The Commonwealth Industrial Gases Ltd v Top Australia Ltd
[1993] FCA 267
•16 APRIL 1993
Re: THE COMMONWEALTH INDUSTRIAL GASES LTD.
And: TOP AUSTRALIA LTD.
No. SG33 of 1992
FED No. 267
Number of pages - 10
Practice and Procedure
COURT
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
O'Loughlin J(1)
CATCHWORDS
Practice and Procedure - pleadings - statement of claim - application to dismiss - alternatively application to strike out - numerous deficiencies - failure to plead material facts - examples of confusing material - inappropriate to dismiss - order striking out with leave to file and serve a fresh statement of claim.
Federal Court Rules
O21 r2
O11 r16
HEARING
ADELAIDE, 17 and 18 November 1992
#DATE 16:4:1993
Counsel for the Applicant: Mr. M.F. Blue
Solicitors for the Applicant: Messrs Fisher Jeffries
Counsel for the Respondent: Mr. W.J.N. Wells QC.
Solicitors for the Respondent: Messrs Corrs Chambers Westgarth
ORDER
THE COURT ORDERS THAT:
1. The statement of claim be struck out.
2. The applicant be at liberty to file and serve a fresh statement of claim within 28 days of this date.
3. The applicant pay the respondent's costs of and incidental to the notice of motion dated 7 October 1992 and these orders.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
O'LOUGHLIN J The respondent, Top Australia Ltd, ("Top"), has moved the Court on notice for an order pursuant to O20 r2 that the proceedings in this matter be dismissed. Alternatively, it has sought an order pursuant to O11 r16 that the whole of the statement of claim be struck out. In support of these orders, Top has submitted that the statement of claim discloses no reasonable cause of action, that it is an abuse of the process of the Court and that it is frivolous or vexatious (for the purposes of O20) or that it has a tendency to cause prejudice or embarrassment (for the purposes of O11). To assess these claims it will be necessary to examine the statement of claim in some detail. In doing that I will ignore several typographical and other minor errors that have already been identified by the applicant's solicitors as requiring amendment and I will refer to the statement of claim as if those amendments had been made.
According to the statement of claim both the applicant, The Commonwealth Industrial Gases Ltd. ("CIG") and the respondent, Top, carry on business in South Australia; it nominated CIG as a supplier of sulphur dioxide and Top as a producer of sulphuric acid and sulphur dioxide feed gas. No doubt they each have other activities but sulphur dioxide and sulphuric acid are the products which seem to be important for the purposes of these proceedings. From at least 1975 both companies have operated their plants in some form of business relationship such that CIG's plant for the production of sulphur dioxide ("the SO 2 plant") has been connected to Top's plant ("the No.1 plant") for the manufacture of sulphuric acid.
It was alleged in paragraph 6 of the statement of claim that CIG has purchased sulphur dioxide feed gas from Top since about 1975, taking delivery of it through the connections from Top's No. 1 plant to CIG's SO 2 plant. Apparently feed gas is produced as a by-product in the manufacture of sulphuric acid and it was used by CIG in the production of SO2. These purchases were governed by a series of contracts between the litigants as appear in paragraphs 7 and 8 of the statement of claim where reference is made to four of them (although I was told from the bar table that the first two periods were in fact the subject of the same contract).
"7. The purchase by CIG of feed gas from Top was pursuant to a series of contracts which covered the following approximate periods:
7.1 1 January 1976 to 31 December 1980; 7.2 1 January 1981 to 31 December 1985; 7.3 1 January 1986 to 31 December 1987. The contracts were automatically rolled over at the end of each period.
8. On 23 December 1987, CIG and Top entered into an agreement for the supply by Top to CIG of feed gas. It was a term of that agreement that it expired on 31 December 1989."
As appears later in the statement of claim there was a fifth contract for a period of almost five years (with important rights for premature determination). Prima facie, the expiry date of the fifth contract was 31 December 1994.
