Re Cohiba Minerals Ltd
[2023] VSC 450
•2 August 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2023 00716
IN THE MATTER of COHIBA MINERALS LTD (ACN 149 026 308)
BETWEEN:
| COHIBA MINERALS LTD (ACN 149 026 308) | Plaintiff |
| v | |
| TITELINE DRILLING PTY LTD (ACN 096 640 201) | Defendant |
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JUDGE: | Barrett AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 May 2023 |
DATE OF JUDGMENT: | 2 August 2023 |
CASE MAY BE CITED AS: | Re Cohiba Minerals Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 450 |
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CORPORATIONS – Application to set aside a statutory demand – Corporations Act 2001 (Cth) ss 459G, 459H, 459J – Genuine dispute about existence or amount of alleged debt – Offsetting claim – Some other reason for setting aside statutory demand – Plaintiff, a mineral exploration company, entered agreement with defendant for it to provide drilling services – Plaintiff alleges defendant made pre-contractual representation that defendant would charge 30 per cent discount to rate charged to other exploration companies – Defendant provided services and issued invoices – Plaintiff alleges invoices fail to provide 30 per cent discount and defendant used defective equipment which resulted in time delays and costs – Whether necessary to establish counter-factual - Held, genuine dispute as to whether 30 per cent representation made, genuine dispute and offsetting claims based on: misleading and deceptive conduct pursuant to ss 18 and 20 of the Competition and Consumer Act 2010 (Cth); breach of contract; and estoppel – Genuine dispute and offsetting claim in relation to use of defective equipment – Statutory demand set aside – Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 – Amville Constructions Pty Ltd v LS Bricklaying (Vic) Pty Ltd [2022] VSC 65.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G Bloch of counsel | Weinberg Lawyers |
| For the Defendant | Mr P Fary S.C. | Meerkin & Apel |
TABLE OF CONTENTS
Background......................................................................................................................................... 1
The statutory demand....................................................................................................................... 5
Submissions........................................................................................................................................ 6
Principles............................................................................................................................................. 7
Is there a genuine dispute as to the 30 per cent overcharging?................................................. 8
Is there a factual dispute about the representation of a 30 per cent discount?.................... 9
Is there an arguable claim or defence in relation to the 30 per cent representation for an amount that can be substantiated?................................................................................................ 11
Does Cohiba have an offsetting claim based on misleading or deceptive conduct? 12
Does Cohiba have an offsetting claim, or has it raised a genuine dispute, based on the alleged agreement to a 30 per cent price discount?........................................................ 15
Does Cohiba have an offsetting claim, or has it raised a genuine dispute, based in equity upon an estoppel by representation regarding a 30 per cent price discount? 16
Does Cohiba have an offsetting claim, or has it raised a genuine dispute, based upon misrepresentation at common law regarding a 30 per cent price discount? 19
Is there a genuine dispute as to use of defective equipment causing overcharging?........ 19
HIS HONOUR:
By originating process dated 23 February 2023, the plaintiff (‘Cohiba’) applies to set aside a statutory demand dated 1 February 2023 served on it by the defendant (‘Titeline’) on 6 February 2023 claiming the sum of $761,689.06 in connection with drilling services undertaken by Titeline for Cohiba.
Cohiba seeks to set aside the statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Corporations Act’) on the grounds that there is a genuine dispute about the existence or amount of the alleged debt,[1] that Cohiba has an offsetting claim,[2] and further that there is some other reason why the demand should be set aside.[3]
[1]Corporations Act 2001 (Cth) s 459H(1)(a).
[2]Ibid s 459H(1)(b).
[3]Ibid 459J.
Cohiba relies on the following:
(a) the affidavits of Andrew Morgan Graham affirmed on 23 February 2023, 29 March 2023 and 4 May 2023; and
(b) its written submissions filed on 22 May 2023.
Titeline relies on:
(a) the affidavits of David Joseph D’Astoli affirmed on 13 April 2023 and 22 May 2023; and
(b) written submissions filed on 22 May 2023.
Background
Cohiba is a company listed on the Australian Stock Exchange and has as its focus investing in the resource sector through direct tenement acquisition, joint ventures, farm in arrangements, new project generation, and conducting any ensuing exploration and related activities. One of the sites on which it conducts exploration and related activities is the Olympic Domain region in the eastern Gawler Craton in South Australia. It has a history of hosting iron oxide copper and gold mineralisation and deposits and is a significant area for exploration. In order to undertake drilling, Cohiba needs to access a drilling site, source a drilling rig, and engage a drilling company to operate the rig. Titeline is a mineral exploration drilling contractor.
In early 2021, representatives of Cohiba and Titeline discussed drilling services to be conducted at the Olympic Domain region.
On 27 May 2021, Titeline provided Cohiba with a proposal which included information about Titeline and its procedures and equipment and a schedule of rates in relation to various services it could provide (‘Schedule’).
On or about 29 July 2021, Titeline and Cohiba executed an agreement which appears to be a Titeline standard form agreement (‘Agreement’). The Agreement describes the services to be provided as:
~2 holes, 1 at Arcoona Station to depth of ~1600-1800m. 1 at Pernatty Station to depth ~700-800m[.]
Schedule 2 contains detailed costing including pricing for use of various drill types and depths, staffing (including standby rates), consumables and lost or damaged equipment.
