Cat Torque Pty Ltd v Kitsons Diesel Service Pty Ltd - [2003] WADC 48

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: CAT TORQUE PTY LTD -v- KITSONS DIESEL SERVICE PTY LTD & ORS [2003] WADC 48

CORAM: FRENCH DCJ

HEARD: 14 FEBRUARY 2003

DELIVERED : 21 FEBRUARY 2003

FILE NO/S: CIV 3369 of 2000

BETWEEN: CAT TORQUE PTY LTD (ACN 008 861 658)
Plaintiff
AND
KITSONS DIESEL SERVICE PTY LTD (ACN 008 861 658)
First Defendant
HUBERT CHARLES KITSON
Second Defendant
MAUREEN ELIZABETH KITSON
Third Defendant

Catchwords:

Appeal from decision of Deputy Registrar giving leave to enter summary judgment on first defendant's counterclaim dismissed

Legislation:

Nil

Result:

Appeal dismissed

Representation:

Counsel:

Plaintiff:     Mr T M Hobday
First Defendant              :     Mr G I Macnish
Second Defendant         :     Mr G I Macnish
Third Defendant            :     Mr G I Macnish

Solicitors:

Plaintiff:     Lewis Blyth & Hooper
First Defendant              :     Cocks Macnish
Second Defendant         :     Cocks Macnish
Third Defendant            :     Cocks Macnish

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

Air Services Australia v Ferrier (1996) 185 CLR 383.
Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62.
State Bank of Victoria v Parry [1989] WAR 240.

Case(s) also cited:

Nil

FRENCH DCJ: The plaintiff has appealed against the decision of the Deputy Registrar on 3 January 2003 on the hearing of the first defendant's application for leave to apply for summary judgment in the counterclaim. Leave was granted and the following orders were made:
(a)That summary judgment be entered for the first defendant against the plaintiff in the first defendant's counterclaim for $17,629.55 which judgment shall be stayed as to the sum of $5,993.28 pending the determination or resolution of the plaintiff's claim against the first defendant; and
(b)The plaintiff pay the first defendant's costs of the application and counterclaim in any event.
The plaintiff commenced proceedings against the first defendant (and the second and third defendants as directors of the first defendant) in the District Court in December 2000. The statement of claim seeks damages for the supply of defective engine parts. The plaintiff is a repairer of diesel engines and in the course of carrying out its business received various engine parts and components from the first defendant. It is alleged that in receiving those engine parts the plaintiff relied on representations made by the second defendant and others on behalf of the first defendant in relation to the condition of the parts, their suitability for the relevant purpose and the warranties attaching to those parts. The plaintiff alleges that the representations were misleading and deceptive and as a result of defects in a number of the engine parts and components it has suffered damage.
Subsequently the first defendant commenced proceedings against the plaintiff in the Perth Local Court seeking payment for invoices rendered to the plaintiff for the supply of engine parts and components. In approximately May 2002 the plaintiff was successful in obtaining an order remitting the Local Court action so that both matters could be consolidated. This was opposed by the first defendant. In broad terms the application for summary judgment is based on the submission that there was no dispute between the parties in relation to the majority of the invoices the subject of the defendants' counterclaim. It is submitted that the goods were ordered and received by the plaintiff but had not been paid for. The goods in respect of which summary judgment is claimed are entirely separate contracts and have no connection with the goods that are the subject of the plaintiff's claim. It is argued that in these circumstances it is appropriate that summary judgment be entered as there is no argument that the plaintiff has not paid the invoices in relation to the supply of those goods and that no issue of equitable set‑off arises.
The plaintiff claims that the financial arrangements between the plaintiff and the first defendant were in the nature of a running account so that there is no sum due by the plaintiff to the defendants until the correct balance has been ascertained following the determination or resolution of the plaintiff's claim against the first defendant. Alternatively, it is argued that the plaintiff's claim against the first defendant constitutes an equitable set‑off amounting to a valid defence to the counterclaim. In addition it is submitted that if summary judgment was entered a stay of execution should be granted pending the trial of the plaintiff's claim because of the close connection between the plaintiff's claim and the defendant's counterclaim and the fact that the matter has already been entered for trial. A number of affidavits were filed outlining the business dealings between the plaintiff and the first defendant and exhibiting relevant invoices and statements relating to the supply of goods to the plaintiff and the payments made by the plaintiff to the first defendant.
In his reasons for the decision made on 3 January the learned Deputy Registrar does not specifically refer to the plaintiff's submission that the financial arrangement between the plaintiff and the first defendant was in the nature of a running account so that summary judgment could not be ordered. If the financial arrangement was characterised as in the nature of a "running account" there would be no amount due and payable until the final balance had been ascertained after the plaintiff's claim had been determined. However it is implicit in the reasons that this submission was rejected. The Deputy Registrar found that the supply of the great proportion of the engine parts that were the subject of the counterclaim were quite unconnected with the goods that were the subject of the plaintiff's claim to the extent that no defence of equitable set‑off arose. However he ordered that the judgment should be stayed in the sum of $5,993.28. That sum represents the total of engine parts supplied that were either defective or were fitted to vehicles in which other defective parts were fitted and which required rectification by the plaintiff. In relation to the invoices that related to those components the learned Deputy Registrar was of the opinion that there was sufficient connection to justify a stay of judgment.
I have examined the financial documents annexed to the affidavits of David John Clark, a director of the plaintiff, sworn 18 December 2002 and 7 February 2003 and the affidavits of the second defendant of 18 December 2003 and 2 January 2003. I am satisfied that the various invoices and statements do not reflect a financial arrangement between the plaintiff and the defendant in the nature of a running account. The statements demonstrate that the regular method of payment by the plaintiff was to pay the amount shown on the individual invoices. Although a total amount due was calculated in monthly statements this was rarely, if ever, the amount paid by the plaintiff. The payments credited on the monthly statements correspond to the debits created from specific invoices. On many occasions payment of a number of invoices was grouped together. However, that did not correspond to a payment of a monthly balance and this is confirmed by the fact that the plaintiff's cheque stubs referred to specific invoices.
There is a clear conflict between the evidence of Clark and the second defendant on the extent and nature of any credit arrangement between the plaintiff and the first defendant. Although that is not possible to resolve on affidavit evidence I am satisfied that the credit arrangements as described by Clark did not operate in such a way that would suggest a running account. The nature of a running account was considered at some length by the High Court in the case of Air Services Australia v Ferrier (1996) 185 CLR 383 in considering the issue of whether payments made to an account were to be characterised as preference payments. At p 504 in the majority judgment a running account was described as
"Merely another name for an active account running from day to day, as opposed to an account where further debits are not contemplated. The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded. Ordinarily, a payment although often matching an earlier debit, is credited against the balance owing in the account."
The significance of the characterisation of a trading account as a running account in that case lay in the fact that payments were held not to refer to past debts but rather as a payment made as part of a broader transaction and for the purposes of obtaining an ongoing credit arrangement so that further or future services would continue to be provided.
Although the financial relationship between the plaintiff and defendant was ongoing in the sense that goods continued to be provided and individual invoices listed on monthly statements this does not displace the fact that the individual invoices and payments corresponding to those invoices reflects an arrangement where there are distinct contracts between the plaintiff and the defendant in relation to each supply of goods. The invoices issues by the first defendant continued to show that the amount billed was payable within 30 days of the date of the invoice.
In the affidavit of Clark sworn 7 February at pars 14, 15 and 16 reference is made to a credit being applied to the plaintiff's account for goods that had been paid for but subsequently proved defective. In circumstances where there was an outstanding amount due to the first defendant from the plaintiff the use of a credit against the outstanding amount owing instead of a direct payment from the first defendant to the plaintiff does not indicate the presence of a running account. In the circumstances of the financial relationship between the plaintiff and the first defendant it appears to be simply a practical means of repaying the amount that had been due under the invoice and had been previously paid by the plaintiff.
If the financial arrangement between the parties was not found to be a running account so that there would be no sum due to the first defendant until a final balance of that account had been determined the plaintiff alternatively argued that its claim constitutes an equitable set‑off to the first defendant's counterclaim so that unconditional leave to defend should be given to the plaintiff. The learned Deputy Registrar found that there was not sufficient connection between the goods and which are the subject of the counterclaim and the supply of goods that are the subject of the plaintiff's claim.
With the exception of that part of the claim that relates to goods that were used in vehicles that also received the alleged defective parts and which has been the subject of the partial stay it is clear that there is no connection between the claims other than the fact that they both relate to the supply of goods by the first defendant to the plaintiff. The plaintiff's submission is that in the circumstances of this case it would be inequitable for the first defendant to obtain payment of its counterclaim for the supply of goods when the plaintiff's claim for damages for supply of defective goods has not been assessed. However, for a defence of equitable set‑off to operate there must be more than a claim that that would be reasonable and fair in the circumstances. A defence of equitable set‑off arises where there is such a close connection between the competing claims that one claim in effect impeaches the completing claim. In Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62 reference was made to statements of principles in the recognised text that to establish an equitable set‑off an equitable ground for relief from the demand must be demonstrated. In the circumstances of this case the plaintiff is unable to establish that equitable ground. As was pointed out in Meagher, Gummow & Lehane, Equity Doctrines and Remedies (3^rd ed, 1992) at p 819:
"It was not sufficient that there be countervailing claims, nor that those claims were mutual, nor even that they arose out of the same transaction. The defendant in order to make out an equitable set‑off, had to establish that he possessed some equitable right to be protected from the plaintiff's claim."
In this case the only "connection" is that both claim and counterclaim arise out of similar transactions between the same parties. This is not sufficient to establish an equitable set‑off.
The Deputy Registrar ordered that there should be a judgment for the full amount of the defendant's counterclaim, namely the sum of $17,629.55 but ordered a stay of that judgment as to the sum of $5,993.28. This sum apparently included invoices which may relate to defective parts the subject of the plaintiff's claim, or alternatively, relate to parts that were fitted to vehicles in which other defective parts were fitted and which required repair. It was held that in these circumstances there was a sufficient connection to justify a stay of judgment for that part of the defendant's claim. I accept the defendant's submissions that where as in this case a counterclaim and claim are unconnected in that they arise out of distinct transactions the usual order will be for judgment without a stay in the absence of demonstrated special circumstances. (See State Bank of Victoria v Parry [1989] WAR 240 at 244 and 246). I agree with the Deputy Registrar that it would not be proper to make an order for a further stay of the balance of the judgment in the absence of evidence of special circumstances and financial difficulty. Although that has been suggested by the defendants' application for security for costs there is presently no information before the Court that would justify a wider stay than that ordered by the Deputy Registrar.
For the abovementioned reasons the plaintiff's appeal will be dismissed and there will be an order that the plaintiff pay the defendants' costs of the appeal.