FEDERAL COURT OF AUSTRALIA

BWK Elders Australia Pty Ltd v Westgate Wool Company Pty Ltd

[2004] FCA 962

BWK ELDERS AUSTRALIA PTY LTD v WESTGATE WOOL COMPANY PTY LTD & ORS

S 105 OF 2001

NORTH J

25 JUNE 2004

MELBOURNE

THE COURT ORDERS THAT:

1. That judgment be entered for the applicant against the second, third and fourth respondents for damages of $1,368,624 with damages in the nature of interest of $464,985.47, a total of $1,833,609.

2. The cross-claim of the second, third and fourth respondents is dismissed.

3. Costs are reserved and the further hearing on the question of costs is adjourned until 10.15 am on 6 December 2004.

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

REASONS FOR JUDGMENT

1                     The applicant's claim against the second, third and fourth respondents has proceeded undefended. The applicant relied on 10 affidavits as follows: affidavit of Robert Brian Maslin sworn 4 June 2004; Stephen Anthony Favretto sworn 21 June 2004; Mario Ferrerati sworn 21 June 2004; Lindsay Spencer sworn 18 June 2004; Raffaele Federici 1 June sworn 2004; Claudio Pellizzari sworn 1 June 2004; Maurizio Fracassi Ratti Mentone sworn 1 June 2004; Dino Mirra sworn 1 June 2004; Andrew Woolfe sworn 26 July 2001, paragraphs 4(d) and exhibit AW1 only; and Andrew Woolfe sworn 24 June 2002, paragraph 8 only.

2                     The applicant also called oral evidence from Donald Ross McLearie, the general manager of the applicant; Anthony Hullick, senior wool trader of the applicant and Michael Andrew Jackson, managing director of the Australian Wool Testing Authority Ltd (AWTA). In addition the applicant has tendered 56 exhibits. At an earlier hearing when it became clear that the matter would proceed unopposed, I invited Mr Collins SC, who appeared with Ms Doyle, on behalf of the applicant to file comprehensive written submissions. They have done so. The submissions set out the background to the claim, the evidence upon which the applicant relies to support the findings of fact which it asks the court to make and the legal arguments necessary for the applicant to make out its claim. The submissions together with four summaries referred to therein are annexed to these reasons and marked A.

3                     I am satisfied that the facts set out in the submissions have been established and that the legal basis asserted in the submissions to support the claim is made out. As the second, third and fourth respondents have not appeared to prosecute their cross-claim, the cross-claim will be dismissed.

Associate:

Dated: 22 July 2004

ANNEXURE A

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

No.S105 of 2001

BETWEEN:

BWK ELDERS AUSTRALIA PTY LTD (ACN 000 320 794)

Applicant

and

WESTGATE WOOL COMPANY PTY LTD (ACN 007 387 902)

and PETER JOSEPH ANDERSON, MATT ILMARI KAINE and

GRAEME JOHN MOYLE

Respondents

APPLICANT’S CLOSING SUBMISSIONS

Introduction and Background

1. The applicant (“BWKE”) initially sought orders for damages under section 82 of the Trade Practices Act 1975 (Cth) (the “TPA”) against the first respondent (“Westgate”) and the second to fourth respondents who were the directors and shareholders of Westgate. The claim against Westgate was for damages suffered by reason of Westgates’s contraventions of section 52, section 53(a) and section 58 of the TPA. The claim against the second to fourth respondents (Anderson, Kaine, and Moyle) were claims based on their involvement in Westgate’s contraventions of the TPA. Each of the second to fourth respondents was alleged to be involved in Westgate’s contraventions in accordance with section 75B(1) of the TPA.
2. Westgate had an administrator appointed shortly prior to the commencement of the trial. As a result the application was stayed as against Westgate by operation of section 440D of the Corporation Act.
3. The stay of the proceedings against Westgate does not preclude BWKE from proceeding with its claims against the second to fourth respondents. It is open to an applicant in proceedings for damages against natural persons involved in contraventions of the TPA to proceed without joining the primary contravenor.[1]
4. The application was fixed for trial commencing on 7 June 2004. The solicitor, Mr Woolfe, who had represented Westgate and the second to fourth respondents since the commencement of the proceeding ceased to act for the second to fourth respondents shortly before the trial was listed to commence. By a letter dated 31 May 2004, the second to fourth Respondents informed the Court that Mr Wolfe had ceased to act for them.
5. On the first day of the trial, the second to fourth respondents were represented by Mr Fitzmaurice of Abbott Stillman & Wilson, solicitors, who was instructed solely for the purpose of making an application for an adjournment. Mr Fitzmaurice agreed that the adjournment application should be deferred until after the applicant’s case had been opened as this would enable the adjournment to be dealt with when both the Court and the second to fourth respondents would be better placed to understand the way in which the case was put and the extent to which time was genuinely required by them in order to properly present any defences on which they wished to rely.
6. The opening proceeded on 7 June and was due to be completed on the morning of 8 June 2004. On the morning of 8 June 2004, Mr Fitzmaurice informed the Court that the second to fourth respondents has presented their own debtors petitions and either were or were about to become bankrupt. He informed the Court that he accordingly did not have instructions to proceed with an application for an adjournment and withdrew. BWKE sought a short adjournment of the proceeding to consider its position in light of the course which had been adopted by the second to fourth respondents. The proceeding was therefore adjourned to be mentioned on Friday, 11 June 2004.
7. On Friday, 11 June 2004 the proceeding was adjourned for the trial to proceed on 25 June 2004. The proceeding was not stayed by the bankruptcy of the second to fourth respondents as claims for damages under section 82 of the TPA are claims for unliquidated damages arising otherwise then by reason of a contract, promise or breach of a trust and are not provable in a bankruptcy.[2]

