Stratpharma Pty Ltd v Hbba Pty Ltd
[2022] VCC 888
•17 June 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-20-02012
| STRATPHARMA PTY LTD (ACN 628 913 495) | First Plaintiff / Defendant by Counterclaim |
| & | |
| STRATPHARMA AG (ARBN 614 085 924) | Second Plaintiff |
| v | |
| HBBA PTY LTD (ACN 603 072 108) | First Defendant /Plaintiff by Counterclaim |
| & | |
| PANALPINA WORLD TRANSPORT PTY LTD (ACN 000 525 995) | Second Defendant |
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JUDGE: | Her Honour Judge Brimer | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 May 2022 | |
DATE OF JUDGMENT: | 17 June 2022 | |
CASE MAY BE CITED AS: | Stratpharma Pty Ltd & Anor v HBBA Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 888 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT AND TORT
Catchwords: Contractual interpretation – distribution agreement between second plaintiff and first defendant – first defendant purchasing and selling stock from second plaintiff – whether title to stock passed from first defendant to second plaintiff upon termination of distribution agreement
Consultancy agreement between second plaintiff and first defendant – first defendant running a sales team for the second plaintiff – whether consultancy agreement entitled first defendant to withhold redundancy expenses paid from funds due to second plaintiff – whether consultancy agreement entitled first defendant to withhold take-on fees from funds due to second plaintiff
Physical distribution agreement between first plaintiff and first defendant – first defendant responsible for physical distribution only – title to stock remained with first plaintiff – whether first defendant was entitled to charge administration fees and insurance fees pursuant to the physical distribution agreement
Detinue – whether first defendant wrongfully refused to deliver stock to first plaintiff upon termination of physical distribution agreement – assessment of loss and damage – perishable stock – claim for exemplary damages
Legal costs and interest
Legislation Cited:
Cases Cited:Banks v Ferrari [2000] NSWSC 874, Gray v Motor Accidents Commission (A36/1997) (1998) 196 CLR 1, Linprint Pty Ltd v Hexham Textiles Pty Ltd(1991) 23 NSWLR 508, Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118, Volvo Finance Australia Pty Ltd v Waterfront Enterprises Pty Ltd (In Liq) (No 2) [2020] NSWSC 262, Whitford v De Lauret & Co Ltd (1920) 29 CLR 71
Judgment: For the plaintiffs
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M McKillop | Mills Oakley Lawyers |
| For the First Defendant | No appearance | No appearance |
HER HONOUR:
Overview
1Between 2015 and January 2019, the first defendant, HBBA Pty Ltd (HBBA)[1] distributed pharmaceutical products manufactured by Stratpharma AG (SPA)[2] for SPA. The products were stored at the second defendant, Panalpina World Transport Pty Ltd’s (Panalpina)[3] storage facility. Between July 2016 and 17 December 2018, HBBA also provided consultancy services to SPA including by employing members of a team to manage the Strapharma business.
[1] HBBA is an Australian distributor. HBBA was placed in a members’ voluntary winding up on 12 May
2021.
[2] SPA is a Swiss foreign company and a manufacturer and importer of pharmaceutical products including
bandages, gels and creams to treat wounds, scarring and stretch marks. The end customers of SPA's
products include hospitals and pharmacies.
[3] Panalpina is the operator of a storage facility, which HBBA used
to store the pharmaceutical products it distributed for SPA and SPL. The proceeding against Panalpina was dismissed by order of Judicial Registrar Burchell (as Her Honour then was) dated 10 February 2021.
2The agreement under which HBBA distributed the products for SPA was terminated effective 18 January 2019. The agreement under which HBBA provided consultancy services was terminated effective 17 December 2018.
3From January 2019, Stratpharma Pty Ltd (SPL)[4] became SPA’s Australian importer and distributor. HBBA continued to physically distribute pharmaceutical products manufactured by SPA for SPL under a physical distribution agreement with SPL until termination of that agreement effective 14 October 2019.
[4] SPL is an Australian importer and distributor of pharmaceutical products. SPA is the Swiss parent of
SPL.
4The gravamen of this dispute is a claim by each of SPA and SPL that HBBA owes money which was withheld by HBBA in breach of the relevant distribution and consultancy agreements upon termination. SPL further claims that HBBA unlawfully detained SPL’s stock for a period of about 6 months after termination of their agreement, causing SPL loss and damage.
The trial
5On 3 March 2022, HBBA’s liquidators wrote to the Commercial Registry of this Court, stating that HBBA ‘will take no active part in the proceedings’.[5] HBBA did not appear at trial. The trial proceeded undefended in accordance with Rule 49.02(1)(b) of the County Court Rules.
[5] The members’ voluntary winding up of HBBA did not operate to stay the proceeding. On 30 July 2021,
the plaintiffs provided the Court with copies of the declaration of solvency dated 10 May 2021, minutes of a meeting of members dated 11 May 2021 and notification of resolution lodged with ASIC dated 12 May 2021. See orders of Judicial Registrar Burchell (as Her Honour then was) dated 6 August 2021. On 28 April 2022, HBBA’s former solicitors, Harrick Lawyers filed a notice of solicitors ceasing to act.
6At trial, the plaintiffs called Darren Kerr, CEO of SPA and Chairman/Director of SPL (Mr Kerr) to give evidence. HBBA’s counterclaim is dismissed.[6]
[6] See David Bailey and John K Arthur, Civil Procedure Victoria (LexisNexis, online) [I 49.02.15] citing
Linprint Pty Ltd v Hexham Textiles Pty Ltd(1991) 23 NSWLR 508.
Conclusion
7I find for the plaintiffs. On the evidence before me, I am satisfied the plaintiffs have proved their claims.
Background
SPA Distribution Agreement
8On 21 May 2015, SPA and HBBA entered into a Distribution Agreement (SPA Distribution Agreement),[7] under which HBBA was appointed the exclusive distributor for the sale and physical distribution of ‘Products’ (as defined).[8] SPA invoiced HBBA for the Products,[9] which were paid for as they were sold. A reconciliation was performed each month.[10]
[7] CB 80-92.
[8] SPA Distribution Agreement, cl 2(a).
[9] Ibid, cl 3(l).
[10] Ibid, cl 3(l).
9SPA paid a ‘Provision Amount’ to HBBA, for invoices due in future months which may not be covered by expected payments from customers.[11] The Provision Amount was initially set at $50,000, to be reviewed after three months of trading.[12]
[11] Ibid, cl 1(c).
[12] Ibid, cl 1(c).
10Upon shipment, title to the Products and risk of loss passed from SPA to HBBA.[13] HBBA arranged insurance for the Products and submitted an invoice to SPA.[14]
[13] Ibid, cl 6(b).
[14] Ibid, cl 3(u).
11Upon termination of the SPA Distribution Agreement:
(a) HBBA was to deliver to SPA, or destroy upon SPA’s request, all Product materials;
(b) SPA was to reimburse HBBA's expenses to the extent reasonable;
(c) HBBA was permitted to return to SPA all re-saleable goods and be reimbursed the original purchase price plus freight and import duties (landed cost) of the returned goods; and
(d) HBBA was to return the Provision amount to SPA.[15]
[15] Ibid, cl 13(d).
