BBI Bergbau­Handelsgesselshaft mbh v Mintech Chemical Industries Pty Ltd

[2010] WADC 28

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION:   PERTH

CITATION:   BBI BERGBAU­HANDELSGESSELSHAFT mbh -v- MINTECH CHEMICAL INDUSTRIES PTY LTD [2010] WADC 28

CORAM:   REGISTRAR KINGSLEY

HEARD:   8 OCTOBER & 8 DECEMBER 2009

DELIVERED          :   11 MARCH 2010

FILE NO/S:   CIV 1620 of 2009

BETWEEN:   BBI BERGBAU­HANDELSGESSELSHAFT mbh

Plaintiff

AND

MINTECH CHEMICAL INDUSTRIES PTY LTD
Defendant

Catchwords:

Practice - Summary judgment application - Plea of equitable set-off and misleading and deceptive conduct as defences

Legislation:

Nil

Result:

Application allowed in part

Representation:

Counsel:

Plaintiff:     Mr M N Solomon

Defendant:     Mr P C Doherty

Solicitors:

Plaintiff:     Sparke Helmore

Defendant:     Minter Ellison

Case(s) referred to in judgment(s):

Bim Kemi v Blackburn Chemicals Ltd [2001] EWCA Civ 457

Casella v Costin Pty Ltd, unreported; FCt SCt of WA; Library No 5416; 20 June 1984

Hazart Pty Ltd v Rademaker (1993) 11 WAR 26

Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564

Morgan v Pallister [2004] WASC 188

Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177

1. REGISTRAR KINGSLEY:  By an application dated 12 August 2009 the plaintiff seeks leave to apply for summary judgment, and that judgment be entered for the plaintiff against the defendant in accordance with prayers 1 and 3 of the plaintiff's amended statement of claim dated 7 July 2009.

The evidence referred to

1. The following affidavits are referred to in these reasons.

   •Denis Mikhaylov sworn 15 July 2009 (Mikhaylov affidavit);

   •Michael Clarke Cameron sworn 4 September 2009 (Cameron affidavit 4 September);

   •Cameron affidavit sworn 7 October 2009; (Cameron affidavit 7 October)

   •Cameron affidavit sworn 26 October 2009; (Cameron affidavit 26 October).

Order 14 Rules of the Supreme Court

1. The law surrounding applications pursuant to O 14 Rules of the Supreme Court (RSC) are well known to the parties. The principal objective of O 14 applications is to dispose of matters where there is no defence to a claim. Morgan v Pallister [2004] WASC 188 provides a convenient summary where Pullin J at [4] stated:

   "The plaintiff carries the burden of persuading the court that the claim is a good one, that there is no defence to it, that leave to defend should not be granted, and that judgment should be given for the plaintiff.  The party showing cause against the application assumes an evidentiary burden but the overall legal burden of persuasion remains on the applicant.  The power to order summary judgment should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.  It is clear however, that the procedure is not confined to cases which are immediately plain and obvious and the fact that a transaction is intricate does not disentitle the plaintiff to relief in a clear case.  It was never intended that when the facts are in dispute, an action should be disposed of summarily.  If a defendant's affidavit reveals inconsistencies which might in a trial persuade a court not to believe the defendant's evidence, this will not necessarily lead to judgment for the plaintiff. …"

Preliminary issues

1. Two preliminary issues were raised – the question of leave to bring the O 14 RSC application and the corporate status of the plaintiff.

2. As for leave, the application pursuant to O 14 RSC was delayed to enable the defendant's application for security for costs to be resolved. There has been no prejudice to the defendant and I give leave to bring the application.

3. As to the corporate status of the plaintiff that has now been satisfactorily resolved and no longer remains an issue.

Basis of the action

1. The plaintiff pleads it is a company incorporated pursuant to the laws of the Republic of Austria.  It carries on business as an international supplier of base metals, chemicals and other raw materials.  The defendant pleads it carries on business as a manufacturer of speciality chemicals and supplier/trader of chemical commodities.  It is common ground that the parties were trading in copper sulphate pentahydrate (the product).

