ThyssenKrupp Materials Australia Pty Ltd v Sila Global Pty Ltd

[2022] NSWSC 1528

Supreme Court

New South Wales

Medium Neutral Citation:

ThyssenKrupp Materials Australia Pty Ltd v SILA Global Pty Ltd [2022] NSWSC 1528

Hearing dates:

2 November 2022

Date of orders:

9 November 2022

Decision date:

09 November 2022

Jurisdiction:

Equity - Duty List

Before:

Robb J

Decision:

(1) The plaintiff's application for relief under s 74 of the Supreme Court Act 1970 (NSW) is dismissed.

(2) The plaintiff is ordered to pay the defendant's costs of the application.

Catchwords:

MORTGAGES AND SECURITIES — liens — common law liens — application pursuant to Supreme Court Act 1970 (NSW), s 74 — COVID-19 pandemic causes disruption to chain of supply through ports for importation of goods — plaintiff company engages defendant company to provide customs clearance and transport and logistics services to customers in Australia — defendant claims lien over plaintiff’s property as security for debt — plaintiff seeks to unilaterally offset defendant’s claims against its own claim for unliquidated damages — whether Court should make order under s 74

Legislation Cited:

Supreme Court Act 1970 (NSW), s 74

Cases Cited:

Dinmore Meatworks Pty Ltd v Kerr (1962) 108 CLR 628; [1962] HCA 47

Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533

Naruone Australia Pty Ltd v TNS Logis Pty Ltd [2011] NSWSC 1490

Category:

Procedural rulings

Parties:

ThyssenKrupp Materials Australia Pty Ltd (Plaintiff)
SILA Global Pty Ltd (Defendant)

Representation:

Counsel:
M Pesman SC & B Lloyd (Plaintiff)
C Gleeson & DH Southwood (Defendant)

Solicitors:
Polczynski Robinson (Plaintiff)
HFW Australia (Defendant)

File Number(s):

2022/318401

JUDGMENT

1. These proceedings were heard in the Duty List on 2 November 2022. The plaintiff, ThyssenKrupp Materials Australia Pty Ltd (TKMA), is an Australian company that is part of an international group of companies. The defendant, SILA Global Pty Ltd (SILA), is also an Australian company. TKMA commenced the proceedings by summons filed in court on 25 October 2022. TKMA was given leave to file an amended summons at the hearing.

Relief sought by TKMA on this application

2. The relief sought by TKMA in its amended summons that it seeks on the present application is as follows:

6. Upon the plaintiff by its counsel giving the usual undertaking as to damages, an order pursuant to section 74 Supreme Court Act 1970 (NSW) that upon the plaintiff paying $1,500,000.00 into Court, and subject to the plaintiff's compliance with Orders 2 and 4, the defendant will:

a.    For consignments the subject of Clearance Instructions listed in the Schedule attached to this Summons and marked "A" (Schedule A):

i.    Within 48 hours take all reasonable steps to clear each consignment through customers [meaning Customs]; and

ii.    Thereafter release and deliver each of these consignments in accordance with the corresponding delivery instruction issued for these consignments and in accordance with orders 8 and 10;

b.    For all Delivery Instruction consignments listed in Schedule A, release and deliver each of these consignments in accordance with orders 8 and 10;

7.    The plaintiff's solicitor is to serve the defendant's solicitor with written notice that it has paid money into court in accordance with Order 6.

8.    Within 2 business days of the plaintiff complying with Order 7, the defendant will issue to the plaintiff (by email sent to Thomas Goerges [email address redacted] and Daniel McCarthy [email address redacted]), for each consignment listed in Schedule A:

a.    A delivery order, including, among other things, a delivery charge quotation; and

b.    An estimated date for delivery.

9.    Within 1 business day of the plaintiff receiving the estimated dates for delivery in accordance with Order 8(b), the plaintiff to inform the defendant in writing whether, for each consignment, the estimated date for delivery is acceptable or unacceptable.

10.    Following the plaintiff's compliance with Order 9:

a.    For each consignment for which the estimated date for delivery is acceptable to the plaintiff, the defendant will deliver that consignment on or before the estimated date for date for delivery provided in accordance with order 8(b); and

b.    For each consignment to which the estimated date for delivery is not acceptable to the plaintiff, the defendant will make the containers in which the consignment is stored available for collection by the plaintiff (or its authorised collection) within 2 business days, and upon 12 hours' notice by the plaintiff;

11.    Should the defendant fail to comply with Order 6(a), Order 8 or Order 10 in relation to any of the consignments listed in Schedule A, the plaintiff has liberty to relist these proceedings before the Equity Duty Judge on 24 hours' notice.

11A. In the alternative to orders 6 to 11, upon the plaintiff by its counsel giving the usual undertaking as to damages, an order pursuant to section 74 Supreme Court Act 1970 (NSW) that upon the plaintiff paying $1,500,000.00 into Court, the defendant will take all necessary steps to remove the lien exercised over the consignments listed in Schedule A.

3. Schedule A contained a list of 47 Clearance Instruction Consignments dated between 4 July 2022 and 29 September 2022. It also contained 32 Delivery Instruction Consignments dated between 4 February 2022 and 26 September 2022. Finally, it contained 493 Delivery Order Consignments dated between 17 December 2021 and 7 September 2022.

Outline of the commercial relationship between the parties

4. To explain the significance of the substantive interlocutory relief sought by TKMA, it will be necessary to provide an outline of the commercial arrangement between the parties and the nature of the dispute that has arisen. TKMA is a company incorporated in Australia. It is part of the materials service division of ThyssenKrupp AG, a German multinational conglomerate with a focus on industrial engineering and steel production. TKMA's business is in the supply chain of carbon and stainless steel as well as related products to distributors and manufacturers in Australia and New Zealand, including rolled and extruded aluminium and special steel products to the aerospace, defence, general engineering and fabrication industries.

5. SILA was established in 2010, and is in the business of providing customs clearance, transport and logistics services to its customers throughout Australia. Since at least 2011, SILA has been engaged by TKMA to provide the following services in respect of TKMA's imported containerised and breakbulk steel and related cargoes:

1. acting as customs agent for the clearance of containers and breakbulk cargo through Australian Customs;

2. collecting containers from TKMA's nominated terminal at the discharge port;

3. transporting containers to SILA's de-stuffing yard;

4. re-delivering de-stuffed containers to the shipping company's nominated empty container park; and

5. onward transportation of the de-stuffed cargo to a delivery destination as nominated by TKMA.

6. In some cases, TKMA only instructs SILA to perform the function in (1) above on its behalf. In those cases, SILA acts as TKMA's customs agent and arranges for TKMA’s goods to be cleared through Customs. SILA pays the Customs duties and other charges on behalf of TKMA. Having paid those amounts, SILA invoices TKMA for the disbursements incurred. Once TKMA's goods have been cleared through Customs, they are then collected by third-party transport companies retained by TKMA.

7. In other cases, TKMA retains SILA to provide the additional services in (2) to (5) above. SILA does not have its own warehouses or container de-stuffing facilities. Nor does it have its own transport services. SILA retains third-party contractors to provide the services necessary to allow it to perform its agreements with TKMA.

Outline of the dispute between the parties

8. The dispute has arisen out of the services provided by SILA to TKMA in relation to steel and other products imported by TKMA into Australia in either 20-foot or 40-foot containers. Such containers must be passed through Customs after they are landed by the shipping company and then transported to a suitable yard where they can be opened, the contents checked for damage, and then the contents removed (or de-stuffed in the terminology used), and then transported to TKMA's customer. After the containers are de-stuffed, they must be returned to the shipping company's empty container park for reuse. TKMA enters contracts of carriage with shipping companies that provide for what are called "free days", which represent a period after a container is landed by the shipping company during which it can be returned to the empty container park without further hire cost to the importer in TKMA's position. The contracts of carriage between TKMA and the shipping company customarily provide for detention charges that apply after the end of the free use period, whereby the importer becomes liable to pay the shipping company per day detention charges on a sliding scale which increases at given intervals in response to the length of the delay in returning the container to the empty container park.

9. The evidence satisfies me that the present dispute is a result of the consequences of the COVID-19 pandemic. As will be explained more fully below, the pandemic caused chaos in the chain of supply of imported cargo into Australia, particularly in relation to the capacity of the enterprises involved in passing imported goods through Customs, de-stuffing containers, sorting the contents, transporting the contents to the ultimate customers, and returning empty containers to the relevant empty container parks. Furthermore, bottlenecks developed in the capacity of the customers to receive purchased goods. The consequence was that the capacity of the enterprises collectively to process containers containing cargo in an efficient way collapsed. Initial delays in returning containers within the allotted free days developed into a haphazard process whereby the immediate objective was to clear warehouses that were clogged with containers by whatever means were possible. Consequently, the efficient minimisation of delay broke down and some containers could not be returned to the empty container park in a way that stopped the increasing accumulation of detention charges. SILA, whose business depended upon the assistance of third parties for the provision of these services, suffered from these delays and bottlenecks in the performance of its agreements with TKMA.

