Australian Building Industries Pty Ltd v Stramit Corp Ltd

[1997] FCA 736

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - motion to strike out action- principles to be applied - Federal Court Rules, O 20 r 2(1)(b) and (c).

Federal Court Rules, O 20 r 2(1)(b) and (c)
Trade Practices Act 1974 (Cth), s 52.

Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Tresize v National Australia Bank Ltd (1994) 50 FCR 134
Lonrho PLC v Fayed (No 2) (1992) 1 WLR 1
Caterpillar Inc v Sun Forward Pty Ltd (1996) 36 IPR 410
Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242

AUSTRALIAN BUILDING INDUSTRIES PTY LTD v STRAMIT CORPORATION LTD & ANOR
QG 70 of 1997

DRUMMOND J
BRISBANE
1 AUGUST 1997

IN THE FEDERAL COURT OF AUSTRALIA	)
)
QUEENSLAND DISTRICT REGISTRY	)  QG 70 of 1997
)
GENERAL DIVISION	)

BETWEEN:             

AUSTRALIAN BUILDING INDUSTRIES PTY LTD
Applicant

  AND:  

STRAMIT CORPORATION LTD
First Respondent

DAVID THOMSON
Second Respondent

JUDGE:	DRUMMOND J
PLACE:	BRISBANE
DATED:	1 AUGUST 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The applicant's action be dismissed.

1. The applicant pay the respondents' costs of and incidental to the action including the cost of the notice of motion.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA	)
)
QUEENSLAND DISTRICT REGISTRY	)   QG 70 of 1997
)
GENERAL DIVISION	)

BETWEEN:             

AUSTRALIAN BUILDING INDUSTRIES PTY LTD
Applicant

  AND:  

STRAMIT CORPORATION LTD
First Respondent

DAVID THOMSON
Second Respondent

JUDGE:	DRUMMOND J
PLACE:	BRISBANE
DATED:	1 AUGUST 1997

REASONS FOR JUDGMENT

The respondents in the action applies to terminate the action, in reliance on order 20 rule 2 sub-rule (1) paragraph (b) and (c).  It has assumed a heavy burden.  The principles are well established.  In Dey v Victorian Railways Commissioners (1949) 78 CLR 62, Sir Owen Dixon said at pages 91 and 92:

"The principles upon which that jurisdiction is exercisable are well settled.  A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury.  The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious.  But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process.

...

It is in my opinion of more importance to maintain the integrity of the principle that under cover of the inherent jurisdiction to stop abuse of process litigants are not to be deprived of the right to submit real and genuine controversies for the determination of the courts by the due procedure appropriate for the purpose... "

See also Tresize v National Australia Bank Ltd (1994) 50 FCR 134 at 145. In deciding the fate of the respondents' motion, I apply these principles rather than the principle stated in the recent English decision of Lonrho PLC v Fayed (No 2) (1992) 1 WLR 1 at page 5, containing what I consider to be a significantly different emphasis; it was said there:

" ... But the test is a high one.  A plaintiff is entitled to pursue a claim in these courts however implausible and however improbable his chances of success.  Unless the defendant can demonstrate shortly and conclusively that the plaintiff's claim is bound to fail or is otherwise objectionable as an abuse of the process of the court, it must be allowed to proceed to trial.

That, as I have said, seems to me to have a significantly different emphasis from the Australian cases which take the correct approach for reasons of the kind I gave in Caterpillar Inc v Sun Forward Pty Ltd (1996) 36 IPR 410 at 413 to 414.

By its statement of claim the applicant sets up two causes of action based on the same facts. It is alleged that at meetings between Thomson and Weller of the first respondent, and Roberts and Dudurovic of the applicant, on 25, 29 October, and 4 November 1996, oral representations were made on behalf of the first respondent to the effect that, if the applicant entered into a written agreement to purchase its stocks of roofing material from the respondent, and if it ceased its then existing business of manufacturing roofing building materials, and if it also refrained from selling the plant and equipment utilised by it in those manufacturing activities to anyone but the first respondent or an overseas buyer, then the first respondent would, by 1 January 1997, in effect take over six leases of premises from which the applicant was conducting its manufacturing business and would also purchase the plant and equipment owned by the applicant and located at those six premises and at an additional three premises for its market value or, at the option of the first respondent, procure a sale of that plant and equipment to an overseas purchaser. It is further alleged that the applicant acted in reliance on those representations and entered into the written supply agreement on 5 November 1996 and that it took a whole series of actions, including dismissing staff, all in reliance on the representations. It is next alleged that the representations constituted conduct infringing section 52 the Trade Practices Act 1974 (Cth) in that:

"The First Respondent has refused to enter into occupation of the premises ... "

ie, the six premises I have referred to, and also in that:

"The First Respondent has refused to indemnify the Applicant with respect to the Applicant's obligations to pay rent to the landlords of the said premises from 1 January, 1997 ... "

and also that:

"The First Respondent has refused to purchase the plant and equipment [at the nine locations that I have already referred to]  ... and has not procured the sale of the said plant and equipment to an overseas purchaser."

