CATCHWORDS

 

 

CONTRACT - breach of implied term - reliance on s14 of the Sale of Goods Act 1895 (SA) - whether goods reasonably fit for their purpose and of merchantable quality - no implied warranty as to fitness for any particular purpose where goods sold pursuant to contract for sale of specified article under its patent or trade name - purpose for which goods used not particular purpose made known - proof of unfitness for a particular purpose will not always amount to evidence of unmerchantability - evidence of large quantities of goods sold in market place relevant to whether goods are of a merchantable quality.

 

 

CORPORATIONS - power of liquidator to sell property of company pursuant to s477(2)(c) of the Corporations Law - whether deed of assignment of choses in action constitutes a sale by the liquidator of property of the company - whether s477(2)(c) of the Corporations Law authorises assignment of a chose in action which could not be assigned at law.

 

 

CORPORATIONS - company in liquidation - liquidator vested with authority to institute proceedings - power of Court to authorise other persons to conduct litigation in name of company.

 

 

DAMAGES - loss suffered by company - director and shareholder transferred its assets and liabilities to company - whether director and shareholder has a personal right of action against respondent - whether transfer of assets and liabilities made a practical difference to the conduct of the business and the distribution of profits of company - shareholder cannot recover damages merely because company in which he or she has a major interest has suffered damage.

 

 

NEGLIGENCE - negligent misrepresentations - duty of care arises where a relationship of proximity exists between the parties - reliance important in the ascertainment of a relationship of proximity - failure of evidence to establish reliance on representations.

 

 

TORT - assignment of cause of action - whether right of action for a tort is incapable of assignment either at law or in equity - whether assignee has a "genuine commercial interest" in the cause of action.

 

 

TRADE PRACTICES - assignment of claims pursuant to s52 and s82 of the Trade Practices Act 1974 (Cth) - whether on its proper construction s82 of the Trade Practices Act 1974 (Cth) allows recovery of damages by an assignee - on its proper construction s82 of the Trade Practices Act 1974 (Cth) does not allow recovery by an assignee who has not himself or herself suffered the loss or damage sought to be recovered.

PRACTICE AND PROCEDURE - joinder of parties - company in liquidation - director and shareholder giving instructions for proceedings to be issued in name of company - entitlement of director and shareholder to use name of company by reason of equitable assignment of choses in action - discussion as to who the necessary parties to an action where a cause of action has been assigned in equity - Court requires assignee to join assignor as procedural requirement - comments as to what director and shareholder ought to have done to achieve company as a necessary party to proceedings.

 

PRACTICE AND PROCEDURE - whether appropriate for single judge to depart from earlier decisions of Court - earlier decisions not affected by any obvious error - single judge not free to depart from well established principles.

 

 

 

 

 

Corporations Law s 474(1) and (2), s 477(2)(c)

Evidence Act 1995 (Cth) s 54

Trade Practices Act 1974 (Cth) ss 52, 71 and 82

Law of Property Act 1976 (SA) s 15

Misrepresentation Act 1972 (SA)

Sale of Goods Act 1895 (SA) s 14

 

 

 

 

 

Three Rivers District Council v Bank of England [1995]    4 All ER 312

McIntyre v Gye and Another (1994) 122 ALR 289

Christianos & Ors v Aloridge Pty Ltd & Anor (1995) 13 ACLC 1,851

Russell & Anor v Westpac Banking Corporation & Ors (1994)     61 SASR 583

Arturi v Zupps Motors Pty Ltd and Another (1980) 49 FLR 283

Walker and Others v Hungerfords and Others (1987) 49 SASR 93

Hungerfords and Others v Walker and Others (1989) 171 CLR 125

Prudential Assurance Co Ltd v Newman Industries Ltd and Others     (No.2) [1982] 1 Ch 204

Gould and Another v Vaggelas and Others (1985) 157 CLR 215

Morwood and Another v Chemdata Pty Limited (unreported, Federal    Court, Lockhart J, 1 September 1995)

Park & Others v Allied Mortgage Corporation Limited & Others(1993) ATPR 46-105

Allstate Life Insurance Co & Ors v Australia & New Zealand Banking Group Limited & Ors (unreported, Federal Court, Beaumont J, 7 November 1994)

National Mutual Property Services (Australia) Pty Ltd & Ors v Citibank Savings Limited & Ors (No.1) (unreported, Federal Court, Lindgren J, 1 November 1995)

Re Nguyen; Ex parte Official Trustee in Bankruptcy (1992)     35 FCR 320

Cotterill v Bank of Singapore (Australia) Ltd & Ors (unreported, Supreme Court of NSW, Bainton J, 7 July 1995)

Poulton v The Commonwealth and Others (1953) 89 CLR 540

Trendtex Trading Corporation and Another v Credit Suisse  [1982]   AC 679

Re Timothy's Pty Ltd and the Companies Act [1981] 2 NSWLR 706

Re Daley; Ex parte National Australia Bank Ltd (1992) 37 FCR 390

Monk v Australia and New Zealand Banking Group Ltd (1994)     34 NSWLR 148

First City Corporation Ltd v Downsview Nominees Ltd [1989]    3 NZLR 710

South Australian Management Corporation v Sheahan & Ors (1994)     16 ACSR 45

Beatty & Anor v Brash Pty Ltd (1995) 13 ACLC 925

Trident General Insurance Co Limited v McNiece Bros Proprietary    Limited (1988) 165 CLR 107

Ramsey v Hartley and Others (1977) 1 WLR 686

Guy v Churchill (1888) 40 Ch.D 481

Seear v Lawson (1880) 15 Ch.D 426

re Park Gate Waggon Works Co (1881) 17 Ch.D 234

Bang & Olufsen U.K. Ltd v Ton Systeme Ltd (unreported, Court of    Appeal, 16 July 1993)

Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465

San Sebastian Proprietary Limited & Anor v The Minister (1986)     162 CLR 340

Bryan v Maloney (1995) 182 CLR 609

Australian Knitting Mills Limited & Anor v Grant (1933)   50 CLR 387

George Wills and Company Limited v Davids Proprietary Limited(1957) 98 CLR 77

Bristol Tramways &c Carriage Co Ltd v Fiat Motors Ltd [1910] 2 KB 831

Jillawarra Grazing Company v John Shearer Ltd (1984) ATPR 40-441

 

 

 

 

 

No SG 112 of 1993

 

IAN WALTER BROOKFIELD and SEPTIC PRODUCTS AUSTRALIA PTY LTD (IN LIQUIDATION) (ACN 050 294 972)  v  DAVEY PRODUCTS PTY LTD (ACN 004 813 192), I.T.T. FLYGT LIMITED (ACN 000 832 922) and WHITE INTERNATIONAL PTY LTD (ACN 000 119 380)

 

 

 

 

 

 

Branson J

Adelaide

8 February 1996

IN THE FEDERAL COURT OF AUSTRALIA)

                                  )

SOUTH AUSTRALIA DISTRICT REGISTRY)    No SG 112 of 1993

                                  )

GENERAL DIVISION                  )

 

 

 

                                  BETWEEN:

 

 

                                  IAN WALTER BROOKFIELD and SEPTIC PRODUCTS AUSTRALIA PTY LTD (IN LIQUIDATION)

                                  (ACN 050 294 972)

 

                                                   Applicants

 

 

 

 

                                  - and -

 

 

 

                                  DAVEY PRODUCTS PTY LTD

                                  (ACN 004 813 192),

                                  I.T.T. FLYGT LIMITED

                                  (ACN 000 832 922) and

                                  WHITE INTERNATIONAL PTY LTD

                                  (ACN 000 119 380)

 

                                                  Respondents

 

 

                      MINUTES OF ORDER

 

 

CORAM:    Branson J

PLACE:    Adelaide

DATE:     8 February 1996

 

 

THE COURT ORDERS THAT:

 

 

1.   The application is dismissed.

 

 

 

 

 

 

Note:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

                                  )

SOUTH AUSTRALIA DISTRICT REGISTRY)    No SG 112 of 1993

                                  )

GENERAL DIVISION                  )

 

 

 

                                  BETWEEN:

 

 

                                  IAN WALTER BROOKFIELD and SEPTIC PRODUCTS AUSTRALIA PTY LTD (IN LIQUIDATION)

                                  (ACN 050 294 972)

 

                                                   Applicants

 

 

 

 

                                  - and -

 

 

 

 

                                  DAVEY PRODUCTS PTY LTD

                                  (ACN 004 813 192),

                                  I.T.T. FLYGT LIMITED

                                  (ACN 000 832 922) and

                                  WHITE INTERNATIONAL PTY LTD

                                  (ACN 000 119 380)

 

                                                  Respondents

 

 

 

 

 

                    REASONS FOR JUDGMENT

 

 

 

 

CORAM:    Branson J

 

PLACE:    Adelaide

 

DATE:         8 February 1996

INDEX TO JUDGMENT                                        PAGE

 

 

Introduction                                                1 

 

 

Waste Water Systems                                         5 

 

     ·    Parco Beaver System                               5 

 

     ·    Modified Parco Beaver System                      6 

 

     ·    BPS System                                        6 

 

 

The Parties                                                 7 

 

 

Causes of Action Alleged                                   13

 

     ·    Section 52 of the Trade Practices Act            14

 

     ·    Section 71 of the Trade Practices Act            15

 

     ·    Negligent Misrepresentation                      17

 

     ·    Misrepresentation Act 1972 (SA)                  20

 

     ·    Breach of Contract                               20

 

     ·    Exemplary Damages                                21

 

 

Does Mr Brookfield have a personal right of action         21

     against the Respondent?

 

 

Can an Assignee recover damages pursuant to s82 of         24

     the Trade Practices Act?

 

 

The claim made in reliance on s71 of the Trade             28

     Practices Act

 

 

Can a bare right of action be assigned?                    29

 

 

Section 477(2)(c) of the Corporations Law                  38

 

 

Negligent Misrepresentation                                41

 

 

Breach of Contract                                         48

 

 

INTRODUCTION

 

The applicant Ian Walter Brookfield ("Mr Brookfield") is a qualified master plumber.  In 1988 he registered the business name "Brookfield Plumbing Services".  Trading under that business name, Mr Brookfield initially concentrated on the installation of septic tanks.

 

In about February 1989 Mr Brookfield received a telephone call from a Mr Robert Myles ("Mr Myles").  Mr Myles was a director of the company Allwater Treatment Pty Limited ("Allwater").  Allwater was licensed to manufacture and sell a waste water system known as the "Parco Beaver Aerobic Septic System" ("the Parco Beaver system").  An Australian patent application had been made in respect of the Parco Beaver system on behalf of Parco Pty Ltd ("Parco").  Following negotiations between Mr Brookfield, Mr Myles and a Mr McCaig, also apparently a director of Allwater, Mr Brookfield became a shareholder, with Messrs Myles and McCaig, in the company Waterite (SA) Pty Ltd ("Waterite").  Waterite became the supplier of Parco Beaver systems in South Australia.  Mr Brookfield installed the Parco Beaver systems using the business name Brookfield Plumbing Services.

 

In early 1990 Mr Brookfield commenced installing a modified version of the Parco Beaver system.  The elements of the Parco Beaver system, and Mr Brookfield's modification of the Parco Beaver system, are discussed below.

 

Mr Brookfield's involvement with Mr Myles and Mr McCaig in Waterite lasted only about 9 months.  Thereafter he continued to install Parco Beaver systems, but until September 1990 he obtained such systems directly from Allwater.  A provisional liquidator was appointed to Allwater in September 1990.

 

Following the appointment of the provisional liquidator of Allwater, Mr Brookfield sought access to the Parco Beaver system by other means.  He contacted a Mr Lucas Mueller ("Mr Mueller") who was, and is, a director of Parco.  Parco had registered the trademark "Parco Beaver" and, as mentioned above, was the entity on whose behalf a patent application had been made in respect of the Parco Beaver system.  Parco had earlier assigned its rights with respect to the Parco Beaver system to Allwater.  It re-acquired such rights from the liquidator of Allwater.

 

A deed dated 6 December 1990 was entered into between Parco and Mr Brookfield whereby Mr Brookfield was licensed to manufacture and sell in Australia the Parco Beaver system.  The deed authorised Mr Brookfield to incorporate a company named Parco Beaver Australia Pty Limited on the basis that, upon its incorporation, the agreement contained in the deed would be cancelled and an agreement in identical terms would be entered into between Parco and that company.  A company was incorporated and eventually named Parco Beaver Australia Pty Limited.  It did not enter into an agreement with Parco.  Parco Beaver Australia Pty Limited subsequently changed its name to Septic Products Australia Pty Ltd.  It is the second applicant.

In about March 1991 an informal joint venture agreement was entered into between Mr Brookfield and the second applicant, then called Parco Beaver Australia Pty Ltd.  Assets and liabilities of Mr Brookfield's business, Brookfield Plumbing Services, were transferred to the second applicant on 1 July 1991.  Mr Brookfield had been the chief executive officer and a director of the second applicant from December 1990.  He continued in those positions.

 

Mr Brookfield, apparently on legal advice, claimed in May 1991 that he had entered into the deed between him and Parco as a result of actionable misrepresentations.  Considerable correspondence followed between the respective legal advisers to Mr Brookfield and Parco.

 

In September 1991 Mr Brookfield received provisional patent approval for a waste water system described as the BPS Trickle Filter System ("BPS system").  Thereafter he installed only BPS systems:  that is, he no longer installed the Parco Beaver system either in its strict form or in the modified form developed by him.  It appears, however, that until the making of certain orders in the Supreme Court of New South Wales, which are referred to below, such BPS systems were probably sold under the name Parco Beaver.

 

In early November 1991 the patent application for the Parco Beaver system was accepted and Australian Patent No.618248 was sealed on 4 May 1992.

