Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd
[2000] QSC 50
•13/03/2000
SUPREME COURT OF QUEENSLAND
CITATION: Daewoo Australia P/L v Porter Crane Imports P/L t/a Betta
Machinery Sales [2000] QSC 050
Porter Crane Imports P/L v Daewoo Australia P/L
[2000] QSC 050PARTIES: DAEWOO AUSTRALIA PTY LTD ACN 003 854 162
(plaintiff)
v
PORTER CRANE IMPORTS PTY LTD
ACN 010 359 243
trading as BETTA MACHINERY SALES
(defendant)and PORTER CRANE IMPORTS PTY LTD
ACN 010 359 243
(plaintiff)
v
DAEWOO AUSTRALIA PTY LTD ACN 003 854 162
(defendant)FILE NO/S: S9225 of 1999
3786 of 1999DIVISION: Trial Division DELIVERED ON: 13 March 2000 DELIVERED AT: Brisbane HEARING DATE: 10 February 2000 JUDGE: White J ORDER:
1. There be judgment for the plaintiff in action S9225 of 1999 in the sum of $435,394.12 together with interest at 9 per cent per annum to the date of judgment. 2. The defendant’s counterclaim in action S9225 of 1999 be struck out. 3. The plaintiff in action 3786 of 1999’s application to consolidate that action with action S9225 of 1999 be dismissed. CATCHWORDS: Summary judgment – whether clause in dealership agreement
precludes set-off and counterclaim – stay of execution.
Trade Practices Act 1974, s 51AC, s 52, s 82, s 87
Uniform Civil Procedure Rules, R171Coca-Cola Financial Corporation v Finsat International Ltd
[1998] QB 43
Dawnays Ltd v FG Minter Ltd [1971] 2 All ER 1389
Halesowen Presswork & Assemblies Ltd v Westminster Bank
Ltd [1972] AC 785
Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern)
Ltd [1974] AC 689
Mottram Consultants Ltd v Bernard Sunley & Sons Ltd
[1975] 2 Lloyd’s Rep 197
Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410COUNSEL: Mr P Franco for Daewoo Australia Pty Ltd
Mr D Bates for Porter Crane Imports Pty LtdSOLICITORS: Minter Ellison for Daewoo Australia Pty Ltd Clayton Utz for Porter Crane Imports Pty Ltd
WHITE J: The plaintiff (“Daewoo”) in action S9225/99 seeks summary judgment against the defendant (“Porter Crane”). In an application filed by leave, Porter Crane seeks to have consolidated action 3786 of 1999 with action S9225 of 1999. In that action it is the plaintiff and Daewoo is the defendant. Porter Crane seeks an order that Daewoo have the carriage of the consolidated action as plaintiff. Daewoo seeks the return of certain heavy equipment or, alternatively, the balance of the purchase price, and the payment to it of certain moneys received by Porter Crane in respect of certain equipment and spare parts arising out of a dealership agreement between the parties, and an order striking out Porter Crane’s counterclaim and set-off in action S9225 of 1999 pursuant to R171 of the Uniform Civil Procedure Rules. The basis for the application to strike out is twofold: that it is duplicitous of its own cause of action in action 3786 of 1999 and that cl 4.5 in the dealership agreement precludes Porter Crane from raising a set-off against a claim for payments due under the dealership agreement.
Porter Crane contends that consolidation of the actions will resolve the problem of its statement of claim in action 3786 of 1999 and its counterclaim and set-off in action S9225 of 1999 being in identical terms. With respect to cl 4.5, Porter Crane contends that it was Daewoo’s conduct in breach of the dealership agreement which caused it to fail to make payments in accordance with the agreement so that Daewoo may not seek relief under the agreement based on breach caused by Daewoo’s wrongful conduct.
Daewoo was the Australian representative for a Korean company which manufactured heavy machinery. It imported and sold wholesale Daewoo machinery, parts and equipment. Porter Crane carried on the business of selling and servicing heavy machinery at Beenleigh near Brisbane. The parties entered into a written dealership agreement (“the Agreement”) on or about 26 October 1998. It is a lengthy document and said to be Daewoo’s standard dealership agreement. On or about 18 February 1999 the Agreement was rectified by the parties incorporating in it the terms of Schedules 7, 9, 10 and 11 which, by oversight, had not been included in the original agreement.
