FEDERAL COURT OF AUSTRALIA

MCT Dairies Inc v Probiotec Limited
[2009] FCA 1385

MCT DAIRIES INC v PROBIOTEC LIMITED (ACN 075 170 151)

NSD 2105 of 2007

RARES J

25 NOVEMBER 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  The respondent bring in short minutes of order to give effect to these reasons.

2.                  The proceedings stand over to 26 November 2009 at 9:30am.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     MCT Dairies Inc is a cheese trading company based in New Jersey in the United States of America.  In October 2003 MCT entered into a contract with Probiotec Limited to import 100 tonnes of cheese.  The cheese was of a downgrade quality that was suitable for processing.  In the contractual negotiations the parties agreed that it would be labelled as “Cheedam” or “Australian Cheedam”.  There is a dispute whether the cheese was sold by that description.  The negotiations for the contract were conducted by MCT’s president and chief executive officer, Ken Meyers, with Probiotec’s managing director, Wayne Stringer, and one of its directors, Rudi Ganter.  The price for the cheese was USD1,250 per tonne, c.i.f. ex Sydney.  The cheese was to be shipped frozen in five different containers for discharge at the Port of Los Angeles, California.

2                      When the cheese arrived in the United States, MCT claims that it did not conform to the contractual description of “Cheedam”, but instead consisted of a variety of different cheeses and cheese product types of inconsistent and variable quality.  MCT asserts that the cheeses was basically fit only for animal, and not for human, consumption and was not clean tasting.  MCT also claims that Probiotec contravened s 52 of the Trade Practices Act 1974 (Cth) by engaging in conduct that was misleading or deceptive or likely to mislead or deceive.  This was because Probiotec allegedly made representations to MCT that mirrored the contractual warranties on which it relied.  Probiotec argued that it had in fact supplied what it had agreed to sell, namely, a variety of downgraded cheeses that were suitable for processing labelled as “Cheedam Cheese:  cheese for processing”.

3                     Probiotec brought a cross-claim for the balance of the amount due to it under various dealings it had had with MCT.  There is no dispute that MCT owed Probiotec the sum USD33,398.88 sought in the cross-claim but that that sum may be subject to a set off against any damages awarded on MCT’s claim.  The substantial issues are:

(1)        What were the terms of the contract between MCT and Probiotec with respect to the description and quality of the cheese or cheese products described as “Cheedam”?

(2)        Did the cheese, as delivered, meet the contractual specifications?

(3)        Is MCT entitled to any damages?

Background

4                     There are substantial factual conflicts between the principal witnesses.  At the outset of these reasons, I should make clear that I accept Mr Stringer’s evidence generally and, where it conflicts with their evidence, prefer it to that of the other witnesses.  As I explain below, I did not find Mr Meyers or David Raff to be reliable witnesses.  In these reasons, I have used the dates appearing on emails in evidence, but the precise timing of correspondence or telephone conversations is difficult to identify because of the variation between time zones in eastern Australia and New Jersey in the eastern United States.

5                     Mr Meyers’ principal duties at MCT included arranging the sourcing and purchase of its imports of cheese and cheese products.  Mr Raff, is the other principal of MCT.  His functions concentrated on the sales side of MCT’s business.  Import quotas for cheese and cheese products had to be filled and product had to be imported into the United States by the end of each calendar year, or the right to import under the quota would be lost for that period.  Thus, there was a commercial imperative on the United States quota holders and others which, like MCT, could exploit quota entitlements, to negotiate contracts for the importation of cheese into the United States in such a way that the contracts would be fulfilled and the cheese landed there by 31 December each year.

6                     One of Mr Meyers’ business objectives was to utilise quotas to which MCT had rights in respect of particular nominated grades of cheese.  Some quotas were for categories of specific products, such as cheddar.  Another category was that of “not specifically provided for”, being for cheese not within any identified category, but that met particular United States Department of Agriculture criteria.  MCT imported the “Cheedam” sold by Probiotec under a quota in the category of cheese “not specifically provided for”.

7                     Mr Meyers had first dealt with Mr Stringer in 2002.  On that occasion MCT purchased cheddar cheese from Probiotec utilising quota entitlements held in other entities’ names.  That transaction had proceeded successfully.  When Mr Stringer and Mr Ganter planned a business trip to the United States in August 2003 they arranged to meet with Mr Meyers to discuss possible business opportunities between the two companies. 

The Negotiations for the Contract for Sale of “Cheedam” Cheese

(a)        The Meeting of 23 August 2003

8                     On 23 August at the Cedar Hill Golf and Country Club in New Jersey, Mr Meyers met with Mr Stringer and Mr Ganter.  MCT has alleged that in the course of this meeting, Probiotec made representations to the effect of the contractual warranties on which it sued.  MCT pleaded that those representations amounted to conduct that Probiotec engaged in that was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974.  Because these are the only alleged representations and they were said to have been made orally in the United States, MCT required the consent of the Minister under s 5(3) of the Act in order to claim relief under the Act.  No such consent is in evidence and, accordingly, the claim under s 52 would fail at the threshold even if I were satisfied that the representations as alleged were in fact made in New Jersey.

9                     During the meeting, Mr Meyers told Mr Stringer and Mr Ganter that he could obtain quotas to bring more cheese products into the United States.  In particular, he explained that MCT was in the market to fill quotas for cheddar, granular cheeses and cheese in the “not specially provided for” category.  He asked whether Probiotec would be able to source supply of cheeses in Australia in order that he could utilise these quotas.  They also discussed developments in Probiotec’s business, which was then undergoing some expansion, and the possibility of establishing a joint venture or commercial arrangement in relation to importing downgrade cheese into the United States.

10                  Mr Stringer said that he had identified a downgrade product of whey cheese that may be suitable for the United States market.  It was manufactured by Fonterra in New Zealand.  He said it was the lowest priced ingredient for the manufacture of processed cheese that Probiotec had ever been able to find.  He explained plans for Probiotec and Fonterra to make this whey cheese in the United States, if they could develop a market there.  Mr Stringer said that Probiotec was proposing to bring its technology to make cheese blocks from cheese fines to supply downgrade cheeses in the United States.  He said that Probiotec wanted to establish a joint venture for this.

11                  Importantly, Mr Meyers said that he needed 100 tonnes of downgrade cheese for processing and that it should be labelled as “Cheedam for processing”.  He also said that he needed 60 or more tonnes of QC1 (first quality) cheddar.  Mr Meyers asked that some or all of this be labelled as “granular”.  Mr Sringer thought Mr Meyers had said “granulated”.  Mr Meyers said that these orders could be imported into the United States before the end of the year using quotas or licences MCT had for these quantities of cheese.  Mr Stringer told him that he had never heard of the expressions “Cheedam”, “granular” (or “granulated” cheese) and asked what Mr Meyers meant.  Mr Meyers said that these were “tariff busters” and that he knew how to bring into the United States various cheeses and cheese products, including cheese made with vegetable oil “under the [Customs] duty radar”.  Mr Stringer replied affirming that he had never heard of these terms but would label the products as Mr Meyers requested.  I accept that neither Mr Stringer nor Mr Ganter had heard of “Cheedam” before it was referred to by Mr Meyers in their meeting in August 2003, and also that until then they had not heard of “granular” or “granulated” cheese.