The Agreement also incorporates Titeline’s general conditions which are dated 5 December 2019. Those general conditions include terms as to Cohiba’s obligation to pay rates and invoices in accordance with Schedule 2, as well as a dispute resolution clause and entire agreement clause.
In performing works under the Agreement, Titeline engaged a company called Euro. According to Titeline, Euro was ‘in overall control of the drill sites as Cohiba’s representative’. There is a dispute as to the extent of Euro’s responsibility for the works, and as to responsibilities for communication between the parties having regard to Euro’s involvement.
Titeline performed various drilling works between August 2021 and November 2022, including the holes identified explicitly in the Agreement and a further two holes. However, a dispute has arisen as to whether those works were performed in accordance with the terms of the Agreement or to the requisite contractual or tortious standard, and whether Cohiba is liable to pay invoices that have been rendered or whether it has claims against Titeline.
Titeline issued a number of invoices in respect of works it performed which were rendered monthly as follows:
(a) August 2021: invoice 933 for ‘DRILLING SERVICES – AUG 21 RIG 16’ in the sum of $118,660.45;
(b) September 2021: invoice 949 for ‘DRILLING SERVICES – SEP 21 RIG 16’ in the sum of $470,704.08;
(c) October 2021: invoice 958 for ‘DRILLING SERVICES – OCT 22 RIG 16’ in the sum of $462,467.64;
(d) November 2021: invoice 980 for ‘DRILLING SERVICES – NOV 22 RIG 16’ in the sum of $366,961.22;
(e) December 2021: invoice 997 for ‘DRILLING SERVICES – DEC 22 RIG 21’ in the sum of $199,236.07;
(f) January 2022: invoice 1021 for ‘DRILLING SERVICES – JAN 22 RIG 21’ in the sum of $421,255.33;
(g) February 2022: invoice 1030 for ‘DRILLING SERVICES – FEB 22 RIG 21’ in the sum of $343,563.32;
(h) March 2022: invoice 1055 for ‘DRILLING SERVICES – MARCH 22 RIG 21’ in the sum of $96,427.09;
(i) April 2022: invoice 1070 for ‘DRILLING SERVICES – APRIL 22 RIG 16’ in the sum of $439,654.86;
(j) May 2022: invoice 1088 for ‘DRILLING SERVICES – MAY 22 RIG 16’ in the sum of $500,573.22;
(k) June 2022: invoice 1103 for ‘DRILLING SERVICES – JUNE 22 RIG 16’ in the sum of $328,873.32;
(l) July 2022: invoice 1119 for ‘DRILLING SERVICES – JULY 22 RIG 16’ in the sum of $379,577.21;
(m) August 2022: invoice 1125 for ‘DRILLING SERVICES – AUGUST 22 RIG 16’ in the sum of $521,792.97;
(n) September 2022: invoice 1131 for ‘DRILLING SERVICES – SEPTEMBER 22 RIG 16’ in the sum of $460,543.88;
(o) October 2022: invoice 1150 for ‘DRILLING SERVICES – OCTOBER 22 RIG 16’ in the sum of $461,246.06; and
(p) November 2022: invoice 1171 for ‘DRILLING SERVICES – NOVEMBER 22 RIG 16’ in the sum of $382,943.00.
Each of the invoices has a ‘Drilling Report Financial Summary’ attached to it which provides details of each item charged, including a description of the item, the hours spent and the price.
Mr Graham says in his first affidavit that Cohiba has paid a total of $5,192,781.66 as invoiced by Titeline. The amount outstanding based on the total of the abovementioned invoices and the amount said to have been paid, which is not contradicted, is $761,689.06, which is the amount claimed in the statutory demand.
The parties emailed each other over several months about the work that was being done. Those communications include several complaints by Cohiba and several answers by Titeline as discussed further below.
The drilling works terminated on 12 October 2022, but there is a dispute about the circumstances of the termination and whether it was in consequence of completed performance, or whether it occurred otherwise. Discussions continued between the parties in January 2022 which failed to resolve the outstanding issues.
The statutory demand
On 6 February 2023, Titeline served the statutory demand on Cohiba claiming the sum of $761,689.06.
The statutory demand relevantly provides as follows:
[Cohiba] owes [Titeline] … the amount of $761,689.06, being the total of the amounts of the debts described in the Schedule.
1. The amount is due and payable by [Cohiba]
2. Attached is the affidavit of David Joseph D’Astoli dated 1st February 2023, verifying the amount is due and payable by [Cohiba].
The schedule describes the debt as:
Monies owed by [Cohiba] to [Titeline] in respect of drilling services provided by [Titeline] to [Cohiba] pursuant to a written agreement dated 29 July 2021, as set out in the following invoices:
1. Tax Invoice No 00001150 dated 31 October 2022 in the amount of $378,746.06; and
2. Tax Invoice No 00001171 dated 30 November 2022 in the amount of $382,943.00.
Total $761,689.06.
