nederland (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62
Hungerfords v Walker (1989) 171 CLR 125
Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286
Sydney City Council v West (1965) 114 CLR 481
TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 180 CLR 130
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353
Tozer Kemsley & Millbourn (Australasia) Pty Ltd v Collier's Interstate Transport Service Ltd (1956) 94 CLR 384
Walton Stores (Interstate) Ltd v Maher (1998) 164 CLR 387
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1 CRISFORD DCJ: The plaintiff ("TLC") is an exporter of grain and field peas. The defendant ("Australian Foods") is a grain trader. It purchases grain and related products directly from growers and sells to companies like the plaintiff which then sells to buyers overseas.
2 In late 2000 and early 2001 TLC entered into two different types of contract with Australian Foods. These two contracts are the subject of the dispute. They both relate to the sale of a variety of pulses namely field peas. 3 One claim relates to the supply of a quantity of dun field peas. TLC says these peas were not of the agreed quality. They were worth less than the price it had paid for them. 4 The other claim relates to the supply of a quantity of white field peas. TLC paid the price sought by Australian Foods for those peas. It did not ever receive the peas. 5 TLC now claims the return of the moneys paid by it for the white peas it did not receive. It also claims damages for the loss it says it sustained due to the substandard dun peas supplied in breach of contract. 6 TLC's case rests on breach of contract. Although issues of merchantable quality were pleaded these were not pressed. 7 By the end of the trial Australian Foods conceded a breach of contract in relation to the supply of dun peas. It accepts that an express condition relating to the grade of peas to be provided had not been complied with. 8 It pleads, however, a failure by TLC to comply with an industry exclusion clause relating to timely notification of defects as precluding it making any claim. In any event, it says there is no cogent proof of any loss sustained by TLC as a result of the breach. 9 It counterclaims that there is still money owed to it by TLC pursuant to the dun pea contract. It says that the money TLC paid for the anticipated supply of white peas was appropriated to the amount already owing for the dun peas. However, an amount of $5,736.52 remains unpaid.
The dun pea contract 10 The parties entered into four brokerage contracts for the supply of dun peas. These contracts were entered into on 27 November 2000,
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12 December 2000, 18 December 2000 and 18 January 2001. The contracts were brokered by a third party, Teague Australia Ltd. 11 Parvan Shivnani ("Shivnani"), the sole director of Australian Foods, gave evidence he structured the contracts between Australian Foods and TLC. Shivnani described himself as an agriculturist. 12 The contracts were for the supply of four separate amounts of dun peas totalling 1,192 metric tonnes at prices ranging from $255 to $265 per metric tonne. 13 These peas, to the knowledge of Australian Foods, were on sold by TLC to buyers in Tuticorin, Southern India for food consumption. A special condition of each contract was the peas were to be shipped in containers of certain specifications. 14 The four brokerage contracts are collectively referred to as the dun pea contract. 15 It is not in contention that it was expressly agreed all the peas the subject of the dun pea contract were to be farmer dressed in accordance with the West Australian Cooperative Bulk Handling ("WACBH") receival standards grades No 1 or 2. The applicable industry rules to govern the contract were the National Agricultural Commodities Marketing Association ("NACMA") trade rules. NACMA CSP 143 details the receival standards for field peas for the 2000/2001 season that were applied by WACBH. 16 Shipments of the four lots of peas to Tuticorin were to be made variously from December 2000 to on or before 3 February 2001. The bills of lading indicate all shipments are likely to have left Fremantle, at the latest, by 8 February 2001. Once the ships sailed the Tuticorin buyers were to pay TLC for their peas by means of letters of credit (except one who paid cash against documents). 17 The full invoice value was due by TLC to Australian Foods no later than 14 days from the date of each vessel sailing. TLC paid $58,968.45 to Australian Foods on 21 February 2001. 18 WACBH is the principal storer and packer of grain and field peas in Western Australia. Field peas once received by WACBH are stored in silos in accordance with the various receival standards. These standards set out the acceptable composition for milling grade field peas and feed grade field peas.
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19 The evidence established that a milling grade is aimed at human consumption and is graded no 1 or 2. Feed grade which is generally for stockfeed is a different standard. It is a lower standard. Each grade is stored in different silos.