10. The result has been, according to TKMA’s evidence, that TKMA has become liable to the shipping companies for detention charges in the sum of $3,388,176 as at the end of August 2022. TKMA claims that SILA is contractually liable to reimburse it for the whole of the detention charges that it will incur.

11. Throughout the period when the chain of supply was being disrupted by the COVID-19 pandemic, SILA continued to provide its services to TKMA, and as at the date of SILA's 26 October 2022 statement of account to TKMA, the latter was indebted to SILA for $1,118,263.03. TKMA has refused to pay the amount due, as it has implemented a unilateral set-off of its debt to SILA against the damages that it claims SILA is liable to pay TKMA. TKMA has justified that action based on a claim that SILA's financial capacity to pay the amount of the damages claimed by TKMA is doubtful. SILA responded to TKMA's refusal to pay the agreed price for the services rendered by SILA (which included a substantial amount of disbursements paid by SILA on behalf of TKMA) by claiming a right to exercise a general lien over all the goods imported by TKMA that remain in the possession or control of SILA. As long as the lien is maintained, TKMA will not be able to perform its contracts with its customers. Furthermore, if, because of the exercise of the lien, the return of empty containers to the shipping companies' empty container parks is delayed, HKMA's liability for detention charges will continue to accumulate.

Legal basis for TKMA’s claim for relief

12. Hence, TKMA has sought interlocutory relief in these proceedings based upon s 74 of the Supreme Court Act 1970 (NSW), which provides:

74 Discharge of lien or security

Where, in any proceedings—

(a)    a party claims the recovery of specific property other than land, and

(b)    the party from whom recovery is sought claims to be entitled to retain the property by virtue of a lien or otherwise as security for money but does not otherwise dispute the title of the party claiming the recovery,

the Court may order—

(c)    that the party claiming the recovery be at liberty to pay into Court, to abide the event of the proceedings, the amount of money in respect of which the lien or other security is claimed and such further sum, if any, for interest and costs as the Court may direct, and

(d)    that, upon payment into Court, such judgment be given for recovery of the property as the nature of the case may require.

13. Relatively few authorities have considered the application of s 74 of the Supreme Court Act, and none provide useful guidance to the determination of the present application. I note that the section was considered by White J (as his Honour then was) in Naruone Australia Pty Ltd v TNS Logis Pty Ltd [2011] NSWSC 1490. His Honour was principally concerned with whether there was a serious question to be tried as to whether the party in possession of the goods was entitled to a general lien over them. White J found that, in order to engage the section so that the claimant is required to pay money into court to regain possession of the goods the subject of the claimed lien, the party in possession must establish that there is a serious question to be tried that the lien exists, and that there is a serious question to be tried as to the quantum of the debt for which the lien is claimed: see [10]. As will appear from the consideration below, it is clear in the present case that SILA has satisfied both requirements. The consequence is that the Court would not order SILA to deliver TKMA’s property to it without an appropriate amount being paid into court.

14. Although TKMA has made the present application at an interlocutory stage of the proceedings, it is not a claim for interlocutory relief. If the Court makes an order under s 74, then SILA will be required to deliver up possession of the goods over which it claims a lien on a once and for all basis. The final nature of the relief is assuaged by the fact that money will be required to be paid into court in lieu of SILA retaining the benefit of the lien. But that will change the nature of the rights that SILA can enforce on a final basis. SILA will lose the benefit of being able to retain possession. The making of an order under s 74 is clearly discretionary. In that respect, s 74 has characteristics of both final and interlocutory relief. That aspect of the relief that is final, as a practical matter, suggests that the Court should exercise its discretion based on the principles that it applies when asked to give interlocutory relief that will, as a practical matter, have final consequences: see Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 536 (McLelland J). The Court should therefore evaluate the strength of the claimant’s case for final relief for the purpose of seeing where the balance of convenience lies.

15. TKMA has offered the usual undertaking as to damages to the Court, as well as to pay $1,500,000 into Court to abide the outcome of the proceedings and to provide SILA adequate alternative security to the claimed lien to support recovery of the debt of $1,118,263.03 claimed by SILA, together with any interest and costs to which SILA may be entitled. In essence, TKMA submits that an order should be made under s 74 of the Supreme Court Act because that will avoid third-party customers suffering injury to their business, and it will also avoid the further accumulation of retention charges that will be payable by TKMA to the shipping companies. TKMA disputes the entitlement of SILA to assert a lien over TKMA's goods, but accepts that the evidence of the existence of the lien is sufficient to enliven s 74 in this case. TKMA also accepts that, if an order under s 74 is made, it would be necessary for TKMA to pursue expedition of its claim for final relief.

16. It is not necessary to consider the likelihood that the parties would be given an expedited hearing in this matter. Whether or not such an order would be made is entirely within the discretion of the Expedition List Judge. However, I observe that TKMA suggested that the matter would be suitable for expedition because its determination will largely depend upon the identification of the terms of the agreements between the parties. TKMA suggested that this would largely depend upon an analysis of relatively few types of contractual documents (although those documents would govern a relatively large number of individual transactions). I am more than sceptical that the determination of this matter will be as simple as TKMA suggests. As will appear from the reasons that follow, the determination of this dispute is likely to involve the resolution of many complex factual matters, even extending to a consideration of the effect of the COVID-19 pandemic on the supply chain industry in Australia.

Outline of final relief sought by TKMA

17. It is not necessary to consider the final relief sought by TKMA in detail. TKMA seeks to establish that it was a term of each contract with SILA that it would redeliver the shipping containers to the shipping company within the free days specified in the written Clearance Instruction or Delivery Instruction issued by TKMA to SILA for the particular consignment, and that SILA would indemnify TKMA for any detention charges incurred because of SILA failing to redeliver the shipping containers within the free days. TKMA seeks damages against SILA for breach of all the contracts under which TKMA has incurred liabilities to pay detention charges to shipping companies. TKMA also seeks a declaration that SILA has no legal entitlement to exercise a lien over the goods contained in the consignments listed in Schedule A to its amended summons.

SILA’s response to TKMA’s application

18. SILA opposes the application for an order under s 74 made by TKMA and submits that it should be entitled to retain and exercise the lien that it has over the goods in its possession or control under the contracts that it has with TKMA. SILA submits that the evidence does not support the relief claimed, and if the orders sought were made, it would be deprived of the commercial benefit of its lien. SILA submits that it has provided services to TKMA under a substantial number of contracts that entitle it to be paid the fees and that it be reimbursed the disbursements paid on behalf of TKMA that make up the $1,118,263.03 that TKMA owes, but is withholding. SILA’s evidence is that that amount includes $298,479.89 of debts owed by TKMA that SILA has paid on TKMA’s behalf that SILA has claimed as disbursements. SILA submits that TKMA has no unilateral right of set-off. It says that TKMA is attempting to use its superior commercial position to force SILA to accept a liability that it does not rightly bear. The refusal of TKMA to pay the debt owed has caused a very substantial cash flow problem for SILA that it should not be required to suffer. Furthermore, TKMA 's conduct has put SILA at significant risk of breaching the finance agreement that it has with its bank. That could substantially jeopardise the financial position of the principals of SILA, who have given substantial guarantees to the bank. SILA disputes the claim that it has any contractual liability to TKMA. SILA says that the consequences of the COVID-19 pandemic were entirely beyond its control. SILA says that it informed TKMA of the chaos caused by the pandemic, and that it did all that it could to perform its agreements with TKMA in a manner that minimised losses that TKMA might suffer. SILA says that the increased costs were caused by the pandemic, and that it was a commercial matter for TKMA to vary commercial arrangements with the shipping companies and its customers to deal with the increased costs that were incurred. SILA submitted that, if the orders sought by TKMA were made, it would effectively be deprived of its security as well as payment of the debt owed to it for whatever time it takes for the proceedings instituted by TKMA to be finally completed.