In his affidavit in support, Mr D’Astoli describes the debt as follows:
4. The total debt of $761,689.06 referred to in the statutory demand is due and payable by [Cohiba]. This debt is set out in the following invoices:
(a) Tax Invoice No. 00001150 dated 31 October 2022 in the amount of $378,746.06 accompanied by ‘Drilling Financial Report Summary’ for the period 1 – 31 October 2022, both of which were attached to an email dated 6 November 2022 from [Titeline] to [Cohiba], copies of which are Annexure “DJA-01” to this Affidavit; and
(b) Tax Invoice No. 00001171 dated 30 November 2022 in the amount of $382,943.00 accompanied by ‘Drilling Financial Report Summary’ for the period 1 – 25 November 2022, both of which were attached to an email dated 5 December 2022 from [Titeline] to [Cohiba], copies of which are Annexure “DJA-02” to this Affidavit.
Submissions
Cohiba submits that there is a genuine dispute about the existence or amount of the alleged debt, that Cohiba has an offsetting claim and that there is some other reason why the demand should be set aside. Cohiba’s submissions are:
(a) firstly, that Titeline has overcharged Cohiba for its drilling services by 30 per cent on each of its invoices, including those the subject of the statutory demand. On this basis, Cohiba contends that it has an offsetting claim for the amount of $1,786,341.22, which is the aggregate of $228,506.72 (being 30 per cent of the sum of $761,689.06 claimed in the statutory demand assuming that sum is otherwise due and payable) and $1,557,834.50 (being 30 per cent of the sum of $5,192,781.66 already paid by Cohiba to Titeline on other invoices already issued);
(b) secondly, Cohiba contends that Titeline used defective equipment not fit for purpose which failed and consequently led to substantial time delays in drilling, whereas Titeline contends that delays were caused by inclement weather. Cohiba quantifies this claim in the order of $823,926.12, being the aggregate of $525,690.00 (being standby rates between 13 October 2022 and 25 November 2022 per Titeline’s two tax invoices referred to in the statutory demand) and $298,236.12 (being the sum Titeline wrongly charged Cohiba for time delays with respect to Drill Hole 6 and the Wedge Hole due to Titeline’s equipment failure); and
(c) thirdly, Cohiba contends that there are errors in Titeline’s invoices which amount to $67,182.00, of which only $6,000.00 is admitted by Titeline.
Principles
The principles in relation to applications to set aside statutory demands are well settled.
In Mibor Investments Pty Ltd v Commonwealth Bank of Australia,[4] the Court held that:
[I]t is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of [the] dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.[5]
[4][1994] 2 VR 290 (Hayne J).
[5]Ibid 295.
Cohiba also emphasises that the level of satisfaction required by the Court to determine there is a genuine dispute is not high, and that the test has been said to be whether there is a serious question to be tried,[6] that the dispute is not plainly vexatious or frivolous,[7] and that it is no more onerous than the test confronting a party opposing an application for summary judgment.[8]
[6]Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, 39 (Lockhart J).
[7]Ibid.
[8]Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA & Pharmagel SpA (1994) 15 ACSR 347, 354 (Lindgren J).
In the recent decision of Amville Constructions Pty Ltd v LS Bricklaying (Vic) Pty Ltd,[9] Hetyey AsJ summarised the principles regarding what constitutes a genuine dispute for the purposes of s 459H(1) as follows:[10]
[9][2022] VSC 65.
[10]Ibid [13] (citations omitted).
(a)for a dispute to be ‘genuine’ it must be ‘bona fide and truly exist in fact’;
(b)‘the grounds for alleging the existence of a dispute … [must be] real and not spurious, hypothetical, illusory or misconceived’;
(c)the dispute must have a ‘sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile … Something “between mere assertion and the proof that would be necessary in a court of law” may suffice’;
(d)a genuine dispute may involve a ‘plausible contention requiring investigation’ and [raise] the same sort of considerations as the ‘serious question to be tried’ test that applies in the case of interlocutory injunctions;
(e)the Court should not uncritically accept statements about an alleged genuine dispute which are ‘equivocal, lacking in precision, inconsistent with undisputed contemporary documents … or inherently improbable …’;
(f)if the dispute appears to be something ‘merely created or constructed in response to the pressure represented by the service of the statutory demand’, then it is not advanced in good faith and will not be regarded as genuine; and
(g)whilst the underlying nature of the dispute about the existence of a debt ‘must be exposed’, the Court will not deal with the merits and nothing of substance will be decided.
In relation to establishing and quantifying an offsetting claim, the plaintiff need not prove its claim by producing evidence such as may be advanced at trial, and the standard of satisfaction required is not a particularly high one. However, it is necessary for the plaintiff to adduce evidence to establish the existence of a genuine claim that would warrant adjudication and to adduce evidence in support of the alleged quantum of the offsetting claim in order for the Court to determine whether there is a genuine offsetting claim, and if so in what amount.
There was no dispute between the parties as to these principles and I have applied them in this matter.
Is there a genuine dispute as to the 30 per cent overcharging?
Cohiba submits that prior to entering into the Agreement with Titeline, Mr D’Astoli represented to Mr Graham that it would charge Cohiba a discounted rate 30 per cent below the rate that Titeline was charging their other exploration company clients.
The focus of Titeline’s submissions was not so much that there was no issue as to whether the representation was made (although Mr D’Astoli denies it was), but rather that Titeline submitted that it is not sufficient merely to point to a factual dispute of that nature, as s 459H requires the Court to also determine the quantum of the claim, and in this case there was no evidence or established legal basis upon which such a finding could be made.
Is there a factual dispute about the representation of a 30 per cent discount?
