Commercial Law – Sale of Goods

Grand Electricals Pty Ltd (hereafter referred to as ‘Grand’) enters into a contract with Cullum
Fluids Pty Ltd (hereafter referred to as ‘Cullum’) to purchase 10,000 litres of high-voltage
dielectric fluid”. The agreed price is $20 per litre. Dielectric fluid does not conduct electricity
and so is used in high voltage power stations to maintain electrical integrity by preventing
electrical discharges in capacitors and transformers. In order to be suitable for these stations, and
the huge machines and processes in those stations, it must be of a very high level of purity –
equivalent to 99.99% pure. Dielectric fluid of this purity usually sells for $20 – $25 per litre.
Under the terms of the contract, Grand is to arrange delivery of the goods by private carrier. Mr.
Bill McCullum, the sales manager for Cullum, telephones the manager of Grand, Mr. Mata
Fukusimo, to advise that the fluid is stored in 50 litre plastic containers and that the 10,000 litres
have been crated and await delivery.
When the truck arrives to pick up the goods as directed, the driver is denied entry to the
warehouse on the basis that no record of the arrangement has been made. As it turns out, Bill
McCallum has failed to follow proper procedures, so that the personnel at the warehouse have
not been advised that the carrier of Grand is due to pick up the goods. They sit in the warehouse
for two weeks while Bill and Mata exchange heated correspondence about who is to pay for the
delivery of the goods now. During this two week period, the goods are kept crated in the
warehouse, which has no temperature control system. As a result, the fluid is subjected to high
temperatures, which causes adulteration and oxidisation to the fluid. Because of this, the fluid is
no longer 99.99% pure. It is now suitable for use in smaller transformers and capacitors, but not
in high voltage systems.
In the meantime, Cullum enters into a contract to sell the fluid to Anchor Electricals Pty Ltd
(hereafter referred to as ‘Anchor’). Anchor purchases the fluid by description as ‘capacitor
dielectric fluid’. The contract price is $18 per litre. The goods are delivered to Anchor who
requires the goods for re-supplying to JAM Industries for use in their high-voltage power stations
in country Victoria.
When Anchor tests the goods, it realizes that the fluid has been adulterated. It refuses to pay
Cullum. Instead, they acquire the fluid from another company at a cost of $25 per litre. Anchor
on-sells the adulterated fluid to Morrison Electricals Pty Ltd for $2 per litre, which is the market
price for fluid of that quality for use in small-scale capacitors and transformers in industry.
In the meantime, Grand has found another source of supply of the fluid at a price of $23 per litre.
Cullum wants to sue Grand and Anchor for the breach of contract by rejecting the goods and by
failing to pay the contract price.
Advise Cullum on its prospects of success and any liability that it may have to either Grand
or Anchor.