On 9 January 1992 Parco gave notice of termination of the deed between it and Mr Brookfield on the ground of non-performance by Mr Brookfield of his obligations thereunder.

 

Proceedings were instituted against Mr Brookfield and Parco Beaver Australia Pty Limited in the Supreme Court of New South Wales.  On 17 June 1992 interlocutory orders were obtained in such proceedings which, amongst other things, restrain Mr Brookfield and Parco Beaver Australia Pty Limited from manufacturing or selling any product under the name of Parco Beaver.  Shortly thereafter the name of the second applicant was changed to Septic Products Pty Ltd.  The second applicant will hereafter generally be referred to as "Septic Products" even when events are being discussed which occurred before its change of name.

 

Shortly after Allwater went into provisional liquidation, Mr Brookfield made contact with the first respondent ("Davey Products"), a supplier of pumps.  He spoke by telephone with Mr Dallas Wilsdon ("Mr Wilsdon"), the South Australian manager of Davey Products.  Mr Wilsdon had already identified the waste water industry as a potential source of sales for pumps, and Mr Brookfield as a potential buyer of pumps.  In circumstances discussed below, arrangements were put in place for Davey Products to supply Mr Brookfield with two models of pump, the Davey Lowara Doc 3 ("the Doc 3 pump") and the Davey Lowara Doc 7 ("the Doc 7 pump").  The Doc 3 pump was to be used in lieu of the Grundfos KP 100 pump ("the KP 100 pump")  as a recirculation pump.  The Doc 7 pump was already being used by Mr Brookfield as an irrigation pump.  Subsequently Davey Products provided "Sumprat" pumps to Mr Brookfield.  The Sumprat pumps were of a substantially identical design to the Davey Lowara Doc pumps.  There was a Sumprat pump equivalent for both the Doc 3 and the Doc 7 pumps.

 

The applicants experienced problems with all models of pump supplied by Davey Products.  The nature of these problems are discussed below.  In October 1991 Mr Brookfield advised Davey Products that the second applicant would no longer use its pumps.  Thereafter the second applicant obtained pumps first from the second respondent and then from the third respondent.  Problems were also experienced by the second applicant with the pumps obtained from those parties.

 

The second applicant was placed in liquidation on 5 April 1993.

 

WASTE WATER SYSTEMS

(a)  Parco Beaver System

 

Annexure 1 to these reasons is a diagram illustrating the principal features of the Parco Beaver system.

 

The Parco Beaver system utilises two tanks each divided into two compartments.  The first tank serves as a settlement tank with primary settlement taking place in its larger compartment.  Waste water, with limited solids, flows from the smaller compartment of the first tank into the larger compartment of the second tank.  The larger compartment of the second tank is known as the holding tank.  It is situated beneath a bio-filter module.  The waste water is repeatedly pumped by a recirculation pump above the bio-filter module from where it trickles through the filter medium back to the holding tank.  By this process clarification of the waste water is achieved.  Clarified waste water flows into the smaller compartment of the second tank where it is treated with chlorine.  From this compartment it is pumped by the irrigation pump out of the system, usually through a garden irrigation system.

 

(b)  Modified Parco Beaver System

 

The Parco Beaver system utilises short lengths of cut plastic piping held within a concrete bowl as its filter medium.  It is this aspect of the system which Mr Brookfield modified.  The modification involved the replacement of the cut plastic piping with a series of plastic discs set one above the other on a horizontal plane ("the disc pack").  The discs had a regular pattern of small holes drilled through them so as to allow water discharged over the top disc to trickle through the series of discs and return to the holding tank.

 

(c)  BPS System

 

The BPS system is, in essence, a modification devised by Mr Brookfield of the Parco Beaver system.  The settlement tank is not materially different from that used in the Parco Beaver system.  The second tank as designed for the BPS system is illustrated in annexure 2 to these reasons.  The significant differences between the second tank of the Parco Beaver system and the second tank of the BPS system include the following:-

 

     (a)  the BPS system used the disc pack as the filter medium rather than the cut pipe used in the Parco Beaver systems;

 

     (b)  the BPS system did not use a concrete filter bowl but rather a free-standing PVC column which supported the disc pack;

 

     (c)  in the BPS system the stilling chamber extended to the floor of the tank although it had a 100 millimetre diameter circular opening 50 millimetres above the floor of the tank.  In the Parco Beaver system the stilling chamber was open at the bottom and did not reach to the floor of the tank;

 

     (d)  the BPS system returned water which had passed over the filter packs to the stilling chamber.  The Parco Beaver system returned such water to the outside of the stilling chamber.

 

THE PARTIES

 

The applicants are Mr Brookfield and Septic Products Australia Pty Ltd (In Liquidation).  During final addresses it became apparent that the liquidator of Septic Products had no
involvement in these proceedings and had never been intended to have any.  It was Mr Brookfield who had given instructions for the proceedings to be issued in the name of Septic Products.  I raised with Mr Cameron, who with Mr Moffa appeared for the applicants, the basis upon which Mr Brookfield purported to be entitled to use the name of Septic Products in this litigation.  This query resulted in disclosure of a deed of assignment which had not at that stage been either discovered or referred to in the pleadings.  These serious deficiencies in the conduct of the case of the applicants have now been rectified.

 

It is appropriate to set out the terms of the deed in full:-

     "THIS DEED is made the 28th day of October 1993

 

      BETWEEN:RUSSELL HEYWOOD-SMITH as Liquidator of SEPTIC PRODUCTS AUSTRALIA PTY LTD (ACN 050 294 972) c/- BDO Nelson Parkhill of 248 Flinders Street, Adelaide 5000 in the State of South Australia (hereinafter called "the Assignor") of the first part

 

              AND

 

              IAN WALTER BROOKFIELD of 139 Ladywood Road, Modbury Heights 5092 in the said State (hereinafter called "the Assignee") of the second part.

 

     RECITALS:

 

     A.   The Assignor is the Appointed Liquidator of Septic Products Australia Pty Ltd (ACN 050 294 972) (In Liquidation).

 

     B.   The Assignee is the applicant in certain legal proceedings to be instituted in the Federal Court of Australia for damages against DAVEY PRODUCTS PTY LTD (ACN 004 813 192), I.T.T. FLYGT LIMITED and WHITE INTERNATIONAL PTY LTD (ACN 000 119 380).

 

     C.   The Assignor has agreed to assign to the Assignee absolutely all of the Assignor's right, title and interest as applicant to the aforementioned proceeding.

     NOW THIS DEED WITNESSES:

 

     1.   Assignment

 

          In consideration of the payment of ONE DOLLAR ($1.00) paid by the Assignee to the Assignor and in consideration of the Assignee accepting this assignment the Assignor assigns all of the Assignor's right, title and interest as applicant in certain Federal Court proceedings to the Assignee.

 

     2.   Covenants by Assignee

 

          The Assignee covenants with the Assignor:

 

            (1)   to institute proceedings in an action for damages in the Federal Court of Australia against the parties referred to in Recital B herein on or about the 28th of October 1993;

 

           (2)  upon receipt of damages awarded to the Assignee pursuant to the proceedings referred to herein pay in full the amounts specified to the creditors referred to in the Annexure hereto together with such other amounts to such other parties able to prove in the liquidation of the Assignor or in the event there are insufficient damages awarded to pay in full undertake to pay creditors on a pro rata basis;

 

           (3)  to indemnify and keep indemnified the Assignor from and against any liability incurred by the Assignor arising out of the proceedings referred to herein and any associated costs reasonably incurred in the liquidation of the Assignor.

 

     IN WITNESS WHEREOF the parties hereto have executed this Deed the day and year first hereinbefore written.

 

     SIGNED SEALED AND DELIVERED  )         (signed)

     by the said RUSSELL HEYWOOD  )    ..................

     SMITH on behalf of SEPTIC         )

     PRODUCTS AUSTRALIA PTY LTD   )

     (ACN 050 294 972) in the          )

     presence of:                 )

 

          (signed)

     ..................

 

     SIGNED SEALED AND DELIVERED  )         (signed)

     by the said IAN WALTER       )    ..................

     BROOKFIELD in the presence of:    )

 

          (signed)

     .................."

These proceedings were instituted in the names of Mr Brookfield and Septic Products as applicants on 1 November 1993.  That is, 4 days after the deed was executed.

 

Counsel for the applicants did not seek to uphold the deed as a legal assignment by Septic Products of any chose or choses in action.  It was acknowledged that there had been no compliance with s15 of the Law of Property Act 1976 (S.A.).  However, it was sought to uphold the deed as an equitable assignment of the choses in action referred to in the pleadings.  Ultimately the applicants were granted leave to amend their statement of claim to include the following paragraph:-

 

     "2A.Further, and in the alternative, on the 28th day of October 1993, the liquidator of the second applicant affected (sic) an assignment in equity of the second applicants chose in action to the first applicant subject to the terms expressed in a deed dated 28 October 1993 subject to the consideration referred to in the deed.  The applicants will refer to the contents of the deed for its full effect and import."

 

 

The deed does not expressly authorise the institution of proceedings in the name of Septic Products.  It may be that it does so by implication, but no argument to this effect was put to me.

 

It was not contended on behalf of the applicants that Septic Products retains any beneficial interest in its "... right, title and interest as applicant ..." in these proceedings (see recital C to the deed).  Plainly enough, however, Septic Products retains its choses in action at law:  assuming for the moment the validity of the deed, Mr Brookfield's rights under the deed are rights in equity.

 

The position with respect to necessary parties to an action where a cause of action has been assigned in equity was expressed by Peter Gibson LJ in Three Rivers District Council v Bank of England [1995] 4 All ER 312 at 331 as follows:-

 

     "... the equitable assignee can be regarded realistically as the person entitled to the assigned chose and is able to sue the debtor on that chose, but that save in exceptional circumstances the Court will require him to join the assignor as a procedural requirement so that the assignor might be bound and the debtor protected.  If, unusually, the assignor sues, he will not be allowed to maintain the action in the absence of the assignee."

 

In McIntyre v Gye and Another (1994) 122 ALR 289 at 295 the Full Court of this Court adopted the same approach stating:-

 

     "... where there is an equitable assignment of a legal chose in action, the assignor should be a party to an action to recover the debt, either as plaintiff or defendant ..."

 

Accepting, as I do, that Septic Products is a necessary party to these proceedings, what steps ought to have been taken by Mr Brookfield to achieve this end?  He could have negotiated an agreement with the liquidator of Septic Products whereby the liquidator authorised the institution of proceedings in the name of Septic Products.  It was not contended that had been done.  Other possible courses of action are canvassed by the Full Court of this Court in Christianos & Ors v Aloridge Pty Ltd & Anor (1995) 13 ACLC 1,851 at 1,858.  Although the Full Court in that case made no reference to the decision of the Full Court of
the Supreme Court of South Australia in Russell & Anor v Westpac Banking Corporation & Ors (1994) 61 SASR 583, I do not regard the two decisions as incompatible.  In Russell & Anor v Westpac Banking Corporation & Ors at 585 King CJ, with whom the other members of the Full Court of the Supreme Court of South Australia agreed, said:-

 

     "The general rule, being that which is generally referred to as the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189, is that for a wrong done to a company, the company is the proper plaintiff in an action to seek redress.  When the company is in liquidation, the person in whom is vested the authority to institute proceedings, is the liquidator:  Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (No.2) (1988) 17 FCR 344.  There is power, however, in the Court to authorise other persons to conduct litigation in the name of the company:  Cape Breton Co v Fenn (1881) 17 ChD 198; Aliprandi v Griffith Vintners Pty Ltd (In liq) (1991) 6 ACSR 250."

 

During final addresses an application was made to the Court for Mr Brookfield to be granted authority to conduct this litigation using the name of Septic Products as a co-applicant.  Evidence was placed before the Court in support of that application.  In ruling that the application should be allowed I said:-

     "... the nature of the leave I propose to give reflects the nature of [the] assignment and in a sense the technical nature of the name of the company being used.  So on that basis, on the notice of motion of 20 September 1995 it is formally ordered:

 

     (1)  that Ian Walter Brookfield is authorised with effect from the date of the commencement of these proceedings at his own expense and risk as to costs to use the name of Septic Products Australia Pty Ltd (In Liquidation) as a co-applicant in these proceedings ..."

 

Septic Products may thus be seen as a party joined in these proceedings to satisfy the procedural requirement as to joinder
of an assignor of a chose in action.  By reason of the execution by the liquidator of Septic Products of the deed of 28 October 1993, Septic Products cannot be seen as a party itself entitled to relief from the respondents to these proceedings.  It has purported to assign those rights to Mr Brookfield.  I do not understand the contrary to have been argued.

 

It was, however, argued that Mr Brookfield has legitimate claims for relief against the respondents which are independent of any rights assigned to him pursuant to the deed of 28 October 1993.  This argument is considered below.

 

I turn to the respondents.  Each of them was at some time a supplier of pumps to the applicants or one of them.  The proceedings were settled between the applicants and the second and third respondents respectively close to the date upon which these proceedings were listed for hearing.

 

The hearing thus proceeded between the applicants and the first respondent only.  The first respondent will hereafter be referred to as "the respondent".

 

CAUSES OF ACTION ALLEGED

 

Neither the application in this matter, nor the statement of claim, draws any distinction between claims for relief made on behalf of the first applicant in his own name and claims made in reliance on the deed of 28 October 1993.  For the purpose of
simply identifying the causes of action pleaded I will also draw no distinction between the applicants.

 

Section 52 of the Trade Practices Act 1974 (Cth) ("the Trade Practices Act")

 

The applicants claim by their application a declaration that the respondent has engaged in conduct constituting contravention of s52 of the Trade Practices Act, and damages pursuant to s52 of the Trade Practices Act as a consequence of such conduct.  The claim for damages is to be understood as a claim pursuant to s82 of the Trade Practices Act.