In relation to the content of the 30 per cent representation, Mr Graham says that he had discussions with Mr D’Astoli prior to entering into the contract in which Mr D’Astoli said that Titeline met Cohiba’s requirements and
if appointed, Titeline would charge [Cohiba] 30% below what Titeline was charging their other exploration company clients. …
This discounted rate was expressly referred to subsequently by [Mr D’Astoli] on numerous occasions when he sought early payment of tax invoices Titeline had issued to [Cohiba].
Mr Graham further says:
On numerous occasions, Mr. D’Astoli asked me for early payment of tax invoices issued by Titeline to [Cohiba]. On each occasion Mr. D’Astoli said that the reason that he was requesting early payment was because Titeline was both working at 2% to 3% profit margin and needed the early payment to ensure that its drillers would keep working. On each occasion, Mr. D’Astoli also said that Titeline was charging [Cohiba] 30% less than Titeline’s other drilling clients. In response to those requests, [Cohiba] paid early nine (9) invoices issued by Titeline to [Cohiba], in the sum of $2,918,957.06 …
In support of the submission that Cohiba has not received a 30 per cent discount on prices Titeline was charging their other exploration company clients, Cohiba has produced a pricing proposal from another company that is substantially identical to the prices Cohiba is paying.
Titeline says that there is some ambiguity about the content of the alleged representation or agreement, but in any case I do not understand Titeline to be saying that Cohiba in fact received any such discount.
Mr D’Astoli denies that he ever agreed to charge the 30 per cent discount and submits that prior to the statutory demand being issued, the 30 per cent discount was never mentioned to him. This submission it seems is put on the basis that the suggestion that the 30 per cent discount was to be applied is a recent invention, and the failure to produce any documentary evidence supporting it that predates the statutory demand suggests it is not a genuine dispute.
Cohiba submits in response that any such criticism is unjustified because Cohiba only realised that it was being overcharged in mid-February 2023, which explains why the issue was not raised prior to that time.
Mr Graham has also exhibited to his first affidavit a letter dated 3 January 2023, which is prior to the date of the statutory demand, written by him and addressed to Mr D’Astoli. It is a wide-ranging letter containing a litany of complaints about works performed by Titeline, and the amounts charged for it. It includes the following paragraph:
On numerous occasions David you stated that Cohiba were being charged 30% less than another major company that Titeline was doing major drilling for. As a junior exploration company we are grateful for any cost-down benefit that we may receive but we have no way to verify this statement nor do we expect that any cost-down benefit is at the expense of quality workmanship.
Mr Graham says that this letter was not sent to Mr D’Astoli on or about 3 January 2023 but that its significance is that it came into existence prior to the statutory demand.
Mr Graham says that at the time he had engaged Valdis Evele of White Tiger, another drilling company, to assist him with reporting on Titeline’s works prior to raising a formal complaint. As a part of that engagement, it appears that Mr Graham, under cover of an email dated 30 January 2023, wrote to Mr Evele explaining some of the issues he says he had with Titeline, and including a Dropbox link to drilling PLODs (a PLOD being a ‘progressive log of drilling’), and apparently attaching the 3 January 2023 letter for his comment.
Irrespective of what happened with this letter and whether it was sent to Mr D’Astoli on 3 January 2023, or sometime later, it does appear from this correspondence that there is evidence that in early January 2023, Mr Graham held the view that Mr D’Astoli had stated that Titeline was only going to charge Cohiba 30 per cent less than another major company that Titeline was doing major drilling for. In those circumstances, I am not satisfied it is a recent invention or that it is a view that was not, or is not, genuinely held. Of course, there is nothing to prevent Titeline scrutinising this evidence further at trial.
Is there an arguable claim or defence in relation to the 30 per cent representation for an amount that can be substantiated?
The next question is whether, if the 30 per cent representation could be made out, it would arguably form a basis for an offsetting claim, or genuine dispute about what was owing. Cohiba submits that if the facts as alleged in relation to the 30 per cent representation are made out, there would be a proper basis under a number of accepted legal and equitable principles for the Court to:
(a) enquire as to the rates Titeline was charging their other exploration company clients for the same drilling services as were provided to Cohiba;
(b) to rectify the applicable schedule of rates accordingly and reduce those rates by 30 per cent; and
(c) make a net monetary order in Cohiba’s favour after offsetting both parties’ respective claims.
Cohiba submitted that the legal and equitable bases of such claims include:
(a) in statute, ss 18 and 20 of the Australian Consumer Law[11] for misleading or deceptive or unconscionable conduct;
[11]Competition and Consumer Act 2010 (Cth), sch 2 (‘Australian Consumer Law’).
(b) in contract, based on the agreement as alleged by Mr Graham;
(c) in equity, based upon an estoppel by representation; and
(d) at common law, based on misrepresentation.
Titeline submits that even if Cohiba could establish arguable claims, the Court is also required to calculate the value of that claim for the purposes of s 459H and in this case there is no evidence upon which the Court can conclude that any loss has been suffered, in particular because there is no evidence of any counterfactual.
I will deal with each cause of action separately.
Does Cohiba have an offsetting claim based on misleading or deceptive conduct?
