Flint Ink NZ Limited v Huhtamaki Australia Pty Ltd(ACN 003 122 843) and Lion-Dairy and Drinks Pty Ltd(ACN 004 486 631)
[2013] VSCA 381
•13 December 2013
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2013 0162
| FLINT INK NZ LIMITED | Applicant |
| v | |
| HUHTAMAKI AUSTRALIA PTY LTD (ACN 003 122 843) | First Respondent |
| and | |
| LION-DAIRY & DRINKS PTY LTD (ACN 004 486 631) | Second Respondent |
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| JUDGES | OSBORN and BEACH JJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 13 December 2013 |
| DATE OF JUDGMENT | 13 December 2013 |
| MEDIUM NEUTRAL CITATION | [2013] VSCA 381 |
| JUDGMENT APPEALED FROM | Lion-Dairy & Drinks Pty Ltd (formerly National Foods Limited) v Huhtamaki Australia Pty Ltd & Anor [2013] VSC 555 (Vickery J) |
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ARBITRATION – Leave to appeal – Application below for stay or summary judgment in third party claim – Claimant in third party proceeding not party to arbitration agreement – Whether ‘matter … capable of settlement by arbitration’ – Whether claimant claiming ‘through or under a party’ – Whether nothing to refer to arbitration – Leave to appeal granted on limited grounds – International Arbitration Act 1974 (Cth) ss 7(2), 7(4), 16 – UNCITRAL Model Law on International Commercial Arbitration art 8.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr D Batt SC with Mr R Andrew | Wotton + Kearney |
| For the First Respondent | Mr M Barrett | Lander and Rogers |
| For the Second Respondent | No appearance |
OSBORN JA:
Lion-Dairy & Drinks Pty Ltd (‘Lion-Dairy’) is a manufacturer of dairy products and makes Yoplait Yoghurt food products in Gippsland, Victoria. Huhtamaki Australia Pty Ltd (‘HA’) is a packaging company. From time to time it acquires packaging products from Huhtamaki NZ Limited (‘HNZ’).
In November 2012 Lion-Dairy issued proceedings in the Commercial List against HA claiming damages for losses following a product recall of Yoplait products necessitated by defective packaging.
In the course of the interlocutory judgment which is the subject of the application now before this Court Vickery J summarised the pleadings in respect of Lion-Dairy’s claim as follows:
10In summary, in its statement of claim in the principal proceeding, Lion Dairy alleges the following against Huhtamaki Australia:
(a)At all material times, Huhtamaki Australia knew, or alternatively ought to have known that:
(i)The Products produced by Lion Dairy, Go-Gurt and Smackers, were targeted at children of early-school age;
(ii)The Products and their packaging had to be safe for consumption by young children;
(iii)In order to consume the Products, a child, or alternatively his or her parent or carer, would have to tear the top off a Go-Gurt, or alternatively the Smackers tube, and suck on the open end of it; and
(iii)The flexible packaging supplied by it to Lion Dairy was for, among other things, the production of the Products;
(b)In or about June 2005, Lion Dairy and Huhtamaki Australia entered into an agreement (the ‘Agreement’). Under the Agreement, Huhtamaki Australia agreed to supply and Lion Dairy agreed to purchase flexible packaging, including film and tube laminates (the ‘Goods’), for use by Lion Dairy in packaging its products, including the Products.