20 The contract in question contemplated, as an end result, the field peas be split and used as dhal for human consumption rather than feed for livestock. This is reflected in the express term of the contract the peas be in accordance with grades no 1 or 2. 21 A higher percentage of white peas (pulses), defective seeds, green or immature grains can be present in a feed grade dun pea. In a milling grade dun pea a small tolerance only of white peas, 10 per 200 g, is allowed. 20 per 200 g is allowed in feed grade. 22 Metro Grain Centre ("MGC") Forrestfield, a part of WACBH, is the premier packing facility in Western Australia. It packs the peas or containerises them on instructions from the owner, arranges quarantine clearance, if necessary, and arranges transportation as requested. 23 The field peas purchased from growers by Australian Foods were stored in silos with WACBH. Once the contracts with TLC were brokered Australian Foods provided instructions to WACBH to arrange the delivery of the peas. 24 Peter Dean, ("Dean") client services manager of WACBH, gave evidence that it received four instruction forms from Australian Foods in relation to the packing of dun peas. 25 The four instruction forms sought the dun peas be containerised. They were to be shipped and the destination was Tuticorin, India. 26 A one kilogram sample of each of the four lots of peas containerised was to be picked up from WACBH by Australian Foods. Shivnani gave evidence the samples were collected. 27 In terms of the grade of peas required each form provided as follows:
| Form | Date of Form | Grade of pea to be supplied | | 1 | 5 January 2001 | grades No 1 or 2; | | 2 | 29 December 2000 | 30 per cent of feed grade balance grade S1 or S2; |
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| 3 | 29 December 2000 | 30 per cent feed grade balance S1 or S2; | | 4 | 30 January 2001 | 70 per cent milling grade 30 per cent feed grade. | 28 Jason Craig, ("Craig") a graduate with a degree in Business from Curtin University gave evidence as the marketing manager of Grain Pool Pty Ltd, a merged partner of WACBH. He had extensive experience in the grain industry including sitting on two industry committees for pulses. He was involved in drafting the relevant industry standards which applied to the field peas the subject of these contracts. 29 Craig gave evidence that the Australian Foods' instruction forms seeking the mixing of a feed grade dun pea with a milling grade dun pea (grade no 1 or 2) were not in accordance with the standard sought by TLC in the contracts. 30 I find there was no serious challenge to his evidence. In any event counsel for the defendant conceded this evidence was uncontradicted. 31 The defendant conceded a breach of contract on the basis of the instruction forms from Australian Foods to WACBH and the evidence of Craig. 32 The instruction forms for all except 5 January 2001 were in breach of the quality standard of the contracts. Some of the containers that arrived in Tuticorin, India, were of the correct quality and are not subject to any claim. 33 Once packed in accordance with these instructions and inspected by a quarantine officer the containers were sealed and went to the delivered container terminal ("DCT") at the wharf at Fremantle. They were then loaded onto ships to go to Tuticorin, the final destination. 34 There was the opportunity for the dun peas to be inspected at the time of their packing at WACBH by either party. 35 TLC had an agent in Tuticorin, N Karunakaran ("NK") and he coordinated the distribution of the peas on arrival. He was the proprietor of Rajaram Agencies, agent for importing grains and pulses. He had been in that business since 1983 and had worked as selling agent for TLC since 1999.
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36 Once the vessels arrived in Tuticorin and the peas unloaded the buyers had clearing agents inspect the peas. If there were any difficulties NK would be advised of the problem.
37 For the purposes of this contract three ships which had sailed from Fremantle with a total of 37 containers of dun peas had samples taken on arrival in Tuticorin by the appointed clearing agents. As a result of notification of possible problems by the clearing agent NK gave evidence he instructed a responsible staff member to attend and take samples of the dun peas from each of the apparently offending containers. He then visually inspected the grain himself to ascertain if there was a genuine complaint or if the complaint was unwarranted. His evidence was that this was a regular practice in India. 38 NK had considerable practical experience in analysing grain. To western standards his methods may appear rudimentary. Manual separation of white peas from dun peas was undertaken by him. He then hand ground the grain with a stone to ascertain whether the split grain contained too many green or immature centres. 39 NK was concerned about the quality of the grain. His evidence based on his experience was that the content of most of the containers did not comply with the required NACMA standards as stipulated by the contract. There was too much green cotyledon or immature grain and excessive amounts of white peas mixed in with the dun peas. 40 His view was notified to TLC by an e-mail sent on 16 February 2001. Detailed reports of NK in relation to quality issues for 37 containers were provided to TLC on 19 February 2001. 41 Jenny Jacobs ("Jacobs"), who was the export documentation and logistic manager of TLC, gave evidence TLC first advised Australian Foods of the quality difficulties in a telephone call she had with Shivnani on 16 February 2001. Written confirmation of the problems was given on 19 and 22 February 2001. 42 The last shipment of 15 containers left the wharf at Fremantle on or about 8 February 2001. Again problems were detected in relation to quality and NK advised TLC by e-mail on 20 March 2001. The following day TLC sent notification of the further problem to Australian Foods by facsimile transmission.
