BRAND and ANOR v BARDON SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL HANDLEY, POWELL and STEIN JJA 8 April 1997, 18 July 1997 [1997] NSWCA 48 PRODUCT LIABILITY — Negligence, respondent peculiarly sensitive, whether damage was foreseeable; contract — whether defendants were party to the contract for sale of goods, alleged breaches of s19(2) and s18 of Sale of Goods Act 1923 PRODUCT LIABILITY — contract — whether appellants were party to contract for the sale of goods — alleged breach of warranties implied by s18, s19 Sale of Goods Act 1993. Estoppel — whether defendants estopped from denying that they were proper defendants. Negligence — whether appellants owed a duty of care to the respondent and whether damage to the respondent, a person particularly sensitive to the product, was foreseeable. Facts: Respondent purchased a moisturising cream for sensitive skin by telephone. She suffered blistering and scarring following application of the cream. Trial judge held that the defendants were the importers and distributors of the product. Trial judge found negligence and awarded damages on that basis and found breach of s19(2) Sale of Goods Act. On appeal: (1) Whether the appellants were party to the contract for the sale of goods. (2) If yes to (1), whether there was a breach of the warranties implied by the Sale of Goods Act. (3) Whether the appellants breached any duty of care to the respondent, and whether the respondent's damage was reasonably foreseeable. Held (by Handley and Stein JJA; Powell JA dissenting): (1) The appellants held out that the business of which they were proprietors was contracting for the sale of the product, and accordingly were party to the contract for sale of goods. (2) The appellants were estopped from asserting that they were not the proper defendants to the proceedings. (3) The implied warranties in s18 and s19(2) Sale of Goods Act were breached. (4) The appellants breached their duty of care to the respondent and the damage which followed was reasonably foreseeable. The appellants were liable in negligence for the consequence of the breach. Wyong Shire Council v Shirt (1979-80) 146 CLR 40 applied Levi v Colgate Palmolive Pty Ltd [1941] 41 SR 48 Thompson v Johnson & Johnson Pty Ltd [1991] 2 VR 449 Wodrow v Commonwealth of Australia (1993) 45 FCR 52 Steward v The North Metropolitan Tramways Co (1885) 16 QBD 178 Wright v John Bagnall & Sons Ltd [1900] 2 QB 240 considered Handley JA In this matter I have had the benefit of reading in draft form the reasons for judgment of Stein JA. I agree with his Honour's reasons and his conclusion that the appeal fails and should be dismissed with costs. I would only add brief additional reasons on the question of estoppel raised by the respondent's notice of contention. 2 UNREPORTED JUDGMENTS The proceedings which were commenced by statement of claim on 6 March 1987 were based on causes of action in contract which arose in July 1984 and in tort a short time later when the plaintiff first suffered appreciable damage. Following service of the statement of claim the solicitors then acting for the appellants wrote to the solicitors for the plaintiff stating "that these proceedings will be strenuously defended, as our clients deny liability. The proceedings will be personally defended by our clients as they don't have the benefit of insurance indemnification". Later in the letter they said "would you please confirm that the product complained of can be made available for independent chemical analysis at our clients expense?"'. The solicitors wrote again on 6 April, relevantly as follows: "\.. our clients are anxious that the product complained of be made available for independent chemical analysis. We would like to place on record that our clients consider this matter most serious and is most concerned to protect the high reputation of their products. Our clients are, to say the least, grossly surprised that this product could have caused the reaction complained of. as this product is manufactured in large quantities and has been distributed world-wide for many years and this is the first reported case that either our clients, or the product's manufacturers, have become aware of. Our clients will be defending the proceedings most strenuously and require the matter to be brought to an appropriate conclusion with the least possible delay". Nothing further of relevance happened until 12 November 1992 when other solicitors, who had commenced to act for the appellants, wrote to the solicitors for the plaintiff stating that she had sued the wrong defendant. Notice of grounds of defence were filed on 24 December 1992, without the consent of the plaintiff, and these included a defence that BLC Cosmetics Pty Ltd T/As L'Elfe Importers was the correct defendant. In the meantime of course the 6 year limitation periods under the Limitation Act 1969 had run and the plaintiff was out of time to commence proceedings against the company. The District Court Rules do not require, or even make provision for, a plaintiff to file a reply to a defendant's grounds of defence. Where a party relying on an estoppel has an opportunity to plead that estoppel this must be done, but where there is no such opportunity, that party is bound to raise the estoppel at the trial by evidence, objection, or submission, as soon as possible. (Spencer Bower & Turner, "Estoppel by Representation", 3rd Ed 1977, at 408-9.) At the trial, counsel for the plaintiff raised the question of estoppel during his opening (AB 14). Discussion followed (14-7), and at 17 the following exchange appeared: "His Honour: You say that they in this letter have made some concession. McLoughlin: Indeed your Honour. His Honour: I think we'll proceed. I don't think they have Mr McLoughlin. They have made some sort of admission. I don't think it's sufficient to change their defence at this stage. I don't want to form a concluded view on that until I hear you. McLoughlin: I would only be putting it on a prima facie basis, your Honour. His Honour: Prima facie I am against you". The Judge appears to have thought that he was being asked to strike out the relevant paragraph of the defence. URJ BRAND and ANOR v BARDON (Handley JA) 3 The trial proceeded and at the close of evidence counsel for the plaintiff renewed his submissions based on estoppel. In his reason for judgment, the Judge said: "On behalf of the plaintiff it is contended that the defendants had admitted in 1987 that this was their product. It was then claimed the defendants should be estopped from now claiming they did not import this product. Exhibit A, a letter written by the defendants' then solicitors, to the plaintiffs solicitors in part read we would like to place on record that our clients consider this matter most serious and is (sic) most concerned to protect the high reputation of their product... It is argued that at that stage the plaintiff was entitled to relax and not to worry about any claim from the defendants that they did not import it into the country or were not responsible for it. It was not until after a period of 6 years that they raised that claim. At that stage the plaintiffs right to sue anyone else had expired. At that stage (sic) I indicated I was not prepared to allow the defence to be struck out and would hear the case. And so I continued to hear the case although I must say in retrospect I think that the plaintiff's submissions have some force". The Judge said nothing further on this issue and proceeded to dispose of the case on the merits. In my judgment, the letters of 13 March and 6 April 1987 from the defendants' solicitors contained clear admissions amounting to representations that the defendants were the importers and sellers of this product. There was no suggestion then that any other party was involved in the sale to the plaintiff. The plaintiff's reliance on such representations is an inevitable inference from the facts. The plaintiff and her solicitors were lulled into a false sense of security as to the identity of the proper defendants. Nothing was done to withdraw those representations until long after the limitation periods had expired, when it was too late to sue the company alleged to be the correct defendant. A defendant who has acted in this way will be refused leave to amend his pleadings in order to raise such a defence. See Steward v The North Metropolitan Tramways Co (1880) 16 QBD 178 (DC), (1886) 16 QBD 556 (CA), followed by the Full Court in Joint Coalboard v Adelaide Steamship Co Ltd [1965] NSWR 143. The appellants were years out of time for filing grounds of defence. Had leave to file grounds of defence out of time been sought. this could have been granted on terms which would have prevented them from relying on this defence. If the plaintiff had applied promptly on the ground that her consent had not been obtained, the Court could have struck out the relevant paragraph. Where such procedural remedies are not invoked, or are not available, a plaintiff in this position is entitled to rely on an estoppel by representation. Thus in Steward v The North Metropolitan Tramways Co (1880) 16 QBD 178 at 180, Pollock B said: "\.. if a defendant chooses to conduct his defence to a certain point on certain lines, and lead the plaintiff on into a certain position, the defendant has no right to change his front. That is only acting on the well-known doctrine of estoppel, and I think, in common fairness and equity, the defendants are estopped from saying they are not the proper defendants". The bulk of this passage was quoted with approval by Sugerman J in Joint Coalboard v Adelaide Steamship Co Ltd at 144. In Wright v John Bagnall & Sons Ltd [1900] 2 QB 240, an employer admitted liability to pay compensation to a worker but the negotiations as to quantum which followed were unsuccessful. After the limitation period had expired the 4 UNREPORTED JUDGMENTS employer denied liability and sought to rely on a limitation defence. The court held that the employer could not take the limitation point. Collins LJ said at 244: "In that state of things there was ample evidence of an agreement that compensation was to be paid, the only question left open being that of amount. If that is the case, the respondents are debarred from raising the point that the statutory limitation applied... having allowed the six months to elapse while the negotiations were still proceeding, they cannot then turn around and say the time for claiming compensation has gone by". That case has sometimes been explained as depending on an implied contract not to plead the statute (see Rendall v Hills Dry Docks & Engineering Co Ltd [1900] 2 QB 245 and Lubovsky v Snelling [1944] KB 44), but these cases do not deny the possibility of an answer based on estoppel in a proper case. See Rendall v Hills Dry Docks & Engineering Co Ltd at 249. There can be no doubt that such an answer is available in principle in cases such as the present. In my judgment therefore the appellants were estopped by their representations and conduct from asserting that they were not the proper defendants in the proceedings and had not sold the product to the plaintiff. Powell JA I have read in draft the Judgment which has been prepared by Stein JA. Although, in his Judgment, his Honour has set out in a summary way some of the facts which gave rise to these proceedings, that statement of facts does not refer to a number of matters which, in my view, bear directly upon the fate of these proceedings, and which - since they do not appear to have been disputed, and still less disproved, at the hearing - in my view, lead inevitably to the conclusion that these proceedings should have been dismissed at first instance. Those additional matters are included in the record which I set out below. Laboratoires BLC Thalgo Cosmetic SA ("BLC") is, and was at all material times, a French company, the principal and a - or the - director of which appears to be, and to have been, one Alain Dogliani, who appears to be a pharmacist by profession. The business of BLC is, and was at all material times, the manufacture and sale by wholesale of a range of what might be called "beauty products", or cosmetics, which range of products, or cosmetics, appears to be marketed under the name "Thalgo". It would appear that, in 1979, if not earlier, the Appellant Mr Brand was - or perhaps it was that Mr and Mrs Brand