 

Section 52(1) of the Trade Practices Act provides as follows:-

 

     "A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

 

Paragraph 39 of the statement of claim makes it clear that the complaints made under s52 of the Trade Practices Act, so far as the Doc 3 pumps are concerned, relate to alleged representations that the Doc 3 pump was capable of adequately being substituted for the KP 100 pump and that the Doc 3 pump was capable of working in the waste water system being produced by the applicants.

 

Doc 7 pumps were being installed by the applicants in their waste water system before any direct contact between the applicants and the respondent.  Paragraph 20 of the statement of claim pleads as follows:-

     "It was an express or alternatively implied term of the sale and purchase of the Doc 7 pumps that they were of merchantable quality and fit for the purpose of pumping septic waste water."

 

Paragraph 39 of the statement of claim pleads that in the light of para 20, which is set out above, the respondent engaged in conduct contrary to s52 of the Trade Practices Act by representing that the Doc 7 pump "... was capable of working in the waste water treatment systems produced by Brookfield which systems were known to Davey."

 

As to the Sumprat pump, the statement of claim pleads that, after advising Mr Brookfield of a manufacturing fault with the Doc 3 pump, an employee of the respondent told Mr Brookfield that the respondent "... would supply an alternative pump called a Sumprat as a suitable replacement for the Doc 3 pumps ...".  Paragraph 39 of the statement of claim pleads that the respondent thus engaged in conduct contrary to s52 of the Trade Practices Act by representing that the Sumprat pump was capable of adequately being substituted for the KP 100 pump and "... was capable of working in the waste water treatment systems produced by Brookfield which systems were known to Davey."

 

Section 71 of the Trade Practices Act

 

The application claims damages for breach of s71 of the Trade Practices Act.

 

Section 71 of the Trade Practices Act provides as follows:-

     "(1)Where a corporation supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business, there is an implied condition that the goods supplied under the contract for the supply of the goods are of merchantable quality, except that there is no such condition by virtue only of this section -

 

          (a)  as regards defects specifically drawn to the consumer's attention before the contract is made; or

 

          (b)  if the consumer examines the goods before the contract is made, as regards defects which that examination ought to reveal.

 

      (2)Where a corporation supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation or to the person by whom any antecedent negotiations are conducted any particular purpose for which the goods are being acquired, there is an implied condition that the goods supplied under the contract for the supply of the goods are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the corporation or of that person.

 

      (3)(not here relevant)."

 

As Brennan J pointed out in Arturi v Zupps Motors Pty Ltd and Another (1980) 49 FLR 283 at 285:-

     "Section 71 prescribes no norm of conduct:  it affects the legal relationship between parties to a contract by importing one or more conditions into the contract.  It does not proscribe conduct by the supplier of goods; it relates to the quality of the goods supplied."

 

It follows, as his Honour there pointed out, that a breach of the obligation statutorily created by s71 does not amount to conduct that was done in contravention of a provision of Part V of the Trade Practices Act for the purposes of a claim for damages pursuant to s82 of that Act.

Nonetheless a party may sue for a breach of an implied condition imported into a contract by reason of s71.  Such a condition will, however, only be implied into a contract where, in the opening words of ss(1) and (2) of s71, "... a corporation supplies ... goods to a consumer ...".  Section 4B(1) of the Trade Practices Act provides as follows:-

     "For the purposes of this Act, unless the contrary intention appears -

 

     (a)  a person shall be taken to have acquired particular goods as a consumer if, and only if -

 

          (i)  (not here relevant)

 

              or

 

          (ii)(not here relevant)

 

          and the person did not acquire the goods, or hold himself out as acquiring the goods, for the purpose of resupply or for the purpose of using them up or transforming them, in trade or commerce, in the course of a process of production or manufacture or of repairing or treating other goods or fixtures on land; ..."

 

Negligent Misrepresentation

 

Paragraph 40 of the statement of claim pleads that the respondent owed to the applicants a duty of care in and about the making of certain representations described as "the representations aforesaid".  The identification of such representations is a more complicated task than ideally it ought to be.

 

Paragraph 13 of the statement of claim pleads that in "... October 1990 and as a result of the representations made by Davey through its servant or agent Wilsdon to Brookfield in
October 1990, Brookfield started to incorporate the Doc 3 pumps into the first compartment of the holding tank of the Parco Beaver System in substitution for the KP 100 pumps".  The representations referred to in paragraph 13 would appear to be those pleaded in paragraphs 10, 10.1 and 12 of the statement of claim.

 

By paragraph 20.6 of the statement of claim the applicants plead that it "... was as a result of the representations made by Davey through its servant or agent, Wilsdon, to Brookfield in October 1990 that Brookfield continued to incorporate the Doc 7 pumps into the irrigation tank of the Parco Beaver System".  The representations referred to in paragraph 20.6 would appear to be those pleaded, expressly or by implication, in paragraphs 20.3, 20.4 and 20.5 of the statement of claim.

 

There is no express plea in the statement of claim that the applicants or either of them purchased and used Sumprat pumps as a consequence of any conduct of the respondent.  However, paragraph 26 of the statement of claim pleads that in approximately early 1992 an employee of the respondent told Mr Brookfield "... that there was a manufacturing fault with the Doc 3 pumps and that they would supply an alternative pump called a Sumprat as a suitable replacement for the Doc 3 pump ...", and paragraph 27 pleads that Mr Brookfield "... thereafter commenced incorporating the Sumprat pump in substitution for the Doc 3 pump in the Parco Beaver System".  I note, incidentally, that there is a clear conflict between the time here pleaded (approximately
early 1992) and the evidence concerning the supply of Sumprat pumps.  The appropriate inference to be drawn from paragraphs 26 and 27 of the statement of claim is, presumably, that the respondent represented that the Sumprat pump was a suitable replacement for the Doc 3 pump and that Mr Brookfield relied on that representation in incorporating the Sumprat pump into the Parco Beaver system.

 

In view of the above pleadings it seems reasonable to conclude that the representations referred to in paragraph 40 of the statement of claim are those pleaded in paragraphs 10, 10.1, 12, 20.3, 20.4, 20.5 and 26 of the statement of claim.

 

Paragraph 41 of the statement of claim is in the following terms:-

 

     "Davey recklessly and in breach of its duty of care to the Applicants failed to ensure that the Doc 3 pumps, the Doc 7 pumps and the Sumprat pumps were capable of working in the Parco Beaver System and the BPS MK9 System for the expected life of the unit which by Industry standards ought properly to have been at least 3-5 years continuous use as has been demonstrated by KP 100 pumps installed as early as 1987, which were still in operation in April 1993 when Septic Products was liquidated."

 

 

The duty of care referred to in paragraph 41 is presumably that pleaded in paragraph 40, namely the duty to take care in and about the making of representations.  So read, the plea of breach of duty does not in express terms match the duty pleaded by paragraph 40.  This aspect of the case is considered further below.

Damages pursuant to the Misrepresentation Act 1972 (S.A.) ("the Misrepresentation Act").

 

Although the application claims damages pursuant to the Misrepresentation Act there is no express reference to the Misrepresentation Act in the statement of claim.  No reference to the Misrepresentation Act is made in the applicants' final written submissions nor was any such reference made in the final address of counsel for the applicants.  It need not be further considered.

 

Breach of contract

 

The application claims damages for breach of contract.  The statement of claim makes it plain that this claim flows from allegations, as to the Doc 3 and Sumprat pumps, that "[i]t was an express or alternatively implied term of the contract for the sale and purchase of [such] pumps that they were of merchantable quality and fit for the purpose made known to Davey."  (statement of claim paras 14, 17.3 and 31.1)  As to the Doc 7 pump it is pleaded that:-

 

     "It was an express or alternatively implied term of the sale and purchase of Doc 7 pumps that they were of merchantable quality and fit for the purpose of pumping septic waste water." (statement of claim para.20)

 

 

For the reasons set out below, these pleas can not be supported by reference to s71 of the Trade Practices Act.  Section 14 of the Sale of Goods Act 1895 (S.A.) ("the Sale of Goods Act") is, however, also relied upon.

Section 14 of the Sale of Goods Act provides, so far as is here relevant, as follows:-

 

     "14.Subject to the provisions of this Act, and of any Statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:-

 

          I    Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply ..., there is an implied condition that the goods shall be reasonably fit for such purpose:  Provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose;

 

          II   Where goods are bought by description from a seller who deals in goods of that description ..., there is an implied condition that the goods shall be of merchantable quality:  Provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed ..."

 

 

Exemplary Damages

 

The application claims exemplary damages.  No submissions in support of this claim were made.  It may be treated as having been abandoned.

 

DOES MR BROOKFIELD HAVE A PERSONAL RIGHT OF ACTION AGAINST THE RESPONDENT?

 

No attempt was made in this case to prove loss or damage suffered by Mr Brookfield directly.  The case for the applicants was conducted on the basis that the losses of Septic Products are in reality Mr Brookfield's losses.  It was contended on behalf of the applicants that one award of damages should be given in favour of both applicants.

 

Reliance was placed on behalf of the applicants on the reasoning of King CJ, with whom the other members of the Full Court of the Supreme Court of South Australia agreed, in Walker and Others v Hungerfords and Others (1987) 49 SASR 93 at 103.  His Honour there said:-

 

     "It is now necessary to consider the effect (if any) upon the loss to the appellants ... of the incorporation of the business on 1 January 1982 ...  At that date the company took over the assets and liabilities including the debt to Mutual Acceptance.  The company is a mere trustee of a family trust whose beneficiaries are the partners of the former business and their children.  ...  It is clear that the new legal structure made no practical difference to the conduct of the business or the distribution of its profits."

 

As Mr Besanko QC, who appeared with Mr Robertson for the respondent, pointed out, it is not clear that the High Court is supportive of the above approach (see Hungerfords and Others v Walker and Others (1989) 171 CLR 125 per Mason CJ and Wilson J at 151 and per Dawson J at 165).  In any event, the evidence in this case does not establish that the transfer on 1 July 1991 of the assets and liabilities of the business of Brookfield Plumbing Services to Septic Products "made no practical difference to the conduct of the business or the distribution of profits".  Indeed it would seem unlikely that this could have been so:  Mr Brookfield alone owned the business name Brookfield Plumbing Services whereas he is only one of two shareholders and directors
of Septic Products.  Ms Nadia Sears, at one time Mr Brookfield's defacto wife, is also a director and shareholder of Septic Products.

 

The point of principle here raised was considered by the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd and Others (No.2) [1982] 1 Ch 204.  Their Lordships stated at 210:-

 

     "A derivative action is an exception to the elementary principle that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C.  C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested."

 

 

At 222-223 their Lordships went on:-

 

     "But what he [a shareholder] cannot do is to recover damages merely because the company in which he is interested has suffered damage.  He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a "loss" is merely a reflection of the loss suffered by the company.  The shareholder does not suffer any personal loss.  His only "loss" is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent shareholding."

 

 

Prudential Assurance Co Ltd v Newman Industries Ltd and Others (No.2) was expressly approved in Gould and Another v Vaggelas and Others (1985) 157 CLR 215 per Gibbs CJ at 219-220, Wilson J at 245 and Brennan J at 253.  See also Morwood and Another v Chemdata Pty Limited (unreported, Federal Court, Lockhart J, 1 September 1995).

 

I do not consider it appropriate in the circumstances of this case to make any award of damages in favour of Mr Brookfield solely on the basis that Septic Products, a company in which he admittedly has a major interest, has suffered damage.  Although it would, in my view, in any event be inappropriate to do so, the circumstance that Septic Products is in liquidation with unpaid creditors would make any such award particularly inappropriate.  In the circumstance that no loss or damage suffered by Mr Brookfield directly has been established, the application by him, so far as it makes claims against the respondent independently of the deed of 28 October 1993, must fail.

 

 

CAN AN ASSIGNEE RECOVER DAMAGES PURSUANT TO S82 OF THE TRADE PRACTICES ACT?

 

In the circumstances that:-

 

     (a)  it has not been established that Mr Brookfield himself suffered loss or damage by reason of any conduct of the respondent; and

 

     (b)  Septic Products is joined as an applicant in these proceedings to satisfy the procedural requirement that the equitable assignor be a party to proceedings brought in the name of an equitable assignee

 

any award of damages in this case must flow from Mr Brookfield's rights pursuant to the deed of 28 October 1993.

 

Section 82(1) of the Trade Practices Act provides as follows:-

 

     "A person who suffers loss or damage by conduct of another person that was done in contravention of Part IV or V may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention."

 

 

Section 52 of the Trade Practices Act is to be found in Part V of the Trade Practices Act.  An action for damages arising out of conduct undertaken in contravention of s52 is an action brought in reliance on s82.

 

In Park & Others v Allied Mortgage Corporation Limited & Others (1993) ATPR 46-105 at 53,469 Davie J stated as follows:-

 

     "In my opinion, a right to claim damages under ss82 and 87 of the Trade Practices Act 1974 (Cth) is, in general, a bare right of action which cannot be assigned.  I am not speaking of an assignment such as may occur on the bankruptcy or death of a person or on the merger of a company into another entity.  Absent such special circumstances, a right to claim under ss82 and 87 cannot, in my opinion, be assigned ... [Section 82] does not allow for the award of damages in respect of a loss which was not suffered by any party to the proceedings.  Both the terms of the statutory provision and the principle as enunciated in cases such as Dawson v Great Northern & City Railway Co. [1905] 1 KB 260 at 270-1, Defries v Milne [1913] 1 Ch 98 and Poulton v The Commonwealth (1953) 89 CLR 540 at 602 preclude Mrs Regan from suing for damages in respect of any loss suffered by Mr and Mrs Park.  Mr and Mrs Park have discontinued their claims and that is an end to them."