Huhtamaki Australia admits the Agreement and that it supplied flexible packaging to Lion Dairy pursuant to the Agreement;
(c)In the course of negotiations prior entering into the Agreement, Lion Dairy made two things known to Huhtamaki Australia, among others. First, it relied upon Huhtamaki Australia’s skill. Second, the particular purpose for which the Goods were being acquired, namely as flexible packaging for production of food and dairy products for consumption by persons of varying ages;
(d)There were implied terms of the Agreement that:
(i)The Goods, including the film, were, alternatively would be, of merchantable quality and fit for their intended purpose;
(ii)The Goods, including the film, were, alternatively would be, free of defects making the Goods unsuitable for production of the Products; and
(iii)The Goods, including the film, were, alternatively would be, safe for use in the production of the Products;
(e)The Agreement was a contract for the sale of goods by description and contained the implied warranties set out in s 19 of the Goods Act 1958 (Vic);
(f)Further, or in the alternative, at all material times:
(i)It was reasonably foreseeable that Lion Dairy might suffer economic loss as a consequence of Huhtamaki Australia's want of reasonable care in the supply of the Goods, including the film used in the production of the Products;
(ii)Lion Dairy was vulnerable to the consequences of Huhtamaki Australia's want of reasonable care in the supply of the Goods, including the film used in the production of the Products; and
(iii)Lion Dairy and Huhtamaki Australia were in a sufficient relationship of proximity such that Huhtamaki Australia owed Lion Dairy a duty of care;
(g)Further or in the alternative, in the course of negotiations prior to entering into the Agreement and in order to induce Lion Dairy to enter into the Agreement, Huhtamaki Australia, its servants or agents, represented to Lion Dairy, in trade and commerce that:
(i)The Goods, including the film, were and would be fit and safe for use as flexible packaging in the production of Lion Dairy products, including the Products;
(ii)The Goods, including the film, were and would be in accordance with the specifications that had been provided (the ‘Specifications’); and
(iii)The Goods, including the film, were and would be manufactured and delivered by Huhtamaki Australia to Lion Dairy:
1.with the same or higher level of care and skill as would reasonably be expected of a person qualified and experienced in the manufacture and transport of the same or similar goods; and
2.in accordance with the Specifications,
(collectively, the ‘Representations’);
(h)The Representations were false in that the original film had bond strength of only 100 to 200g/25mm and the film was not fit and safe for the intended purpose. This is illustrated by three incidents involving child consumers in the market place.
Huhtamaki Australia admits that in July 2008, Lion Dairy received three complaints from consumers of the Products that pieces of the yoghurt packaging had become detached from the yoghurt packaging during consumption;
(i)On 6 August 2008, Lion Dairy stopped production of the Products and quarantined all stock of the Products. On 8 August 2008, due to the de-lamination defect, Lion Dairy recalled the Products in the market with best before date of 27 September 2008 or earlier;
(j)On or about 27 August 2008, Lion Dairy, after certain assurances were given to it by Huhtamaki Australia, resumed production of the Products using the new film supplied by Huhtamaki Australia to it pursuant to the Agreement; and
(k)On 28 October 2008, after a de-lamination defect was detected in the Products produced with the use of the new film, Lion Dairy stopped the resumed production of the Products. Further, it quarantined all stock of the said Products at the Plant prior to distribution. Lion Dairy did not resume production of the Products until about mid-January 2009.
11Accordingly, Lion Dairy sues Huhtamaki Australia for damages arising out of alleged: breach of contract (the Agreement); breach of the implied statutory warranties under s 19 of the Goods Act 1958 (Vic) (fitness for purpose and merchantable quality); breach of its alleged duty of care (negligence); and misleading and deceptive conduct (ss 51A, 52 and 53 Trade Practices Act 1974 (Cth) (the ‘TPA’), and ss 4, 9 and 12 Fair Trading Act 1999 (Vic).
Huhtamaki Australia denies the alleged breaches and misleading and deceptive conduct on the grounds set out in its defence.[1]
[1]Lion-Dairy & Drinks Pty Ltd (formerly National Foods Limited) v Huhtamaki Australia Pty Ltd & Anor [2013] VSC 555 (‘Reasons’), [10]-[11].
In November 2013 HA filed a third party notice against Flint Ink NZ Limited (‘Flint Ink’) alleging inter alia:
· HA had engaged Flint Ink to supply HA with ink for use on packaging to be used to contain food products for retail use;
· HA relied on Flint Ink to advise it as to the suitability of ink supplied for that use; and
· Flint Ink owed a HA a duty of care.
During the preparation of its defence Flint Ink ascertained that the inks were supplied by it to HNZ pursuant to an agreement which contained an arbitration clause upon which it desired to rely and advised HA of these facts.