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Exclusion clause
43 By its substituted defence filed 5 April 2004 Australian Foods alleged that even if the dun peas did not comply with the applicable WACBH receival standard TLC was disqualified from claiming damages in respect of the breach because it had failed to comply with an applicable NACMA trade rule agreed to govern the contract. 44 Both parties proceeded on the basis that this rule did apply to the contract. TLC, however, pleads it complied with the rule, or failing this for various reasons Australian Foods is precluded from relying on it. 45 Australian Foods did not prior to legal proceedings give notice of its intention to rely upon the rule. The evidence of Shivnani suggests Australian Foods proceeded on the basis the rule was either not to be relied upon or that he was unaware of its existence. 46 TLC maintains Australian Foods is now precluded from relying on it. TLC says it was led to believe that if there was a failure to comply with the rule such failure was acquiesced to. 47 It goes further and says that in any event the breach of the contractual conditions to do with quality was wilful and deliberate and in those circumstances an exclusion clause cannot be relied upon. 48 Specifically the argument refers to trade rule 16.0: "All adjustments for compensation claimed based on defect of quality or condition … which shall be apparent upon reasonable inspection must be advised within 5(five) business days after unloading or presentation of appropriate documents and must be formally confirmed by written notice, letter or facsimile within 30 (thirty) consecutive days of delivery of the consignment … …………………………………………………………………. In the event of failure to comply with this condition, all claims in regard to quality shall be void … ." 49 The parties accepted that the presentation of appropriate documents was not the issue but that the "unloading" was. 50 Australian Foods says contractually it was required to deliver the containerised dun peas to the DCT in Fremantle from the WACBH grain centre in Forrestfield where the peas were packed. At Fremantle, the
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containers were taken off the trucks. They were then loaded on to ships to go to Tuticorin. 51 It was after the vessel sailed that payment was due to Australian Foods. It was after the vessel sailed that the bills of lading were received by TLC from its Tuticorin buyers. 52 Australian Foods' position is the step at the DCT Fremantle constituted the unloading for the purpose of the rule. In his closing address counsel for Australian Foods conceded that if the unloading for the purpose of the rule was in Tuticorin then the rule had been complied with. 53 Australian Foods says that each of the four consignments of dun peas were delivered to and unloaded at the DCT prior to 15 January 2001. Notification in accordance with NACMA trade rule 16 should have been done, initially, prior to 22 January 2001. 54 TLC maintains the unloading relates to the final destination in Tuticorin. It says quality issues were specifically advised to Australian Foods between 16 February 2001 and 21 March 2001 by various means, depending upon the arrival date of the containers. 55 The imposition of time limitations in contracts is a commercially acceptable and reasonably necessary practice. A time limitation such as trade rule 16 should be construed strictly unless its application would defeat the main object of the contract or lead to an absurdity. 56 No evidence was led as to the exact arrival dates of the ships in Tuticorin. Shivnani was unable to state with any particularity when the initial notification as to the quality defects was made to him. His evidence varied as to when that notification was made. Jacobs' evidence was notification was 16 February 2001. 57 The impression gained was Shivnani was more concerned, somewhat understandably, with getting paid for the dun pea contract rather than any quality issues. 58 In Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510, Mason, Wilson, Brennan, Deane and Dawson JJ said this: "The interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary
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meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity." 59 I am of the view that this is not a case of ambiguity of language. 60 As Kirby J in McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 602 said: "Courts now generally regard the contra proferentem rule (as it is called) as one of last resort because it is widely accepted that it is preferable the judges should struggle with the words actually used as applied to the unique circumstances of the case and reach their own conclusions by reference to the logic of the matter, rather than by using mechanical formulae." 61 Logic suggests that to "unload" is to remove or discharge a load or, here, cargo or freight from a ship. 62 The field peas were delivered to the DCT Fremantle, taken off trucks and put on to ships and unloaded at the final destination in India. It is clear that Australian Foods knew the destination of the peas as set out in the instruction forms sent by it to WACBH. A special condition of each of the brokerage contracts related to the shipping of the dun peas in containers of certain specifications. 63 I find the unloading related to the dun peas the subject of the contract not simply to the physical movement of the containers. The dun peas were unloaded in Tuticorin. They were in transit at the DCT Fremantle. 64 I find, considering the contract as a whole and the manner in which both parties acted at the relevant time, that the unloading in trade rule 16 related to the final destination in Tuticorin. 65 This being the case I find there was no late notification of quality issues. TLC is not precluded from claiming it sustained a loss as a result of the breach. I therefore find it unnecessary to decide the other matters raised by TLC. 66 I do, however, note that it is clear there was no intention at the time the quality issues were raised that Australian Foods intended to rely upon
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late notification. The evidence of Shivnani is that Australian Foods wanted the dun peas returned to it for resale. 67 Once the field peas were unloaded at Tuticorin matters moved swiftly. Notification of the quality defects was done in a timely fashion and within the time set out in the exclusion clause.
