Comix (Asia) Limited v Bantex Pty Ltd

[2018] NSWSC 47

Supreme Court

New South Wales

Medium Neutral Citation:	Comix (Asia) Limited v Bantex Pty Ltd [2018] NSWSC 47
Hearing dates:	27 November 2017
Decision date:	09 February 2018
Jurisdiction:	Common Law
Before:	N Adams J
Decision:	(1) The plaintiff’s notice of motion dated 4 July 2017 is dismissed. (2) The defendant has leave to file an amended defence by 9 March 2018. (3) That each party pay its own costs.
Catchwords:	PRACTICE AND PROCEDURE – application for summary judgment under UCPR r 13.1(1) – whether triable issue – whether triable defence of equitable set-off – whether triable defence under s 54 of the Sale of Goods Act 1923 (NSW)
Legislation Cited:	Civil Procedure Act 2005 (NSW) Sale of Goods Act 1923 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Active Adult Management Pty Ltd v Milstern Retirement Living [2017] NSWSC 1238 Hawes v Dean [2014] NSWCA 380 Hill v Zymack (1908) 7 CLR 352; [1908] HCA 13 HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 479 Lord v Direct Acceptance Corporation Ltd (Receiver and Manager Appointed) (in liq) (1993) 32 NSWLR 362 Morgan & Sons Ltd v S Martin Johnson & Co Ltd [1949] 1 KB 107 Rawson v Samuel (1841) Cr & Ph 161; 41 ER 451 State of New South Wales v Williams (2014) 242 A Crim R 22; [2014] NSWCA 177
Category:	Procedural and other rulings
Parties:	Comix (Asia) Limited (Plaintiff) Bantex Pty Ltd (Defendant)
Representation:	Counsel: Mr R A Parsons (Plaintiff) Mr M Klooster (Defendant)   Solicitors: Preece Lin Lawyers (Plaintiff) Unified Lawyers (Defendant)
File Number(s):	2017/35062
Publication restriction:	Nil

Judgment

1. The plaintiff, Comix (Asia) Limited (“Comix”) is a company incorporated in Hong Kong which manufactures plastic “flats” used to make ring binders. The manufacturing process takes place in the People's Republic of China.

2. Bantex Pty Ltd (“Bantex”) is a company incorporated in Australia that manufactures and distributes office supplies throughout Australia. Its largest customer in Australia is Officeworks which has been a customer since 1994. Bantex supplies large quantities of ring binders to Officeworks.

3. In March 2011, Comix approached Bantex to distribute ring binders manufactured in China by Comix to Officeworks. It was subsequently agreed that the cost of shipping the folders with the rings already riveted to them could be reduced if Comix only shipped the plastic flats and Bantex riveted the ring mechanism onto the flats in Australia. Between September 2014 and August 2015, a large number of flats were shipped by Comix to Bantex for this purpose.

4. During this time Bantex discovered a number of problems with the quality of flats: some of them were wrinkled or scratched; some had inconsistent welding of the joints between the front and back covers and the spine; some of them had the overlay sheets stretched in some areas; and some had an inconsistent overlay gap. This was communicated to Comix and some compensation was paid. Bantex alleges that the problems were ongoing and it eventually found an alternative manufacturer for the flats. Bantex now refuses to pay for most of the outstanding amounts owed to Comix.

5. By statement of claim filed on 3 February 2017, Comix seeks judgment against Bantex in the amount of USD $1,331,379 plus interest for the flats sold and delivered.

6. By notice of motion filed on 4 July 2017, Comix seeks summary judgment against Bantex on the basis that it has no defence pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) Pt 13.1.

The evidence

7. At the hearing, Comix relied upon the affidavit of Qui Hong (Rachel) Li sworn on 19 July 2017. She is the General Manager of Comix. She deposes that Bantex has no defence. She annexed to her affidavit a large number of emails and invoices. She does not deny that there were problems with the quality of some of the flats but states that Bantex was compensated for any problems that were raised.

8. The emails attached to Ms Li’s affidavit, dated from January to November 2015, document long standing negotiations between Comix and Bantex regarding the outstanding amounts owed. The emails are relied upon to assert that it was not until 27 January 2015 that Bantex made any complaint about the quality of the flats. The emails deal with two subjects: the quality issues and the proposed schedule for a payment plan for the outstanding amounts owed. There is no dispute that some of the flats were returned. On 14 May 2015, Bantex agreed to pay all outstanding amounts, but in an email dated 22 June 2015, an employee of Bantex indicated that the payment plan could not be implemented due to the quality issues. Further complaints were made thereafter.