Whilst these business dealings between the parties were on foot, Top completed the construction of a second sulphuric acid plant at Port Adelaide ("the No.2 plant"). In January 1988, the parties commenced discussions and entered into correspondence about the commissioning by Top of the No.2 plant and the possibility of CIG undertaking the capital works necessary to connect its SO 2 plant to Top's new No.2 plant. As particularised, those discussions and that correspondence extended over a period from January 1988 to 23 January 1989 when an executive officer of CIG, Mr. Patroni, wrote on that last mentioned date to Mr. Arnold of Top saying:
"As discussed, due to the likelihood of a considerable capital expenditure requirement with the connection into the No.2 Acid Plant, we would prefer returning to the original five year term for this agreement."
In January 1989, CIG and Top were at the half-way mark of their then current two year contract which, according to paragraph 8 of the statement of claim, was due to expire on 31 December 1989. Prior to that, the term of their previous contract had also been 2 years but in 1981 and initially in 1976 it would seem (notwithstanding what was said from the bar table) that the terms of each contract had been five years.
At this stage in the pleading, the statement of claim turned to the alleged making of representations by Top to CIG. Paragraphs 11 and 12 referred respectively to what were described as "the first representations" and "the second representations". The representations in each case were, so it was claimed, the same although, of course, the "particulars" and the date of the representations differ. First, it was pleaded in paragraph 11 that in a letter dated 15 March 1989 Top represented to CIG that Top would continue to supply CIG with feed gas until 31 December 1994 or thereabouts (i.e. for a period of five years from the date of the expiry of their current contract) and:
"... that if CIG incurred expenditure by connecting CIG's plant to Top's No.2 Plant, that expenditure would not be wasted."
It was said of those representations that, insofar as they were expressed, they were contained in the abovementioned letter from Top dated 15 March 1989. It was also pleaded, however, that they were to be implied from the discussions that took place over the period from January 1988 to 23 January 1989 and from Mr. Patroni's letter to Mr. Arnold of 23 January 1989.
As to the second representations, their terms, as pleaded in paragraph 12, were the same as the first representations; it was claimed that they were made between March 1989 and August 1990 and that they were to be found:
"... in numerous discussions with employees of CIG, and the sub-contractor Lurgi (Australia) Pty. Ltd. ('Lurgi') employed by CIG, in relation to the design and specification for the capital works to connect CIG's plant to Top's No.2 plant."
The statement of claim then continued:
"CIG is presently unable to provide particulars of each and every occasion upon which such discussions took place, or the parties to those discussions."
However, there were in fact particulars of a few sporadic incidents including an assertion that between April 1989 and April 1990 representatives of CIG and Top negotiated "the terms of the new agreement to be entered into following the expiry of the agreement referred to in paragraph 8 hereof". That agreement was, of course, the one that was due to expire on 31 December 1989.
In paragraphs 13 to 16 of the statement of claim CIG has pleaded its reliance on the first and second representations and the falsity of those representations. It has pleaded, as matters of reliance, its undertaking of the capital works (relating presumably to connecting its SO2 plant to Top's No.2 plant) and the fact that it did not seek out an alternative supply of feed gas or of SO2. It is interesting to note however that there was no plea to the effect that the first or second representations induced CIG to enter into (or to continue negotiations with respect to the entry into) contractual relations with Top which culminated in the fifth contract. CIG has then pleaded in paragraph 14 that both sets of representations were false in that Top:
"... had no reasonable grounds for believing that it would continue to supply SO to CIG for the time represented or that CIG's expenditure was not likely to be wasted."