Was there a loss? 68 Despite conceding the contract had been breached Australian Foods does not accept any loss followed from this breach. It says the dun peas as supplied were suitable for consumption as food and could be used by Indians for the production of dhal. 69 Shivnani's evidence was that the mixing of different grades of dun peas was not incompatible with it being used for human consumption. 70 Shivnani made oblique reference to a level of corruption in India and to bureaucratic bottlenecks. His evidence was that it was not uncommon for Indian buyers to raise fictitious quality issues in order to get a price reduction. 71 In cross-examination Shivnani accepted there was no evidence to suggest the buyers were doing this in this particular case. NK and Jacobs were not cross-examined on these issues. Shivnani's imputation was never put fairly and squarely to NK. 72 After the initial notification of quality problems as detected by the clearing agents and confirmed by NK an independent firm of surveyors RBS Maritime ("RBS") was appointed on behalf of the Tuticorin buyers to assess, independently, the quality of the peas. NK arranged the appointment of RBS. Independent samples of peas were taken direct from the containers by RBS and analysis undertaken. 73 This analysis was done by the manager of RBS, a Mr Parameswaren ("P"), who held a Bachelor of Science degree from the University of Madurai. He had worked analysing grain since 1981 and like NK had much practical experience. 74 Many samples were taken from each container in question and then mixed together to form a container composite sample. The samples were physically checked for the presence of white peas, other seeds or dust and sand. White peas were separated from the dun peas to ascertain the percentage. Manual scales were used. Weighing was undertaken. The peas were split to ensure there was no immature grain.
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75 After analysing the peas P prepared certificates for all the containers.
76 He was not aware of the contractual obligations of either party or of the applicable grain standards. He was simply there to analyse the grain. 77 There was a high mix of white peas and green cotyledon in almost all his samples. There was some dust and sand. 78 Shivnani accepted in cross-examination the RBS certificates, if they were an accurate reflection of the position which he did not accept they were, showed that the peas were not of a "merchantable" quality. He was shocked by their content. 79 The means by which the sampling and analysis took place was, again, not sophisticated. However, there was nothing in any of the evidence to suggest it was inherently inaccurate, biased or incomplete. 80 Craig also gave evidence that the RBS analysis as set out in the certificates of quality failed to meet the standard set out in NACMA CSP 43 no 1 or 2 as a milling standard and as required by the contract. It showed an unacceptably high percentage of white peas and immature peas mixed in with the dun peas. 81 As a result of further anticipated difficulties TLC had its agent NK retain another firm of independent surveyors to assess the quality of the contents of the 15 containers which arrived on the last ship. 82 Intertek Testing Services ("ITS") prepared certificates. No one from ITS was called to give evidence. It was conceded by counsel for Australian Foods that the certificates fell within s 79C of the Evidence Act, 1906. On their face the certificates indicate a falling below the standard set by the express terms of the contract. They show, as did the RBS certificates, a high mix of white peas, damaged grains, dust and foreign matters which did not meet Australian milling standards. 83 No submissions were made on the weight I should attribute to the certificates. There was no evidence as to what ITS was, who did the testing and how it was done. Standing alone I am of the view that little weight should be given to these certificates. However, they do to a large extent, corroborate the evidence of NK and P. There were too many white peas in the mix, too much green cotyledon and some foreign material and dust.
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84 The combined effect of the evidence of NK, P and the ITS certificates suggest a failure by Australian Foods to provide dun peas of a milling standard or a standard for human consumption as anticipated by the dun pea contract. At best there is a mixing of a milling grade with a stockfeed grade. There was no doubt that this had a value but not the same value as sought by TLC and the Tuticorin buyers. Whether it could be utilised as stockfeed or an inferior pea for dhal production it was, on the face of it, likely to be worth less than the price paid.