9. An email from Comix to Bantex on 22 July 2015 shows that Comix suggested that Bantex pay for the invoices concerning the flats that were not subject to complaints as to their quality first. In an email dated 29 July 2015, Bantex indicated that the defect rate was 70%.

10. Ms Li’s affidavit contains a great deal of detail and annexes numerous items of correspondence and invoices. However, the nub of Ms Li’s evidence is that all quality issues that were brought to the attention of Comix were resolved by compensation and discounts. That is, whereas Comix acknowledges that some of the goods were of unacceptable quality, it relies upon the fact that appropriate compensation has been already paid. In addition, it alleges that minor deductions were made from time to time as issues arose.

11. Bantex relied on two affidavits. The first was an affidavit of Michael Stathakis, sworn on 21 September 2017. He is the Chief Executive Officer of Bantex. A second affidavit sworn by Adrian Hargreaves was also read. He is the Production Manager of Bantex.

12. Mr Stathakis outlines the steps taken by Bantex with respect to the defective product. He states that, as a result of problems with the products, Bantex was unable to meet all of its orders with respect to the supply of the products. That in turn resulted in lower sales and a loss of profit to Bantex and further losses when Officeworks enacted a penalty clause in the contract. He described the actual losses suffered by Bantex as additional logistics costs, additional labour costs, amounts charged by Comix for defective products that could not be salvaged, loss of profits, and additional charges from Officeworks.

13. In response to Ms Li’s evidence, Mr Stathakis further deposes that a voluminous amount of emails passed between Bantex and Comix that concerned directly the defective products and that not all of them have been referred to in Ms Li’s evidence. He states that the credit in the amount of USD $155,931.77 received by Bantex represented compensation for some, but not all, defective products that were returned. He denied that this amount represents “total compensation” for all quality control issues.

14. Mr Hargreaves deposes that, during the inspection process, he personally observed and took photos of defects in the flats supplied by Comix as examples of each defect. He outlined his efforts to remedy the situation and deposes that, even though Bantex tried to salvage the product through manual riveting, it was not able to satisfy all the existing customer orders. He provides details of his trip to China in March 2015 undertaken in order to discuss the problems with the products. He deposes that he left China without answers and upon his return made a recommendation to Mr Stathakis that Bantex find another supplier. He further deposes that Bantex suffered direct loss in the amount of USD $1,003,381, allowing for a deduction of the USD $155,931.77 credited to Bantex as “compensation”.

15. In short, Bantex disputes that the complaint as to the quality of the “flats” was resolved by agreement between the parties.

16. During the hearing of the application before me the parties agreed that the factual controversy in this matter turns on the extent to which some of the goods suffered from quality issues.

Procedural History and Pleadings

17. The statement of claim sets out the background facts, describes the goods supplied and the amounts owed, acknowledges that there has been partial payment, acknowledges that there were defects found in some of the goods provided and also accepts that the amounts of USD $3000 and $155,931.77 were allowed as a discount on the amount owed.

18. At the first directions hearing before the Registrar on 15 May 2017, orders were made as to the filing of the defence and any cross-claim by Bantex. Orders were also made as to Comix filing any reply or defence to any cross-claim brought by Bantex. It was noted that the parties would consider mediation.

19. The defence filed on 9 June 2017 admits most of the matters alleged but claims that no agreement was reached between the plaintiff and the defendant in relation to other defective stock delivered by the plaintiff to the defendant. It is asserted in the defence that, in addition to the defective goods described by the plaintiff, there are additional defective goods and that the plaintiff failed to supply all of the goods or to deliver them in accordance with the terms of the agreement.

20. At the directions hearing on 3 July 2017, Comix foreshadowed that it would be seeking summary judgment under UCPR Pt 13.1. Orders were made directing the filing of the motion and affidavits by both Comix and Bantex. At the next directions hearing, on 25 August 2017, further orders were made regarding the service of affidavit evidence. At the subsequent directions hearing on 22 September 2017, it was noted that all evidence had been served. Orders were made for the filing of written submissions and a joint court book, and the motion was listed for hearing on 27 November 2017.