In Campbell v Backoffice,[12] the High Court discussed the scope of a pre-contractual misrepresentation claim and the relationship between a contract and the statutory regime for misleading and deceptive conduct. It is sufficient for present purposes to quote what Gummow, Hayne, Heydon and Kiefel JJ said in relation to pre-contractual misleading and deceptive conduct, even when there is an entire agreement clause:
It is as well to add, however, that, of itself, neither the inclusion of an entire agreement clause in an agreement nor the inclusion of a provision expressly denying reliance upon pre-contractual representations will necessarily prevent the provision of misleading information before a contract was made constituting a contravention of the prohibition against misleading or deceptive conduct by which loss or damage was sustained. As pointed out earlier, by reference to the reasons of McHugh J in Butcher [v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, 625 [109]], whether conduct is misleading or deceptive is a question of fact to be decided by reference to all of the relevant circumstances, of which the terms of the contract are but one.[13]
[12](2009) CLR 304; [2009] HCA 25.
[13]Ibid [130] (emphasis added).
Having regard to the evidence relied on in this case, I am satisfied that there is a factual dispute as to whether the representation as to a 30 per cent discount was made. There may be a question about the terms of any such representation, if any representation is found to have been made. As the representation is said to have been oral and made on numerous occasions, the resolution of that factual question cannot be resolved on this present application and will almost certainly involve cross-examination at trial.
Cohiba submitted that the claim is quantified as 30 per cent of the amount already paid to Titeline, and the total of the invoices outstanding, being $1,786,341.22.
Titeline submits that even if it is accepted that the representation was made, Cohiba has not provided sufficient evidence of the counterfactual scenario to enable the Court to reach any conclusion as to what the quantum of such a claim might be, and therefore has not established any offsetting claim for the purposes of s 459H.
In Henville v Walker (‘Henville’),[14] Gleeson CJ discussed the relief that may be granted in the context of consumer protection legislation[15] for misleading and deceptive conduct, and the extent to which common law principles are relevant to assessing damages in contract or tort:
Section 82 of the Act is the statutory source of the appellants’ entitlement to damages. The only express guidance given as to the measure of those damages is to be found in the concept of causation in the word “by”. The task is to select a measure of damages which conforms to the remedial purpose of the statute and to the justice and equity of the case. The purpose of the statute, so far as presently relevant, is to establish a standard of behaviour in business by proscribing misleading and deceptive conduct, whether or not the misleading or deception is deliberate, and by providing a remedy in damages. The principles of common law, relevant to assessing damages in contract or tort, are not directly in point. But they may provide useful guidance, for the reason that they have had to respond to problems of the same nature as the problems which arise in the application of the Act. They are not controlling, but they represent an accumulation of valuable insight and experience which may well be useful in applying the Act.[16]
[14] (2001) 206 CLR 459; [2001] HCA 52 (Gleeson CJ) (‘Henville’).
[15]In relation to ss 52 and 82 of the Trade Practices Act 1974 (Cth) being the predecessor to the currently applicable Australian Consumer Law.
[16]Henville (n 14) [18].
In Henville, McHugh J held as follows:
This Court has addressed the question of assessment of damages under s 82 on several occasions. The Court has concluded that in most cases the measure of damages in tort is the appropriate guide in determining an award of damages under s 82. However, in assessing damages under s 82, courts are not bound to choose between the measure of damages in deceit or other torts or contract. In Marks v GIO Australia Holdings Ltd [(1998) 196 CLR 494], the Court said that the central issue under s 82 is to establish a causal connection between the loss claimed and the contravening conduct. Once such a connection is found to exist, nothing in s 82 suggests that the recoverable amount should be limited by drawing an analogy with contract, tort or equitable remedies although they will usually be of great assistance. As Gummow J said in Marks, “[a]nalogy, like the rules of procedure, is a servant not a master”.
Indeed, general principles for assessing damages may have to give way altogether in particular cases to solutions best adapted to give the injured claimant an amount which will most fairly compensate for the wrong suffered.[17]
[17]Ibid [130]–[131] (emphasis added) (citations omitted).
Consistently with this approach, courts have awarded damages for misleading and deceptive conduct on what may broadly be described as an expectation basis where a plaintiff assumes a financial obligation that exceeds the obligation as represented at the outset. An example is Murphy v Overton Investments Pty Ltd (‘Murphy’).[18] In that case, the purchasers of a leasehold retirement unit were induced to enter into a lease on the basis of a representation that the outgoings would add up to a particular amount, which turned out to be an understatement. The Court held that the purchasers were entitled to recover additional outgoings, and that the calculation of that damage was not to be determined by comparing the obligations undertaken with obligations that they would have been subject to in other accommodation.[19] In other words, there was no question of recovery for misleading and deceptive conduct being dependent upon the establishment of a counterfactual; that is, the plaintiff was not required to prove what other unit would have been purchased, and what the outgoings would have been for that unit.
[18](2004) 216 CLR 388. See esp [44].
[19]Ibid [66].
In my opinion, if Cohiba can establish the 30 per cent representation was made, and that it paid for, or is liable to pay for, drilling services at an undiscounted rate compared to what was charged to other customers, then it is arguable that it is entitled to damages for misleading and deceptive conduct calculated by reference to the difference between what it has paid, or is liable to pay, at an undiscounted rate, and what it would have paid, or would be liable to pay on the one hand, and the applicable rate with a 30 per cent discount on the other. Essentially, this would be analogous to the claim in Murphy. Of course, this is not to say that such a claim will ultimately be successful, or that Titeline has no arguments to raise distinguishing Murphy. But having regard to the evidence adduced by Cohiba, I am satisfied that it has established that it has a genuine offsetting claim for the purposes of s 459H that would warrant adjudication in the sum of $1,786,341.22. As that amount is well in excess of the amount claimed in the statutory demand, that is a sufficient basis to grant the relief sought by Cohiba.