The statement of claim does not plead a good cause of action under the Trade Practices Act insofar as it does no more than allege representations by the respondents that the first respondent would take certain action in the future and that the first respondent ultimately did not take that action. This is an obvious deficiency; see Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242. The applicant has not formulated any amendment to its pleading to assert that it does have a case that the first respondent engaged in conduct infringing section 52, although it has had the respondents' notice of motion for a month. It has not asserted that it is prepared to prove that, at the time it made the representations alleged, the first respondent had no intention of doing what it is alleged it represented it would do by 1 January 1997. Instead, the applicant pointed out that the respondents' application did not invoke order 20 rule 2 sub-rule (1) paragraph (a). The respondents are not, however, concerned with pleading points, although they rely on the obvious deficiency in the statement of claim and the applicant's failure to remedy it as evidence of the insubstantial nature of the applicant's case.

In the alternative to the Trade Practices Act claim, the applicant relies on an oral agreement that incorporates the subject matter of the oral representations I have referred to, on the entry, pursuant to that oral agreement by the applicant, into the written supply agreement of 5 November referred to, and on the breach by the respondents of the oral agreement, by the same conduct said with respect to the Trade Practices Act claim to show the falsity of the oral representations. The only relief claimed is damages of $917,548 under the Trade Practices Act or for breach of contract and interest.

The litigation has arisen against the background of the applicant's refusal to pay the respondents on the due date, 14 June last, for roofing materials supplied in the preceding month (and, it also appears, in an earlier trading period) to the applicant under the written supply agreement of 5 November 1996.  The applicant justifies this refusal by relying on the present action.  It does not dispute its liability to pay the respondents' bill on any other basis.  The amount of the June bill was $431,130.94.  The applicant's indebtedness to the respondents appears to have risen by 16 July 1997 to a total of $859,527.15 because further materials were apparently supplied after the June trading period.  Mr Roberts of the applicant says that it was difficult for the applicant to keep up the payments due to the first respondent for materials supply.  He blames the first respondent for this because of its conduct the subject of the applicant's complaints in the action.  It may, however, be doubted that the applicant's financial difficulties can be laid at the first respondent's feet, as Mr Roberts suggests.  It appears that the applicant was having difficulty in the latter part of 1996 paying moneys due to another of its suppliers, a BHP company.  The arrangements it ultimately made with the first respondent on 5 November 1996 dealt with satisfaction of BHP's debt. 

The applicant points out, in refutation of any suggestion that the action is brought only for purposes of delay, that its indebtedness to the first respondent is guaranteed by the applicant's parent company, Farnell and Thomas Limited, a public company.  As at 31 December 1996, the date of the last available financial statements, Farnell and Thomas had current assets of $9.6 million and total assets of $18 million, current liabilities of $8.9 million, total liabilities of $10.3 million, and an operating profit before abnormal items and tax for the six months to 31 December 1996 of $609,000, and $573,000 after abnormal items and tax.  The statements also indicate that it had retained profits as at 31 December 1996 of $1.617 million, and unspecified reserves of $4.434 million.  It is clear from the evidence before me that it would be very difficult, if not impossible, for the applicant to satisfy its indebtedness to the first respondent without assistance from Farnell and Thomas.  Mr Roberts says the latter company "has the capacity to meet any demand made upon it" by the first respondent for moneys owing by Farnell and Thomas or by the applicant for stock supplied by the first respondent.  Even so, payment of a debt, albeit an ordinary trading debt, of $860,000 would be an obvious burden for the parent company, which it would appear not to be able to meet out of cash flow. 

The respondents first learned of the possibility that the applicant might not pay its June account and other outstandings on time by 6 June 1997.  There was inquiry by the respondents of the applicant about that.  On 13 June, the applicant filed the originating application in the action and faxed copies of it and the statement of claim to the respondents the same day.  On 19 June last, the applicant's solicitors wrote to the first respondent contending that it was entitled to set off its damages claim of $917,548 against its indebtedness to the first respondent.  The first respondent's reply was to demand immediate payment of an even larger sum than that I have referred to, namely $930,862.03.  On 27 June last, the respondents entered an appearance in this action, and filed their motion to strike out the proceedings.  On the same day, the first respondent also sued both the applicant and Farnell and Thomas in the Supreme Court for the $431,130.94 I have referred to.  On 18 July, the first respondent filed and served an application for summary judgment in the Supreme Court proceedings, and on 29 July it filed and served its affidavits in support of that application. That is due to be heard next week. 

The first respondent is a member of the BTR group of companies.  It manufactures metal building products including roofing.  Until late last year, the applicant was both a manufacturer of similar products and a contractor for the supply and installation of those products.  In the latter part of 1996, the applicant was considering withdrawing from the highly competitive manufacturing area and concentrating solely on its more lucrative contracting business.  This involved obtaining a reliable supplier of building materials.  Accordingly, the applicant by letter of 1 October 1996 approached the first respondent with a proposal to enter into a long-term agreement for the supply by the first respondent of all the applicant's material requirements.  It was said that the applicant's requirements were of the order of 1 to 1½ million dollars per month, and the applicant also indicated that it expected to be given extended terms of trading, namely 60 day terms.  The first respondent, in reply, expressed interest, but in its reply recorded that it would not provide extended credit of the kind sought by the applicant. 

There was a meeting of the parties on 14 October 1996.  Mr Thomson, the second respondent, does not deal with what then took place.  Mr Roberts of the applicant in an affidavit filed by leave, over the respondents’ objections at the start of the hearing on Wednesday morning last, gives the only detailed evidence of the applicant's dealings with the respondents on which it has based its action.  The respondents elected to proceed with their strike-out application, even though it was deprived by the reception by the Court of Mr Roberts' affidavit of any opportunity to answer it. 