21. On 14 November 2017, the solicitor for Bantex forwarded to Comix’s solicitor a draft proposed amended defence and proposed cross-claim and sought its consent for the filing of these documents.

22. The proposed amended defence makes reference to the cross-claim and again asserts in answer to the whole of the statement of claim that there were additional goods which were defective, that Bantex has suffered loss and damage as a result of those defects, that Comix failed to supply the goods ordered or failed to deliver them in accordance with the terms of the agreement and that Bantex has suffered loss and damage as a result. The amended defence then goes on in these terms:

“(e) By reason of those matters set out in the Cross-Claim the Defendant claims a set-off in the amount of $1,666,113,96 pursuant to section 21 of the Civil Procedure Act 2005 (NSW) on any judgment amount awarded in favour of the Plaintiff.

(f) Further and in the alternative, by reason of those matters set out in the Cross-Claim the Defendant claims a set off in the amount of $1,666,113,96 against any price payable for the goods sold and delivered the subject of the Statement of Claim, or such other amount as the Court determines, together with any interest accrued thereon.”

23. The proposed cross-claim pleads that, between September 2014 and November 2015, Comix breached its agreement with Bantex by supplying products that were partially defective, and that as a result, Bantex suffered loss and damage that far exceeds the discount of USD $155,931.77 allowed by Comix for defects. It claims damages for direct and consequential loss in the amount of USD $1,666,113.96 by way of a set-off against any award of damages made in favour of Comix and, in the alternative, a set-off against any price payable for the goods sold and delivered.

24. On 17 November 2017, Comix’s solicitor wrote to Bantex’s solicitor advising that it wished to proceed with its application for summary judgment and that it would oppose any application to amend the defence or file the proposed cross-claim.

25. On 20 November 2017, Bantex’s solicitor wrote to Comix’s solicitor and advised that it would be making an application under UCPR r 18.2 for leave to rely on these proposed pleadings at the hearing of the motion. It offered to pay its costs thrown away by reason of the amendments and advised that it intended to rely on this correspondence on any costs argument “including any application for indemnity costs”.

Comix’s Submissions

26. The written submissions filed on behalf of Comix dated 30 October 2017 were brief and simply asserted that no defence is disclosed in the defence filed by Bantex.

27. The oral submissions at the hearing of the application focused on the question of whether equitable set-off was available to Bantex on the facts of this matter. During the hearing of the application I raised with counsel for Comix why the facts of this matter were not similar to the second of the hypothetical examples provided by Emmett JA in HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 479 (“HP Mercantile”) (at [137]) and approved by Barrett JA in Hawes v Dean [2014] NSWCA 380 (“Hawes v Dean”) (at [64]). Counsel for Comix sought and was granted leave to file supplementary submissions addressing these decisions and any other relevant authorities concerned specifically with in what circumstances unliquidated cross-claims may be available as equitable set-off.

28. The supplementary submissions addressed in some detail the decisions in: Lord v Direct Acceptance Corporation Ltd (Receiver and Manager Appointed) (in liq) (1993) 32 NSWLR 362; Hill v Zymack (1908) 7 CLR 352; [1908] HCA 13; Hanak v Green [1958] 2 QB 9; and Morgan & Sons Ltd v S Martin Johnson & Co Ltd [1949] 1 KB 107. The submissions also addressed the decisions in HP Mercantile and Hawes v Dean. I consider those submissions further below, but put briefly, it was submitted that the hypothetical examples provided by Emmett JA were obiter and that Barrett JA did not deal with that aspect of the decision in Hawes v Dean and thus this court is not bound by those Court of Appeal decisions.

29. During the hearing of the application, counsel for Comix conceded that if the court was to find that the principle of equitable set-off applied in this matter then he had no further submissions to make as to whether leave should be granted to file the amended defence.

30. As for Bantex’s reliance upon s 54 of the Sale of Goods Act1923 (NSW) (“SOGA”), it was submitted that it was not pleaded and that the cross-reference to such a defence is tenuous at best. It was acknowledged that an amendment might overcome this problem. It was submitted that reliance on s 54 of the SOGA is a different plea in that it deals specifically with setting up a breach of warranty in diminution or extinction of the price. That is, any reliance by Bantex upon s 54 is not concerned with cross-claims or set-offs; it is purely a defence.