There is no issue, as I understand the pleadings and submissions, as to the allegations in Daewoo’s statement of claim. The parties agree that a total of $435,394.12 is owing by virtue of the matters alleged in the statement of claim which includes $56,184.12 for spare parts plus interest at 9 per cent. However, Porter Crane contends that it is entitled to set-off an amount of at least $592,630 being its assessment of the damage it has incurred as a consequence of Daewoo’s breaches of what it alleges is the Agreement against the sum claimed by Daewoo. This arises because Porter Crane alleges in its counterclaim and set-off that the Agreement was partly written and partly oral and included three express oral terms, namely,
• the dealership agreement would be an exclusive dealership agreement for Queensland; • the dealership agreement would be a long term dealership relationship; • the terms of the dealership agreement could be extended by notice by the defendant. Porter Crane seeks to incorporate an implied term that Porter Crane’s right to extend the dealership agreement would be for a reasonable period of time in all the circumstances and a reasonable time is 10 years.
In brief terms the Agreement provided a procedure for Porter Crane to order Daewoo goods which would be delivered to Porter Crane. Porter Crane was to pay 20 per cent of the purchase price of the goods prior to delivery and the balance for each machine within 150 days of delivery. Upon delivery of the goods title remained with Daewoo and Porter Crane held them as bailee. Under the Agreement Porter Crane was to notify Daewoo of offers to purchase Daewoo goods whereupon Daewoo would sell and pass title in the particular goods to Porter Crane. Porter Crane was to pay the balance purchase price to Daewoo within 10 days of the date of sale. The purchase price became immediately due and owing if Porter Crane breached the Agreement. The proceeds of on sale by Porter Crane of Daewoo goods were to be held in a separate account for Daewoo and when cleared be paid immediately to Daewoo. A different regime but similar in effect applied to spare parts.
Products were ordered, delivered and more than 150 days passed and the balance purchase price therefore became due and payable. Despite demand, payments were not received. Porter Crane sold some of the machinery without notifying Daewoo in advance and did not account for the purchase price which was held in an account designated differently from the terms of the Agreement and not held for Daewoo.
The written Agreement provided that its duration was for one year (12 months) from the commencement of the Agreement (cl 10 and Schedule 9) which could be extended by giving written notice at least one month before the expiration of the term to extend the Agreement as might be agreed between the parties.
Porter Crane alleges that Daewoo, in breach of the oral terms of the Agreement, used another company as a dealer of Daewoo goods in Queensland, failed to supply Daewoo goods to Porter Crane; failed or refused to provide necessary service, technical manuals, stock parts and the like; repudiated the dealership agreement by denying that it was exclusive; and refused to renew the Agreement. The damage relates to loss of profit and the preparation of the dealership site. Porter Crane alleges that it would not have entered into the Agreement but for the untrue representations being the oral terms.
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“(g) further, such further orders or relief that this Honourable
Court may deem appropriate.”
Mr Bates, counsel for Porter Crane, was given an opportunity to identify authority by way of further written submissions for its proposition that Daewoo could not rely on cl 4.5 of the Agreement excluding set-off if, by its conduct, it had caused Porter Crane to be in breach of the Agreement. In the event he has been unable to do so. In summary Porter Crane now contends that
(a)
Daewoo is not entitled to payment of the amount claimed pursuant to the dealership agreement because
• Porter Crane would not have entered into the Agreement had Daewoo not made false, misleading and deceptive representations; • at trial the court may order that the Agreement is void, void ab initio or refuse to enforce any or all of the provisions of the Agreement; (b) Daewoo’s conduct has caused Porter Crane’s failure to make the payments under the Agreement which Daewoo claims by summary judgment;
(c) Porter Crane has the defence of set-off against Daewoo’s claim.
Porter Crane in its pleadings affirms the contract and seeks declarations consistent with what it alleges to be oral terms of the Agreement, namely, that it is an exclusive agreement which, at Porter Crane’s option, might be extended for a further 10 years. In correspondence with Daewoo dated 16 September 1999 Porter Crane sought to renew the Agreement for a further 12 months (exhibit KJC 11 to the affidavit of Kyung Je Cho filed 24 December 1999 in action S9225 of 1999). No relief is sought pursuant to s 87 of the Trade Practices Act seeking to have the Agreement set aside. It is disingenuous of Porter Crane to submit that where it seeks “such further orders or relief that this Honourable Court may deem appropriate” this would allow for such an order. As presently pleaded and as appears in the supporting material, there is no basis for anticipating an order declaring the Agreement between Porter Crane and Daewoo void. It is a typical case of damages being an adequate remedy if Porter Crane is successful in its allegations.
