HIS HONOUR: The plaintiff is a Vigneron and the defendant a supplier of corks. In 1983 the plaintiff placed with the defendant an order for the supply of "500,000 only 45 x 24 Superior plain treated corks 2 clean ends, chamfered Ref Silva'", and the defendant duly sold and delivered those corks to the plaintiff, after which they were used to seal bottles of wine. The word "superior" meant that the corks were of a particular quality; the top grade but one. The word "treated" meant that the corks had been treated with a lubricant, for the easier insertion of the corks into and the extraction of the corks from the necks of the bottles. The numbers "45 x 24" referred to the length and diameter of the corks, in millimetres. The reference to "Silva" is a reference to the supplier to the defendant. The corks were used between March and December 1983. Later, it was found that the wine in a significant proportion of the bottles sealed with these corks was contaminated by a substance called 246 Trichloroanisole, or "TCA". The plaintiff's case is that the wine contained in the bottles which were sealed with these corks was for all practical purposes unsaleable, because a significant [*2] proportion of the wine was spoilt, being "corked" or "corky" to smell and taste. It was uneconomic to test the whole stock with a view to isolating the contaminated wine and then recorking and/or rebottling and later selling the rest of the stock and it would have been destructive of the goodwill attaching to the plaintiff's wines to sell the wine, without testing it, knowing that a significant proportion, perhaps ten per cent of the bottles, contained wine which was corked. Mr Baldwin, whose evidence I accept, said that TCA is formed by the inter action of three compounds, namely phenolic compounds, chlorine and mould. All three must be present for TCA to be formed. Phenolic compounds occur naturally in wood, including cork. Chlorine is used to bleach Page 2 1988 NSW LEXIS 8998, * corks, and the corks in question had been bleached. Mould may grow from spores which are in the air virtually everywhere. When the defendant supplied the corks to the plaintiff they were contained in sealed plastic bags, each bag containing approximately 1000 corks. The plaintiff contends that the corks in question were contaminated by TCA, and that when they were used to seal bottles of wine, and the bottles were stored on their [*3] sides, so that the corks came into contact with the wine, the TCA leached out of the corks into the wine. Baldwin described how the inter action of phenolic compounds and chlorine resulted in the formation of chlorophenols, and how a further reaction with mould resulted in the formation of TCA. He said that these moulds, capable of reacting with chlorophenols to form TCA, can survive on corks, but they cannot survive in wine. When the plaintiff was bottling a batch of wine, bags of corks were opened, and the contents emptied into a hopper. The corks were then mechanically inserted into the necks of the bottles. The plaintiff inspected the corks visually both upon their delivery by the defendant, ie they were inspected through the plastic bags, and again at the time they were emptied from the bags into the hopper, but the presence of TCA cannot be detected upon such an inspection. It is the usual experience of Vignerons that about one to two percent of wine bottled will be found to be corked, and the causes of this have become much better understood in recent years than was the case in 1983. Of the wines sealed with the corks in question, about ten per cent of the bottles contained [*4] wine which was corked. The plaintiff's case is that the cause of this was that the corks in question were contaminated by TCA. The defendant explored a number of other possible theories, but in the end argued that the plaintiff bore the onus of proving that the cause of the contamination was TCA in the corks and that it had not discharged that onus; and the defendant argued in this connection that chlorine, in the form of sodium hypochlorite, could have been introduced into the wine during the plaintiff's bottling operations. The ultimate contention was, in effect, that this theory provided at least as likely an explanation for the contamination of the wine as that the corks had been contaminated by TCA, particularly bearing in mind the common experience that one to two percent of all bottles of wine will be found to be corked. There is no question but that on occasions, sodium hypochlorite was used to clean a particular membrane filter, through which the wine ran in the course of the bottling operation. The defendant's theory, as I will refer to it, was that it was the inadvertent introduction of sodium hypochlorite into the wine, at the point where the wine flowed through this [*5] membrane filter, which led to the introduction of chlorine, which then reacted with other substances already in the wine, resulting in contamination. Generally speaking, the evidence establishes that the plaintiff's bottling operations, which were largely automated, were the subject of many checks and analyses, and there is an impressive record keeping system. The records establish that the 500,000 corks in question were used as follows; Between 23 and 28 March 1983, 186,400 were used to bottle 1982 vintage Elizabeth Riesling. On 7 April 1983, 350 were used to bottle, or rebottle 1972 Vintage Port. On 28 and 29 April 1983, 59,450 were used to bottle 1983 vintage Anne Riesling. In July and September 1983, 72,000 were sent from the plaintiff's Chullora premises to its Yenda premises, and there used to rebottle vintage port. On 2 and 7 September 1983, 4,200 were used to recork 1972 vintage Cabernet Sauvignon. On 13 September 1983, 37,000 were used to bottle 1982 vintage Mount Pleasant OP and OH Hermitage. On 14 September 1983, 37,500 were used to bottle 1982 vintage Robert Hermitage. On 1 November 1983, 12,950 were used to bottle wine exported to England, referred to as the Anglo-Australian [*6] wine. Between 28 November 1983 and 1 December 1983, 88,150 were used to bottle 1983 vintage Elizabeth Riesling. The remaining 2000 were used on 4 November 1983, I think for the bottling of the Anglo Australian wine. An enormous quantity of evidence was adduced