Bantex’s Submissions

31. In written submissions filed on 22 November 2017, Bantex opposed the application for summary judgment and sought leave to rely on the proposed cross-claim and amended defence submitting that matters raised in them, taken at their highest, would enable Bantex to claim equitable set-off against any monies that may be due or owing to Comix. It was submitted that: the evidence of Mr Stathakis and Mr Hargreaves raise triable issues with regards to the product quality; that those issues would result in a set-off that would exceed the amount claimed by Comix; that Comix provided no reasons for not consenting to the filing of amended pleadings; and that it would be inequitable for Comix’s claim to proceed without allowing Bantex to make a claim against it by way of a set-off in circumstances where, given a close connection between the liabilities raised by Bantex and the product supplied by Comix, it has a real prospect of success.

32. During the hearing of the matter, Mr Kloosters submitted that Bantex’s case relies on s 54 of SOGA which gives a party the right to plead a breach of warranty as a statutory right to set-off. Thus, the application does not turn on the question of whether equitable set-off is applicable in this matter. It was conceded that the amended defence does not specifically refer to s 54 but noted that it does claim a set-off for the price paid for the goods. It was submitted that the cross-claim raises the question of warranties. It was conceded that Bantex’s claim is not for a liquidated claim and thus s 21 of the Civil Procedure Act 2005 (NSW) (which was specifically pleaded) does not apply.

33. Bantex relied upon the fact that Comix was aware of Bantex’s existing relationship with Officeworks and that, taken at its highest, Bantex’s case could result in a court being satisfied that it had suffered a direct loss which would be covered by the ambit of s 54 of the SOGA. Reliance was placed on the evidence that it took approximately five months to find an alternative supplier. Bantex’s position was that it had ordered specific products from a supplier (Comix) for the purposes of on-selling them in circumstances where that supplier was aware that it had been so acquired. It was acknowledged that there is a factual contest with respect to the extent of the defects.

34. Bantex relied upon the principle that a claim for loss of custom resulting in the sub-sale of defective goods may be made if shown to be within the contemplation of the contracting parties. Reliance was placed on the decision of Gleeson J in NT Beverages Group Pty Ltd v PT Bromo Tirta Lestari [2017] FCA 775 at [69] as authority for this proposition.

35. As for the applicability of equitable set-off in this matter, reliance was placed on the decision of Ward CJ in Eq in Active Adult Management Pty Ltd v Milstern Retirement Living [2017] NSWSC 1238 (“Active Adult Management”) in which the relevant principles were summarised at [82] to [86], and in particular on the fact that her Honour was not prepared to find at an interlocutory hearing that equitable set-off did not apply in that matter. It was submitted that whereas each case turns on its own facts, it is certainly arguable that equitable set-off is available to Bantex in this matter.

Consideration

36. UCPR r 13.1(1) provides that, if on application by the plaintiff in relation to the plaintiff’s claim for relief or any part of the plaintiff’s claim for relief:

“(a) there is evidence of the facts on which the claim or part of the claim is based, and

(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,

the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires.”

37. Bantex relied upon its proposed amended defence and cross-claim in lieu of the extant defence filed in these proceedings to resist the application for summary judgment. In doing so, it relied upon two arguments. Before turning to consider those two “defences”, I note that the relevant principles governing this application are well known and were not in dispute. Comix must establish that any defence Bantex intends to rely upon is “untenable and cannot possibly succeed”: Spellson v George (1992) 26 NSWLR 666 at 678–679 per Young AJA, with whom Handley JA and Hope AJA agreed.

38. The relevant principles were summarised by Emmett AJA (with whom Macfarlan and Simpson JJA agreed) in State of New South Wales v Williams (2014) 242 A Crim R 22; [2014] NSWCA 177 at [71], albeit in the context of an application to strike out a defence, as follows:

“The requirement for establishing that there is no triable issue is a demanding one and the power to strike out a pleading on the basis that it discloses no reasonable defence, or is an abuse of process, should be exercised only in plain and obvious cases. The power should not be exercised in cases of doubt or difficulty or where the pleading raises a debatable question of law. Once it appears that there is a real issue, whether of fact or law, and that the rights of the parties depend upon it, a court should not dismiss a defence raising such an issue, either on the basis that no reasonable defence is disclosed or as an abuse of process (see Dey v Victorian Railways Commissioners [19 49] HCA 1; 78 CLR 62 at 91; General Steel Industries Inc v Commissioner for Railways (NSW) [19 64] HCA 69; 11 2 CLR 125 at 129-130; Commonwealth v Griffiths [2007] NSWCA 370; 70 NSWLR 268 at [1 1]- [ 12] and Spencer v Commonwealth [20 10] HCA 28; 241 CLR 118 at 139-140).”