The alternative plea in paragraph 15 was that the representations (as distinct from the conduct that was or might be the manifestation of the representations) were "misleading and deceptive". It was claimed that Top allegedly failed to inform CIG that there was "a significant likelihood that Top would not continue the supply of feed gas". Finally, there is a strange plea in paragraph 16 dealing with the subject of "future matters". It would be best to set it out as typed:
"Further and in the alternative, the first and second representations, as representations with respect to future matters are deemed to be misleading by Section 51A(2) of the Trade Practices Act ('the TPA') (or, in the alternative by Section 54 of the Fair Trading Act ('FTA') in the absence of evidence to the contrary."
The draftsmen of the statement of claim has repeated the language of paragraph 16 in paragraphs 24 and 30 when dealing with "the third representations" and "the fourth representations" (to which reference is yet to be made). The first difficulty with these paragraphs is their failure to plead that Top had no reasonable grounds for making the representations; one must search elsewhere in the statement of claim to find this plea and for that reason alone each paragraph should be struck out. It is true that it appears in paragraph 14 with respect to the first and second representations and, viewed generously, it might be inferred in paragraphs 21 and 27 with respect to the third and fourth representations, but there is no reason for such confusion and laxity in drafting.
At this stage in the pleading (paragraph 17) the statement of claim switched to the fifth contract. It was said that on 4 April 1990 CIG and Top entered into a contract for the supply by Top to CIG of feed gas; thereafter, some of the express terms of the contract were pleaded in detail in paragraph 18. They may be summarised as follows: CIG was to purchase a minimum of 500 tonnes of feed gas per annum with provision for adjustment where Top was unable to supply for any reason. However minimum purchases were to be made "irrespective of an annual Top plant shut down not exceeding ten weeks duration per annum". The contract was to terminate on 31 December 1994 (and this coincided with the 5 year period that had been sought by CIG in Mr. Patroni's letter of 23 January 1989). Grounds for earlier termination included a close-down of "the Top plants" because of a reduction in the demand for Top's sulphuric acid (in which case Top was to give CIG "not less than sixty (60) days notice of its intention to close down the plants and cease supplying feed gas"). It was further pleaded that it was an implied term of the contract that if Top gave such a notice to CIG then Top's plant would continue to operate throughout the period of 60 days notice; it was said that it was necessary to imply this term "to prevent the notice requirement pursuant to clause 13.1 being nugatory".
Another ground for premature termination was the deterioration of Top's No.1 plant and No. 2 plant such that it was "unable to justify the expenditure necessary to restore the plant to the required standard". As to this express term, it was said that there was, additionally, an implied term that Top would exercise reasonable diligence in maintaining the plants in working order at all times. It was pleaded that such an implied term was necessary "to give the contract business efficacy".
Paragraph 19 of the statement of claim is entitled "Third Representations". It was claimed that by letter dated 8 August 1990 (by which date the fifth contract had been executed) Top wrote to CIG representing that its evaluations justified the continued manufacture of sulphuric acid at Top's No.2 plant but that annual reviews would be conducted and CIG would be informed "accordingly". It was pleaded in the statement of claim that the letter of 8 August 1990 contained an implied representation "that if CIG incurred expenditure by connecting CIG's plant to Top's No.2 plant, that expenditure would not be wasted": (it should be noted that this was the language of the latter part of the first and second representations). It was also pleaded that the third representation could be implied as a result of reading the letter of 8 August 1990 "in the context of the making of the first and second representations" together with Top's silence about "its intention to cease production of sulphuric acid at Port Adelaide". It was further pleaded that the third representation could also be implied because of Top's silence about "the preparation of the report referred to in paragraph 25(4) hereof". That was an error; there is no paragraph 25(4) and the report referred to in sub-paragraph 25.3(4) (if indeed that was the report to which it was intended to refer) was dated 3 months later in November 1990. Some correction is obviously needed somewhere and, having regard to the criticisms of the subsequent references to this report in sub-paragraphs 25.3(3) and (4) and paragraph 28, the better view would be to strike out this reference to the report.