HA then prepared a proposed amended third party statement of claim in which it abandoned claims for breach of contract.[2] HA now alleges that the Lion-Dairy claims are apportionable claims and that Flint Ink is a concurrent wrongdoer for the purposes of part IV of the Wrongs Act 1958 (Vic) and pt VI of the Trade Practices Act.
[2]Save for one claim for breach of warranty which Vickery J refused to allow to proceed.
It pleads further that if HA is liable to Lion-Dairy and if any or all of the claims made by Lion-Dairy are not apportionable claims then HA is entitled to indemnity or contribution from Flint Ink on the bases which the trial judge summarised as follows:
(a) Flint Ink NZ Supply Contract
1.On or about 1 November 2005, Huhtamaki NZ and Flint Ink NZ entered into an agreement under which Huhtamaki NZ would purchase exclusively from Flint Ink NZ, and Flint Ink NZ would supply, ink products for the use, among others, of printing on goods which would be used for retaining liquids and/or foods for human consumption (the ‘Flint Ink Supply Agreement’).
2.Flint Ink NZ agreed to supply and Huhtamaki NZ agreed to buy exclusively from Flint Ink NZ, on the terms and subject to the conditions contained in the Flint Ink Supply Agreement, the ink products covered by the agreement (the Ink Products).
(b)Claim in Respect of Advice provided by Flint Ink NZ to Huhtamaki NZ
3.Huhtamaki Australia alleges that at all material times:
(i)Huhtamaki NZ relied on Flint Ink NZ to advise it as to what would be suitable inks to use;
(ii)Flint Ink NZ knew or ought to have known of Huhtamaki NZ's reliance on it;
(iii)Flint Ink NZ knew or ought to have known that if Huhtamaki NZ, in reliance on such advice, purchased unsuitable ink products, its customers would likely suffer loss;
(iv)Flint Ink NZ in fact advised Huhtamaki NZ as to what would be suitable ink products to use;
(v)In the circumstances, Flint Ink NZ owed Huhtamaki NZ and Huhtamaki Australia (as a customer of Huhtamaki NZ) a duty to exercise reasonable care in advising Huhtamaki NZ as to what ink products to use;
(vi)Between about 2004 and August 2008, Flint Ink NZ advised Huhtamaki NZ to use Melam ink, including with corona treated substrate, for the production of yoghurt packaging for Lion Dairy (the ‘Advice’); and
(vii)Relying on the Advice, Huhtamaki NZ: in or about late 2007 and early 2008, pursuant to the Flint Ink Supply Agreement, purchased Melam ink for use with a corona treated substrate in the production of packaging for Lion Dairy; between about December 2007 and July 2008, used the Melam ink in the production of such packaging for Lion Diary; between about May 2008 and August 2008 Huhtamaki NZ supplied to Huhtamaki Australia, which resupplied to Lion Dairy, the packaging material.
(c)Third Party Claim by Huhtamaki Australia in Respect of the Advice
4.Huhtamaki Australia refers to the claims of Lion Dairy against it that the packaging material was defective, not fit for purpose, not of merchantable quality, not in accordance with the Specifications, was not safe for use in the production of the Products, and was not manufactured with the same or higher level of care and skill as would reasonably be expected of a person qualified and experienced in the manufacture of the Goods (the ‘Alleged Failures’).
5.Huhtamaki Australia alleges that the Alleged Failures, if established, are due to:
(i)The Melam ink recommended by Flint Ink NZ and used by Huhtamaki NZ not being suitable for use with a corona treated substrate; and
(ii)The Advice being given negligently.
6.It is further alleged by Huhtamaki Australia that any loss suffered by Lion Dairy as a result of the Alleged Failures was caused or contributed to by Flint Ink NZ's negligence.
7.Further or alternatively, it is further alleged by Huhtamaki Australia that if the packaging material was not safe or fit for purpose as alleged by Lion Dairy, then:
(i)It was not safe and/or fit for purpose because the Melam ink was not suitable for use with a corona treated substrate; and
(ii)The supply of such product by Flint Ink NZ to Huhtamaki NZ was in breach of the warranty in the Flint Ink Supply Agreement.
