Boral Limited v Foley & Bear Pty Ltd trading as J&R Industries

Boral Limited v Foley & Bear Pty Ltd trading as J&R Industries - [2016] NSWCA 373 - NSWCA 2016 case summary — Zoe

Judgment

THE COURT: This appeal is concerned with the liability of Boral Limited (Boral) for damage suffered by Foley & Bear Pty Limited trading as J&R Industries (J&R Industries) when concrete slurry that was being pumped through pipes failed to flow properly, causing damage to the pipes and loss of the concrete. J&R Industries claimed that Boral was the supplier of the concrete and that the concrete was not fit for the purpose for which it was intended.
In November 2012, J&R Industries commenced proceedings against Boral in the District Court, claiming damages of for breach of an implied warranty that the concrete would be reasonably fit for its purpose. It subsequently joined Chris Ross Concrete Pumping Pty Limited (Ross Concrete) as a defendant. Ross Concrete supplied pumping equipment to J&R Industries for pumping the concrete. Boral subsequently filed a defence based on the proportionate liability provisions of the Civil Liability Act 2002 (NSW), alleging that Ross Concrete was responsible for the defective flow of concrete slurry. Ross Concrete is not involved in the proceedings in this Court.
Earlier, in June 2012, Boral and Boral Resources (Country) Pty Limited (Boral Resources) had commenced proceedings against J&R Industries and Mr Stephen Bear in the Local Court, claiming the unpaid price for the concrete in question, which was alleged to be payable under a credit agreement between Boral and its related bodies corporate and J&R Industries (the Credit Agreement). Mr Bear guaranteed the obligations of J&R Industries under the Credit Agreement. The Local Court proceedings were subsequently transferred to the District Court.
Both proceedings were heard and determined by a judge of the District Court (the primary judge). J&R Industries obtained judgment against Boral in the sum of $133,748.32, together with interest under s 100 of the Civil Procedure Act 2005 (NSW) in the sum of $27,004.66. Against that, the sum of $17,682.52, together with interest in the sum of $4,357.27, was to be set off, representing the amounts of the judgment obtained by Boral and Boral Resources against J&R Industries in the Local Court proceedings. Boral now appeals to this Court from the judgment against it in favour of J&R Industries in the District Court proceedings.
Relevantly, three issues were raised in the proceedings in the District Court and in this Court. The first question concerns the party that entered into the contract with J&R Industries for the supply of concrete. The second question is whether the supplier of the concrete or Ross Concrete was responsible for the malfunction of the flow of concrete slurry. The third question concerns the adequacy of the evidence as to the loss claimed by J&R Industries.

[4]