Dispute as to the quantity of goods retained by SILA

19. There was a substantial factual dispute as to the quantity of goods that SILA has retained in its possession or control and claims to be the subject of a lien. TKMA gave evidence that the total invoice value of the goods retained by SILA is $7,114,798.05 (exclusive of GST). SILA claims that the true amount is $2,371,738.73 (exclusive of GST). SILA provided detailed evidence explaining the difference between the parties' calculations and itemised a number of alleged mistakes in the spreadsheets provided by TKMA in a USB device that was tendered into evidence. Although the explanations provided by SILA appeared to be detailed and persuasive, and they were not comprehensively answered by TKMA, the Court cannot with any confidence on the present application determine what the true amount of the value of the retained goods is. The result is that, to the extent that the absolute value of the retained goods may be a factor in the exercise of the Court's discretion under s 74, it will not be safe for the Court to adopt a value that is more than the value asserted by SILA.

20. TKMA’s only positive response to this issue was that Mr McCarthy in his affidavit in reply suggested that the uncertainty was a product of the limited information provided by SILA as to the whereabouts of containers and proof of delivery of goods to TKMA’s customers. The Court must hope that the parties will cooperate to determine what the real position is, so that the risk will be obviated that either party will suffer further unnecessary loss.

21. The parties agreed that a substantial proportion of the goods retained by SILA consist of steel and related products that have been manufactured to the specific specifications and requirements of TKMA's customers. Consequently, it is likely to be impossible for SILA to find purchasers for the goods. If it attempts to sell the goods for prices approximating the invoice value to TKMA of those goods under its contracts with its customers, the effort to sell the goods is likely to be protracted, and in many cases the prices that SILA will be able to obtain will be limited to the scrap value of the goods. Although that may be true, the fact ignores the consideration that the value of a possessory lien to a creditor will very often lie mainly in the simple right to retain possession of the goods indefinitely.

Significance of the orders sought by TKMA

22. Before I address the evidence that was tendered on the application, it will be convenient to explain a number of features of the application that have the effect of confining the issues that must be determined by the Court.

23. First, it will be noted that s 74(a) is enlivened whenever a party claims the recovery of specific property other than land. It is not required that the party prove that it has legal title to the property. The effect of s 74(b) is that the section may be enlivened where the party in possession of the property does not dispute the title of the party claiming recovery. SILA initially put a submission that there was no evidence tendered by SILA that it was entitled to possession of the goods the subject of its claim. While that may be true, s 74 does not require such proof before orders can be made pursuant to the section. My Associate was advised by the solicitors for TKMA after I reserved judgment that the parties had agreed that SILA would no longer press this submission.

24. Secondly, if the Court made the orders sought by TKMA in prayers 6 to 11 of the original summons, the Court would effectively be ordering SILA to perform services in favour of TKMA by completing its outstanding obligations under the agreements that are not yet complete. SILA submitted that the power granted to the Court by s 74 of the Supreme Court Act does not enable the Court to order the party in possession of the property to provide services in conjunction with the delivery of possession to the party claiming the property. It also submitted that the Court would not ordinarily order a party in SILA's position to specifically perform a contract for the provision of services where the supervision of the Court may be required to ensure that the services were provided in accordance with the agreement.

25. TKMA responded to this submission by amending its summons to include prayer 11A. The new prayer merely requires SILA to "take all necessary steps to remove the lien exercised over the consignments listed in Schedule A". An order in those terms would not describe with sufficient specificity the steps that SILA was required to take to remove the lien. In a negative sense, SILA would be required not to act in any way that frustrated TKMA's recovery of possession of the goods. However, the goods may be in different locations under the control of different parties: for example, they may be in a bonded warehouse or they may be in containers waiting to be de-stuffed, or they may be in the warehouses of transport providers.

26. Similarly to the parties' response to the first issue, the parties agreed that the Court should decide in principle whether orders should be made facilitating TKMA gaining possession of the goods. The parties will then confer to determine on a case-by-case basis what action will be required on SILA's part, and the Court will be approached to make further orders if that is necessary.

27. The result of the position adopted by the parties at the hearing is that the issue that the Court must determine is whether, in principle, notwithstanding the claim made by SILA that it has a lien over all of the goods the subject of the agreements listed in Schedule A to the amended summons, SILA should be ordered to take the steps reasonably necessary to facilitate TKMA obtaining possession of the goods, on the basis that it has provided to the Court the usual undertaking as to damages and also paid $1,500,000 into Court.

Analysis of the evidence

28. TKMA relied upon affidavit evidence of Thomas Michael Goerges, its chief financial officer, in his affidavit sworn on 24 October 2022, as well as the evidence of Daniel Scott McCarthy, its supply chain and operation manager, in his affidavit sworn on the same date. SILA replied by means of the evidence of its chief executive officer, Simon Jay Pepper, in his affidavit affirmed on 21 October. 2022.

29. It is fair to observe that the evidence-in-chief lead by TKMA was a marvel of forensic amnesia in that it did not mention or address the significance of the COVID-19 pandemic. Selected documents in the witnesses’ exhibits referred to the effects of the pandemic from the perspective of SILA. TKMA did not create a positive narrative as to why SILA was obliged to bear the costs of those effects. TKMA’s case was essentially limited to the proposition that SILA could have chosen to reject the work offered by TKMA and had to bear the costs of not having done so.

30. As the present application is interlocutory in nature, in the limited sense that I have explained above, the Court is not required to decide any question that is in issue on a final basis. Notwithstanding that the evidence on this application is not complete, and the Court need not, and cannot, make any final determination of the issues, I am satisfied that the Court cannot determine the application without undertaking a relatively detailed analysis of the evidence.

31. The reason is that the Court is being asked to intervene in a commercial relationship between two parties who have already determined the contractual basis upon which their relationship will operate. Even though there is a contest as to what that contractual basis is, there is a distinct possibility that the intervention of the Court will unfairly prejudice the commercial position of one party in a way that is ultimately found to be inconsistent with its contractual rights. SILA's position is that it is entitled to exercise a contractual lien. The existence of that lien will not only provide SILA with security, but it will also be a valuable commercial tool in SILA's attempt to negotiate an outcome with TKMA whereby TKMA pays the debt that it presently owes to SILA.

32. If the Court makes interlocutory orders as sought by TKMA, that will change the commercial balance of power between the parties. While SILA will be protected by the alternative security of money paid into Court, it will lose its commercial basis for forcing TKMA to pay the outstanding debt owed. SILA will have to conduct the litigation while coping with the substantial cash flow problem caused by TKMA's unilateral assertion of a right of set-off. TKMA will be spared the reputational risk of not being able to deliver goods to its customers. TKMA will be spared the risk of becoming liable for ever-increasing detention charges. The orders sought by TKMA, if made, will in this way significantly transfer commercial risk to SILA. That may run counter to SILA's rights under its agreements with TKMA.

33. The Court should be careful in cases such as this, where it is asked to intervene in a carefully constructed chain of relationships involving the international carriage and importation of goods into this country. In that context, it will be expected that the participants have negotiated arrangements, in particular for the timing of payments, that are critical to the effectiveness of the industry. Judicial intervention may have inappropriate consequences, and accordingly it is necessary for the Court to look carefully at the evidence before it intervenes in a manner that may ultimately be found to have had a destructive effect. There will be cases where the proper course is for the Court to leave commercial parties to implement their own arrangements in accordance with the obligations and risks for which they have bargained.

Terms of the agreement between the parties

34. I will start by considering the evidence relevant to the terms of the agreements between TKMA and SILA. As already noted, the parties are at issue concerning the identity and terms of the agreements between them. SILA asserts that however many agreements have been entered into by the parties and whatever documents may be relevant to the creation of those agreements, the terms include SILA's Standard Trading Conditions that it publishes on its website and revises from time to time. As I understand it, TKMA disputes SILA's position, and claims that separate agreements were entered into between the parties each time TKMA issued a consignment note to SILA (in the different forms set out in Schedule A to the amended summons) and SILA accepted the consignment by acting upon the consignment note. Both parties accepted that their contractual arrangements did not oblige TKMA to issue consignments to SILA, and SILA was always free to decline to accept a consignment if acceptance did not suit its business objectives at the time.

35. I will deal first with the claim that SILA's Standard Trading Conditions form part of all the agreements between the parties. I am satisfied that the Court should decide the present application on the basis that there is a high probability that SILA could establish at a final hearing that its Standard Trading Conditions form part of its agreements with TKMA. The existence of an underlying agreement as to standard terms and conditions is not inconsistent with parties to a commercial arrangement entering into separate agreements by means of one party accepting a consignment instruction issued by the other party, whereby the standard terms and conditions are imported into the individual agreements.