8.Huhtamaki Australia then alleges that, as a result of the negligence and breaches referred to above, Huhtamaki Australia has suffered loss and damage, being its exposure to Lion Dairy's claim and the costs of defending it.[3]
[3]Reasons [16].
Faced with the new proposed claim Flint Ink opposed the application by HA to amend its third party statement of claim and also sought a stay of the third party proceeding as an abuse of process.
International Arbitration Act 1974 (Cth)
In the first instance Flint Ink relied upon s 7 of the International Arbitration Act 1974 (‘IAA’).
Section 7(2) of the IAA provides:
Subject to this Part, where:
(a)proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a Court; and
(b)the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;
on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.
In turn s 7(4) provides:
For the purposes of sub-ss (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.
On 18 October 2013 Vickery J ordered that each of the applications brought by Flint Ink be dismissed.
Insofar as s 7 of the IAA was concerned he held that:
(a) the third party claim did not involve the determination of a matter that in pursuance of the relevant arbitration agreement was capable of settlement by arbitration; and
(b) HA’s claim was not a claim brought through or under HNZ.
Article 8 of the UNCITRAL Model Law
The Model Law has force of law in Australia by virtue of s 16(1) and (2) of the IAA.
Article 8 of the Model Law provides:
Article 8. Arbitration agreement and substantive claim before court
(1)A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
(2)Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
Flint Ink also sought to call in aid these provisions. Vickery J held that because HA was not a party to the arbitration agreement Flint Ink could not rely upon this provision.
The grounds of appeal
Flint Ink now seeks leave to appeal. The proposed grounds of appeal are:
1His Honour erred in holding (at [45]) that the claims in the third party statement of claim were not a "matter ... capable of settlement by arbitration" for the purposes of section 7(2) of the International Arbitration Act 1974 (Cth).
2His Honour erred in holding (at [66]-[67J) that the First Respondent was not claiming "through or under" Huhtamaki New Zealand Limited within the meaning of section 7(4) of the International Arbitration Act 1974 (Cth).
3His Honour erred in holding (at [86]-(88]) that there was nothing to refer to arbitration under article 8 of the UNCITRAL Model Law and in determining, on the basis that the other party was not before the Court, to decline to make any reference under article 8 of the Model Law.
The basis of the application
Flint Ink accepts that in order for s 7(2) to apply it is necessary that s 7(4) be satisfied. It further submits that if s 7(4) is satisfied s 7(2) is ‘plainly engaged’. It submits that in the circumstances alleged in the amended third party statement of claim HA is a party claiming through or under HNZ.
Flint Ink submits that the allegations in the proposed amended third party statement of claim convey and establish proximity and emphasises that HA’s case is that:
(a) HA and HNZ were each a part of the Huhtamaki group of companies which operates worldwide;
(b) relying on advice from Flint Ink, HNZ purchased Melam ink for use in packaging for Lion-Dairy and used Melam ink in the production of such packaging and HA supplied the packaging to Lion-Dairy;
(c) at all material times HNZ and HA were vulnerable and susceptible to suffering economic loss if Flint Ink recommended unsuitable inks, and Flint Ink would have foreseen that the failure to exercise reasonable care in advising HNZ involved the risk of causing economic loss to HNZ and HA.
Flint Ink further submits that to the extent HA could be said to have any tenable claim against Flint Ink every circumstance giving rise to such claim would necessarily be derived from HNZ. As the proposed amended third party statement of claim makes clear HA had no dealings with Flint Ink. It is submitted it could have no claim save by reason of matters deriving from HNZ.
HA relies upon the principles stated by Brennan and Dawson JJ (with whom Toohey J agreed) in Tanning Research Laboratories Inc v O’Brien;[4] and by Finkelstein J in BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd.[5] It further refers to the decision of the New South Wales Court of Appeal in Trustees of the Sydney Grammar School v Winch.[6] It is sufficient for present purposes to cite the critical observations of Brennan and Dawson JJ in Tanning:
Next, the prepositions ‘through’ and ‘under’ convey the notion of a derivative cause of action or ground of defence, that is to say, a cause of action or ground of defence derived from the party. In other words, an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence.