12Around this time, HBBA and Panalpina entered into a Warehousing Agreement, for storage of Products HBBA purchased from SPA at Panalpina’s storage facility in Tullamarine, Victoria.
13On 19 June 2015, SPA paid the Provision Amount of $50,000 to HBBA in accordance with the SPA Distribution Agreement.
Consultancy Agreement
14In early June 2016, negotiations commenced between SPA and HBBA in relation to entering into a consultancy agreement, under which HBBA would set up a dedicated Stratpharma sales team (Team) in Australia.
15On 21 June 2016, Zack Bozinovski (Mr Bozinovski) of HBBA sent an email to Mr Kerr providing a spreadsheet with a budget for the Team.[16]
[16] CB 391-392.
16On 12 July 2016, SPA and HBBA entered into a Consultancy Agreement (Consultancy Agreement),[17] under which:
(a) SPA appointed HBBA to manage a dedicated Team and sell the ‘Agreed Products and Brands’ (as defined);[18]
(b) The Team members were HBBA employees, employed to specifically manage the Statpharma business;[19] and
(c) All costs associated with running the Team were borne by SPA based on a pre-determined and agreed budget.[20]
[17] CB 93-99. Note: There was no issue that the terms contained in the Preamble of the Consultancy
Agreement were operative.
[18] Consultancy Agreement, Preamble.
[19] Ibid, Preamble.
[20] Ibid, Preamble.
17With respect to the HBBA employees, the parties agreed that:
During the term of this Agreement Stratpharma or its designee may recruit and employ members of Dedicated Stratpharma Sales Team directly, subject to paying a take-on fee of AUD 5.000 per representative. After this Agreement has expired or been terminated Stratpharma or its designee may recruit and employ members of Dedicated Stratpharma Sales Team directly, without any fees.[21]
[21] Ibid, Preamble.
18Under the Consultancy Agreement, SPA needed to make $350,000 in clear funds available to HBBA three months in advance to pay salaries and other costs as agreed (annually estimated at $1.2m) for running the Team.[22] On 18 August 2016, SPA transferred $350,000 to HBBA pursuant to this term (SPA Consultancy Advance). On 1 February 2017, SPA and HBBA agreed to reduce the amount of the SPA Consultancy Advance from $350,000 to $275,000.
[22] Ibid, Payment.
Termination of the SPA Distribution Agreement and Consultancy Agreement
19On 18 July 2018, SPA served a termination notice on HBBA in relation to the SPA Distribution Agreement, pursuant to clause 13(c) which stated:
Termination with Written Notice. Either party may, at its option, terminate this agreement by giving to the other not less than 6 months prior written notice.[23]
with an effective termination date of 18 January 2019 (DA Termination Notice).[24]
[23] SPA Distribution Agreement, cl 13(c).
[24] CB 103.
20On 14 September 2018, SPA served a notice of termination on HBBA in relation to the Consultancy Agreement, pursuant to the ‘End Date’ section which provided:
Termination with Written Notice. Either party may at its option, terminate this agreement by giving to the other not less than 3 months prior written notice.[25]
with an effective termination date of 17 December 2018 (CA Termination Notice).[26]
[25] Consultancy Agreement, End Date.
[26] CB 104.
21According to Mr Kerr, SPA decided to terminate the SPA Distribution Agreement and the Consultancy Agreement as it wished to incorporate a company in Australia that would become the importer and distributor of SPA’s products.[27] SPL was eventually incorporated for that purpose.[28]
[27] Witness Statement of Darren Kerr dated 25 May 2022, [23].
[28] Ibid.
Transition of Team members from HBBA to SPL
22Between 31 October 2018 and 5 November 2018, SPA’s general manager Lynne Charisis (Ms Charisis) exchanged emails with Louis Denton of HBBA (Mr Denton) regarding the 10 Team members and their transition to SPL.[29]
[29] CB 407-417.
23On 30 November 2018, Ms Charisis sent employment contracts (Employment Contracts) to the Team members, offering them employment with SPL.[30]
[30] Witness Statement of Darren Kerr dated 25 May 2022, [34].
24On 17 December 2018, the Consultancy Agreement was effectively terminated by the CA Termination Notice.[31]
[31] CB 104.
25HBBA paid redundancy expenses totalling $31,193.75 to the Team members out of funds comprising the SPA Consultancy Advance. HBBA also retained $50,000 from the SPA Consultancy Advance on account of a take-on fee of $5,000 for each Team member. The plaintiffs claimed that HBBA had no basis, contractual or otherwise, to charge SPA for the redundancy expenses or take-on fees.
SPL Distribution Agreement
26Between 17 December 2018 and 11 January 2019, Chris Unwin of SPA (Mr Unwin) and Mr Denton exchanged emails regarding a Physical Distribution Agreement that SPL and HBBA proposed to enter, attaching a document styled ‘Physical Distribution Agreement Commercial Terms’ (SPL Distribution Agreement).[32] Under the SPL Distribution Agreement:
(a) HBBA had responsibility for the physical distribution of Agreed Products (as defined) in Australia;[33]
(b) SPL would pay HBBA a Fee based on Gross Sales.[34] At the end of each month, SPL would provide a report to HBBA summarising the Gross Sales for the period. HBBA would then provide SPL with an invoice for the Fee;[35]
(c) SPL would pay ‘passed through costs’, invoiced by Panalpina;[36] and
(d) SPL could organise insurance for the Agreed Products.[37]
[32] CB 100-102.
[33] SPL Distribution Agreement, Physical Distributer Details and Services.
[34] Ibid, Fee (exclusive of applicable taxes).
[35] Ibid, Payment.
[36] Ibid, Payment.
[37] Ibid, Insurance obligations.
27The SPL Distribution Agreement was never signed by SPL and HBBA, however the defendant admitted the parties performed the terms of that agreement as if bound by it from about 18 January 2019.[38]
[38] Amended Statement of Claim dated 1 February 2021, [24]. Defence to Amended Statement of Claim
dated 15 April 2021, [24].
28On or after 1 January 2019, the nine Team members who accepted employment with SPL commenced working at SPL.[39]
[39] Witness Statement of Darren Kerr dated 25 May 2022, [34]-[35].
Credit Note and Tax Invoice
2917 January 2019 was the effective termination date of the SPA Distribution Agreement.[40] Mr Kerr gave evidence that on the same day:
(a) SPA issued a credit note to HBBA in the sum of $8,737,830.60 (Credit Note), for stock HBBA imported into Australia for distribution under the SPA Distribution Agreement that had not yet been sold (Stock Balance); and
(b) SPA issued a tax invoice to SPL in respect of the Stock Balance (Tax Invoice), effecting the sale of the Stock Balance from SPA to SPL.[41]
[40] CB 103.
[41] See issue 6 below.