In paragraph 20, CIG pleaded the same reliance as before - that is, that in reliance on the third representations, it continued to undertake capital works and it did not look for an alternative supply of feed gas or SO . It was then pleaded that these representations were false and once more, as in paragraph 15, it was pleaded in paragraphs 22 and 23 that "the third representations were misleading and deceptive" in that Top did not inform CIG that "a possible result" of a recently commissioned review was "the closure of Top's Port Adelaide plant" and that "there was a significant likelihood that Top would not continue the supply of SO2". (That same plea was also made in paragraph 29 in respect of "the fourth representations").
Paragraph 25 of the statement of claim is entitled "Fourth Representations". Their terms, as pleaded, were the same as the first and second representations. It was claimed that they were made between 8 August (that is, the date of the letter from Top to CIG which, it is said, constituted the third representations) and 18 December 1990. The particulars of the fourth representations were said to be "Top's continued participation in CIG's continued capital works..." including its attendance at site meetings with CIG personnel and its correspondence relating to the commissioning of its No.2 plant. It was also pleaded that the fourth representations were constituted by Top's failure to inform CIG that it had commissioned and received a report dated 19 November 1990 which recommended that Top should close "its Port Adelaide sulphuric acid plant". In paragraph 26 the same reliance was once again pleaded; that is, that CIG continued with its capital works and failed to take steps to procure an alternative supply of feed gas or SO2.
In paragraph 24 it was pleaded that the fourth representations were false because "Top did not intend to continue to supply feed gas to CIG". It was then pleaded in paragraph 28 that "the fourth representations were misleading and deceptive in that they did not disclose that Top had commissioned or received the report" of 19 November 1990. I must say that I have extreme difficulty in comprehending how the failure to disclose the act of commissioning a report could constitute a representation that was misleading or deceptive (or misleading or deceptive conduct if, indeed, that was what the draftsmen intended), especially in view of the fact that there was a specific plea by CIG in paragraph 19 of the statement of claim that in its letter of 8 August 1990 Top had represented that it "intended to review the economic viability of sulphuric acid production on at least a yearly basis". The failure by Top to disclose the receipt of the report dated 19 November could only amount to impugned conduct (if indeed it was) as from the date of its receipt and that has not been pleaded. Nor has it been pleaded what it was that Top did, or did not do, after the date on which it received the report that might amount to conduct of the requisite kind. There was merely a general allegation that the fourth representations were made between 8 August 1990 and 18 December 1990. Paragraph 28 is deficient as are sub-paragraphs 25.3(3) and (4) because of their references to this report.
Top raised a general criticism with respect to all four sets of representations. It said that neither the pre-contract representations (that is the first and second representations) nor the post-contract representations could be regarded as "inducing" representations. The basis for this submission rested in an analysis of the terms of the fifth contract which, so it was claimed, were incompatible with the representations. That submission may have some force with respect to the post-contract submissions, although I am not convinced that "incompatibility" is the appropriate criticism. Elsewhere in these reasons, I have attempted to identify CIG's difficulties in respect of the third and fourth representations by pointing to inadequacies in the pleading which are self-evident. But the position with respect to the first and second representations is quite different. If for "inducement" one reads "reliance" it is clear that CIG is claiming that before it entered into the fifth contract it incurred capital expenditure and failed to seek out alternative supplies of feed gas and SO by virtue of the representations that Top had made to it. The subsequent execution of the fifth contract may have a material effect upon the quantification of any damages flowing as a consequence of those representations (assuming them to be false) but that is not a matter to be considered at a time when an inquiry is being conducted into the alleged deficiencies in the statement of claim.
In paragraph 31, under the heading "Breach of Contract" it was pleaded that by letter dated 16 November 1990, Top advised CIG that the annual shutdown of the No.2 plant would take place between 17 December 1990 and 31 January 1991. It was claimed that this notice was given in accordance with the terms of clause 11.1 of the fifth contract, the terms of which had earlier been set out in sub-paragraph 18.1.2 of the statement of claim. Those terms required Top to give not less than one month's notice of "planned plant shutdowns" and it was within the contemplation of the parties that an annual shutdown could be as long as ten weeks (see clause 11.2 of the contract which was also set out in sub-paragraph 18.1.2 of the statement of claim).