were - carrying on business in this State as an importer, and distributor - or importers and distributors - of imported products, under the name and style of "l'Elfe Importers", and that, in that capacity he - or they - successfully negotiated with M Dogliani and/or BLC for his appointment as the sole distributor of BLC's products for Australia and New Zealand. That appointment was formalised in an Agreement between BLC, M Dogliani and Mr Brand dated 1 October 1979 (AB 177). On 11 September 1980, Mr and Mrs Brand - said to be "trading as 'l'Elfe Importers" - signed a form of Application For Registration of a Business Name (AB 471) seeking the registration as a business name of "Thalgo Cosmetic(s)", the nature of the business being described as "Importers and Distributors of cosmetics", and the "Principal Business Address" given being that of "l'Elfe Distributors", which form of Application was said to have been lodged with the then Corporate Affairs Commission on 12 September 1980. That application appears to have been approved, and registration granted, on 29 September 1980. There is no evidence that the Respondent was aware of the fact of the registration URJ BRAND and ANOR v BARDON (Powell JA) 5 of the business name "Thalgo Cosmetic(s)" at any relevant time - certainly there is no evidence of any awareness by the Respondent of that fact prior to, or on, 1 May 1984. A letter (AB 188) written on 12 June 1981 on the letterhead of "Elfe Distributos - 'Sole importers of Laboratoires BLC 'THALGO' cosmetics" - by Mr Brand to M. Dogliani and a Mr McVey - who seems to be another officer of BLC - indicates, first, that the name "Thalgo Cosmetic(s)" had been registered when Mr Brand, upon searching, had found that it was not registered in this State; second, that the registration had been effected "not to trade under (the name), but simply, as (BLC's) Agents here, to protect (the name) for (BLC)*; third, that in a letter of 4 November 1980, Mr Brand had informed BLC of the registration of the name; and, fourth, that, while warning that, if BLC were to become registered as the proprietor of the name, the registration could be cancelled as BLC did not carry on business in this State, Mr Brand indicated that he and Mrs Brand were willing to transfer the registration of the name to BLC if BLC so required it. (Although that warning was sound insofar as it related to the registration of a business name, it appears to indicate that Mr Brand did not appreciate the distinction between, on the one hand, a trade name or a trade mark, and, on the other, a business name, and the conditions to be fulfilled prior to, and the consequences flowing from, the registration of, each.) In the event, BLC appears not to have sought the transfer to it of the registration of the business name, the registration of which appears to have continued in the names of Mr and Mrs Brand until at least 1989 (AB 480). At some time which is not clear Mr Brand procured the insertion in the Sydney Telephone Directory White Pages of an entry for "Thalgo Cosmetics". That entry - which was current in 1984 - gave the address and telephone number of |'Elfe Importers (AB 158,166,322). However, there is no evidence that the Respondent knew of that entry in 1984. At some later stage - seemingly prior to December 1993 - BLC Cosmetics Pty Ltd ("Cosmetics"), to which I shall shortly refer, appears to have adopted, if not become registered as the proprietor of, the business name "THALGO (Australia)" (see AB 482,484,494). Although its Income Tax Returns for the financial years 1983-1984 (AB 260-279) and 1984-1985 (AB 280-307) seem to suggest that Cosmetics was incorporated earlier, Mr Brand's evidence (AB 115) tends to indicate that, in November 1981, he and Mrs Brand, either, had had incorporated, or, acquired the shares in the capital of, and become directors of, Cosmetics. Other evidence (see, for example Ex "16" AB 427-433, Ex "9" AB 260-307) would tend to indicate that, either then, or, in any event, not later than January 1984, Cosmetics, with the acquiescence of BLC, acquired from Mr Brand - or from Mr and Mrs Brand - the business of, at least, l'Elfe Distributors, including the rights to distribute, in Australia and New Zealand, BLC's Thalgo range of "beauty products" or cosmetics, and that, thereafter, Cosmetics (inter alia) carried on that business as - to use what appears to be part of the strange argot of the commercial community - a "division" (AB 116, 266, 277, 296, 305) of Cosmetics - another "division" of BLC in the financial years 1983-1984 and 1984-1985 appears to have been "l'Elfe Trecot", the nature of the business of which "division" is not disclosed by the evidence. After November 1981 Mr and Mrs Barden carried on no business - and, in particular did not carry on business as importers and distributors of BLC's Thalgo range of "beauty products" or cosmetics - on their own behalf, their income thereafter being limited to their salaries and directors' fees as 6 UNREPORTED JUDGMENTS directors of, and the dividends payable to them as shareholders in the capital of, Cosmetics (AB 115 et seq, Ex "9" AB 260 et seq, Ex "10" AB 308). After 1981, invoices for goods suppled by BLC continued to be directed to 'VElfe Importers", payments in respect of those invoices apparently being made from a bank account in that name (see AB 297) maintained by Cosmetics. By no later than January 1984, Cosmetics had had printed (inter alia) an Order Form/Price List (Ex "7" AB 189-190) for BLC's Thalgo range of "beauty products" or cosmetics and a form of Application for Trading Credit Facilities (Ex "15" AB 323), each of which documents bore in one or more places a "logo" in the form of a lozenge enclosing the words "Thalgo cosmetic France", and, on the right hand side, the words "BLC Cosmetics Pty Ltd, 134 Barcom Ave, Rushcutters Bay, NSW 1011. Phone (02)331 6880. Telex AA 21822/SY176 *THALGO". The probability is that, by this time, Cosmetics had also had prepared, and printed, a "Product Information & Working Manual 1984" relating to the Thalgo range of "beauty products" or cosmetics (Ex "2" AB 192-254), which Manual, or a substantial part of it, appears as if it may have been