30The Stock Balance remained in the Panalpina warehouse. The plaintiffs’ position was that:
(a) the effect of the Credit Note, along with cl 13(d) of the SPA Distribution Agreement, was to transfer title in the Stock Balance from HBBA to SPA;[42] and
(b) the effect of the Tax Invoice was to transfer title in the Stock Balance from SPA to SPL.[43]
[42] Amended Statement of Claim dated 1 February 2021, [22].
[43] Ibid, [23].
31At paragraph 22 of its defence,[44] HBBA pleaded that the ‘purported’ Credit Note:
(a) purported to sell $8,737,830.60 of stock to HBBA;
(b) did not operate to transfer title of the Stock Balance to SPA (as at 17 January 2019, title to the stock remained with HBBA pursuant to clause 6(b) of the SPA Distribution Agreement); and
(c) was not issued until 7 April 2020 (it was erroneously dated 17 January 2019).
[44] Defence to Amended Statement of Claim dated 15 April 2021.
32On 18 January 2019, HBBA commenced performing the terms of the SPL Distribution Agreement as though bound by it. On the same day, SPA and SPL entered into a Marketing and Distribution Agreement, under which SPL became the importer of SPA products into Australia.
33In or about February 2019, Mr Kerr travelled to Australia to conduct a physical stocktake of the stock stored at Panalpina.[45] All stock was checked for damage and reconciled.
[45] T 16.30-17.8.
Administration Fees and Insurance Fees
34Between February 2019 and September 2019, HBBA charged SPL for ‘Administration Fees’ totalling $70,632.22.
35HBBA also charged SPL for ‘Insurance Fees’, arising out of tax invoices issued by Honan Insurance Group Pty Ltd (Honan).[46]
[46] Tax invoice 351130 dated 28 June 2019, tax invoice 350439 dated 28 June 2019 and tax invoice 325896
dated 29 June 2019.
Termination of the SPL Distribution Agreement
36On 12 September 2019, SPL sent a letter to HBBA providing notice that SPL was terminating the SPL Distribution Agreement ‘due to HBBA’s material breaches of its contractual obligations’, including HBBA charging SPL for Administration Fees (SPL Termination Notice).[47] In the ‘End Date’ section, the SPL Distribution Agreement provided:
Termination for material breach. Either party may at its option, terminate this agreement by giving to the other not less than thirty (30) days prior written notice in the event that the other party shall at any time commit a material breach of any of its obligations hereunder and shall fail to correct any such breach during the period of such notice. This agreement shall terminate automatically without further notice or action by either party if the other party shall become insolvent, shall make or seek to make an arrangement with or an assignment for the benefit of creditors, or if proceedings in voluntary or involuntary bankruptcy shall be instituted by, on behalf of or against such other party, or if a receiver or trustee of such other party's property shall be appointed.[48]
[47] CB 107.
[48] SPL Distribution Agreement, End Date.
37The SPL Termination Notice had an effective termination date of 14 October 2019, unless HBBA corrected the material breaches. At paragraph 30 of its defence,[49] HBBA pleaded that the SPL Termination Notice amounted to a repudiation of the SPL Distribution Agreement.
[49] Defence to Amended Statement of Claim dated 15 April 2021.
Finalisation of arrangements between SPL and HBBA
38Between 25 September 2019 and 7 October 2019 Mr Denton, Luka Valas of SPA and SPL (Mr Valas) and Mr Kerr exchanged emails relating to the SPL Termination Notice and finalisation of the arrangements between SPL and HBBA.
39On 7 October 2019, SPA and SPL sent a letter to HBBA regarding the SPL Termination Notice and collection of stock, stating:
… We will notify you about collecting the remaining stock which we expect to be released without restrictions. Linking the release of stock to any HBBA conditions would be a further breach of the Agreement and would cause Stratpharma irreparable harm. Stratpharma’s stock must not be held as collateral pending discussions or potential dispute regarding claims between Stratpharma and HBBA.[50]
[50] CB 108.
40On 9 October 2019, HBBA’s former lawyers, Harrick Lawyers sent a letter to SPL, stating amongst other things that HBBA was entitled to exercise a lien over the stock.[51] On the same day, SPA and SPL sent a letter to Harrick Lawyers disputing HBBA’s entitlement to exercise a lien over the stock and demanding that the stock be immediately released.[52]
[51] CB 105-106.
[52] CB 109-110.
41The plaintiffs contended that on 14 October 2019, the SPL Distribution Agreement was effectively terminated by the SPL Termination Notice.[53] As at this date, Panalpina was holding stock with a wholesale value of $2,813,422.18 (Stock), as detailed in spreadsheet exhibited to Mr Kerr’s witness statement (Stock Ledger).[54] The Stock included items from Lots 13155 and 13222, in relation to which SPL claimed damages.[55] The Stock also included products imported by SPL from SPA.[56]
[53] CB 107.
[54] Affidavit of Darren Kerr dated 12 March 2020, p 74 of exhibit DLK-1.
[55] See ‘The Stock’ below.
[56] T 12.7-11.
42On 17 October 2019, Mr Unwin sent an email to Mr Denton acknowledging the existence of a dispute with respect to the termination of the SPL Distribution Agreement and requesting that HBBA release and ship all Stock aside from units up to a value of $100,000.[57]
[57] CB 1607.
43On 20 November 2019, the plaintiffs’ solicitors, Mills Oakley, sent a letter to Harrick Lawyers reiterating that HBBA was not entitled to exercise any lien over the Stock.[58]
[58] CB 118-119.
44Between 20 November 2019 and 24 March 2020, Mills Oakley and Harrick Lawyers exchanged correspondence regarding release of the Stock.[59]
[59] CB 120-128.
45On 21 November 2019, Mills Oakley sent an email to Harrick Lawyers attaching a copy of the Credit Note.[60]
[60] CB 124-125.
46On 29 November 2019, Harrick Lawyers sent an email to Mills Oakley containing an open offer to release the Stock on certain stated conditions.[61]
[61] CB 131-132.
Escrow Sum
47On 3 December 2019, SPL deposited the sum of $34,855.57 into a trust account of Mills Oakley (Escrow Sum).[62]
[62] Affidavit of Darren Kerr dated 12 March 2020, DLK-[472].
48On 16 December 2019, Mills Oakley sent an email to Harrick Lawyers containing an open offer to provide an undertaking that the Escrow Sum would not be distributed or disbursed absent an agreement with HBBA or an order of the Court, if HBBA agreed to release the Stock.[63]
[63] CB 135-136.
49On 30 March 2020, proceedings were issued in the Supreme Court of Victoria as a means by which the plaintiffs could recover the Stock.[64]
[64] CB 1-2.
50On 6 April 2020, orders were made, largely by consent, for return of the Stock to SPL.[65] The orders included a requirement that the Escrow Sum that had been paid into the trust account of its solicitors in early December 2019 remain there pending agreement or further order to, in part, secure claims made by HBBA.
[65] Order of His Honour Justice Riordan dated 6 April 2022.
51The plaintiffs contended that on 7 April 2020, SPA provided an amended version of the Credit Note to HBBA, at HBBA’s request.