39. Thus, Comix faces a significant hurdle in establishing that this is a matter in which it would be appropriate for summary judgment to be entered against Bantex.

40. Although Bantex’s primary basis for resisting summary judgment as set out in the cross-claim was set-off as provided for in s 21 of the Civil Procedure Act 2005 (NSW), Bantex accepted that s 21 only applies to liquidated debts whereas Bantex seeks damages for breach of contract. In lieu of that claim, Bantex relied upon both equitable set-off as well as s 54 of SOGA.

41. Turning first to principles of equitable set-off, the focus of the submissions made on behalf of Comix on this issue sought to establish that, consistent with long-standing principle since Rawson v Samuel (1841) Cr & Ph 161; 41 ER 451, equitable set-off is only available where the cross-claim impeaches the title of the plaintiff. The relevant principles have been considered in three recent cases as follows.

42. In HP Mercantile Emmett JA, with whom Beazley P and Meagher JA agreed, observed at [136]–[137]

“For there to be an equitable set-off, 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. Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from its adversary's demand. The mere existence of a cross-claim is not sufficient. There must be some ground for equitable intervention beyond the mere existence of a cross-claim, such that it can be said that the equity of the defendant impeaches the claimant's title to the legal demand being enforced.

For example, where a mortgage is granted to a solicitor as security for costs and the mortgagor client has a cross-claim against the solicitor asserting that the costs would not have been incurred had the solicitor conducted himself with integrity, skill and attention, there will be a clear case of equitable set-off. Similarly, a court of equity may recognise a set-off of an unliquidated claim for damages for breach of a building contract against claims for money due under the contract. Again, where a lender promises to provide further advances for a development project and the borrower is unable to complete the development project and repay the advances actually made, equity would allow a set-off of the borrower's damages caused by the lender's failure to make the further advances before the lender would be permitted to enforce its security against the borrower (see James v Commonwealth Bank at 458 - 459).”

43. The Court of Appeal cited the above passages with approval in Hawes v Dean. In that decision Barrett JA, which whom Bathurst CJ and McColl JA agreed, observed that the "impeachment of title" test remains applicable in Australia and listed a number of authorities in support of that proposition (at [61]). His Honour then observed the following at [63]–[65] with respect to the decision in HP Mercantile:

“A more recent statement of the principle in this Court is found in the judgment of Emmett JA (Beazley P and Meagher JA concurring) in HP Mercantile Pty Ltd v Dierickx (above). His Honour said (at [136]), referring to the decision of Gummow J in James v Commonwealth Bank of Australia [1992] FCA 420; (1992) 37 FCR 445:

"For there to be an equitable set-off, 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. Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from its adversary's demand. The mere existence of a cross-claim is not sufficient. There must be some ground for equitable intervention beyond the mere existence of a cross-claim, such that it can be said that the equity of the defendant impeaches the claimant's title to the legal demand being enforced."

Emmett JA gave three examples of situations in which relevant impeachment will exist. The first is where a mortgage is granted to a solicitor as security for costs and the mortgagor client has a cross-claim against the solicitor for faulty work (the lien of a solicitor was referred to as "well known" in this connection in Simpson v Lamb [1857] EngR 68; (1857) 7 E & B 84; 139 ER 1179 at 1181). The second is where a builder has a claim for money due under a building contract and there is an unliquidated claim against the builder for damages for breach of that contract. The third case is where a lender fails to provide promised further advances for a development project and the borrower is unable to complete the development project and repay the advances actually made.”

44. More recently in Active Adult Management, Ward CJ in Eq observed at [82]-[83]:

“…. The basic question would be whether the applicants’ proposed claims are essentially “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] NSWCA 479 at [136]). In Hawes v Dean [2014] NSWCA 380, after referring (at [64]) to HP Mercantile and the examples given in that case, Barrett JA noted (at [65]) that they shared a common feature, namely:

… two wrongs or defaults [that] are so closely connected that a net position or result ought in equity to prevail between the parties because it would be unconscionable to allow one of them to insist on its legal right without first accommodating the other's countervailing legal right. It is the existence of that unconscionability that causes the first party's claim to be "impeached" (that is, undermined and defeated) by the second party's claim. [my emphasis]

Clearly these notions of conscience do not operate at large (see Hawes v Dean at [61] and the authorities cited therein) and it is necessary in each case to examine earlier authorities to identify the sorts of claims which have been said to impeach a plaintiff’s title to a legal demand…”

45. Thus, Bantex will be able to rely upon equitable set-off if it can establish that its claim of damages for breach of implied warranties is so closely connected to Comix’s claim for payment that it would be unconscionable for Comix to insist on its legal right without first accommodating Bantex’s claim for damages.

