Japan Radio Co Ltd v Nautronix Ltd - [2001] WASC 319

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: JAPAN RADIO CO LTD -v- NAUTRONIX LTD & ANOR [2001] WASC 319

CORAM: MASTER BREDMEYER

HEARD: 9 NOVEMBER 2001

DELIVERED : 23 NOVEMBER 2001

FILE NO/S: CIV 2689 of 2000

BETWEEN: JAPAN RADIO CO LTD
Plaintiff
AND
NAUTRONIX LTD (ACN 009 019 603)
First Defendant
McCORKILLS MARINE PTY LTD (ACN 058 258 290)
Second Defendant

Catchwords:

Pleadings - Application to strike out - Contract - Implied terms

Legislation:

Nil

Result:

Application allowed

Category: B

Representation:

Counsel:

Plaintiff:     Mr A T Macknay
First Defendant             :     Mr P K Walton
Second Defendant         :     Mr P K Walton

Solicitors:

Plaintiff:     Deacons
First Defendant             :     Jackson McDonald
Second Defendant         :     Jackson McDonald

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

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125

Case(s) also cited:

Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214
British & Colonial Association Ltd v Foster (1888) 4 TLR 574
Byrd v Nunn (1877) 7 Ch D 284
Chandler & Ors v Water Corporation [2001] WASC 166
Dalgety Australia Ltd v Rubin & Ors, unreported; SCt of WA; Library No 5485; 24 August 1984
Day v William Hill (Park Lane) Ltd (1949) 1 KB 632
FAI General Insurance Co Ltd v Southern Cross Exploration NL (1988) 165 CLR 268
Girando v Padbury (1920) 22 WALR 7
Hooker Corporation Ltd v Commonwealth (1986) 65 ACTR 32
Meckiff v Simpson [1968] VR 62

MASTER BREDMEYER: This is an application by the defendants to strike out a few paragraphs of the plaintiff's reamended statement of claim of 19 September 2001.
In an order made on 19 September 2001, Master Sanderson granted leave to the plaintiff to file this amended pleading without prejudice to the defendants' right to bring an application to strike it out by 3 October 2001. This application was brought on 5 October 2001 and is thus two days late. The defendants' solicitor has offered an explanation for the lateness which I propose to accept and I propose to extend time so that the application can be considered on its merits.
The statement of claim pleads an oral distribution agreement between the plaintiff, Japan Radio Co Ltd, and the first defendant, Nautronix Ltd. The express terms of this oral agreement are pleaded in par 4(1) and (2):
"(1)The first defendant would assume the role as a distributor of the products for the plaintiff which had formerly been carried on by McCorkills Limited (ACN 009 150 656) ('MCL');
(2)As a distributor of the products for the plaintiff, the first defendant would:
(a)Purchase products from the plaintiff;
(b)on sell products to customers; and
(c)do so under the name of, or using a name, including the word 'McCorkills'."
That agreement was said to have been reached in discussions in Western Australia between Mr Karasawa on behalf of the plaintiff and Mr Tribe on behalf of the first defendant in or about November 1992, the purport of which was that the plaintiff would appoint the first defendant as a distributor of products for the plaintiff. The name "McCorkills" would be used in the distribution of the products and the [first] defendant would honour the unfilled orders for products made and meet the debts outstanding by MCL to the plaintiff.
Paragraph 4(3) and (4) of the pleading asks the Court to imply two further terms:
"(3)At the election of the first defendant a corporation controlled by the first defendant (subsidiary) could:
(a)purchase products from the plaintiff;
(b)on sell products to customers; and
(c)do so under the name of, or using a name, including the word 'McCorkills';
(4)If the first defendant elected that a subsidiary would carry out the activities pleaded in sub‑paragraph (3), the first defendant would be liable for the purchase price of the products purchased by the subsidiary."
These two terms are said to be implied because:
1.reasonable and equitable to do so;
2.necessary to give business efficacy to the Nautronix Distribution Agreement;
3.so obvious that it goes without saying;
4.capable of clear expression; and
5.did not contradict an express term of the Nautronix Distribution Agreement.
The defendants object to this plea of the two implied terms, I think, on the ground that they are embarrassing. The defendant says, for example, that the pleadings should contain a plea of sufficient circumstances to justify the implication of the first term "to give business efficacy" to the Nautronix Distribution Agreement. It was also said that the second implied term was too general and vague in that it was not clear whether the first defendant would be solely liable for the products purchased by its subsidiary, the second defendant, or whether it would be jointly liable, or whether it would be jointly and severally liable, or liable as an indemnifier or as a guarantor.
I do not consider it is necessary to plead any further facts to justify the implied terms. In my experience of similar pleadings, it is not common to plead anything more than the five phrases taken from the Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347. Whether they apply or not, is a matter for the Court to infer from the matters which are pleaded.
I am firmly of the view that the first implied term is so bad that it cannot be saved by a plea of any further background facts. I consider that the first implied term - that the defendant, at its election, could set up a subsidiary to purchase and sell the products under the name "McCorkills" - is not arguable. It is simply not necessary to give business efficacy to the Nautronix Distribution Agreement. It is perfectly feasible that Nautronix could have registered a business name such as "McCorkills Marine" to comply with this part of the distribution agreement. I am satisfied on the high standard imposed by General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129, that this plea is manifestly groundless so that it cannot possibly succeed and should be struck out.
I also consider that the second implied term is also obviously untenable, that it should be struck out. I consider it is not arguably necessary to give business efficacy to the Nautronix Distribution Agreement, and it is not so obvious that it goes without saying that the first defendant should be liable to pay for the goods purchased by the second defendant, the subsidiary. If the Japanese plaintiff is willing to accept purchase orders from the subsidiary, it is quite feasible for it to insist on a signed guarantee or indemnity from the parent company. It is quite common for a supplier to a subsidiary company - which may well be a $2 company - to require a written guarantee or indemnity from the wealthier parent company. It is not necessary to give business efficacy to the distribution agreement to imply a term that the first defendant would be liable for the debts of the subsidiary to the plaintiff.
I consider that the pleas of the two implied terms are both not necessary to give business efficacy to the distribution agreement, and they are not so obvious that they go without saying, and I am satisfied that these pleas are obviously untenable and should not be allowed and cannot be cured by further amendment. I propose to strike out those two pleas. That will probably mean the consequential striking‑out of the whole action against the first defendant. I will hear the parties on the orders which should flow from this.