Mr Roberts says that at the meeting of 14 October he advised Mr Thomson that for any contracting arrangements between the applicant and the first respondent to be viable for the applicant, the latter would need to come to some arrangement for its manufacturing plant and equipment to be sold and for a substantial number of its lease commitments to be taken over.  Mr Roberts says he recalls using the unusual expression "camel" to describe the applicant to Mr Thomson, if that did not occur; he goes on to say he explained to Mr Thomson that by the term "camel" he meant that the applicant would have the costs of a manufacturer for equipment holdings and lease costs, but only the profit margins of a fixing contractor.  He claims Mr Thomson clearly acknowledged that to be a "camel" in this sense within the steel roofing industry would not be viable.  Mr Roberts, however, does not suggest that the first respondent's representatives at that 14 October meeting expressed any interest in acquiring the applicant's manufacturing plant or equipment, or taking over its leases.  But, in his letter of 17 October, Mr Thomson wrote:

"Without completely understanding our growth plans in the short to medium term, I think we should have a discussion about the future of the Roofing Centre [ie, the applicant's] equipment to see if we can put together an innovative win-win solution to this Roofing Centre asset."

It is obvious that there was some discussion on 14 October, no doubt about the applicant's concerns to divest itself of unwanted plant and leasehold premises if it should withdraw from manufacturing as was its intention. 

In its original letter of 1 October, the applicant identified a major benefit for it of its proposal as being to reduce its working capital.  The applicant's material also shows that it was concerned at the extent of competition due to over-capacity at the manufacturing level, but had identified opportunities in the poorly serviced roof fixing market.  Information as to the applicant's likely requirements of material, if it were to purchase that from the first respondent, was sent to the respondents in the form of production data for the applicant's plants, save for those at Lismore, Darwin and Toowoomba, after the parties had executed a confidentiality agreement covering the negotiations. 

On 22 October 1996, the second respondent wrote to the applicant, referring to the supply agreement, and saying that the first respondent had looked at the requirements and would propose a supply agreement with the following characteristics which it then proceeded to set out under a number of headings, the first of which was "Pricing".  Under the heading "Credit Facility", the second respondent said:

"Stramit's credit terms are strictly 30 days, however we will extend a settlement discount of 2% for all invoices paid within 15 days of the month of invoice. 

To secure the credit facility, we require Farnell and Thomas to indemnify the debt of [the applicant]."

That guarantee was forthcoming, and it is on the guarantee that the first respondent has sued Farnell and Thomas in the pending Supreme Court action.  Mr Thomson, in this letter of 22 October, continued under the heading "Locations":

"We are presently looking at lifting our presence in Lismore, Toowoomba, the Gold Coast and Rockhampton, and when you understand your future requirements in these centres, we could explore the option of taking over The Roofing Centre leases in those areas."

Under the heading "Equipment", Mr Thomson wrote:

"Our growth plans may require additional equipment and as part of your proposed exit from manufacture we are willing to look at solutions to your manufacturing equipment disposal and we can explore this in the not too distant future."

The second respondent here did nothing more than raise the possibility that when the first respondent finalised its own further planning it might be interested in exploring whether it would acquire the applicant's manufacturing plant leases and the equipment which the applicant would not need when it withdrew from manufacturing. 

Mr Roberts says on 22 October Mr Ron Webb, the then chief executive officer of the applicant, received a letter from Mr Thomson which he discussed with Mr Roberts.  Mr Roberts says Mr Webb advised him that:

" ... on the basis that [the applicant] was able to sell its manufacturing equipment and substantially reduce existing leasing obligations, [the applicant] would still not be able to operate in a profitable way based on the terms for the pricing of products as outlined in [the second respondent's] letter of 22 October, 1996." 

That, Mr Roberts said, led to a meeting on 24 October 1996 between Mr Webb, Mr Roberts and Mr Thomson to discuss Mr Thomson's earlier letter of 22 October.  Mr Roberts says that only pricing issues were discussed at 24 October meeting.  He does not suggest there was any reference to the first respondent taking over the applicant's leases and plant.  Mr Thomson does not mention this meeting although he acknowledges receipt of the applicant's letter of 24 October 1996.  He describes it as the applicant's reply to the second respondent's letter of 22 October 1996, as it is clear it, in terms, is.  In his letter of 24 October 1996, Mr Roberts wrote, under the heading "Supply Agreement":

"Reference is made to your letter of 22 October, 1996 regarding the terms of a proposed Supply Agreement with The Roofing Centre."

Under the heading "Locations", Mr Roberts wrote:

"The issue of location is a matter which we look forward to taking up as part of discussions over time as to the possibility of a longer-term strategic partnership between our two groups."

Under the heading "Equipment", Mr Roberts wrote:

"We agree that this matter should be addressed as part of the longer-term strategic partnership proposal between our two groups."