36. I have formed this view for two primary reasons. The first concerns the nature of the commercial arrangement between the parties and what SILA was required to do to perform its obligations. For certain purposes SILA is required to act as TKMA's agent. SILA was required to enter into agreements with third-party service providers to transport, store, de-stuff and transport the goods removed from containers to TKMA's customers throughout Australia. That included the haulage of heavy goods by road transport. These services would, in the ordinary course, give rise to substantial commercial risks. The performance of the services offered by SILA to TKMA could not efficiently or safely be provided without some complex underlying agreement which regulated SILA's authority and the burden of commercial risks between the parties. Shortly put, it would be expected that a party in SILA's position would act to protect itself by ensuring that the individual agreements that it entered contained a comprehensive set of provisions that ensured certainty and efficiency in the performance of its obligations.

37. Secondly, there is persuasive evidence that the parties agreed to SILA's Standard Trading Conditions in the form of a document called “Authority to Act as an Agent”. SILA tendered two versions of this document, the terms of which were identical (CB 516 and 521). A copy of one of the documents was part of the evidence tendered by TKMA (CB 135). One of the documents was headed "ThyssenKrupp Infrastructure Australia". The other was on TKMA letterhead. The version of the document that was tendered by both parties was the one that was not printed on TKMA's letterhead. Each of the documents was signed by Mr Thomas Goerges, TKMA's chief financial officer. The documents are not dated, but I am satisfied on the evidence that the Authority to Act as an Agent was provided to SILA by TKMA before all the events relevant to the present dispute.

38. The Authority to Act as an Agent includes the following term:

6.    Terms and Conditions

All business is conducted pursuant to SI Logistics Australia Pty Ltd trading terms and conditions which may exclude or limit liability in certain circumstance (sic) visit our website [web address stated] to read our trading terms and conditions.

39. SILA's Standard Trading Conditions, as published on its website, were tendered into evidence by both parties.

40. The Authority to Act as Agent provided by TKMA to SILA authorised SILA to act as TKMA's agent for Customs clearance purposes. It was not directly relevant to the agreements whereby TKMA instructed SILA to provide the other services the subject of Delivery Instructions. However, it is abundantly clear from a review of SILA's Standard Trading Conditions that most of those conditions were relevant to the legal arrangements between SILA and TKMA in relation to the provision of services under the Delivery Instructions. As TKMA has itself asserted that the Standard Trading Conditions are part of the legal arrangements between the parties, the Court must decide the present application on the basis that, in all probability, the Standard Trading Conditions bound the parties.

41. I acknowledge that Mr Goerges's evidence in par 17 of his affidavit was to the effect that, from time to time, both parties had provided the other with documentation relating to the terms on which they both did business. The only documents provided to SILA by TKMA that are relevant to the issues raised by the present dispute are documents such as the Delivery Instructions that I will consider below.

42. The terms in SILA's Standard Trading Conditions that have relevance to the present dispute are as follows:

1. Clause 7.4 is part of a clause dealing with general indemnities and liabilities of the customer and owner (being TKMA). It relevantly provides:

7.4 The Customer shall be liable for … delay detention or demurrage whether arising before, during and after the Carriage of property by:

(a)    the Company (including, but not limited to, Containers);

(b)    the Company's servants, sub-contractors or agents;

(c)   independent contractors engaged by the Company for performance of part or all of the Services;

(d)    any person; or

(e)    any vessel caused by the Customer or Owner or any person acting on behalf of either of them or for which the Customer is otherwise responsible and will defend, indemnify and hold harmless the Company in respect of the same.

2. This provision appears to make TKMA liable for detainment charges that arise out of any cause listed, which would appear to include all the relevant causes in the present case. It is common for contracts that are made in circumstances such as the present to specify where losses are to fall as between the parties, as that will simplify and clarify the needs of the parties to take out insurance and will minimise the likelihood of wastage by double insurance for the same losses.

3. Clause 9 deals with Invoice and Charges, and includes:

9.1 The Company is entitled to issue a tax invoice in respect of its Services. The Customer shall pay to the Company in cash, or as agreed, the invoiced amount payable in accordance with the terms of the tax invoice and these Conditions and all or any other sums immediately when due without deduction or deferment on account of any claim, counterclaim or set-off. …

4. I will consider the application of this provision to the debts claimed by SILA immediately below. This provision is a contractual exclusion of TKMA's entitlement to set off any claims it may have against its obligation to pay SILA for the services that it has completed.

5. Clause 11 provided:

11.1 Special and General Lien: From the time the Company, or its servants or agents, receive the Goods into its custody, the Company, its servants or agents shall have a special and general lien on the Goods and a right to sell the Goods whether by public or private sale or auction without notice, for any unpaid amounts for freight, demurrage, container detention charges, duty, fines, penalties, salvage, average of any kind whatsoever and without limitation and for any and all debts, charges, expenses or any other sums due or which become due at any time from the Customer or the Customer's principals, servants or agents (whether those sums are due from the Customer on those Goods or documents or on any other Goods or documents). In addition, the lien shall cover the (sic) all costs and expenses of exercising the lien, including the costs of a public or private sale or auction, including legal costs and administration costs. The lien and rights granted by this Clause 11.1 shall survive delivery of the Goods and the Company shall be entitled to retain the proceeds of sale of the Goods in respect of any outstanding amounts whatsoever referred to in this Clause. …

6. As this provision entitles SILA to assert a general lien over TKMA's goods in its possession, SILA is entitled to retain possession of goods the subject of particular contracts to secure payment by TKMA of debts owed to SILA for performance of other contracts that have been completed. As the High Court said in Dinmore Meatworks Pty Ltd v Kerr (1962) 108 CLR 628 at 632; [1962] HCA 47: “It is a long-established principle that if a chattel be delivered to a man so that he may for reward do work upon it, as for example by repairing or altering it or making something of it, he may, having completed the work retain possession of it until he has been paid for his work.” The commercial importance of the possessory aspect of this security must be kept in mind, as it may be the more efficacious even where the creditor also has a right to sell the goods.

7. Clause 13.1 provides that SILA shall not be liable for any loss or damage whatsoever arising from various circumstances, including "(h) any Force Majeure Event". Force Majeure Event is defined in clause 3(g) as meaning "any cause or causes beyond the control of the party whose performance is directly affected by it”, including various named causes such as "epidemics". As a pandemic is an epidemic that has infected the whole of a country or the whole of the world, the COVID-19 pandemic would be covered by the term "epidemics" in clause 13.1.

43. The evidence established that SILA's practice (consistently with the apparent effect of clause 9 of the Standard Trading Conditions) was to issue invoices to TKMA after SILA had completed the services required by individual consignment agreements. Consequently, TKMA is fully indebted to SILA for the amount claimed by that party. As mentioned, a substantial part of the claim is for disbursements relevant to payments made by SILA of obligations owed by TKMA.

43. It appears to follow that the consignment agreements that have been listed in Schedule A to the amended summons are agreements that SILA has embarked upon, but in respect of which it has not yet completed the services required. SILA may have incurred costs in the performance of those agreements and may be entitled to charge fees either in whole or in part. It appears that SILA has not completed the agreements because TKMA unilaterally decided not to pay the debt that it owes to SILA relation to completed contracts. There may be an issue at a final hearing concerning SILA's entitlement to further payments under the contracts that have not been completed because of the actions taken by TKMA.

44. The significance of this observation is that the offer made by TKMA as a condition to the making of an order under s 74 of the Supreme Court Act is that it pay $1,500,000 into court. As noted, that amount is intended to cover the existing debt owed to SILA plus interest and costs. It ignores the amounts to which SILA may be entitled under the contracts that have not yet been performed because TKMA unilaterally decided not to pay SILA its existing indebtedness. If clause 11 of the Standard Trading Conditions applies, SILA's entitlement under its general lien is not limited to securing payment of the existing debt owed to it, but would extend to securing payment of whatever money might be found to be owing to SILA under the current contracts that have not been performed because of the actions taken by TKMA.

45. The countervailing case put by TKMA is based upon the claim that the individual agreements that it entered with SILA included a term (the Instruction) introduced into the agreements by reason of SILA accepting instructions from TKMA for individual consignments in consignment notes, which included:

ATTENTION!

All containers must be de-hired in the allocated Free Days.

If you believe this is not possible, you must contact TKMT prior to detention costs being incurred.

TKMT will not accept any detention costs where we are not informed of this risk in advance.

We appreciate your support.

47. Given the circumstances in which TKMA's application was prepared for an urgent hearing, the evidence did not include all consignment notes accepted by SILA. The evidence suggested that a document called a Consignment Instruction was issued when the services required of SILA were limited to obtaining Customs clearance for goods. A Delivery Instruction was issued as well if SILA was required to provide all the other necessary services. There is some evidence that the Instruction was not included in Consignment Instructions, but it was included in at least some Delivery Instructions. Mr Pepper gave evidence that the Instruction was not included in 95 out of 300 of the consignment notes that he had had time to inspect. The Court is not able to form any view concerning the frequency that the Instruction was included in consignment notes accepted by SILA. Mr Goerges claimed that all Delivery Instructions issued to SILA since at least 2018 included the Instruction. Mr McCarthy said that he understood that, as a matter of custom between the parties, the Instruction was always included.