46. As stated above, during the hearing of this application, I raised with counsel for Comix why the present application does not fall within the second hypothetical example raised by Emmett J in HP Mercantile and approved by Barrett JA in Hawes v Dean. It was on that issue that leave was granted for supplementary submissions to be filed. In those supplementary submissions the plaintiff sought to distinguish those decisions on their facts. In HP Mercantile, the borrowers alleged that they would not have entered into a loan agreement with the lender but for his misleading conduct. It was submitted that there was nothing in either that decision or Hawes v Dean which supports the proposition that a cross-claim for breach of warranty without more satisfies the “impeachment” requirement. It was submitted that Emmett JA “gave no authority” for the second hypothetic example, that it was not necessary to his decision, that it was obiter and that it differs to the other two hypothetical examples in his judgment.

47. I have considered these submissions but do not accept that they lead to the result that I should not accept his Honour’s analysis in HP Mercantile on this issue.

48. It was further submitted in the plaintiff’s supplementary submissions that, in Hawes v Dean, Barrett JA did not “deal with” the hypothetical cases referred to by Emmett JA, that his Honour did not expressly approve the second hypothetical case posited by Emmett JA as a basis for establishing “impeachment” and that the “builder” example in HP Mercantile does not bind this court. Although it is to be accepted that Emmett JA was merely seeking to demonstrate the limited availability of equitable set-off by way of examples, the fact is that one of the three hypothetical examples his Honour provided is where a builder has a claim for money due under a building contract and there is an unliquidated claim against the builder for damages for breach of the contract. Although it is to be accepted that a building contract is not for goods alone, such as in the present case, the hypothetical is otherwise not dissimilar to the facts in the present matter.

49. Moreover, contrary to Comix’s submission that Barrett JA did not expressly approve of the second hypothetical provided by Emmett JA in HP Mercantile, it is to be noted that, at [65] of Hawes v Dean, Barrett JA observed the following in relation to the three hypothetical examples provided by Emmett JA in HP Mercantile:

“In all the hypothetical cases to which Emmett JA referred, two wrongs or defaults are so closely connected that a net position or result ought in equity to prevail between the parties because it would be unconscionable to allow one of them to insist on its legal right without first accommodating the other's countervailing legal right. It is the existence of that unconscionability that causes the first party's claim to be "impeached" (that is, undermined and defeated) by the second party's claim.”

50. Furthermore, in Active Adult Management, Ward CJ in Eq, in the passage extracted above at [44], referred specifically to Barrett J’s observations at [65] of Hawes v Dean and noted that all of the hypothetical examples described by Emmett JA in HP Mercantile shared the “common feature” that the “two wrongs or defaults” are so closely connected that it would be “unconscionable to allow one of them to insist on its legal right without first accommodating the other's countervailing legal right”.

51. It was not suggested on behalf of Comix that the second hypothetical in HP Mercantile is not analogous to the case before me but, rather, that I am not bound by that part of that decision and those that follow it on that issue.

52. The plaintiff bears a significant burden of establishing that there is no triable issue on this application for summary judgment. In order to do so it must establish that equitable set-off could not apply on the facts in this matter. In doing so it is faced with two unanimous decisions of the Court of Appeal as well as a single judge decision from the Chief Judge in Equity in which a hypothetical example, not dissimilar to the facts in the present case, is either suggested or endorsed as an example where equitable set-off would be available. In these circumstances I am not persuaded, to use the language of Ward CJ in Eq in Active Adult Management at [86], that the availability of equitable set-off in this matter is “unarguable.”

53. Even if I am wrong about the availability of the doctrine of equitable set-off in this matter, the potential defence under s 54 of SOGA remains. That section provides for remedies for breach of warranty in a contract for the sale of goods and is in these terms:

“(1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods, but the buyer may:

(a) set up against the seller the breach of warranty in diminution or extinction of the price, or

(b) maintain an action against the seller for damages for the breach of warranty.