Mr Roberts also made a specific proposal in this letter to the first respondent to take over one particular machine at a price of $33,000.  But when one has regard to what Mr Roberts has to say in his letter of 22 October under the headings "Locations" and "Equipment", it simply does not bear out the importance fir the applicant that Mr Roberts says was conveyed to, and acknowledged by, Mr Thomson at the 14 October of its being able to dispose of its unwanted plant and to divest itself of most of its leases.  Mr Roberts, in this letter, does nothing more than flag that the applicant and the first respondent might in the future make some arrangement with respect to the applicant or might consider making some arrangement with respect to the applicant's leases and equipment if the possibility of the long term strategic partnership between the two groups comes to fruition.  This letter is, as I have said, inconsistent with the emphasis that Mr Roberts said he placed at the meeting of 14 October on the necessity for any supply agreement with the first respondent to include an arrangement for the takeover of the applicant's leases and the sale of its equipment, something which he claims was acknowledged by Mr Thomson.

It is also inconsistent with the importance to the applicant's viability that disposing of its lease and plant had and which Mr Roberts says Mr Webb spoke to him about on 24 October 1996.  Mr Webb also attended 14 October 1996 meeting.  He, in fact, set it up as a result of his initial letter of 1 October.  He is obviously in a position to confirm what Mr Roberts has to say about the emphasis the applicant placed on agreement with respect to the disposal of the applicant's plant and leases being integral to any new materials sourcing agreement with the respondent.  There is no evidence from Mr Webb and the applicant offers no explanation as to the unavailability of Mr Webb to provide the confirmatory evidence that must be within his power to give, if such evidence can properly be given. 

On 25 October the first of the three meetings at which the applicant alleges the things were said that found its two causes of action took place.  Mr Thomson again does not detail the discussions, saying only that following the meeting he sent to the applicant his letter of 25 October.  All he says is this:

"On 25 October 1996 I wrote to the Applicant setting out the further bases upon which the Respondent was prepared to enter an agreement with the Applicant having regard to the letter of 24 October 1996 ... and the discussion on 25 October."

The letter is headed "Supply Agreement" and it begins:

"Further to our recent meeting and your proposal of 24 October 1996, we submit hereunder the revised Supply Agreement."

The letter then follows the form of Mr Thomson's letter of 22 October.  In fact, large parts of the text of the second letter are simply copied from the first letter.  The statements in the letter of 25 October under the headings "Locations" and "Equipment" fall into this category of material copied from the earlier letter.  Mr Roberts says, however, that receipt by the applicant of Mr Thomson's letter preceded the meeting of 25 October 1996.

Mr Roberts says that at the meeting of 25 October he put the proposal to the second respondent that Stramit should take over the applicant's current manufacturing role and supply all its manufacturing requirements, leaving it to provide a dedicated, contracting capability.  He further told Mr Thomson and Mr Weller of the first respondent that the proposal to source all its material from the first respondent called for the applicant to exit, or at least substantially scale down, its manufacturing operations and staff numbers would therefore have to fall, largely by way of retrenchment; that the applicant would have to find means to exit the leases of premises which it currently held and which would be in excess of its requirements, if it moved to a contracting business only.  He says he also told the first respondent's representatives that the plant and equipment currently utilised by the applicant to manufacture products would have to be substantially reduced by way of sale.  He says he asked Mr Thomson to consider providing assistance to the applicant to exit the leases and to sell the plant and equipment.  He stated that on the basis that the applicant was offered assistance with regard to those two items, it would have the resources necessary to meet the retrenchment costs that would be part of exiting manufacturing.  He says:

"I again stated quite clearly to Mr Thomson that unless these two items were addressed the establishment of a manufactured supply arrangement alone with Stramit was not financially viable for TRC [ie, the applicant] for it would leave TRC as a "camel"."

He says that Mr Thomson responded by stating that the proposal had a number of significant attractions from Stramit's point of view, which he proceeded to list, according to what Mr Roberts says.  He says that Mr Thomson also stated that he could see that if the applicant were to sell its equipment in a way that would allow that equipment to remain in the Australian steel roofing industry, that would not be of benefit to Stramit, in that it would simply result in a continuance of the manufacturing over capacity problem in that industry.  Mr Roberts says that Mr Thomson also stated that he could therefore see the advantages to Stramit, if the applicant's equipment was sold off shore, and would therefore consider the issue of the role that Stramit would play in the disposal of the applicant's equipment.  Mr Roberts also says that he recalls at this meeting the issue of Stramit taking over specific premises occupied under the lease by the applicant was discussed.  Mr Roberts goes on to set out a lengthy and detailed discussion which he says took place between the applicant's representatives and the first respondent's representatives concerning the matter of the first respondent taking over certain of the applicant's leasehold premises.

A director of the applicant, Mr Dudurovic was present with Mr Roberts throughout the whole of this meeting.  He too is well able to swear an affidavit corroborating the discussions detailed by Mr Roberts, that go to the heart of the applicant's case.  Yet he has not done so.  I was told from the bar table that Mr Dudurovic is in Fiji where he has been for the last week.  But there is no explanation at all why he could not have sworn an affidavit supporting what Mr Roberts has to say about this and other important meetings which he attended with Mr Roberts.

