CJM Bulk Timbers Pty Ltd v Artec Australia Pty Ltd
[2015] TASSC 30
•13 July 2015
[2015] TASSC 30
COURT: SUPREME COURT OF TASMANIA
CITATION: CJM Bulk Timbers Pty Ltd v Artec Australia Pty Ltd [2015] TASSC 30
PARTIES: CJM BULK TIMBERS PTY LTD
v
ARTEC AUSTRALIA PTY LTD
FILE NO: 354/2015
DELIVERED ON: 13 July 2015
DELIVERED AT: Hobart
HEARING DATES: 29 June and 9 July 2015
JUDGMENT OF: Holt AsJ
CATCHWORDS:
Procedure - Supreme Court Procedure – Tasmania – Practice under Rules of Court – Parties – Joinder of Party – Application by defendant to join defendants – Joinder necessary to enable existing defendant to pursue defence to plaintiff's claim.
Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd (2002) 11 Tas R 249, distinguished.
Supreme Court Rules 2000 (Tas), r 184(1)(b).
Aust Dig Procedure [271]
Procedure – Miscellaneous procedural matters – Cross-claims: Set-off and counterclaim – Set-off – What may be set-off – Equitable set-off – Action at law - Equitable claims of third parties – Requirement of mutuality – Discretion to permit set-off despite the absence of mutuality subject to the rule that all persons interested in the suit should be made parties.
Aust Dig Procedure [760]
REPRESENTATION:
Counsel:
Plaintiff: G O'Rafferty
Defendant: S B McElwaine SC
Solicitors:
Plaintiff: Irlicht & Broberg Lawyers
Defendant: Shaun McElwaine + Associates
Judgment Number: [2015] TASSC 30
Number of paragraphs: 24
Serial No 30/2015
File No 354/2015
CJM BULK TIMBERS PTY LTD v ARTEC AUSTRALIA PTY LTD
REASONS FOR JUDGMENT Holt AsJ
13 July 2015
The defendant, Artec Australia Pty Ltd ("Artec") has applied for an order adding two companies as second and third defendants. Counsel for Artec, Mr McElwaine SC, also appeared for the prospective second and third defendants on the hearing of the application and advised that they consented to the joinder and that if the joinder occurs all three defendants will rely on a single pleading of the defence and will not be separately represented. Artec has already filed a defence and so if joinder occurs the defence will require amendment.
The plaintiff opposes the joinder and the amendment and has applied for an order striking-out that part of the existing defence which comprises a claim to a set-off.
In order to understand the basis for the various applications it is necessary to provide a summary of the plaintiff's statement of claim, a summary of the defence proposed to be filed in the event that joinder is ordered and a summary of that part of the existing defence which the plaintiff wants struck-out.
In the statement of claim, the plaintiff alleges that in August 2010 the company Newtown Timber and Hardware Pty Ltd ("Newtown Timber") sold to the defendant the sawlog entitlement it had with Forestry Tasmania. The entitlement was due to expire in June 2012 and the sale contract provided that upon renewal the defendant would pay to Newtown Timber a further amount calculated by multiplying the number of years for which the entitlement was renewed by the sum of $134,200. By deed executed in March 2011 Newtown Timber assigned to the plaintiff, with the consent of Artec, its right to payment in the event of renewal. By clause 3.6 of the deed, Artec agreed and acknowledged that if Newtown Timber became insolvent the rights of the plaintiff as assignee would be unaffected. The sawlog entitlement was renewed in September 2012 for a period expiring in 2027. Artec did not pay the further amount agreed. The plaintiff's claim, based on the period of renewal, is for about $2m.
By the proposed new defence, Artec wishes to allege that the sale by Newtown Timber of its sawlog entitlement was part of a series of connected transactions including contracts wherein Newtown Timber agreed to purchase timber from the defendant and from the company Artec Pty Ltd (the prospective second defendant) and including a contract whereby Newtown Timber leased premises from SD & DF Investments Pty Ltd (the prospective third defendant). The defendant and the prospective second and third defendants were related companies and Newtown Timber agreed that money owing to it by any of the three related companies would be subject to a right of set-off in respect of any money owing to any of the related companies by Newtown Timber. The defendant sold and delivered timber to Newtown Timber at an agreed price of $663,544.03, for which it has not been paid. The prospective second defendant sold and delivered timber to Newtown Timber at an agreed price of $1,392,089.36, for which it has not been paid. Further, Newtown Timber failed to pay rent to the prospective third defendant, the arrears being $99,000. After these debits were accrued, Newtown Timber was wound-up and deregistered without the defendant or the prospective second and third defendants receiving any dividend in respect of the debts. The total of the debts roughly equals the total of the plaintiff's claim.
The part of the existing defence which the plaintiff wants struck out is a set-off plea wherein Artec claims the benefit of the sum of $663,544.03 being the unpaid price of timber sold and delivered by Artec to Newtown Timber.