(b)        Subsequent Negotiations

12                  Mr Stringer and Mr Ganter remained overseas for some time after the meeting.  On 5 September 2003, Mr Meyers sent an email to Mr Ganter asking whether Probiotec had any cheese to offer because he had to place a purchase order as soon as possible.  He was referring to MCT’s need to ensure that any cargo of cheese was not only ordered but landed in the United States prior to 31 December.

13                  After their return to Australia, Mr Stringer sent an email to Mr Meyers on about 15 September advising him that MCT’s current requirement for 28 metric tonnes of cheddar and 14 metric tonnes of “granulated” cheddar might be able to be fulfilled.  (Mr Stringer later corrected “granulated” to “granular” to conform to Mr Meyers’ language of choice.)  However, Mr Stringer said that he wanted to inspect the actual products he had sourced first before committing.  He gave a range of estimated prices between USD2050 and USD2200 CNF (cost and freight) the West Coast of the United States.  Mr Stringer also wrote that, when that product was exported, Probiotec would include other cheese products it was able to offer including cheese blocks “… and some of the ordinary stuff we have for you to look at”.  He referred to them entering a licence arrangement later for other cheese varieties such as Egmont and “Cheetham” [sic].  Mr Stringer also offered to send samples of a freeze dried product that Probiotec manufactured, a powder product and some cheese cubes.

14                  Mr Meyers responded in an email of 19 September that he wanted to confirm arrangements for the cheddar and granular cheddar products and was “… also anxious for Cheedam quotes for delivery this year”.  Next, in a telephone discussion on around 24 and 25 September, Mr Stringer informed Mr Meyers that he had found a parcel of cheese for processing that was suitable for MCT’s needs.  He told Mr Meyers that he had been able to put together a mix of types and qualities of downgrade cheese for processing that were like those Probiotec supplied to (its Australian customer) Kraft.  Mr Stringer told him that the cheeses would be frozen and had been difficult to source.  He said that this included some gouda in 5 kg blocks he had found and that he thought Mr Meyers would be very happy with it.  They discussed the price.  Mr Stringer offered this mix of cheeses for processing at USD1250 per metric tonne c.i.f. (cost, insurance. freight) Los Angeles.  Mr Stringer said that Probiotec would label the various cheeses so that MCT could identify them in order to sell different cheeses to different customers.  I reject Mr Meyers evidence that Mr Stringer mentioned “white Cheedam” in this conversation.  On the next day, Mr Stringer sent a confirmatory email in the following terms:

“Ken,

Further to our discussion yesterday please forward your order for 100 mt cheese for processing at USD1250 per mt CIF LA.  Payment to be 14 days BOD.

We propose to label the product as follows – Please confirm this is acceptable or advise alternative.

PROBIOTEC PTY LIMITED

LICENCED ESTABLISHMENT 365

CHEETHAM CHEESE FOR PROCESSING

USE BY DECEMBER 2004

Net Weight       20 kg

36 BOLONG ROAD

BOMADERRY

NSW 2541

PH       +61 7 55701066

FAX     +61 7 55701255

BATCH CODE                                    -------

MANUFACTURE DATE        -------

The product will be progressively shipped in October so that all product will be in LA no later than week 1 December.  The product will be will be [sic] shipped frozen.

In regard to the 28 mt of Cheddar and 14 mt of Granulated cheddar I will be able to confirm this week 2 October at USD2050 CIF LA and we can then ship it in October.  I believe the product is OK but I want to see it first.  In the unlikely event that there is a problem I can still ship this product in October but the price will increase a bit.

Any news re the cheese and oil block.

Please respond quickly re the above so we can get started and not take any risks re the shipping schedule.”  (emphasis added)

15                  Mr Stringer’s misspelling of “Cheedam” was corrected at Mr Meyers’ urging during subsequent email exchanges and discussions between him and Mr Stringer.  The terms of the product label were also settled in those exchanges during which they negotiated a further contract for the purchase of more cheddar cheese.

16                  Mr Meyers faxed the front side of MCT’s double sided standard form of confirmation of purchase to Probiotec on 2 October 2003.  The reverse side was not faxed but it contained an extensive set of printed terms and conditions that MCT alleged were part of the contract.  The description of the cheese in the confirmation of purchase was as follows:

This order replaced an earlier one Mr Meyers had faxed using an incorrect weight in pounds.

17                  Mr Meyers explained that, in substance, MCT’s confirmation of purchase document was a purchase order.  He claimed that the double sided pages were posted to Probiotec shortly after he had sent the faxes.  At the foot of the page of terms and conditions on the reverse of MCT’s confirmation of purchase form is the following:

“Counterparts:  Facsimile. This Agreement and any amendments hereto may be executed in any number of counterparts, all of which together shall constitute a single, original instrument.  Facsimile signatures shall be deemed to be originals.”

There is no evidence that any signed copy of any confirmation of purchase form was received by MCT from Probiotec.  Mr Stringer never saw the reverse side of the form and Mr Meyers never referred to it or the terms or conditions in it during their negotiations.  I am not satisfied that, first, either of the original forms was ever posted to or received by Probiotec or, secondly, that the terms and conditions on the reverse side were part of any contract between the parties.

18                  The confirmation of order provided for payment in 30 days.  Probiotec did not accept that offer.  By 16 October 2003, payment terms had been agreed so that MCT would pay 80% of Probiotec’s invoice within 14 days of the date of the bill of lading and the balance seven days after the product had been cleared following its arrival in the United States.  In his email of 16 October, Mr Stringer said that Probiotic had taken the orders for the Cheedam and other, higher priced, cheeses (which by then were USD2,100 per metric tonne c. & f. LA) at below the market price to get some business flowing between the two companies.  And, Mr Stringer enquired of Mr Meyers:  “Please let me know re the cheese and oil blocks”.

19                  Mr Stringer sent Mr Meyers an email on 21 October, informing him of the current position of MCT’s various orders and noted that:

“Your order for 100 mt of Cheedam Cheese for processing at USD1250 CNF LA is accepted and is now being prepared for shipment over the next couple of weeks.  Conditions as per your order.”

That reference to the conditions in MCT’s order was to those on the front page that had been faxed on 2 October in the portion extracted above.  In a further email on 27 October Mr Stringer confirmed that the order was progressing as agreed and that no further action was required.  It was common ground that nothing turned on whether the contract was what is sometimes called a “true c.i.f.” contract or some amalgam of different commercial arrangements:  cf   Concord Petrolelum Corp v Gosford Marine Panama S.a (The Albazaro) [1975] 2 Lloyd’s Rep 295 at 302 per Roskill LJ cited in David M Sassoon, C.I.F. and F.O.B. Contracts (4^th ed, 1995) at 13.

