British American v Kanakis

[2001] NSWSC 48

CITATION:	British American v Kanakis [2001] NSWSC 48
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50127/00
HEARING DATE(S):	02/02/01
JUDGMENT DATE:	2 February 2001
PARTIES :	British American Tobacco Australia Limited - Plaintiff Mercury Kanakis - First Defendant Apollo Photios Kanakis - Second Defendant
JUDGMENT OF:	Rolfe J

COUNSEL :	Mr I.M. Jackman - Plaintiff Mr N.G. Rein SC/Mr M.S. White - Defendants
SOLICITORS:	Clayton Utz - Plaintiff Diamond Peisah & Co - Defendants
CATCHWORDS:	Application for leave to amend granted. Held that one proposed amendment was not futile and, without deciding on the others, that they should be allowed.
LEGISLATION CITED:	Jurisdiction of Courts (Cross-Vesting) Act 1987
CASES CITED:	Dey v Victorian Railway Commissioners (1949) 78 CLR 62 Webster & Anor v Lampard (1993) 177 CLR 598 Commonwealth Development Bank v Windermere Pastoral Company Pty Limited [1999] NSW Supreme Court 518 (3 June 1999) - unreported Wickstead & Ors v Browne (1992) 30 NSWLR 1
DECISION:	1. I grant leave to the defendants to file an Amended Defence and Amended Cross Claim in the form annexed to the affidavit of Sharon Claire Freund affirmed on 29 January 2001; 2. I order that pursuant to s.5(1) Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) that these proceedings be transferred to the Federal Court of Australia for determination by that Court; 3. I order that plaintiff pay the costs of the defendants' Notice of Motion; 4. I order that the exhibits be returned

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

ROLFE J

FRIDAY, 2 FEBRUARY 2001

50126/00 - BRITISH AMERICAN TOBACCO SERVICES LIMITED v KANAKIS & ANOR

JUDGMENT

HIS HONOUR:

1    By a Summons issued on 18 September 2000, the plaintiff, for which Mr I.M. Jackman of Counsel appeared, sued the first and second defendants, for whom Mr N.G. Rein of Senior Counsel and Mr M.S. White of Counsel appeared, seeking to recover approximately $1.5 million. On 1 December 2000 an Amended Summons was filed and the amount claimed was reduced to some $834,000. There were consequential amendments made in relation to that.

2    The claim, put shortly, arises out of the sale by the plaintiff to a company, Pinson Pty Limited (in liquidation), (“Pinson”), which formerly traded as a supplier of cigarettes under the name Mercury Tobacco, for the payment of cigarettes sold to it. On 1 December 2000 the defendants filed a Defence to the Amended Summons in which, inter alia, they admitted paragraph 2, which set out the terms of the agreement relied upon by the plaintiff. Subsequently an Amended Defence to the Amended Summons was filed but the amount, to which I have just referred, remained the same. By a Notice of Motion filed on 12 December 2000, the plaintiff sought to have the Defence struck out and various other relief and, by a Notice of Motion, which was ultimately filed in Court today, the defendants sought that leave be granted to them to file an Amended Cross Claim in the form annexed to the affidavit of their solicitor affirmed on 29 January 2001.

3 The plaintiff opposed the application to amend on the ground that it is futile because none of the defences could give rise to an arguable defence. In considering whether a defence is futile it is appropriate to have regard to the long line of authorities commencing, perhaps relevantly for present purposes, with Dey v Victorian Railway Commissioners (1949) 78 CLR 62, and continuing through at least to Webster & Anor v Lampard (1993) 177 CLR 598. In that case the High Court reiterated the principle that before a defence be struck out it must be shown that it is "so obviously untenable that it could not possibly succeed", or that it is "manifestly groundless" or that it is one that discloses "no real question to be tried". There were three substantive issues raised. The first related to the allegation that a guarantee, granted by the defendants to the plaintiff on 8 April 1998, was obtained by duress. The second related to unconscionability pursuant to s 51AC of the Trade Practices Act in seeking to enforce that guarantee. The third related to an equitable set off. I do not propose, for reasons which will appear in a moment, to say more about the first and second points raised. The question which has to be determined is whether the equitable set off does provide a defence.

