PLASDENE GLASS-PAK P/L v The Big Olive Company P/L - [2009] SADC 75

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
PLASDENE GLASS-PAK P/L v THE BIG OLIVE COMPANY P/L
[2009] SADC 75
Judgment of His Honour Judge Nicholson
23 July 2009
PROCEDURE
Appeal from a Master's decision dismissing defendant's application to strike out certain paragraphs of the plaintiff's Amended Statement of Claim.
Evidence Act 1929 s 67C, 67C(2)(e) ; District Court Act 1991 s 43(2)(a), referred to.
White and Carter (Councils) Ltd v McGregor [1962] AC 413; State Bank of SA v Smoothdale (No. 2) Ltd (1995) 184 LSJS 254; Bennett v WMC (Olympic Dam Corporation) Pty Ltd and Akula Pty Ltd (in liq) and CGU Insurance Ltd & Others [2008] SADC 42; R v Christie [1914] AC 545, considered.

PLASDENE GLASS-PAK P/L v THE BIG OLIVE COMPANY P/L
[2009] SADC 75

This is an appeal from a decision of a Master of this Court dismissing the defendant’s interlocutory application (FDN 18) for orders, inter alia, that paragraphs 12 and 13 of Part 1 and paragraph 1A.2 of Part 2 of the plaintiff’s Amended Statement of Claim be struck out. The defendant sought, in the alternative, and also unsuccessfully, an order that paragraphs 12 and 13 be withdrawn and that the plaintiff be directed to bring a separate action pleading the issue raised in paragraphs 12 and 13.
The plaintiff is a supplier of glass bottles to entities such as the defendant. By its amended statement of claim, the plaintiff alleges that a written supply agreement was entered into with the defendant, on or about 23 July 2005, pursuant to which the defendant agreed to purchase three million bottles with corresponding metal caps with delivery thereof to be over a period of 2 years. It is alleged that, as at 18 December 2006, the defendant had taken delivery of and paid for an initial quantity of bottles and caps. However, the plaintiff further alleges (paragraph 7) that the defendant has failed to take delivery of an additional 432,768 bottles and 506,500 caps that had come into the plaintiff’s possession and been unconditionally appropriated to the supply agreement. On this basis, the plaintiff has claimed (paragraph 9) an entitlement to be paid the price, of $94,774.09, for these bottles and caps as provided for in the supply agreement.
The plaintiff also alleges (paragraph 11) that after taking account of the bottles and caps in fact delivered and those said to have been unconditionally appropriated, there is an additional shortfall of 2,290,752 bottles and 2,363,700 caps in respect of which the defendant, in further breach of the agreement, has failed to take delivery. The plaintiff’s pleading is cryptic in these respects but essentially asserts that, notwithstanding that this latter quantity of bottles and caps has not and will not be taken up by the defendant and notwithstanding that there has, apparently, been no unconditional appropriation of these bottles and caps to the supply agreement, the plaintiff nevertheless is entitled to receive the full price, as set out in the contract, in the amount of $526,575.48 inclusive of GST.
This aspect of the plaintiff’s claim is unusual. It would appear that the plaintiff has never come into possession of the bottles and caps, let alone taken any steps at all to transfer title to the defendant. The plaintiff alleges (paragraph 11) that its entitlement to the price nevertheless arises “pursuant to the supply agreement”. I have not seen a copy of the supply agreement and ultimately this will be an issue for the trial judge should the matter go to trial.[1]
[1] However, the circumstances envisaged by the (relatively) uniform Sale of Goods legislation which can allow for a vendor to be paid the price once title has passed to a buyer have not been pleaded with respect to these bottles and caps and do not appear to be in the contemplation of the parties. The circumstances envisaged by that line of authority represented by White and Carter (Councils) Ltd v McGregor [1962] AC 413 which allow for a contractual price to be sued for also do not appear to be in contemplation. To the extent that the plaintiff might be relying solely on an apparent contractual right to receive the price, in the absence of satisfying the requirements of the Sale of Goods legislation or those envisaged by White and Carter, the law of contractual penalties might need to be considered.
The plaintiff at all times was to obtain the three million bottles from an Italian supplier pursuant to contractual arrangements it had with that supplier. When it became apparent that the defendant was not going to take up the three million bottles pursuant to the alleged supply agreement, the plaintiff took steps to try and renegotiate its contractual position with the Italian supplier and, in effect, to mitigate its potential losses. In this context, a representative of the plaintiff and a representative of the defendant engaged in negotiations; this much is common ground. The plaintiff alleges that a contractually binding agreement resulted from these negotiations. If so, whether this agreement is to be characterised as a variation of the original supply agreement or a separate agreement by way of settlement of a component of the plaintiff’s alleged losses under that original supply agreement is probably of no consequence for present purposes. The defendant denies that any agreement was reached and says that at all times the conversation or conversations between the parties rose no higher than negotiations with a view to reaching a partial settlement of the parties’ dispute.