The Contract

20                  I find that on about 16 October 2003 Probiotec and MCT entered into a contract for the sale and purchase of a mixture of 100 tonnes of downgrade cheeses as selected by Probiotec at USD1,250 per tonne c.i.f. the Port of Los Angeles.  Probiotec could ship the cargo in more than one shipment.  The contract required that Probiotec describe the cheeses as “Cheedam Cheese [:] Cheese for Processing”.  The cargo would be shipped frozen to arrive in the United States before 31 December 2003.  The “Cheedam” cheese was also to be of clean flavour, free from mould, suitable for processing and microbiologically sound for human consumption.  MCT had to pay 80% of the invoice price within 14 days of the issue of the bill of lading for that shipment, and the balance 7 days after the product had been cleared by the United States government authorities for entry into that country.

21                  I am satisfied that MCT, through Mr Meyers, had required Probiotec to label the different downgrade cheese varieties it selected to fill the 100 tonne order as “Cheedam Cheese:  Cheese for Processing”.  MCT wanted this label to be applied in order to utilise import quotas for the category of cheeses “not specifically provided for” so that MCT would have a supply of cheeses suitable for processing to sell to its customers.

22                  I reject MCT’s claim that the contract was for the sale by description of a particular variety or type of cheese called “Cheedam”.  That was not the sense of the term discussed by Mr Meyers with Mr Stringer (or when Mr Ganter was present).  Rather, they negotiated for Probiotec to supply a mix of types and qualities of downgrade cheese for processing.  Mr Meyers said that the cheeses should be labelled as Cheedam because he wanted to utilise quotas in the “not specifically provided for” category.

23                  Indeed, Peter Ernster, the president and chief executive officer of Chateaux Cheese Corporation, to which MCT sold some of this cheese, said in his evidence:

“Cheedam cheese has been considered as white cheddar solids and that’s all we were offered by MCT.”

24                  He distinguished the “solids” from “cheddar as defined by the standard of regulations”, saying the word “Cheedam” was used in his dealings with MCT in a “generic” sense.  And, Deborah (Dee Dee) Couch, MCT’s Los Angeles based sales and procurement specialist did not know what “Cheedam” was in December 2003 before she became involved with the two shipments.

The Cheese is Shipped to the United States

25                  On 9 November 2003 Probiotec advised MCT of the shipping arrangements for a number of cargoes, including those for the cheese labelled “Australian Cheedam”.  Probiotec’s email said that that cargo was to be shipped to Los Angeles in two stages.  The first stage was to be carried in two 20 ft containers with an estimated arrival time of 5 December, with the remaining three containers due to arrive there on 12 December.

26                  The initial two 20 ft containers were shipped on board the M/V Direct Tui at Sydney on 12 November 2003.  This cargo arrived in Los Angeles on 5 December 2003.  The bill of lading was claused freight prepaid, containing 1,996 x 20 kg cartons of Australian Cheedam based on shipper’s load, and count and it stated:

“Cargo is stowed in a refrigerated container having been set by the shipper/packer at a carrying temperature of -16 degrees Celsius.”

27                  The second cargo was carried on board the M/V PONL San Francisco from Sydney.  A shipped on board, freight prepaid, bill of lading for 2,936 x 20 kg cartons of Australian Cheedam in three 20 ft containers was issued on 22 November 2003.  This cargo arrived in Los Angeles on 12 December 2003.  The second bill of lading contained the same notation as the first about the carrying temperature.

28                  Probiotec issued a commercial invoice, export packing list and a certificate of Australian origin for each of the two cargoes.  These described the cargo as “Australian Cheedam”.  The first cargo was invoiced at USD49,900 CNF LA and the second at USD70,943.75 CNF LA.  These two invoices were paid in full by the two contractual instalments.  But, MCT later withheld other payments of balances due on other cargoes to Probiotec and the withheld money is the basis for its cross-claim.

29                  The cargoes were accompanied by health certificates that stated on their face that they had been issued by the Department of Agriculture, Fisheries and Forestry of the Commonwealth certifying that raw milk contained in the product had been processed in Australia and that the goods were:  (1) in sound condition;  (2) fit for human consumption and (3) of Australian origin.  However, in substance those certificates had been issued by Probiotec, under the authority of the Department given by an officer of the Australian Quarantine and Inspection Service (AQIS).

30                  This occurred as part of a process in which Probiotec applied to AQIS for authority to export the particular cheese to be included in a certificate under the Export Control Act 1982 (Cth).  That Act prohibited a person from exporting any prescribed goods to which a false trade description was attached (s 15(1)(b)).

31                  When Probiotec sent its application for approval to AQIS, it described the “cut type” as “Cheedam cheese” but identified that product as a hard cheese and used a code for cheddar cheese.  An AQIS officer emailed Probiotec’s export manager advising her that he had changed the product type to “semi hard cheese” and given it a new code.  Immediately before this in mid October 2003, Probiotec had obtained from Silliker Microtech, a microbiological testing laboratory, four certificates of analysis relating to two, unspecified, samples of the cheese in the “Cheedam” shipment.  I infer that these reported the results of tests on two random samples of that cheese obtained in connection with the export of the cargoes.  However, other than those certificates noting that no trace of certain substances or microbes was recorded in the tests, there is no direct evidence as to the meaning of the test results overall or how they were used by Probiotec.  Nonetheless, I infer that these were obtained and kept by Probiotec as part of its procedures, first, to obtain approval to issue health certificates and, secondly, to ensure that the cargo, so far as such a limited random sampling would reveal, was in a fit condition to be sold by it.

32                  Probiotec was subject to random audits by AQIS so as to ensure that it could be relied on by the Australian Government to use its authority to issue health certificates in its name.  I accept Mr Stringer’s and Mr Ganter’s evidence that Probiotec’s ordinary procedures for inspecting, testing and certifying the characteristics and qualities of cheeses and cheese products it was preparing to export would have detected any apparent mould or dirt in the products intended to be shipped to MCT.  I am satisfied that Probiotec’s procedures for the issue of the health certificates and ensuring that the “Cheedam” labelled cargoes were of the standard described in those certificates, were regular and appropriate.  I am also satisfied that Probiotec’s procedures would have ensured that the cheese labelled “Cheedam” conformed to the contractual description.

33                  MCT carried the onus of proof.  By 2005 MCT had begun proceedings against Probiotec in the Superior Court of New Jersey claiming, falsely, that none of the products sold were suitable for processing and that after an attempt to resell a portion of it it was destroyed by MCT’s customer or resold as animal feed.  Although Mr Meyers sought to distance himself from the exaggerated claim made in those proceedings that none of the cheese was fit, I am satisfied that those claims had been made on his instructions.  The claims as put had no regard to the fact that Chateaux had been able to use and had paid MCT for a substantial amount of that cheese.

34                  MCT asserted that Probiotec did not produce all of the documents possibly relevant to the purchase of the cheese by it that it repackaged and sent to the United States.  MCT argued that Probiotec had destroyed these records when it was on notice that MCT intended to bring these proceedings following the dismissal of the New Jersey proceedings in July 2006.  MCT’s New Jersey attorney, Robert Corcoran, told his Probiotec counterpart that MCT would be “refiling the matter in Australia and that Probiotec should expect to receive notice from Australian counsel shortly”.  But, these proceedings only began over 16 months later in November 2007.

35                  Probiotec had a document destruction policy that caused documents in the manufacturing plant to be destroyed after three years.  However, the documents relating to the purchase of the cheese for the on-sale to MCT would have been relevant for discovery and use in the New Jersey proceedings.  Those documents are likely to have been collected and set aside for that purpose.  Mr Stringer was not aware of when those documents were destroyed.