Even if this entirely alternative relief is claimed by amendment it would not be part of the defence of Porter Crane but would be incorporated into its counterclaim and set-off and be subject to cl 4.5. That clause provides
“All payments required to be made by the Dealer [Porter Crane] under this Agreement will be made free of any set-off or counterclaim and without deduction or withholding and, without limiting the generality of the foregoing, will be made irrespective of the loss, theft or destruction of any Daewoo Goods after the Holding Period [bailment] in respect of the Daewoo Goods commences.”
Is there any basis for implying a limitation of the kind contended for by Porter Crane on the operation of cl 4.5?
Mr Franco for Daewoo relied on the decision in Coca-Cola Financial Corporation v Finsat International Ltd [1998] QB 43 which construed a clause in virtually identical terms. Article 5.7 of the subject loan agreement provided
“All payments under this agreement, including all payments of the notes and all prepayments, shall be made in United States dollars, in immediately available funds, free and clear of any right of set-off or counterclaim or any withholding or deduction whatsoever … ”
This provision also applied to a contract of guarantee entered into by the defendants. On default of the repayment of the loan the plaintiff/creditor had recourse to the defendants/guarantors who resisted summary judgment, relevantly for this application, on the grounds that on its true construction Article 5.7 did not apply to the counterclaim made by them and, secondly, if it did it was unenforceable as being contrary to public policy. The argument in respect of the first was that it dealt only with the mechanics for making payment under the Agreement and did not define the extent of the obligation to make payment. Lord Justice Neill with whom the other members of the Court of Appeal agreed said
“I am quite unable to accept these arguments. The language of Article 5.7 is clear. Article 5.7 provides that payments are to be made free and clear of ‘any right of set-off or counterclaim’. In my judgment these words define the extent of the obligation to pay. The point is underlined by the following words ‘[free and clear of] any withholding or deduction whatsoever’” at p 50.
Although not raised as an issue in this application, the Court of Appeal considered the second argument, namely, that a party to court proceedings was not free to waive or contract out of the right given to it by law to set-off one debt or claim against another. Lord Justice Neill concluded that the right of set-off can be excluded by agreement. The common law permits the parties to a contract to include in it such terms as they consider to be appropriate subject to any specific fetters on freedom of contract by statute. See also Halesowen Presswork & Assemblies Ltd v Westminster Bank Ltd [1972] AC 785, Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689, Mottram Consultants Ltd v Bernard Sunley & Sons Ltd [1975] 2 Lloyd’s Rep 197. See also Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410 where Williams J discussed the expression “without any deduction” in a lease document and referred to the latter two cases.
A similar clause was considered in The “Fedora” [1986] 2 Lloyd’s Rep 441 also a decision of the Court of Appeal. The relevant terms in the guarantees upon which the defendants were sued provided
“All payments by the Guarantor under this Guarantee shall be made without set-off or counterclaim and without deductions or withholdings whatsoever … ”
The defendants sought to argue that such a clause should be construed like an exemption or exclusion of liability clause and that unless there were plain words, claims of negligence ought not to be construed as being included in the expression “free of set-off or counterclaim”. The defendants claimed that the plaintiff bank had acted negligently (recklessly in one case) in selling the mortgaged ships at under value and thus exposed them to suit. The court concluded that there was no good reason for treating such clauses as appeared in the loan and guarantee agreements in the same way as exclusion clauses.
“The latter [exemption clauses] purport to exclude liability altogether. These clause do not touch liability. The guarantors can still prosecute their claims to judgment. They are, if the clauses are effective, merely prevented from holding up payments admittedly due under the guarantees while disputed cross-claims are litigated. This being so the principle which lies behind the narrow construction given to exclusion clauses, that specific words or the use of all embracing words such as ‘whatsoever’ are necessary to enable a party to exclude liability for his own negligence has no application” p 444.