The plaintiff has pleaded this issue in paragraphs 12 and 13. They provide as follows:
12.On about 5 March 2007, Ken Pearson, on behalf of the plaintiff, and Joe Hani, on behalf of the defendant, at the premises of the defendant at 1 High Street, Kensington in the State of South Australia, orally expressly agreed that:
12.1   The plaintiff would seek to negotiate the termination of its contractual obligations with Vetreria Bruni S.P.A. for the future supply of bottles and caps on the basis of a payment by the plaintiff to Vetreria Bruni S.P.A. of an amount on account of the development of the mould used in the manufacturing process.
12.2   The defendant would pay the plaintiff such sum as Vetreria Bruni S.P.A. required on account of the mould.
The Agreement included an implied term that:
12.3   The plaintiff was released from supplying to the defendant bottles and caps over and above those already held by the plaintiff.
The implied term is incorporated into the Contract as:
12.4   It is necessary to give the Agreement business efficacy.
12.5   It is reasonable.
12.6   It is so obvious it goes without saying.
12.7   It is capable of clear expression.
13.By letter dated 16 April 2007 from the plaintiff to the defendant, the plaintiff sought the sum of $31,307.71 on account of the mould cost paid to Vetreria Bruni S.P.A., which sum the defendant has failed to pay to the plaintiff.
The net effect of the plaintiff’s pleading is that it maintains its claim to the initial $94,774.09 on account of bottles and caps, the title to which has allegedly passed to the defendant in any event. However, whilst it presses its claim for the additional $526,575.48 for the balance of the three million bottles and caps which have not been unconditionally appropriated to the supply agreement, it also pleads in the alternative that it has a contractual entitlement to be reimbursed for the sum of $31,307.71 paid to its Italian supplier.
Again, this aspect of the pleading is curious in that the alleged entitlement to the sum of $31,307.71 is apparently pleaded as a complete alternative to the sum of $526,575.48. However, it is not clear why this necessarily should be so, particularly given that paragraph 2 of the prayer for relief pleads a further alternative claim, albeit completely unparticularised, seeking damages for breach of the supply agreement.
What would appear to be the case, although not expressly pleaded, is that the plaintiff through its negotiations with the Italian supplier may have, at least partially, mitigated such damages to which it might otherwise be entitled with respect to the alleged breach of the supply agreement.
The defendant has sought orders that paragraphs 12 and 13 be struck out. The burden of the defendant’s concern is that those two paragraphs refer to and will require ventilation before the trial court of oral negotiations aimed at attempting to resolve the parties dispute. Section 67C of the Evidence Act 1929 provides, subject to exceptions, that communications made in an attempt to negotiate the settlement of a civil dispute are not admissible in any civil or criminal proceedings. Section 67C is not a codification of but is to be construed against the background of the common law dealing with settlement (“without prejudice”) privilege.[2] Nevertheless, it does not apply directly to a consideration of whether or not parts of a pleaded cause of action ought to be struck out at the interlocutory stage. However, the terms of and intention underlying s67C can, in my view, have some indirect relevance to such a question.
[2] State Bank of SA v Smoothdale (No. 2) Ltd (1995) 184 LSJS 254.
The defendant has brought its application pursuant to Rule 104 of the District Court Rules 2006 and in conjunction with the more general powers available to this court under Rules 116 and 117. Rule 104(b) provides:
The court may strike out a pleading in whole or part if the pleading –
(a) …
(b) Is an abuse of the process of the court or prejudices the proper conduct of the action.
The defendant concedes that discussions took place but has denied any agreement by way of partial settlement or otherwise, was reached. The defendant maintains that the discussions held by the parties were privileged as being on a without prejudice basis. Accordingly, the trial judge would not be permitted to receive evidence at the trial about the content of the settlement discussions. For this reason, argued the defendant, the pleading by the plaintiff of paragraphs 12 and 13 constitutes an abuse of process and should be struck out.