52On 8 April 2020, SPA paid $5,769.40 to Panalpina so the Stock could be released.[66]
[66] Affidavit of Darren Kerr dated 12 March 2020, DLK-[478].
53On 17 April 2020, the Stock was released from Panalpina’s custody.[67]
[67] Witness Statement of Darren Kerr dated 25 May 2022, [65].
The Stock
54Of the returned Stock, the plaintiffs claim damages only with respect to items in Lots 13155 and 13222, which both contained StrataMARK 20g units.
55With respect to Lot 13155, the plaintiffs submitted that the evidence shows:
(a) the product release sheet was issued and signed on 9 November 2015;
(b) the earliest expiration date of useful commercial shelf life of the items was reached in February 2020;
(c) the latest expiration date of useful commercial shelf life of the items was reached in May 2020; and
(d) the expiry date of the items was reached in November 2020.[68]
[68] Ibid, [71]–[75].
56With respect to Lot 13222, the plaintiffs submitted that the evidence shows:
(a) the product release sheet was issued and signed on 22 December 2015;
(b) the earliest expiration date of useful commercial shelf life of the items was reached in March 2020;
(c) the latest expiration date of useful commercial shelf life of the items was reached in June 2020; and
(d) the expiry date of the items was reached in December 2020.[69]
[69] Ibid.
57Due to the useful commercial shelf life and expiry date of the items in Lots 13155 and 13222, SPL was not able to sell any such items to hospitals and pharmacies.
58Between April 2020 and January 2021, SPL was able to use 1,850 units from Lot 13155 and 3,976 units from Lot 13222 for promotional and marketing purposes like trade shows and other purposes which did not require the items to have a long shelf-life.[70]
[70] T 52.28-53.4.
59As at January 2021, SPL was holding approximately 11,808 units from Lot 13155 and approximately 35,280 units from Lot 13222 (totalling 47,088 units) that it claimed it was unable to use for any purpose (StrataMARK Units).
60SPL destroyed the 47,088 StrataMARK Units, at a cost of $8,440.[71]
[71] Witness Statement of Darren Kerr dated 25 May 2022, [70].
Issues for determination
61The plaintiffs seek recovery of amounts from HBBA that they contended HBBA had no lawful basis to deduct or withhold from:
(a) funds that SPA had provided to HBBA under the terms of the Consultancy Agreement; and
(b) proceeds received from the sale of ‘Agreed Products’ under the terms of the SPL Distribution Agreement, that HBBA were contractually bound to remit to SPL.
62The amounts sought by the plaintiffs are:
(a) $31,193.75 in respect of redundancy expenses (claimed by SPA);
(b) $50,000 in respect of take-on fees for staff hired by SPL (claimed by SPA);
(c) $11,939.22 in respect of wrongly claimed deductions including administration and insurance fees (claimed by SPL).[72]
[72] Amended Statement of Claim dated 1 February 2021, prayer for relief.
63SPL also claims $370,025.56 in loss and damage for the detention of the stock.[73]
[73] Ibid.
64The plaintiffs claim:
(a) Interest; and
(b) Costs.[74]
[74] Ibid.
65The plaintiffs also seek an order for the release of the Escrow Sum paid into its solicitors’ trust account as security for HBBA’s claims.[75]
[75] Ibid.
66The plaintiffs’ summary of key issues dated 19 May 2022 identifies the following issues for determination:
(a) Whether, on its proper construction, the Consultancy Agreement between the SPA and HBBA dated 12 July 2016 (Consultancy Agreement) required SPA to pay or reimburse HBBA for any redundancy expenses incurred in relation to the members of the Dedicated Stratpharma Sales Team (Team).
(b) If the answer to issue 1 is no, whether SPA is entitled to recover the sum of $31,193.75 from HBBA.
(c) Whether, on its proper construction, the Consultancy Agreement entitles HBBA to a take-on fee of $5,000 for each of the 10 members of the Team that SPL offered employment on or about 30 November 2018.
(d) If the answer to issue 3 is no, whether SPA is entitled to recover the sum of $50,000 from HBBA.
(e) Whether HBBA must pay the sum of $11,939.22 to SPL, being the net amount SPL contends HBBA received that it was not entitled to retain from the sale proceeds of SPL’s products under the Distribution Agreement entered into between HBBA and SPL on or about 18 January 2019 (SPL Distribution Agreement).
(f) Whether HBBA wrongfully refused to deliver to SPL the stock in the possession of the Second Defendant as at 14 October 2019 (Stock) to SPL.
(g) If the answer to issue 6 is yes, whether the wrongful detention of the Stock caused SPL loss and damage, in respect of which SPL is entitled to recover damages from HBBA.
(h) If the answer to 6 is yes, whether SPL is entitled to an order that the sum of $34,855.57 held in the trust account of Mills Oakley pursuant to the orders of Riordan J made 6 April 2020.
(i) If the answer to issues 6 and 7 is yes, whether SPL is entitled to exemplary damages against HBBA.
(j) If the answers to any of issues 2, 4, 5, 7, 8 and/or 9 is yes, whether SPA and SPL are respectively entitled to interest on the sums or amounts referred to therein.
Issue 1: Whether, on its proper construction, the Consultancy Agreement between the SPA and HBBA dated 12 July 2016 (Consultancy Agreement) required SPA to pay or reimburse HBBA for any redundancy expenses incurred in relation to the members of the Dedicated Stratpharma Sales Team (Team).
Plaintiffs’ submissions
67The plaintiffs submitted that HBBA had no basis, contractual or otherwise, to withhold the redundancy expenses from funds that SPA had provided to HBBA by way of advance.[76]
[76] There was no issue on the pleadings that the advance was paid or that those amounts were deducted.
68The express wording of the Consultancy Agreement provided that all costs associated with the running of the sales team would be borne by SPA ‘... based on a pre-determined and agreed budget’, and therefore did not require SPA to bear costs that the budget did not provide for.[77]
[77] See CB 93, second paragraph under the heading ‘Preamble’.
69The agreed budget made no provision for redundancy expenses.[78]
[78] CB 379-390 and CB 392.
70As HBBA was a distributor and consultant hired by SPA, HBBA was responsible for staffing its own distribution and consultancy business. HBBA did not employ staff as an agent for SPA, or on its behalf. Accordingly, HBBA’s costs of hiring, employing and making staff redundant were its own costs, not those of its customer
HBBA’s defence
71At paragraph 19 of its defence,[79] HBBA denied that it breached the Consultancy Agreement by withholding the redundancy expenses from funds that SPA had provided to HBBA and pleaded that:
(a) it was instructed by SPA to terminate 10 members of the Team;
(b) it terminated nine Team members in consultation with and with the consent of SPA;
(c) it calculated and paid redundancy expenses to the nine Team members in consultation with and with the consent of SPA; and
(d) the redundancy expenses formed part of the expenses of employing the Team and formed part of the expenses to be reimbursed by SPA to HBBA.
[79] Defence to Amended Statement of Claim dated 15 April 2021.