On 29 October 1996, the second of the meetings of particular importance to the applicant's case took place.  Mr Thomson says that his letter of 30 October 1996 was the result of this.  Much of it, including the parts dealing with “Locations” and “Equipment”, is a copy of Mr Thomson's earlier letters of 22 and 25 October.  The differences relate to certain rebates and the price at which the first respondent would purchase from the applicant's supplier materials returned by the applicant to that supplier.  There is nothing in it that reflects what Mr Roberts claims he told Mr Thomson at the meeting of 29 October, and at the earlier one of 25 October, about the critical importance to the applicant of being able to divest itself of its equipment and leased premises.  And there is nothing in that letter from Mr Thomson which suggests that there was any such discussion at either of those meetings.

Mr Roberts says the meeting of 29 October was mostly concerned with aspects of the terms of trade between the applicant and the first respondent with respect to the supply of materials.  However, as I have indicated, he does say that there was quite extensive discussions in which Mr Roberts emphasised the importance to the applicant, in relation to the arrangement of which the supply agreement was to form only a part, of divesting itself of leases and of selling its unwanted equipment.  Mr Roberts also says that in the course of the discussions on 29 October in this context, Mr Thomson said he would need to discuss these matters with BHP.  He pointed out that BHP was a major material supplier to Stramit.  He had had initial discussions with BHP to determine if the first respondent could obtain better pricing on the purchase of materials that Stramit would need if it were to supply the applicant's requirements.  Mr Roberts also says that Mr Thomson told him that those discussions with BHP were continuing and that, as part of those continuing discussions with BHP, Mr Thomson was also discussing the issue of marketing support for the applicant, and was also discussing with BHP the issue of a sale of the applicant's plant and equipment.  Mr Dudurovic was again present at this meeting. 

The applicant alleges that there was a final meeting, which is also relied on by it in its pleading, on 4 November.  Much of importance to the applicant's case took place at this third meeting, according to what Mr Roberts says.  Mr Dudurovic again accompanied Mr Roberts, but as I have said there is silence from him.

Mr Roberts had access to Mr Thomson's affidavit filed 22 July 1997 before he swore his affidavit of 30 July 1997.  Mr Thomson there said that he had no recollection of any meeting on 4 November, and that he sent his letter of 5 November to the applicant as a result of correspondence of 5 November between the first respondent and BHP, relevant to the terms of trade the first respondent was prepared to offer to the applicant with respect to the supply to the applicant of the first respondent's material.  Mr Thomson's letter of 5 November does record a discussion he had that same day with BHP.  Mr Roberts says Mr Thomson at this meeting of 4 November referred to his further discussions with BHP.  Mr Roberts goes on to say Mr Thomson then addressed the issue of the applicant's manufacturing plant and equipment;  he told Mr Roberts that both Stramit and BHP were determined that such plant and equipment should not re-enter the Australian steel roof industry, if the applicant ceased to be engaged in manufacturing.  Mr Thomson also said, according to Mr Roberts, that as far as Stramit and BHP were concerned the equipment had to be sold off shore;  there was some discussion in which Mr Thomson outlined how the first respondent's associates in Singapore may well be able to assist with that.  Mr Roberts says that Mr Thomson went on to state that if the applicant's equipment could not be sold off shore for some reason, then Stramit would purchase the equipment on market terms, and Mr Thomson made a comment at this point that if Stramit was unable to use any of the applicant's equipment it bought for its own operations, it was prepared to dump the equipment in the ocean rather than have it re-enter the Australian market through its sale to potential competitors with Stramit.  Mr Roberts says Mr Thomson advised that BHP shared a similar view about the matter of equipment.  And Mr Roberts also says that he recalls stating that the applicant shared the view that it was preferable that the equipment be sold off shore, and welcomed any assistance which Stramit could give in achieving that.

Mr Roberts then goes on to detail a quite extensive discussion which he says took place, in the course of the meeting of 4 November, about the takeover by the first respondent of the applicant's leasehold premises.  He says Mr Thomson ultimately indicated that Stramit was prepared to take over the applicant's premises in Lismore, Toowoomba, the Gold Coast, Rockhampton, the Sunshine Coast, and premises at Acacia Ridge in Brisbane.

Mr Roberts exhibits what he describes as a copy of some notes taken by him at this meeting.  The one page note is not anything like a complete note of the topics that Mr Roberts says were discussed at the meeting.  If it is a note of the meeting, Mr Roberts does not explain why it is such a selective record of the host of important topics he says were then discussed, and why, in particular, it makes no reference to the important discussions about the takeover by the first respondent of the applicant's leases.  But the note does contain this comment:

“Equipment - mechanism of exit - out of Australia or into Stramit.”

It is to that extent consistent with what Mr Roberts has to say about the conversation he claims took place, in the course of which there was discussion about the applicant disposing of its equipment to the first respondent. 

But up to this stage of events there is nothing in the evidence to suggest the first respondent, for its part, had shown anything more than passing interest in the applicant's plant, apart from Mr Roberts’ belated affidavit that is unsupported by the confirmatory evidence that should readily be available to the respondents from Mr Webb and Mr Dudurovic and supported only by this brief note to which I have referred.