as to what had happened to all those wines, in terms of Page 3 1988 NSW LEXIS 8998, * their use, storage and testing, comparing them with other wines of the same types and vintages, but sealed with different corks. I do not think I need to deal with this evidence in any detail. In the plaintiff's written submissions the references to the evidence are collected, and the defendant's written submissions did not quarrel with the detail of this evidence, much of which was the subject of no cross examination. It seems sufficient to say that a significant proportion of the bottles of wine sealed with the corks in question have been found to be contaminated by TCA, but bottles of what seems to be otherwise indistinguishable wine have not and this contrast seems to be particularly telling in respect of the vintage port. Further, the evidence establishes that during March to December 1983, sodium hypochlorite was used to clean the membrane filter I have mentioned [*7] only on 13 and 14 September 1983. On each other occasion during the period March to December when the corks in question were used to seal bottles of wine, the filter was cleaned either with a mixture of potassium metabisulphite and citric acid, or hot water, ie without any chlorine being used, and no chlorine was ever used at Yenda, none of the many quality control tests which were carried out ever detected any chlorine, which is a substance which is easily noticeable and as I have already mentioned, the moulds which are needed to produce TCA cannot survive in wine, so that even if the defendant's theory were otherwise acceptable, the consequence of it would be that there would have been found wine which was contaminated, but not wine which was contaminated with TCA, as the wine in question was. In short, despite the length of time taken over the issue, it seems to me that, far from it being the case, as the defendant submitted, that the plaintiff had failed "to tip the balance of probabilities", the plaintiff's case on this point is simply overwhelming. The plaintiff then submitted that upon this finding, that a significant proportion of the corks in question were contaminated [*8] by TCA, it followed that there had been breaches of the warranties implied by s19 (1) and (2) of The Sale of Goods Act. For the defendant, it was submitted that two of the necessary ingredients to found a claim under s19(1) had not been established. It was not established that the plaintiff had made known to the defendant that it relied upon the defendant's skill or judgment, nor was it established that the plaintiff did so rely upon the defendant's skill and judgment. The plaintiff's purchase form described the plaintiff as "Vignerons and Brandy Distillers, Wine and Spirit Merchants. On its reverse side there were a series of printed "order conditions", in which the plaintiff was referred to as "the Company" and the defendant as "the supplier". Two of these conditions were in the following form; " 2. Quality and Inspection. All goods and/or services are to be to the satisfaction and approval of The Company. When called for by The Company samples are to be submitted prior to delivery. If a delivery is made against an approved sample and does not meet the standard of the approved sample that delivery maybe rejected by The Company. 4. Variations or Cancellation. If the goods or [*9] services fail to meet the standard of the samples approved by The Company or called for by this order, or if the deliveries are not in accordance with the specified delivery date, The Company may cancel all, or any part of this order without financial loss to itself." As the defendant conceded, it knew (from the fact that the order was for 500,000 corks) that the corks were intended to be used for the purpose of bottling wine. However, as the defendant submitted and the plaintiff conceded, the mere communication of that purpose is not by itself sufficient to establish the communication to the seller of the fact that the buyer relies upon the seller's skill or judgment. The defendant's submission was that the plaintiff buyer must go further and show that the seller, or a reasonable person in the position of the seller would know that his skill or judgment was being relied upon, in such a way that the seller should be taken to have contracted upon that footing; Ashford Shire Council v Dependa- Page 4 1988 NSW LEXIS 8998, * ble Motors Pty Ltd 60 SR 27,34,35; 101 CLR 265, 281; 1961 AC 336, 350; whereas according to the plaintiff's submission, the question is whether the evidence justifies [*10] the drawing of the inference that the communication of the purpose of the buyer from the buyer to the seller conveys reliance upon the skill or judgment of the seller. It seems to me, firstly, that the passages in Ashford, particularly in the High Court and the Judicial Committee, relied upon by the defendant, were directed particularly to the factual problem which lay at the heart of that case; when the buyer council, through its engineer designate, made known the purpose for which the tractor in question was required, was it reasonable for the seller to infer, and later for a Court to infer that the council, as distinct from its engineer, relied upon the skill or judgment of the seller? The problem in the present case is rather different, can one infer from the terms of the plaintiff's purchase order and from the earlier dealings between the parties, that the plaintiff had acted so as to make it known to the defendant that the plaintiff relied upon the defendant's skill or judgment? There was no actual sample, relative to the order under consideration. Rather, when corks were ordered, they were ordered by reference to earlier transactions, and when corks were delivered, they [*11] were examined only to the extent of seeing whether they were corks of the same general description, visually, as corks delivered pursuant to earlier transactions. But there was no examination of them for the purpose of seeing whether they were contaminated by TCA, and the fact that they were delivered in bags, sealed so as to preserve the lubricant with which the corks had been "treated", plainly enough indicates that it was not contemplated that the corks would be examined in the way which in fact would be necessary