 

 

It is not clear whether in that case Mr and Mrs Park remained formal parties to the proceedings as the assignors under the assignment to Mrs Regan.  I do not understand such fact to be of any significance to his Honour's reasoning.

In Allstate Life Insurance Co & Ors v Australia & New Zealand Banking Group Limited & Ors (unreported, Federal Court, Beaumont J, 7 November 1994) Beaumont J expressed the view that the contrary to the views of Davies J set out above "is not reasonably arguable".  He concluded:-

 

     "... that it is clear beyond argument that ... claims in tort for fraud and the analogous claims under Part V of the Trade Practices Act are incapable of assignment under Australian law."

 

 

The claims which his Honour there regarded as analogous to claims in tort for fraud were claims pursuant to ss52 and 82 of the Trade Practices Act.

 

In National Mutual Property Services (Australia) Pty Ltd & Ors v Citibank Savings Limited & Ors (No.1) (unreported, Federal Court, Lindgren J, 1 November 1995) Lindgren J in considering claims pursuant to ss52 and 82 of the Trade Practices Act and ss68E and 68F of the Securities Industry Code (Vic) concluded as follows:-

 

     "The causes of action under the TP Act [Trade Practices Act] and the SIC [Securities Industry Code] are not assignable, if for no other reason, because it is relevantly only the Claimants who could possibly satisfy the statutory descriptions of being persons who suffer loss or damage caused by the conduct described in the statutes ..."

 

In Re Nguyen; Ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320 French J granted leave to the Official Trustee to assign to the bankrupt a cause of action against the National Australia Bank which included allegations of misleading and
deceptive conduct contrary to the provisions of s52 of the Trade Practices Act.  His Honour concluded that the power of sale by ss134 and 135 of the Bankruptcy Act 1966 (Cth) included a power to sell to the bankrupt.  As the proposed assignee was the person who had allegedly suffered loss and damage as a consequence of the conduct sought to be characterised as misleading and deceptive, the issue of whether, on its proper construction, s82 of the Trade Practices Act allows recovery by an assignee who has not himself or herself suffered loss or damage was not required to be considered by his Honour.

 

Bainton J of the Supreme Court of New South Wales in Cotterill v Bank of Singapore (Australia) Ltd & Ors (unreported, Supreme Court of NSW, Bainton J, decision of 7 July 1995) recognised the validity of an assignment by the Official Trustee in Bankruptcy of a chose in action for damages pursuant to ss52 and 82 of the Trade Practices Act.  Like French J in Re Nguyen; Ex parte Official Trustee in Bankruptcy, his Honour placed reliance on ss134 and 135 of the Bankruptcy Act 1966 (Cth).  It would appear that no argument was put to his Honour on the question of whether, on its proper construction, s82 of the Trade Practices Act allows recovery by an assignee who has not himself or herself suffered loss or damage.  The issue was not considered by him.

 

This Court has consistently expressed the view that on its proper construction, s82 of the Trade Practices Act does not allow recovery by an assignee who has not himself or herself suffered the loss or damage sought to be recovered.  Even were I to hold a different view from that expressed by other members of the Court in the cases to which I have referred, it would not be appropriate for me, sitting as a single judge, to decline to follow the earlier decisions of the Court.  They are not affected by any obvious error.  On this question of the proper construction of s82 of the Trade Practices Act, s477(2)(c) of the Corporations Law, which is discussed below, can, in my view, have no bearing.

 

In my opinion, the claim for damages made pursuant to ss52 and 82 of the Trade Practices Act must fail.  Consequently no practical purpose would, in my view, be served by a declaration that the respondent had engaged in conduct which constitutes a contravention of s52 of the Trade Practices Act.  The granting of declaratory relief is a discretionary matter.  In the circumstances of this case I do not consider it appropriate to give further consideration to the claim for a declaration that the respondent engaged in conduct which constitutes a contravention of s52 of the Trade Practices Act.

 

 

THE CLAIM MADE IN RELIANCE ON SECTION 71 OF THE TRADE PRACTICES ACT

 

As it was not sought to be contended on behalf of the applicants that they were, or either of them was, a consumer within the meaning of s71 of the Trade Practices Act, the claims made in reliance on s71 of the Trade Practices Act must fail.

CAN A BARE RIGHT OF ACTION BE ASSIGNED?

 

The general principles of the law of maintenance and champerty are stated in Halsbury's Laws of England (4th ed, Butterworths, Sydney, 1974) Vol 9 at para 400 as follows:-

 

     "Maintenance may be defined as the giving of assistance or encouragement to one of the parties to litigation by a person who has neither an interest in the litigation nor any other motive recognised by the law as justifying his interference.  Champerty is a particular kind of maintenance, namely maintenance of an action in consideration of a promise to give the maintainer a share in the proceeds or subject matter of the action."

 

It is the above principles which form the basis of legal restrictions upon the power of parties to assign certain kinds of choses in action.

 

In Poulton v The Commonwealth and Others (1953) 89 CLR 540 at 602 the High Court recognised as "well established" the principle that a right of action for a tort is "incapable of assignment either at law or in equity".  It is thus appropriate to start from the prima facie position that the tortious cause of action here relied upon by the applicants, namely negligent misstatement, is incapable of assignment.

 

Nonetheless, there is a growing body of authority in Australia indicating acceptance of the approach taken by the House of Lords in Trendtex Trading Corporation and Another v Credit Suisse  [1982] AC 679.  The factual circumstances of this case are complicated.  For present purposes they may be summarised, by reference to the head-note of the report, as follows.  Trendtex Trading Corporation ("Trendtex") claimed damages from a Nigerian Bank ("C.B.N.") following its failure to honour a letter of credit issued by it.  Credit Suisse was a substantial creditor of Trendtex and it had guaranteed the legal costs and fees incurred by Trendtex's solicitors in the action against C.B.N.  Trendtex purported to assign to Credit Suisse its cause of action against C.B.N. by way of security.  Thereafter on 4 January 1978 an agreement between Trendtex and Credit Suisse was signed which recited that an offer had been received from a third party to buy Trendtex's right of action against C.B.N. and provided for Trendtex, amongst other things, to release to Credit Suisse all its residual rights against C.B.N. and to give a power of attorney to Credit Suisse to enable the action to be settled.  Following the settlement of the action against C.B.N. for a large sum, proceedings were commenced in the name of Trendtex claiming that the agreement of 4 January 1978 was void as contrary to public policy and offending against the laws of champerty and maintenance.

 

In the House of Lords Lord Wilberforce stated at 694 as follows:-

 

     "If no party had been involved in the agreement of January 4, 1978, but Trendtex and Credit Suisse, I think that it would have been difficult to contend that the agreement, even if it involved (as I think it did) an assignment of Trendtex's residual interest in the C.B.N. case, offended against the law of maintenance or champerty.  As I have already shown, Credit Suisse had a genuine and substantial interest in the success of the C.B.N. litigation.  It had, and I do not think that the legitimacy of its action was challenged, guaranteed the previous costs.  It had ... taken a security interest in the litigation or its proceeds.  To carry this a stage further by a surrender of Trendtex's residual interest ... would, in my view, have been lawful, though a question might have arisen (and indeed may arise) whether, after Credit Suisse had been satisfied as creditors, Trendtex could claim the return to it of any surplus."

 

In the same case Lord Roskill said at 703:-

     "My Lords, I am afraid that, with respect, I cannot agree with the learned Master of the Rolls [1980] QB 629,657 when he said in the instant case that "The old saying that you cannot assign a 'bare right to litigate' is gone."  I venture to think that still remains a fundamental principle of our law.  But it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance.  For my part I can see no reason in English law why Credit Suisse should not have taken an assignment to themselves of Trendtex's claim against C.B.N. for the purpose of recouping themselves for their own substantial losses arising out of C.B.N.'s repudiation of the letter of credit upon which Credit Suisse were relying to refinance their financing of the purchases of Trendtex of this amount from their German suppliers.

 

     ... The court should look at the totality of the transaction.  If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance."

 

 

The other three members of the House of Lords indicated agreement with both Lord Wilberforce and Lord Roskill.

 

It may be noted that each of Lord Wilberforce and Lord Roskill considered the possibility of an assignee obtaining as a consequence of the assignment benefits exceeding the value of its "genuine commercial interest" in the litigation.  Lord Wilberforce raised the question, but did not answer it, of
whether the assignee would be required to return to the assignor any surplus.  He indicated, however, that the fact that a surplus could be obtained would not, of itself, invalidate the assignment.  Lord Roskill, on the other hand at 703, spoke of the validity of a assignment where "... an assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment ..." (emphasis added)  It does not appear that the other members of the House of Lords considered there to be any divergence in the approaches of Lord Wilberforce and Lord Roskill on this issue as each of them indicated agreement with them both.

 

In Re Timothy's Pty Ltd and the Companies Act [1981] 2 NSWLR 706 Needham J accepted the authority in Australia of the Trendtex Case.  At 711-712 his Honour, after referring to the judgments delivered in the Court of Appeal and to the speeches of Lord Wilberforce and Lord Roskill in the House of Lords, said:-

     "It seems, therefore, that the question which has to be answered, where an assignment of a right of action for damages is in question, is whether the assignee has "a genuine and substantial interest in the success of the ... litigation ...

 

     ... it seems to me that the principle of the Trendtex case can be applied to an assignment of a right of action by a debtor to a creditor where the evidence shows that, without that assignment, the creditor is not likely to be paid his debt.  In such a case the rule of public policy would be inapplicable because the assignment would not be champertous."

 

Although ultimately Heerey J in Re Daley; Ex parte National Australia Bank Ltd (1992) 37 FCR 390 did not need to place reliance on the decision of the House of Lords in the Trendtex Case he also recognised that case as reflecting "the modern law".  The learned authors of Meagher, Gummow and Lehane in Equity: Doctrine & Remedies (3rd ed, Butterworths, Sydney, 1992) take the same view (see para 694).

 

The Trendtex Case did not involve the assignment of a cause of action in tort.  The speeches of their Lordships do not, however, suggest that any distinction between contractual and tortious causes of action was material to their reasoning.  It may be noted that in Three Rivers District Council and Others v Bank of England the Court of Appeal apparently accepted without question the assignment of a cause of action for misfeasance in public office, a tortious claim.

 

In Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148 at 152 Cohen J agreed that there was no logic in making a distinction between a cause of action in contract and one in tort for the purpose of applying the Trendtex test.  Having found, however, that the assignment there under consideration in any event failed the Trendtex test, he was not required to read a conclusion on whether logic and the Australian law were in accord on this issue.

 

The issue did arise for determination by the High Court of New Zealand in First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710.  Gault J at 757 concluded as follows:-

     "The original justification for the blanket rule preventing assignment of rights to sue in tort was that the law does not give effect to arrangements savouring of champerty.  The same considerations apply to the assignment of causes of action in contract.  Therefore it seems logical that the test should be the same whether in contract or in tort; ie does the assignee have a legitimate commercial interest in taking the assignment of the cause of action?"

 

 

His Honour there upheld an assignment of a right of action in tort which was ancillary to an assigned debenture and was capable of protecting the value of that security:  the assignee was found to have a genuine commercial interest in the action.

 

In South Australian Management Corporation v Sheahan & Ors (1994) 16 ACSR 45 Debelle J accepted the authority in Australia of the Trendtex Case.  At 57-58 his Honour said:-

 

     "The decision in Trendtex has the effect of qualifying substantially the principle that it is not possible to assign a bare right to sue for unliquidated damages for breach of contract.  There seems to be no reason in logic or as a matter of public policy, why it should not also be possible to assign the bare right to sue for unliquidated damages in tort where the cause of action is not for a personal tort such as damages for personal injury, defamation, or false imprisonment ...

 

     ... I conclude that provided the action is not of a personal nature and that the assignee has a genuine commercial interest, both an action for unliquidated damages in tort and an action for unliquidated damages for breach of contract are capable of assignment and the assignment will not be contrary to public policy."

 

 

Smith J also took the approach in Beatty & Anor v Brash Pty Ltd (1995) 13 ACLC 925 that the weight of authority now supports a more liberal approach than that reflected in Poulton v The Commonwealth & Ors.

 

By contrast, Beaumont J in Allstate Life Insurance Co & Ors v Australia & New Zealand Banking Group limited & Ors stated that it "... is settled law in Australia that a right to litigate a claim in tort is incapable of assignment at law or in equity ..."  His Honour referred to the development of the law in England in the context of the assignment of contractual causes of action and expressed the view that Australian law was likely to move in the same direction so far as claims in contract are concerned.  He referred to the decision of Gault J in First City Corporation Ltd v Downsview Nominees Ltd and noted that, even were he free to depart from the High Court's statement of the position in Poulton v The Commonwealth, the assignment before him could not be characterised as one calculated to protect property.

 

In National Mutual Property Services (Australia) Pty Ltd & Ors v Citibank Savings Limited & Ors (No.1) Lindgren J noted that he had not been referred to any Australian case in which an assignment of a tortious cause of action had been held valid by reference to the Trendtex test.  The decision of Smith J in Beatty & Anor v Brash Pty Ltd was handed down after the conclusion of argument in the National Mutual Property Services (Australia) Pty Ltd Case.   I note, however, that the decision of Debelle J in South Australian Management Corporation v Sheahan & Ors was delivered shortly before the National Mutual Property Services (Australia) Pty Ltd Case was argued.  Lindgren J, like Beaumont J in the Allstate Life Insurance Co Case, queried whether he was free to depart from the High Court's statement of the position in Poulton v The Commonwealth, but, again like
Beaumont J in the Allstate Life Insurance Co Case found it unnecessary to express a final view on this issue.  Lindgren J found that the causes of action in the case before him did not satisfy the Trendtex test.