36                  Where a person deliberately destroys a document that, depending on what its contents may have been, would have told strongly either for or against the person, the strongest possible presumption arises that, if it had been produced, the document would have told against the person. This is so even if there was no intention to destroy evidence. In the latter case, the principle is that the person is in the position that they would have been in without the corroboration which might otherwise have been expected: Allen v Tobias (1958) 98 CLR 367 at 375 per Dixon CJ, McTiernan and Williams JJ, applying The Ophelia [1916] 2 AC 206 at 229–230.

37                  On the penultimate day of hearing MCT contended and put to Mr Stringer that the cheese had been purchased by Probiotec at a price similar to that for “stockfeed”.  He denied that Probiotec had purchased the “Cheedam” cheese as stockfeed and I believe him.  MCT had not pleaded that such a case was to be made by it.  In those circumstances I am not prepared to infer that the missing documents would have supported an assertion that Probiotec had purchased cheese that it knew was not fit for human consumption.  I do not accept MCT’s argument that Probiotec deliberately destroyed the purchase documents to suppress them from discovery or evidence in either proceeding.  While the absence of those documents does not assist Probiotec’s case, and means it lacks any corroboration they may have given it, I must decide the issues on all of the evidence with that situation in mind.

38                  The absence of the purchase documents means that Probiotec cannot use them to corroborate its position that the cheese it purchased for the sale to MCT of “Cheedam” labelled cheese was of any particular quality.  However, I have arrived at a firm satisfaction, conscious of the absence of the corroboration that the purchase documents may have provided for Probiotec’s case, that, the cheese it purchased was not stockfeed or such as did not comply with its contract with MCT.  It is inherently unlikely that Probiotec would have allowed cheese of the poor quality alleged by MCT, as described below, to be shipped.  First, Mr Stringer was trying to establish, not to destroy, a long term business relationship with MCT.  Secondly, the risk to Probiotec in using its authority to certify, on behalf of AQIS, the fitness of cheese of that deficient character was significant.  If AQIS discovered such a misuse, the consequences for Probiotec’s business were severe.  Thirdly, there is no commercial, or common, sense in MCT’s allegation that Mr Stringer was selling product that was not fit for human consumption and was “stockfeed”.

MCT’s Complaints about the Shipments

39                  On 4 December 2003, after MCT had received the shipping documents for the first cargo and just before its arrival at Los Angeles, Mr Meyers emailed Mr Stringer saying:

“I was never asked if I wanted this or any cheese frozen!  I would never have agreed.  You have never shipped me frozen in the past, particularly minus16!

Secondly, the 1^st quality was shipped frozen as well!

This is a huge mistake on your part.  Frozen cheese is very hard to sell to processors as the body becomes too short!  (emphasis added)

This is a major issue!”

40                  Despite these forceful assertions, Mr Meyers acknowledged in his evidence that he had overlooked the terms of Mr Stringer’s email of 25 September 2003.  He now accepts that they had agreed that the “Cheedam” would be shipped frozen.  Mr Stringer responded later that day. He suggested that they find a commercial solution.  Mr Stringer informed Mr Meyers that the first quality product had not been shipped frozen.  He agreed that frozen cheese was harder to sell.  He noted that their previous dealings had been only for supply of quality cheese.  Mr Stringer’s email continued in respect of the cheese sold as “Cheedam”:

“… most of the cheese was shipped at less than 50% of world price at the time and some was at 75% of world pricing and was specifically only suitable for processing.  I regarded this shipment effectively as a trial to see what you could handle and what works for both of us.  I thought that you would make good money on some and stuff all on some but a + overall.  That is why I sold at these prices.”

While I accept that shipping it frozen makes it harder to sell we have shipped significant quantities of cheese frozen to processors in Europe and to Kraft in Australia without problems.”  (emphasis added)

41                  During his cross-examination Mr Meyers asserted that Mr Stringer’s email referred to lesser prices for all of the products, including the first quality product.  I reject that evidence.  It is inconsistent with the terms of Mr Stringer’s email of 4 December.  The pricing for the other contemporaneous shipments of cheddar and other cheese agreed between MCT and Probiotec at this time indicates that the Cheedam shipment was at a price very significantly lower than the other cheese.  And, as will appear, MCT was able to sell one of the two containers from the M/V Direct Tui shipment to Chateaux Cheese Corporation at a significant profit in circumstances where most of the 20 tonnes of cheese in it was used to make processed cheese without any problem.

42                  Mr Meyers emailed Mr Stringer on 6 December 2003 asserting that he believed that he would remember such an important discussion concerning whether the cheese would be frozen.  He said that he had in the past had problems with frozen product, continuing:

“It limits our customer base.  Additionally, we must be very careful when thawing as the product tends to mold fast.  Our customers cannot always be counted on to use it as fast as needed to avert disaster!  That said, we will work our hardest to market this product at the best possible value.”  (emphasis added)

43                  Importantly, Mr Meyers’ memory lapse concerning the “Cheedam” being frozen, and his confident and continuing assertions of an incorrect version of what he had agreed very close in time to the earlier negotiations were signal. They reinforced my caution in relying on his evidence when uncorroborated.  And they exposed a motivation for his later conduct – frozen cheese is both more difficult to sell and requires proper care in its use “to avert disaster”.  This required MCT to take appropriate precautions in the storage of the cheese to ensure that it would not deteriorate.

The Handling of the Cargoes in Los Angeles

44                  The first two containers arrived at Los Angeles on 5 December.  They took two weeks to clear through the United States Customs and other importation procedures.  There is no evidence of how the containers in either shipment were kept at the wharf or before delivery to the two warehouses at which they were stored.  MCT’s custom’s broker, Alpha International, was named as consignee in each bill of lading and MCT was the notify party.  Mr Meyers said that each of Alpha and MCT’s then Los Angeles office manager, Christopher Dorf, would have received a complete set of the shipping documents for each cargo in December 2003.  These included Probiotec’s loading sheets below.  The loading sheet for the first cargo was not in evidence, but a consolidated loading sheet for both cargoes was.  Mr Raff saw it shortly after MCT first complained to Probiotec in February 2004.  It showed that the first two containers consisted of the following items:

45                  The loading sheet for the second cargo recorded that it consisted of the following cheeses which were packed in the respective containers:

46                  I infer that evidence from Mr Dorf and the employees of Alpha involved in receiving any of the five containers would not have assisted MCT’s case:  Jones v Dunkel (1959) 101 CLR 298.  Mr Meyers acknowledged that those persons were available to give evidence and that Alpha was still acting as MCT’s customs broker.  MCT gave no reason why they did not testify.  Given that it had secured the voluntary participation of a number of United States witnesses, I do not consider that I should refrain from drawing this inference merely because those persons were not able to be subpoenaed.