to detect TCA, ie examination in a laboratory, particularly in the context that the corks delivered earlier had not been so contaminated. As Shipton said, these corks had been delivered over a period of many years, and they had proved very suitable for the purposes for which the plaintiff required them. In Ashford, Herron J (as he then was) expressed the test thus, at 36, "The reliance need not be exclusive although it must be substantial and effective. However, it is clear that there must be a reliance by the buyer. The buyer's reliance is a question of fact to be answered by examining all that was said and done with regard to the proposed transaction on either side [*12] from its first inception to the conclusion of the agreement to purchase. The purpose to which the article is to be put often enters into the very description under which it is sold. In other cases the reliance is a matter of reasonable inference to the seller and to the court. Ultimately the buyer's reliance is a question of fact and is one that may be, and often is, decided by implication from the circumstances surrounding the making of the contract..... it is clear that the buyer's reliance must be brought home to the mind of the seller expressly or by implication. This must be affirmatively shown. The reliance will seldom be express. It will usually arise by implication from the circumstances. The nature of the purpose disclosed is one important circumstance to consider in estimating whether the reliance was in fact placed on the judgment of the seller." It is clear that a plaintiff buyer does not have to prove that the defendant seller actually thought that his skill or judgment was being relied upon him. Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association 1969 2 AC 31, 81-82, 94, 106, 116. Given the background of the other transactions between the parties, [*13] the terms of the purchase order, and the fact that the corks were sent in sealed bags, I conclude that the plaintiff did make it known to the defendant that it was relying upon the defendant's skill or judgment, to deliver corks which were not contaminated in some way, unobservable to visual examination, which would cause a deleterious effect upon wine; and the same line of reasoning leads to the conclusion that the plaintiff did in fact rely upon the defendant's skill or judgment. The remaining line of defence, applicable to the s19(1) claim, as well as to the s19(2) claim dealt with below, was that the two conditions implied by these provisions were Page 5 1988 NSW LEXIS 8998, * negatived by the course of dealing between the parties, see s57. On the earlier hearing of the trial of a separate issue, Rogers J, (as he then was) found that the terms and conditions upon which the defendant supplied the plaintiff with goods from time to time between 1972 and 1981 included terms that if the defendant provided the plaintiff with goods which the plaintiff could show were not suitable for its purposes, the defendant would, within a reasonable time, accept them back. Thereafter, the defendant supplied the goods up until [*14] and including 1983, and Rogers J held that the purported variation by the defendant by these terms was ineffective, so that the former terms remained in effect. The defendant's submission was therefore that, since the defendant supplied the corks in question in February and April 1983, (there were two deliveries made, in satisfaction of the one purchase order), but there was no hint of a claim made until 1986; and therefore it could not be said that there was a rejection or return of the goods within a reasonable time of the deliveries. But, given that the contamination of the corks did not become apparent until long after the corks were used in 1983, and that the problem of the TCA contamination had not arisen previously, I do not think that it can be said that earlier course of dealing meant that the conditions implied by s19 were negatived, the earlier course of dealing simply did not deal with this problem. Nor, it seems to me, can one spell out of the earlier course of dealing a proposition going beyond the proposition that the defendant would accept defective goods for return. The plaintiff's claim to be entitled to relief under the provisions of s 19(2) produced a different [*15] set of arguments. Firstly, the defendant submitted that the sale in question was not a "sale by description", it being said that the goods purchased had not been "described". With all due respect, this submission is untenable. The order was for 500,000 corks, ie unidentified corks, referred to in terms of their size, as being of "superior" quality, as being treated, as being chamfered, as having two clean ends, and by reference to the word "Silva" ie the Portugese supplier to the defendant and the parties expected from the course of prior dealings, that the corks would be delivered in sealed bags each containing about 1,000 corks. Next, it was submitted that the plaintiff must show that he relied upon the goods answering the description; Speedway Safety Products Pty Ltd v Hazell and Moore Industries Pty Ltd 1983 1 NSWLR 255, 261. Shipton's evidence was that the corks were ordered by reference to the course of prior dealings, and that the plaintiff had been using "that style of cork" for many years, and had found them very suitable for its purposes in the past. In the light of these circumstances, I infer that the plaintiff, having ordered the corks by description and by reference [*16] to earlier transactions, and having received delivery of them in sealed bags, with no more than a visual inspection, did rely upon the corks answering the description contained in the order form. The next arguments raised concerned a submission on behalf of the defendant that there was not a breach of the condition of merchantable quality, because the presence of the TCA contamination in the corks was not observable, and because there was not a test for the presence of TCA on the corks which was reasonably available in 1983, such a test not having been developed until 1986. I do not think that either of these propositions constitutes an answer to a claim under s19(2); Ashington Piggeries Ltd v Christopher Hill Ltd 1972 AC 441, particularly at 486 and 505, although the