85 The supplying of field peas of a lesser quality than those sought specifically for human consumption or a milling grade suggests it is likely that some loss will be sustained. It is reasonably foreseeable that buyers of a high quality field pea for human consumption no matter where they live in the world would be justifiably aggrieved at receiving field peas suitable for animal feed or not of a high quality food grade. There was a watering down of the quality sought. 86 In these circumstances the onus shifts to Australian Foods to prove that the loss was not as a result of the breach of contract. Whether this onus has been discharged must be considered. 87 Australian Foods did not adduce any evidence as to the composition of the field peas sent to India. It was in a position to do so. 88 Shivnani gave evidence that Australian Foods had its own testing services for grain quality. His evidence was he was very familiar with testing methods and the testing of grain quality. Australian Foods had its own company STS Inspection Services which owned a laboratory within the Australian Foods' office. It had a grain analyser which could be used for such quality inspections. 89 The instruction forms from Australian Foods to WACBH requested that one kilogram samples be provided to Australian Foods of the peas in the containers the subject of the dun pea contract. Australian Foods had these samples. 90 There was no evidence these samples were tested by Australian Foods through its internal company. 91 Shivnani gave evidence that Australian Foods commissioned a company called Commodity Inspection Services ("CIS") based in New South Wales to test the quality of the dun peas sent to Tuticorin:
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92 Jacobs gave evidence that a letter had been sent to Australian Foods on 22 February 2001 when the quality issues became known seeking to know whether an independent quality inspection had been carried out by Australian Foods prior to the peas being loaded. She gave evidence no response was received to this letter. 93 Jacobs also gave evidence a facsimile transmission was sent on 21 March 2001 enquiring whether Australian Foods wished to take its own samples from the containers in India. According to Jacobs no response was received. 94 In cross-examination Shivnani indicated that a representative from CIS would be called to give evidence. He was in a position to name the witness and did so. Neither that witness nor any other witness from CIS was ever called. No such witness was under subpoena. Leave was not sought to issue any such subpoena. 95 The certificates of CIS were sought to be tendered into evidence pursuant to s 79C of the Evidence Act 1906. The consent of the plaintiff was not forthcoming to this application. Despite invitation to do so no argument was advanced in relation to why the certificates fell within the provisions of s 79C and should be accepted by the Court. 96 The unexplained failure by a party to give evidence or to call witnesses or to tender documents or other evidence may, not must, in appropriate circumstances lead to an inference that the uncalled evidence would not assist the party's case. This is the rule as set out in the case of Jones v Dunkel (1959) 101 CLR 298. 97 The "appropriate circumstances" exist where it is within the power of the party to at least seek to tender the evidence which was not tendered. 98 The rule has no application if the failure is explained, for example, by the absence of the witness coupled with a reasonable explanation for not compelling his attendance by subpoena, or by his illness or other
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unavailability. In this case it was anticipated the evidence would be given. With no explanation this did not eventuate. 99 The rule cannot be employed to fill in gaps in the evidence. The rule permits an inference that the untendered evidence may not have helped the party who failed to tender it. It entitles the trier of fact the more readily to draw any inference fairly to be drawn from the other evidence by reason here of Australian Foods being able to prove the contrary had it chosen to call evidence. The rule does not permit an inference that the untendered evidence would in fact have been damaging to the party not tendering it. 100 The rule only applies where a party is required to explain or contradict something. The combined evidence of NK, P and the ITS certificates required an answer. There was a suggestion there was an answer but it did not ever eventuate. No reason was advanced for this. 101 The missing witness could be expected to be called by Australian Foods rather than TLC. The only evidence as to the quality of the field peas has been provided by TLC. 102 That evidence satisfies me on the balance of probabilities that the standard of the dun peas was such a loss was likely to follow. 103 TLC's evidence was that as a result of the substandard quality of the dun peas, it not being of a straight milling standard, it was necessary for the peas to be sold for a lesser amount and/or utilised as stockfeed. 104 Shivnani gave evidence that despite a blending of different grades Indians could still use the dun peas for dhal. I did not interpret NK's evidence as being the peas could not be used for food necessarily but that it was not capable of commanding the same high price, due to its lower standard. 105 I find there was a loss.
What was the loss? 106 NK as the "man on the ground" and who had experience in this area negotiated a settlement between the Tuticorin buyers and TLC. His evidence was that he arranged to repay money to buyers according to the quality of the dun field peas each received. 107 It is not disputed that the quality was not in accordance with the contract. NK's evidence was there were negotiations to achieve a mutual
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agreement between himself and the Indian buyers. The peas were not fit for milling purposes but they could be used for example as stock feed. As the price paid was for milling grade and the buyers obtained a lesser standard a fair refund was negotiated. 108 He was asked to explain the position of the settlement with the Tuticorin buyers: "… On what basis did you recommend it?---Schedule of the buyer in Tuticorin. According to the cargo, what arrived and what is saleable, what is the market difference, what is the loss to the buyer. On the basis that I used to (indistinct)." 109 There were difficulties with language experienced by each counsel as he asked questions. NK had difficulties in comprehension. There were mutual difficulties in expression. 110 The impression I gained of NK was that he was a proud and honourable man. He tried to answer the questions as he understood them. There was nothing to suggest his loyalties lay with the Indian buyers as opposed to his principal, TLC. There was nothing to suggest that on this occasion or on any occasion in the past he had negotiated anything other than a settlement in accordance with the quality of the product in question. His evidence was he paid a very fair price. He was not seriously challenged in relation to the method of arrival at an appropriate price for the defective quality dun peas. 111 Jacobs also gave evidence as to the basis upon which the settlement was negotiated: "Could you explain to her Honour the process that you undertook to try and get the figures regarding settlement in relation to these claims which had been made?---Basically we leave that up to our agent to work out because my understanding of it is that it is not that the whole container cannot be used. It is just that its at a lesser price than it is originally intended for. So my understanding from MK is they work out basically the Indian price of stockfeed, the Indian price for dhal and its the difference that we would pay out for the claim." 112 Jacobs gave evidence as to the quantum of the claims negotiated. She gave evidence as to the payments made in relation to the each claim and set out the contingent liabilities TLC was totally responsible for.