BWKE purchased wool from Westgate relying on AWTA Certificates

8. BWKE conducts business as an international wool trader. It has offices in Adelaide, Melbourne, Sydney and Fremantle. It purchases wool from growers and wool brokers throughout Australia. It sells wool to overseas customers, including customers in the United States and Italy.
9. Westgate traded as a wool broker. It sold wool both through auction and by private sale.[3] The second to fourth respondents were the sole directors and shareholders of Westgate and each worked full time in its wool broking business.[4] The wool broking business of Westgate was conducted from a wool store being Store 73, Somerville Road, West Footscray.[5]
10. BWKE’s claim is made in respect of a large quantity of wool purchased by it from Westgate during the period from October 2000 and July 2001 (“the relevant period”). BWKE had been purchasing wool from Westgate for several years prior to the relevant period. Mr Hullick, BWKE’s senior wool trader in Melbourne, had purchased wool from Westgate and dealt with the second to fourth respondents for many years prior to the relevant period.[6]
11. The purchase of wool by BWKE from Westgate was typical of the manner in which wool is purchased in the industry. Wool was offered for sale in lots, each lot comprising a number of bales of wool. Prior to the wool being offered for sale, Westgate would arrange for samples of the wool to be taken by the Australian Wool Testing Authority Limited (“AWTA”). The AWTA took samples and conducted tests in its laboratories in accordance with international standards for the testing of wool.[7]
12. The tests reported characteristics of the wool which were significant to purchasers. The most significant characteristic, and the one upon which BWKE’s claim in this proceeding relies, is the mean average fibre diameter of the wool (or “microns”).
13. The testing techniques of AWTA, conducted in accordance with international standards, provide very reliable test results. After completing the tests AWTA issues certificates to the entity which has requested the tests. The AWTA test certificates set out the results of the tests on the samples taken[8].
14. Core samples (required for testing) are taken from bales of wool under the supervision of AWTA testing officers. At the same time as the core samples are taken, “grab samples” are taken from the side of each bale of wool. The grab samples are displayed in rows of cardboard boxes in the wool store or at the time of auction. The AWTA Test Certificates providing the results of testing of the samples taken from the lot are displayed on the cardboard stands containing the grab samples.
15. The wool the subject of BWKE’s claim was purchased by BWKE by private sale from Westgate. Mr Hullick would attend Westgate’s store on a regular basis. The lots of wool available for private sale from Westgate would be displayed in rows of the cardboard stands containing the grab samples with AWTA certificates attached. Mr Hullick would inspect the lots with one of the second to fourth respondents. As he inspected a lot he would indicate whether he was interested in purchasing it and if he were, a short negotiation would be conducted (usually with Mr Kaine, and sometimes with Mr Moyle or Mr Anderson) and if a price was agreed, each would keep a note of it. All of the wool purchased, the subject of BWKE’s claim, was purchased in this manner either by Mr Hullick or by one of two other Melbourne wool buyers employed by BWKE who were supervised by him.[9]
16. At the end of each day the buyers complete a document referred to as a “Wool Purchase Header Sheet” containing details of each lot of wool purchased, which includes the identity of the broker from whom it was purchased, the lot number, details of the characteristics on the AWTA Certificate including its mean average fibre diameter expressed in microns, the purchase price in cents per kilogram, the number of bales in the lot, and the net weight of the wool in the lot. The wool purchase header sheets including details of each lot the subject of a claim made in this proceeding were tendered.[10] The payment by BWKE for the lots the subject of these proceedings was evidenced by Tax Invoices[11], Purchase Summaries[12] and Broker Payment Advices[13].
17. The characteristic of the wool which had the greatest influence on its price was the mean average fibre diameter or microns. In wool of 20 microns or less (which covers all the wool the subject of BWKE’s claim in this proceeding), differences of plus or mins .05 microns would make a material difference to the price which BWKE was prepared to pay for it.
18. Another feature of the wool which was significant as to its value was whether it was “grower classed” or “bulk classed” wool. “Grower classed” wool is wool from the one property which has been classed by a wool classer on the property. “Bulk classed” wool does not consist of wool all from the one property during one clip or shearing season. Generally, grower classed wool is considered to be more reliably uniform and is preferred by clients.[14]
19. The test AWTA Certificates identify whether wool is grower classed wool (the notation is “P”) or bulk class wool (the notation is “B”). The indication on the certificates as to whether the wool is P or B certificate wool is dependent on a declaration made by the entity requesting the tests at the time of so doing. That is, at the time Westgate requested the AWTA to perform testing on these lots of wool, the request sent to the AWTA (having been filled out by someone authorised to do so at Westgate) would indicate that the wool in question was P or B certificate wool.
20. The AWTA certificates also record the brand name on the bales comprising the lot of wool which has been sampled. In respect of grower classed wool, the brand name is usually the name of the farm or some other name used by the farmer. The wool classer who has classed the wool is required to mark the bale of wool with their wool classer’s stencil number. Wool classing and the regulations relating to the application of wool classer stencils are discussed in more detail below.
21. When the wool was purchased on behalf of BWKE by Mr Hullick or the other buyers, they relied on Westgate’s representation that the wool which would be delivered to BWKE was the wool to which the AWTA Certificates applied. That representation was constituted by offering of the wool for sale by display of the grab sample and the AWTA Certificate applying to that lot number. BWKE relied upon the representation that the wool being offered for sale was of the mean fibre diameter shown on the AWTA Certificates and that it was grower classed wool as shown on the AWTA Certificate.

The wool delivered by Westgate was found to be coarser wool of greater mean fibre diameter which had been substituted for the wool BWKE had agreed to purchase