48. In the circumstances, TKMA has sufficiently established that, at least for a substantial proportion, or perhaps even all, of the Delivery Instructions, SILA will be taken to have accepted the Instruction when it accepted the work.

49. It is not clear what the position will be if it is ultimately determined that the Instruction was not included in Consignment Instructions, but was included in Delivery Instructions. Mr McCarthy gave evidence in pars 86 and 87 of his affidavit that SILA was refusing to release 2,472 metric tonnes of steel products the subject of Clearance Instructions and 1,571 metric tonnes of steel products the subject of Delivery Instructions. As I have explained above, SILA has challenged the accuracy of TKMA's evidence in a way that cannot presently be resolved by the Court. The point of these observations is to note that it may be that the majority by weight of the product retained by SILA is not the subject of agreements that contained the Instruction.

50. Obvious questions arise concerning the meaning and effect of the Instruction if it is proved that it was included in individual agreements between the parties. Those questions cannot be resolved on the present application. The first sentence of the Instruction is cast in mandatory terms. However, the balance of the Instruction is directed at requiring SILA to inform TKMA prior to detention costs being incurred. The words "If you believe this is not possible" appear to be an acknowledgement by TKMA that it is not realistic to treat the mandatory requirement in the first sentence as being effective in all cases. The third sentence suggests that the real purpose of the Instruction is to give TKMA an opportunity to prevent detention charges being incurred by taking affirmative action itself upon being told that SILA cannot ensure that containers will be redelivered to the shipping company within the allowed free days.

51. To the extent that the Instruction is given the effect of requiring SILA to notify TKMA of the possibility that containers will not be redelivered before the free days expire, any evidence that TKMA was informed that there was a general probability that containers could not be redelivered before the expiry of the relevant free days would be relevant to a consideration of the legal effect of the Instruction.

52. The Instruction may have been given in slightly different terms from time to time. For example, a number of Delivery Instructions included:

By accepting this job, you acknowledge that containers will be de-hired within their free time. Thyssenkrupp will not be liable for any container detention.

53. This instruction is cast in more affirmative terms that containers must be de-hired within the available free days.

54. Reliance upon the Instruction was at the heart of TKMA's case, as it submitted that on this application the Court should accept that TKMA had established a sufficiently strong case that every consignment agreement between the parties included the Instruction.

55. I infer from the evidence that TKMA’s business involves it entering contracts to purchase steel and other products from overseas manufacturers and making contracts for the sale of those products to its customers throughout Australia. For that purpose, TKMA must enter freight contracts with shipping companies. Where the goods are shipped in containers, the shipping company will cause the containers to be landed at an Australian port. That is something that will happen as an incident of the contract of carriage. At some point when the containers are landed the free days will commence. TKMA relies upon the services of companies engaged in a similar business to SILA to provide the freight services necessary to obtain Customs clearance, to move the containers to a place where they can be de-stuffed, and then for the goods to be transported to TKMA’s customers and the containers returned to the empty container parks.

56. TKMA’s business model requires that there be available a company to provide these services for every container that is landed. If that does not happen then the free days will elapse and detention charges be incurred while the containers have not been cleared through Customs. This form of loss could only be avoided by TKMA if some service provider agreed to process the containers. TKMA could only suffer a loss because of SILA accepting a consignment and being unable to return the empty containers within the available free days, if, had SILA not done so, there was another service provider who would have accepted the consignment, and that service provider would have returned the containers within the free days. Equally, if SILA accepted a consignment and then found that it was unable to return the empty containers within the available free days, and then informed TKMA of that fact, the information would only avail TKMA if it was able to transfer the consignment to another service provider who was able to meet the free days deadline.

57. These considerations are relevant because the evidence shows that the inability of SILA to execute consignments within the available free days was generally caused by chaos in the supply chain process caused by the COVID-19 pandemic, particularly the effect of the spread of the Omicron variant. TKMA’s submission that SILA was always free to reject consignment offers is correct, but I infer that so were other available service providers. If all service providers refused to accept consignment offers, then all TKMA’s containers would remain in Customs (assuming that were permitted) and TKMA would be incurring liability for detention charges. Service providers in SILA’s position who accepted risky consignment offers would improve TKMA’s chances of minimising liability for detention charges.

Dealings between the parties

58. The evidence of relevant dealings between the parties is probably not complete, and it was not organised in a manner that facilitated an accurate chronological understanding of those dealings. The following is only intended to be an analysis of significant aspects of the evidence that will be sufficient to enable a proper exercise of the Court's discretion under s 74 of the Supreme Court Act.

59. On 19 January 2022, SILA rejected a request from TKMA to quote for 59 20-foot containers at the Port of Melbourne. In its email in response SILA said:

Hi Mate, I'm afraid we aren't able to handle this one. Capacity and Labour is an issue across the board and if we took this work on we are not confident we’d be able to have the room to handle and dehire in time.

60. On 20 January 2022, SILA sent a circular to its customers called "Australian Logistics Supply Chain Under Severe Pressure and Rising Costs". The circular included the following:

We would like to draw your attention to issues currently facing the Australian Supply Chain and the severe pressure it is under right now to meet demand and facilitate service levels. The issue mainly stems from the amount of COVID case numbers currently being experienced on Australia's East Coast, which is resulting in severe labour shortage, including terminal workers, truck drivers, container unpackers, admin staff and more. Even with changes to close contact isolation rules, a lot of damage has already been done and the issue remains, it will be a case of "it will get worse before it gets better".

61. In a further circular to customers dated 8 February 2022, with the same title as the previous circular, SILA advised:

…

Transport companies continue to report staff shortages as a major problem, which has not subsided, and has had a domino effect on operating costs. … With the high turnover of labour & drivers this also leads to reduced reliability and service delivery.

…

Local transport companies are now adding (or enforcing) bands on considering detention, and we ask for our clients to please request minimum 14 free days detention on their bookings not managed by SILA. We will consider detention on a case-by-case basis and will do the best we can to get containers back on time however customers may need to factor in detention costs, especially on bookings that offer the minimum 7 or 8 days from discharge.

62. In a further circular to its customers dated 22 February 2022, with the same title as the previous circulars, SILA said:

…

Detention costs from shipping lines are occurring as transport carriers struggle to return empty containers within free-time due to a number of reasons such as: severe backlog, yard congestion (both at dehire depots and at transport yards), as well as a lack of equipment and a lack of labour to operate the equipment. Unpack times can vary depending on the commodity, delivery & dehire locations, and port of arrival. Current turnaround times on unpacks are around 14 days from the date of terminal slot booking.

Once again, we must advise our clients to please request a minimum of 14 free days container detention on their bookings not managed by SILA. We will consider detention on a case-by-case basis and will do the best we can to get containers back on time; however, customers may need to factor in detention costs, especially on bookings that offer the minimum 7 or 8 days from discharge.

…

63. In response to a request from TKMA to provide an update on the timing of a particular delivery, SILA said in an email dated 25 February 2022:

… I am unable to provide estimates on deliveries at the moment but will get deliveries completed as soon as containers are unpacked. To give you an example ACFS Melbourne closed their doors today as they are over 200% over capacity and the site is no longer safe to work in with the amount of containers they have they are now moving containers to another yard so they can recommence work. All container yards in Melbourne are now over capacity.

64. On 28 February 2022, SILA rejected another request from TKMA to quote for a shipment of 20 20-foot containers.

65. SILA advised its customers in a circular dated 3 March 2022:

As we have been updating in previous notices, due to COVID related staff shortages and congestion issues in Melbourne, many transport companies are struggling to fill driver and warehouse positions. This shortage of staff has led to wages increasing approximately 60%. Unfortunately, carriers cannot cope with the congestion and increase of wages…

66. TKMA did not give evidence that it was unaware of the contents of these circulars and I infer that TKMA most probably received them from SILA.

67. There was evidence that, at dates in March 2022, TKMA received a number of invoices from shipping companies containing detention charges on the basis that containers had been returned outside the free days. On 25 March 2022, TKMA sent upwards of 10 emails to SILA requesting that it investigate instances where TKMA had been levied with detention charges.

68. On 28 March 2022, TKMA sent an email to SILA concerning "detention issues". The email contained a list of 13 consignments dated between 31 January 2022 and 21 March 2022 with a total in detention charges of $87,245.50. SILA responded on the same date:

Hi Doug, I am aware of the issues on an overall level and I can see the concern as the list grows. The TS Lines one below stands out! However just to give you some background on that one, this was all cargo destined for MCA in Sydney. They had a period of almost a month where they could not take ANY deliveries and are aware that detention would be incurred as this caused a huge backlog and containers weren't able to be unpacked. I know that David McGrath at MCA is aware of this and I am just chain up the email communication now.