The Shipments are delivered to Storage Facilities

47                  Then, on 19 December the first two containers were taken from the wharf, initially, to Great Freight Inc’s freight yard.  They appear to have been held there for about four days before being delivered to DSW Distribution Centres Inc’s refrigerated and dry warehouse.  DSW’s facility had no capacity to store frozen cheese.  Brad Thayer, the president and chief executive officer of DSW, said that he was called to the warehouse when the two containers arrived.  He said this was because when the containers were opened, the load inside appeared to be in poor condition and had shifted.  He had arranged for extra employees to assist in the unloading of the containers.    The cargo had to be restacked by his warehouse staff onto pallets, wrapped in plastic and moved into the store.  Mr Thayer said that he was concerned to ensure that before moving the goods into the warehouse it did not have the potential to contaminate other customers’ goods.  He instructed his staff to remove any degraded cases from the cheese to be palletised.

48                  Mr Thayer did not recall clearly whether the cargo had arrived frozen.  He said that DSW’s usual practice, when such goods were received, was to measure the temperature inside the container as well as to check its settings.  Unloading occurred inside DSW’s receiving dock, which was within its refrigerated warehouse.  There, the temperature was around 36°-40°F (i.e. 2°-4°C).  Mr Thayer said that MCT had instructed him to allow the two container loads to thaw in the warehouse because DSW did not store frozen items.  He said that he observed the cheese more than once and it had differing colours and emitted quite a strong odour. 

49                  Mr Thayer gave his written and oral evidence from memory without consulting DSW’s file.  He accepted that his memory would have dimmed in the intervening years.  He volunteered to look through DSW’s archives after he finished giving evidence.  Mr Thayer said that all of DSW’s shipping documents were kept for 7 years.  After his offer MCT’s counsel informed me that Mr Thayer had forwarded some unspecified documents.  But, no documents were put in evidence and MCT led no evidence of whether Mr Thayer had made a search of DSW’s archives relating to this cargo or its result, if any.

50                  While I accept that Mr Thayer was giving evidence as best he could, I do not consider that his evidence was sufficiently reliable or accurate to infer that the cheese had arrived at DSW in the same order and condition as it was on discharge at the port.  He asserted that DSW had collected the cheese from the wharf on MCT’s direct instructions, taken it to the warehouse and that it was frozen on arrival.  However, before the goods were received by DWS, Great Freight Inc collected the two containers from the wharf, paid demurrage to the wharffingers and stored the load in its yard for four days.  And there are no records to confirm what he asserted would be contained in those records.

51                  The second cargo of three containers was taken to Ontario, California, and stored at Ontario Ice and Cold Storage Co’s freezer facility there from 31 December 2003 while MCT explored sales possibilities.  Mr Meyers said that Probiotec’s loading sheet for those three containers was in MCT’s possession at least in December 2003. 

52                  There is no evidence of how either cargo was cared for or stored from arrival in port at Los Angeles until delivered to DSW and, in the case of, Ontario Ice until February 2004 when it was inspected as I describe later in these reasons.  I am not satisfied that the cargoes and their condition were not correctly described in the shipping documents, including the health certificates, at the times that each cargo was shipped on board the two vessels in November 2003 and also when they were discharged in Los Angeles.  There is no evidence that the cargoes were not discharged by the two ships in the same apparent good order and condition as when loaded.  There was no suggestion of complaint to either ship when the cargoes were discharged at the Port of Los Angeles.  The common position of the parties was that no relevant change to the cargoes occurred during the sea transits.  Accordingly, I infer that the two cargoes were discharged by each ship in sound condition with properly operating refrigeration equipment.  However, there is no evidence of how the containers were kept at the wharves or at any time prior to delivery into the two warehouses.  I am unable to find or be satisfied that they were properly cared for or that the freezing equipment operated continuously and correctly throughout that later period.

MCT’s Inspections of the Cheese before delivery to Chateaux

53                  Earlier, in January 2004 Mr Raff instructed one of MCT’s Californian employees, Dee Dee Couch to travel to DSW’s warehouse to inspect a delivery of cheese described as “Cheedam”.  She had not heard of the description “Cheedam” at that time.  This was despite her having completed a cheese short course at California Polytechnic State University and having worked for over 10 years with Dairy Farmers of America and as a contractor to the dairy industry before being employed by MCT in 2003.

54                  Ms Couch made two visits to DSW.  She looked inside two boxes labelled “Cheedam” and observed various types of cheese.  She said that the two container loads of cheese labelled “Cheedam” “were not so nice”.  She reported that the product inside, generally, only filled about three-quarters of the box and was not in block form.  She took photographs showing how DSW had stacked and palletised the boxes so that some had become crushed or distorted.  Cheese colour is described as being on a scale of between 1 and 10 (with 1 being milk white and 10 being “prison guard orange”).  Ms Couch said that the product’s colour ranged from between numbers 5 and 6, had a gummy like texture and tasted like wet protein.  She also observed a natural type of cheese that appeared to be separating, powdery and crumbly with a colour of about 3 or 4 (approximating a cream or yellow).  She said this had free whey flowing in bags due to the break down.  She did not see any mould.

55                  She said that the pallets had been poorly stacked, there had been a lot of tilting and footprints were on boxes and on some pallets, not only on the top, but also in the centre of the pallets.  She interpreted that this showed poor handling before arrival at DSW.  However, her interpretation was incorrect.  DSW had removed all the cargo from the containers, stacked it on pallets and covered them in plastic.  I find that the damage to the boxes, the footprint damage and poor stacking occurred after the arrival of the containers at DSW and had nothing to do with Probiotec.

56                  Ms Couch also inspected some of the cheddar, the subject of a separate transaction between MCT and Probiotec and found that cheese to be in reasonable condition, well stacked and in uncrushed cartons.  The cheddar was close to colour 3 and comprised of good clean white solids. 

57                  After asking Mr Meyers’ permission, Ms Couch asked a friend of hers, Dr Brent Dobson, to accompany her on inspections of the cheese at both DSW and Ontario Ice.  He had been director of quality assurance at Dairy Farmers of America.  Ms Couch later wrote a report of both visits in an email she sent to Mr Raff on 16 February 2004.

58                  Mr Dobson said that he noted defects in the colour of the cheese he inspected at both locations, saying it was oxidised light pink to a very strong pink.  I find that he was referring to defects in certain cheese, being the red cheddar, as opposed to describing all of the cheese.  He also said that the body of cheese varied from solid to liquid.  Again, while he may have noticed some liquid it was only whey in a portion of the cheese at DWS, as reported in Ms Couch’s email.  Mr Dobson, said it was only permissible in the United States to use oil if making an imitation processed cheese.  Chateaux currently made imitation cheeses but he did not know whether that was the case in 2003.  He said that it was important to use an agreed or appropriate process to thaw cheese. 

59                  Ms Couch described her observations from her two visits to DSW that I have summarised above and her visit to Ontario Ice in the email.  Her report on the visit to Ontario Ice noted that she had observed the same crushing and stacking issues as at DWS (and I find also this had nothing to do with Probiotec).  Significantly, while Ms Couch reported tasting various samples she did not report any rancidity.  She also reported that the colour of the cheeses was between numbers 3 and 4.  And, Ms Couch said that she did not see any mould on the second inspection.  Neither Ms Couch nor Dr Dobson referred to any spots or dirt in any cheese.