The defendant has not directly addressed the impugned paragraphs in its defence but rather describes the pleading as “improper” and “embarrassing” on the basis that it pleads without prejudice discussions. However, it is common ground that whilst the defendant accepts that discussions took place, it denies that any agreement between the parties was reached.[3]
[3] So much is plain from the affidavit of Jihad Hani filed on behalf of the defendant, FDN 7, and particularly at pages 5 to 6; see the Case Book at pages 6 to 8.
The learned Master dismissed the defendant’s application. His Honour was of the view that the issue of whether or not an agreement between the parties by way of partial settlement or otherwise was in fact reached was a question to be determined by the trial judge. According to His Honour, the mere assertion at the pleading stage by the defendant that no agreement was actually reached is not sufficient to require the plaintiff to exclude paragraphs 12 and 13 from its pleaded case. He rejected the defendant’s submissions to the effect that it would be more prejudicial to the defendant than probative to have the issue dealt with by the trial judge during the main trial. The learned Master pointed out that this would fail to take account of the purpose of the trial and the fact that trial judges have a responsibility to ascertain that which is relevant and admissible and then to reach conclusions as to what the terms of any contract or settlement reached between the parties, if any, may have been. The learned Master was of the view that a trial judge would be able to rule on this aspect of a dispute without being improperly influenced with respect to matters of credit when considering the evidence relevant to and making findings about the main contractual dispute.
When it came to the exercise of discretion necessarily implicit in the application of Rule 104, the learned Master was not persuaded that it would be appropriate to order a trial on a preliminary point or to separate out the alleged later agreement to be the subject of a subsequent trial.
The appeal has been instituted pursuant to s43(2)(a) of the District Court Act 1991 and District Court Rule 292. Such an appeal is by way of rehearing. I am to consider the matter afresh based on the material properly before the Master, together with such further relevant evidence properly admitted on the appeal. Whilst I am to give appropriate weight to the decision of the Master, I must reach my own conclusions on the material before me. However, I am not entitled to substitute my own discretion in lieu of that of the learned Master unless an error in the exercise of that discretion can be detected.[4]
[4] The position was otherwise under Rule 97.01 of the District Court Rules 1992, see generally the discussion in Bennett v WMC (Olympic Dam Corporation) Pty Ltd and Akula Pty Ltd (in liq) and CGU Insurance Ltd & Others [2008] SADC 42 at paragraphs 2[-4] per Simpson DCJ.
The appellant in its Notice of Appeal has raised a number of grounds of appeal. It is unnecessary to specifically address each of these grounds. The defendant’s argument was concisely and fairly put in the Summary of Argument filed on the appeal. In oral submissions, counsel for the defendant developed and amplified the argument as set out in the written summary and in the Notice of Appeal. Without intending any discourtesy with respect to the comprehensive submissions put by counsel for the defendant, the essence of the argument can be summarised in the following way.
(i)There is a strong public interest in encouraging frank and open settlement discussions such that the content of such negotiations should not be pleaded or put in evidence before a trial judge.
(ii)The evidence of any such discussions will be privileged from production or adduction during a trial dealing with the issues that are subject of those discussions unless, in this state, one of the exceptions provided for in s67C of the Evidence Act 1929 is engaged. In the event that the evidence is privileged, a court will have no discretion to admit it.
(iii)The defendant acknowledges or concedes that if a settlement agreement had been reached then that would fall within the exception provided for by s67C(2)(e) and that the fact of such an agreement could properly be pleaded.
(iv)However, given that settlement discussions are prima face privileged, there is an onus at all times on the plaintiff, in this case, to adduce evidence establishing that that exception applies, that is, establishing that an agreement such as would fall within s67C(2)(e) was arrived at by the parties.
(v)In the present case, the defendant maintains that the plaintiff has put no evidence to this effect before the court and relies solely on its assertion in the Amended Statement of Claim, whereas, the representative of the defendant who participated in the negotiations in question has denied under oath that any such agreement was reached.
(vi)In these circumstances, a court, constituted by a judge other than the judge who will hear the main trial, should review the relevant evidence and make a determination on the issue of settlement privilege prior to the trial of the main dispute.
(vii)In the event that the trial judge were to hear the evidence concerning this alleged partial settlement agreement, there is risk of serious prejudice to the defendant were that judge then to make a determination about whether or not the original supply agreement was entered into and, if so, its terms.
I have only provided a bare summary of the defendant’s argument. It was amplified in various ways in oral submissions before me. The defendant acknowledges that often a trial judge will hear evidence either on the voir dire or during the trial proper before ruling that it is inadmissible. Counsel conceded that the parties inevitably must trust a trial judge, from time to time, to deal with the admissible evidence in an objective fashion and to exclude from his or her considerations any inadmissible and potentially prejudicial material of which he or she becomes aware. However, defence counsel further submitted that this is not ideal and that where the parties become aware of a problem of this nature in advance of the trial, steps can and should be taken to address it prior to trial in the absence of the trial judge.