69. TKMA advised SILA by email on 27 March 2022 that it expected to be reimbursed for detention charges from 11 days where there were 8 free days and from 15 days where 14 free days were allowed.

70. TKMA stated in an email to SILA on 28 March 2022, when it advised SILA of a list of detention charges that it had incurred: “We will be expecting these to be investigated and if Sila is at fault then these be settled.” Statements such as these made by TKMA would naturally convey the meaning that SILA would only be held liable for detention charges if they were incurred as a result of fault on its part.

71. SILA responded in an email to TKMA on 29 March 2022 that there was "a heap of containers" arriving on a vessel into Melbourne. SILA said, "please advise urgently. But as you know we are already under pressure in Melbourne. This is another I think 16 containers." SILA said that it understood a company called F-35 was unpacking certain identified containers. TKMA advised SILA on 30 March 2022 that F-35 would not be able to handle the shipment that they had in the warehouse. SILA responded on the same day by advising TKMA that they had received word from their Melbourne partner that they had reached capacity and could not take any more work.

72. In an exchange of emails between the parties on 29 and 30 March 2022, TKMA advised that it would check with the company called F-35 as to whether it could accept further containers and then advised SILA that it could not. TKMA expressed concern because Delivery Instructions were yet to be sent to SILA for about 50 consignments going to Melbourne.

73. On 31 March 2022, SILA sent an email to TKMA saying:

As you can see from the emails yesterday the depot in Melbourne has reached capacity and is not accepting any more containers. All I can do is book things in as soon as they are unpacked.

I am getting absolutely hammered with emails on deliveries from all sides and am doing my best. I can only work with what I am getting and it seems there is no firm plan for unpacks they are taking containers from the stack and unpacking just to try and clear the backlog but this doesn't seem to be working as there is no let up in the volumes arriving and with F35 unable to accept containers we are under pressure to try and accommodate all your unpacks.

74. SILA responded to TKMA’s 27 March 2022 email on 3 April 2022 by advising that it was waiting to see whether the carrier would accept liability for the delays. On 12 April 2022, SILA agreed to accept at least $1,200 of the $3,565 total claim (SILA’s response to a number of the claims is unclear). SILA refused to accept a number of the claims because there was a delay in the shipping company having released the relevant containers.

75. On 22 April 2022, SILA sent what it called an "Operational Update" to its customers. The circular included:

…

In the last few months, we have taken steps to increase our transport service supplier base to increase capacity, and our base has almost doubled. However, capacity remains an issue due to the far-reaching nature of the supply chain issues. Regrettably, we have not been able to improve turnaround times as much as we would have liked, especially in Melbourne. Since we started alerting clients to issues & delays within the domestic supply chain, there has been little to no improvement with continued deterioration in some states; our biggest 'bottleneck' currently occurring in Melbourne with 4 to 6 week unpack & redelivery delays in some cases. Nevertheless, containers continue to arrive. The weeks this month are short and short staffing is a constant issue, which is now being seen in other sectors, as you have no doubt seen on the news. …

The following information applies to containers which SILA Global have been requested to unpack, de-hire empty and deliver the contents.

We ask that anything sent to SILA has a 21-days free detention time, however, this does not confirm we will pay any detention costs. The free time recommendations are to assist in mitigating any detention costs that may be incurred due to the extended delays which we have been advising of for some time. SILA Global cannot be held liable for detention charges due to issues beyond our control, once again please refer to SILA News and your inbox for further info. We have assisted clients in writing to shipping lines requesting extended free time, detention reductions and support during this difficult period but to this point little to no relief has been provided. We suggest that our clients write to their nominated shipping lines or freight forwarders and request assistance with additional free time or reductions in already issued detention invoices during this period of unprecedented difficulty. …

…

If you have options available with alternative carriers, especially Melbourne and Fremantle, we suggest that containers are directed to them or, if already in SILA nominated yard, arrangements can be made for the container to be collected. While our business is here to provide services to our customers, and we are doing the best we can provided the circumstances, however if suitable alternatives can be found by customers, we are happy to facilitate or assist with movements to other sites nominated by our clients.

*Note: To assist in decision making, our turnaround times in each our major ports are approximately as follows: –

Melbourne: 4-6 weeks from vessel availability

Fremantle: 3-4 weeks from vessel availability

Sydney: 2-3 weeks from vessel availability

Brisbane: 2-3 weeks from vessel availability

This is an approximate average. The situation remains fluid and can vary depending on many factors, such as container size, location in depot stacks, product types, delivery location, shipping line, available free time etc.

76. The parties exchanged emails in the period 14 April 2022 to 17 May 2022, in an email chain prompted by a customer pressing TKMA for delivery of a consignment. There were exchanges following SILA’s enquiries concerning the status of the consignment. SILA advised it was having difficulty communicating with the depot. SILA said on 9 May 2022: “I’ll get back to you but as I’ve stated many times I’m getting absolutely smashed!” TKMA responded on 9 May 2022: “Hi Phil – appreciate your getting pulled in many directions here mate. If it were not for your efforts, we would be in a far worse position!” SILA advised on 17 May 2022: “I am being advised 2-3 weeks away from unpack.”

77. The parties engaged in another email chain between 26 and 27 April 2022. The problem seems to have involved delays in performance by a company called Tasman. TKMA advised that all containers were 28 days or older and asked: “Let me know what we intend to do with the detention invoices please.” SILA advised that TKMA should seek extensions of time from the shipping company because Tasman had not apparently given SILA a satisfactory response.

78. On 27 April 2022, TKMA advised SILA of a total of $31,944 in detention charges and asked: “Can you advise when you will be able to pay us for these?” On 28 April 2022, TKMA said to SILA: “I am aware of the constraints having met with Simon this week. Please do what you can to minimise these risks. I would be keen to know if you are having any progress in this area.”

79. SILA said in an email to TKMA dated 17 May 2022:

…

At this stage Malec are unable to assist with clearing the April Backlog due to the May arrivals and Tasman are well behind as we have been communicating through our notices and advise from Phil. Also please note that we saw a huge jump in work due to F35 removing services in the Melbourne market and usually this would be great however given the logistics landscape, and our capacity as distributed, it's added more fuel to an already existing issue. While there could be better communication, there always could be, but Phil has been advising weeks delays on unpacks and you will see attached the amount of notices we've been sending about this issues.

We need reprieve here Dan and really need TKM assistance in pulling around 50% of the containers from us and send to another carrier to be unpacked and dehired, which is VERY tough to say but I have been asking since April and put it out to the world in our April notice. The longer we keep accepting work this volume of work then longer we will continue this cycle and we won't catch up; we've accepting the work in order to keep your boxes moving and help avoid terminal storage but we can't then be held liable for detention by doing this, and if we are going to be held liable then we can't accept this work.

IF we are going to be held liable for detention we can't accept this work.

80. On 18 May 2022, TKMA sent an email to a person called Mike who was identified as Michael Gallacher, the CEO of Ports Australia, on the subject of container detention. The email was forwarded to SILA on 20 May 2022 for its information. The email to Mike said:

I am hoping you may be able to help me in reaching out to the Minister for Victorian Ports and Freight.

My company imports metal in both break bulk and containers.

We are receiving container detention charges from the shipping companies for containers that we have been unable to unload and return to their container park in the "free days" period these companies allow in normal circumstances for us to collect, unload and return the empties. This period is between 7 and 21 days. So far since February when I began capturing the information into a database we have incurred detention costs of over AU$1M and the majority of this is from the Port of Melbourne. After the free days the shippers charge us around $300 per day until the container is returned. I have approximately 160 containers paying detention in Melbourne right now and that equates to AU$1.4M in charges per month. Neither we nor our unpacking companies can afford to wear these costs. The cause has been driven by a number of factors. Demand has increased greatly, so there is more coming into Port of Melbourne. Covid and the relating staff shortages combined with insufficient unpacking facilities under cover have meant that every material importer into Melbourne is facing the same issues. If I was to hire a container locally it would cost as little as $3 per day. I can buy a container in seaworthy condition outright for about $4K. The shippers are not moving these containers back overseas and all of the container parks are full of empty containers. If we were asked to pay $30 per day we would accept that.

If I pass the charges back to the unpack companies which we would usually do, they will be bankrupted. My company can't afford to accept these charges either. We are forced to pay them in order to access our incoming material.