Mr Roberts says that at the end of the meeting of 4 November, Mr Thomson promised to send a letter.   He got a letter dated 5 November from Mr Thomson.  Although in large part it is a copy of Mr Thomson's earlier letters of 25 October 1996 and 22 October 1996, it does contain some significant new material.  While it repeats under the heading “Locations” the text of the earlier letters, it deletes the reference to “Equipment” that appeared in those earlier letters of Mr Thomson.  However, Mr Thomson in his letter of 5 November does say this about the applicant's equipment.  Under the heading “Marketing Support”, he refers to certain discussions that the first respondent has had with an arm of BHP;  he sets out what appears to be the outcome of those discussions insofar as it applies to the applicant.  There is reference to certain rebates and certain financial assistance to be paid to Farnell and Thomas by way of a marketing allowance, and this portion of the letter then continues "the above payments are subject to the following", and the third matter is:

“Stramit will be given right of veto on the sale of The Roofing Centre equipment.  Stramit will undertake inspection of all equipment, establish a fair value for the machinery and assist with equipment disposal.”

While this statement does not support what Mr Roberts says about Mr Thomson's detailed comments to the effect that the first respondent had an interest in acquiring itself the applicant's unnecessary plant, it does record the first respondent taking an entirely new direction with respect to what might be done with the applicant's unwanted equipment from the very tentative interest in exploring its possible acquisition, which is all that is recorded in the second respondent's earlier letters.  This passage in the letter of 5 November suggests that the first respondent was then insisting on a degree of control over what happened to the applicant's unwanted equipment, something it had never shown any interest in before, so far as the evidence, other than that coming from Mr Roberts, shows.

Mr Thomson does not offer any illumination on his reasons for including this passage in his letter of 5 November, other than to say that he wrote this letter as a consequence of receiving information from BHP.  The passage in question is taken verbatim from the BHP letter to the first respondent of 5 November to which Mr Thomson refers.  The veto is expressed in the second respondent's letter to BHP and in the second respondent's subsequent letter of 5 November to the applicant, to be a condition on which the first respondent would supply material on discounted terms to the applicant, which the first respondent appears to have intended to source from BHP.  The first respondent was no doubt prepared to offer the discounted terms to the applicant only if BHP in turn gave the first respondent favourable terms of trade. 

Mr Thomson adverts to the topic of the applicant's equipment when he deals in his affidavit with his letter of 5 November.  But all he says is this.

"This [ie, the letter] contained a proposed term under the heading of “locations” in similar terms to [three earlier letters].  This letter inadvertently omitted any reference to the equipment.  The position remained unchanged and Stramit had not agreed to purchase any equipment or to procure its sale overseas.  Stramit was of course prepared to assist in finding a buyer for it.  ABI's letter of 5 November ... confirms this.”

However, Mr Thomson ignores entirely what he had to say in his letter about requiring that the first respondent have a right of veto with respect to any disposal by the applicant of its equipment.  It appears that, by 5 November, the question of what should become of the applicant's unwanted equipment had become a matter of concern to the first respondent.  This is confirmed by the first respondent's actions after receiving from the applicant on 8 November details of the applicant's equipment under cover of the applicant's letter in which the applicant said, among other things, in connection with the schedules including information concerning plant held at a number of the applicant's centres:

“I understand that Stramit will commence an assessment of the plant and equipment in these centres next week.”

Moreover in his internal memo of 15 November, Mr Thomson himself wrote:

“As discussed, as part of the Stramit supply agreement with TRC, we have the opportunity to purchase or assist in the disposal of, the manufacturing equipment. 

Please find attached schedules supplied by TRC detailing equipment located in each of the Queensland businesses ...

At a meeting last night I agreed on behalf of Stramit that we would undertake inspections to form our own opinion and inspections would commence on Monday next.  I would be grateful if you could co-ordinate the inspections with the following objectives:

·   ...

·   Comment on the value given by TRC on the understanding that if we did purchase the gear we would pay a "fair price”."

In its reply of 5 November to the second respondent's letter of 5 November, the applicant accepted the first respondent's "supply terms and the indemnity arrangements" set out in the letter of 5 November, but it refused to accept the veto proposal and certain delivery costs with respect to the return to the respondent of material stocked by the applicant.  Mr Roberts said in this letter:

“Farnell & Thomas Limited, as a publicly listed company cannot agree to The Roofing Centre Pty Ltd accepting that Stramit have a right of veto on the sale of The Roofing Centre equipment.  I can confirm that The Roofing Centre is committed to selling its equipment under sensible commercial arrangements.  The Roofing Centre would very much prefer to sell the equipment domestically or offshore in one lot. 

We would welcome an offer from Stramit for the equipment or any assistance in locating offshore buyers ...”

It is the two letters of 5 November that the applicant alleges constitutes the written agreement referred to in the pleadings. 

It is apparent from Mr Roberts' letter of 5 November and the other evidence that the applicant was keen to finalise the supply agreement with the first respondent.  But as is clear from Mr Roberts' letter of 5 November, it would not accept the first respondent's veto requirement.  Mr Roberts claims his letter recorded Mr Thomson's acceptance of the applicant's opposition to the veto, which he says he conveyed to Mr Thomson in a telephone call he made immediately after he received Mr Thomson's letter of 5 November.  It is clear that the applicant was eager to turn its unwanted equipment into cash and this no doubt explains its refusal to agree to the mere sterilisation in its own hands of that equipment by the veto proposed by Mr Thomson.