Chateaux  receives some Cheese

60                  Peter Ernster had been asked by Mr Raff, shortly before the hearing, to prepare a statement and give evidence.  He said that Chateaux did not have any written details of the purchase orders or confirmation of purchase for the transactions involving the Probiotec cheese.  Indeed, remarkably, apart from some emails, one invoice, and one credit note in evidence no documents recording what was ordered by or delivered to Chateaux are in evidence.

61                  Peter Ernster said that MCT and Chateaux agreed in late 2003 that Chateaux would purchase the five containers, taking deliveries at the rate of one container load per week.  The first container of about 20,000 kg was received by Chateaux in early February 2004.  Peter Ernster said, and I find, that Chateaux was able to use this load and made no immediate complaint that this cheese was not suitable for Chateaux’ purposes.  He made no mention in his evidence that this load was received frozen, and, indeed, Mr Meyers said that it had come thawed from DSW’s warehouse.  I find that the first container delivered to Chateaux consisted of cheese from the first shipment and that it met all the requirements in the contract between Probiotec and MCT.  There is no invoice or other record of MCT claiming or receiving payment for this first container.

62                  The second delivery had arrived at Chateaux’s plant by 9 February 2004.  It consisted of about 22,500 kg of frozen cheese including the red cheddar.  On 9 February 2004, MCT invoiced Chateaux USD51,522.66 for that order, and on the same day, Chateaux’s Mike Ernster (Peter’s uncle who died in 2006) complained to Mr Raff about the red cheddar having a colour like a 10, or “prison guard orange”.  Mike Ernster was the principal person involved in the receipt and processing of the cheese at Chateaux, but Peter also had some involvement.  Peter Ernster said that after this delivery thawed, he realised that some of it had a rancid flavour.

63                  Chateaux rejected some cheese from the second container, but, significantly was able to use and, more importantly, paid for most of it.  On 9 June 2004, some four months after issuing its invoice for this delivery, MCT issued a credit note to Chateaux for USD13,318.17.  This represented a discount or rebate of about 26% of the original price and recorded that only 17.5% of the cheese was rejected.  MCT argued in its submissions made after the hearing in response to a series of questions I had raised that there was only one invoice in evidence for a sale to Chateaux and that I should infer that only one load was delivered.  However, MCT did not address the discrepancies between that argument and the evidence of Mr Meyers and Mr Ernster that two loads were delivered to Chateaux, the first being thawed, the second, frozen.  I reject MCT’s submission because it is not consistent with this evidence.

64                  Although, Chateaux complained about the vivid orange colour of some of the cheese in the second delivery, Peter Ernster readily acknowledged that Chateaux could use it with other cheeses in the manufacture of processed cheese without any adverse effect on the colour of the end product.  Mr Ernster took and sent MCT, four photographs of cheese blocks about which Chateaux complained.  He was not sure when he took them but said “it would be in March 2004”.  Two were of the vivid orange cheese.  A third was of a block of cheese in an opened cardboard box.  Mr Ernster observed that the block and packaging was longer and more slender than what he regarded as a standard size.  But, he did not suggest that this rendered the cheese depicted unfit for use or otherwise not in a condition that met the requirements of the contract between MCT and Probiotec.  This is likely to have been a photograph of a 15 kg block of gouda.

65                  The fourth photograph depicted a cream cheese block in a plastic sealed pack.  This block had a number of dark spots on the surface of the cheese that could have been mould or something else.  MCT alleged that the spots were foreign material such as debris collected by sweeping a floor.  There was no evidence of any analysis of the material in the spots.  No witness opened the packaging or any other cheese to ascertain what the cause of the spots was.  Mr Ganter said that the spots were mould growth and not floor sweep[ing]s.  It would have been simple to establish that dirt or similar contamination was in the packaged blocks by opening them and analysing them.  If foreign solid material, such as dirt, was what the photograph depicted it would have been readily identifiable to a person’s touch.  Peter Ernster said that after frozen cheese had been thawed, while it could be used anywhere between a few days and a few weeks later, however, it could not be left unused for months.  And, Mr Meyers had been conscious in his email of 6 December 2003 of customers not using thawed cheese “as fast as needed to avert disaster”.

66                  I am quite unpersuaded that the spotting depicted in the photograph (which other witnesses called by MCT asserted was also present in an unspecified number of other blocks of cheese) was dirt or other foreign matter such as floor sweepings.  The photographs on Mr Ernster’s vague evidence, were taken sometime in March 2004, weeks after the cheese was delivered to Chateaux.  The cause of the spotting was likely to be mould that had developed as a result of the way in which the cargo was handled after it had been discharged at the Port of Los Angeles.

67                  Peter Ernster also said that he had tasted some, unspecified, cheese from the second delivery after it had thawed at Chateaux’s plant and noticed a rancid flavour.  He thought this resulted from something being wrong with the cheese.  This led to Chateaux rejecting it and refusing to accept further deliveries of the Probiotec cheese.  I am satisfied that a proportion of the cheese in the second deliverey to Chateaux was affected by mould and a rancid flavour making it unsuitable for processing.  There is no evidence about the particular variety or varieties of the six cheeses that was or were affected, beyond the 26% discount in price given by MCT to Chateaux for the second delivery.  Nor is there any evidence of when the mould or rancidity developed or of its cause.  MCT has not established that these problems were the result of Probiotec being in breach of the contract.

MCT complains to Probiotec

68                  On 12 February 2004, Mr Meyers wrote to Mr Stringer complaining that some of the product was highly coloured, had high salt content, and others was “just a soft glop”.  This referred to cheese from the second container delivered to Chateaux.  He continued:

“Additional product seems to processed with veg oil, while still further product seems to a butter/oil (non-dairy blend).  It was my understanding that this was to [sic] natural uncolored non-frozen cheese suitable for processed cheese manufacture.  We continue to experience issues with this transaction and are concerned as to what we actually have.  I cannot afford to have my customers or ourselves put in jeopardy.  Please advise ASAP.”  (emphasis added)

69                  Mr Meyers, again, wrongly complained of the cheese being delivered frozen.  Significantly, he did not say here that the cheese delivered was nothing like “Cheedam”.  Rather, he referred to his “understanding” about the nature, colour and suitability for processing of the product that MCT was purchasing.  Mr Stringer responded in an email that the two largest cheese processors in Australia, Kraft and Bega, both used cheese of the standard in the “Cheedam” cargoes at lower levels in their processing.  He said that MCT’s customers would also be able to use it at some level and suggested that MCT sell the “Cheedam” at the best possible price it could get after which they would work something out so that MCT did not suffer a loss.

70                  By 19 February 2004, MCT had received and analysed Probiotec’s detailed packing list for the second shipment.  It disclosed the various cheeses including those already at Chateaux’s premises.  On that day Mr Raff faxed this list  to Chateaux saying, tellingly, about the cheese sold as “Cheedam”:

“I received better information from our FRIENDS at Probiotec.  I am faxing the document I received today.  The good news (if you can believe there is good news with this cheese) is that the two truckloads I am holding Frozen can be sorted and create 1 good load of Cheedam for you.  As well, we could ship both loads to you and give you an appropriate discount to work through it all.  It should be considerably easier, now that you know what you are getting.”  (emphasis added)

71                  Mr Raff’s evidence was that his reference to “1 good load of Cheedam” meant “… the Probiotec cheese that was being held frozen”.  At the time he wrote the email he was fully aware that not one of the cheeses was described on the packing list as “Cheedam”.  Yet, he was prepared to use that description to describe a potential consolidation of the remaining two contained loads into one 20 tonne load of usable “Cheedam”.  Mr Raff made a handwritten notation on the packing list that the container with the red cheddar was at Chateaux.