As several other matters were addressed in written and oral submissions, I will address them briefly.
Does Cohiba have an offsetting claim, or has it raised a genuine dispute, based on the alleged agreement to a 30 per cent price discount?
Cohiba submitted that the ‘contractual claim’ was put on the basis that the Agreement reached included agreement as to fees being charged at a rate 30 per cent less than the fees charged to their other clients. Insofar as that agreement was not reflected in the written Agreement, Cohiba submits it has a claim to have the contract rectified to reflect the intention of the parties.
Broadly speaking, a contract may be rectified where the actual intention of the parties is not reflected in the written agreement. Rectification is, at least in part, directed towards preventing a party from taking unconscientious advantage of the written terms of an agreement where they are inconsistent with the common intention of the parties.[20] In Franklins Pty Ltd v Metcash Trading Ltd,[21] Campbell JA held:
[I]t is unconscientious for a party to a contract to seek to apply the contract inconsistently with what he or she knows to be the common intention of the parties at the time the written contract was entered. In other words, when a plaintiff succeeds in a claim for rectification, the plaintiff is found to have been justified in in effect saying to the defendant “you and I both knew, when we entered this contract, what our intention was concerning it, and you cannot in conscience now try to enforce the contract in accordance with its terms in a way that is inconsistent with our common intention.”[22]
[20]Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65, [310] (Campbell JA).
[21](2009) 76 NSWLR 603; [2009] NSWCA 407.
[22]Ibid [444].
Titeline denies ever agreeing to a 30 per cent discount, but as stated above that is a hotly contested issue that cannot be resolved in this application. If the Court were to find at trial that the parties had agreed to a 30 per cent discount as alleged, then it would be open to Cohiba to argue that the Agreement should be rectified to adjust the prices in the contract and invoices accordingly. In those circumstances, I am satisfied that Cohiba has raised a genuine dispute in relation to the amounts claimed in the statutory demand.
Does Cohiba have an offsetting claim, or has it raised a genuine dispute, based in equity upon an estoppel by representation regarding a 30 per cent price discount?
A number of issues arise at the intersection of contract and estoppel. In relation to the availability of equitable relief in such circumstances, I note what Allsop J said in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (‘Branir’):[23]
Though not specifically directed to equitable estoppel arising out of pre-contractual communications, McPherson JA in MacDonald v Shinko Australia Pty Ltd [[1999] 2 Qd R 152] at 154-156 in dealing with the equitable remedy of rectification arising from pre-contractual communications saw little merit in the argument that the parol evidence rule or an entire agreement clause impeded that remedy in the face of material calling it in aid to remedy a mistake. If that be correct, as I think it plainly is, it is difficult to see why another remedy of equity based on unconscionability and equally arising out of pre-contractual communications should be defeated by a common law rule about the construction of documents.
However, in the light of my views about the proper scope of these clauses as a matter of construction, in particular cl 12, it is unnecessary to decide this question. Further, given the important issues raised by the point involving the relationship between contract and estoppel, the competing public policy as well as juridical considerations, the question of the unified or fragmented nature of estoppel and whether different analyses apply to different categories of estoppel and the relationship, if any, between the development of estoppel and cognate statutory provisions, such as s 52 of the Trade Practices Act and like State legislation, it is inappropriate to decide the issue in circumstances where it is unnecessary to do so. However, in my view, there appears, if I may say so respectfully, to be great force in the views of McHugh JA in his rejection of the exclusion of a role for estoppel (at least in equity) where the detriment founding the estoppel is, in effect, the entry into an agreement which in turn negates, by its terms, the representation or conduct which was sufficiently clear to found an estoppel and reliance upon which led to the agreement being entered.[24]
[23](2001) 117 FCR 424, cited in FJ & PN Curran Pty Ltd v Almond Investors Land Pty Ltd [2019] VSCA 236, [223].
[24]Ibid 543-544 [446]–[447] (Drummond J agreeing at 429, [1]; Mansfield J agreeing at 429, [2]).
In FJ & PN Curran Pty Ltd v Almond Investors Land Pty Ltd,[25] the Victorian Court of Appeal cited Branir[26] and went on to note that there are authorities going each way and that ‘the matter is not clear cut’.[27]
[25][2019] VSCA 236.
[26]Ibid [223] (Whelan, Niall and Ashley JJ).
[27]Ibid [226].
In light of these authorities, and because a claim for equitable relief would be based on the same factual questions as discussed above, I also consider an estoppel claim may be available to Cohiba if it satisfied the elements required.
Titeline submitted that the Court cannot be satisfied that Cohiba has an offsetting claim, or has established a genuine dispute, because there is no evidence of reliance or detriment.
In relation to reliance, although the evidence is largely implicit, I am satisfied that Cohiba has sufficiently raised the point that it relied on alleged statements as to a 30 per cent discount in entering into the Agreement. I note in particular Mr Graham says in his first affidavit:
[Mr D’Astoli] told me that Titeline met these requirements and that, if appointed, Titeline would charge [Cohiba] 30% below what Titeline was charging their other exploration company clients. Titeline was duly engaged as explained below.