 

It is submitted on behalf of the respondent that I am bound by the statement of the High Court referred to above in Poulton v The Commonwealth.  The statement does not strictly form part of the ratio decidendi of the High Court in Poulton v The Commonwealth.  Nonetheless, it is a clear statement by the High Court of what it described as "well-established principle".  It is not clear that the developments described above are sufficient to free me, particularly sitting as a single judge, to conclude that such principle is now in Australia to be treated as disestablished (see Trident General Insurance Co Limited v McNiece Bros Proprietary Limited (1988) 165 CLR 107 per Brennan J at 129-130).

 

Nor, in my view, is it clear that an interest as a shareholder is the kind of "genuine commercial interest" of which the House of Lords spoke in the Trendtex Case.  No argument was addressed to me on this question and I say nothing further about it.

 

I am relieved of the necessity to reach a conclusion on the above issues by the conclusions reached by me as to the proper interpretation of s477(2)(c) of the Corporations Law which is discussed below.

However, before turning to s477(2)(c) of the Corporations Law, I note that Mr Brookfield has a 50% shareholding in Septic Products.  The other shareholder, Ms Sears, gave evidence on the hearing of this matter but before the existence of the deed of 28 October 1993 was disclosed.  Understandably, she did not give evidence which explained her absence as a joint equitable assignee with Mr Brookfield of the choses in action referred to in the pleadings.  An affidavit sworn by her and read on the application by Mr Brookfield for leave to use the name Septic Products as a co-applicant was not sought to be tendered on the hearing.  Although there was some suggestion during argument that Mr Brookfield is a creditor of Septic Products, this was not, in my view, established on the evidence.  It was submitted on behalf of the applicants that Mr Brookfield was "... a person who in the ordinary course of commerce the court could, in the exercise of judicial notice, expect to have given directors (sic) guarantees to creditors of [Septic Products]".  In my view, if Mr Brookfield wished to rely on any guarantee which may have been given by him of the debts of Septic Products to support the validity of the deed of assignment of 28 October 1993, it was incumbent on him to prove such guarantee by evidence.  This is not a topic for judicial notice.  In the circumstances it may well be arguable that Mr Brookfield has sought by the assignment to take the benefit of the choses in action there referred to beyond the extent of his proven genuine commercial interest in such choses in action.  The significance of any such an argument is not something which I am required in the circumstances to determine.

 

SECTION 477(2)(c) OF THE CORPORATIONS LAW

 

Section 477(2)(c) of the Corporations Law gives a liquidator power to "sell or otherwise dispose of, in any manner, all or any part of the property of the company".  Section 9 of the Corporations Law provides that, unless the contrary intention appears, "'property' means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action".

 

It is contended on behalf of the applicants that the deed of 28 October 1993 constitutes a sale by the liquidator of Septic Products of property of the company.  It is further contended that s477(2)(c) authorises the assignment of a chose in action which could not be assigned at common law.

 

In Ramsey v Hartley and Others (1977) 1 WLR 686 the Court of Appeal held that the statutory power of a trustee in bankruptcy to sell any part of the bankrupt's property vested in him or her gave the trustee the right to assign a chose in action in tort to the bankrupt.  In holding that the assignment was not invalid the Court of Appeal relied upon the decision of Chitty J in Guy v Churchill (1888) 40 Ch.D 481.  In that case Chitty J accepted the decision of the Court of Appeal in Seear v Lawson (1880) 15 Ch.D 426.

 

In Seear v Lawson a trustee in bankruptcy of a person who had conveyed away real property absolutely, commenced an action
against the grantee to have it declared that the conveyance was a mortgage only.  Following the issue of the writ the trustee sold and assigned the subject matter of the action to a purchaser for value.  The validity of the assignment of the chose in action was challenged.  Jessel MR at 432-433 stated:-

     "Now the word "property", as defined by the 4th section of the Bankruptcy Act, includes things in action.  The trustee obtains the bankrupt's property under the 17th section on his appointment.  The words are, "on the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed," and he gets the property in no other way.

 

     The first question to be decided is, does he get such a right of action as this under the 17th section?  I should say it is quite clear that he does.  It would be impossible to hold that it remained vested in the bankrupt so that he could after his discharge recover the estate for his own benefit.  Therefore, under the word "property", it vests in the trustee and is now in the trustee.  It is in the trustee by a statutory transfer, and for this purpose I assume that such a right could not have been transferred apart from the statute.  Then the 25th section enables the trustee "to sell all of the property of the bankrupt including", &c.  It is suggested that the word "property" in the 25th section is to have a different meaning from that which it has in the 17th section.  I cannot see why.  It is the same word and under the same definition clause.  If the trustee gets a right of action, why is he not to realize it?  The proper office of the trustee is to realize the property for the sake of distributing the proceeds amongst the creditors.  Why should we hold as a matter of policy that it is necessary for him to sue in his own name?  He may have no funds, or he may be disinclined to run the risk of having to pay costs, or he may consider it undesirable to delay the winding-up of the bankruptcy till the end of the litigation.  Considering these things, it seems to me to à priori probable that he would be entitled to sell it, but I prefer to rest my decision upon the plain words of the statute.  The words are, "all the property", and it does not appear to me that we have any right to exclude from the plain provision of the 25th section anything which has passed to the trustee under the 17th section."

 

French J in Re Nguyen; Ex parte Official Trustee concluded, after consideration of the authorities referred to above, that the
power of sale conferred by ss134 and 135 of the Bankruptcy Act 1966 (Cth) includes a power to sell a chose in action, including a chose in action for damages.  Bainton J of the Supreme Court of New South Wales took the same view in Cotterill v Bank of Singapore (Australia) Ltd & Ors.

 

In re Park Gate Waggon Works Company (1881) 17 Ch.D 234 the Court of Appeal held that the there applicable companies legislation, which authorised a liquidator to sell the property of a company, which was also defined to include choses in action, similarly permitted the liquidator to sell choses in action in circumstances which would otherwise attract the rule against maintenance.  The same view has been taken in England with respect to modern companies legislation by the Court of Appeal in Bang & Olufsen U.K. Ltd v Ton Systeme Ltd (unreported, Court of Appeal, 16 July 1993, referred to by Lightman J in Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80 at 85) and by Lightman J in Grovewood Holdings Plc v James Capel & Co Ltd.

 

Section 474(1) of the Corporations Law does not vest the property of a company being wound up on its liquidator.  It simply requires the liquidator to "... take into his or her custody or under his or her control all of the property to which the company appears to be entitled ..."  Section 474(2) authorises the Court to direct that all or any part of the property of the company shall vest in the liquidator.  It is not suggested in this case that any order pursuant to s474(2) has been made in respect of all or any of the property of Septic Products.  It therefore
seems that the appropriate assignor in this case was the company, not the liquidator.  However, no point was taken in this regard and I do not think that anything should turn on it.

 

I was not referred to, nor am I aware, of any Australian cases which are of direct assistance on the issue of construction which I am presently considering.  The authorities referred to above are, I consider, of assistance by analogy.

 

I accept the submission made on behalf of the applicants that the deed of 28 October 1993 constitutes a sale by the liquidator of Septic Products of property of the company.  Having regard to the authorities referred to above, I find that such sale was authorised by s477(2)(c) of the Corporations Law.

 

As a consequence I conclude that the following choses in action pleaded in these proceedings (assuming that, on the proper construction of the statement of claim, such choses in action have been pleaded as part of the cause of action in Septic Products) were validly assigned to Mr Brookfield by the deed of 28 October 1993:-

 

     (a)  the chose in action in negligent misrepresentation; and

 

     (b)  the chose in action for breach of contract.

 

NEGLIGENT MISREPRESENTATION

 

Consideration of this cause of action is complicated by the lack of clarity with which it is pleaded in the statement of claim,
and by the fact that limited attention was paid to it by counsel for the applicants in both their oral and their written submissions.

 

The first important issue on which the position of the applicants is unclear, is that of whether the statement of claim is intended to plead a cause of action in Septic Products in negligent misrepresentation.  The statement of claim does not plead the making of representations to Septic Products, nor does it allege that Septic Products acted in reliance on representations made to Mr Brookfield.  The better view may well be that the claim in negligent misrepresentation is only put forward on behalf of Mr Brookfield.  Nonetheless, I will consider the case on the basis that such claim is also put forward on behalf of Septic Products.

 

As is pointed out above, the pleaded breach by the respondent of its duty of care to the applicants does not correspond to the pleaded duty.  The duty pleaded is "... to take care in and about the making of representations."  Instead of pleading as the breach of duty that the respondent failed to take care in and about the making of the relevant representations and that such representations were incorrect, the statement of claim by paragraph 41 pleads that the respondent "... recklessly and in breach of its duty of care ... failed to ensure ..." that the Doc 3, Doc 7 and the Sumprat pumps had certain capacities.

 

An application to strike out this pleading may well have succeeded.  However, no such application was made.  The best that I can do in the circumstances, I consider, is to treat paragraph 41 of the statement of claim as containing by inference pleas that the representations apparently referred to in paragraph 40 of the statement of claim were incorrect and that the respondent failed to take reasonable care to ensure that they were correct.

 

As has often been pointed out, there has been since Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 a tendency in the authorities to treat liability for negligent misstatement as involving special complications (see, for example, San Sebastian Proprietary Limited & Anor v The Minister (1986) 162 CLR 340 per Gibbs CJ, Mason, Wilson & Dawson JJ at 353-358).  Nonetheless, recent High Court authorities establish that in this area of the law of negligence, as in all such areas, a duty of care arises under the common law of negligence in Australia only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage (Bryan v Maloney (1995) 182 CLR 609 esp. per Mason CJ, Deane & Gaudron JJ at 617; San Sebastian Proprietary Limited & Anor v The Minister per Gibbs CJ, Mason, Wilson & Dawson JJ at 354-355).  The majority of the High Court pointed out in the San Sebastian Case at 355:-

 

     "When ... economic loss results from negligent misstatement, the element of reliance plays a prominent part in the ascertainment of a relationship of proximity between the plaintiff and the defendant, and therefore in the ascertainment of a duty of care."

 

I turn to consider the claim of negligent misrepresentation as to first, the Doc 3 and Doc 7 pumps, and secondly, as to the Sumprat pumps.

 

As to the Doc 3 and Doc 7 pumps, the applicants have pleaded that as a result of representations made by the respondent in October 1990, Mr Brookfield started, in the case of the Doc 3 pumps, and continued, in the case of the Doc 7 pumps, to incorporate them in the Parco Beaver system.

 

No where in the statement of claim is it pleaded that Septic Products relied upon, or indeed, took any action as a result of, representations made to Mr Brookfield in October 1990.  Having regard to the evidence in this case this is not a surprising omission.  Septic Products was not incorporated until 14 December 1990.  The earliest involvement of Septic Products with the Doc 3 and Doc 7 pumps presumably arose in about March 1991.  At that time an informal joint venture, the terms of which are not in evidence, was entered into between Mr Brookfield, trading as Brookfield Plumbing Services, and Septic Products.  Subsequently Septic Products effectively took over the business of Brookfield Plumbing Services.  Assets and liabilities of the Brookfield Plumbing Services business were transferred to Septic Products effective from 1 July 1991.

 

On the applicants' case, serious problems with the Doc 3 and Doc 7 pumps were being experienced by Mr Brookfield by January and February 1991.  Indeed, on the applicants' case, in February 1991 Mr Wilsdon told Mr Brookfield that the Davey Doc pumps were to be taken off the market for the time being because of problems with them.

 

Moreover, it seems that an agreement must have been reached between Mr Brookfield and Septic Products as to the net value of the assets of Brookfield Plumbing Services business transferred to Septic Products as from 1 July 1991.  The net value of such assets was recorded in the books of Septic Products as a loan to it by Mr Brookfield.  No evidence was lead as to the basis upon which such agreement was reached.  However, it may be presumed to have been reached in the knowledge of the problems being experienced by Mr Brookfield trading as Brookfield Plumbing Services with pumps supplied by the respondent.

 

In my view, it cannot sensibly be suggested on behalf of the applicants that any representations made by the respondent to Mr Brookfield in October 1990 concerning the Doc 3 and Doc 7 pumps were relied upon by Septic Products, or were influential on Septic Products in any relevant way so far as its conduct of its waste water business was concerned.  In my view, the applicants have failed to establish the necessary relationship of proximity between Septic Products and the respondent to support the pleaded duty of care.  If I am wrong in this, I conclude that the applicants' claim must in any event fail on the basis that no loss has been shown to have been suffered by Septic Products as a consequence of any representations made by the respondent.

 

Although the issue referred to above makes it strictly unnecessary to do so, I point out that, in any event, the evidence as to the Doc 7 pumps falls short of establishing that in October 1990 Mr Brookfield himself placed reliance on the respondent in respect of the Doc 7 pump or that he acted in reliance on any representations made by the respondent in October 1990 as to the Doc 7 pump.

 

Mr Brookfield's evidence as to the Doc 7 pump was as follows.  He had used such pumps from approximately July 1989:  that is, from well before his first dealings with the respondent.  They were provided to him with the Parco Beaver systems he purchased from Allwater.  He had witnessed extensive testing of Doc 7 pumps by Allwater, in conjunction with the respondent, in about 1989.  He was apparently aware of the results of such testing.  After Allwater went into liquidation he approached the respondent as an alternative supplier of Doc 7 pumps:  they were pumps which he wished to continue to use.

 

The evidence of Mr Brookfield thus does not support the plea in paragraph 20.6 of the statement of claim that it "... was as a result of the representations made by Davey through its servant or agent, Wilsdon, to Brookfield in October 1990 that Brookfield continued to incorporate the Doc 7 pump into the irrigation tank of the Parco Beaver System."