[4](1990) 169 CLR 332 (‘Tanning’), 341-2.
[5](2008) 168 FCR 169, [15].
[6](2013) 83 NSWLR 80, 116-7 [169]-[170] (McColl JA).
In my view Vickery J was correct to draw a conceptual distinction between a claim for breach of duty of care owed by a manufacturer to a consumer of a product and claims which can be said to arise ‘through or under’ any intermediary contractual arrangements by which the product passes to the consumer. Nevertheless in the present case an examination of HA’s pleading reveals two matters which complicate the issue. First, in [6] of the amended third party statement of claim[7] HA ‘admits that it supplied flexible packaging out of its New Zealand plant’ to Lion-Dairy.[8] In [15] it alleges that between December 2007 and July 2008 HNZ used Melam ink supplied by Flint Ink ‘in the production of such packaging’ for Lion-Dairy. When these pleadings are coupled with the further pleading that HA and HNZ are part of the same group,[9] it is arguable that the pleadings as a whole denote a relationship between HA and HNZ which does not entitle HA to rely upon its separate corporate identity. His Honour dealt with the limited evidence on this issue in his Reasons,[10] but it is arguable the pleadings to which I have referred take the matter further.
[7]Dated 20 June 2013.
[8]Emphasis supplied.
[9][2] and [3A].
[10]Reasons [59]-[62].
Secondly (and perhaps more significantly), the amended statement of claim makes allegations of a duty of care owed by Flint Ink to HNZ, of breach of that duty and consequent loss. Thus [16] pleads that HNZ and HA were vulnerable and susceptible to economic loss. Paragraph [16E] pleads that economic loss to HNZ, HA and Lion-Dairy was foreseeable and [16F] expressly pleads that in the premises at all material times Flint Ink owed HNZ, HA and Lion-Dairy a duty to exercise reasonable care and skill in advising HNZ.
In turn [20] alleges that, in breach of the duty of care alleged in [16F], Flint Ink failed to exercise reasonable care and skill in giving advice to HNZ as to suitable ink for use in flexible packaging for food. Each of the particulars of breach concern Flint Ink’s dealing with HNZ.
In [21] it is alleged that any loss suffered by Lion-Dairy as a result of the alleged failures ‘was caused or contributed to by Flint’s negligence’.
Paragraph [23] alleges that as a result of Flint Ink’s breach of duty ‘referred to above’ HA has suffered loss and damage.
In my view the pleading sufficiently embeds HA’s claim against Flint Ink in a claim of breach of duty to HNZ to make it arguable that HA claims ‘through or under’ HNZ. One might ask if the pleading of duty of care to HNZ and breach of that duty are not essential elements of HA’s claim why have they been pleaded? In the result, I am persuaded that the pleadings give rise to a relatively novel problem.
In turn if HA’s claim is to be regarded as being made ‘through or under’ HNZ it is also arguable that claim arises out of the subject matter of the arbitration agreement and that HA is bound by the statute.
The effect of the trial judge’s ruling is to conclusively dispose of a potentially complete procedural answer which Flint Ink seeks to make to the third party claim.
In these circumstances in my view leave to appeal should be granted. If Flint Ink is entitled to rely on the arbitration agreement then the loss of that entitlement amounts to substantial injustice within the sense contemplated by Niemann v Electronic Industries Limited.[11]
[11][1978] VR 431.
Article 8 of the Model Law
Conversely however I am not persuaded that it is seriously arguable that his Honour erred in holding that article 8 of the UNCITRAL Model Law had no application in the present case because HA was not a party to the arbitration agreement. His Honour was correct to hold that there was no arbitration agreement to which two or more of the prospective participants in the proposed proceeding in the Court were parties.[12]
[12]Reasons [92]-[97] and see the authorities there cited.
Conclusion
I would grant leave to appeal on grounds 1 and 2 of the proposed notice of appeal.
I would reserve the costs of the application.
BEACH JA:
I agree.
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