The question of detriment is more complicated. The discussion of detriment in the case of IOOF Building Society Pty Ltd v Foxeden,[28] is a sufficient demonstration of those complexities. Questions may arise as to whether there has been any departure from any representation as to a 30 per cent discount in circumstances where the pricing in the contract is that which Titeline continues to seek to enforce. In that sense it may be said there has been no ‘departure’ from any assumption because Titeline was always going to charge those figures. On the other hand, it may be argued that Titeline departed from the assumption when it demanded payment of an amount that did not represent a 30 per cent discount on standard rates, irrespective of the amounts contained in the contract. There is sufficient doubt about those questions that I am satisfied that they give rise to a genuine dispute.
[28](2009) 23 VR 536, [105]-[152] (Maxwell P, Ashley JA and Hansen AJA) (‘IOOF Building Society’).
In this case, Cohiba says the detriment is that it has not received the benefit of the representation that it would receive a 30 per cent discount to Titeline’s rates for its other clients. Titeline submits that the detriment is properly characterised as the difference between the price Cohiba paid, or is liable to pay, by reason of having entered the contract in reliance on the representation, and the price it could have had the work done for had it not entered into the Agreement with Titeline. Titeline further submits that as there is no evidence of the counterfactual, then even if reliance could be established, the Court is unable to determine the value of the claim for the purposes of s 459H.
As a general principle, a promissory estoppel ‘can be met by relief appropriate to meet the detriment suffered by reliance on the promise’.[29] That has been described as the ‘minimum equity required to do justice’.[30] In Commonwealth of Australia v Verwayen,[31] Brennan J held:
The judgments of a majority of the Court in Waltons Stores v. Maher held that equitable estoppel yields a remedy in order to prevent unconscionable conduct on the part of the party who, having made a promise to another who acts on it to his detriment, seeks to resile from the promise. The remedy is to effect what Scarman L.J. called “the minimum equity to do justice” in Crabb v. Arun District Council [[1976] Ch. 179, 198]: see Waltons Stores v. Maher, per Mason C.J. and Wilson J. at pp 404-405; per Brennan J. at pp 419, 423, 427. The remedy is not designed to enforce the promise although, in some situations (of which Waltons Stores v. Maher affords an example), the minimum equity will not be satisfied by anything short of enforcing the promise.
If this were a case where justice could not be done unless the Commonwealth were held to its promises, the equity would have to be satisfied by entry of an interlocutory judgment for the plaintiff and an order for the assessment of his damages. But that is not the minimum equity needed to avoid the relevant detriment. The relevant detriment in a case of equitable estoppel is detriment occasioned by reliance on a promise, that is, detriment occasioned by acting or abstaining from acting on the faith of a promise that is not fulfilled. The relevant detriment does not consist in a loss attributable merely to non-fulfilment of the promise.[32]
[29]Ibid 564 [121], citing Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
[30]Commonwealth of Australia v Verwayen (1990) 170 CLR 394, 428-429 (Brennan J). See also 445-446 (Deane J).
[31]Ibid.
[32]Ibid 428-429.
The question of what justice requires in the circumstances is not sufficiently clear to exclude the relief proposed by Cohiba; that is, enforcing the promise to charge only a 30 per cent discount. In those circumstances, I am satisfied that, for the purposes of s 459H, Cohiba has an offsetting claim by way of equitable estoppel, in the amount of $1,786,341.22.
Does Cohiba have an offsetting claim, or has it raised a genuine dispute, based upon misrepresentation at common law regarding a 30 per cent price discount?
As for misrepresentation at common law, similar issues arise as have been discussed above in relation to estoppel, save that the relief available at common law may be more limited than that available in equity. The plaintiff filed further submissions on 6 June 2023 in relation to the specific causes of action it says amount to offsetting claims. Those submissions dealt with contract/restitution, estoppel and misleading and deceptive conduct but did not address common law misrepresentation. That being the case, and having regard to the consideration of the other causes of action above, I do not consider it necessary to deal with common law misrepresentation in any greater detail.
Having regard to the above findings it is unnecessary to deal with the further issues raised regarding defective equipment. Because they were addressed by the parties at some length I will deal with them briefly.
Is there a genuine dispute as to use of defective equipment causing overcharging?
It is not disputed that on about 25 June 2022, a drill rod broke in the shaft at a significant depth (1,044 m) and the drill rod became stuck and had to be retrieved at significant delay and cost.
Cohiba submits that the reason for the delay and cost was that, in breach of its contractual obligations and duty of care, Titeline used poor quality drill rods and drill strings which were not fit for purpose. Cohiba submits that it has a claim for damages for such breaches which it estimates at $823,926.12.
The evidence that the drill rod was of poor quality includes:
(a) evidence from Mr Graham that the drill rods that were used were inferior quality drill rods that had been discarded by another driller. Cohiba’s senior site geologist (Mr Pluckhahn) emailed Mr Graham on 23 June 2022 and stated:
Just letting you know that there have been a lot of problems with the drilling since 13/6/22. It seems that the problem is that they got a second hand and presumably worn out rod string from Coda. I spoke with driller Nate yesterday, and he said that they have a new rod string on order, but it’ll take 2-3 weeks to arrive.