passages at 478 and 480-484 demonstrate the factual considerations which underlay the decision. The remaining question argued by way of defence, was that it had not been shown that the goods were "of merchantable quality". In its written submissions, the defendant referred to the statement of Dixon J (as he then was) in Australian Knitting Mills Ltd v Grant 50 CLR, 418, "The condition [*17] that goods are of merchantable quality requires that they should be in such an actual state Page 6 1988 NSW LEXIS 8998, * that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms." The defendant submitted that there was no evidence that the plaintiff would have paid anything less for the corks than the price actually paid, focusing entirely upon the position of the plaintiff, and the state of knowledge concerning TCA in 1983, and, in part, echoing the earlier submissions that the defect must be patent rather than latent. The plaintiff's written submissions responded, in terms referable only to the plaintiff, and the plaintiff's position factually. However, I do not think that this is the correct approach. In Grant, Lord Wright, delivering the advice of the Judicial Committee 1936 AC 85, 99 to 100, said, "... whatever else merchantable may mean, it does mean that the article sold, if only meant for one particular use in ordinary course, is fit for that use; merchantable does not mean [*18] that the thing is saleable in the market simply because it looks all right; it is not merchantable in that event if it has defects unfitting it for its only proper use but not apparent on ordinary examination. That is clear from the proviso, which shows that the implied condition only applies to defects not reasonably discoverable to the buyer on such examination as he made or could make. The appellant was satisfied by the appearance of the underpants, he could not detect, and had no reason to suspect, the hidden presence of the sulphites. The garments were saleable in the sense that the appellant, or any one similarly situated and who did not know of their defect, would readily buy them, but they were not merchantable in the statutory sense because their defect rendered them unfit to be worn next to the skin." In George Wills and Co Ltd v Davids Pty Ltd, 98 CLR 77,89 the High Court said, "The expression merchantable quality', in relation to goods the subject of a contract of sale, must obviously constitute a reference to their condition or quality. Consequently, goods are said to be of merchantable quality if they are of such a quality and in such [*19] a condition that a reasonable man, acting reasonably, would, after a full examination, accept them under the circumstances of the case in performance of his offer to buy them, whether he buys them for his own use or to sell again'". In Hardwick, where the evidence established that there were buyers prepared to buy the goods in question, without abatement of price, whilst knowing of their contamination, Lord Reid suggested that the test of Dixon J in Grant should be amended by substituting "some buyers" for "a buyer". In M/S Aswan Engineering Establishment Co v Lupdine Limited 1987 1 WLR 1 at 12 Lloyd of the English equivalent of s19(2), that if goods were to be merchantable they, "... did not have to be suitable for every purpose within a range of purposes for which goods were normally bought under that description. It was sufficient that they were suitable for one or more such purposes without abatement of price since, if they were, they were commercially saleable under that description." I conclude that the question must be decided not just by reference to what the plaintiff would have done, had it been made aware that the corks were contaminated, [*20] but what would have been done by the plaintiff or by others in the position of the plaintiff, looking not only at the purpose for which the plaintiff actually required the corks, but also to the purposes for which other buyers might have bought those corks commercially. Further, I do not think one can say that the test is to enquire now, with the benefit of hindsight, what a purchaser would have done in 1983, if told that the corks were contaminated by TCA; rather, the enquiry should be directed to what the plaintiff or another potential purchaser would have done if told that the corks were contaminated in some way which would produce a corked taste and smell in wine, if the wine were in bottles sealed with these corks. Page 7 1988 NSW LEXIS 8998, * The plaintiff's order to the defendant was not just for "corks", but rather for corks of "superior" quality, which had been "treated" with a lubricant, forty five millimetres long and twenty four millimetres in diameter, with two clean ends, and chamfered, costing 9.5 cents each. Whatever uses might have been contemplated for corks of this description, say half a century earlier, I find it difficult to visualise that a purchaser of corks of this description in 1983 [*21] would have been likely to use them for any purpose other than sealing bottles of wine. But even if one considers the matter less restrainedly I find it virtually impossible to contemplate that potential purchasers would have been using the corks other than for the purpose of sealing bottles of some kind of drink, upon which basis I think it is quite unlikely that such a potential buyer would buy these corks, without abatement of the price. As I have already observed, in Hardwick, it was established that there were buyers in the market prepared to buy the goods in question, notwithstanding the contamination. There is no evidence of a like nature in this case. In my view, the proper inference to be drawn from the evidence, is that the corks were not of merchantable quality. The question of the measure of damages is also the subject of a number of disputed questions. The first of these arose from a submission put on behalf of the defendant based upon the provisions of s54 and s55 of The Sale of Goods Act. The argument was that, prima facie, the measure of the plaintiff's loss was the difference between the value of the corks at the time of delivery to the plaintiff, and the value [*22] they would have had if they had satisfied the implied conditions and therefore it was said, the maximum sum recoverable was