a translation from a similar manual in the French language which had earlier been prepared by BLC (see AB 118-119, 128) - if the Manual had not been prepared and printed by this time, it had certainly been prepared and printed by no later than September 1984 (see AB 32-33; Ex "2" (supra), Ex "3" AB 324-328). The cover sheet of that Manual (AB 192) bore, at the top, the words "Laboratoires BLC" superimposed above a representation of the "logo" to which I have referred above, under which were the words "COTE d'AZUR/PARIS". The title of the Manual appeared printed in the middle of the cover sheet, while at the foot of the cover sheet was printed "With compliments - BLC Cosmetics Pty Ltd 134 Barcom Ave, Rushcutters Bay, NSW 2011 Phone (02) 331 6880 Telex - AA 21822/SY176 'THALGO"'. It is, at the least, possible that the Respondent already had, or that she had then given, a copy of that Manual at the time of her opening an account with Cosmetics prior to her lodging the relevant order (AB 18, 23, 32-33); if it were not so, she certainly received one when she attended a "Thalgo seminar" conducted by Cosmetics in September 1984 (AB 39-33, Ex "3" (supra)), that is some 22 years before the commencement of these proceedings. If the fact be that the Respondent already had a copy of the Manual at the time of her opening the account, then the probability is that she had been given it by a friend, Leonie Aquilina, with whom she was, at the time, proposing to open a "beauty clinic" at Kings Langley (AB 23, 90-91), and who, in mid-April 1984, had attended a "Thalgo seminar" conducted by Cosmetics (AB 324). It is clear that, by no later than 1 May 1984, when she placed the relevant order for Lime Blossom Cream, the Respondent had in her possession a copy of the Order Form/Price List, which copy she utilised when placing her order (AB 78, 108). Although it is less clear that it was so, the probability is that, as the order which the Respondent placed was supplied on credit, prior to her placing that order, the Respondent had filled in, and delivered to Cosmetics, an Application for Trading Credit Facilities (see AB 33, 130, 170-171). It seems clear enough that the Respondent placed the relevant order by telephone on 1 May 1984 (AB 18, 77, 78, 107, Ex "1" AB 191). Although, at the commencement of her evidence in chief (AB 18), the Respondent acquiesced in three outrageously leading questions to the effect that the telephone call was URJ BRAND and ANOR v BARDON (Powell JA) 7 made to, and the order placed with, "Thalgo Cosmetics", the Transcript records the following questions and answers, first, in the course of her cross-examination: (AB 77) Q. When you purchased it where did you purchase it from? A. From a - I made a telephone call to BLC." and, then, in the course of her re-examination, despite the leading question: - "Q. Was that when you made the first order. A. As far as I can recall. Q. And had you rung Thalgo. A. Thad rung - yes, BLC, yeah" The relevant order (Ex "1" (supra)) was for some nine Thalgo products, each - including the Lime Blossom Cream - in a quantity appropriate for professional use in a "beauty clinic" (cp Ex "1", Ex "7" (AB 189)) rather than - as the Respondent, at one stage of her evidence appears to suggest (AB 27, 76 cp AB 83-84) - for retail sale by the proprietor of such a "clinic" to a client, the total wholesale value of the goods the subject of the order being $214.35. The goods the subject of the order appear to have been despatched by Cosmetics to the Respondent on 4 May 1984 under cover of an Invoice No 24615 (Ex "1" (supra)). That Invoice bore, in the top left hand corner a representation of the "logo" to which I have earlier (p5 (supra)) referred while to the top right hand side appears "Dr to - BLC cosmetics Pty Ltd 5th Floor 134 Barcom Ave, Rushcutters Bay, NSW 2011 Australia Phone (02) 331-6880". At the foot of the Invoice was a detachable "Remittance Advice", at the top of which appeared the words: "PLEASE DETACH HERE AND FORWARD WITH YOUR PAYMENT TO: BLC Cosmetics Pty Ltd 5th Floor 134 Barcom Ave, Rushcutters Bay NSW 2011 Australia. Phone (02) 331 6880" Although, in her evidence in chief (AB 19), the Respondent claimed that she paid for the goods on delivery with a cheque drawn in favour of "Thalgo Cosmetics", it seems clear enough (see Ex "1") that the account was not paid until 6 August 1984, the overwhelming probability, in the circumstances, being that the cheque was drawn in favour of Cosmetics. Although it did not occur until 1 October 1985, it is as well to record that, on that day, BLC, M. Dogliani and Cosmetics entered into an agreement (Ex "16" AB 427-433) which was clearly intended to be supplemental to, and to vary in some respects, the agreement (Ex "Q" (supra)) which had been entered into between BLC, M. Dogliani and Mr Brand on | October 1979. The following features of the later agreement might be noted: 1. Recital B (AB 427) records that Cosmetics had acquired the business which Mr Brand had previously carried on under the style of "l'Elfe Importers"; 2. Recital E (AB 427) records the wish of the parties to recognise the changes in relationships which had occurred since the making of, and to reduce to writing a number of agreed minor modifications to the terms of, the earlier agreement; 3. cl3 of the original agreement (AB 178), which provided for certain price discounts, was replaced by a new clause (AB 428) providing for different price discounts to operate in respect of orders placed after 1 January 1985 and prior to 8 UNREPORTED JUDGMENTS the expiration, on 30 September 1986, of the term of the original agreement, and in the event of Cosmetics exercising its right of renewal (see below), prior to 30 September 1993. 4. cl8 of the original agreement (AB 181) was replaced by a new clause (AB 428-429) providing for Cosmetics to have options to extend the term of the original agreement for three further periods of seven years, the first from 1 October 1986, the second from 1 October 1993, and the third from 1 October 2000. 