Legal principles
72The general principals which apply to the construction of commercial contracts are well understood. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (Mount Bruce Mining),[80] the High Court said, relevantly:
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning…
[80] (2015) 256 CLR 104, 116–7 [46]–[51] (citations omitted).
Conclusion and analysis
73On a proper construction of the Consultancy Agreement, I consider that a reasonable business person in the position of the parties would understand that SPA was not required to pay or reimburse HBBA for any redundancy expenses incurred in relation to the members of the Team.
74Consideration of the text in the context of the Consultancy Agreement as a whole supports a construction that the costs for which SPA was responsible were limited to identified budgeted costs associated with the management or running of the Team and not redundancy liabilities upon termination of the agreement:
(a) ‘All costs associated with the running of the ‘Dedicated Stratpharma Sales Team’ will be borne by Stratpharma based on a pre determined and agreed budget’ (emphasis added);[81]
(b) Estimated ‘Other’ costs included ‘… any other costs associated with the management of the dedicated Stratpharma team.’[82]
[81] CB 93.
[82] See row 3 of table at CB 95.
75The pre-determined and agreed budget made no provision for redundancy expenses. The expenses budgeted for are consistent with costs of running or managing the Team and not costs associated with the hiring, employing and the making of staff redundant.
76The circumstances addressed by the contract include that the Team were HBBA employees. This supports the conclusion that costs associated with the hiring, employing and the making of staff redundant were those of HBBA, not SPA.
Issue 2: If the answer to issue 1 is no, whether SPA is entitled to recover the sum of $31,193.75 from HBBA.
77SPA is entitled to recover the sum of $31,193.75 from HBBA.
Issue 3: Whether, on its proper construction, the Consultancy Agreement entitles HBBA to a take-on fee of $5,000 for each of the 10 members of the Team that SPL offered employment on or about 30 November 2018.
Plaintiffs’ submissions
78Mr McKillop submitted that the trigger for liability for the take-on fee was ‘recruiting and employing’ members of the Team during the term of the Consultancy Agreement, not merely recruiting consistent with the wording of the clause:[83]
During the term of this Agreement Stratpharma or its designee may recruit and employ members of Dedicated Stratpharma Sales Team directly, subject to paying a take-on fee of AUD 5.000 per representative. After this Agreement has expired or been terminated Stratpharma or its designee may recruit and employ members of Dedicated Stratpharma Sales Team directly, without any fees. (emphasis added)[84]
[83] T 42.17.
[84] CB 94, Preamble.
79SPL offered employment to 10 Team members on 30 November 2018, before the effective termination of the Consultancy Agreement on 17 December 2018 and HBBA’s termination of employment of the 10 members of the Team. However, their employment with SPL did not commence until 1 January 2019 at the earliest.
80Accordingly, SPL did not employ any of the Team members ‘during the term’ of the Consultancy Agreement and no take-on fees are payable by SPL.
81Further, of the 10 Team members offered employment with SPL, one signed her employment contract on 17 January 2019, another on 19 January 2019 and one did not accept SPL’s offer of employment at any time
HBBA’s defence
82At paragraph 19 of its defence,[85] HBBA denied that it breached the Consultancy Agreement by withholding the take-on fees from funds that SPA had provided to HBBA because:
(a) SPL, as designee of SPA, recruited and offered employment to 10 Team members during the term of the Consultancy Agreement;
(b) the employment was accepted by the 10 Team members during the term of the Consultancy Agreement; and
(c) in the premises, HBBA was entitled to be reimbursed the sum of $50,000 (i.e. $5,000 per representative) by SPL pursuant to the take-on fee clause.
[85] Defence to Amended Statement of Claim dated 15 April 2021.
83At trial, Mr McKillop acknowledged HBBA’s defence:
… now if I had an opponent at the Bar table, the case that would have been advanced against us would be 'Well, they approached these people before the 17 December, and so therefore they recruited them before the 17 December. Therefore, they've got to pay us the take-on fee.[86]
[86] T 41.17-22.
Conclusion and analysis
84On a proper construction of the Consultancy Agreement, in my view, a reasonable business person in the position of the parties would understand that the take-on fee related to the direct employment of members of the Team by SPL or its designee during the term of the Agreement.
85I am satisfied on the evidence of Mr Kerr, that SPL did not ‘recruit and employ’ any Team members ‘during the term’ of the Consultancy Agreement (emphasis added). Whilst SPL spoke to members of the Team and offered employment to 10 of HBBA’s employees on 30 November 2021 before the effective termination date of 17 December 2018, the nine members of the Team who accepted the offer of employment did not commence their employment with SPL until at the earliest 1 January 2019.[87]
[87] One employee did not accept the offer of employment with SPL.
86As SPL did not employ any Team members ‘during the term’ of the Consultancy Agreement, it was not liable to pay the take-on fee to HBBA..
87The discussions with members of the Team were with HBBA’s knowledge and involvement with a view to identifying which employees SPA wanted to employ following the termination of the Consultancy Agreement. I accept the plaintiffs’ contention that it was not a situation where SPA was:
… running around behind [HBBA’s] back – sort of cloak and dagger – stealing their staff… the vice the take-on fee is supposed to cure, is… uncompensated plundering of staff… during the currency of the relationship.[88]
[88] T 42.25-26, T 44.8-12.
Issue 4: If the answer to issue 3 is no, whether SPA is entitled to recover the sum of $50,000 from HBBA.
88SPA is entitled to recover the sum of $50,000 which HBBA withheld from funds that SPA had provided to it under the terms of the Consultancy Agreement.
Issue 5: Whether HBBA must pay the sum of $11,939.22 to SPL, being the net amount SPL contends HBBA received that it was not entitled to retain from the sale proceeds of SPL’s products under the Distribution Agreement entered into between HBBA and SPL on or about 18 January 2019 (SPL Distribution Agreement).
Issue
89Under the SPL Distribution Agreement, HBBA was responsible for the physical distribution of ‘Agreed Products’ in Australia. HBBA was entitled to payment of a Fee for its services, equal to a percentage of Gross Sales invoiced by SPL, payable each month once invoiced by HBBA.
90The plaintiffs claim that in breach of the SPL Distribution Agreement, HBBA:
(a) invoiced sales of the Agreed Products in its own name and received proceeds, totalling $158,053.91 (net of GST) (First SPL Proceeds); and
(b) received amounts for sales of the Agreed Products that were invoiced in SPL’s name, totalling $263,380 (Second SPL Proceeds).[89]
[89] Amended Statement of Claim dated 1 February 2021, [26].
91Following receipt of the First and Second SPL Proceeds, HBBA remitted the proceeds to SPL, save for:
(a) administration fees of $70,632.22 (Administration Fees); and
(b) insurance fees of $18,601 (Insurance Fees),
which the plaintiffs say HBBA had no entitlement to charge.[90]
[90] Ibid, [27(a)-(b)].
92The plaintiffs however acknowledged that HBBA was entitled to amounts totalling $77,294 in accordance with the SPL Distribution Agreement (Authorised Amounts).[91]
[91] Ibid, [27(c)].