22. In late May or early June 2001, BWKE’s Italian agent, Mario Ferrerati , was alerted to the fact that wool supplied by BWKE had been found to be unacceptably coarse after being processed at a mill in Italy. He contacted Mr McLearie, who was at that time the general manager of BWKE.[15] The wool which Mr Ferrerati had been concerned about had been purchased by BWKE in Melbourne of which approximately 50% was wool purchased from Westgate.
23. Mr McLearie was concerned and suspicious that Westgate had substituted and delivered coarser wool for the wool which had been sampled and tested prior to sale. He identified that a number of lots of wool of 20 microns or less which BWKE had purchased from Westgate was still located in Westgate’s store. He arranged for these lots of wool to be collected and taken to Parkes, New South Wales and delivered to Western Wool Brokers. These lots have been referred to in the proceeding as the “Parkes” wool.[16]
24. Mr McLearie arranged for the “Parkes” wool to be sampled and tested by AWTA. He did so by means of what has, in the proceedings, been referred to as “blind testing” of that wool. The wool was given a slightly different name at the direction of Mr McLearie prior to testing, and tested under that new name. The AWTA Certificates relating to the tests displayed with the wool samples inspected by Mr Hullick or the other BWKE buyers at the time the “Parkes” wool was purchased were tendered in evidence.[17]
25. At the time the blind testing of the Parkes wool was organised, an employee of Western Wool Brokers recorded details of the stencil numbers which were on the bales of Parkes wool, and provided that information to Mr McLearie[18].
26. The AWTA Certificates containing the results of the laboratory tests conducted on samples taken from the “Parkes” wool in the blind tests were also tendered.[19] The results of the blind testing of the Parkes wool showed that in respect of every lot the wool delivered was coarser than the wool that had been sampled prior to sale.[20]
27. Mr Jackson, the managing director of AWTA with qualifications and experience in wool testing, gave evidence that the consistently greater mean average fibre diameter which was found on the testing of samples taken from the Parkes wool after it had been delivered by Westgate and transported to Parkes could not be explained by sampling errors or inaccuracy in the tests conducted. Mr Jackson’s evidence concerning the reliability and accuracy of AWTA’s testing is referred to in greater detail below.
28. Based on the result of the testing of the Parkes wool, BWKE obtain an Anton Piller Order in this proceeding on 12 July 2001. The Anton Piller Order was executed on 13 July 2001. Mr Jackson was present during the execution of the Anton Piller Order at Westgate’s store in Somerville Road, West Footscray. Mr Jackson observed a number of stencils of grower or brand names in the store. There was no reason for growers brand names to be present in Westgate’s wool store, as those brands should ordinarily be applied in the growers shed when the wool is baled immediately after shearing. Mr Jackson made a list of the brand names of the stencils which he found in Westgate’s premises at the time of the execution of the Anton Piller Order.[21] The brand names on the wool the subject of BWKE’s claim is in many instances a brand in respect of which a stencil was found at Westgate’s premises by Mr Jackson, inconsistent with it being a growers brand which would be applied to the bale at the growers wool shed.[22]
29. After obtaining the Anton Piller Order, Mr McLearie had searches conducted of BWKE’s records to identify wool of 20 microns or less which had been purchased from Westgate and which could still be traced and identified. The searches and enquiries resulted in the following wool of 20 microns or less which had been purchased by BWKE from Westgate being identified:

(1)   A number of lots which were in the process of being exported and were on a ship which had departed the Port of Melbourne for delivery to a French client, but was due to dock in Fremantle before proceeding to its destination (the “Fremantle wool”).

(2)   Wool which had been exported to Burlington Industries Inc of Clarksville in the United States of America but was still in the bales and had not been processed (the “USA-Burlington wool”).

(3)   Wool which had been exported to Italy but which had not been delivered to Italian customers, and was still in the bales and had not been processed (the “Italian wool”).

(4)   Wool which had been delivered to an Italian customer Marzotto S.P.A., some of which was still in bales and had not been processed[23], and some of which had been combined with other wool and partly processed (the “Marzotto wool”).

(5)   Wool which had been delivered to Biella in Italy for combing at a mill located there prior to being delivered to Italian customers. This wool had been combined with wool purchased from brokers other than Westgate and had been combed, which means it had been partly processed (the “Biella wool”).

30. Mr McLearie arranged for the Fremantle wool to be unloaded in Fremantle, and for AWTA to supervise the taking of samples and testing to be performed on the Fremantle wool. The AWTA Certificates in relation to the test of the samples taken from the Fremantle wool are tendered.[24]
31. At the time the further testing of the Fremantle wool was organised, an employee of Australian Wool Handlers made a note of the stencil numbers which appeared on those bales of wool and provided that information to Mr McLearie[25].
32. Mr McLearie also requested AWTA to arrange for samples to be taken under supervision of an AWTA testing officer of the USA wool and the Italian wool, and so much of the Marzotto wool which was still in bales and had not been processed. Mr Jackson arranged for the AWTA’s most senior sampling officer, Mr John Buchanan, to travel to the United States of America and Italy to take samples, and to arrange for the samples to be returned to AWTA’s Australian laboratories for testing.
33. At the time that the samples were taken by Mr Buchanan he recorded details in respect of each lot. At the same time, Mr Buchanan noted the wool classers stencil numbers which appeared on the bales on a Core Test Request and Weight Record Form.[26]
34. The AWTA Test Certificates which contain the results of the tests performed on the samples taken by Mr Buchanan in respect of the USA wool, Italian wool, and so much of the Marzotto wool as was still in bales and had not been processed, disclosed that it was in respect of almost every lot that it was coarser and had a greater mean average fibre diameter than the wool from which samples had been taken prior to sale.[27]
35. The results of the tests conducted by AWTA on the Fremantle wool, USA wool, Italian wool and so much of the Marzotto wool as had not been removed from the bales or combed are set out in tables within Summary 1. Those results show that the wool which was tested was consistently coarser, having a mean average fibre diameter which was greater, than the wool from which samples had been taken prior to sale. Mr Jackson’s evidence is that the discrepancy in the mean average fibre diameter and the consistency of the discrepancy cannot be explained on any basis other than the different wool having been substituted between the time that samples were taken prior to the sale of the wool and the delivery of the wool by Westgate.[28]
36. Later, in October 2001, Mr McLearie arranged for the Parkes wool and Fremantle wool to be returned to Melbourne, as a result of BWKE’s solicitors informing him that the respondents’ solicitors wished to have the opportunity of having further samples taken and further testing performed. Further samples were taken from the Parkes wool and Fremantle wool in Melbourne, and tests on those samples were performed by AWTA. The AWTA Certificates containing the results of those tests are in evidence.[29] The results of those tests are also included in the tables included in Summary 1 provided for the Court’s assistance. They corroborate the results of the AWTA Test Certificates relating to the samples taken from the Parkes wool in Parkes and the Fremantle wool in Fremantle.
37. The Marzotto and Biella wool included in the various batches can be identified from the header sheets which identify those lots consisting of wool purchased from Westgate.[30]
38. These batches can then be traced as follows. The batches of Marzotto wool which had been processed and the Biella wool (all of which had been processed in batches together with wool purchased from brokers other than Westgate) are able to be identified by reference to the packing specifications and production orders (prepared in Italy prior to combing of the wool). In addition, certificates of analysis for each batch were obtained from mills in Italy after combing.[31]
39. The mean average fibre diameter in microns shown on the AWTA Test Certificates can be ascertained from the AWTA Test Certificates tendered in respect of each of those lots of wool.[32] The details in respect of the Marzotto and Biella wool is set out in Summary 2 provided to the Court for its assistance. Summary 2 includes tables dealing separately with the Marzotto and Biella wool included in different orders or batches as follows:

(1)   Marzotto – Order IG0 541;

(2)   Marzotto – Order IG0 533 ;

(3)   Biella – Batch TL5777;

(4)   Biella - Batch TL5790;

(5)   Biella - Batch TXL5811W.

