Unreported National Court Decisions
N1787
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE] 
WS 1007 OF 1996
TAPENDA LIMITED – PLAINTIFF
V
WAHGI MEK PLANTATIONS LIMITED – DEFENDANT
Waigani
Woods J
23 September 1998
7 October 1998
10 November 1998
SALE OF GOODS – implied warranty – merchantable quality – ‘X’ grade quality coffee – examination did not reveal defect – whether phenolic coffee is a hidden defect – exclusion clause in Goods Act.
Counsel
S Carter for the Plaintiff
W Frizzell for the Defendant
10 November 1998
WOODS J: The Plaintiff is claiming for K26,070 due on a contract for the sale of 158 bags of coffee totaling 9,480 kilograms to the defendant. 
The Defendant admits the purchase of 107.5 bags of coffee totaling 6,570 kilograms for which some money is still owing. However the defendant is cross-claiming for monies lost on an earlier purchase of 20,400 kilograms of coffee for K42,840 which was warranted by the plaintiff to be X grade quality but which was later found to defective, the term used was phenolic, and was onsold as a lower quality for an amount of K34,884 and thereby the defendant lost the difference paid plus loss of profit. The defendant cross-claims for K19,462. 
The questions that arise are was there a condition in the sale from the plaintiff to the defendant that the coffee was of ‘X’ grade quality without any hidden defects and therefore if it was later found that there was that hidden defect then the purchaser could recover from the seller. 
Reference is made to the Goods Act Chapter 251 and section 15:
(1)      Subject to this part and any other law there is no implied warranty or condition as to the quality or fitness for a particular purpose of goods supplied under a contract of sale.
(2)      Notwithstanding subsection (1) but subject to subsections (3) & (4) 
(a)      where (I) 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 judgement; and (ii) the goods are of a description that it is in the course of the seller’s business to supply, 
(b)      where goods are bought by description from a seller who deal in goods of that description, there is an implied condition that the goods are of merchantable quality; and 
…..
(3)      …..
(4)      If the buyer has examined the goods, there is no implied condition as regards defects that the examination ought to have revealed. 
The evidence is that the plaintiff sold the coffee to the defendant as ‘X’ grade parchment coffee, this being coffee grown under controlled plantation conditions and supposedly of a higher quality than that grown in village blocks. It would be expected then that this coffee was for sale as premium grade and therefore the processing of washing and drying by the plaintiff would have been done at a higher standard. 
I am satisfied on the evidence that the purchased coffee was stored separately by the defendant until arrangements were made to sell it to Angco. At this stage when Angco tested the coffee for this purchase it refused to accept it as premium coffee because it was phenolic. Angco ascertained this by testing it with a tasting test. The evidence was that not everyone who did the liquoring test agreed that all the coffee had the antiseptic taste or phenolic taste. However the result was that Angco having refused to accept the coffee as premium grade the defendant had to sell it for lower price to another company. 
So has there been a breach of a condition of the quality of the parchment coffee on the sale between the plaintiff and the defendant.
The Goods Act implies a condition that goods are of a merchantable quality subject to the proviso that if the buyer has examined the goods there is no implied condition as regards defects that the examination ought to have revealed. 
The evidence is that the plaintiff was selling premium quality plantation parchment coffee. Both parties were aware of the grading of coffee and the implications on price of the premium grading. 
The evidence is that an officer of the defendant did an examination of the coffee at the time of delivery. However the examination did not include the liquoring test and it appears that the phenolic nature of coffee can only at present be ascertained on a liquoring test. 
It also appears on the evidence that the examination carried out by the officer of the defendant which did not include liquoring was the normal business practice in the industry at that time. 
So has there been a breach of an implied condition of merchantable quality. There is no doubt that the coffee was still merchantable although according to the evidence of the defendants not as premium grade. And was the examination conducted by the officer of the defendant sufficient to bring into operation the provision in Section 15 (4).
If the officer of the defendant had done an equivalent examination as the officer of Angco did the perhaps the alleged defect would have been revealed. However the liquor test that Angco did was not the normal testing that all persons in the industry did. The evidence is that phenolic taste is a relatively new phenomena in coffee. It is believed that the phenolic characteristic is acquired during the drying process which was part of the process for which the plaintiff was responsible. 
The law does require a buyer to behave reasonably and to detect defects known to possibly exist in parchment coffee. The purchaser was purchasing coffee to onsell to roasters as premium coffee. Therefore it is reasonable to expect a buyer to do all necessary tests. Liquor testing was known. There was no suggestion that the plaintiff knew the coffee could possible have defects. The defendants were regarded as experts in the industry, they were given the opportunity and anyway did what they usually did to examine the coffee and they examined it but apparently not well enough. It is clear that the defendant did not rely fully on the plaintiff’s assessment of quality, that is why they examined the coffee the way they did. But clearly at the end of the day their examination was not enough.
In the case Cammell Laird & Co Ltd V Manganese Bronze & Brass Co Ltd [1934] AC 402 at 430 Lord Wright states that the implied condition does not apply to defects which such examination ought to have revealed. The critical word here is ‘ought’. A full and proper examination could have revealed the defect.
In James Drummond & Sons V E.H. Van Ingen & Co [1887] 12 AC 284 & 291 Lord Herschell states that the implied condition was only excluded as regards those matters which the purchaser might, by due diligence in the use of all ordinary and usual means, have ascertained from an examination of the sample. ‘Due diligence’ is the operative words here and it could have found the defect, therefore by the exemption in S 15 (4) there is no implied warranty.
Grant v Australian Knitting Mills [1936] AC 85 notes the proviso to the exemption does not apply where no examination the buyer could or would normally have made would have revealed the defect.
The buyer here could have made the test and would have found the defect. There clearly was an examination, a fairly full one, it was just not enough. I cannot say there was no examination, there was, and it was apparently not sufficient considering the grade of the coffee being considered. Yet Angco did a more complete test. 
I find that Goods Act section 15 (4) applies here. There was an examination which if done with due diligence considering what was to be done with the coffee would have revealed the defect. The defendant took a risk. 
I dismiss the cross-claim. 
It is agreed in respect of the statement of claim that the sum of K17,234.70 is payable.
I order judgement for the plaintiff in the sum of K17,234.70 together with interest at 8 percent from the date of the writ which assesses at K2,874.64.