93As such, the plaintiffs claim $11,939.22, being the difference between the Administration Fees and Insurance Fees and the Authorised Amounts.[92]
[92] Ibid, [27] and prayer B.
Plaintiffs’ submissions
94The plaintiffs submitted that, unlike under the SPA Distribution Agreement, the SPL Distribution Agreement did not confer any entitlement on HBBA to charge Administration Fees and SPL did not otherwise agree to pay Administration Fees.
95HBBA’s claimed entitlement to charge SPL for Insurance Fees is without foundation or any proper basis. The SPL Distribution Agreement did not provide for or contemplate HBBA having title to the goods in question. Rather, it expressly provided that SPL may arrange insurance for its products:
Insurance obligations: Stratpharma may organize insurance for Agreed Products.[93]
[93] CB 101.
HBBA’s defence
96At paragraph 27 of its defence,[94] HBBA denied that it wrongfully charged SPL the Administration Fees and Insurance Fees and pleaded that it had accounted to SPL for all amounts due by HBBA.
[94] Defence to Amended Statement of Claim dated 15 April 2021.
Conclusion and analysis
97There was no term of the SPL Distribution Agreement entitling HBBA to charge an Administration Fee. There is no evidence of any other agreement conferring such an entitlement.
98I find that HBBA withheld the Administration Fees of $70,632.22 from the First and Second SPL Proceeds, without an entitlement to do so.
99The SPL Distribution Agreement did not impose an obligation on HBBA to arrange insurance, nor was HBBA entitled to reimbursement for having arranged insurance. The SPL Distribution Agreement did not provide for or contemplate HBBA having title to the goods. The SPL Distribution Agreement expressly provided that SPL may arrange insurance for its products.
100I find that HBBA incurred insurance policy charges in the sum of $18,601 and without an entitlement to do so, withheld this sum from the First and Second SPL Proceeds.
101HBBA must pay the sum of $11,939.22 to SPL.[95]
[95] The Court Book contains two spreadsheets prepared by HBBA, which reconcile the amounts HBBA
claims are due to it and the amounts SPL admit are payable to HBBA: CB 442 and CB 468.
Issue 6: Whether HBBA wrongfully refused to deliver to SPL the stock in the possession of the Second Defendant as at 14 October 2019 (Stock) to SPL.
Plaintiffs’ submissions
102The plaintiffs submitted that upon termination of the SPL Distribution Agreement on 14 October 2019, SPL was entitled to recover the $2,813,422.18 worth of stock that had not been sold[96] because:
(a) pursuant to clause 13(d) of the SPA Distribution Agreement, HBBA agreed to deliver to SPA (or destroy upon SPA’s request) all stock upon termination of the Agreement;
(b) on 17 January 2019 SPA issued a Credit Note to HBBA in the sum of $8,737,830.60, transferring title in the stock from HBBA to SPA, although the stock remained with Panalpina on behalf of HBBA;
(c) on the same day, title to the stock was then transferred from SPA to SPL, as evidenced by the Tax Invoice;
(d) all stock held by Panalpina on behalf of HBBA under the SPL Distribution Agreement remained the property of SPL. HBBA was merely responsible for physical distribution;
(e) the SPL Distribution Agreement did not contain any contractual lien entitling HBBA to detain the stock upon termination of the SPL Distribution Agreement; and
(f) there was no common law or equitable lien that could be relied on by HBBA: it was not a storer (Panalpina was the storer) and had not spent any money improving or repairing the stock.
[96] The value of the stock was admitted in [31] of the Defence to Amended Statement of Claim dated 15
April 2021.
HBBA’s defence
103HBBA pleaded in its defence that:
(a) it had title to the stock that remained upon termination of the SPL Distribution Agreement, pursuant to clause 6(b) of the SPA Distribution Agreement;[97]
(b) it possessed a lien over the stock for storage fees it had incurred on behalf of the plaintiffs;[98]
(c) the ‘purported’ Credit Note:
(i)purported to sell $8,737,830.60 of stock to HBBA;
(ii)did not operate to transfer title of the Stock Balance to SPA (as at 17 January 2019, title to the stock remained with HBBA pursuant to clause 6(b) of the SPA Distribution Agreement); and
(iii)was not issued until 7 April 2020 (it was erroneously dated 17 January 2019);[99]
[97] Defence to Amended Statement of Claim dated 15 April 2021, [31(a)].
[98] Ibid, [31(b)].
[99] Ibid, [22].
(d) title to the stock was not transferred from HBBA to the plaintiffs until 7 April 2020, when SPA issued the Credit Note to HBBA.[100]
[100] Ibid, [32(c)-(d)].
Legal principles
104In Banks v Ferrari,[101] Justice Dowd summarised the gist of the action in detinue and its elements as follows:
The gist of the action of detinue is the wrongful detention of goods. In other words, as Herring CJ states in Bellinger v Autoland Pty Ltd Bellinger v Autoland Pty Ltd [1962] VR 514, at 520., an action in detinue involves the unlawful failure on the part of the alleged tortfeasor to deliver the goods up when so demanded.
To establish an action in detinue, the plaintiff must prove that the following three elements exist. Firstly, the plaintiff must specifically make a demand for the return of the goods on the person who has legal possession of them. The plaintiff's immediate right to possession must simultaneously subsist at the time the demand is made Timewell v Virgoe (1868) 5 WW& A'B L 147 at 151, per Stawell CJ. Secondly, the plaintiff's demand must have been refused by the alleged tortfeasor Nelson and Another v Nelson [1923] St R Qd 37 at 40, per McCawley CJ. And thirdly, where the goods are in the actual possession of the alleged tortfeasor, the refusal to return the goods to the plaintiff must be unreasonable EE McCurdy Ltd (in liq) v Postmaster-General [1959] NZLR 553 at 556-557, per McGregor J (hereinafter 'McCurdy'). In the event that the goods are not in the actual possession of the tortfeasor, the tortfeasor must have wrongfully parted with possession McCurdy, note 8 at 556-557, per McGregor J.[102]
[101] [2000] NSWSC 874.
[102] at [59]-[60].
Conclusion and analysis
105I am satisfied on the evidence that HBBA wrongfully detained the stock:
(a) on 9 October 2019, SPL demanded return of the stock.[103] SPL as owner of the stock, had an immediate right to possession at the time the demand was made:
[103] Letter dated 9 October 2019: CB 109-110.
(i)from 19 January 2019, SPL had title to the stock that was imported prior to termination of the SPA Distribution Agreement on 18 January 2019. I am satisfied that title in the stock passed to SPA[104] and then to SPL (by issue of the Tax Invoice[105]) upon termination of the SPA Distribution Agreement.
[104] SPA Distribution Agreement, cl 13(d).
[105] CB 442.
(ii)When queried why a PDF copy of the Credit Note dated 17 January 2019 appears to have been first sent by Mills Oakley to Harrick Lawyers on 21 November 2019,[106] and whether it might be that the document which is the 17 January 2019 credit note was not necessarily in existence on 17 January 2019 in that form, and Mr Kerr responded:
[106] CB 124-125.