72                  By 1 March 2004 Mr Meyers was complaining that the Cheedam continued to pose issues and that some of it “is not even cheese … none of our customers will touch this garbage”.  The sales difficulties for MCT appear to have continued.  On 15 March 2004, Mr Meyers asserted to Mr Stringer that MCT had exhausted its ability to sell any more of the product.  However, only in late March 2004 did MCT first write about a specific problem with the cheese.  And then it did so in an internal email of 26 March from Mr Raff to MCT’s Jennifer Dolan.  Mr Raff asserted there that he had some samples shipped to his office in New Jersey and when Mr Meyers sampled the cheese he almost threw up.  Mr Meyers had emailed Mr Stringer on 12 May 2004 advising him that Chateaux was requesting a credit for the original shipment, would not touch the product and would sell the unusable portion as animal feed.  Again, none of MCT’s emails to Probiotec up to this time gave any specifics about the supposed problem beyond generalised assertions that it was “garbage” or “unusable product” or “animal feed”.  Ultimately, MCT asserted that the balance of the importation was sold as animal feed.

Conclusions

73                  I am not satisfied that Probiotec agreed with MCT to sell cheese that conformed to either of the descriptions “Cheedam” or “Cheedam for processing”.  First, I do not consider that Mr Meyers was a reliable witness.  His oversight in early December 2003 and later that the shipment was for frozen cheese was signal.  He had a tendency (as did Mr Raff) to overstate and exaggerate both his evidence and his earlier communications to suit MCT’s case.  To my observation, Mr Raff accurately described Mr Meyers’ temperament in an email of 15 October 2004 saying:

“He feels Probiotec is challenging him.  I must explain to you Ken’s disposition.  I recommend not challenging him.  He thrives on this kind of situation and he is relentless.  He would just assume use [sic]our court system to resolve this case.  He feels comfortable there.”  (emphasis added)

74                  Secondly, it was apparent to Mr Meyers from the early email exchanges of September 2003 that Mr Stringer did not even know how to spell “Cheedam” and he, (Mr Meyers), had to insist on the correct spelling.  Thirdly, he and Mr Stringer spent some time in their correspondence at this time specifically agreeing how the shipment would be labelled.  That would not have been necessary had this been a contract for a particular cheese sold by description.  This conduct suggests that both Mr Meyers and Mr Stringer had something more in mind because they spent so much time on how they both wanted the product labelled.  I am satisfied that the motivation for this correspondence was merely to ensure that MCT could use a “not specifically provided for” quota to import the downgrade varieties of cheeses under a label name of “Cheedam” that Mr Meyers had assured Mr Stringer was appropriate.  Further support for my finding is in Mr Raff’s email to Chateaux of 19 February 2004, and the evidence of Mr Ernster and Ms Couch that suggested “Cheedam” was not generally understood as a particular variety of cheese but was used as a convenient word under which downgrade cheese could be appropriately labelled.

75                  Fourthly, MCT did not plan or consider the proper handling of the first cargo even after it became aware on 4 December 2003 that it was to arrive frozen.  It simply arranged for the two containers to be delivered to DSW about two weeks after they had arrived.  When Mr Thayer was advised by his staff of that cargo’s condition inside the containers on their delivery to DSW’s warehouse, he was concerned about whether he would accept it into store.  DSW and Mr Thayer had no experience of unstacking frozen cheese packages in a reefer container and properly restacking and handling them in a refrigerated warehouse.

76                  Fifthly, the first delivery to Chateaux from the DSW store was processed with no cheese rejected and the second from Ontario Inc with only less than 20% of the cheese being rejected.  Moreover, the lack of accounting and stock movement records has made it difficult to reconcile what part or parts of any of the five container loads were delivered to Chateaux and whence that cheese came.  Although Mr Meyers and Mr Ernster agreed, and I find, that the first container was delivered from DSW to Chateaux and was processed without any problem, no records of this sale were produced by MCT.  And, such other records as are in evidence do not account for other significant amounts of the 100 tonnes of cheese shipped by Probiotec.  The second container delivered to Chateaux was the subject of the invoice and credit note to which I have referred.  The parties tendered an agreed schedule of loss and damage.  However, it is inconsistent with the evidence and my finding that the first full container load was used by Chateaux.  Thus, I infer that about 20,000 kg of cheese was sold to Chateaux by MCT at a similar price to the initial price of the second load, before the 26% discount.  I infer that about USD50,000 was paid to MCT for that first delivery.  Thus, over 35,000 kgs of cheese was both fit for processing, was, in fact, processed and was purchased by Chateaux before any complaint of unfitness was made to Probiotec in Mr Meyers’ email of 12 May 2004.

77                  There are other deficiencies in MCT’s documentation for the “Cheedam”.  MCT issued a credit note to Chateaux on 9 June 2004 for USD13,318.17.  This represented about a 26% discount on the initial purchase price.  It recorded that product had been discarded.  However, on 13 October 2004 Mr Raff informed Mr Stringer that Chateaux had discarded 9,328 lbs (or about 4,321 kg or 17.5%) of unusable product from what he claimed was the initial delivery of 42,405 lbs (or 19,235 kgs) and that Chateaux had received a credit of USD14,310.81 for what had been discarded and its internal costs.  There is no evidence of any credit note for the latter sum or explanation for the variance with the earlier credit note.  Nor is there any evidence of MCT’s overall accounting records for its dealings with either the “Cheedam” or Chateaux.

78                  Next, Willard Produce purchased the balance of the cheese remaining at Ontario Ice in 2005.  Drew Moyes of Willard said that he found the cheese was very gummy and pasty.  He said it was severely whey tainted with unclean flavours.  That is hardly surprising given that he also noted of the cheese he received that half the boxes showed bloating, indicating gas producing organisms.  That condition suggests that when received by Willard the cheese was not frozen and there is no evidence of when or how it thawed.  And, by this time it was nearly a year older than its use by date.  Mr Moyes said this purchase weighed about 82,000 lbs (37,194 kg).  An email from Mr Raff of 28 November 2005 referred to this sale, also noting another sale of 440 blocks of gouda (weighing 14,550 lbs or about 6,600 kg) for $1.10 per pound delivered (realising about USD16,000).  Once again, this sale was not recognised in the agreed schedule of damages.