(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty.

(3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.

(4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent the buyer from maintaining an action for the same breach of warranty if the buyer has suffered further damage.”

54. There is no express reference to any reliance upon s 54 in the proposed amended defence. Rather, counsel for Bantex relied upon the passage in the amended defence at (f) extracted above at [22] to suggest that s 54 of the SOGA is pleaded. I am not satisfied that that is the case. As counsel for Comix properly submitted, s 54 of SOGA provides for a defence, rather than a basis for a cross-claim, which should have been pleaded as part of the defence. It was not. Counsel for the plaintiff did not submit that such a defence would not be available on the facts in this matter, only that it was not currently pleaded nor included in the proposed amended defence.

55. I have had regard to the extant defence as well as the proposed amended defence and cross-claim. The fact remains that Bantex has impliedly claimed since the outset that it relies upon the fact that some of the goods were defective, even though the basis for how that amounts to a defence was not properly pleaded. I have given consideration to the fact that it was not until a few weeks before the hearing of this application (which had been listed since 22 September 2017) that set-off was first raised and that it was not until the hearing of this application that any reference to s 54 of SOGA was raised for the first time. When I raised with counsel for Bantex during the hearing of this application why no cross-claim or amended defence had been raised earlier in the proceedings, it was conceded that there was no adequate explanation beyond the fact of a change in solicitor.

56. As stated above, I would only order summary judgment in this matter if I was satisfied that there was “no defence” to the plaintiff’s claim. Despite the fact that any reliance upon s 54 of the SOGA has not been pleaded it seems to me that, putting to one side the availability of equitable set-off in this matter, it would not be consistent with the overriding principle in s 56 of the Civil Procedure Act 2005 (NSW) to order summary judgment in circumstances where there is a defence available, albeit not properly pleaded and concerning disputed facts. In those circumstances I do not propose to accede to the plaintiff’s claim.

57. I note that it was conceded during the hearing of this application that, in the event that I held that equitable set-off applies, Comix did not object to the filing of the cross-claim and amended defence. Its position with respect to a further amendment expressly relying upon s 54 of the SOGA was less clear. To the extent necessary, I propose to grant leave to Bantex to file an amended defence in different terms to the draft before me on this application pleading reliance on s 54 of SOGA.

Costs

58. Turning to the question of costs, during the hearing of this application, I raised with both counsel what the appropriate costs orders should be in the event that the plaintiff was unsuccessful.

59. Counsel for Bantex submitted that, if the application for summary judgment was dismissed, then costs should be awarded to Bantex on the basis that costs follow the event. Reliance was also placed on the correspondence dated 14–20 November 2017, summarised above at [21] and [24]-[25]. It is to be noted that, although there is a reference to indemnity costs made in the correspondence, that was not pressed at the hearing of this motion.

60. Counsel for Comix submitted that, at the time that this application for summary judgment was made, there was no apparent defence pleaded. It was not until 14 November 2017, by which time the application had been listed for a number of months, that any question of either set-off or some defence was first raised. It was submitted that it would not be appropriate to award costs to Bantex based on pleadings that they have not as yet filed and which were raised for the first time at the hearing of the application. In short it was submitted that the question of the appropriate costs order was more complex than an assertion that they would simply follow the event.

61. I have given careful consideration to the competing arguments of counsel. The Court has a broad discretion to award costs: s 98 of the Civil Procedure Act 2005 (NSW). That discretion is fettered to some extent by r 42.1 of the UCPR which provides:

“General rule that costs follow the event

Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.”

62. It is well accepted that the rationale for the principle that costs follow the event is that the successful party to proceedings should be compensated. That is, costs are not awarded to punish an unsuccessful party.

63. The fact remains that Bantex left it until a late stage in these interlocutory proceedings to file a cross-claim and seek leave to file an amended defence and then asserted a defence based on s 54 of the SOGA for the first time during argument. In these circumstances I consider that the appropriate costs order is that each party pay its own costs.

ORDERS

64. For the above reasons I make the following orders:

1. The plaintiff’s notice of motion dated 4 July 2017 is dismissed.

2. The defendant has leave to file an amended defence by 9 March 2018.

3. That each party pay its own costs.

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Decision last updated: 09 February 2018