In paragraph 32 of the statement of claim it was alleged that notwithstanding the notice that closure would be effective from 17 December, Top shut down the No.2 plant in "early December". It was claimed that this early closure was either in breach of its obligation to give CIG at least one month's notice of plant shutdown or, "if the shutdowns were due" to plant breakdown, then "the breakdowns were caused by Top's failure to maintain the plant". It should be noted that there was no allegation that the shutdowns were due to a breakdown of plant; the pleading said "if the shutdowns were due to breakdown...". There was a complete absence of material facts to support a proposition that can only be classified as a possibility. The references in paragraph 32 to plant breakdowns should be struck out.
In paragraphs 33 and 34 of the statement of claim it was alleged that by letter dated 18 December 1990 Top purported to terminate the fifth contract on the ground that economic operation of the plant could not be sustained. Such a ground was contemplated in sub-clause 13.1 of the contract (the terms of which were set out in sub-paragraph 18.1.3 of the statement of claim) but it required Top to give CIG not less than sixty days notice of its intention to close down the plants for this reason. The draftsman of the statement of claim has faced up to this issue with a simple allegation. He has pleaded in paragraph 34:
"This termination was in breach of the contract because economic operation of the plant could be sustained."
Such a bland assertion is inadequate. This is not a case where further and better particulars are required. On the contrary, further material facts are needed to support such an important assertion. The pleader must lay out, step by step, his allegations which, if proven, will bring about the conclusion that the "economic operation of the plant could (have been) sustained". This situation may be capable of remedy, but until it is, this offending sentence should be struck out. The consequence of this conclusion is that most, if not all, of paragraphs 31 to 34 of the statement of claim will have to be struck out as will the reference in sub-paragraph 38.1 to the economic operation of the plant.
By letter dated 18 January 1991 Top, once again, purported to terminate the fifth contract. It was pleaded in paragraph 36 of the statement of claim that this termination was effected pursuant to the provisions of sub-clauses 13.2 of the contract (major breakdown making it uneconomic for Top to restart the plant) and 13.3 (deterioration to such an extent that Top was unable to justify the expenditure necessary to restore the plant to the required standard). Paragraph 37 of the statement of claim then followed on with this allegation:
"37 In breach of:
37.1 the clause of the contract referred to in paragraph 18.2.2 hereof; and
37.2 clause 13 of the contract Top did not resume supply of feed gas. Top did not supply any further feed gas to CIG following the shutdown on 15 December 1990."
There is no clause of the contract referred to in sub-paragraph 18.2.2 of the statement of claim. That sub-paragraph pleaded the existence of an implied term to the effect that if Top sought to rely on sub-clause 13.1 (reduction of demand) to terminate the contract, Top's plant would continue to operate throughout the 60 day period; (see, for example, sub-paragraph 38.2 of the statement of claim where it was appropriately pleaded that Top's failure to resume the supply of feed gas to CIG was a breach of that implied term). Sub-paragraph 18.2.2 has nothing to do with termination under sub-clauses 13.2 or 13.3 and the reference to it in sub-paragraph 37.1 of the statement of claim must be struck out.
That then leaves the reference to clause 13 of the contract in sub-paragraph 37.2 of the statement of claim. It was pleaded that in breach of clause 13, Top did not resume the supply of feed gas. Perhaps the draftsman intended to refer to clause 10 for that was the provision in the contract that spelt out Top's obligation to supply feed gas to CIG. Clause 13 did not address that subject at all. No doubt this will all come clear when the draftsman has had the opportunity to consider the matter further. Meanwhile the whole of paragraph 37 of the statement of claim must be struck out.