5. cl5 of an Appendix to the later agreement (AB 431) provides (inter alia) that "the trade mark 'THALGO Cosmetic'... (were, and were to) remain the sole property of (BLC) and must be presented as such on all advertising and promotional material by (Cosmetics)" 6. although cl2 of the same Appendix (AB 431) provided that the (original) agreement applied only to Australia, "with an option for prospection (sic) in New Zealand subject to presentation by (Cosmetics) and formal approval by (BLC)", a further Appendix (AB433) recorded that Cosmetics, with the approval of M. Dogliani, had engaged an agent in New Zealand and that permission "(had been) granted to (Cosmetics) for the territory of New Zealand under the same terms and conditions to apply to the territory of Australia." In the light of the matters which I have recorded above, none, or virtually none, of which, as I have earlier recorded above, appears to have been disputed, and none of which was disproved, at the hearing, and to many of which Garling DCJ made no reference in the reserved Judgment (AB 547 et seq), which his Honour was to deliver on 21 December 1984, the better part of three months after the conclusion of the hearing, it was, in my view, not open to his Honour to hold - nor, with respect to Stein JA, is it, in my view open to his Honour to hold - that, in May 1984, Mr and Mrs Brand carried on, on their own behalf, any business, let alone that of importing and distributing Thalgo "beauty products" or cosmetics under the name or style of "Thalgo Cosmetics", or at all (see AB 549, 551), and still less that, in the course of any such business, they sold anything to the Respondent. Rather, those matters, in my view lead inescapably to the conclusion that, at the relevant time, the Respondent dealt only with Cosmetics. Those matters, in my view, also serve to deny to the Respondent the benefit of any claim - such as was sought to be raised at the hearing (see AB 547-548) and as, in the Notice of Contention filed, by leave, on the hearing of the appeal (Transcript (2nd part) p26), was sought to be relied upon on the appeal - based upon an estoppel. As I have earlier pointed out, not only is there no evidence that, at any time prior to, or on, | May 1984, the Respondent was aware of the registration of the business name "Thalgo Cosmetic(s)", but the Application for Trading Credit Facilities which she signed, the Order Form/Price List which was undoubtedly, and the Manual which it was highly possible was, in her possession at the time of her lodging the relevant order, and the Invoice which she received when the order was fulfilled all made it clear, beyond any peradventure, at the relevant time that "beauty products" or cosmetics which formed part of the Thalgo range were manufactured in France and were offered for sale, at least in this State, by Cosmetics. For these reasons, I would propose the following Orders: 1. ORDER that the appeal be allowed. 2. ORDER that the verdict found, and the Judgment entered, by Garling DCJ on 21 December 1984 be set aside, and that, in lieu thereof, there be entered Judgment of the Defendants/Appellants. URJ BRAND and ANOR v BARDON (Stein JA) 9 3. ORDER that the Plaintiff/Respondent pay the costs of the Defendants/Appellants of the hearing at first instance and of the appeal. Stein JA This is an appeal by Paul and Louise Brand (the defendant appellants) from the decision of Garling DCJ entering a verdict in favour of the plaintiff respondent Gretchen Bardon for damages for personal injury caused by the use of a facial moisturiser. The appellants were the proprietors of a registered business name, Thalgo Cosmetic(s) and also directors and shareholders of BLC Cosmetics Pty Ltd (BLC'). His Honour found that the Brands were the importers of Thalgo products from France, through an arrangement with the French manufacturer of the products (Laboratoire BLC) and its director (Alain Dogliani). The respondent sued the Brands trading as Thalgo Cosmetic(s). The respondent sued in tort and contract. In the contract claim, she alleged breaches of the terms implied into the contract by s19(1) and s19(2) of the Sale of Goods Act 1923 (as amended). An additional count under the Trade Practices Act, 1974 (Cth) was not pursued on the appeal. His Honour found a breach of s19(2) of the Sale of Goods Act, but not s19(1). His Honour also found in negligence and awarded damages on this basis. The central issue raised in the appeal is whether the appellants were the proper defendants to the claim. This involves a determination of whether the contract for purchase of the moisturiser was formed between the respondent and the company, (BLC), or with Thalgo Cosmetic(s), the registered business name for which the appellants form the legal personality. The second issue in the appeal is whether there was a breach of any duty of care owed by the appellants to the respondent. It was not disputed that the product was harmless for persons with normal skin. The appellants dispute however that they owed any duty of care to the respondent or that any duty of care extended to a duty to warn particularly sensitive people, such as the respondent, of the possibility of injury from the use of the product. The appellants also deny any breach of the Sale of Goods Act. FACTS In May 1984 the respondent ordered by telephone a number of products including Thalgo Lime Blossom Cream Moisturiser. It is not disputed that by this time she had in her possession a copy of a document entitled 'Order Form/Price List' which bore the name 'BLC Cosmetics Pty Ltd' and an address and telephone number in Rushcutters Bay, as well as, more prominently, the logo 'Thalgo Cosmetic France'. It may be noted that the printed entry in the 'order form' for Lime Blossom Cream is followed by the words 'normal to sensitive'. At the time when she placed the order the respondent said that she indicated she wanted the product for sensitive skin, (AB 104) although her evidence was somewhat confused about this. On the evidence before the District Court it was unclear whether the respondent ordered by specific reference to the order form, and whether she obtained the telephone number from the document or from the telephone directory where the telephone number appears opposite an entry for "Thalgo Cosmetics. No evidence was tendered of a telephone