Mr Thomson does not explain the genesis of his veto demand, other than to inferentially indicate that it arose out of the first respondent's discussions with BHP.  Nor does he say anything about the respondents’ reaction to the applicant's rejection of it.  But by 5 November, the first respondent was closely interested in what was to become the applicant's unwanted manufacturing equipment.  This does tend to support the applicant's case at least insofar as the more the first respondent appears to be concerned about that, the more probable is it that the first respondent may, by 5 November, have made a representation that if the applicant refrain from selling its plant to a competitor of the first respondent, it would in return embark on the action the applicant alleges it promised to undertake in relation to the acquisition of the applicant's plant.

But the applicant's case is not that it entered into the supply agreement of 5 November 1996 in reliance only on a representation or promise by the first respondent to buy or procure a buyer for its unwanted equipment.  A second essential element of the arrangement which the applicant contends was made was the first respondent's representation or promise that it would also take over the applicant's leases at a number of locations.  Mr Roberts, in his affidavit, says that this was a matter of equal importance to the disposal of the applicant's equipment for the applicant to achieve.  He also says it was a matter on which there was very extensive discussion between Mr Thomson in the negotiations that preceded the 5 November supply agreement.  Yet there is nothing, apart from Mr Roberts testimony, to support this element of the applicant's case.  The letters written by Mr Thomson are significant in this regard, in that while there is some support for what Mr Roberts says was discussed about the applicant’s plant, at least in Mr Thomson’s last letter, the way Mr Thomson deals with the applicant’s unwanted leases in all his letters is inconsistent with the case the applicant seeks to make out in reliance on Mr Roberts’ evidence.

The documentation passing between the parties contains nothing to support the applicant's assertion that there was a commitment made by the first respondent to take over the leases.  I have already mentioned that in the one page note of discussions that Mr Roberts says he had at one meeting, there is no mention of the takeover of the leases, although there is mention of the first respondent relieving the applicant of its equipment:  this too suggests that while there may then have been discussion about the takeover of the applicant’s plant, there was no discussion about the equally important matter of the takeover of the applicant’s leases. 

It is also important to note that on its own case it is essential to the applicant's section 52 claim that the applicant could only expect the first respondent to take over the applicant's leases, and buy or find an overseas buyer for the applicant’s equipment, if the applicant refrained from selling any of its manufacturing plant and equipment to anyone other than the first respondent, or an overseas buyer. Similarly, the first respondent was only obliged to perform its obligations under the oral agreement relied on by the applicant if the applicant showed the same restraint. As appears from the evidence, there is over capacity in the roofing material manufacturing market. This is one reason why the applicant wanted to get out of that market and concentrate its efforts in the more attractive roofing materials fixing market. It also explains the first respondent's interest in denying the applicant’s plant to any of its own competitors in the manufacturing market in Australia.

On the case pleaded by the applicant, the first respondent was bound to take over the applicant's leases, and to itself buy or to procure an overseas buyer for the applicant's plant at the nine locations mentioned in paragraphs 6(d) and (f) of the statement of claim, only if the applicant ceased its then existing business activity of the manufacture of roofing building materials, and refrained from selling the plant and equipment utilised by the applicant in those manufacturing activities to anyone other than the first respondent or an overseas buyer.  The contract pleaded is a contract that if the applicant does X, then the first respondent will do Y.  If the applicant fails to do X then it follows, in my opinion, that the first respondent is not bound to do Y.  It is, on the applicant's contract case, a condition precedent, in other words, to the first respondent coming under any obligation to take over the leases and to buy the applicant's equipment by 1 January 1997, that the applicant refrain from selling that plant and equipment utilised by it in its manufacturing activities otherwise than as pleaded. 

This condition precedent which the applicant undertook to fulfil is, according to the way the applicant formulates it, unqualified, in that it refers to the entirety of the applicant's manufacturing operations and the entirety of the plant used anywhere by the applicants.  The case the applicant seeks to make out cannot be read as limiting the promise to stop manufacturing to some only of the applicant's operations, or to limit the equipment the subject of this condition precedent to the applicant's plant in the nine locations referred to in paragraphs 6(d) and (f) of the statement of claim.

An important part of the consideration the first respondent bargained for, so far as the case set up by the applicant in contract goes, was the neutralisation of the applicant's plant, that is keeping it out of the hands of the competitor to the first respondent in the roofing manufacturing market in Australia.  But Mr Roberts himself says that the applicant did not regard itself as bound to refrain from disposing of all its equipment to anyone other than the first respondent or an overseas buyer, that is it did not regard itself as inhibited from selling its plant to a competitor of the first respondent.  By 18 November it had, according to Mr Roberts, sold its plant and equipment in Darwin to "a major competitor of Stramit in that city”.  He says when Mr Thomson protested at this, he explained to Mr Thomson that the sale had come about because the applicant had had a joint venture arrangement with the Halikos group in Darwin, and that the sale to Halikos had occurred under the joint venture arrangements.  Mr Roberts said that the second respondent objected to this sale, even though he says that he mentioned very early in the negotiations that the applicant was not seeking materials for its Darwin contracting business because it intended to source them from its manufacturing operation there under a joint venture.  Mr Roberts also says that it was necessary "for Farnell to sell the TRC plant and equipment as a matter of urgency to make the new arrangements with Stramit financially viable".  