The court went on to observe
“There must also be added (1) that the commercial purpose of the transaction is that, upon default by the borrower the bank should be paid quickly, and (2) that the natural meaning of the words is that all set-offs and counterclaims are excluded. The natural meaning of the words is not that all set-offs and counterclaims ‘other than set-offs and counterclaims for negligence or breach of the bank’s duties as mortgagee’ are excluded” (ibid).
Mr Bates contended that since the Agreement was the standard agreement of Daewoo and since it operated for the benefit of Daewoo it should be construed strictly against Daewoo contra proferentem. There is, however, no basis for doing so and in Mottram v Sunley supra Lord Justice Cross said at p 205 when discussing the overruling of the decision of the Court of Appeal in Dawnays Ltd v FG Minter Ltd [1971] 2 All ER 1389 by the House of Lords decision in Gilbert Ash, supra
“So the position is now once more what it was before the Dawnays’ case was decided – namely, that one should approach each case without any ‘parti pris’ in favour or against the existence of a right of set-off … ”
In my view the language of cl 4.5 is clear and its purpose evident, namely, to prevent Porter Crane from relying on any set-off which it might have to delay Daewoo’s claim for money owing under the Agreement.
Although not a matter to be decided on this application Daewoo takes issue with the underlying factual premise of Porter Crane’s argument that Daewoo’s alleged breach caused Porter Crane to fail to pay the due payments. The Agreement provided that the balance purchase price for the machines was to come from the proceeds of sale of each machine to the customer. Porter Crane, it seems, chose to deposit the proceeds of the sale into an account not identified by the Agreement.
Accordingly Daewoo is entitled to summary judgment on its claim in the sum of $435,394.12 together with interest at 9 per cent per annum in accordance with the Agreement.
If it is unsuccessful in resisting summary judgment Porter Crane submits that there ought to be a stay pursuant to R300 until judgment is delivered on Porter Crane’s claim against Daewoo. This is based on allegations that Daewoo would be unable to meet a judgment on Porter Crane’s claim. The evidence advanced to support this allegation was contained in the affidavit of Mr A Deane filed by leave on 10 February 2000 in paragraph 10 the reception of which was objected to by Mr Franco. Mr Bates asked that that objection be put to one side until argument was heard on the whole application and was not ruled upon. It was information which Mr Deane said he had gleaned from reading two Korean newspapers which he had been monitoring since August 1999. I would not regard that material as admissible. The newspapers are not exhibited and could hardly be regarded as a reliable source of information. Kyung Je Cho the Administration Manager of Daewoo deposed to Daewoo’s financial soundness exhibiting the directors’ and independent auditors’ report to 31 December 1998 and the most recent annual return lodged on 1 November 1999.
The defendants in both The ‘Fedora’ and Coca-Cola Financial Corporation sought stays of execution in the event that summary judgment was obtained. In the former case the Court of Appeal said
“The purpose of both [clauses] was to ensure immediate payment if the principal debtor did not pay. Indeed the present case makes it the more necessary that the Court should not interfere, for here the parties have specifically provided both in the loan agreement and the guarantees that payment should be made free of any set-off or counterclaim. It would defeat the whole commercial purpose of the transaction, would be out of touch with business realities and would keep the bank waiting for a payment, which both the borrowers and the guarantors intended that it should have, whilst protracted proceedings on the alleged counterclaims were litigated. We do not doubt that the Court has a discretion to grant a stay but it should in our view be ‘rarely if ever’ exercised, as Lord Dilhorne said in relation to claims on bills of exchange” at p 445.
In the Coca-Cola case Lord Justice Neill observed that since Coca-Cola could rely upon Article 5.7 he could see no reason why it should be deprived of the right which Article 5.7 was inserted in the loan agreement to secure by the granting of a stay. See also Wood, English and International Set-Off, (1989) at pp 12-23 and Derham, Set Off (1996) at 142. I would therefore decline the application for a stay of execution of judgment.
Since Daewoo has been successful in its action there is nothing left to litigate in that action and the preferable course would be to allow action 3786 of 1999 to continue and to strike out the counterclaim in S9225 of 1999 so that there is no occasion for an order for consolidation.
Subject to any submissions which may be made, Daewoo has been successful on both applicants and costs ought to follow those outcomes.
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2. The defendant’s counterclaim in action S9225 of 1999 be struck out.
3. The plaintiff in action 3786 of 1999’s application to consolidate that action with action S9225 of 1999 be dismissed.
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