The shipping lines are profiting from our current logistics issues, and it's just not sustainable.

I beg of you to have Government assistance in putting this to a stop.

81. On 24 May 2022, TKMA sent an email to SILA "seeking an update in relation to unpack status" TKMA added:

We have sought out options for alternate providers yet at this stage, have no nothing realistic we can utilise.

The email noted that there seemed to be a volume of orders that were more than 50 days since the delivery instructions.

82. SILA responded on 31 May 2022 with an analysis comparing the amount of consignments in the period 30 November 2021 to 31 May 2022 to the period 30 November 2020 to 31 May 2021. In the earlier period, there had been 458 jobs with 459 containers, but in the later period, the amount was 802 jobs and 1127 containers. SILA said:

Overall, that's quite a bump and I'd say over a 50% Increase overall both on jobs and containers through which we have very little knowledge that we'd see an increase like this. However I also believe that the issues with F35 have had a big part to play as if they were operating I suspect we wouldn't have seen such a jump. I also didn't play too much with the dates but I would say that Three Quarters of that volume increase would have occurred in the March to May Period. …

83. TKMA responded on 3 June 2022, saying:

Simon, understand the uplift in volume, and appreciate the response re supplier capacity / break-even point – but the horse has already bolted. As per my last, there had been no rejection of work by SILA, until recently, (or at least discussion for TKM to seek other options). There has also been little to no active management or communication of detention risks. We have invoices for detention of 70+ days, and seemingly no logical operational plan to work through the aged boxes, (thereby compounding the cost) customers are receiving orders just recently landed. This sub-par level of planning and execution coupled with very poor communication and resulting in serious cost impacts, has forced us to significantly adjust our growth plans.

We will be seeking recovery from SILA, where containers have been in detention >= 30 days. This would effectively mean, that in 99% of the cases, containers have been with the unpacker for >= 44 days or more. We believe this is fair and reasonable and we reluctantly, will need to absorb the balance. (Which at this time, looks like another $500k)

Our bill in relation to SILA detention now approaching $2m – and no doubt, more to follow. We will need to work through this over the coming weeks / months or however long it takes to resolve.

84. SILA responded to this email on 7 June 2022, saying:

Hi Dan, Thanks for the chat earlier there is a lot surrounding this and I think we both have valid points and on the bright side we’re almost out of the woods (so to speak). Our stance, as has been communicated, is that we are not able to accept detention per our notices however SILA and TKM have a 10+ year relationship and have worked through issues amicably in the past and we value that relationship. I'm open to discussions on how we move forward with all of this, but I ask that any currently raised debit notes aren't deducted from payments until an agreement is reached. The 1mil+ Of Disbursement invoices we have issued are all Duty / Port Charges cost paid on TKM behalf.

85. On 10 June 2022, TKMA sent an email to SILA with a forecast of the deliveries to Sydney and a request for advice as to whether SILA could handle the deliveries.

86. SILA responded on 13 June 2022 by email identifying the shipments that it could handle and those that it could not.

87. The parties exchanged emails in a chain between 20 and 22 June 2022 that was initiated because a customer was “screaming” for delivery of its consignment. SILA invited TKMA on two occasions on 22 June 2022 to arrange an alternative carrier, but apparently to no avail.

88. On 19 July 2022, TKMA referred in an email to $109,000 in detention charges that it had incurred, and stated: “Can you please have these investigated? Unless we have extenuating circumstances we will need to pass these costs on.” In this case TKMA referred to “extenuating circumstances” but this terminology also introduces the concept of fault on SILA’s part.

89. In an internal TKMA email dated 5 August 2022, an assertion was made that SILA had not given warnings of containers going into detention, so that TKMA had not had an opportunity to send the work elsewhere. No evidence was given that there was an effective “elsewhere” for the work to be sent, although it must be inferred that at some stage the consequences of the pandemic started to diminish.

90. On 18 August 2022, TKMA sent an email to SILA setting out TKMA’s proposal to resolve the dispute concerning the detention charges that had been incurred by TKMA and which it said was offered “in light of systemic industry constraints.”

91. In an email dated 22 August 2022, SILA advised TKMA that it would not be able to take any 40-foot containers arriving that week into Melbourne. SILA could process certain 20-foot containers. SILA advised that other ports were okay: "just can't do MEL this week as we need to ensure we clear the backlog and there is possible rain coming that may impede this."

92. On 25 August 2022, SILA sent a lengthy email to TKMA in which it stated its position in relation to the detention charges dispute. The email contained an offer to resolve the dispute. The parties were unable to reach a resolution, and by email dated 27 October 2022 SILA informed TKMA that it would not accept any detention invoices.

93. As the parties based their respective offers to resolve the dispute largely on commercial considerations, it will not be appropriate for the Court to decide the present application having regard to the terms of those offers.

94. In response to TKMA's complaint that it was not given adequate information concerning the location of containers and the anticipated timing of the return of containers to the empty container park, SILA provided evidence of a web-based tracking application that was accessible by employees of TKMA. Mr McCarthy claimed in his evidence in reply that the online portal maintained by SILA was not reliable and was not regularly updated. The Court is not able to resolve this dispute on the available evidence. However, it seems unlikely, from the evidence given by SILA of the degree of mayhem in the third-party warehouses, that SILA obtained up-to-date and comprehensive information concerning the arrangements for de-stuffing and returning empty containers that would have been necessary to ensure that the information downloaded to the online portal would be adequate to enable TKMA to manage its detention charges risk.

Evidence relevant to the balance of convenience

95. The parties approached the application of s 74 of the Supreme Court Act on the basis that the Court should have regard to the balance of convenience in exercising its discretion under the section. I agree that the balance of convenience is a relevant factor.

96. On TKMA's part, the company relied upon the evidence that I have considered above concerning the invoice value of the goods that have been retained by SILA in the exercise of its general lien. TKMA submitted that not only was it being deprived of possession of the goods, but the consequence was that TKMA was unable to perform its contracts for the sale of the goods to its customers. That will likely cause TKMA reputational damage. In the meantime, wherever the continuation of SILA's possession of containers prevents the containers being de-stuffed and returned to the empty container parks, the liability of TKMA to pay increasing detention charges to the shipping companies will continue to increase. Even though there is some doubt about the quantity of the goods in SILA's possession, and consequently the number of containers, I accept that the value of the goods retained is substantial, as is the likelihood of significant additional detention charges being incurred.

97. TKMA also relied upon evidence to support a submission that, if TKMA were to pay to SILA the $1,118,263.03 claimed as at 26 October 2022, there are sufficient doubts about SILA's solvency to justify concern that TKMA will not be able to recover from SILA the $3,388,176 it that has paid in detention charges, as well as any additional detention charges paid up to the time of judgment, if TKMA succeeds in its claim that SILA is obliged under its agreements with TKMA to reimburse it for those liabilities. TKMA relied upon evidence that SILA is a service provider that does not use its own assets to conduct its business. TKMA submitted that SILA was likely to owe amounts to the third-party subcontractors who it engages to do most of its work. SILA does not own any real property in Australia. TKMA submitted that SILA has a below average credit score. TKMA relied upon correspondence to show that SILA had not responded to a request that it provide details of its financial position to TKMA.

98. SILA did not lead evidence to dispute the substance of the evidence relied upon by TKMA. SILA in fact tendered evidence to establish that, from about 15 March 2022, TKMA consistently short paid the invoices delivered to it by SILA, so that at the time of each invoice cycle substantial and generally increasing amounts of charges payable to SILA were overdue.

99. As of 9 September 2022, TKMA's account had been in arrears and overdue for many months, even though the service charges invoices had not been disputed. During that period, SILA had continued to provide uninterrupted services to TKMA and incurred outlays on TKMA's behalf. SILA concluded on about 20 September 2022 that it had no choice but to limit its increasing exposure to TKMA's unpaid invoices and suspend all services on TKMA consignments. SILA informed TKMA on 26 September 2022 that no further services would be provided until TKMA's account was fully settled. SILA gave TKMA notice of the exercise of its general lien on 28 September 2022.

100. SILA gave evidence that, since June 2022, it has held an invoice finance facility with its bank that is in effect a factoring arrangement in which the bank accelerates payment of 80% of the value of the invoices issued by SILA to its customers. Under the terms of the facility, the bank is entitled to 'disapprove' a debtor where SILA's invoices to that debtor are unpaid for more than 90 days. The consequence of a debtor being disapproved is that the bank will not purchase further debts owed by that customer, and SILA must repay to the bank any amounts that have already been accelerated to SILA on outstanding invoices. The consequence is that as SILA has already accelerated payment of 80% of $1,086,000 owed by TKMA (or approximately $810,000), and SILA has become liable to repay approximately $810,000 to its bank by Christmas by instalments of $90,000 per week. A considerable portion of the $810,000 represents obligations of TKMA to third parties that SILA has paid on its behalf.