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113 I find that the evidence of NK and Jacob establishes the fact that claims were made by Indian buyers in respect of the defective dun peas. Their evidence established the way in which the claims were negotiated and the amounts that were agreed to be settled upon.
114 In total I find claims amounting to $53,738.11 were proved. An amount of $34,936.02 was repaid to the various Indian buyers between 31 August 2001 and 18 April 2002. A further $18,802 is to be paid to the Tuticorin buyers as a result of Australian Foods' breach.
Was there a failure to mitigate the loss? 115 Australian Foods pleads a failure by TLC to mitigate its loss. It has the onus of proving this. 116 The basis for the pleading is that it is alleged TLC reached settlement of quality issues with its buyers without a proper testing of the quality of the dun peas after the arrival of the containers at Tuticorin. Further there was no proper evaluation of the market value of the dun peas and finally there was a lack of proper assessment of the respective claims of each buyer. 117 For reasons set out above I find there was appropriate testing of the quality of the peas after the arrival of the containers at Tuticorin and that each claim has been proved. 118 Australian Foods had every opportunity to challenge the testing by, inter alia, providing evidence of the quality of the peas prior to their leaving Fremantle. 119 TLC through its agent was able to negotiate a more or less immediate resolution with the Indian buyers. 120 The position of Australian Foods was that it wanted to negotiate the position with TLC. Shivnani's evidence was he wanted the dun peas returned to it and TLC would be repaid. His evidence was it would not be repaid what TLC had originally paid for the peas. His evidence was that the goods should be returned and Australian Foods would try to resell the peas. His evidence was that he had made substantial efforts to negotiate the position including phone calls at least twice daily. These were unanswered and he was essentially ignored. 121 This evidence was not put to Jacobs. I found Shivnani's evidence to be vague and evasive. His contentions were not supported by contemporaneous documents. He raised feint objections to pertinent
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questions. Despite his self-professed vast knowledge and experience he appeared to have little real knowledge of the content of the contracts he put his name to. 122 Where his evidence conflicts with Jacobs I have no difficulty accepting what she had to say. Her evidence was supported by credible contemporaneous documents. The manner she gave her evidence was believable. She was not shaken in cross-examination. Even counsel for Australian Foods was of the view her evidence as to the date quality defects were notified to Shivnani should be accepted. 123 I find the steps taken by TLC were practical, immediate and reasonable. The path suggested by Australian Foods even if I was to believe it to be so advanced, was likely to be costly, complex and may have affected the reputation of all involved. It did not auger well for a quick resolution. 124 The substituted performance of the contract has not been shown to be anything other than an appropriate mitigation of loss. I find that Australian Foods has failed to prove, as it must, on balance of probabilities that the plaintiff failed to mitigate its loss.
The white pea contract 125 On 12 February 2001 a further contract was brokered between the parties by Teague Australia Pty Ltd for the sale of 114.11 metric tonnes of white peas at a price of $244 per metric tonne. The total contract price was $30,627.12 and WACBH/Metro Grain Centre was to arrange the transfer. 126 The agreed industry standard in relation to payment for the white peas is found in the Australian Grain Exporters Association standards. Relevantly cl I(a):
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127 On 13 February 2001 Australian Foods made a request for payment for the peas. This request was sent by facsimile transmission and attached tax invoice 178 which related to the white pea contract. It sought payment by 14 February 2001 by means of telegraphic transfer of the contract price to a nominated bank account at Australian and New Zealand Banking Group Limited. 128 The following day, 14 February 2001, TLC sent a facsimile transmission to Australian Foods confirming that arrangements for direct transfer to Australian Foods' bank account had been made in the amount owing under the white pea contract. There is no suggestion the payment was not made. 129 The white peas were never received by TLC. On 6 March 2001 TLC wrote to WACBH requesting confirmation of the title transfer. However, Australian Foods had by then sold the white peas to another buyer. 130 It pleads the $30,627.12 paid on 14 February 2001 was appropriated to the amount then owing on the dun pea contract. 131 It is necessary to examine whether the amount of $30,627.12 paid by TLC for white peas could be regarded as having been appropriated to TLC's liability to pay for the dun peas. 132 The defendant relies on two sources of evidence in support of its contention that the amount equating to payment on the white pea contract had been appropriated to the dun pea contract. As at 14 February 2001 payment for the dun peas was outstanding. 133 The evidence of Shivnani was that the white pea contract was negotiated and concluded at a time when there were known difficulties with the dun pea contract. He says that on 13 February at the time notification was made of the need to make the white pea contract payment not only was payment overdue on the dun pea contract but, importantly,
