In Agripower Australia Ltd v Coleman & Anor [2015] QCA 266, the Court of Appeal has rejected an appeal by Agripower Australia Ltd (Agripower) against the earlier decision of Coleman v Prentice & Anor[2015] QSC 118. Agripower holds a mining lease over a large deposit of diatomaceous earth in North Queensland.

At first instance, John and Dianne Coleman (respondents) were successful in a claim brought against Agripower for outstanding payments for the services they provided to Agripower in respect of its mining operations. Agripower failed to pay a series of invoices, resulting in the respondents withdrawing their services. Agripower denied that the respondents were due any outstanding payments for the services rendered, and counterclaimed against the respondents for a loss of profit allegedly suffered by reason of the respondents’ failure to process the diatomaceous earth with appropriate care and skill.

The facts

Agripower engaged the respondents to undertake works, relevantly including the screening of diatomaceous earth with equipment provided by the respondents. The engagement was made orally and was therefore not supported by a clearly documented agreement for services outlining the parties’ requirements and responsibilities.

The respondents had existing screening plant, which they modified for the works by purchasing new screens with sizes between 2mm and 8mm. Importantly, the trial judge found that Agripower had approved the screens and reimbursed the respondents for their purchase.

Agripower argued that the screening process was required to produce product containing granules between 2mm and 6mm, and that the product actually produced contained an excessive amount of oversized granules, which reduced the commercial viability of the product.

The trial judge found that representatives of Agripower were actively involved in the supervision and testing of the screening process from the outset of the operations. In addition, there was no evidence of there having been any substantial variation of the screen settings over time. The trial judge found that Agripower had essentially approved and were in supervision of the screening process, such that the respondents were not liable for any deficiencies in the final product. As a result, the counterclaim failed. The respondents were successful in establishing a fundamental breach of contract on the part of Agripower in failing to pay the invoices.

An additional service provided by the respondents was to store quantities of the bagged product in the respondents’ shed. The respondents purported to exercise a lien over the product and prevented Agripower from recovering it until payment was received. At first instance, the trial judge held that while a formal lease agreement had not been struck, Agripower had requested that the respondents provide this storage service. Accordingly, Agripower was obliged to pay for the service.

On appeal, Agripower argued that the trial judge erred in finding that the oversized granules were not caused by a failure of care and skill on the part of the respondents. Agripower argued that the oversized granules must have been caused by a wrongly sized screen, or a failure to maintain the screens, which could only have been through a failure of care and skill on the respondents’ part.

The Court of Appeal found that the primary judge’s findings were amply supported by the evidence, namely that there was no evidence of a subsequent variation to the screen size settings. Therefore, it was more likely that any issue which could have caused oversized granules to contaminate the product was undetected from the initial development of the process, which was overseen by Agripower’s representatives. As a result, the Court of Appeal dismissed Agripower’s appeal.

Key lessons

The case demonstrates the importance of appropriately documenting all agreements for services, to ensure that the scope of services to be provided is clearly defined.

In this case, the respondents were relatively unsophisticated and Agripower’s early mining operations at the site were described by the trial judge as an ‘era of early leaning’, involving a ‘degree of trial and error’.In the absence of a clearly documented agreement for services defining the parameters of the respondents’ responsibility with respect to the screening process, the case largely fell upon the acceptance of the respondents’ evidence over that of Agripower’s representatives.