40. In respect of some of the above batches or orders, which included wool purchased from Westgate, the AWTA calculated the mean average fibre diameter of the whole of the batch and prepared AWTA combined certificate for each of those batches.[33] In respect of each of the batches, the combined mean average fibre diameter for each of the relevant batches or orders (as calculated by BWKE) is also set out in the core/estimated results sheets for each batch.[34]
41. The various batches of Marzotto and Biella wool which included wool purchased from Westgate had been combed prior to being identified as batches including Westgate wool. The combing process involves scouring the cleaning the wool in order to remove the grease. The scouring process involves washing the wool in hot water and detergent and then rinsing it in cold water. Then the vegetable matter in the wool is removed in a process known as “carding”. Next, the combing of the wool separates the “noil” (the short, broken fibres and the fibres contaminated by small pieces of vegetable matter which remain after carding) from the wool, so that only the “top” remains. The “top” which remains after this process is wool which is essentially free of vegetable matter. The top is the sliver of wool in substantially parallel formation and essentially free of vegetable fibres.[35] Because the process separates the long fibres from the very short fibres (which tend to have a lower fibre diameter), the average fibre diameter of the combed wool is always slightly coarser than the greasy wool from which it is derived. Generally, it is to be expected that combed wool will be between 0.1 – 0.2 microns coarser than the greasy wool from which it is derived. [36]
42. The Marzotto and Biella wool was tested at the combing mills in Italy. The results of tests conducted in accordance with IWTO requirements have been proved by affidavits sworn by officers of the Italian combing mills familiar with the test results and testing process. The following affidavits prove the tests carried out in Italy in relation to the combed wool:

(i)        Marzotto Wool IG0541 (Mortara 21354) - Affidavit of Claudio Pellizzari 1 June 2004 attaching Statement of Gianfranco Maestri 1 June 2004;

(ii)      Marzotto Wool IG0533 (Mortara 21388) - Affidavit of Claudio Pellizzari 1 June 2004 attaching Statement of Gianfranco Maestri 1 June 2004;

(iii)     Biella TL 5777 (Romagnano 9456) - Affidavit of Raffaele Federici 1 June 2004, attaching Statement of Adriana Torelli 1 June 2004;

(iv)    Biella Wool TL 5790 (PIV 3163) - Affidavit of Maurizio Fracassi Ratti Mentone 1 June 2004 attaching Statement of Licia Borin 29 May 2004;

(v)      Biella TXL 5811 (Romagnano 9468) - Affidavit of Raffaele Federici 1 June 2004, attaching Statement of Adriana Torelli 1 June 2004.

The results of the tests conducted at the combing mills are included in the tables in respect of each batch included in Summary 2 provided to the Court for its assistance.

43. The results of the tests performed on the batches containing Marzotto wool and Biella wool demonstrate that it had a mean fibre diameter which was greater than it should have been[37].
44. Although the difference between the expected combined mean fibre diameter and the actual combined mean fibre diameter was less than 0.5 microns in the case of Marzotto order IGO533, Biella batch TL5795 and Biella batch 5790, the evidence is that this is a significant margin of difference for the whole batch. Any small variation in respect of particular lots of wool should have balanced each other out. These results demonstrate, however, that some of the wool in the batch for combing was significantly coarser than it should have been[38].
45. Based on the evidence that the Westgate wool was generally much coarser than it should have been in relation to the batches of Parkes, Fremantle, United States and Italian wool, the Court should be satisfied on the balance of probabilities that the Westgate wool included in these batches of Biella and Marzotto wool was also coarser than it should have been. It may be that the extent of the difference between the combined mean average fibre diameter of the whole of these batches and the expected result post combing (ie plus 0.1 or 0.2 microns) and the actual results obtained after combing in Italy were reduced somewhat, due to the fact that the variation was in effect “averaged” over the whole of the wool included in each batch.

The AWTA test results are accurate and reliable

46. Mr Jackson, the Managing Director of AWTA, graduated as a Bachelor of Science from Sydney University in 1987, having studied in the school of wool and pastoral sciences. His course included the study of statistics, wool production and processing. He worked as a research officer for AWTA conducting scientific trials into measurements and measurement processes from 1987 to 1990. He has worked supervising sampling and testing of wool since 1990. He has been the Managing Director of AWTA since 2001. He is a member of the Federation of Australian Wool Organisations and a member of the International Wool Textile Organisation (IWTO) Licensing Panel.[39]
47. The IWTO is an organisation which has a membership comprised of wool industry bodies from countries which engage in the trade of wool throughout the world. The ITWO has rules and regulations concerning the standards required for sampling and testing of wool. The ITWO will only licence laboratories which adopt the methodologies and standards set out in its rules and regulations. The AWTA laboratories are licensed by the IWTO to issue IWTO certificates.
48. The relevant IWTO procedures and requirements applicable here are those set out in the IWTO Core Test Regulations[40] and in the Measurement of the Mean and Distribution of Fibre Diameter Using the Sirolan – Laserscan Fibre Diameter Analyser IWTO -12[41].
49. The AWTA testing officers all require grab samples and core samples to be taken in accordance with the IWTO regulations. The sampling procedures which must be followed are set out in detail in the IWTO Core Test Regulations. These regulations require that core samples be taken by driving a coring machine through bales and grab samples be taken using a mechanical jaw from the side of bales. Core samples must be taken with a point of penetration randomly positioned over the surface to be cored not nearer than 75mm to the bale edge. The sampling schedules require a minimum number of samples to be taken in each case, including a sample from every bale in the lot.
50. During the relevant period, the AWTA laboratories all used Sirolan-laser scan analysers to perform test to determine the mean average fibre diameter of wool and operated that equipment and performed tests in accordance with the procedures laid down in IWTO 12. Throughout the relevant period the equipment was working properly and in accordance with the IWTO requirements.
51. The precision of the Sirolan-laser scan analyser means that in relation to any particular test result there is a less than 5% chance of variation due to random variations. In general terms, this means that for laser scan measurements of mean average fibre diameter of wool, 95% of results will be within the range of precision set out in Table D4 to IWTO-12, being plus or minus 0.21 microns for wool of between 15 to 20 microns and plus or minus 0.35 microns for wool which is between 20 and 25 micron mean average fibre diameter.[42]
52. The maximum re-test range between any two tests carried out using the methods prescribed by the IWTO is derived by applying the following formula: the square root of 2 x the 95% confidence level, which is 0.4 microns for wool between 15 and 20 microns. Thus the maximum re-test range acceptable on re-tests of samples of wool with a mean fibre diameter of 15.1 to 20 microns is 0.4 microns.[43]