Contracting Party

By cl 2.3 of an agreement dated 1 February 1999 (the Agency Agreement) between a number of related corporations of Boral, as principals, and Boral Construction Materials Group Limited (Boral Construction), as agent, each principal appointed Boral Construction, and Boral Construction accepted its appointment, as each principal's agent for the purpose of invoicing customers and receiving revenue on each principal's behalf. Boral Resources is named as one of the principals. However, relevantly, Boral itself is not named as a principal.
On 24 March 2011, Mr Bear signed a confidential credit application form on behalf of J&R Industries (the Credit Application). In the form, J&R Industries was described as "Customer" and Boral or any of its related bodies corporate or their assigns "who sell Goods to the Customer" was described as "Supplier". The terms and conditions were said to apply to "Goods sold to the Customer on Credit by the Supplier". The form stated that the Customer agreed that it would pay by the due date "without any deduction or setoff" the price charged by the Supplier for goods supplied to the Customer. Acceptance of the Credit Application gave rise to the Credit Agreement.
On 7 December 2011, concrete was delivered to J&R Industries at Thredbo, New South Wales. Seven delivery dockets, numbered consecutively 20535521 to 20535527, were generated and provided to J&R Industries in respect of the delivery. Each delivery docket has the name of Boral Resources at its top and no other entity is named as the supplier of the concrete. Each of the seven delivery dockets specifies 7 December 2011 as the date of delivery. Subsequently, tax invoices in the name of Boral Construction, as agent for Boral Resources, were issued to J&R Industries in relation to each delivery docket.
In its statement of claim in the District Court proceedings, J&R Industries made allegations that may relevantly be summarised as follows: (3) By an agreement made in or about December 2011 (the Agreement) Boral, at the request of J&R Industries, agreed to supply goods and services to J&R Industries, namely, concrete and/or concrete slurry (the Goods) and its delivery respectively. (4) At all material times Boral well knew that J&R Industries required the Goods to be used by being pumped by a concrete pump. (5) It was an implied, or alternatively an express, term of the Agreement, and Boral thereby warranted, that the Goods so supplied and delivered would be reasonably fit for their purpose and free from any defect. (6) In breach of the Agreement, the Goods were not reasonably fit for their purpose and/or were not free from defect. (7) The Goods were worthless, unfit for their purpose and defective, and not worth the cost sought to be charged to, or recovered by Boral from, J&R Industries for the supply and delivery. (8) Further, J&R Industries has suffered loss and damage to the concrete pump and lines in the sum of $159,358.89.
In its defence, Boral relevantly did not admit paras (3), (4) or (8) of the statement of claim. In its defence to J&R Industries' amended statement of claim, Boral restated that they did not admit paras (3), (4) or (8) and also sought to raise an apportionment defence on the basis that Ross Concrete Pumping was a person whose acts or omissions caused the damage or loss claimed by J&R Industries.
In their statement of claim in the Local Court, Boral and Boral Resources made allegations that may be relevantly summarised as follows: (3) Boral and its related bodies corporate and J&R Industries entered into the Credit Agreement with respect to the supply of goods to J&R Industries by Boral or any of its related bodies corporate as defined by the Corporations Act 2001 or assigns from whom goods are purchased (the Supplier). The Credit Agreement consisted of the Credit Application and an acceptance of the supply of goods by the Supplier to J&R Industries on credit. (4) It was a term or condition of the Credit Agreement that J&R Industries would pay the Supplier for goods supplied by the Supplier to J&R Industries on the then current terms and conditions of sale of the Supplier. (5) Boral Constructions was a wholly owned and controlled subsidiary of Boral. (6) Boral "and/or" Boral Resources supplied the Goods under the Credit Agreement and rendered invoices to J&R Industries in respect of the Goods by its duly authorised agent, Boral Construction. (7) J&R Industries has defaulted in payment of the price for the Goods. (10) Boral sues J&R Industries for money payable by J&R Industries to Boral for goods sold and delivered by Boral and/or Boral Resources to J&R Industries in respect of which credit was provided to J&R Industries by Boral and for costs in connection with the recovery of amounts overdue. (10A) In the alternative, Boral Resources sues J&R Industries for money payable by J&R Industries to Boral Resources for goods sold and delivered by Boral Resources to J&R Industries in respect of which credit was provided to J&R Industries.
In its defence, J&R Industries did not admit the allegations concerning the Credit Agreement and Credit Application in para (3) or the allegation concerning the supply of goods in para (6). In addition, it denied that it had defaulted and denied that any money was owing to other Boral or Boral Resources as alleged.
The primary judge concluded that para (6) of the Local Court statement of claim, in "alleging … that Boral 'supplied goods to J&R Industries … under the Credit Agreement'" meant, by necessary implication, that Boral supplied goods on credit and those goods were accepted by J&R Industries. His Honour did not have regard to the "and/or" in para (6) in the Local Court statement of claim. His Honour held that none of the defences raised in the Local Court succeeded. Therefore, his Honour held, he would find in favour of Boral in the Local Court proceedings against J&R Industries and Mr Bear.
The primary judge dealt with the question of whether Boral was the appropriate defendant in the District Court proceedings. His Honour observed that Boral had not admitted the allegation of a contract between it and J&R Industries. His Honour said that, instead of pleading that point in its defence, so that J&R Industries could amend its statement of claim and fight the real issues in the case with the right defendant, Boral did not take the point until after the evidence had closed, when it articulated the point in its written submissions. His Honour held that Boral "ought not to be allowed to rely on that defence", in that it was "an unacceptable ambush". His Honour considered that it was not appropriate for a commercial litigant simply not to admit a particularised pleading that it later claimed had a fatal flaw.
Despite those holdings, the primary judge accepted (and noted that counsel for J&R Industries similarly acknowledged) that J&R Industries must nevertheless prove that it had entered into a contract with Boral for the supply of the concrete. His Honour rejected Boral's claim that it was not the correct defendant. His Honour was satisfied that J&R Industries had proved that it had entered into a contract with Boral, and that that finding was "apparent from the evidence relied upon by [counsel for J&R Industries] at para 9 of his outline of submissions." That evidence consisted of the Credit Agreement, which identified Boral as an entity that may supply goods on credit to J&R Industries, stated that J&R Industries agrees to pay all legal costs and expenses incurred by the Supplier, and stated that the terms and conditions of the Credit Agreement will apply to any supply contract. That evidence also included an invoice from debt collectors addressed to Boral dated 22 June 2012, charging $1,272.48 for the "work in all aspects of debt recovery…in the matter of [J&R Industries]". In J&R Industries' submission, ultimately accepted by the primary judge, that invoice constituted evidence of costs that Boral had incurred in connection with the recovery of overdue amounts purportedly owed by J&R Industries under the Credit Agreement, indicating that they were in fact a Supplier that had supplied goods under the Credit Agreement.