the purchase price paid $ 47,500.00 (and interest). However, the plaintiff contended that s55 applied. The damages it claimed (for the profits it would have made upon the sale of the wine) were within the reasonable contemplation of the parties at the time of the making of the contract, as the probable result of the breach. For the defendant, the point was made that no cross examination had been directed to Mr Pardey, who was formerly a Director of the defendant, and apparently the effective owner of the shares in its capital, as to his contemplation of the consequences of a substantial proportion of the corks being contaminated. This much is true, and of course the onus or proof lies upon the plaintiff, but it is also true that he said nothing in chief as to his lack of contemplation on the subject, and I think that the question is left to be judged upon the basis of the other evidence which was adduced. I have already referred to the description of the plaintiff on the printed form, upon which the purchase order was typed. The plaintiff had previously purchased [*23] other corks from the defendant - 3,300,000 of them between March 1982 and March 1983 - as well as other items such as cork extractors, cork screws, and spare parts for cork extractors. In cross examination, Pardey appeared to proceed on the basis that he regarded the plaintiff as a winemaker, and I see no basis for concluding other than that the contemplation of the parties was that the corks would be used in connection with the bottling of wine. It is one thing to say that the parties did not contemplate expressly what would have been the effect upon the plaintiff, had a substantial proportion of the 500,000 corks delivered been contaminated by TCA, but this submission seems to me to misstate the test to be applied. Rather, the question is whether the defendant, or a reasonable person in the defendant's position would have realised that a loss such as the plaintiff claims was sufficiently likely to flow from the breach, to make it proper to hold that the loss flowed from the breach, or that such a loss should have been within that person's contemplation; Koufos v C Czarnikow Ltd 1969 1 AC 350, Richard Holden Ltd v Bostock and Co Ltd (1902) 18 TLR 317, 50 WR 323, [*24] Cointat v Myham and Son (1913) 2 KB 220 and Ashworth v Wells 14 TLR 227. It would not matter what the contamination in fact was, eg TCA, arsenic, petrol or anything else that contaminated a substantial proportion of the wine. The question to be asked does not turn upon the precise identification of the contaminant. Page 8 1988 NSW LEXIS 8998, * A second strand to the same submission, put on behalf of the defendant, arises this way; Shipton, who until his retirement earlier this year was the plaintiff's Production Manager, said in cross examination that the plaintiff's practice was that after bottling, wine was put into a warehouse for storage. Then he said, "Q. After three months was there a practice then of examining the wine, either the bottles or the corks, or tasting the wine itself? A. It was tried to be, all wines were tried to be looked at after three months in bottle but not necessarily were they. Q. You regarded it from the company's point of view as good practice to do so? A. Good husbandry. That is right" The submission then referred to the evidence of Baldwin that, if wine comes into contact with a cork contaminated with TCA, the TCA leaches [*25] into the wine and is measurable in the wine within a matter of hours and it was then asserted that it could not have been within the contemplation of Pardey at the time of the making of the contract that all of the 500,000 corks would not be used before the contamination was discovered and therefore, if the plaintiff had adopted reasonable practice, only about half of the corks in question would have been used before the contamination of the corks was discovered, so that about half of the loss would not have been sustained. However, there is no evidence that Pardey or anyone else in the defendant's organisation, or a reasonable person in the position of the defendant, knew or ought to have known anything of this supposed good practice, nor is anything established as to knowledge on the part of the defendant as to the rate at which the plaintiff was likely to use up the 500,000 corks in question, although Annexure C to Pardey's statement indicates that between April 1982 and April 1983 the plaintiff took delivery of eleven different consignments of corks, totalling in all just over 2,000,000 corks. The evidence does not establish whether they were of the same or different types. [*26] Moreover, I do not think that the evidence of Shipton really constitutes a sound factual basis for the submission. Thus, he also gave this evidence, Q. What is the test which good husbandry would require to be carried out after the bottle has been put into the storehouse? A. Purely a physical one of just checking the levels within the bottles and to see whether there were any weeping bottles. Just general physical evidence of the wine. Q. Any tasting? A. There may have been but generally it would only be associated with a microbiological check on the wine. When the bottle is opened there is usually a cursory examination of the content so far as taste is concerned. Q. Just so we can get it clear, the test that you had in mind when you spoke of good husbandry was a test that involved opening the bottle that was tested. Is that right. A. Not from my production point of view. It would have been purely an examination to see that the bottles were not leaking or weeping and that they were in a proper stored condition. There was not cloud or deposit in the wine after that amount of time. It would have been purely a physical examination from the production point of view. Q. What I want to [*27] get clear though is whether the company had a practice of examining wine not only from that production point of view, but examining the contents of bottles to make sure there was no microbial infiltration within the wine? A. There is a system set out within the company but it is part of the laboratory set up. I have no control over that." It is clear that TCA contamination would not be detected on an examination such as Shipton regarded as