53. Mr Jackson’s evidence is that the fact that the AWTA test results for the Westgate wool delivered to BWKE consistently showed that it was of a mean average fibre diameter which was higher than the wool which was offered for sale to BWKE, and mostly by margins in excess of 0.4 microns, establishes to a very high degree of probability that there had been substitution of the wool between the time that samples were taken prior to sale and delivery of wool to BWKE.

The presence of stencils of names or brands in the Westgate store

54. During the execution of Anton Piller order, a large number of stencils of names of properties or brands or wool were found at the Westgate store by Mr Jackson, who made a note of the names of the stencils he saw on that day[44]. Those names include many of the names which appeared on the bales of wool which are the subject of these proceedings.

55. The presence of such stencils at Westgate’s store is unusual. There is no reason for a business like Westgate to have those stencils at its premises in the ordinary course of business, unless doing a volume of blending or bulk class work. Westgate was not, during 2000 – 2001 selling bulk class wool[45]. Further, as Mr McLearie observed during the execution of the Anton Piller order, the Westgate store did not have present any of the other equipment which would be required for bulk class or blending work, such as bins or a blending machine.

56. In addition, none of the names which appeared on the stencils found by Mr Jackson at the Westgate store were brand names registered to Westgate Classing House[46].

The brand names and bale numbers on the wool sold by Westgate indicate that they were fabricated

57. After the execution of the Anton Piller Order, Mr Jackson caused a search to be conducted by AWTA’s computer system to identify all of the wool tested by AWTA at the request of Westgate which had particular brand names including brand names in respect of which stencils were found at Westgate’s wool store.
58. To test the reliability of that information, he prepared tables setting out the number of bales and the bale numbers in respect of wool tested by AWTA at Westgate’s request which were branded with the names “Masudo” and “Richlands”. Mr Jackson prepared tables summarising the bale number and the date on which the test in respect of which bale number was requested.[47]
59. Mr Jackson made the following observations based on the information set out in the table:

(1)               Both brands were cored at regular intervals throughout the year, which is not consistent with the normal practice for wool from one clip.

(2)               Bale numbers were replicated within each brand throughout the year. This is inconsistent with the normal practice for wool from one clip as there is usually only one shearing per year. This is also contrary to the Code of Practice for Preparation of Australian Wool Clips which specifies that bale numbers should commence at 1 and shall not be duplicated for any one farm brand in any one season.[48]

(3)               The records disclosed that for the period 1 July 2000 to 30 June 200,1 the average lot size for wool finer than 19.5 microns was 4 bales per lot. On average, from one wool clip there would 3 or 4 bales of fine fleece wool. Superfine lots tested for Westgate contained many more bales than the average number.

(4)               The information provided by Westgate indicated that wool bearing the Masudo and Richlands brands came from wool statistical area V21, an area around Hamilton Victoria. Mr Jackson was unable to identify any properties in that area using the brands of Masudo or Richlands.

60.              In light of discovery of large numbers of grower stencils at Westgate’s store and the above matters, Mr Jackson invalidated a number of P class certificates which had been issued for the Westgate wool, including that which is the subject of these proceedings. He did so on the basis that the AWTA no longer accepted that it was P certificate wool.

61.              Mr Jackson’s evidence was that while no single feature referred to on its own would suffice to prove that the wool was not P certificate wool, when considered together the above matters constituted compelling evidence that this wool sold by Westgate was not P certificate grower class wool.

62. The apparent fabrication of brands is consistent with the substitution of wool by Westgate. If the wool was genuinely grower classed wool, there would be no reason to fabricate brands and falsely ascribe bale number incorrectly. If wool was not being substituted there would be no reason to do so.

Westgate had purchased large volumes of wool packs during a short period consistent with substitution of wool

63. In the course of executing the Anton Piller Order on 13 July 2001 Mr McLearie found delivery dockets and invoices for wool packs.[49] These invoices and delivery dockets evidence the purchase of 1000 new nylon wool packs by Westgate in March 2001 and the purchase of a further 2500 wool packs in June 2001. There is no explanation for Westgate requiring such a large volume of wool packs unless they were substituting wool as alleged by BWKE.

Anderson and Kaine’s wool classing stencils were on the substituted bales – inconsistent with them being grower classed bales and consistent with their involvement in the substitution of wool

64. Australian Wool Exchange Limited (AWEX) manages the wool classer registration scheme in Australia.[50] AWEX has rules which apply to wool classer registration which provide for the maintaining of a register of wool classers, and issues unique wool classer identification to each registered Australian wool classer.[51] The wool classer is issued with a stencil and stamp which is used by them to mark bales which they have classed.[52] A registered wool classer must ensure that all greasy wool bales carrying his or her AWEX stencil comply with the requirements of the AWEX Code of Practice.[53]
65. AWEX publishes a Code of Practice for the preparation of Australian wool clips. The Code of Practice sets out the responsibilities of a wool classer prior to classing growers wool which includes examination of sheep, inspection of the shearing shed, and ensuring that all wool handling staff are supervised throughout shearing.[54]
66. The second to fourth respondents were registered wool classers during the relevant period. Mr Kaine’s wool classer number was AW774006 and Anderson’s wool classer number was AW850055.[55] In addition, Westgate was during the relevant period registered as a Classing House, and its stencil number was CH 795061. Mr Anderson was Westgate’s Classing House “nominated registered wool classer”[56].
67. Anderson and Kaine’s Australian wool classer stencils appeared on a large number of the bales of wool purchased by BWKE from Westgate which are the subject of this proceeding. The classer numbers in respect of the some of the lots were identified from the records kept by Mr Buchanan at the time of taking samples from the Italian wool, some of the Marzotto wool and the USA wool.[57] The classer numbers in respect of the Parkes and Fremantle lots were recorded by persons who handled that wool in New South Wales and Western Australia[58].
68. Comparison of those records reveal the following:

·                    Parkes Wool: 4 of the 13 lots had been classed by Anderson, 7 lots had been classed by Kaine and 1 lot had the Westgate Classing House stencil applied;

·                    Fremantle Wool: 4 of the 7 lots were classed by Kaine;

·                    Italian Wool: 41 of the 52 lots were classed by Anderson;

·                    United States Wool: 3 of the 28 lots were classed by Anderson and 21 lots were classed by Kaine;

·                    Marzotto Wool (in so far as not processed prior to problem discovered): 5 of the 9 lots were classed by Anderson.

69. Anderson and Kaine therefore used their stencil to falsely mark bales as grower classed wool which had been packed in the Westgate store. There was no reason to do so unless the wool was being substituted.

The evidence establishes that Westgate contravened s.52, s.53(a) and s.58 of the TPA

70. Section 58 of the TPA which is relied upon by BWKE provides as follows:

“58 Accepting payment without intending or being able to supply as ordered

A corporation shall not, in trade or commerce, accept payment or other consideration for goods or services where, at the time of the acceptance:

(a) the corporation intends:

(i) not to supply goods or services; or

(ii) to supply goods or services materially different from the goods or services in respect of which the payment or other consideration is accepted; or

(b) there are reasonable grounds, of which the corporation is aware or ought reasonably to be aware, for believing that the corporation will not be able to supply the goods or services within the period specified by the corporation, or if no period is specified, within a reasonable time.”

71. The evidence establishes that Westgate systematically sold and accepted payment for wool from BWKE with the intention of supplying goods which were materially different from the wool in respect of which the payment was made, being wool which was not grower classed wool and which was coarser and of a greater mean fibre diameter than that offered for sale. Westgate intended, at the time of accepting payment for that wool, not to supply the wool offered for sale and /or to supply wool which was materially different, namely wool which was coarser and of a greater mean fibre diameter than the wool offered for sale. BWKE has therefore established that Westgate contravened section 58 of the TPA.
72. In respect of each lot of wool the subject of BWKE’s claim Westgate represented, by offering the lot of wool for sale by display of a grab sample with an AWTA Certificate setting out the results of tests performed on samples taken from the lot offered for sale:

(1)   That the sample of wool displayed was from wool which Westgate intended to deliver to BWKE in the event that it agreed to purchase the offered lot from Westgate.[59]

(2)   That the wool test results which were in the AWTA Certificate pertained to the wool which Westgate intended to deliver to BWKE in the event that it agreed to purchase the offered lots from Westgate[60].

73. Those representations were false, misleading and deceptive. Westgate did not intend to deliver the wool from which the samples displayed and tested had been taken to BWKE, but intended to substitute coarser wool of a greater mean fibre diameter for it prior to delivery to BWKE as the evidence referred to above establishes. BWKE has therefore established that Westgate engaged in misleading and deceptive conduct in breach of section 52 of the TPA.
74. For the same reasons BWKE has established that Westgate falsely represented in connection with the supply of the wool that the wool supplied would have a particular standard quality or grade in breach of section 53(a) of the TPA.

The evidence establishes that Anderson, Kaine and Moyle aided and abetted Westgate’s contraventions of the TPA and knowingly participated in the contraventions

75. Anderson, Kaine and Moyle were the only directors and shareholders of Westgate and were all full time employees of Westgate. Westgate had only 5 other full time employees, and one casual employee.[61]
76. The conduct involved packing hundreds of bales of wool and falsely marking them over an extended period during which each of the second to fourth respondents was managing Westgate’s business at its wool store. The second to fourth respondents were the only people who stood to benefit from Westgate’s contraventions.
77. Anderson and Kaine affixed their Australian wool classer stencils to a large number of the bales in the lots at issue in these proceedings. The respondents, or an employee at their direction, affixed the brand names to the bales in the lots at issue in these proceedings. The respondents requested that the AWTA perform the testing of the wool prior to its sale to BWKE, and thus declared in those requests to the AWTA that the wool in question was grower class wool.
78. The second to fourth respondents displayed or authorised the display of the grab samples of the wool offered for sale and the AWTA certificates with them, and were commonly present when Mr Hullick attended to inspect the wool, negotiating with him in relation to the final sale price in relation to the lots of wool.
79. The second to fourth respondents have been represented by senior and junior counsel who settled their Defence. That Defence does not contain any positive case. No explanation as to how the contraventions could have occurred without their knowledge has been advanced by them or on their behalf at any time during the lead up to the hearing of the trial.
80. Each of the second to fourth respondents has filed a Statement of Affairs in which they included amongst their liabilities an amount of $2 million to BWKE, which could only be a reference to a liability in respect of the claims made in this proceeding.[62]
81. The circumstances lead to the conclusion that each of Anderson, Kaine and Moyle knowingly participated in Westgate’s contraventions and aided and abetted the contraventions[63].

