Bradken Resources Pty Limited v The Ani Corporation Limited

[2002] NSWSC 463

CITATION:	Bradken Resources Pty Limited v The ANI Corporation Limited [2002] NSWSC 463
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50045/02
HEARING DATE(S):	24 May 2002
JUDGMENT DATE:	4 June 2002
PARTIES :	Bradken Resources Pty Limited (Plt/Resp) The ANI Corporation Limited (Def/Appl)
JUDGMENT OF:	McClellan J

COUNSEL :	N C Hutley SC/J Stoljar (Pltf/Resp) N Mukhtar QC/P Santamaria (Def/Appl)
SOLICITORS:	Corrs Chambers Westgarth (Pltf/Resp) Clayton Utz (Def/Appl)
CATCHWORDS:	COMMERCIAL - application for stay of proceedings - contractual clause for the resolution of disputes relating to Completion Accounts by an Accounting Expert - payment by a third party was claimed in the Completion Accounts - conduct of the officers of the defendant and third party is an issue - whether expert is competent to determine issues relating to conduct - whether parties should resolve disputes in accordance with terms of contract.
CASES CITED:	Huddert Parker Limited v The Ship Mill Hill (1950) 81 CLR 502 Savcor Pty Limited v State of New South Wales (2001) 52 NSWLR 587 Fidelitas Shipping v V/O Exportchleb [1966] 1 QB 630 Baulderstone Hornibrook Engineering Pty Limited v Kayah Holdings Pty Limited (1987) 14 BCL 277 Cott UK Limited v F E Barber Limited [1997] 3 All ER 540
DECISION:	See para 23

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McCLELLAN J

TUESDAY, 4 JUNE 2002

50045/02 BRADKEN RESOURCES PTY LIMITED v THE ANI CORPORATION LIMITED

JUDGMENT

1 HIS HONOUR: This is a motion brought by the defendant, The ANI Corporation Limited (“ANI”), seeking a stay of the proceedings. The plaintiff, Bradken Resources Pty Limited (“Bradken”) as buyer and the defendant as seller, executed a deed of sale and purchase (“the Deed”) of a substantial business in October 2001.

2 The contract between the parties provided a provisional purchase price with completion to occur on 21 December 2001. Prior to this date, ANI was to continue to conduct the business and a mechanism was included in the Deed for the ultimate adjustment of the provisional purchase price at the date of completion. Amongst other activities, ANI was in the business of manufacturing railway cars.

3 The Deed provided that the subject matter of the sale and purchase were the “Assets”, which were defined in Schedule 21. That Schedule stated that “Assets” meant a number of matters but did not include the “Excluded Assets”. Excluded Assets were also identified and defined to exclude “Trade Debts”.

4 Schedule 21 provides a definition of Trade Debts in the following terms:

“Trade Debts means the aggregate of all amounts due or owing to the Seller in connection with the Business and which relate to goods and services provided by the Seller in relation to the Business on or prior to the Completion Date as specified in the Completion Accounts.”

5 Clause 15.2 of the Deed requires ANI to carry on the business until completion of the contract. The obligation is to “carry on the business in the ordinary course consistent with the past practice.”

6 Clause 3.3 of the Deed provides that on the completion date, Bradken will pay ANI the provisional purchase price adjusted in accordance with clause 3.4 to produce an amount being the purchase price. That adjustment is to be undertaken in accordance with Schedule 6 to the Deed.

7 Schedule 6 provides amongst other things:

a. that ANI will within twenty days after the completion date prepare draft Completion Accounts and send a copy of the draft (together with other prescribed documents) to Bradken;

b. unless Bradken, within ten business days of receipt of the draft, serves written notice on ANI that it objects, Bradken will be deemed to have accepted the draft Completion Accounts.

c. if the parties are unable to reach agreement within fifteen business days, the unresolved questions or disputes in the Objection Notice, including any question or dispute concerning the value or classification of any item in the Completion Accounts, must be referred for decision to an Accounting Expert.

8 On 3 September 2001, ANI entered into a contract with North Limited (“North”) for the design, manufacture and supply by ANI of ore cars. It was a substantial contract and provision was made for the issue of invoices and payment. On or about 18 December 2001, ANI issued a tax invoice to North Limited in the sum of $3,797,428.80 (“the North Invoice”). The North Invoice was in relation to the manufacture of 177 railway bogies and was issued under the cover of a letter dated 18 December 2001 which provided for North to acknowledge the obligation provided for in the invoice.

9 Subsequently, North paid the amount owing under the North Invoice, which was received by Bradken.

10 ANI contends that the monies paid by North are a Trade Debt and are properly owing to it under the Deed. Accordingly, pursuant to the mechanisms provided in the Deed, it has claimed these monies in the draft Completion Accounts, which it has provided to the plaintiff pursuant to the Deed. Bradken has responded by serving an Objection Notice which denies that the monies constitute a Trade Debt.

11 The parties have also taken some further steps in accordance with the Deed to appoint an Accounting Expert to determine the status of the North Invoice. Notwithstanding the steps which have been taken, Bradken has commenced the present proceedings in which it claims, inter alia, a declaration as to whether or not the North Invoice constitutes or gives rise to a Trade Debt, as defined.

12 ANI says that Bradken should be held to its bargain and the dispute resolved by the mechanism provided in the Deed. It is submitted that Bradken’s case in the present proceedings raises precisely the same issues and questions which the plaintiff raised in its Objection Notice to the Draft Completion Account. In that notice, Bradken raises the question of whether the North Invoice was rendered in the ordinary course of business, consistent with the past practice.