directory entry for BLC Cosmetics Pty Ltd. 10 UNREPORTED JUDGMENTS The respondent's order was accepted by a female sales representative who completed the invoice which comprises ex 1. The invoice describes the products ordered by reference to product numbers which correspond with the order form/price list. Whether the respondent described the products ordered by quoting the reference numbers, or by describing the products, such as the moisturiser which gave rise to the claim, as a moisturiser for sensitive skin, either manner would have conveyed a request for a product for sensitive skin. The document also contains the prominent logo "Thalgo Cosmetic' as well as the words 'Dr to BLC Cosmetics Pty Ltd'. The respondent's telephone order, which was an offer to contract, was accepted by the dispatch of the goods to the respondent within a week. The respondent gave evidence, which was not challenged, that she paid for the goods by cheque payable to 'Thalgo Cosmetics', and her cheque was accepted without demur. The respondent commenced to use the product on the skin of her face and neck. The packaging of the cream bore the words 'sensitive skin'. After around 6 weeks of applying the cream, she noticed a red rash appearing on her face and neck which subsequently blistered and scarred. She sought medical treatment and suffered the damage described in the judgment below. A Statement of Claim was issued out of the District Court in March 1987. On 6 April 1987 the appellant's then solicitors wrote to the respondent's solicitors indicating that they were drafting a request for further particulars of the claim as a precursor to the filing of the defence. This letter is relied upon by the respondent as raising an estoppel against the appellants' denial that they are the proper defendants, an issue raised by the appellants' new solicitors, David Finkelstein & Co by letter dated 12 November 1992 to the respondent's solicitor. The appellants filed their defence on 24 December 1992, more than 5 years after the issue of the Statement of Claim. By their defence the appellants denied importing or supplying the product to the respondent, claiming that the importer and distributor was BLC Cosmetics Pty Ltd. The appellants accept, however, that the respondent requested products for sensitive skin (para37, Outline Submissions). In support of their argument that the respondent contracted with the company (BLC), and not with them, the appellants rely on the Product Information and Working Manual (ex 2) for Thalgo Cosmetic which bears on the cover a label 'with compliments - BLC Cosmetics Pty Ltd', and the Rushcutters Bay address and phone number of the company. P4 of the Manual introduced BLC Cosmetics Pty Ltd as the importer and distributor of Thalgo cosmetics in Australia. However, according to Mr Brand's evidence, the respondent received the Manual when she attended a course regarding Thalgo products after the goods were purchased, or at best, when the goods were delivered. Moreover, there is no evidence that the Manual was brought to the attention of the respondent before the formation of the contract, so that it formed part of the terms of the contract. Nor can the invoice, which was completed by the appellant's sales representative and forwarded to the respondent after the formation of the contract, affect the terms of the contract or be incorporated into it. The appellants have also placed reliance on the respondent's response in re-examination by her own counsel to a question about the order. Q: And had you rung Thalgo? A: Thad rung - yes, BLC, yeah. URJ BRAND and ANOR v BARDON (Stein JA) 11 The explanation for the use of the name BLC by the respondent, set out in the respondent's submission (which I accept) is that it was a statement made from the witness box, long after the transaction had taken place, by which time the respondent had been made acutely aware of the existence of BLC. In examination in chief, the appellant gave evidence of placing an order with "Thalgo Cosmetics'. Although one may criticise the leading nature of the question, a question was also put to the respondent regarding to whom payment for the goods had been made, which was not leading, and to which she answered that she had paid 'Thalgo Cosmetics'. In cross-examination the respondent was asked from whom she had purchased a second quantity of the cream. She answered that she had 'made a telephone call to BLC'. It may be noted that counsel for the appellants did not follow up on this answer. In fact he followed with the question "you purchased them both from, to use a neutral word, the distributor of that cream?'. In my view, no substantial point can be made by the appellants from the respondent's answer in the heat of the witness box, many years after the events to which the proceedings relate. It is the belief conveyed to the respondent at the time of the transaction which is material. In my opinion, there was sufficient evidence to conclude that the appellants held out that the firm or business Thalgo Cosmetic(s) was offering products for sale. It may be that the use of this name conveyed the impression of "Frenchness" which was part of the attraction of the products, but for whatever reason, the respondent, quite understandably, was given the distinct understanding that she was dealing with Thalgo Cosmetic(s). The sales representative who answered the telephone number, which was listed in the telephone directory for Thalgo Cosmetics, and the acceptance of the respondent's cheque drawn in favour of Thalgo Cosmetics, did not disabuse the respondent of that impression. I find that the contract was formed between the appellants trading as Thalgo Cosmetic(s) and the respondent. It remains to be determined whether there was a breach of that contract, in particular the terms implied by the Sale of Goods Act, and/or whether the appellants are liable in negligence to the respondent. NEGLIGENCE The trial judge found the appellants in breach of their duty of care holding that 'the importer and retailer have a responsibility to ensure that people who use these products are aware of the risks associated with their use'. The appellants argue that: (1) They do