 

In my opinion, if a claim in negligent misrepresentation is intended by the statement of claim to be made on behalf of Septic Products, such claim must fail so far as it relates to the Doc 3 and Doc 7 pumps.

 

I turn to consider the plea of negligent misrepresentation so far as the Sumprat pumps are concerned.  Paragraphs 26 and 27 of the statement of claim are in the following terms:-

 

     "26.In discussions which occurred between Brookfield and Wayne Smallacombe of Davey, in a face to face conversation in approximately early 1992 Smallacombe, on behalf of Davey, told Brookfield that there was a manufacturing fault with the Doc 3 pumps and that they would supply an alternative pump called a Sumprat as a suitable replacement for the Doc 3 pump (the Sumprat pump).

 

 

      27.Brookfield thereafter commenced incorporating the Sumprat pump in substitution for the Doc 3 pump in the Parco Beaver System."

 

 

The evidence in this case makes it plain that the discussion alleged in paragraph 26 could not have taken place in early 1992.  Septic Products ceased to purchase pumps from the respondent in October 1991.  The first Sumprat pump was supplied to Mr Brookfield by the respondent in February 1991 and the last in early March 1991.  The case of the applicants is that problems were experienced by Mr Brookfield with Sumprat pumps almost as soon as they were supplied to him, and that such problems were identical with the problems experienced with the Doc 3 pumps.

 

Even if other difficulties involved in the purported pleading of the cause of action in Septic Products in negligent misrepresentation could be overlooked, the cause of action must, in my view, fail.  There is no plea, and the evidence falls short
of establishing, that Septic Products relied on the accuracy of the representations made to Mr Brookfield concerning the Sumprat pumps.  Moreover, no Sumprat pumps were ever supplied by the respondent to Septic Products, and it seems highly unlikely on the evidence that Septic Products came into possession of any Sumprat pumps supplied by the respondent to Mr Brookfield trading as Brookfield Plumbing Services.  Invoices placed in evidence on behalf of the respondent show that 46 Sumprat pumps were invoiced by the respondent to Brookfield Plumbing Services:  they were delivered between 1 February - 8 March 1991.

 

In my opinion, if a claim in negligent misrepresentation is intended by the statement of claim to be made on behalf of Septic Products, such claim must also fail so far as it relates to the Sumprat pumps.

 

 

BREACH OF CONTRACT

 

It is necessary to consider as a preliminary issue the nature of the contract or contracts between first Mr Brookfield, and subsequently Septic Products, on the one hand and the respondent on the other.

 

Following initial discussions between Mr Brookfield and Mr Wilsdon, Mr Brookfield completed a credit account application directed to the respondent. This application bears the date 4 October 1990.  By such application Mr Brookfield, trading as Brookfield Plumbing Services, acknowledged and agreed to comply
with the respondent's trading terms of "... net cash 30 days after the month of invoice."  He also acknowledged the right of the respondent to withdraw credit facilities "... at any time without prior notice".  The credit account application was approved by the respondent and, upon orders being placed for them, pumps were subsequently supplied by the respondent to Mr Brookfield, and subsequently Septic Products, on the respondent's usual trading terms.

 

Although the statement of claim is drafted in terms of a contract for the sale and purchase of Doc 3 pumps, and similarly a contract for the sale of Doc 7 pumps, and another contract for the sale of Sumprat pumps, I do not consider that the evidence supports the existence of three such contracts.  The parties agreed a basis upon which the respondent would provide credit facilities to Mr Brookfield should he place orders with it for pumps - albeit that the respondent retained the right unilaterally to withdraw such credit facilities.  However, I consider that separate contracts for the purchase and supply of pumps arose upon the placing and acceptance of each individual order for pumps.  Initially such orders were placed by Mr Brookfield, or with his authority, on his own behalf, giving rise, when such orders were accepted, to contracts between Mr Brookfield and the respondent.  Subsequently such orders were placed by Mr Brookfield, or with his authority, on behalf of Septic Products, giving rise, when such orders were accepted, to contracts between Septic Products and the respondent.

 

I note that all invoices raised by the respondent in relation to the supply of pumps to the applicants show Brookfield Plumbing Services as the purchaser.  It was not suggested that the respondent was unaware of Septic Products having taken over the business earlier run by Mr Brookfield on his own behalf.  It seems clear that the respondent accepted payments made to it by Septic Products.  Nothing turns, in my view, on the fact that the respondent provided to Septic Products invoices which gave the name of the purchaser as "Brookfield Plumbing Services".

 

The evidence does not make clear whether Septic Products became the purchasing party for the pumps from about March 1991, when the informal joint venture agreement was entered into between Mr Brookfield and Septic Products, or only from 1 July 1991, when Septic Products purchased from Mr Brookfield assets and liabilities relating to the Brookfield Plumbing Services business.  Under cross-examination Mr Brookfield agreed that after the date of the joint venture agreement, Septic Products "conducted the business".  It seems fair to assume from this answer that Septic Products became the purchaser of pumps from the respondent from a date in March 1991.  The precise date is not in evidence.  I shall assume a date in mid-March 1991.  No pumps were invoiced by the respondent to Brookfield Plumbing Services between 12 March and 18 April 1991.

 

The respondent has placed in evidence a compilation of invoices for the supply of pumps and statements rendered by the respondent to Brookfield Plumbing Services.  I accept that this compilation is complete.  The invoices bear dates which range from 24 October 1990 to 16 August 1991.  In addition there is an invoice dated 13 January 1992 which records a credit in favour of Brookfield Plumbing Services of $480.02 as a consequence of a warranty claim in respect of two Doc 7 pumps.  The statements are dated the last day of each of the months from October 1990 to June 1992 inclusive.  They demonstrate the comprehensive nature of the invoices referred to above.

 

Such invoices show that between mid-March 1991 and August 1991 Septic Products placed 9 orders with the respondent for the supply of pumps.  Pursuant to such orders 70 Doc 3 pumps and 71 Doc 7 pumps were supplied.  No orders were placed by Septic Products for Sumprat pumps and none was supplied to it.  Over the same period the respondent delivered to Septic Products a further 1 Doc 3 pump and 5 Doc 7 pumps pursuant to warranty claims.  The invoices also record that on 16 August 1991 Septic Products received credit for 3 Doc 3 pumps which had been invoiced on 19 June 1991.

 

The terms of s14 of the Sale of Goods Act are set out in full above.  The first proviso to the general position established by the section of no implied warranty as to the quality or fitness for any particular purpose of goods supplied under a contract of sale is that:-

 

     "I   Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the
seller's business to supply ... there is an implied condition that the goods shall be reasonably fit for such purpose:  Provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose ..."

 

 

As to both the Doc 3 and the Doc 7 pumps, it is accepted that they are goods of a description which it was, at the relevant time, the respondent's business to supply.

 

Were the contracts between Septic Products and the respondent for the sale of Doc 3 and Doc 7 pumps, contracts for the sale of a specified article under its patent or other trade name?

 

As to the Doc 7 pump, Mr Brookfield's affidavit evidence contains the following paragraphs:-

 

     "151.     I telephoned Daveys South Australian office on or about 3rd October 1990.

 

      152.     I had a phone conversation with Dallas Wilsdon, who was the South Australian manager for Davey Products.

 

      153.     I cannot recall the actual words in the discussion however it was to the following effect.

 

      154.     I said words to the effect of:

 

                   "I am Ian Brookfield.  I run a waste water treatment business here in Adelaide.  I sell the system called the Parco Beaver system which currently uses one of your pumps on the irrigation system".

 

      155.     Wilsdon said words to the effect of:

 

                   "I'm aware that in New South Wales Davey is supplying Allwater Treatment with Doc 7's".

 

 

 

      156.     I said words to the effect of:

 

                   "Yes but Allwater Treatment is now in liquidation.  That's the reason for my phone call to you as I would like to discuss the possibility of us purchasing the Doc 7's direct from Davey here in Adelaide".

 

     157.      He said words to the effect of:

 

                   "I would be more than happy to discuss it with you"."

 

 

Mr Wilsdon agreed that the above paragraphs, with others not presently relevant, constituted a "fair recital" of the conversation in question.  Subsequently Mr Brookfield placed orders with the respondent for the supply of Doc 7 pumps.  In my view the resultant contracts for the supply by the respondent to Mr Brookfield of Doc 7 pumps were contracts "for the sale of a specified article under its patent or other trade name" within the meaning of the proviso to paragraph I of s14 of the Sale of Goods Act.  The evidence does not suggest that the position was different with respect to the contracts between Septic Products and the respondent for the sale and purchase of Doc 7 pumps.

 

I conclude that the contracts between Septic Products and the respondent for the sale of Doc 7 pumps included no implied condition of fitness for any particular purpose.

 

I turn to consider the contracts for the supply of Doc 3 pumps.  Mr Brookfield's affidavit evidence was that he initially asked Mr Wilsdon:-

 

 

     "158.     Have you anything similar in performance to the Grundfos KP 100",

 

 

and received the reply:-

 

 

     "159.     Lowara does make a smaller version of the Doc 7 which is called a Doc 3.  We could compare the performance of the two pumps."

 

 

At a subsequent meeting between Mr Brookfield and Mr Wilsdon at the offices of the respondent there was a further conversation between them on the topic of the Doc 3 pump.  Mr Brookfield's version of this conversation is set out in his affidavit in the following paragraphs:-

     "166.     I told him that I wished to discuss the use of an alternative to the Grundfos KP 100 pump for the inclusion into my waste water treatment system.

 

      167.     Wilsdon asked words to the effect:

 

                   "What are you going to use these pumps for?"

 

      168.     In response, I said words to the effect:

 

                   "The Grundfos KP 100 pump is used for recirculating the effluent over the filter pack in the treatment tank which is operated by a control panel.  This activates the pump with four starts per hour running the pump for 10 minutes on and 5 minutes off.  The pump runs 24 hours per day on these cycle times."

 

              He said:

 

                   "The Lowara Doc 3 pump could handle four starts per hour without any problem."

 

                   "Davey can offer an alternative to the Grundfos KP 100 at a more competitive price."

 

                   "The Doc 3 pump has almost identical performance ability to the Grundfos KP 100 pump."

      169.     He then gave me some Davey Lowara brochures.

 

      170.     These brochures contained on the fourth page, performance graphs showing performance statistics which appeared to verify what he said.

 

      171.     A second brochure contained a chart of performance characteristics on page 8a.

 

      172.     . . . . . .

 

      173.     I had with me a specification sheet regarding the Grundfos KP100 pump.  I showed that to Wilsdon.

 

      174.     . . . . . .

 

      175.     Wilsdon then compared the flow rates of the Davey Lowara Doc 3 and the Grundfos KP 100, by pointing out to me the published information regarding the two pumps.

 

      176.     He told me that, based on the written representations in the brochures "IWB13", the Davey Lowara Doc 3 satisfied our requirements."

 

Mr Brookfield's evidence is that at the close of the meeting between him and Mr Wilsdon referred to above he agreed to purchase Doc 3 pumps from the respondent.

 

Mr Wilsdon agreed that in response to a question from Mr Brookfield about a pump similar in performance to the Grundfos KP 100 he made reference to the Doc 3 pump and suggested a comparison of the performance of the two pumps.  As to the subsequent meeting between him and Mr Brookfield, Mr Wilsdon's affidavit evidence is as follows:-

 

     "8.  By reference to the Lowara brochure and a brochure relating to the Grundfos KP100 I explained to Brookfield the benefits of the Davey Lowara Doc 3.  I obtained the Grundfos brochure from Davey's "competitors library".  Such benefits included the running costs of the Doc 3 and a significant price difference.  At the meeting:

 

          8.1  I superimposed on the performance curve of the Doc 3 (in the Lowara brochure) the performance curve of the KP100 (derived for the Grundfos brochure) which illustrated clearly the superior performance of the Lowara pump.

 

          8.2  I told Brookfield that the running costs of the Doc 3 would be less than the KP100 because the Doc 3 only used 1.3 amps of current against 1.9 by the KP100.

 

          8.3  I advised him that the Doc 3 was capable of an operating head of three to four metres.

 

          8.4  Brookfield asked whether the Doc 3 was capable of running for a period of 10 minutes and then being turned off for 5 minutes and then back on for a further 10 minutes and I confirmed that the Doc 3 was capable of this performance.

 

     9.   Prior to my discussion with Brookfield in October 1990, I had a very general understanding of the function and operation of septic aerobic systems from a discussion or discussions at a State Manager's meeting or meetings where I learned that Davey was, in New South wales, supplying to other septic system manufacturers.  I believe those other companies were Envirocycle, Biocycle and Allwater.

 

     10.  I do not recall any conversation, at the meeting with Brookfield, as to what specifically the recirculation pump would be pumping.  I did say that if the Grundfos KP100 could do the job then so would the Doc 3.

 

     11.  . . . . . .

 

     12.  At the conclusion of the meeting Brookfield said he wanted 10 Doc 3 pumps straight away.  I explained that I could not supply Brookfield until his credit application had been approved, however, I gave him two pumps to take with him."

 

Shortly after the meeting referred to above, Mr Wilsdon went at the suggestion of Mr Brookfield to his factory.  There he saw a Parco Beaver system set up for display purposes.  The display unit showed the internal working of the second tank of the system including the positions of the pumps within the tank.  For display purposes the unit operated with clean water, not with
septic waste.  The evidence of Mr Brookfield is that he used the display unit to explain the workings of the Parco Beaver system to Mr Wilsdon, and that Mr Wilsdon said that the "... Davey pumps were going to be more than suitable for the job at hand ..." and that the Doc 3 pump "... was suitable for a septic effluent environment."

 

The evidence of Mr Wilsdon conflicts to some degree with that of Mr Brookfield so far as the conversation between them as to the Doc 3 pump is concerned.  Most importantly, Mr Wilsdon denies that he asked the question set out in paragraph 167 of Mr Brookfield's affidavit or that Mr Brookfield said what is set out in paragraph 168 of his affidavit.