His Honour also considered that it was apparent from the evidence of two employees of Boral, Mr Wade Rankin and Mr David Durrant, who were both involved in "discussions and activities" regarding the supply of the concrete, that J&R Industries had proved that it had entered into a contract with Boral. His Honour appears to have been referring to the affidavit evidence of Mr Rankin that, when he was employed by Boral, on 7 December 2011, they "had an order to supply around 80 meters [sic] of concrete to the Alpine Way Thredbo River crossing site", and to the affidavit evidence of Mr Durrant that, when he was employed by Boral, he received a telephone call from Mr Rankin to the effect: "[Mr Bear] from J&R Industries called to book concrete in for the 7th of December to go to the Alpine Way at the Thredbo River crossing", followed by details of the requested quantity of concrete. However, his Honour paid no attention to the other documentary evidence described above, notably the tax invoices issued by Boral Construction and the delivery dockets, with Boral Resources in the header.
One of Boral's grounds of appeal is that the primary judge erred in finding that the Goods were supplied to J&R Industries by Boral. Boral asserts that: (a) the tax invoices and delivery documents unambiguously identified the entity with whom J&R Industries contracted for the supply of the Goods as being Boral Resources; (b) J&R Industries failed to prove the contract pleaded in the District Court statement of claim, and, in particular, J&R Industries failed to prove that by the placing of orders by servants or agents of J&R Industries with Boral Construction, a contract was made with Boral; and (c) the Agency Agreement unambiguously identified the parties to that agreement as including Boral Resources but not Boral.
The relief sought in the amended notice of appeal is that the judgment in favour of J&R Industries against Boral be set aside. Against the possibility that Boral succeeds in obtaining that relief in the appeal, on the basis that Boral's appeal succeeds on the contracting party point, J&R Resources sought leave to file a notice of motion in the appeal proceedings. By the notice of motion, J&R Industries seeks orders that Boral Resources be joined as third defendant in the District Court proceedings and as a respondent to the appeal. J&R Industries also seeks an order that judgment be entered for J&R Industries against Boral Resources in the amount of the judgment against Boral.
Boral resists the relief sought in the notice of motion on the basis that J&R Industries made a forensic decision not to join Boral Resources as a defendant. On 5 March 2015, J&R Industries made an application to amend the statement of claim, to join Boral Resources as a defendant, but subsequently, on 4 May 2015, declined to make such an application. Thus, it is fair to conclude that J&R Industries elected to take its chances in the District Court, with the consequence that, if the contracting party question is decided in favour of Boral, that would be an end to the matter.
The further difficulty, of course, is that Boral Resources is not a party to the proceedings at all and would be entitled to be heard on the question of whether it should be joined as a defendant in the District Court, in circumstances where it did not participate in the trial. There may be a degree of artificiality in that contention, since Boral Resources is a wholly owned subsidiary of Boral. Nevertheless, it is not a matter of mere form.
Leave to file the notice of motion should be refused. It is inappropriate for this Court in the exercise of its discretion to join, as a defendant, a legal entity that was not a party to the proceedings and did not have the opportunity of defending the proceedings in the District Court.
The identity of a contracting party is to be determined by looking at the matter objectively, examining and construing any relevant documents in the factual matrix in which they were created and ascertaining between whom the parties objectively intended to contract. That is a process of construction not dissimilar from the task of identifying whether a clearly contractual document, such as a bill of lading, is made with one party or another. Where the documents are silent or ambiguous, but there is undoubtedly a contract, the identity of the parties must be determined objectively from the surrounding circumstances. [1]
In this case, the documents are not silent or ambiguous, such that the evidence of Mr Rankin and Mr Durrant could be decisive. Rather, it is clear that the relevant documents, being the delivery dockets and invoices, as construed in the factual matrix in which they were created, show quite conclusively that the parties objectively intended that the supplier of concrete on 7 December 2011 was not Boral.
While Boral was a party to the Credit Agreement, and subsequently incurred costs in attempting to recover overdue amounts under the Credit Agreement, that did not make it the supplier of the concrete, in circumstances where the Credit Agreement clearly made no provision for the actual sale of concrete that occurred on 7 December 2011. That the Credit Agreement defines "Supplier" as "Boral …or any of its Related Bodies Corporate or their assigns who sells Goods to [J&R Industries]" does not mean that Boral was a party to the contract of supply made on 7 December 2011. Moreover, the fact that Boral received an invoice from debt collectors more than five months later for costs incurred in subsequently attempting to recover amounts purportedly owing under the Credit Agreement, and in doing so acted as a "Supplier" as defined in the Credit Agreement, cannot retrospectively alter the identity of the contracting party as at 7 December 2011. The relevant contemporaneous documents are clear that Boral was not a contracting party supplying the concrete on that date.
J&R Industries contention, that Boral cannot rely on its defence that the surrounding documents bore "a variety of names" in the absence of a challenge to the primary judge's disallowance of that defence, ignores the primary judge's ultimate, and correct, conclusion that, irrespective of the conduct of Boral at first instance, the onus was on J&R Industries to prove that there was a contract with Boral. There was clearly an issue on the pleadings as to whether or not Boral was a party to the agreement for the supply of concrete, that assertion having not been admitted by Boral. It is therefore open to this Court to find that the primary judge erred in concluding that Boral was the supplier under the contract and that J&R Industries failed to establish its case in contract.
That being so, the question of responsibility for the malfunction of the flow of concrete slurry and the question as to the adequacy of J&R Industries' evidence as to damages did not arise.
The appeal should be allowed. The orders made in the District Court proceedings should be set aside and in lieu thereof there should be a verdict for Boral.