79                  After the hearing I invited submissions from the parties about the apparent discrepancy between the documentary evidence, the evidence of Mr Moyes and the exhibit containing calculations for the agreed damages.  MCT did not explain how Mr Moyes’ evidence of Willard purchasing only 82,000 lbs came to be given if it were not accurate.  MCT, however, referred to four invoices to Willard and one to Bella Drying with a subsequent credit note that had been removed from the proposed tender in the agreed bundle of documents following the parties’ agreement on damages.  The invoices do not appear to have been issued with any apparent contemporaneity and have a number of curious dating and sequential oddities as can be seen in the table below:

                        ¹           The invoice refers to shipment from 24 October 2005

                        ²           440 blocks of 20 kg

80                  It is unclear how the third invoice could be accurately numbered over 180 numbers later than the invoice purportedly dated on the same day, and over 140 numbers later than the fifth invoice that was dated 9 days later.  In addition, it is not obvious why there were significant differences between the order dates and the invoice dates for the Willard invoices.  Nor is the total volume of 67,807 lbs of the last two invoices to Willard (Nos 11503 and 11540) at a price of USD0.04 per lb consistent with Mr Moyes’ evidence that Willard purchased 82,000 lbs.  However, those two invoices show that the cheese was stored at Ontario Ice. 

81                  In contrast, the Bella invoice shows that it issued on the day of the order.  I prefer to accept and act on the unchallenged evidence of Mr Moyes that Willard only purchased about 82,000 lbs.  I have given the four invoices to Willard little weight in the absence of any other objective and contemporaneous accounting records, such as MCT’s creditor’s ledger.  The invoice to and credit note for Bella suggest that Bella had rejected the cheese and MCT issued a credit note by 5 December 2005.  I think that I should infer that the agreed schedule of damages accepted that this cheese had not been successfully sold.  Bella’s reasons for the rejection of the 6,600 kg are not in evidence.  However, I am not satisfied that the cause of the rejection was due to any breach of contract between MCT and Probiotec, given the long delay between delivery to  MCT in December 2003 and this sale in late November 2005.

82                  If the 14,773.50 lbs of cheese apparently rejected by Bella is added to the weight in the last two invoices to Willard, this totals 82,580.5 lbs, which is very close to Mr Moyes’ account of the weight of Willard’s purchase.  I infer that after the sale to Bella fell through Willard agreed to purchase that cheese at 0.04¢ per lb and that it bought only a total of about 82,000 lbs.  I am not satisfied that I should infer that Mr Moyes’ statement is so wrong that he overlooked referring to, what MCT asserts were, purchases of another 70,000 lbs of cheese.  I infer that MCT led no such evidence from Mr Moyes because it feared to do so:  Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at 525-526 [230] per Weinberg, Bennett JJ and myself applying Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418E-G per Handley JA;  Jones v Dunkel (1958) 101 CLR 298.

83                  Thus, I find that the following sales occurred:

84                  This leaves an evidentiary gap concerning what happened to about 20,000 kg of cheese, that MCT has not explained.  There is no documentary evidence accounting for this large amount.  Much of it, possibly, may be explained by a credit of USD13,471.25 Probiotec offered in September 2004 for 10,770 kg of the dairy blend, but that still would leave the fate of over a further 9,000 kg unexplained.  However, in the absence of any evidence about that credit I infer that the dairy blend was part of the sale to Willard and that there is no explanation about the fate of around 20,000 kg.  The agreed quantification of MCT’s damages, if it established liability, included the following expenses.

85                  The agreed calculation of damage did not allow for the sale proceeds earned by MCT from the first shipment to Chateaux in February 2004.  MCT failed to prove the sales and circumstances on which it relied to establish its claim for damages.  In Katsilis v Broken Hill Pty Co Ltd (1977) 18 ALR 181 at 197 Barwick CJ said:

“Ordinarily, though a case is normally better tried on the evidence which is produced than on that which is not, it can properly be said that the failure of a party to give or produce evidence which, in the circumstances of the case, that party in its own interest would be expected to give or produce, warrants the conclusion that, if given or produced, the evidence would not support that party's case. Indeed, in some circumstances it might be inferred that it would support the opponent's case; but, if so, it must depend very much on the circumstances. But, in any case, the inference would depend upon some element of conscious repression or withholding of the evidence. The warrant for the inference must depend upon the deliberation with which the evidence is withheld and the appreciation or likely appreciation of the party of its significance in the case. In my opinion, these propositions are in accord with the decided cases which I have taken occasion to examine.”

86                  That passage, although in a dissenting judgment, was accepted by Gray, Lindgren and Tracey JJ as correctly stating the law in IPN Medical Centres (NSW) Pty Ltd v Idoshore Pty Ltd [2008] FCAFC 163 at [28]-[29].  Allowing for the additional material that MCT tendered in its last submissions, that, for more abundant caution, I have admitted, I infer that the production of MCT’s full accounting records in relation to the asserted sales and disposal of all of the “Cheedam” cheese would not support its case:  see too Jones v Dunkel 101 CLR 298.

87                  I am unpersuaded by MCT’s case.  First, it makes no commercial sense that MCT would keep “animal feed” or “stockfeed” in expensive cold storage at DSW or Ontario Ice for nearly two years, well past its December 2004 use by date, before disposing of it.  If all or a significant amount of the cheese was affected by “floor sweeps” or dirt or had a rancid taste or was unfit for human consumption as MCT alleged, no sensible businessman would have stored it after March 2004 (at a cost of about USD20,000 for the ensuing 20 months), as opposed to selling it, as quickly as possible for whatever it could realise, even as animal feed.  I have considerable reservations about the credibility of Mr Meyers and Mr Raff.  MCT did not find selling frozen cheese easy, and that is why Mr Meyers initially complained so vociferously, but wrongly, that Probiotec had sent MCT frozen cheese.  Once Mr Meyers realised that he had contracted to buy frozen cheese his fears about the difficulty of selling it began to materialise and MCT has sought to blame Probiotec for that outcome.

88                  Secondly, there is a significant and unexplained lack of any records of what happened to about 40 tonnes of the cheese.  Although I have found that at least 20 tonnes of cheese of merchantable quality was sold at a significant profit to Chateaux, MCT claimed falsely that this was also worthless animal feed.

89                  Thirdly, after the initial sale to Chateaux, the remaining 20 tonnes of thawed cheese at DSW needed to be sold reasonably quickly in or about February 2004.  Once thawed it would not have kept, even for use as animal feed for another 21 months.  If it were of as bad quality as MCT alleged, then it ought to have been sold as animal feed within weeks.  Yet, the first delivery from DSW to Chateaux had no problems.  There was no specific evidence, apart from some crushing of boxes, that all the cheese delivered to DSW as packed was not of merchantable quality for processing.

90                  I am satisfied that Probiotec delivered all the cheese at the Port of Los Angeles and that it met the requirements of and was in accordance with its contract with MCT.  I am not satisfied that MCT has proven any breach of contract that it alleged against Probiotec.   Nor am I satisfied that MCT has proven any loss or damage, given the significant gaps in the evidence of matters that only it could prove.  It also follows that I reject MCT’s claim of Probiotec’s contravention of s 52 of the Trade Practices Act because it has not been proven.  In addition, MCT has not obtained the Minister’s consent to sue on that claim, which had been pleaded based on conduct occurring in New Jersey.

91                  The application should be dismissed with costs.  Probiotec is entitled to judgment on it cross-claim with costs.  I will direct Probiotec to bring in short minutes of order with the amount for which judgment should be entered.

Associate:

Dated:         25 November 2009