 

As to the visit to Mr Brookfield's factory, Mr Wilsdon agrees that he saw the display version of the Parco beaver system and that Mr Brookfield gave him a general overview of its workings.  However he denies that there was detailed discussion as to the technical aspects of the system.  Mr Wilsdon's evidence is that he does not recall any discussion with Mr Brookfield at that meeting regarding the performance or suitability of the Doc 3 pumps.  In his words, "[t]hose discussions had previously taken place at the meeting at Davey's premises on 5 October".  Mr Wilsdon, however, agrees that he might have said words to the effect that "... Davey pumps were going to be more than suitable for the job at hand ..." based on the fact that the Grundfos KP 100 was apparently doing the job.  Whilst denying that he told Mr Brookfield that the Doc 3 was suitable for a septic effluent environment, he agrees that he might have said "... something to that effect based on the fact that Davey was supplying to other septic aerobic system manufacturers."

 

Mr Brookfield gave evidence that the filter system in the display unit seen by Mr Wilsdon incorporated as a filter medium cut plastic piping rather than the disc pack modification developed by him.

 

To the extent that there is conflict between the evidence of Mr Brookfield and Mr Wilsdon as to the conversations between them as to the Doc 3 pump, and as to what happened when Mr Wilsdon visited Mr Brookfield's factory in early October 1990, I prefer the evidence of Mr Wilsdon.  He was willing, it seemed to me, both in his affidavit evidence and orally, to make admissions apparently adverse to the respondent.  He struck me in the witness box as a frank witness who was seeking to answer questions put to him to the best of his ability.  Mr Brookfield has had, of course, a much more personal involvement in the circumstances out of which this case has arisen.  To some extent, it seems to me, this has influenced his perception of past events.  In particular, I conclude that his memory now tends to enhance the degree of responsibility of others for the problems experienced by him and by Septic Products.  Moreover there were, I believe, occasions on which Mr Brookfield sought to tailor his evidence by withholding certain material, or by giving misleading answers, to avoid what he perceived to be potential weaknesses in the applicants' case.  I refer, as one example, to Mr Brookfield's early evidence as to the number of Parco Beaver systems modified by the incorporation of disc packs which were provided to members of the public from early 1990.  Another, in my view, was his evidence as to his intention as at the date of his letter of 16 September 1992 to South West Sydney Public Health Unit.  Yet another, in my view, was his evidence at the time that counsel for the respondent was seeking to demonstrate inconsistencies between Schedule "A" to the statement of claim and the applicants' service records.

 

Having regard to the totality of the evidence as to the circumstances in which Mr Brookfield initially agreed to purchase from the respondent Doc 3 pumps, I do not consider that it can be fairly concluded that the initial contracts were for the sale of a specified article under its patent or other trade name within the meaning of s14 of the Sale of Goods Act.  For the reasons set out below, it is not necessary for me to reach a final view on whether later contracts for the supply of Doc 3 pumps, and in particular contracts to which Septic products was a party, were such contracts.

 

Did Mr Brookfield make known to the respondent, through Mr Wilsdon, the particular purpose for which the Doc 3 pumps were required so as to show that he relied on the respondent's skill and judgment?  In my view, the evidence set out above shows that he did.  However, what was the particular purpose which he made known to the respondent?  In my view, the particular purpose which he made known was the purpose of acting as a recirculation pump in a Parco Beaver system.  I find that Mr Brookfield did not make known to Mr Wilsdon that the Doc 3 was required for the purpose of acting as a recirculation pump in a Parco Beaver system modified by the replacement of the cut plastic piping filter medium with a disc pack or in a BPS system.

 

I am prepared to treat the particular purpose expressly made known to the respondent so far as the contracts for the sale of Doc 3 pumps by it to Mr Brookfield were concerned, as having been made known to the respondent, expressly or by implication, so far as the contracts for the sale of Doc 3 pumps by it to Septic Products were concerned.

 

Has it been established that the Doc 3 pumps were not reasonably fit for that purpose?

 

The respondent did not contest that it had received from its supplier a batch of faulty Doc 3 and Doc 7 pumps.  The fault was related to the mounting of the steel retainer at the bottom of the pump to the plastic bottom bearing housing immediately above it.  The screws which fixed the retainer to the bottom bearing housing had split or cracked the plastic.  As a consequence the screws would not hold and the retainer could come loose if bumped or forced.  Pumps with this fault were plainly not fit for use in a waste water system.  The fault will hereafter be referred to as "the bottom bearing housing problem".

 

The evidence of Mr Wilsdon was that the faulty batch arrived in Australia in January or February 1991, and one pallet of about 72 pumps, of which 40% had the bottom bearing housing problem, came to South Australia.  The first 6 pumps returned to the respondent by Mr Brookfield, according to Mr Wilsdon, came from this batch.  This evidence was not challenged and I accept it.  It may be, of course, that the first pumps returned by Mr Brookfield to the respondent were not the first with which problems were experienced.

 

It seems fair to assume that pumps from the faulty batch were not continuing to be supplied by the respondent to its customers as late as April 1991.  Other evidence tends to confirm this assumption.  Mr Brookfield's belief was that the Sumprat pumps were supplied because the Doc 3 and Doc 7 pumps (presumably the faulty batch) had been withdrawn from the market.  The Sumprat pumps were supplied to Mr Brookfield between 7 February and 8 March 1991.  Mr Wilsdon's evidence was of a shortage of Doc 3 and Doc 7 pumps in February and March 1991:  a shortage presumably caused, at least in part, by the need to withhold from customers pumps identified as being faulty.  The inability of the respondent to supply Doc 3 and Doc 7 pumps, for whatever reason, had clearly passed by mid-March 1991.  Internal memoranda of the applicant are consistent with pumps with the bottom bearing housing problem not being supplied by it after February 1991.  I conclude that pumps supplied by the applicant later than February 1991 did not suffer from the bottom bearing housing problem.  That is, I conclude that none of the Doc 3 pumps supplied to Septic Products pursuant to contracts of sale between it and the respondent suffered from the bottom bearing housing problem.

 

Nonetheless, it is, I consider, plain on the evidence that Doc 3 pumps supplied by the respondent to Septic Products failed in use.  It is not clear how many of them failed.  Mr Brookfield asserts that all Doc 3 pumps supplied by the respondent to the applicants failed.  This is denied by the respondent.  Having regard to the evidence as a whole, I am not able to accept Mr Brookfield's assertion in this regard.

 

The applicants have annexed to the statement of claim a schedule ("Schedule "A"").  Mr Brookfield's affidavit evidence is that Schedule "A" "... sets out details of the name of each customer, the location at which a Parco Beaver system was installed, the date of installation, the date of commission, the types of pump used in the system, failure dates and causes with details of the services undertaken and pumps exchanged or replaced insofar as I have been able to ascertain and verify such information."  In oral evidence Mr Brookfield agreed that Schedule "A" contained a complete record of customers of the applicants in South Australia.  He further agreed that Schedule "A" was a complete list of the applicants' New South Wales customers, except for some customers in the Taree area, and a complete list of their Queensland customers apart from one customer.  He stated that Schedule "A" did not include all of the applicants' customers in Victoria.

 

As to certain customers whose names are included in Schedule "A", the schedule records that the name of the recirculation pump is not available.  It is also the case that certain customer records are not available as to certain heads of information.  I find that it was established on behalf of the respondent that certain entries in Schedule "A" are erroneous.  However, I accept it as broadly accurate so far as it goes.

 

Mr Brookfield gave evidence that considerably more pumps had been replaced than Schedule "A" indicates.  He was not, however, able to produce business records evidencing further replacements, and a video said by him to contain evidence of additional pump failures was not placed in evidence.  Mr Brookfield's evidence was that initially he kept poor records of his dealings with the respondent but that later in the history of their dealings his record keeping improved.  He gave evidence that in about June or July 1991 he had a conversation with an employee of the respondent in which he advised that he would deduct from amounts otherwise payable by him to the respondents, costs and expenses relating to faulty pumps.  He gave evidence that thereafter Septic Products commenced to keep records "... as most efficiently as we could ..." of such costs and expenses.

 

I conclude that Schedule "A" does not record all Doc 3 pumps replaced in early 1991 but, having regard to Mr Brookfield's evidence that from February 1991 it was apparent that the problems with the Doc 3 and Doc 7 pumps were not isolated problems, I find that his record keeping would have become generally accurate as to the replacement of pumps from at least about April/May 1991.  From about June/July 1991 I find that his record keeping was thorough.

 

As mentioned above, 70 Doc 3 pumps were supplied by the respondent pursuant to orders placed on behalf of Septic Products.  One additional pump was supplied pursuant to a warranty claim.

 

Schedule "A" shows the installation of 22 Doc 3 pumps in new systems later than 18 April 1991.  No pumps were delivered to the applicants by the respondent between 12 March and 18 April 1991. It seems unlikely that as at 18 April 1991 Septic Products was in possession of significant numbers of pumps sold by the respondent to Mr Brookfield trading as Brookfield Plumbing Services.  I conclude that Septic Products probably installed 22 of the Doc 3 pumps supplied to it in new systems.  Of the 22 pumps shown by Schedule "A" to have been installed in new systems later than 18 April 1991, 10 are shown to have failed by fusion due to water ingress.  The information on Schedule "A" as to 1 such pump is unclear but may indicate that it was still operating as at the date of the Schedule.  As to the remaining 11 of the 22 pumps installed in new systems, Schedule "A" indicates that no records as to their performance are available.  Although some of these 11 pumps may have failed in use, I am unable to be satisfied that more than a small number so failed.  The reason for the unavailability of records at this late stage in the relationship
between the applicants and the respondent, in my view, is likely to be that problems were not experienced with the pumps.

 

It is impossible to work out from Schedule "A", or from other evidence, how many of the additional 48 pumps sold by the respondent to Septic Products were installed in new systems and how many were used to replace failed pumps in existing systems.  It is similarly impossible to work out how many of them failed in service.

 

On the basis that there is apparently no reason to conclude that the 22 Doc 3 pumps referred to above were not a representative sample of the Doc 3 pumps supplied by the respondent to Septic Products, I find that, on the balance of probabilities, approximately 50% of the Doc 3 pumps so supplied failed in use.  That is, approximately 35 such pumps.

 

I point out that there is evidence which tends to suggest that this is not an ungenerous assessment so far as the applicants are concerned.  On 2 October 1991 Mr Brookfield wrote to the respondent and advised that Septic Products would no longer continue to use the Doc range of pumps supplied by the respondent.  The letter includes the following passage:-

 

     "As your office was advised, any expense incurred as of July 1st, 1991 will be charged against our invoice amount outstanding as we are no longer prepared to outlay the many hours of labour required to go out on site and change faulty pumps.  We have also been charged labour by our interstate agents for changing faulty pumps.

 

     The nine faulty pumps you are now in possession of are also being deducted from the invoice amount as we are not prepared to place any more of these pumps out in the field.

 

     To date from July 1st, 1991 we are returning 2 DOC 7's and 7 DOC 3's with a value of $1,712.00.  We also have accumulated 93 hours in replacing and travelling to locations where pumps have failed.  This has cost $6,464.00 in wages, fuel and vehicle costs.

 

     This results in a total deductable cost of $8,176.00 from our invoice amounts.  We will finalise the outstanding amount of our account as soon as possible.  I am currently interstate making arrangements for collection of payments and repairing several units."

 

 

Mr Brookfield confirmed under cross-examination that the 9 pumps referred to in the second paragraph of the above extract are the same 9 pumps referred to in the third paragraph.

 

It was submitted on behalf of the respondent that the letter of 2 October 1991 gives an accurate figure for the number of pumps which failed between 1 July - 2 October 1991.  This was denied by Mr Brookfield, but I find his evidence in this regard unconvincing.  In particular, the undertaking to finalise the outstanding amount of the account as soon as possible suggests strongly against further claims against the respondent being held in reserve.  I note also that in a letter dated 9 October 1991 addressed to the respondent and signed by him, Mr Brookfield particularises the claim for the costs of replacing the 9 pumps referred to in his earlier letter as "... Parco Beaver Australia's cost to replace faulty pumps including labour and travelling expenses to date 30th, September 1991."  Moreover, in his affidavit evidence, Mr Brookfield stated that his letter of 9 October 1991 provided "... a break down of pump failure and job
locations for pumps replaced in the period 1st July to 30th September 1991."  I do not accept the oral evidence of Mr Brookfield to the effect that he did not intend the above passage to be read literally.

 

I find that Mr Brookfield's letter of 2 October 1991 gives an accurate figure for the number of pumps supplied by the respondent which failed between 1 July - 30 September 1991.  The number of Doc 3 pumps which are recorded in the letter as having failed is 7.

 

Although pumps with the bottom bearing housing problem, on the evidence, tended to fail quickly after being placed in service, Schedule "A" suggests that the Doc 3 pumps without this problem tended to fail, if at all, between roughly 2-16 months after being commissioned, and on average roughly 8 months after being commissioned.  In view of the length of time that the respondent had been supplying Doc 3 pumps to the applicants by 30 September 1991, and the evidence of the time frame within which such pumps tended to fail, if they failed at all, the failure of 7 Doc 3 pumps in that 3 month period is not suggestive of a failure rate higher than that which I have accepted, namely approximately 50%.

 

Nonetheless a failure rate of 50% within a relatively short period indicates, and I so find, that the Doc 3 pumps were not fit for the purpose for which they were in fact used.

 

Is the purpose for which the Doc 3 pumps were in fact used the particular purpose which I have found was made known to the respondent:  that is, the particular purpose of acting as a recirculation pump in a Parco Beaver system?