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he was well aware of the likely potential for a quality claim in relation to the dun peas. His evidence was that the quality issues in relation to the dun peas were known well before payment was made for the white peas. He was suggesting that the notification of quality problems was the main reason the money was appropriated. 134 This does not accord with evidence given by Jacobs and which was not challenged. That evidence was that the first notification of quality issues and that there was to be a holding back of some money for the dun peas was in a telephone conversation with Shivnani on 16 February 2001. He had rung to query late payment for the dun peas. 135 TLC itself only knew of these quality issues on 16 February 2001. As at 16 February 2001 the white pea contract had been brokered (13 February 2001) and full payment made as directed (14 February 2001). 136 Clearly if Jacobs' evidence is to be believed then Shivnani did not know of any quality issues until days after money had been paid on the white pea contract. 137 Counsel for Australian Foods in his closing address conceded Jacobs had given: "Clear evidence that the first occasion she discussed the issue with Mr Shivnani was 16 February 2001 … ". 138 He goes on to say that in this one respect Shivnani's evidence should not be taken at face value and that it should not be regarded as reflecting the date upon which quality issues were notified. 139 Shivnani's evidence went further. He said he had actually spoken to Jacobs and told her any moneys paid to Australian Foods would first be allocated to settle the outstanding debt for the dun pea contract. He did not say when this conversation took place. 140 Shivnani's conversation on likely appropriation was not put to Jacobs. She had no opportunity to refute any knowledge of a likely appropriation of funds or that there would be an immediate offset of the white pea contract money to the money owing for the dun peas. 141 The second source of evidence relied upon by Australian Foods to support its contention that notice of appropriation of the white pea money was made was through Kanchan Aswani ("Aswani").
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142 Kanchan Aswani ("Aswani") was the business development manager and export document clerk for TLC. Her role was to create export documents, liaise with the packing facility and the purchasers. She was married to Shivnani.
143 Her evidence was heard on the penultimate day of the trial (8 September 2004). 144 She had then only recently located two documents signed by her in Australian Foods' archives which were, she gave evidence, relevant to the proceedings. 145 Those documents had been located in the preceding days. They were letters written by Australian Foods to TLC dated 14 February and 2 March 2001 apparently in response to earlier correspondence from TLC. They had not been discovered and were physically produced just before the time of her giving evidence although they were available at least the day before. 146 The first notification of this development was made by counsel for Australian Foods on 6 September 2004 during the evidence-in-chief of Shivnani. As the documents were not discovered then they could not be put to him in cross-examination. 147 Shivnani's evidence was that in the office of Australian Foods there was a sharing of responsibility between the three people there – himself, his wife Aswani and a Faye Thatcher ("Thatcher") who was never called to give evidence. She was no longer with Australian Foods. His evidence was that he used to intervene and assist the administrative department, Aswani and Thatcher, at the operational level of the business. The evidence of Aswani in relation to the letter of 14 February 2001 was that Shivnani had instructed her to send that letter by facsimile transmission. He had instructed her on the content of the letter. 148 Despite this counsel for TLC was not in a position to cross-examine Shivnani on the letters because they had not been disclosed, despite their availability. Again, the letters were not put to Jacobs. 149 The documents were facsimile transmission cover sheets and letters signed by Aswani. Her evidence was they were the only letters she signed in relation to these dealings with TLC.
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150 The letter dated 14 February 2001 advised that any funds paid by TLC to Australian Foods would be credited "in the first instance for payment against invoices issued for the dun pea contract".
151 The second letter dated 2 March 2001 related to joint inspection an I find had no material relevance to the matters in issue. 152 Doubts were cast on the veracity of Aswani and the letters. The manner in which the letters were introduced into evidence, the timing and method of their discovery, the content, and the way in which Aswani's evidence was given are all matters of concern. 153 The contemporaneous documents not in contention between the parties support the position of TLC. 154 At the highest for Australian Foods, even if the Court was to accept that the letter of 14 February 2001 was written and sent by Aswani on the date set out, there is no evidence to support that TLC accepted the position or indeed received the letter before it gave instructions to its bank to pay Australian Foods for the white peas. 155 At the time the amount was authorised to be paid by TLC on 14 February 2001, I am satisfied the only conclusion is that Australian Foods was not entitled to appropriate this money. 156 I am of the view that the TLC has discharged its onus to show that the payment of $30,627.12 was made and it could only have been made in payment of the white pea contract. I find it was not made on the basis that it would be appropriated towards the discharge of any outstanding obligation for dun peas. 157 I find that any decision to offset the funds was made by Australian Foods on or after 16 February when Shivnani found out about the dun pea quality issues and that funds would be withheld. I find that at the time payment was authorised on the white pea contract (14 February 2001) Australian Foods was not aware of any issues relating to quality or that some funds were being withheld. 158 In my view Australian Foods is entitled to recover the whole of the amount paid for the white peas it never received. $30,627.12 was paid for the white peas.