The recoverable loss and damage suffered by the contraventions

82. The loss and damage suffered by BWKE as a result of the contraventions is set out in the affidavit of Stephen Anthony Favretto. Mr Favretto has calculated the loss and damage by reference to the business records referred to in the affidavit and which have been exhibited. Mr McLearie, who has extensive experience as a wool trader, confirmed that the arrangements made to dispose of the substituted wool or to reach agreement with purchasers to discount sale prices as a result of the difference between the quality of the wool ordered and the quality of the wool supplied were the best arrangements that BWKE could reasonable negotiate, and were entered into with his approval because in his judgment it was the best way of limiting BWKE’s loss.[64]
83. The loss and damage in respect of the various lots of wool identified by Mr McLearie and found to be lots in respect of which Westgate has substituted lesser quality wool are set out below:

Parkes Wool[65]

The Parkes wool was retained until July 2002 in case further re-testing or examination of it was required. It was then sold by BWKE at auction as bulk classed wool under its correct micron description. The loss is calculated as follows:

Loss on sale of Parkes wool $150,541.64

Costs incurred in handling, storage and transportation of

Parkes Wool $9,065.95

Total $159,607.59

Fremantle Wool[66]

The Fremantle wool was dealt with in the same way as the Parkes wool. It was sold by BWKE at auction as bulk class wool in July 2002 under its correct micron description. The loss in respect of the Fremantle wool is calculated as follows:

Loss on resale of the Fremantle wool $51,884.98

Cost of handling, storage and transportation charges $6,784.94

Total $58, 669.92

USA-Burlington Wool[67]

BWKE negotiated with the purchaser of the wool to retain the wool, on the basis of a discount on original agreed sale price. The total discounts negotiated representing BWKE’s loss are a total of $527, 903.82.

Italian Wool[68]

In order to minimise its loss BWKE decided to have the Italian wool processed and then sold it to its customers for the best price it could obtain. In relation to three of those batches, the amount claimed by BWKE is the difference between the total cost of the wool including transport, handling and processing costs and the amount recovered by the sale of the wool after being combed. The total loss in respect of the cost of acquisition, storing, handling and processing those batches of Italian wool, less the amounts for which it was sold is $335,336.90.

An amount is also claimed in respect of unrealised loss in relation to Italian wool tops which is still held in stock by BWKE[69]. The wool top in question has been difficult to sell and the unrealised loss suffered by BWKE in respect of that wool is calculated to be $101,796.96.

In addition, an amount is claimed for the loss of profit on an order which was cancelled as a result of Westgate’s inability to supply wool with the mean fibre diameter required due to the substitution of the Italian wool by BWKE. The profit lost as a result of that order being cancelled was $18,426.75.

Thus the total losses in relation to the Italian wool were $455,560.61.

Marzotto Wool[70]

BWKE was able to avoid a loss in respect of the wool which was still in bales and had not been processed. No claim is made in respect of that wool.

In respect of the Westgate wool which had been combed prior to detection of the substitution of wool, the only claim made is in respect of a credit note which was negotiated with BWKE’s customer as a result of the inferior quality of the wool. The amount of the credit which represents BWKE’s loss is $97,649.05.

Biella Wool[71]

As the batches containing most of the Biella wool were coarser than the contracts for which it was to be supplied the Italian customers were not prepared to accept it.

It therefore had to be sold pursuant to other contracts negotiated with BWKE’s customers for coarser (and, therefore, cheaper) wool. No claim is made for the loss of profit that would have been made on the contracts for which the wool was originally intended to be supplied. As the wool was combined with other wool for the purposes of sale, only the loss attributed to the Westgate wool is claimed, being based on the proportion of the sale price attributable to the Westgate wool based on weight.

The loss made on the sale of batches of tops containing Westgate wool (attributing the portion of the sale price which represents the proportion of Westgate wool included in those batches) was $62,647.28.

In addition, there was one batch of Biella tops which included Westgate wool which the customer agreed to retain on the basis that BWKE improved its quality by including 4 bales of very fine quality wool to it at a reduced price. The loss suffered on the sale of the extra bales required to be supplied by BWKE amount to $6,586.19.

Thus, the total loss incurred in respect of the Biella wool is $69, 233.47.

The total loss suffered by BWKE

The total of the losses suffered by BWKE as referred to above is $1,368,624.

Orders Sought

84. BWKE therefore seeks judgment against the second to fourth respondents as follows:

1. That judgment be entered for the applicant against the second to fourth respondents for damages of $1,368,624 together with damages in the nature of interest of $464,985.47 being a total of $1,833,609.00.

2. That the cross claim of the second to fourth respondents be dismissed.

3. That costs be reserved.

DAVID COLLINS

RACHEL DOYLE

Counsel for the Applicant

25 June 2004

Marzotto - Order IGO 541⁹

Marzotto - Order IGO 533¹⁰

Biella - Batch TL 5795⁸

Biella - Batch TL 5790⁶

Biella - Batch TXL 5811⁷

FOOTNOTES

1.      The lot number and brand appearing hereunder is obtained from the header relating to this lot appearing in the Court Book reference provided and intended to be tendered as part of Exhibit A1 of the proposed Exhibit List.

2.      The micron fibre diameter appearing hereunder is obtained from the AWTA Pre-sale certificate relating to this lot appearing in the Court Book at the Court Book Reference provided and intended to be tendered as part of Exhibit A5.

3.      The micron fibre diameter appearing hereunder is obtained from the AWTA combined certificate relating to this Batch appearing in the Court Book at the Court Book reference provided.

4.      The micron fibre diameter appearing hereunder is obtained from the Certificate of Analysis relating to this Batch appearing in the Court Book at the Court Book reference provided.

5.      It is anticipated that the average micron fibre diameter of the wool of the combined Batch when combed will exceed the average micron fibre diameter of the combined wool in the Batch in its greasy state by 0.1 - 0.2 microns.

6.      The lots contained in Batch TL 5790 are referred to in the Packing Specification at CB 1964.

7.      The lots contained in this Batch TXL 5811 are evidenced by the Bale/Weight Packing Specification at CB 1774.

8.      The lots contained in Batch TL 5795 are evidenced by the Bale/Weight Packing Specification at Exhibit "RBM26" to the affidavit of Robert Brian Maslin sworn on 4 June 2004.

9.      The lots contained in Order IGO 541 are evidenced by the Bale/Weight Packing Specification at CB 1445.

10.  The lots contained in Order IGO 533 are evidenced by the Bale/Weight Packing Specification at CB 1557.

11.  The micron fibre diameter appearing hereunder is obtained from the Core/Estimated Results table relating to this Batch/Order appearing in the Court Book at the Court Book reference provided.