[5]

Costs

A separate question about the costs of the trial arises for consideration. As indicated, Boral's defence to the amended statement of claim did "not admit" the agreement as pleaded. Rule 14.23(3) of the Uniform Civil Procedure Rules 2005 (NSW) identifies the difference between denying and not admitting a fact alleged: "(3) The affidavit verifying a pleading must state: (a) as to any allegations of fact in the pleading, that the deponent believes that the allegations are true, and (b) as to any allegations of fact that the pleading denies, that the deponent believes that the allegations are untrue, and (c) as to any allegations of fact that the pleading does not admit, that after reasonable inquiry the deponent does not know whether or not the allegations are true."
On the basis of the clear documentary material referred to above, Boral Resources was the relevant contracting party in the contract that was the subject of the District Court proceedings, a matter that must have been known, or at least believed, prior to the trial by Boral and its legal representatives.
The non-admission contained in the defence filed by Boral was never corrected. The first time that the legal representatives of Boral positively asserted in court that the documentary evidence proved that its subsidiary, Boral Resources, was the relevant contracting party was on 5 March 2015, after the close of evidence. On that day, Boral filed and served its written outline, which submitted that the relevant documents (the delivery documents and tax invoices) proved that Boral Resources was the party to the relevant contract.
As stated above, on 5 March 2015, counsel for J&R Industries made an oral application on behalf of the plaintiff to join Boral Resources as a third defendant to the proceedings. That course was strongly opposed by counsel appearing for Boral. While it is unnecessary to set out the transcript of that application, it is to be observed that a number of the submissions made in opposition to the application were without apparent foundation. In particular, the submission that the price of an amendment would be "they're going to have to pay the costs of the amendment anyway … [it's] going to be a big bill for them" was not justified. The application to join Boral Resources was ultimately abandoned by J&R Industries. While that was a forensic decision made by J&R Industries, the circumstances in which that decision was made make the present case one outside the usual course.
The conduct of Boral in withholding a positive defence fatal to the claim by J&R Industries until the evidence was closed and final submissions were being heard is to be deprecated. Careful consideration of the submissions made at the trial and the submissions made in this Court by Boral against the joinder of Boral Resources, demonstrate that the threat made by Boral of a "big bill" of costs as the price of the amendment was not warranted. When given the opportunity in this Court to explain how it was that there were any costs thrown away, in circumstances where the same legal representatives were appearing, at the same time, in the same court, for two companies in the same wholly owned corporate group, in cases involving the same underlying facts, Boral very properly did not contend that prejudice of the kind asserted before the District Court would have been suffered if the amendment had been allowed in that Court.
Boral's taking the course that it did had the effect of obscuring the real issues in dispute. The importance of co-operation between the parties and a "cards on the table" approach to litigation is reflected in the requirements of s 56 of the Civil Procedure Act. [2]
The primary judge was correct to say that "it is not appropriate…for a commercial litigant to simply not admit a particularised pleading which it later claims contains a fatal flaw". This Court should exercise the undoubted power in s 98 of the Civil Procedure Act concerning costs and mark its disapproval of the conduct of Boral in this litigation by denying it its costs of the trial.
So far as the costs of the appeal are concerned, while those costs are in one sense a result of the approach taken by Boral below, on the appeal J&R Industries sought to sustain the primary judge's findings about the correct contracting party and failed. Senior counsel now appearing for Boral provided considerable assistance to the Court and none of the criticisms of Boral's earlier conduct can be made of the Boral's conduct of the appeal. There is no reason in those circumstances that Boral should not have its costs of the successful appeal.
Orders
The Court makes the following orders: 1. Leave to file the respondent's Notice of Motion dated 14 April 2016 is refused. 2. Appeal allowed. 3. Respondent to pay the appellant's costs of the appeal as agreed or assessed. 4. Set aside the orders of Cogswell DCJ made on 31 July 2015 and in lieu thereof order: 1. Judgment for the defendant Boral. 2. Each party pay their own costs of the trial.

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