101. The evidence is that the four principals of SILA have given multi-million-dollar guarantees to the bank, so that their financial positions are also at risk if TKMA does not pay the debt that it owes to SILA.

102. As at this stage SILA has not taken any steps to oblige TKMA to pay its outstanding debt, other than to exercise its right to retain TKMA's property in exercise of its general lien, SILA may not be able to compel TKMA to pay its debt in the short term. However, SILA submits that if the Court makes the orders under s 74 of the Supreme Court Act that have been sought by TKMA, the $1,500,000 will remain in court until the proceedings have been determined, and SILA will be deprived of the benefit of its lien. Accordingly, the real risk to SILA's solvency is the refusal of TKMA to pay the debt that it owes.

Consideration

103. It is obvious that TKMA's attempt to ignore the effect of the COVID-19 pandemic was misplaced.

104. However, it is neither necessary nor possible in the present application for the Court to make any positive findings concerning the true effect of the pandemic as a cause of the exceptional detention charges incurred by TKMA. It is clear that SILA began informing all its customers, I infer including TKMA, from as early as 20 January 2022 that the pandemic was having an unanticipated destructive effect on the operation of supply chain arrangements at Australian ports that substantially interfered with the efficient transportation of goods to ultimate customers and the timely return of containers to empty container parks within the free days allowed by the shipping companies. SILA progressively reinforced its dire warnings by subsequent circulars to its customers and individual emails to TKMA.

105. Mr McCarthy's 18 May 2022 email to the CEO of Ports Australia demonstrates unequivocally that TKMA was completely aware of the disastrous consequences of the pandemic.

106. TKMA seeks to visit liability for all the detention charges incurred by TKMA on SILA on the basis that SILA was free to reject all offers for quotation sought by TKMA, so that SILA had voluntarily accepted risk for all detention charges. However, TKMA led no evidence to support a finding that, if SILA had declined consignments, some other party providing the same services to TKMA would have come forward to do so and performed its agreements without detention charges being incurred. The better view on the evidence is that SILA continued to soldier on in the interests of its long-term client and did its best to service the containers containing TKMA's goods that were continually being landed in Australia by the shipping companies retained by TKMA. The appropriate metaphor is of an unstoppable conveyor belt that continuously landed containers in Australia, leaving it to whoever was available to run around doing their best to service the chain of containers.

107. I infer from the fact that SILA made a number of desperate pleas to TKMA for TKMA to find alternative service providers to take substantial numbers of containers off SILA's hands, and the failure of TKMA to comply with SILA's requests, that TKMA was aware that there were no alternative service providers available who could provide the necessary services at a lesser cost in the detention charges that were being incurred while SILA was responsible for the containers.

108. The evidence is not sufficient for the Court to make any findings concerning the progress of the disaster, but it seems likely that the market's capacity to service containers in the ordinary way started to be disrupted by the effects on labour availability of the pandemic. Unexpectedly in different corners of the market, the accumulation of unserviced containers had consequences that became untenable in relation to warehouses being clogged with containers and individual service providers temporarily ceasing the provision of services. Consequently, the problem snowballed and, for a period, reached the stage where service providers were reacting erratically to the need to move containers so that they ceased to do so in an orderly way. Consequently, many containers became clogged in the system so that an inordinate number of days elapsed after the end of the permitted three days before containers could be returned to the empty container park.

103. The future alone will tell whether it was wise for SILA to do its best to service its customer by continuing to receive TKMA's containers in the circumstances. However, the evidence appears to be clear that, at an early time, TKMA must have become aware that the efficiency of the market was disintegrating, and yet TKMA continued to contract with SILA for the servicing of its containers. The natural inference is that TKMA considered it had no choice.

104. Although it would be premature for the Court to make any definite finding concerning the terms of the contractual relationship between TKMA and SILA, I am satisfied that there is a strong prima facie case that the terms included SILA's Standard Trading Conditions from time to time. Individual agreements that were made in relation to separate shipments most likely incorporated those terms.

105. If that is so, SILA is entitled to exercise a general lien over TKMA's goods in its possession. TKMA is contractually excluded from exercising any set off of any claim it has for unliquidated damages against any indebtedness that it has to SILA. TKMA is contractually liable to bear the detention charges as between itself and SILA.

106. That may not matter so far as TKMA is concerned, because there is a reasonably strong case that SILA accepted the Instruction, at least in all cases where the Instruction was included in a Delivery Instruction issued by TKMA. The legal effect of the Instruction cannot be determined on the present application. I strongly doubt that the Instruction would be construed at a final hearing as having the effect that SILA accepted a contractual liability to bear all detention charges irrespective of the circumstances in which they were incurred by TKMA. However, there is a real possibility that the Instruction imposed obligations on SILA with respect to the information that it was required to provide to TKMA concerning the possibility that containers may not be returned within the allowed free days. The content of any obligation accepted by SILA cannot be determined on the present evidence.

107. However, the legal effect of the Instruction, insofar as it may have obliged SILA to provide information to TKMA, is likely to be affected by the preponderance of the evidence that it was obvious to everyone in the market, including TKMA, that there was a real risk that free days periods would be exceeded, and that the efficiency of the market had broken down to the extent that the time that would be taken to process individual containers had become unpredictable.

108. It is also possible that TKMA may have some action against SILA for inadequately managing the process notwithstanding its disintegration. It is likely that the outcome of any such claim would depend upon a relatively extensive forensic analysis of the real effect of the pandemic, including in particular the extent to which there were more effective avenues available to SILA for the performance of its obligations to TKMA than those that were taken by SILA.

109. The consequence is that, on the one hand, SILA has established a strong case that TKMA is indebted to it for the full amount claimed by SILA, and TKMA has a presently indefinite case for unliquidated damages that it is not entitled to set off against SILA's claim. As I have explained above, there is also a possibility that SILA has additional claims against TKMA in respect of unexecuted agreements that have not been performed because of TKMA's unilateral decision to cease paying SILA for services rendered.

110. In these circumstances, I have concluded that the Court should reject TKMA's application that it make orders under s 74 of the Supreme Court Act.

111. In my view, the Court should not lean towards making an order under the section just because a debtor who is entitled to possession of goods subject to a lien exercised by its creditor is prepared to pay into court an amount to cover the creditor's claim plus interest and costs. The Court must look at the case in its full commercial context. It is obvious that the continuation of the status quo may impose additional costs and reputational damage on TKMA. It also may be that if SILA persists in its present course, but TKMA succeeds in these proceedings, SILA may have substantially increased the loss that it will ultimately be required to bear.

112. However, the Court must assume that SILA has considered all possible eventualities and has made its own decision as to the most sensible way to exercise its legal and commercial rights. The Court cannot have an adequate understanding of the reasons that influence SILA and it is a matter for that party to decide its own course.

113. The making of the orders sought by TKMA would deprive SILA of its entitlement to retain possession of the goods in the exercise of its general lien. That would be replaced by a contingent security in the form of the money paid into court by TKMA. The amount may cover the existing debt owed to SILA plus interest and costs, but it will not cover whatever additional claims SILA may have under the agreements with TKMA that have not been completed because of that company's refusal to pay its existing debt. While the making of the orders would deprive SILA of an important feature of the security for which it bargained, the orders would also give TKMA a security for which it had not bargained. That is because the reason why TKMA has offered to pay the $1,500,000 into court is that it says it fears that SILA will become insolvent, and will not be able to meet TKMA's claim for $3,388,176 if that claim succeeds. TKMA's objective is to achieve a de facto set off whereby it uses the money that it owes to SILA and would be paid into court as a security for its claim for unliquidated damages against SILA. TKMA does not have an existing security for any claims it makes against SILA because it did not bargain for one.

114. In my view, SILA is entitled to insist upon the rights for which it bargained, and the Court should not intervene to dilute those rights and grant TKMA rights that it does not otherwise have. The Court simply does not have a sufficient understanding of the commercial realities of the situation to impose its own preferences on the parties.

115. The making of orders under s 74 of the Supreme Court Act would probably be more defensible if TKMA had paid the debt that it owes to SILA, and the amount that it paid into court in return for an order allowing recovery of its goods was assessed in an amount sufficient to cover the additional claims that SILA may have under the uncompleted agreements.

Orders

122. The orders of the Court are:

1. The plaintiff's application for relief under s 74 of the Supreme Court Act 1970 (NSW) is dismissed.

2. The plaintiff is ordered to pay the defendant's costs of the application.

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Decision last updated: 09 November 2022