required by good husbandry. It is only observable upon either an extensive tasting programme, or an expensive laboratory examination, and there is no basis in the evidence for concluding that an examination of this kind was required by the dictates of good practice or good husbandry. After all, the wine was not intended to be sold for some years. The case is therefore to be distinguished from cases such as were discussed in Biggin and Co Ltd v Permanite Ltd (1951) 1 KB 422, 435 (reversed on appeal on another ground; (1951) 2 KB 314). Page 9 1988 NSW LEXIS 8998, * The second question raised concerning damages was this; the plaintiff's case was that the bulk of the wine lost (much of it was destroyed, with some remaining [*28] in storage, awaiting destruction) is irreplaceable in the sense that it was wine from a particular vintage, eg 1982, and it is not possible to say, as the defendant urges, that the plaintiff can replace 1982 vintage wine by going out into the market place in later years, and buying grapes of the same general type, but from later vintages, so as to make a quantity of wine replacing the quantity lost. It is convenient to focus initially upon the style of wine formerly marketed as Mount Pleasant Elizabeth Riesling, and later as, Mount Pleasant Elizabeth. In fact, this wine is made from Semillon grapes, grown in the Hunter Valley. It is made in large quantities, and is sold as an aged wine. The evidence establishes that the plaintiff tries to maintain a consistent style, from vintage to vintage. In the ordinary way, it sells all of the wine from one vintage before releasing for sale wine from the next vintage. Thus, during 1988, the last of the 1981 Elizabeth was sold, and the plaintiff commenced selling the 1982 vintage, and at least in a general way, sales have continued as if it were the same wine as the 1981 vintage. The defendant's argument continues by observing that the plaintiff [*29] has several years' stock in hand, that it has been possible in the past for the plaintiff to buy in greater quantities of grapes than have in fact been purchased, of the type which is generally suitable for making Elizabeth style wine, so that the consequence of the loss of a quantity of Elizabeth wine (the equivalent of 8 months sales at normal rates) means only that the 1983 vintage Elizabeth will come onto the market eight months earlier than would otherwise have been the case, as will the 1984 vintage about a year later, and so on; and ultimately the plaintiff will lose no sales, because it will have been able to buy in additional quantities of grapes, and replace the lost 1982 and 1983 vintage Elizabeth with Elizabeth wine, made from the grapes of later vintages. The argument is then said to be reinforced by reference to evidence suggesting that the plaintiff was regarded as holding excessive stocks of Elizabeth wine. The submission concluded, "In those circumstances, the plaintiff has not lost any profit by reason of the loss of stocks. The evidence clearly demonstrates that the plaintiff will be able to produce and have available for sale sufficient stocks of Elizabeth style [*30] wine to meet all consumer demands foreseeable in the future. Accordingly, the only loss which the plaintiff has suffered is the cost of manufacturing the additional quantities of wine necessary to replace those lost." The proposition that the plaintiff possesses excessive supplies of Elizabeth style wine is founded mainly upon a series of documents emanating from two officers of the plaintiff, Mr Braithwaite, the Marketing Manager, and Ms Cini, who was formerly employed as a Marketing Specialist, and who was Braithwaite's assistant. Their documents read by themselves, express views that the stocks were excessive, that the plaintiff had a problem since the stocks were increasing and most customers did not want aged white wines, that sales of Elizabeth were dropping, and sentiments to the same or similar effect. It is also established that the plaintiff's records do not show dissent being recorded from some of these views, although having regard to the family nature of the plaintiff company, and the oral evidence to which I will refer shortly, the lack of recording of dissent does not seem to me to be of any real significance. The defendant also points to the expression of opinion [*31] by Mr Douglas McWilliam, the plaintiff's Production Director, in June 1986, that stocks of Mount Pleasant wines had reached "ridiculous proportions with respect to current sales", although when this document is read as a whole, this comment appears to refer to a wide range of wines marketed under the label "Mount Pleasant", rather than to Mount Pleasant Elizabeth. But in any event, I consider that the oral evidence establishes quite a different picture to that urged on behalf of the defendant. Firstly Mr Donald McWilliam, who was the General Manager of the Page 10 1988 NSW LEXIS 8998, * plaintiff until September 1988 and is now its executive Chairman, and whose evidence I accept, said in effect that the views of Braithwaite and Cini were unacceptable to him, and in substance, to those in the plaintiff company who made the relevant decisions. Secondly, there is a powerful body of evidence from persons quite independent of the plaintiff to the effect that the demand for aged white wines, of the Elizabeth style, has recently increased markedly, to the point where there is a shortage of these types of wines, whether for sale in Australia or for export, and that the prices of grapes have recently "sky rocketed". Elizabeth [*32] wine has won gold medals, and has been awarded firstly a "benchmark" and later "classic" label by a government backed organisation which means it is able to be sold at a premium. In effect, the oral evidence of Donald McWilliam, that the views of Braithwaite and Cini were regarded as wrong, can been seen to have been substantiated by the views expressed by these witnesses independent of the plaintiff. The evidence as to whether or not the Elizabeth (and similar lines) was valuable, and irreplaceable as the plaintiff asserted, or a poor selling and overstocked line, as the defendant asserted, was quite voluminous. Apart from the evidence of the plaintiff's own officers, and the documents I have already