Artec wishes to contend at the trial that the benefit which the plaintiff took on the assignment, namely, an expectancy of an additional amount becoming due on renewal of the sawlog entitlement, was subject to equitable rights of set-off attaching to the assigned expectancy and in particular subject to the set-off claimed by Artec and subject to the set-offs proposed to be claimed by the prospective second and third defendants for the benefit of Artec.
As explained by Morris LJ in Hanak v Green [1958] 2 QB 9, since the Judicature Acts, there are four distinct ways (other than in the case of an action for an account) in which a defendant's rights against a plaintiff may be given effect in a proceeding brought by the plaintiff. They are as follows:
(1)Set-off available by statute. There are the statutes of set-off whereby readily ascertainable debts and liquidated demands may be set-off against each other and there are provisions in statutes dealing with bankruptcy and corporate insolvency giving wider rights of set-off.
(2)Set-off in the case of the supply of defective goods or services whereby the price payable to the plaintiff may be reduced by reason of the plaintiff's breach. The principle of Mondel v Steel (1841) 8 M & W 85; 151 ER 1288.
(3)Procedural law, which enables that which otherwise would have needed to have been raised by independent cross-action to be raised by counterclaim in the plaintiff's action, culminating in a verdict being given for the plaintiff in the action and the defendant in the counterclaim, with execution only able to be issued for a balance amount favouring a party.
(4)Equitable set-off whereby a court of equity would have regarded the defendant's claim as being so closely connected with the plaintiff's claim that the defendant should be able to raise the claim purely as a matter of defence without the need for a cross-action or counterclaim.
Mutuality is essential for a case to be within the first and second categories. Both mutuality and the availability of a cross-action or counterclaim are essential for a case to be within the third category. Neither mutuality nor the availability of a cross-action by counterclaim are essential for a case to be within the fourth category. What is required under the fourth category is that the set-off "must essentially be bound up with and go to the root of, challenge, call in question, or impeach the title of the claimant". HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53 at 81 [136].
Although Artec and the prospective second and third defendants are alleged to be related companies and the contracts are alleged to be part of a broad transaction, there is no mutuality as Artec was not a party to the contracts giving rise to the set-offs proposed to be claimed by the prospective defendants. As Newtown Timber has been wound-up and deregistered, neither the existing defendant nor the proposed second and third defendants have actionable claims. Accordingly, the existing defence and the proposed defence rely solely on equity for the asserted right of set-off.
In Derham on the Law of Set-Off, 4th ed at par 4.68 it is said:
"Nevertheless, the test for equitable set-off traditionally has not been formulated in terms of a requirement of mutuality. Consistent with the inherent flexibility of equitable remedies, if in an exceptional case a set-off would be appropriate in all the circumstances notwithstanding that the claims in issue are not mutual, as a matter of principle there would seem to be no compelling reason why a court of equity should not have a discretion to permit a set-off despite the absence of mutuality, subject to compliance with the rule of practice of the Court of Chancery that all persons materially interested in the subject of a suit generally should be made parties to the suit". (footnotes omitted)
In support of the proposition that all persons materially interested in the subject matter of a suit should generally be made parties, one of the cases footnoted is JA's Clubs v White City Tennis (2010) 266 ALR 462. There French CJ, Gummow, Hayne, Heydon and Kiefel JJ said at 495 [139]:
"Chancery procedure, the influence of which is apparent in the modern Judicature systems, was concerned that all persons materially interested in the subject matter of a suit generally ought to be made parties so as to settle the controversy by binding those interested to the final decree. There was some relaxation of the strict application of this rule by the adoption of procedures for representatives parties …" (footnotes omitted).
Artec has no right to act as the representative of the prospective second and third defendants. If there are equities which arise because of the contracts between Newtown Timber and the prospective second and third defendants, those equities will have to be claimed and proved by the prospective defendants before the existing defendant can take the benefit. It follows that joinder is necessary, if the proposed defence is to be advanced.
The plaintiff opposes the joinder and the proposed pleading amendment on several grounds. The same grounds advanced in opposition to the amendment application apply to the strike-out application.
Firstly, as to the joinder application, counsel for the plaintiff submitted that the joinder is not authorised by the Supreme Court Rules 2000. Rule 184(1)(b) relevantly authorises the addition of a party "whose presence may be necessary for the Court or judge to adjudicate on and settle all the questions involved in the proceeding". There is presently no question involved in the proceeding which affects the rights or liabilities of the prospective defendants and so their presence, it is said, is unnecessary. This ground of opposition to the joinder application would have force if the application had been made by the non-parties and absent the amendment application. No question affecting the rights of the prospective defendants would exist in the action. Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd (2002) 11 Tas R 249 is an illustration of the requirement that a non-party applicant for joinder must show that the orders sought in the proceedings, if made, would directly impact on the rights or liabilities of the non-party. Here, however, the applicant for the joinder is a party wishing to raise a ground of defence which cannot be raised without the joinder. The joinder, if made, is to coincide with the proposed amendment to the defence. On amendment the presence of the prospective defendants would be necessary for the Court or judge to adjudicate on and settle the questions raised in the action. Accordingly the proposed joinder is authorised by the rule.