The applicant was no doubt under a pressing need to raise cash.  But in my opinion its sale of equipment, or its interest in equipment, to the first respondent's major Darwin competitor as early as 18 November is strong evidence that the applicant did not act in reliance on anything that the first respondent may have said about what it would do for the applicant if the applicant refrained from selling its equipment otherwise and to someone who was not competitive with the first respondent.  Moreover, insofar as the applicant relies on the oral agreement by the first respondent to take over its leases and equipment by 1 January 1997, its own case is that that was conditional on the applicant refraining from any sale of the kind it make in Darwin.  And as I have said, Mr Roberts own evidence is that the second respondent immediately objected when he found out about that Darwin sale.  Mr Roberts also goes on to describe Mr Thomson's response to the Darwin sale as including the statement that the first respondent "was under no commitment to offer to purchase" the applicant's equipment.  Mr Robert's evidence at paragraphs 47 to 50 of his affidavit of 30 July 1997 shows that, even if the applicant were able to make out a contract of the kind relied on, the applicant plainly failed to comply with the condition precedent in that contract to the first respondent becoming obliged to perform its obligations under the contract before 1 January 1997, ie, before the time that the first respondent was obliged to perform its obligations.  Mr Roberts' evidence also shows that the applicant thus so acted as to entitle the first respondent to treat any such contract as at an end, something it did on Mr Roberts' evidence by 18 November. 

The respondents have not attempted to put before the court their version of many of their dealings with the applicant, in particular their version of the meetings of 25 and 29 October, which they accepts took place.  That is only in part answered by the fact that the applicant only put a version of relevant dealings between the parties before the court in Mr Roberts’ very belated affidavit.  That the respondents have not chosen to put the whole of their version of relevant events in evidence adds to the already heavy burden it has assumed in seeking to terminate the applicant's action now.

But counsel for the applicant could not point to anything in the fairly voluminous contemporaneous documentation that confirmed Mr Roberts' version of critical discussions.  There is Mr Roberts' note, which he says is a note taken by him at the 4 November meeting.  It provides support for what he says about the applicant and first respondent then discussing the disposal of the applicant's unwanted equipment.  But at the same time it gives the lie to what Mr Roberts says about there also being a detailed discussion at that same meeting about the other matter of critical importance to the applicant, namely the takeover by the first respondent of its leases.  It is no part of the applicant's case that the arrangement with the first respondent was either that it would take both the applicant's equipment and its leases, or that it would take one but not the other.  The applicant's case is that it was essential to the applicant’s financial viability that the first respondent take both, and that that was the only arrangement made.  So far as support for the applicant's case is concerned, there is also the second respondent's letter of 5 November with its reference to the veto to which I have referred; but it has the same double-edged effect, insofar as it supports one element and contradicts the other element of the applicant's case.

Importantly, there is no hint in the applicant's correspondence of the case it now relies on.  Nor is there any hint of protest by the applicant that it was misled by the respondents, until delivery of the statement of claim.  Mr Roberts says that the applicant's letter of 1 April 1997 to the first respondent raises for the first respondent's consideration a new arrangement which he hoped the first respondent would accept.  It was sent by the applicant in circumstances in which he says the applicant was having serious difficulty because of the first respondent's failure to honour its previous commitments.  This letter of 1 April to the first respondent not only is devoid of any complaint of the applicant having been misled by the respondents or in any way ill-treated by the respondents; and far from raising a new proposal, it raises yet again the applicant's old hope of the first respondent agreeing to enter into "a longer-term strategic alliance".  It does that in the context of a letter that is eloquent of the applicant's desperate need for financial assistance.

The nature of the applicant's case moreover is such as to cry out for production of any evidence available to the applicant that might confirm what Mr Roberts says was the dealings he had with the first respondent's representatives in making its answer to the respondents’ motion to strike out the action.  Yet Mr Dudurovic, who certainly is available to provide such evidence, if prepared to do so, has not sworn an affidavit.  Mr Webb would appear to be in the same category as Mr Dudurovic.

Further, there is no explanation for the eleventh hour emergence of Mr Roberts' affidavit.  There is no apparent reason why the respondents could not have been given a little notice of it in time to consider their response.  The applicant has had Mr Thomson's main affidavit to which I have referred in the course of these reasons for a month.  It can be inferred that the late emergence of Mr Roberts' affidavit was a deliberate ploy on the applicant's part to deprive the respondents of the opportunity to respond to what he has to say, in the absence of any explanation for why it was only produced on the morning of the hearing.  That inference is strengthened by the fact that there are grounds for thinking that the applicant's action is brought for the purpose of delay, ie, for the purpose of keeping the first respondent out of moneys to which it has, save for the damages claim, raised in this action, an unchallenged entitlement and in circumstances, moreover, in which the applicant does not have the capacity to pay the amounts owing to the first respondent.

Finally, there is Mr Roberts' evidence about the sale of the applicant's equipment in Darwin and the second respondent's reaction to it which shows that, even if Mr Roberts were to be believed at trial, the applicant's own conduct prior to 18 November was such as to release the first respondent from any liability Mr Roberts' evidence might impose on the first respondent from about that date.  I am therefore of the opinion that the respondents are entitled to the relief they seek.

I certify that this and the preceding 15 pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Associate:       Larina Alick

Dated:            1 August 1997

Counsel for the applicant:      PD McMurdo QC & T Quinn

Solicitor for the applicant:     Lynch & Company

Counsel for the respondent:    RG Bain QC

Solicitor for the respondent:   Clayton Utz

Dates of hearing:  30 & 31 July 1997.