not have a duty of care to the respondent at all, because their capacity was as agents for the manufacturer of the product. (2) The trial judge has misstated the extent of the duty of care. In relation to the first submission, the appellants were more than agents for the manufacturer. The trial judge found that the appellants were the importers and distributors of the product, and accordingly were responsible for the product being made available to customers in Australia. Regardless of the submission as to who sold the products to consumers, which will affect the respondent's claim in contract, in my view the appellants had a sufficient relationship of neighbourhood with the respondent to satisfy Lord Atkins' test in Donoghue v Stevenson [1932] AC 562 at 580 because she was one of those persons who are so closely and directly affected by [the appellants'] act that [they] ought reasonably to have them in contemplation as being so affected when [they] are directing [their] mind to the acts or omissions which are called in question. 12 UNREPORTED JUDGMENTS Accordingly, the appellants owed a duty of care to the respondent. The second argument concerns the scope of the duty. The appellants rely on a statement by Jordan CJ in Levi v Colgate Palmolive Pty Ltd [1941] 41 SR 48 at 52: Where the act is incapable of injuring an ordinary normal person, the person who does it owes no duty to do more by reason only of the possibility that a person of abnormally accentuated susceptibility may be affected by it. Special circumstances may, of course, give rise to a duty to take special precautions to avoid injury to particular abnormal persons known to be likely to be affected by a particular act; but the mere fact that abnormal persons exist in the community does not alter the general standards by which rights and duties are established... Persons who trade in and supply ordinary foodstuffs and articles of ordinary domestic use are, in my opinion, subject to no duty to issue warnings that the use of such articles may cause discomfort or injury to abnormal persons who may be allergic to them. The respondent submits that the law of negligence has developed since Levi's case as stated by Mason J, as he then was, in Wyong Shire Council v Shirt (1979-80) 146 CLR 40 at 47-48: In deciding whether there has been a breach of the duty of care the tribunal of fact must first ask itself whether a reasonable man in the defendant's position would have foreseen that his conduct involved a risk of injury to the plaintiff or to a class of persons including the plaintiff. If the answer be in the affirmative, it is then for the tribunal of fact to determine what a reasonable man would do by way of response to the risk. The perception of the reasonable man's response calls for a consideration of the magnitude of the risk and the degree of probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have. It is only when these matters are balanced out that the tribunal of fact can confidently assert what is the standard of response to be ascribed to the reasonable man placed in the defendant's position. The considerations to which I have referred indicate that a risk of injury which is remote in the sense that it is extremely unlikely to occur may nevertheless constitute a foreseeable risk. A risk which is not far-fetched or fanciful is real and therefore foreseeable. But, as we have seen, the existence of a foreseeable risk of injury does not in itself dispose of the question of breach of duty. The magnitude of the risk and its degree of probability remain to be considered with other relevant factors. (emphasis added) More recently the Supreme Court of Victoria in Thompson v Johnson & Johnson Pty Ltd [1991] 2 VR 449 cited Shirt in the context of a product liability claim. In Thompson's case the defendant had failed to warn the plaintiff of a very slight risk of serious complications from using the product. The state of knowledge of the risk posed by the product was slight at the time at which the plaintiff suffered damage, 10 years before the appeal. Because at the time of the alleged breach the risk 'would not ordinarily be apparent' (at 491), the Court found that the defendant had not breached its duty to take reasonable care. Their Honours stated the duty as: a duty to take reasonable care in the Donoghue v Stevenson sense to avoid injury or harm being suffered by those using the product as intended. (p491) The Court confirmed that whether the duty owed has been breached is a matter of fact in the circumstances of each case, not a question of law. They continued: URJ BRAND and ANOR v BARDON (Stein JA) 13 It follows that the fact that no warning was given in all the circumstances [the state of knowledge at the relevant time] must be examined in the light of the duty of the manufacturer to take reasonable care. (at 491) Thompson's case supports the application of the principles outlined in Shirt to product liability claims. Applying the test outlined in Shirt, it seems clear that the injuries which occurred to the respondent were not too remote to be foreseeable to the appellants. On the evidence, including that of content analysis, it would not be far-fetched or fanciful to conclude that a person with sensitive skin could be adversely affected by applying the cream. Weighing against this is the small degree of effort which would be required to include a 'warning' on the label of the product. For example, advice that users should test the product on a small area and discontinue use if irritation occurs, and that persons with allergies may be affected by the product. In such circumstances it may be concluded that a reasonable person would have foreseen the risk and taken those steps. That the appellants failed to do so is a breach of their duty of care to the respondent. The appellants have pointed to the case of Wodrow v Commonwealth of Australia (1993) 45 FCR 52 as confirming the position set out in Levi. In Wodrow, the Federal Court was asked to consider the relevant duty of care in relation to a hyper-sensitive plaintiff. The circumstances of the case were that the plaintiff had a psychological abnormality and suffered psychological damage when