I do not stay to highlight the grammatical deficiencies in paragraph 38 of the statement of claim but I do note that sub-paragraph 38.6 does not seem to serve any useful purpose. As it merely constitutes a repetition of portion of sub-paragraph 38.5, it should be struck out.
Commencing with paragraph 39 of the statement of claim, the draftsman has turned to the claimed breaches of the Trade Practices Act 1976 (Cth) and the Fair Trading Act 1987 (SA). In paragraph 39 the draftsman attempts, for the first time, to recognise that it is "conduct" with which s52 of the Trade Practices Act and s54 of the Fair Trading Act are concerned. Nevertheless, he has remained confused between representations and conduct; he has maintained that the representations were misleading and deceptive but has then referred to them as "Top's conduct". It is not sufficient to allege and prove that representations were misleading or deceptive; what must be proved is that conduct (which may be the manifestation of representations) was misleading or deceptive. Paragraph 39 must be struck out for this reason alone.
There is however, a further problem with respect to paragraph 39. It was claimed that by reason of "Top's first to fourth representations" Top was in breach of the provisions of s52 and s54 of the Trade Practices Act and the Fair Trading Act respectively. This plea has ignored the fact that the first and second representations were allegedly made before the execution of the fifth contract whereas the third and fourth representations were made after its execution and whilst it was on foot. It is difficult to see therefore what it was that Top or CIG did or might have done that was referable to the third or the fourth representations but which was not referable to the terms of the contract. In my opinion, in circumstances such as these, where a contract is involved and there are allegations of a breach of contract and of misleading or deceptive conduct, it is necessary to plead with care so that it is clearly spelt out (if it be the case) that the conduct of the offending party is, on the one hand, misleading or deceptive conduct upon which the innocent party relied to his detriment and, on the other hand, that it also constitutes a breach of contractual obligations. The importance of this distinction is emphasised by the difference in the quantification of the damages that flow from a breach of s52. They are measured in accordance with tortious principles - and these will not necessarily be the same as those that are recoverable for a breach of contract.
It remains to mention the question of damages. Paragraph 40 of the statement of claim stated that by reason of CIG's reliance on Top's conduct, CIG has suffered loss and damage as set out in paragraph 42. But paragraph 42 does no more than lay out a base (which is inadequate) for a claim for compound interest. Paragraphs 41 and 43 address the subject of damages for breach of contract. The particulars of damage are inadequate but that is often the case during the earlier stages of litigation. If that were the only inadequacy time would have been the healer. As it is, the deficiencies in the statement of claim are numerous and the respondent was justified in mounting its challenge.
I do not suggest that I have considered every criticism that was raised by counsel for the respondent in his most detailed submissions. Of 44 paragraphs in the statement of claim, no less than 29 of them were the subject of complaint and those complaints numbered in excess of 100. Although not all of them were justified, it should be apparent from these reasons that many serious deficiencies have been identified. This is not, however, a case where the court should utilize the provisions of O20 to dismiss the action. Through the gloom, one can see the possibility of causes of action flowing out of the first and second representations; it is also quite likely that a case can be made out, on the pleadings, in contract. The third and fourth representations will, no doubt, test the ingenuity of the draftsman but he should be given a last opportunity to show his mettle. Although it is not presently apparent from the pleadings, it may be that the case for CIG is to the effect that the third and fourth representations were made upon the basis that they somehow constituted a variation to the terms of the fifth contract.
This is not a case where a series of discrete amendments would solve the problem. There are too many occasions where there has been a failure to plead material facts and I have, additionally, pointed to examples of confusion in the drafting. I am satisfied that the statement of claim has a tendency to cause prejudice, embarrassment and delay in the proceedings. I think that the task for all will be the easier if an order is made striking out the statement of claim and granting the applicant leave to file and serve a fresh statement of claim within one calendar month of this date. The applicant will have to pay the costs of the respondent which will be taxed in default of agreement.
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