Secondly, as to the joinder application, counsel for the plaintiff submitted that the fact it opposes the joinder is of itself a factor to be taken into account. As much was accepted by Cox CJ in Burnie Port Corporation Pty Ltd. I will take into account the fact that the plaintiff has no claim against the prospective defendants and does not want them joined.
In the event that the amendment to the defence should be allowed, the joinder is necessary for the defendant to pursue the set-off defence which it wishes to pursue. In this circumstance a power to add the prospective defendants exists pursuant to r 184(1)(b). The fact that the plaintiff does not have a claim against the prospective defendants and does not want them joined, although relevant, does not outweigh the justice inherent in permitting the defendant, through joinder, to pursue an available defence. There should be the joinder sought in the event that the proposed amendment to the defence is allowed.
I now turn to Artec's application to amend the defence by adding additional set-off claims and to the plaintiff's application to strike-out the part of the existing defence containing a set-off claim. The arguments in respect of both applications were the same.
Firstly, counsel for the plaintiff submitted that the proposed set-off is not available. The burden of the contracts entered into by Newtown Timber with the prospective second and third defendants were not assigned to the plaintiff and so it was contended that a cross-demand for the debts incurred by Newtown Timber cannot be made against the plaintiff. The fact that the contractual burdens of Newtown Timber were not assigned is not conclusive. Although referring to unliquidated damages, the observation of Lord Hobhouse in Government of Newfoundland v Newfoundland Railway Company (1888) 13 App Cas 199 at 213 is apposite. His Lordship said:
"Unliquidated damages may now be set-off as between the original parties, and also against an assignee, if flowing out of and inseparably connected with the dealings and transactions which give rise to the subject of the assignment."
It is arguable that a set-off, available if the defendant had been sued by the assignor, is available against the assignee.
Secondly, counsel for the plaintiff submitted that any possible claim to a set-off was lost when, as alleged by the defendant, Newtown Timber was wound-up and deregistered. The argument being that unless the amount sought to be set-off was a debt actionable in law at the time of the pleading and at the time of the trial no set-off was available. The argument would be correct if this was a case of procedural set-off. But what the proposed defence pleads is equitable set-off, in which case, actionability is not an ingredient. Counsel referred to Aries Tanker Corporation v Total Transport Pty Ltd [1977] 1 WLR 185. This was a shipping contract case. The shipping company sued for an unpaid part of the charge for freight. The charterer sought to set-off an amount in respect of lost cargo. The contract provided that any claim for lost cargo would be discharged unless an action was brought in respect of the claim within one year. No claim was made by the charterer within the one year period and so the claim was extinguished by the contract. Equity favoured holding the charterer to the bargain and no set-off in equity was available. The case is not authority for the broad proposition that if a debt ceases to be actionable equity will not intervene to permit a set-off.
Thirdly, counsel for the plaintiff submitted that the existing plea of set-off and the proposed plea of set-off do not go far enough to satisfy the requirement, referred to earlier, that for the equity to apply there must be an inseparable connection with the dealings and transactions the subject of the plaintiff's claim. In other words, the equity must be such as to impeach the title to the legal demand. Both the existing defence and the proposed defence plead that Newtown Timber, Artec and the prospective defendants agreed with each other that the satisfaction of debts incurred could occur by set-off between each of them generally. This plea is clearly sufficient, if proved at trial, to leave open the possibility of a finding that the claim of the assignee is inseparably connected with the transactions relied upon for the set-offs claimed by Artec and the prospective defendants.
The only ground of complaint against the part of the defence the subject of the strike-out application and the proposed new pleading is that the set-off defences are futile because they are obviously bad in law. It is not enough that a claim ought not to succeed. This is an issue for trial. Commonwealth v Verwayen (1990) 170 CLR 394 at 456 (per Dawson J). For the reasons given I am not persuaded that the set-off pleas are futile because they are obviously bad in law.
The plaintiff's strike-out application will be dismissed and the defendant's amendment application allowed. I have already given reasons for concluding that in the event of the amendment being allowed, the defendant's joinder application should succeed.
These are the orders:
(1)The plaintiff's application to have struck-out that part of the defence which comprises a claim for a set-off is dismissed.
(2)The defence is amended in accordance with document 2 attached to the written submissions of the defendant dated 25 June 2015, with the amended defence to be filed and served forthwith.
(3)Artec Pty Ltd and SD & DF Investments Pty Ltd are added as second and third defendants and are to be taken as having filed notices of appearance in the action.
(4)The writ need not be amended but all documents filed in the proceeding subsequent to these orders are to be headed with the addition of the names of the added defendants.
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