Correct, correct. So the date is correct for the date of the credit note and the value is correct, but it may not have been created in its physical form right up until it was requested again in November.[107]
[107] T 11.28-31.
(iii)Mr Kerr gave evidence that:
… the credit notes in the ordinary course of business were not necessarily submitted in the PDF format, so they were referred to in the cash reconciliation. Um, so for example, when HBBA held title to the goods, if there were damaged goods or returned goods that were unsaleable, they would be credited on a monthly basis to HBBA, and there's a record of that each month through the course of the initial contract with HBBA. So the – it was well under – so the existence of the – a physical credit note or not is not really material.[108]
[108] T 11.13-22.
(iv)I accept Mr Kerr’s evidence that reconciliation occurred on a monthly basis, and it was not the usual course of business for SPA to issue credit notes to HBBA in PDF form. It is a document that’s produced when required for accounting purposes or on demand. Further, in or about February 2019, Mr Kerr attended the Panalpina warehouse in Australia to conduct a stocktake.[109]
(v)in relation to the stock that was imported by SPL after 18 January 2019, when the SPL Distribution Agreement was in effect, HBBA did not obtain title to that stock pursuant to the Agreement;
(vi)HBBA had no contractual or common law right to a lien over the stock.
(b) SPL’s demand was refused by HBBA;[110]
(c) the refusal to return the goods to SPL was unreasonable:
(i)as set out above, HBBA had no lawful basis on which to instruct Panalpina to refuse to release the stock to SPL;
(ii)on 17 October 2019, the plaintiffs offered to permit HBBA to keep $100,000 worth of stock and release the rest to SPL. The $100,000 in stock would have covered the claims HBBA was making at that point in time and helped mitigate the loss suffered by the plaintiffs, however the offer was rejected by HBBA.[111]
[109] T 16.30-17.8.
[110] CB 120-151.
[111] CB 1607.
106As such, I find that HBBA wrongfully refused to deliver the stock in its possession as at 9 October 2019 to SPL.
Issue 7: If the answer to issue 6 is yes, whether the wrongful detention of the Stock caused SPL loss and damage, in respect of which SPL is entitled to recover damages from HBBA.
Plaintiffs’ submissions
107The plaintiffs submitted that HBBA detained 47,088 StrataMARK Units that SPL was not able to use for any purpose upon return.[112] The StrataMARK Units were perishable with a limited shelf life, which was at least 6 months prior to their actual expiry date. The effect of the detention was that at the end of the period, the StrataMARK Units no longer had a usable shelf life and had no economic value, such that they had to be destroyed.
[112] See ‘The Stock’ above.
108In assessing damages, the Court should consider the value of the 47,088 StrataMARK Units as at:
(a) early October 2019 (or possibly late September 2019), being the point of time when HBBA first indicated it would not release the detained stock; and
(b) 6 April 2020 (or shortly thereafter), when the Supreme Court made orders under which the responsibility for having the detained stock released largely shifted to SPL.
109The Court should then compare the two values, and the difference between them should be a significant factor in what damages are awarded.
110The value of the 47,088 StrataMARK Units as at early October 2019 was $356,456.16, based on a unit price of $7.57 each. Based on Mr Kerr’s evidence,[113] Mr McKillop explained that:
… when SPA sells goods to its local SPL, it charges at a unit price. It's not an arm's-length transaction because it's a subsidiary company, but that unit price is $7.57.[114]
[113] Witness Statement of Darren Kerr dated 25 May 2022, [82].
[114] T 46.30-47.2.
111The plaintiffs tendered a spreadsheet called the ‘Manufacturing Overheads Summary’.[115] This spreadsheet:
Summarises a massive number of source documents which record particular cost inputs into the manufacturer of the goods, including employees, you know, source materials, distribution costs, and other things…[116]
[115] Pursuant to section 50 of the Evidence Act 2008 (Vic).
[116] T 35.8-12.
112The spreadsheet shows:
… the unit cost of the goods when calculated on a global basis, so take the number of goods manufactured globally, you look at their manufactured costs globally, and you divide those numbers through. The result of that calculation is a unit cost of $9.39. So in other words, SPL's getting a subsidised price.[117]
[117] T 47.2-8.
113The plaintiffs submitted that the value of the 47,088 StrataMARK Units as at 6 April 2020 was zero, as they could not be sold due to their limited shelf life or used for any other purpose.
114The plaintiffs also claimed $8,400, being the sum total of:
(a) $6,775 paid to contracted labour to assist with the destruction of the StrataMARK Units; and
(b) $1,665 in costs of cleaning storage sheds and for the disposal of cardboard and tubing.
HBBA’s defence
115At paragraph 33 of its defence, HBBA denied that it caused SPL to suffer loss and damage and said further that:
(a) SLP had enough stock to meet any sales it otherwise would have made; and
(b) there was insufficient demand for the StrataMARK Units and as a result the said units would have perished without them being sold or put to other valuable use in any event.
Legal principles
116The relevant legal principles are set out in the plaintiffs’ opening submissions dated 22 May 2022:
In both an action for detinue and an action for conversion, the most important principle is that compensatory damages are awarded with the intention to place the plaintiff in the same position as if the wrongful detention of goods had not occurred. Damages will therefore be limited to loss actually suffered as a result of the wrongful detention, rather than being a simplistic assessment of the value of the Detained Stock as at the date that HBBA first refused to return it. In relation to these principles, see Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185. 48.
…
Compensatory damages for diminution in value of goods caused by wrongful detention will be assessed by reference to their value as at the date they are released as an end point, rather than by utilising the date the defendant first refused to return them (see Volvo[118] at [264] to [285]).
[118] Volvo Finance Australia Pty Ltd v Waterfront Enterprises Pty Ltd (In Liq) (No 2) [2020] NSWSC 262.
Conclusion and analysis
117In light of the evidence of Mr Kerr[119] and the Manufacturing Overheads Summary, I am satisfied that the wrongful detention of the 47,088 StrataMARK Units caused SPL loss and damage in the sum of $370,025.
[119] Witness Statement of Darren Kerr dated 25 May 2022, [71]-[74].
118I am satisfied the Plaintiffs have dealt with the issue raised in paragraph 33 the defence by exhibiting stock volume production records of SPA showing demand for the Units in the previous year of 2020 from which it may be inferred there would have been sufficient demand for the Stock.[120]
[120] Witness Statement of Darren Kerr dated 25 May 2022, [77]-[78]. CB 1563-1571.
Issue 8: If the answer to 6 is yes, whether SPL is entitled to an order that the sum of $34,855.57 held in the trust account of Mills Oakley pursuant to the orders of Riordan J made 6 April 2020.
119I accept the plaintiffs’ submission that the Escrow Sum was to secure HBBA’s claims against the plaintiffs. As the trial was undefended, the counterclaim is dismissed. The Escrow Sum ought be released to SPL.
Issue 9: If the answer to issues 6 and 7 is yes, whether SPL is entitled to exemplary damages against HBBA.