TRANSPORT SCHEDULE

PARKES WOOL (TA 2564: Lots 3179, 3072, 3028, 3070, 3115, 3047, 3066, 3065, 3082, 3069, 3048, 2961, 3126)

FREMANTLE WOOL (FG 0852: Lots 3170, 3234, 3213, 3192, 3193, 3158, 3215)

USA – BURLINGTON WOOL (UG 0719: Lots 3051, 3019, 3073, 3071)

USA – BURLINGTON WOOL (UG 0720: Lots 3050, 3053, 3083, 3058)

USA – BURLINGTON WOOL (UG 0789: Lots 3150, 3118, 3119, 3116, 3123, 3131, 3121, 3154, 3133)

USA – BURLINGTON WOOL (UG 0794: Lots 3120, 3128, 3125, 3152, 3124, 3148, 3111, 34M11, 3147, 3145, 3127)

MARZOTTO WOOL (IG 0483: Lots 2807, 2791, 2792, 2842, 2751)

MARZOTTO WOOL (IG 0541: Lots 2570, 2873, 2874, 2878, 2889, 2890, 2892)

MARZOTTO WOOL (IG 0533: Lots 2735, 2860, 2832, 2786, 2836, 2639, 2577)

MARZOTTO WOOL (IG 0802: Lots 3129, 3196)

MARZOTTO WOOL (IG 0588: Lots 2880, 2850, 2876, 2877)

BIELLA WOOL (TXL 5811: Lots 2565, 2568, 2569, 2572)

BIELLA WOOL (TXL 5811: Lots 2571, 2615, 2619)

BIELLA WOOL (TL 5790: Lots 2236, 2232)

BIELLA WOOL (TXL 5795/TL 5777: Lots 2506, 2487, 2350, 2349, 2032)

BIELLA WOOL (TXL 5795/TL 5777: Lot 2520)

ITALIAN WOOL (TXL 5837: Lots 2882, 2952, 2881)

ITALIAN WOOL (TXL 5837: Lots 2968, 2905, 2976, 2991)

ITALIAN WOOL (TXL 5797: Lots 2353, 2215, 2154)

ITALIAN WOOL (TXL 5814: Lots 2522, 2524, 2505)

ITALIAN WOOL (TXL 5814: Lot 2626)

ITALIAN WOOL (TL 5742: Lots 1684, 1698, 1728, 1729, 1773, 1774, 1777)

ITALIAN WOOL (TX 5816: Lot 2616)

ITALIAN WOOL (TXL 5796: Lots 2351, 2352, 2474, 2507)

ITALIAN WOOL (TX 5831: Lots 2760, 2902, 2901, 2898, 2897, 2891, 2900, 2899)

ITALIAN WOOL (TX 5831: Lots 2971, 2972, 2990, 2985, 2980)

ITALIAN WOOL (TX 5832: Lots 2764, 2875, 2883, 2907, 2970, 2981, 2992, 2717, 3000)

ITALIAN WOOL (TX 5832: Lots 2906, 2884, 2885, 2896)

PARKES WOOL (Lots 3179, 3072, 3028, 3070, 3115, 3047, 3066, 3065, 3082, 3069, 3048, 2961, 3126)

FREMANTLE WOOL (FG 5082: Lots 3170, 3234, 3213, 3192, 3193, 3158, 3215)

USA – BURLINGTON WOOL (UG 0719: Lots 3051, 3019, 3073, 3071)

USA – BURLINGTON WOOL (UG 0720: Lots 3050. 3053, 3083, 3058)

USA – BURLINGTON WOOL (UG 0789: Lots 3150, 3118, 3119, 3116, 3123, 3131, 3121, 3154, 3133)

USA – BURLINGTON WOOL (UG 0794: Lots 3120, 3128, 3125, 3152, 3124, 3148, 3111, 34M11, 3147, 3145, 3127)

MARZOTTO WOOL (IG 0483: Lots 2807, 2791, 2792, 2842, 2751)

MARZOTTO WOOL (IG 0541: Lots 2570, 2873, 2874, 2878, 2889, 2890, 2892)

MARZOTTO WOOL (IG 0533: Lots 2735, 2860, 2832, 2786, 2836, 2639, .2577)

MARZOTTO WOOL (IG 0802: Lots 3129, 3196)

MARZOTTO WOOL (IG 0588: Lots 2880, 2850, 2876, 2877)

BIELLA WOOL (TXL 5811: Lots 2565, 2568, 2569, 2572)

BIELLA WOOL (TXL 5811: Lots 2571, 2615, 2619)

BIELLA WOOL (TL 5790: Lots 2235, 2232)

BIELLA WOOL (TL 5777: Lots 2506, 2487, 2350, 2349, 2032)

BIELLA WOOL (TL 5777: Lot 2520)

ITALIAN WOOL (TX 5837: Lots 2882, 2952, 2881)

ITALIAN WOOL (TX 5837: Lots 2968, 2905, 2976, 2991)

ALIAN WOOL (TX 5797: Lots 2353, 2215, 2154)

ITALIAN WOOL (TX 5814: Lots 2522, 2524, 2505)

ITALIAN WOOL (TX 5814: Lot 2626)

ITALIAN WOOL (TX 5742: Lots 1684, 1698, 1728, 1729, 1773, 1774, 1777)

TALIAN WOOL (TX 5816: Lot 2616)

ITALIAN WOOL (TX 5796: Lots 2351, 2352, 2474, 2507)

ITALIAN WOOL (TX 5831: Lots 2760, 2902, 2901, 2898, 2897, 2891, 2900, 2899)

ITALIAN WOOL (TX 5831: Lots 2971, 2972, 2990, 2985, 2980)

ITALIAN WOOL (TX 5832: Lots 2764, 2875, 2883, 2907, 2970, 2981, 2992, 2717, 3000)

ITALIAN WOOL (TX 5832: Lots 2906, 2884, 2885, 2896)

RICHLANDS SUMMARY – PREPARED BY M.A. JACKSON

The following table is extracted from the affidavit of M.A. Jackson sworn on 4 July 2001 and summarises all lots tested under the brand “RICHLANDS” in for the preceding 12 months.

MASUDO SUMMARY – PREPARED BY M.A. JACKSON

The following table is extracted from the affidavit of M.A. Jackson sworn on 4 July 2001 and summarises all lots tested under the brand “MASUDO” in for the preceding 12 months.