 

As mentioned above, Mr Brookfield devised a modification to the Parco Beaver system.  This modification involved the replacement of the Parco Beaver filter medium of cut plastic piping with a disc pack.  Mr Brookfield commenced to install Parco Beaver systems incorporating disc packs in South Australia in 1990 and in New South Wales in early 1991.  Although at different times Mr Brookfield gave apparently conflicting answers as to whether all Parco Beaver systems installed by him in South Australia during 1990 and 1991 incorporated disc packs, it appears on the whole of the evidence that they did.  It appears that Mr Brookfield's supply of cut plastic piping was exhausted some time in 1991.  Thereafter all Parco Beaver systems installed by the applicants utilised disc packs as the filter medium.  From September 1991 the waste water system installed by Septic Products was the BPS system.  The BPS system used disc packs as the filter medium.  However, as Septic Products ceased purchasing pumps from the respondent in August 1991, it seems unlikely that many Doc 3 pumps were installed in BPS systems.

 

I conclude that all, or nearly all, waste water systems installed by Septic products utilised disc packs as the filter medium.  Moreover, it seems likely that the preponderance of Doc 3 pumps supplied to Septic Products which were used to replace failed Doc 3 pumps supplied to Mr Brookfield trading as Brookfield Plumbing Services would have been installed in waste water systems which utilised disc packs as the filter medium.

 

Mr Brookfield conceded in his oral evidence that most of the failures of Doc 3 and Doc 7 pumps experienced by the applicants occurred in systems which utilised filter packs as the filter medium.  He accepted that Schedule "A" showed only "a handful" of failures in systems not using filter packs.  The Doc 3 and Doc 7 pumps referred to in Schedule "A" include pumps which had the bottom bearing housing problem but which were installed in waste water systems because the fault was not apparent.

 

The only academically qualified expert with experience in waste water process design who gave evidence at the hearing of this matter was Mr Mark Gobbie ("Mr Gobbie").  Mr Gobbie was retained by the solicitors for the respondent to review the design features, performance and operation of the BPS waste water system.  In doing so he necessarily gave consideration to the operational significance of using disc packs in lieu of cut plastic piping as a filter medium.  Mr Gobbie expressed the opinions, which I accept, that horizontal medium, such as the disc packs, are likely to lead to uneven biomass growth, and that uneven biomass growth will result in large pieces of biomass sloughing from the filter medium into the area of the holding tank in which the recirculation pump (for present purposes, the Doc 3 pump) operates.  Although Mr Gobbie assumed, contrary to the fact, that disc packs would not be serviced, I do not consider that this factor affects his above opinions.  A view of waste water systems, including a BPS system, was held early in the hearing of this matter.  The BPS system seen on the view was one which the evidence established to have been regularly serviced.  Uneven biomass distribution on the top disc of the disc pack was pointed out to me and observed by me.  Also pointed out to, and observed by me, were lumps of biomass on the surface of the holding tank below the disc pack.  What I saw on the view in this regard tends, in my view, to provide support for the opinion expressed by Mr Gobbie (s54 of the Evidence Act 1995 (Cth)).

 

Mr Wilsdon gave evidence of Doc 3 and Doc 7 pumps returned by Mr Brookfield to the respondent having large quantities of thick waste material in and around the pumps' external workings of the shaft and the impeller.  His evidence was that after the removal of such material the pumps operated satisfactorily.

 

There is other evidence that a number of failed pumps returned to the respondent showed on examination a build up of bacteria growth.  Mr Brookfield himself gave evidence of seeing approximately 9 dismantled Doc 3 pumps previously returned by him to the respondent:  on each of them he saw a dried substance around the impeller and the pump shaft which, when he rubbed it between his finger and thumb, ground down to a fine gritty substance.  His evidence is that he recognised the dried substance immediately as bacteria culture, and that it was
identical to the biomass growth which forms on top of filter packs.

 

The Doc 3 and Doc 7 pumps are manufactured with three lip seals located on the pump shaft.  The purpose of these seals is to isolate the motor of the pump from the fluid being pumped ("the working fluid").  Each of the experts in pump design who gave evidence in this case agreed that the Doc 3 and Doc 7 pumps which they had examined which had failed, failed because lip seals located on the pump shafts failed with the result that working fluid entered the motors.  The dispute between them was as to why such seals had failed.

 

Mr John Weir ("Mr Weir"), who was called on behalf of the respondent, expressed the view that the seals failed because the pumps were operated for an extended period in an environment containing an excessively high concentration of abrasive particles.  Emeritus Professor Peter Joubert ("Professor Joubert"), the principal pump design expert called on behalf of the applicant, on the other hand, expressed the view that the seals had failed because the pump shafts were manufactured from a steel which was too soft for use with lip-seals.  Professor Joubert expressed the opinion, which I have no reason to doubt, that the Doc 3 and Doc 7 pumps tested by him had shafts which were softer than the minimal hardness recommended in an accepted handbook of machine design for shafts that contact lip-seals.  However, he made it plain that, so far as wear is concerned,
hardness is not the only factor.  He pointed out that wear is a very complicated phenomenon which cannot be predicted.

 

If the Doc 3 and Doc 7 pumps were manufactured with a shaft which was too soft for use with lip-seals in all circumstances, one would expect such pumps to fail irrespective of the use to which they were put.  The fact that the Doc 3 pumps failed at a much higher rate than the Doc 7 pumps suggests that some additional factor, or factors, was or were involved.  Moreover, as Mr Weir pointed out, one would expect the wear grooves at the location of the lip-seals to be relatively uniform if the problem were one involving no variables other than the nature of the seals and the strength of the shafts.  The evidence establishes that on Doc 3 and Doc 7 pumps where the lip-seals had failed, the grooves at the location of the lip-seals were deepest at the lip-seal closest to the impeller and shallowest at the lip-seal closest to the motor.  This gradation of the grooves suggests a relationship between the working fluid and the failure of the lip-seals.  Professor Joubert in his oral evidence appeared to accept that such a relationship was likely.

 

It was not suggested on behalf of either party that there was any difference in the hardness of the shafts of Doc 3 and Doc 7 pumps.  Mr Brookfield himself gave evidence of the satisfactory working of Doc 7 pumps in the Parco Beaver system.  At the time when he first approached the respondent with respect to purchasing pumps from it, he had been using Doc 7 pumps supplied by Allwater in Parco Beaver systems since 1989.  As is mentioned above, he had witnessed extensive testing of Doc 7 pumps by Allwater, apparently in conjunction with the respondent.  He had found that the Doc 7 pumps performed satisfactorily in the Parco Beaver system and he was happy to continue to use them.  I regard this as compelling evidence that the steel with which the Doc 7 pump shafts are manufactured is not in practice too soft for the satisfactory operation of such pumps in Parco Beaver systems.

 

Moreover, Mr Wilsdon gave unchallenged evidence of the sale of 22,017 Doc 3 pumps by the respondent between 1988 and 1993 and of the sale of 4,689 Doc 7 pumps over the same period.  He was only able to give evidence of warranty replacements of Doc 3 and Doc 7 pumps between 1990-1994.  His evidence was that during that period 740 Doc 3 pumps and 297 Doc 7 pumps were replaced under warranty.  Whilst there may be reason to doubt that such figures are precisely accurate, I accept that they reflect the order of the number of pumps so replaced.  I further accept Mr Wilsdon's evidence that a number of the Doc 3 and Doc 7 pumps sold by the respondent over the periods referred to above were sold to customers other than the applicants for use in waste water systems and that the return rate of such pumps was not out of the ordinary.

 

The Doc 3 and the Doc 7 pumps serve different purposes in the Parco Beaver system.  Each of them operates in the second, or holding tank, but the Doc 7, which is the irrigation pump, may be expected to pump water which is cleaner than the water required to be pumped by the Doc 3 or recirculation pump.  Mr Brookfield acknowledged that the applicants' records indicated that only "a handful" of Doc 3 pumps supplied to the applicants had failed in systems which did not have the disc pack modification.  There was no attempt made on behalf of the applicant to call admissible evidence of Doc 3 pumps failing in significant numbers in Parco Beaver systems which did not have the disc pack modification, or in any other waste water systems.

 

I find that, on the balance of probabilities, there is a relationship between the established failure of a significant proportion of the Doc 3 pumps supplied to Septic Products by the respondent and the modification effected by Mr Brookfield to the Parco Beaver system.  The evidence does not disclose that Mr Brookfield, or any other person on behalf of the applicants, advised the respondent of the modification made by Mr Brookfield to the Parco Beaver system.

 

Although Septic Products may be taken to have made known to the respondent that the Doc 3 pumps were required for use as recirculation pumps in Parco Beaver systems, the failure to inform the respondent of the modification effected to the system (which modification I have found affected the working environment of the Doc 3 pumps) has the consequence, in my view, that Septic Products did not make known to the respondent the particular purpose for which the Doc 3 pumps were required.

 

The claim for breach of an implied condition of the contracts of sale of Doc 3 pumps between Septic Products and the respondent based upon the first proviso of s14 of the Sale of Goods Act must fail.

 

The second proviso to s14 of the Sale of Goods Act is in the following terms:-

 

     "II  Where goods are bought by description from a seller who deals in goods of that description ..., there is an implied condition that the goods shall be of merchantable quality:  Provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed ..."

 

 

It is not contested in this case that the Doc 3 pumps were bought by description and that the respondent dealt at the relevant time in goods of that description.  No party chose to hazard what that description might have been.  The description on the evidence must, I think, have been that of "Lowara Doc 3 sump pumps", or perhaps, simply "sump pumps".  It was not suggested that any examination made of the goods ought to have revealed defects.  The issue here raised is that of whether the Doc 3 pumps sold by the respondent to Septic Products were of merchantable quality.

 

The Sale of Goods Act does not include a definition of "merchantable quality".  In Australian Knitting Mills Limited & Anor v Grant (1933) 50 CLR 387 at 418 Dixon J said:-

 

     "The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the fact and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms."

Proof of unfitness for a particular purpose will not always amount to evidence of unmerchantability.  In George Wills and Company Limited v Davids Proprietary Limited (1957) 98 CLR 77 at 88 the High Court stated:-

 

     "Before goods can be characterised as unmerchantable it must be shown that, as goods of that description on character, they are defective ..."  (emphasis in the original)

 

 

The Court in that case went on to approve a passage from Benjamin on Sale 8th Ed p645 which asserted, quoting as it seems from Farwell LJ in Bristol Tramways &c Carriage Co Ltd v Fiat Motors Ltd [1910] 2 KB 831 at 841, that goods are of merchantable quality "... [if they are] of such a quality and in such a condition that a reasonable man acting reasonably would after a full examination accept them under the circumstances of the case in performance of his offer to buy them, whether he buys them for his own use or to sell again."

 

With reference to whether an article sold by description is of merchantable quality, the learned author of Sutton on The Sale of Goods in Australia and New Zealand (2nd ed, Law Book Co, Sydney, 1974) at p173 asserts:-

 

     "It must be capable of passing in the market or in the trade under the name or description by which it is sold.  It is not enough that the article is saleable to somebody at some price; for a use can always be found for goods if the price is low enough.  A buyer will put up with serious defects in return for a substantial statement of price.  The goods must be acceptable generally in the market under the description with all its defects known and the fact that articles of the same character are being bought and sold in the market in large quantities is relevant in this connection."

The evidence of Mr Wilsdon referred to above is of large quantities of Doc 3 pumps being sold in the Australian market.

 

This case has, in my view, many similarities with the case of Jillawarra Grazing Company v John Shearer Ltd (1984) ATPR 40-441.  In that case, which involved an airseeder purchased by the applicant from the respondent, at 45,089 Toohey J said:-

 

 

     "I am not persuaded that the airseeder was of unmerchantable quality in the sense in which that term has been considered by the Courts; indeed I am satisfied that it was of merchantable quality.  As an airseeder or, if it is permissible to impose a gloss and say an airseeder capable of carrying out the work for which it was designed, the airseeder met the test.  The experience of John Shearer with similar airseeders sold throughout Australia would indicate that the machine is one that a reasonable purchaser would accept ...

 

 

     As I have concluded, the difficulties encountered by Jillawarra stemmed in the main from Mr. Bunter's decision to drive the airseeder with a hydromotor.  I should not be taken as holding that John Shearer should not have anticipated that the airseeder might be driven by a hydraulic motor as well as by a power take-off.  What I am saying is that a purchaser who decided to install a hydromotor was obliged to ensure that the hydraulic drive was appropriately designed and installed.  ...  The applicant did not seek the respondent's advice in this respect and the latter cannot be held responsible for any vice in the airseeder that was a consequence of an inadequate hydraulic system."

 

I find that the applicants have failed to establish that the Doc 3 pumps sold by the respondent to Septic Products were not of merchantable quality.

 

In my opinion the claims against the respondent for breach of the contracts between Septic Products and the respondent fail.

 

The application will be dismissed.

 

I will hear counsel as to costs.

 

 

                             I certify that this and the preceding     pages are a true copy of the Reasons for Judgment of the Honourable Justice Branson.

 

                             Associate:

 

                             Dated:

 

 

 

Counsel for the Applicants        :    Mr R A Cameron

                                      with him

                                      Mr A Moffa

 

Solicitors for the Applicants         :    Morcombe Townsend

 

 

 

Counsel for the First Respondent  :    Mr A J Besanko QC

                                      with him

                                      Mr I C Robertson

 

Solicitors for the First Respondent:  Piper Alderman

 

 

 

Hearing Dates                     :    11 August 1995

                                      14 - 18 August 1995

                                      21 - 24 August 1995

                                      28 - 31 August 1995

                                      4  - 8 September 1995

                                      18 - 20 September 1995

                                      3 October 1995

                                      5 October 1995

 

 

 

Date of receipt of written        :    29 November 1995

submissions                           23 January 1996