Plaintiffs’ submissions
120In summary, the plaintiffs’ claim for exemplary damages was made on the following basis:
(a) HBBA had no lawful claim to detain the stock and never explained the basis upon which it purported to do so, despite repeated requests from the plaintiffs and their solicitors;
(b) HBBA knew, as distributor, that the stock had a limited shelf life and was perishable;
(c) HBBA repeatedly changed its position and the conditions upon which it was prepared to agree that the stock be released;[121]
(d) HBBA acted with the deliberate intention to inflict loss on SPL as a means of bargaining the payment of its alleged counterclaim — the intention is to be inferred because the stock was deliberately detained, where HBBA knew it had no basis to so, and the perishing of the stock was a natural consequence; and
(e) on 17 October 2019, a short time after the dispute arose, the plaintiffs requested that all stock be released aside from units up to the value of $100,000, in acknowledgment that a dispute had arisen, and with a view to ensuring HBBA had some security for its claims. Despite this, HBBA refused to release the stock.[122]
[121] See correspondence annexed to the Affidavit of Alex Myers dated 30 March 2020: CB 118-157.
[122] See CB 1607-1608.
121The plaintiffs further submitted that the circumstances of this case are exceptional: the high-handed conduct of HBBA turned a relatively minor dispute, for which both it and the plaintiffs could have sought redress in the Magistrates Court (as the parties' other claims do not exceed $100,000), into an urgent action in the Supreme Court for recovery of detained goods and loss and damage for their detention.
HBBA’s defence
122At paragraph 35 of HBBA’s defence, it denies that SPL is entitled to exemplary damages.
Legal principles
123I adopt the principles of exemplary damages set out in the plaintiffs’ opening submissions dated 22 May 2022:
Exemplary damages are awarded as a form of punishment: to deter repetition of reprehensible conduct by the defendant or by others, or to act as a mark of the court’s disapproval of that conduct. They may be awarded for a tort committed in circumstances involving a deliberate, intentional, or reckless disregard for the plaintiff and his or her interests. The objects of the award may include condemnation, admonition, making an example of the defendant, appeasement of the plaintiff in order to temper an urge to exact revenge, or the expression of strong disapproval.
The term repeatedly relied upon as the basis for the award of exemplary damages, first expressed by Knox CJ in Whitford v De Lauret & Co Ltd (1920) 29 CLR 71 at 77, is conscious wrongdoing in contumelious disregard of another’s rights. The defendant’s conduct must be such that punishment is warranted. It may include elements of malice, violence, cruelty, high-handedness or abuse of power. In Uren v John Fairfax & Sons Pty Ltd, above, Windeyer J said at [11] that an award of exemplary damages should be based on something more substantial than mere disapproval of the defendant’s conduct.
The focus is on the conduct of the wrongdoer rather than the person who has suffered loss: Gray v Motor Accidents Commission (1998) 196 CLR 1; [1998] HCA 70 at [15]. Exemplary damages will only be awarded in exceptional circumstances.
Conclusion and analysis
124I am not satisfied that exemplary damages ought be awarded. As the High Court commented in Gray v Motor Accident Commission (A36/1997):[123]
Exemplary damages are awarded rarely. They recognise and punish fault, but not every finding of fault warrants their award. Something more must be found….
…The party wronged is entitled to whatever compensatory damages the law allows…By hypothesis then, the party wronged will receive just compensation for the wrong that is suffered. If exemplary damages are awarded, they will be paid in addition to compensatory damages and, in that sense, will be a windfall in the hands of the party who was wronged. Nevertheless, they are awarded at the suit of that party and, although awarded to punish the wrongdoer and deter others from like conduct, they are not exacted by the State or paid to it.
[123] (1998) 196 CLR 1, [12], [15]
125Even though I have found that the defendant’s conduct in refusing the demand for return of the stock was unreasonable, on the evidence before me, I am not satisfied that the defendant acted with conscious wrongdoing in contumelious disregard for the plaintiff’s rights.[124]
[124] That the defendant’s conduct was reprehensible, high handed, insolent, vindictive or malicious: Uren v
John Fairfax & Sons Pty Ltd (1966) 117 CLR 118, 129 (Taylor J).
126I do not consider the evidence relied upon by the plaintiffs[125] is sufficient to support a finding that HBBA acted with the deliberate intention to inflict loss on SPL as contended for by the plaintiffs, justifying an award of exemplary damages to punish the defendant and deter others from like conduct.
[125] Including the correspondence exhibited to the Affidavit of Alex Myers dated 30 March 2020.
Issue 10: If the answers to any of issues 2, 4, 5, 7, 8 and/or 9 is yes, whether SPA and SPL are respectively entitled to interest on the sums or amounts referred to therein.
127I am satisfied that the plaintiffs are entitled to statutory interest on:
(a) SPA’s claim for the redundancy expenses and take-on fees from 17 December 2018 to the date of judgment;
(b) SPL’s claim deductions including administration and insurance fees from 14 October 2019 to the date of judgment;
(c) SPL’s claim for the Escrow Sum from 3 December 2019 to the date of judgment; and
(d) SPL’s claim for damages in connection with the wrongful detention from 9 October 2019 to the date of judgment.
Legal costs
128I am satisfied that the plaintiffs are entitled to their costs of the proceeding (including reserved costs) from HBBA on the standard basis.
Orders
129In light of my findings above, I order:
(a) Judgment for the first plaintiff against the first defendant in the sum of $493,565.01, being:
(i)$11,939.22 pursuant to paragraph 28 and prayer B of the Amended Statement of Claim dated 1 February 2021 (ASOC) plus interest thereon from 14 October 2019 to the date of judgment in the sum of $3,195.79;
(ii)$370,025.56 pursuant to paragraph 33 and prayer C of the ASOC plus interest thereon from 9 October 2019 to the date of judgment in the sum of $99,552.08; and
(iii)interest on the sum in paragraph 2 below from 3 December 2019 to the date of judgment, totalling $8,852.36.
(b) The sum of $34,855.57 held in the trust account of the plaintiffs’ solicitors, Mills Oakley, in accordance with the order of Riordan J made on 6 April 2020 in Supreme Court of Victoria proceeding S ECI 2020 01538, be released to the first plaintiff.
(c) Judgment for the second plaintiff against the first defendant in the sum of $109,622.68, being:
(i)$81,193.75 pursuant to paragraph 20 and prayer A of the ASOC; and
(ii)interest from 17 December 2018 to the date of judgment in the sum of $28,428.93.
(d) The first defendant’s counterclaim be dismissed.
(e) The first defendant is to pay the plaintiffs’ costs of and incidental to the proceeding including the claim and counterclaim together with reserved costs, such costs to be agreed, or taxed in default of agreement on the standard basis.
- - -
Certificate
I certify that these 129 paragraphs are a true copy of the judgment of Her Honour Judge Brimer delivered on 17 June 2022.
Dated: 17 June 2022
Taylah Stretton
Associate to Her Honour Judge Brimer
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