he was given a copy of a minute foreshadowing disciplinary action against him. It was found that the acts argued to amount to a breach of duty did not cause the plaintiff's damage, but merely occurred coincidentally with the onset of symptoms of an underlying complaint. The Court was not satisfied that there was causation between the defendant's acts and the plaintiff's damage. Gallop and Ryan JJ, with whom Spender J agreed, considered Levi's case and Smith v Leech Brain & Co Ltd [1962] 2 QB 405 which supports the egg-shell skull rule; both recognising that in special circumstances where the plaintiff's infirmity is made known to the defendant, there will be a duty to avoid causing damage to the plaintiff. In Wodrow their Honours found that the defendants did not know of the plaintiff s susceptibility. In light of their Honours' conclusion on causation, these comments were obiter. In the present case, in contrast to Wodrow, there is no argument that the respondent's injuries were caused by the acts alleged to amount to a breach of the appellant's duty of care. Neither is it disputed that the respondent requested a product suitable for sensitive skin. That request put the appellants on notice that there were some 'special circumstances' pertaining to the respondent, applying the test set out in Levi. In my view, the decision of the Federal Court in Wodrow does not mitigate against a finding of negligence when causation between the act and the damage can be proven. I find that the appellants were negligent because they breached their duty of care to the respondent and this lead to the respondent's damage. CON' TRACT There are 3 different warranties implied into contracts for the sale of goods by the Sale of Goods Act on which the respondent could rely. They are: s19(1) Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description 14 UNREPORTED JUDGMENTS which it is in the course of the seller's business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: s19(2) Where goods are brought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality: s18 Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description... S19(1) The trial judge found that the respondent did not make known the purpose for which the Lime Blossom Cream was to be used and did not rely on the appellant s skill. The respondent does not cavil with his Honour's finding. $19(2) The trial judge found that s19(2) of the Sale of Goods Act had been breached. There are three elements required to prove a breach of s19(2). First, that the respondent purchased goods by description. The trial judge did not make an explicit finding in this regard, but whether the respondent purchased the goods by describing to the telephonist the type of moisturiser she required, or by reference to the price list/order form, where the name of the product was followed by the words 'normal to sensitive', it was open to the judge to find that she bought the goods by description. Second, that the seller deals in goods of that description. While the appellants deny that the contract was formed with them, the trial judge had found (correctly in my view) that the contract was between the respondent and the appellants (trading as Thalgo Cosmetic). The appellants have not disputed that Thalgo Cosmetic(s) dealt in goods of the type ordered by the respondent. The third element is that the goods were not of merchantable quality. The question arises whether the test of merchantable quality is an objective test - whether the goods were of merchantable quality for a person of ordinary sensitivity, or, as the trial judge found, for a person in the position of the respondent. His Honour found that the goods were not of merchantable quality because the respondent (and a class of people in a similar position to the respondent) would have been 'unduly affected' by the product. The appellants' Outline Submissions state the test of merchantable quality to be whether the product is reasonably suitable for the 'ordinary uses that they were manufactured to perform'. As the product was labelled and supplied as suitable for use by people with sensitive skin, I agree with the trial judge's conclusion that the moisturiser was not of merchantable quality and that the appellants were in breach of s19(2). S18 A breach of s18 was not raised in the pleadings, but was argued before us. The same precondition applies as with s19(2), that the goods were brought by description, which the trial judge impliedly found to be satisfied. It would be a breach of the implied condition in s18 if the goods did not correspond with the description, in this case, of being suitable for sensitive skin. The appellants' defence is that the cream did correspond with the description, that is, that it was suitable for sensitive skin, and that the respondent's reaction to the product was caused by an allergy. This was alleged to be a separate cause and not a breach of the implied warranty. As I have stated above, I do not accept URJ BRAND and ANOR v BARDON (Stein JA) 15 that there is a legal distinction between people who have an allergy and people who are otherwise sensitive' to a particular product or ingredient. In my view, the description 'sensitive' marks it as a product which is directed towards users who are most likely to suffer problems and the description does not warn that people with sensitivities to named ingredients should not use the product. Accordingly, if it were necessary to do so, I would also find that there has been a breach of s18. ESTOPPEL By a notice of contention the respondent argued that the appellants were estopped from denying that they were the proper defendants because of the correspondence between the appellants' former solicitors and the respondent in 1992, before the expiry of the statutory time limit for the respondent's claim. I have had the benefit of reading the draft judgment of Handley JA on the estoppel point and agree with him. The appeal should be dismissed with costs. Appeal dismissed with costs. Counsel for the appellant: J C Kelly QC & G M Colman Solicitors for the appellant: David Finkelstein & CO Counsel for the respondent: L King SC Solicitors for respondent: Jones Staff & Co