2. The plaintiff pleads that in or about 11 November 2008 the parties entered into the first November contract whereby the plaintiff agreed to supply and the defendant agreed to purchase 125 metric tonnes (mt) of the product.  The plaintiff pleads the express terms of the first November contract were that the product would be shipped to the defendant to Fremantle and that the defendant would pay the purchase price in full within three days of receipt of copies of the documents defined in the first November contract.

3. The plaintiff goes on to plead that pursuant to the first November contract the plaintiff allocated 60 mt of product to the defendant from a shipment already en route to Australia, and issued an invoice to the defendant for the sum of US$85,800.  The balance of 65 mt was shipped to the defendant on 1 December 2008 (second shipment).  The plaintiff issued an invoice to the defendant for the sum of US$92,950 in respect of the second shipment.  The plaintiff alleges that the defendant has only partially paid the plaintiff in relation to the first and second shipments and that the sum of US$71,644.46 is due.

4. The plaintiff also makes a claim of misleading and deceptive conduct.  That plaintiff pleads the defendant made representations that notwithstanding the defendant's failure to make a timely payment in respect of the first shipment, if the plaintiff released to the defendant the documents with respect to the second shipment to allow the defendant to take possession of the product the defendant would pay for the second shipment on receipt of the second shipment documents.  In reliance upon that representation the plaintiff provided the second shipment documents to the defendant on or about 11 January 2009.  The plaintiff pleads that the defendant's representations were misleading or deceptive in that the defendant failed to make full payment for the second shipment on receipt of the second shipment documents.

5. The plaintiff pleads that on or about 11 November 2008 the parties entered into a further agreement (the second November contract) pursuant to which the plaintiff agreed to supply and the defendant agreed to purchase 125 mt of the product.  The express terms were that the product would be shipped to the defendant in January 2009 and that the defendant would pay the purchase price of US$178,750 within three days of receipt of the documents as defined in the second November contract.

6. On or about 22 December 2008 the plaintiff pleads the defendant unilaterally purported to terminate the second November contract and as a consequence of the defendant's unlawful termination, the plaintiff has suffered loss of US$73,162.50, being the difference in the contractual price under the second November contract and the sale price achieved by the plaintiff on sale of the product to a third party.

7. Mikhaylov's affidavit verifies the facts of the first statement of claim.

8. In opposition Cameron's affidavit (4 September 2009) deposes that the defendant first purchased the product from the plaintiff in or around September 2007.  On the first two occasions on which the defendant purchased the product, the product was shipped by a very indirect route and meant the product did not arrive in Fremantle for about 10 or 11 weeks after shipment.  This was unacceptable to the defendant and Cameron advised the plaintiff, through Vladimir Bogdanov for the plaintiff, that the time period was not acceptable.  Cameron deposes that subsequent to that discussion with Bogdanov the usual shipping periods was about six weeks from time of order until arrival.

9. On 17 September 2008 the defendant placed an order for 125 mt of the product in 1,250 kilogram bags.  The shipping time was stated as "ship immediately".  Cameron goes on to say that in or around 11 October 2008 Bogdanov advised that the product due under the September contract could not be supplied in bulk bag packaging as there had been a break down of equipment in Russia.  The product was being shipped in 25 kilogram bags.

10. Cameron was concerned as he considered the product should have been at sea by 11 October 2008 to ensure delivery to the defendant's customer during the month of November (Cameron affidavit 4 September 2009, par 18).  Cameron goes on (par 21) to say that he had conversations with Bogdanov to the effect the defendant would only consider accepting the diverted shipment if the product would definitely arrive in Fremantle on 8 November 2009, and, as the defendant's contract with its customers specified 1,250 kilogram bags, the plaintiff would reimburse the defendant for all costs.  Cameron deposes Bogdanov confirmed the defendant would not be out of pocket (Cameron affidavit 4 September 2009, p 21).