13 It is also submitted that if the present proceedings are stayed, Bradken will not be deprived of the opportunity to sue for a breach of the agreement. It is submitted that as the claim by Bradken is for loss and damages arising by reason of ANI’s conduct in rendering the invoice contrary to its past practice, that issue could be litigated irrespective of the expert’s determination with respect to the invoice. All that the Accounting Expert would determine is the correct classification of the North Invoice and would not be concerned with the conduct of ANI in issuing it. However, it points out that if the expert was to decide in Bradken’s favour the present proceedings would become irrelevant.

14 ANI submits that as there is a “special contract” between the parties, the court should maintain a strong bias in favour of requiring the parties to resolve their disputes in accordance with the terms of their bargain. Emphasis is given to the familiar statements in Huddert Parker Limited v The Ship Mill Hill (1950) 81 CLR 502 at 508-9. Attention is also drawn to the discussion of the approach which should be taken to these matters in the decision of Barrett J in Savcor Pty Limited v State of New South Wales (2001) 52 NSWLR 587.

15 It is further submitted that the issue which will need to be determined is one which is peculiarly suitable to the expertise of an expert accountant and, as Bradken has gone a significant way in implementing the terms of the contract which provide for the appointment of an expert, the court should stay the present proceedings.

16 Bradken submits that in rendering the North Invoice, ANI acted otherwise than in the ordinary course of conducting its business. As I understand the position, there are a number of matters which are in issue but the ultimate submission is that the North Invoice was a sham and cannot be classified as a Trade Debt. To determine that issue, it will be necessary to examine the circumstances of the raising of the North Invoice, which may require an examination of the conduct of officers of ANI and their relationship with officers of North. Accordingly, although at one level, the classification of the North Invoice is a matter which is suited to the expertise of an accountant, the true dispute is such that serious questions relating to the credit of senior officers of ANI must be raised.

17 Bradken submits that if the status of the North Invoice is determined by an Accounting Expert, this may not resolve the dispute between the parties. The legal consequences of any determination by the expert in proceedings brought by Bradken for breach of covenant is said to be one of difficulty.

18 It is plain that an award by an arbitrator may give rise to an issue estoppel (see Fidelitas Shipping v V/O Exportchleb [1966] 1 QB 630 at 643). However, the Accounting Expert, if appointed, would be acting as an expert and not an arbitrator, and it is submitted by Bradken that an issue estoppel may not arise in respect of his or her determination. The character of that determination would depend upon the nature of the proceedings and whether they took a form apt to afford a full opportunity for the issue to be investigated. See Baulderstone Hornibrook Engineering Pty Limited v Kayah Holdings Pty Limited (1987) 14 BCL 277.

19 The contract between the parties provided that the purchase price might be increased in the event that assets were ultimately identified which had not been brought to account in relation to the provisional price. However, the limit of any increase was the sum of $2 million and I am informed that it is agreed that a sum in excess of $8 million would have been payable under the relevant provision but for that limitation. Accordingly, if it is determined that the North Invoice was not a Trade Debt, it would not impact upon the price which may have to be paid by Bradken. But Bradken submits that would not be an end of the matter. Its concerns arise from the terms of clause 11 of the Deed which provides that Trade Debts remain the property of ANI and, it is submitted, as a consequence, a determination by the Accounting Expert may give rise to proceedings in which ANI seeks to recover the amount of the invoice from Bradken. Questions of estoppel would then arise.

20 Bradken submits that the issue which must be determined in order to correctly classify the North Invoice will involve complex questions as to the construction of the contractual documents, and as I have stated, an examination of the bona fides of the North Invoice. It is submitted that although the parties may have agreed that accounting issues should be determined by an Accounting Expert, the nature of the dispute in relation to the North Invoice is of quite a different character and an expert is not the appropriate person to determine the dispute (see Cott UK Limited v F E Barber Limited [1997] 3 All ER 540). It is submitted that the dispute is likely to require resolution by a court in any event.

21 I am of the view that the proceedings should not be stayed. It is accepted by ANI that I have a discretion which should be exercised having regard to the agreement of the parties, the nature of the dispute, and issues relevant to the resolution of that dispute. Although the parties contracted on the basis that disputes in relation to invoices would be adjudicated upon by an expert where, as in the present case, the transaction is challenged as a sham and questions may arise as to the integrity of the actions of officers of one party and of officers of a third party, in my opinion, the difficulties should be resolved in the court. Although the parties agreed that the relevant differences could be settled by an expert referee, and may possibly have contemplated that the integrity of officers of ANI may be in issue, I doubt whether it was contemplated that the expert would be asked to examine the integrity of the acts of third parties. In determining that the court process is the appropriate mechanism for resolution of the dispute, I am conscious of the fact that it is most likely that the efforts of the expert would not lead to any final disposition of the matter. Although the application of the definition of Trade Debts to the North Invoice will enable the categorisation of the invoice, the real issue raised by Bradken would remain unresolved.

22 I understand that there are other matters not the subject of these proceedings which are included in the Objection Notice, lodged by Bradken pursuant to the Deed. The parties intend that those matters should be resolved by the expert but the delay caused in resolving the issue in these proceedings may cause delay in adjusting the financial arrangements between them. It seems appropriate that the parties discuss a regime whereby all of their disputes, but for the current proceedings, may be resolved so that there may be an efficient resolution of the commercial situation.

23 For these reasons, I order that ANI’s motion be dismissed. The parties may address me in relation to costs.

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Last Modified: 06/17/2002