I’ve attached the document with all the plod details for this hole.
(b) On 23 June 2022, Mr Graham sent a text message to Mr D’Astoli in relation to this issue. The text message, and Mr D’Astoli’s response, are as follows:
Also my geo on the rig sent another email today stating that there have been ongoing issues with the drilling on current hole since June 13th (10 days). He said that th[e] drillers informed him that the problem is a “second hand and worn out drill rod string from Coda”. Nate (driller) indicated that a new rod string is on order but will take 2-3 weeks to arrive. At $500 +K per hole and shareholder pressures I cannot afford the costs or delays like these – surely we must be paying sufficient rates not to be getting worn out equipment? We were supposed to be at basement 10 days ago. From drillers plods we’ve had a total of 114m in the last 10 days with 10 shifts of 0 m. I can’t afford this and need a solution. Thanks Andrew[.]
Mr D’Astoli responded:
Hi Andrew. I will follow this up, drill pipe is in short supply but I believe we will have it there shortly. Obviously you won’t be charged for any delays due to this issue[.]
(c) On 27 June 2022 Mr Pluckhahn sent a further email to Mr Graham in which he stated:
The hole is currently at 1048 m. … There rods unscrewed at 960m and when they recovered the rods found the barrel also unscrewed. The core tube was protruding so they sent down the spear to recover this, but it fell off at ~700m. Currently they are trying to retrieve the core tube with a fixed swedge [sic], and it’ll be an hour before getting to the bottom to attempt this. The core may not have broken off bottom, in which case this won’t work. They’ll be fishing the rest of today to see whether they can retrieve the gear from off bottom.
…
The old rod string goes without saying was a stupid idea on a 1500m hole. There are going to be issues with joints parting and gear being left down the hole. …
(d) On 30 June 2022, Mr Pluckhahn sent a further email to Mr Graham setting out numerous issues he had identified with the equipment used and work performed by Titeline, including the following:
·It’s really unusual that the rod snapped and the back end reamer came undone, supposedly on rods that have only drilled one hole. These should be occasional occurrences, and we’d already had a lot of problems with gear left down the hole before this.
·After the gear was left down the hole, fishing for gear should have ended by 24 hrs and come up with an alternative plan.
·It wasn’t until Monday morning that I was contacted. I didn’t have the plods so didn’t realise that this was ongoing since Saturday.
·The backup plan should have been worked through on Sunday morning and start to think through logistics: …
·We’ve been filling this hole for a month now, and Titeline have 4 rigs at Roxby Downs. Titeline should have a contingency plan to have spare HQ rods on site, or at a laydown in Roxby Downs for issues such as this. …
In relation to the consequences of the broken drill rod, Cohiba submits:
(a) it broke because it was poor quality;
(b) it could have been retrieved within two or three shifts; and
(c) the issues with the equipment caused significant delays for which Cohiba has been charged, and which it says it is entitled to be repaid.
Cohiba relies on what it describes as a ‘well-established general principle that a party cannot take advantage of a contingency brought about or materially contributed to by its own default’. The proposition was expressed in The New Zealand Shipping Case[33] as being that ‘[u]nless the language of the contract constrains the Court to hold otherwise, the law of England never permits a party to take advantage of his own fault or wrong.’[34]
[33][1917] 2 KB 717.
[34]Ibid 723 (Viscount Reading CJ).
Alternatively, Cohiba submits that if it establishes Titeline’s equipment was defective and not fit for purpose, then Cohiba would have causes of action in contract and tort that would sound in damages, and would entitle Cohiba to be compensated for the costs of the delays and retrieving the broken drill rods from the shafts. Cohiba goes to some lengths to calculate its claim in the amount of $823,926.12, including an extensive analysis of the work done and delays said to have occurred as a result of faulty equipment.
Titeline submits that:
(a) any issue concerning Drill Hole 6 was resolved by the Drill Hole 6 agreement;
(b) the relevant contractual term is not identified or established;
(c) breach of contract is not established;
(d) the use of inferior drill rods is denied and not established;
(e) causation and damages are not established;
(f) evidence of causation and loss is unqualified speculation; and
(g) the evidence in the Graham February Affidavit has no probative value.
In my opinion, Cohiba has provided a sufficient explanation for its submissions in this regard to establish an arguable case that there was a problem with the quality of the drill rods and strings used, and that there may have been delay in retrieving the drill rods which cumulatively or independently caused loss and damage that may be recoverable. Such loss and damage would not necessarily be dependent on proof of a breach of contract but may also involve a tortious claim.
Further, while I accept that there may be issues with the quantum of the defective equipment claim, those issues largely arise in the context of a complicated factual matrix in relation to which a trial is the appropriate place for resolution.
In those circumstances, I am satisfied that Cohiba has established an offsetting claim in relation to defective equipment in the amount of $823,926.12 for the purposes of this application.
For the above reasons I will order that the statutory demand be set aside. I will ask the parties to provide an appropriate form of order, including in relation to costs.
SCHEDULE OF PARTIES
| S ECI 2023 00716 | |
| BETWEEN: | |
| COHIBA MINERALS LTD (ACN 149 026 308) | Plaintiff |
| - v - | |
| TITELINE DRILLING PTY LTD (ACN 096 640 201) | Defendant |
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