On its face, the plaintiff’s Amended Statement of Claim alleges entry by the parties into a supply agreement in the first instance, alleged non-performances of that supply agreement on the part of the defendant and then a further contractual arrangement entered into between the two parties. Whether or not the latter is to be construed as a contractual arrangement quite independent of the first contract, as asserted by the plaintiff in argument, or a matter by way of purported partial or whole settlement of the first contract is, to my mind, neither here nor there. It might also be characterised simply as a contractual variation. Parties to commercial contracts often engage in disputes about the application and performance of their agreement and attempt to resolve these disputes by one or more contractual variations. Courts commonly hear evidence of all of the parties’ contractual negotiations and dealings when asked ultimately to resolve a contractual dispute of this nature.
What is important here is that the plaintiff has pleaded a contractual cause of action against the defendant relating to the $31,307.71 that has allegedly been paid by the plaintiff to the Italian supplier. There is no reason why that claim should not be heard and determined at the same time as the principal contractual claim. The admissibility of evidence during a trial is ultimately and only a matter for the trial judge. However, it commonly is appropriate and important for the trial judge to hear all of the evidence concerning the parties’ alleged contractual dealings. This can particularly be so if findings might ultimately be based on matters of credit. I agree with the learned Master that whether or not evidence about the negotiations leading to the alleged agreement pleaded in paragraph 12 should be adduced is a matter for the trial judge.
Strictly, the question of whether or not settlement privilege might be infringed will only arise in the context of discovery and production of documents which is unlikely in this case given that the plaintiff has alleged oral negotiations, or when some attempt is made to adduce oral evidence at the trial. My preliminary view is that such evidence is likely to be admissible simply because of the terms of the exception in s67C(2)(e), which provides:
(2) Such evidence is, however, admissible, if -
(e) The proceeding in which the evidence is to be adduced is a proceeding to enforce an agreement for the settlement of the dispute or a proceeding in which the making of such an agreement is in issue:
The defendant has argued in a slightly different context that a distinction can be drawn between a later agreement which effects a total settlement of the parties’ prior dispute and one which effects only a partial settlement. I am not persuaded that this is a distinction of substance. If the court is entitled to determine whether a dispute has been fully settled and to hear evidence that otherwise would be the subject of settlement privilege for this purpose, I do not understand why it would not be able to hear such evidence for the purpose of deciding whether or not a partial settlement, that is, a settlement of a component of the prior dispute, has been reached. On this basis, but without deciding, the plaintiff’s pleading in paragraph 12 arguably satisfies subparagraph (2)(e). However, as I have said, this is a matter that should be left to the trial judge. What is plain, in my view, is that it would be premature to form a view that the evidence would not be admissible and on that basis declare the impugned pleading to be an abuse of process.

It is conceivable that evidence on this topic sought to be adduced by the plaintiff might ultimately be found to be admissible on the issue of whether or not the plaintiff had a contractual entitlement to the sum of $31,307.31 on account of the alleged agreement pleaded in paragraph 12, but inadmissible for the purpose of the trial judge’s consideration and determination of any issues concerning the formation and performance of the alleged supply agreement as pleaded in paragraph 3. As I have said, trial judges in the civil courts routinely are faced with evidence admissible for or relevant to one purpose but which must be ignored for other purposes. It cannot be an abuse of process to plead a case which might place a trial judge in this position.
At one point, the defendant put its argument on the basis that the evidence of the later negotiations would be more prejudicial than probative. In a sense, this picks up the point I have just made. It is conceivable, as I have said, that admissible evidence relevant to the later alleged contractual arrangement would be inadmissible in respect of and potentially prejudicial to the defendant’s case concerning the earlier alleged contractual arrangement. However, if it is not probative, the trial judge will ignore any potentially prejudicial effect it may have. In any event, a preponderance of authority is to the effect that the, sometimes called, Christie[5] discretion, that is, where evidence is more prejudicial than probative, does not apply in civil trials.[6]
[5] [1914] AC 545.
[6] See generally the discussion in Heydon’s Cross on Evidence, 7^th Australian Edition at [11130].
I also agree with the learned Master that each of the alternative approaches suggested by the defendant would be impractical and lead to a multiplicity of litigation and an increase in costs for no good purpose.
For these reasons the appeal is dismissed. I will hear the parties as to costs.