11. On 13 October 2008 Bogdanov rang Cameron and advised the September contract could only be filled by diverting a ship bound for another customer.  The arrival time was around 8 November 2008 (Cameron affidavit 4 September 2009, par 20).

12. On 6 November 2008 Cameron emails Bogdanov asking when the product due under the September contract would arrive.  On 7 November 2008 Cameron again emails Bogdanov and also states that the defendant was looking at purchasing other products from within Australia at a much higher price to meet the defendant's obligations to its customer.

13. On 10 November Bogdanov advises Cameron that he would try to make 23 November 2008 as the date to supply about half the product due under the September contract.  On 10 November 2008 Cameron advises Bogdanov that the defendant's only option was to purchase product from Queensland and on that day the defendant ordered 38.4 mt of the product from a third party.

14. Cameron then deposes that on 11 November 2008 the defendant placed two separate orders with the plaintiff for 125 mt (Cameron affidavit 4 September 2009, par 34) for a total of 250 mt of the product ‑ the first November contract and the second November contract.  The shipping date for the second November contract is stated to be 1 January 2009. 

15. On 22 December 2008, as Cameron deposes in his 4 September 2009 affidavit, the defendant cancelled the second November contract on the grounds that a customer (the inference being it is the customer under the September contract) has cancelled an order for 125 mt and also because of the order the defendant had to place in Australia due to the delivery problems.  The inference arises because Cameron refers to the delays in the arrival of the product under the September contract. 

16. Cameron in his affidavit sworn 26 October 2009 deposes that, had he known on 10 November 2008 that the product due under the September contract would not arrive until 16 December 2008, and would be in a poor state requiring more time and effort to repack into 1250 kilogram bags, and that to meet its contractual obligations the defendant would be obliged to purchase an additional 71 mt of product from a third party, he would not have caused the defendant to pay the monies due under the September contract, nor enter into the second November contract.  The defendant then says that by reason of the circumstances the defendant has a set‑off and counterclaim against the plaintiff and that the defendant was entitled to cancel the second November contract.

Basis of the defence

1. The basis of the defence, from the Cameron affidavit sworn 4 September 2009, relates to the purported breach by the plaintiff under the September contract.  In summary, the defendant submits that in relation to the plaintiff's claim under the first and second November contracts, the defendant is entitled to set‑off in equity the sum of $109,166.99 being its compensation claim arising under the September contract.  Further and that in relation to the second November contract, the defendant has a defence to the plaintiff's claim because, but for the plaintiff's misleading conduct in relation to the September contract, it would not have entered into the second November contract.

Equitable set‑off

1. The parties are agreed that the issue to be resolved is whether the defendant is entitled to set‑off in equity the defendant's compensation claim arising under the September contract.

2. The law in Australia is still that as stated by Spry in "The Principles of Equitable Remedies" 7th ed, Lawbook Co Aust, 2007.  In essence, if an otherwise sufficient equity can be found it does not matter whether or not the material claim of the defendant is for an unliquidated amount nor whether or not the opposing claims might properly be described as mutual.  But a defendant can establish an equity only by bringing forward a claim which impeaches that of the plaintiff.

3. A claim of a defendant will only impeach a claim of a plaintiff where the relationship between the respective claims of the parties is such that the claim of the defendant is so closely connected with the rights that are relied on by the plaintiff it would be unjust the plaintiff should proceed without permitting a set‑off.

4. The plaintiff's counsel submits that the relevant nexus to constitute an impeachment of the plaintiff's claim cannot simply be a particular of damage; that somehow the September contract is connected to the second November contract.