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Rule in Browne v Dunn
159 The rule of practice to be found in the case of Browne v Dunn (1893) 6 R 67 (HL) is based upon general principles of fairness. It is a rule that was ignored throughout the case for Australian Foods. 160 If a witness is not cross-examined in relation to a particular matter upon which he or she has given evidence then that may be a very good reason for accepting the evidence of that witness upon that matter. It is designed to achieve fairness to witnesses and a fair trial between the parties. 161 The manner in which Australian Foods ran its case meant many issues were not put to TLC's witnesses, in particular, Jacobs, NK and P. 162 If it was intended to suggest that Jacobs was not speaking the truth about such issues as joint inspection and notification of an intention to appropriate funds she should have been cross-examined on these matters so that she might have had the opportunity of explanation. She was not in fact cross-examined on these issues or her answers generally. It is thus that her evidence was uncontradicted and unchallenged in cross-examination on many relevant issues. 163 There was an expectation that TLC would recall Jacobs. Australian Foods did not seek to have her recalled. The trial was part heard due to a number of reasons including the lack of preparedness of Australian Foods. One of the main issues Jacobs needed to have put to her was the intention to appropriate the funds, as set out in the Aswani letter of 14 February 2001. 164 This dubious letter was produced on the last day of the evidence. 165 The rule makes it clear that it is not necessarily right to conclude that the absence of cross-examination entails the acceptance of the evidence given but it does enable the evidence to be regarded by any tribunal of fact with a greater degree of assurance that might otherwise have been the case. 166 Even without the rule in Browne v Dunn Jacobs was a believable witness. 167 Jacobs should have been given some forewarning by her cross-examiner that there was an intention to impeach the credibility of the story that she was telling.
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Counterclaim
168 The defendant is seeking full payment of the outstanding $36,363.64, for the dun peas it says it supplied albeit in breach of the contract. 169 However, Australian Foods contends that the money it allegedly appropriated, $30,627.12, can be offset against the amount outstanding for the dun peas. As an end result it seeks a net balance of $5,736.52. This is sought on the basis the Court makes a declaration that there is no further obligation to return any money or provide the white peas pursuant to the white pea contract. 170 In view of the findings I have made in relation to breach of contract and the loss that flows from that, along with the issue of appropriation it follows that the defendant's counterclaim will be dismissed.
Damages 171 TLC is entitled to the sum of $30,627.12 paid by it for white peas it never received. 172 In relation to the dun pea contract it is necessary to calculate the basic loss TLC suffered. Essentially in cases of this nature the basic loss is the value of the property as represented less its market value in fact. The total dun pea contract price was $95,332.09. On 21 February TLC paid to Australian Foods the amount of $58,966.45. At that stage there was a balance owing of $36,363.64. 173 The Tuticorin buyers had paid for the dun peas after the containers left the wharf at Fremantle. As a result of the defective quality and the negotiations that took place they were reimbursed or to be reimbursed the total amount of $53,738.11. TLC seeks damages. 174 It is clear the onus of proving the extent of loss or damage rests on the plaintiff. In the circumstances of this case the fair amount to be paid, based on the evidence, is the difference between the money repaid to the Tuticorin buyers and the balance due and owing on the contract price. 175 The result is that, taking into account the $58,966.45 already paid to Australian Foods and the $53,738.11 paid or to be paid to the Tuticorin buyers, Australian Foods is to pay to TLC the amount of $17,374.47.
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Total contract price $95,332.09 Paid by TLC 21.2.04 $58,966.45 Balance owing to Australian Foods $36,363.64
Paid to Tuticorin buyers by TLC $53,738.11
Adjustment to balance owing to $17,374.47 Australian Foods ($53,738.11 less $36,363.64)
Orders 1. The defendant pay to the plaintiff the sum of $30,627.12 with interest thereon pursuant to s 32 of the Supreme Court Act from 15 February 2001. 2. The defendant pay to the plaintiff by way of damages for breach of the dun pea contract the sum of $17,374.47. 3. The counterclaim of the defendant be dismissed. 4. The defendant pay the plaintiff's costs of the action to be taxed if not agreed.
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