4    Pinson has instituted proceedings in the Federal Court in which it has claimed damages against, amongst others, the plaintiff, in paragraph 19, for lost profits in relation to the sale of certain cigarettes branded as "Mercury" cigarettes; in paragraph 32 of which it has claimed damages for loss on the sale of its business and loss of profits from the business; and in paragraph 39 of which it has claimed damages arising in circumstances where it is alleged by Pinson that it was induced by representations made to it by the present plaintiff and others to obtain additional premises with a view to ongoing business relations with the plaintiff. The defendants, as guarantors, seek the equitable set off of any damages to which Pinson may be held to be entitled in relation to the liability against them. It is my view, and I shall say why in a moment, that this defence is arguable within the meaning of the principles referred to in Webster. The reasons I have come to that conclusion are set forth essentially in my decision in Commonwealth Development Bank v Windemere Pastoral Company Pty Limited [1999] NSW Supreme Court 518 (3.6.99), which I do not propose to repeat.

5    Mr Jackman has submitted that this cannot be so because the damages claimed in the Federal Court, to which I have referred, are not damages which go to the root or affect the title of the present plaintiff to sue for the indebtedness in respect of the cigarettes. However, they are damages which are alleged to arise out of the conduct of Pinson's business which involved, on the uncontradicted evidence before me, to a large extent the purchasing of cigarettes and otherwise dealing with the plaintiff. In those circumstances, and having regard to the principles to which I referred in Windemere, I think there is a sufficient connection or nexus between the damages which are sought in the Federal Court to allow the defence of equitable set off to go forward.

6    I said that I would not deal with the other two defences which have been impugned. The reason I adopt that course is essentially for the reason to which I referred in paragraph 63 of Windemere. I appreciate that in that particular case I said that I was not satisfied that there was no basis shown for those defences, but I continued:-

“However, it seems to me that once it is established that there is a viable ground on the basis of which the proceedings may go forward, the proper approach is to permit all matters to go to trial: Wickstead & Ors v Browne (1992) 30 NSWLR 1.”

In short, and so that indeed the Court of Appeal can appreciate the basis on which I have proceeded, it is that there is a sufficient connection between the Federal Court claim and the present claim brought by the plaintiff against the defendants consistent with the principles to which I referred in Windemere to hold that the claim of an equitable set off should not be struck out. Once that conclusion is reached then once again consistent with what I said in Windemere , it is appropriate that the other defences should be allowed to go forward. On the other hand, I think it is inappropriate for me to state any view about those other defences. Their effectiveness will ultimately be a matter for the trial Judge to determine.

7 I accordingly grant leave to the defendants to file an Amended Defence and Amended Cross Claim in the form annexed to the affidavit of Sharon Claire Freund affirmed on 29 January 2001. I was informed that if I came to that conclusion there would be no objection to an order pursuant to s.5(1) of the Jurisdiction of Courts (Cross Vesting) Act 1987 transferring these proceedings to the Federal Court of Australia for determination by that Court. Notwithstanding that consent, I have in any event given consideration to whether that is an appropriate order and in my view it is, and I accordingly make an order in accordance with paragraph 2 of the Notice of Motion.

8    I have come to the view, but I will hear the parties if need be, that the costs of the defendants' Notice of Motion should be the plaintiff's costs in these proceedings. The parties do wish to be heard on that. The matter of costs can stand over until 9.30 on Friday, 9 February 2001 if it is to be argued. On the other hand, if the parties reach some accommodation about costs, my Associate can be advised and I will make that order by consent.

9    I will also order that the exhibits be returned.

10    I will note that the defendants do not assert that the plaintiffs made any representations in 1997 but that by virtue of the merger on 3 September 1999 between the plaintiff and another related company, the plaintiff has some responsibility in respect thereof.

11    Subsequent, at 2.15 pm on Friday, 2 February 2001, the plaintiff not opposing the order that I proposed in respect of costs, it will be the order of the Court.

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Last Modified: 02/13/2001