5. Spry describes the statement that the relevant cross‑claim must go directly to impeach the plaintiff's demand, that is, be so closely connected with the plaintiff's demands that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into account the cross‑claim, as the orthodox analysis.  This is to be contrasted with the position in England where a more expansive approach to equitable set‑off has developed.  I referred to the English case Bim Kemi v Blackburn Chemicals Ltd [2001] EWCA Civ 457; 3 April 2001 at [30] where, if there are claims and cross-claims for damages in respect of different but closely connected contracts arising out of a longstanding trading relationship which had terminated, whilst that fact alone would not per se establish the requisite inseparable connection, it may, in an appropriate case, be manifestly unjust to allow one claim to be enforced without taking into account the other.  Defendant's counsel argues that the September contract and the two November contracts are inseparably connected by a trading relationship and it would, therefore, be manifestly unjust to allow one claim to be enforced without taking into account the other.

6. As Spry states, in Australia there have been fewer departures from orthodoxy, and the tendency has been to apply the orthodox analysis.  In Western Australia Hazart Pty Ltd v Rademaker (1993) 11 WAR 26 at 38 and Casella v Costin Pty Ltd, unreported; FCt SCt of WA; Library No 5416; 20 June 1984 show that it is the orthodox approach which prevails in Western Australia.

Application of the law to the facts

1. In Australia there is no recognition of a general right to equitable set‑off where a close relationship exists between the dealings and transactions giving rise to the respective claims.  There is no recognition that a trading relationship between the parties giving rise to dealings and transactions gives a right to an equitable set‑off.  That being the case the September contract and the November contracts must be treated as distinct.  Having regard to the facts there is nothing in the September contract that impeaches the plaintiff's entitlement under the first November contract.  In my opinion the defendant's claim is that of a counterclaim only.  Accordingly, I am of the opinion that there is no defence to the plaintiff's claim under the first November contracts.

Misleading and deceptive conduct in relation to the second November contract

1. The argument of the defendant is that under the September contract the plaintiff through Bogdanov advised that the product due under the September contract could only be supplied by diverting a vessel bound for another customer with arrival in Fremantle around 8 November 2008.  In reliance of Bogdanov's advice that the diverted shipment would arrive on 8 November 2008, and the defendant would not be out of pocket if it were to accept this diverted shipment, Cameron agreed to accept the shipment.  However, the product did not arrive on 8 November 2008.

2. On 10 November 2008 Bogdanov told Cameron that the plaintiff would try and supply half the product due under the September contract by 23 November.  As the defendant would be unable to satisfy orders placed by its customers under the September contract Cameron advised Bogdanov on 10 November 2008 that the defendant's only option was to purchase the product from another supplier.

3. Cameron's evidence is that the defendant would not place an order with the plaintiff to purchase the product until it had, or was certain of obtaining, an order from one of its customers for the product or its formulated liquid product.  That being the case the first and second November contracts came into being because of an order from one of the defendant's customers, or the defendant was certain in obtaining an order from one of its customers.  The difficulty arose when, in December 2008, the defendant's customer cancelled an order for 125 mt of the product because of the problems experienced in relation to the September contract.

4. It is the defendant's case that it was mislead into entering the second November contract because of the statements made by Bogdanov that the shipment under the September contract would arrive by 23 November 2008.  The misleading statement is in the form of an email from Bogdanov to Cameron dated 10 November 2008 where Bogdanov states "I can try to make it November 23 for 3 FCLs.  The ETA is confirmed."

5. A breach of s 52 Trades Practices Act 1974  occurs where a corporation engages in misleading and deceptive conduct.  The analysis of whether conduct is misleading and deceptive begins by identifying the conduct and the facts relied on.  Whether conduct is misleading or deceptive is a question of fact to be determined in the context of the evidence and the surrounding facts and circumstances (see Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564; Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177).

6. The defendant's analysis of the plaintiff's conduct as misleading and deceptive is one that depends on an analysis of the facts.  The version of facts leading to the defendant's analysis is not so inherently incredible and thus could be accepted at trial.  That being the case I am of the opinion there is an arguable issue in relation to misleading and deceptive conduct with regard to the second November contract.

Conclusion

1. That judgment be entered for the plaintiff against the defendant in the sum of US$71,644.46 in relation to the first November contract.

2. The defendant have leave to defend in relation to the second November contract.

3. I will hear counsel on the issue of costs and the further programming of this matter.