mentioned, there was evidence from Mr Gregory, formerly the principal viticultural officer of the Department of Agriculture and Fisheries, who is now the Deputy Director General of that department and an experienced wine judge, of Messrs Stanford and Bulleid and Dr Healey, wine judges, of Messrs Drayton, Tyrrell, and McGuigan and Dr Lake, who might collectively be described as involved in the management of some of the plaintiff's principal business competitors, and of Mr Walker, formerly [*33] involved in the merchandising of wine, and now a restauranteur. The evidence of these eight witnesses, viewed as whole, is formidable and quite persuasive. The evidence to the contrary really consists only of a drawing out orally of the contents of the documents of Braithwaite and Cini, whose recommendations the plaintiff did not ever accept, and the cross examination of Douglas McWilliam as to the views he formerly held. In all the circumstances I conclude that the proposition that the plaintiff had excessive stocks of Elizabeth style wine, and it was not readily saleable, are disproved. To the contrary, that wine is proved to be a wine which is readily saleable, and in increasing demand. To say that there are about six years stock in hand is also something of a misstatement, for the wine is sold as an aged wine. Putting aside the effect of inflation, a quantity of this style of wine held in store increases in value from year to year, because of the fact that it ages and therefore changes in quality, and becomes more desirable to a sufficiently large proportion of the wine consuming public. No doubt there is a limit to this process, but on the evidence one cannot say of Elizabeth [*34] wine that the stocks are excessive at this stage. Rather, because of the movements in the market in recent times, including the export market, the likelihood is that, over the next few years, the plaintiff will have inadequate stocks for sale, in the sense that if it had more of this wine available for sale, it would be able to sell it, and sell it readily. The next issue concerns the price at which Elizabeth wine might be sold. The plaintiff's current wholesale price is $ 60.60 per dozen. The defendant pointed out however, that the plaintiff has made a significant number of sales at much lower prices and submitted that this demonstrated that the plaintiff was in fact quite ready to sell the wine at these lower prices, thereby adding to the weight of the argument that the plaintiff was over stocked, as well as going to the separate question of what value should be attributed to the lost wine. Donald McWilliam said that these sales at "special" prices were made, not with a view to selling Elizabeth wine, but as part of bargains whereby there was sold, in the one transaction, not only Elizabeth wine, which was readily saleable, but also Page 11 1988 NSW LEXIS 8998, * other wine which was not so readily saleable, [*35] and whereby at the same time the plaintiff obtained considerable advertising advantages, without expense. The evidence seems to establish that each of these sales of Elizabeth at less than ordinary prices occurred in these circumstances, and I see no reason to doubt this explanation, particularly when regard is had to the evidence of Tyrrell and McGuigan, and to a lesser extent the other persons independent of the plaintiff, already mentioned. The next argument raised was that the plaintiff could have purchased more grapes, of the style suitable for use in making Elizabeth style wine, and thereby had a greater quantity available for sale. This argument is a step in the overall submission which was made, that the true measure of the plaintiff's loss is the cost of replacing the lost stock, and that the plaintiff had not proved what it would cost to buy in more grapes, from the vintages of 1986 and following, so as to eventually be able to make up the quantities of Elizabeth wine (and other wines) which had been lost. According to Pardey, when Donald McWilliam first telephoned him, to advise of the claim, the latter did so in terms limiting the plaintiff's claim to the costs of replacing [*36] the lost wine, a matter which was relied upon by the defendant as being an admission on behalf of the plaintiff. There is an entry in Pardey's diary which provides some element of corroboration for his version of the conversation, but Donald McWilliam denies saying the words attributed to him, and said that before he telephoned Pardey, he took legal advice, the effect of which was quite inconsistent with his making the statement which Pardey attributes to him. I have already said that I accept the evidence of Donald McWilliam. He was subjected to a long and a detailed cross examination covering a wide range of topics, and my impression of him is of a truthful and reliable witness, and a business man who is "on top of" his company's affairs. I regret to have to observe that my impression of Pardey was considerably less favourable. His demeanour during the course of his cross examination was generally one of being uncomfortable. Mr Casey, the plaintiff's chief chemist, and Pardey had a conversation which Casey said occurred on 16 May 1985, and which Pardey said occurred in April 1984, when a quantity of wine was tasted. The details of the dispute between the two men as to when this [*37] event occurred do not seem to be of any significance at this stage, except for the light that the dispute throws on Pardey's credit, his version tended towards denial of the proposition that the contamination of the wine was related to the corks the defendant had supplied, and Pardey would not accept that he was in error as to the date of the conversation, although there was an entry in his diary consistent with Casey's statement that the event occurred on 16 May 1985. I prefer the evidence of Casey to Pardey on this point, and the evidence of Donald McWilliam to Pardey as to what happened in the telephone conversation upon which the defendant relies. The proposition that one can replace 1982 vintage wine with 1986 vintage wine of generally the same type, and thereby have the same stocks of wine to sell, over a period of time, was put to various of the plaintiff's witnesses, and universally rejected. The most detailed refutation of the theory is contained in the cross examination of Mr Lonergan, an accountant called on behalf of the plaintiff, whose evidence I accept. Even if one can say that, as a matter of theory, a quantity of 1982 vintage wine can be replaced by 1986 vintage [*38] wine, there is an economic loss involved as much as or greater than the loss calculated by Lonergan, denying this proposition put by the defendant, and forming the basis upon which the plaintiff's claim is calculated. The next question to be resolved relates to a proposition put forward on behalf of the defendant that the plaintiff should have mitigated its loss by selling the contaminated wine, or at least a large proportion of it, as completely unlabelled wine, with no means of identifying the wine as being the plaintiff's wine. Only one witness, Mr Swann (a wine broker and wine judge) supported this proposition, and it was rejected by every other witness in the case who spoke on the topic, with varying Page 12 1988 NSW LEXIS 8998, * degrees of derision. Swann's opinions generally seem to be markedly out of step with the evidence of other witnesses, whose evidence I see no reason to reject, and I felt that he seemed at times to have adopted the role of advocate, rather than disinterested witness or consultant. Viewed as a whole, the evidence satisfies me that the good reputation of a wine maker, such as the plaintiff, takes years to build up, but can be destroyed or virtually destroyed almost overnight, and the [*39] course of conduct which Swann suggests would be foolish in the extreme, in that the chances of obtaining any worthwhile sum of money by following this course of action, without it becoming public knowledge that the wine was the plaintiff's wine, are slim indeed, and the value of the goodwill put at hazard would be far greater than the money attempted to be saved. Generally speaking therefore, I accept the calculations of Lonergan, including his calculations as to interest, as a component in his calculation. As I understand him, this is not interest under the provisions of s94 of the Supreme Court Act, but interest incurred as a component of the costs of the plaintiff, in that, having incurred expense in making wine, that wine has to be kept in store for some years before being finally readied for sale, and sold. On this approach, I accept the defendant's submission that, viewing the matter overall, it is not an appropriate case in which to award any interest under the provisions of s94, but I do not understand the plaintiff to be seeking such an award. There remains an issue concerning the Mount Pleasant Anne Wine. This is a style of aged wine which is not made every year. Whether [*40] or not it is made in a particular year depends upon the judgment of a group of people within the plaintiff's organisation as to whether the wine has the characteristics for which Anne wine is known. It is made in relatively small quantities, but sells at a relatively high price. It was not made from the grapes of the 1980, 1981 or 1982 vintages, but the plaintiff's case is that it lost some Anne wine from the grapes of the 1983 vintage. The defendant denies this proposition, and goes further, submitting that the wine in question should be treated as wine that would be sold at a discount rate, below the price obtained for Elizabeth wine. The argument seems to depend upon an entirely subjective assessment of the "volatility" of the wine made from the relevant grapes. Douglas McWilliam thought there was too much volatility, and he had assumed at one stage that his view was shared by others, but he was not one of the persons who had an effective part to play in the relevant decision making process, as to whether or not the wine would be marketed as Anne, and the evidence to the contrary, ie that the wine was not excessively volatile, for the purpose of its being marketed as Anne wine [*41] includes that of Shipton and Donald McWilliam, and the plaintiff was able to point to the tasting notes of two of the testers appointed on behalf of the defendant in connection with the litigation (Messrs Swann and Collett) to the effect that the wine did not have excessive volatility. Weighing all this up, I am comfortably satisfied that the plaintiff has made out its case on this point. The remaining categories of wine do not seem to be the subject of any enduring conflict. In respect of each of these categories of wine, I accept the calculations of Lonergan. His calculation as to the Elizabeth wine should proceed on the basis that it is worth $ 60.60 per dozen wholesale. This figure will allow for the likelihood that some of that wine will be sold at a cheaper price, as part of a "package deal" whereby less readily saleable wines will be sold as well, but the plaintiff will receive without direct cost to it an advertising advantage, and also what seems to be the very real likelihood that the wine will be shortly marketed at an increased price. I discount entirely, on this point, the effect of future inflation. What seems to me to be significant is that a number of witnesses, [*42] eminently qualified, and independent of the plaintiff, thought that the wine was underpriced. The amount which is likely to be sold at a discount, ignoring the benefit of the uncosted advertising ex- Page 13 1988 NSW LEXIS 8998, * penses, is relatively small, and the price of $ 60.60 seems to me to be likely to do substantial justice between the parties. ORDER: The calculation of Lonergan needs then to be brought up to date, to the date of judgment. I will stand the matter over for a short time to enable this to be done, and will then formally enter judgment for the plaintiff for the amount so calculated.

Read the above case and answer the following questions

a. Who are the parties to the matter (be specific), and which court is the matter being heard.

b. What are the issues?

c. On what basis is the matter instituted? What is the cause of action?

d. What is the defendant's prime argument?

e. Identify a case, which the presiding judge applies to the current case as a precedent, and explain the relevance of the said precedent?

f. Explain in own words why the presiding judge concluded the matter in this manner, you may contextualize and refer to the provisions of the Sale of Goods Act.