Maltco P/L v Creasy's Grain

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON FRIDAY, 14 DECEMBER 2001 13090/2000 - MALTCO PTY LIMITED v CREASY'S GRAIN ENTERPRISES PTY LIMITED JUDGMENT (Transfer of proceedings from District Court - supply of barley for export to Vietnamese beer company) 1 MASTER: By summons filed 20 November 2000, Maltco Pty Limited (Maltco) the plaintiff seeks an order that proceedings No 31/1999 between the parties in the District Court at Albury be transferred to this court pursuant to s 145 of the District Court Act 1973 and that pleadings in the District Court be pleadings in this court. Maltco Pty Limited (Maltco) is the defendant/cross claimant in the District Court and Creasy's Grain Enterprises Pty Limited (Creasy's) is the plaintiff/cross defendant in the District Court. I shall refer to the parties by name. Maltco relied on the affidavit of Andrew McArthur Williams sworn 13 November 2000. 2 Section 145 of the District Court Act 1973 provides as follows: "Transfer of proceedings to Supreme Court (1) Proceedings may, upon the application of a part, be removed into the Supreme Court by order of the Supreme Court upon such terms as to payment of costs, giving security for the amount claimed or costs, or otherwise, as the Supreme Court thinks fit. (2) An action for damages in respect of personal injury or death (other than a motor accident claim) may be so removed only if the Supreme Court is satisfied that the amount to be awarded to the plaintiff in the case, is successful, would be likely to exceed $750,000 or that there is other sufficient reason for trying the action in the Supreme Court. (3) A motor accident claim may be so removed only if the Supreme Court is satisfied that the amount to be awarded to the plaintiff in the case, if successful, would be likely to exceed $1,000,000 and that the case involves complex legal issues or issues of general public importance." 3 The principles to be applied in transferring the matter from the District Court to the Supreme Court were expressed by Asprey J in Delponte v Thiess Bros Pty Limited (1965) NSWR 1468 at 1469. His Honour said: "I think that if a person has, as the plaintiff alleges he has, a cause of action based upon reasonable grounds which would entitle him to be compensated beyond the statutory figure permitted in the District Court, then he should be, in ordinary circumstances, permitted to have that cause of action adjudicated upon by the appropriate tribunal." 4 The plaintiff also relied upon Sanderson Motors Pty Limited v Kirby [2000] NSWSC 924 and Stewart v wood [2001] NSWSC 874. In Sanderson the principles governing the exercise of discretion pursuant to s 145 of the District Court Act were considered by Bryson J which he summarised as follows: (i) An application pursuant to s 145 should be approached with a disposition towards exercising discretionary powers in favour of keeping open the opportunity to rely on some claim or defence which appears to be fairly arguable. (Para 10)

(ii) An element which favours the grant of an application pursuant to s 145 is the desirability, not only in the interest of the parties but also in the public interest, of having all matters in controversy arising out of related facts determined at the one time. (Para 7)

(iii) There is a risk that if it is necessary to bring the cross claim in separate proceedings in the Supreme Court, the cross claimant may be estopped from doing so pursuant to the Anshun principles.

(iv) Weighing against the exercise of discretion is the possibility that the case is one "falling within the exceptional class" contemplated by the High Court in Queensland v JL Holdings Pty Limited (1997) 189 CLR 146. (Para 16) ( Sanderson Motors itself was one such case). 5 In Stewart v Wood [2001] NSWCA 874, other discretionary factors were enunciated by Master McLaughlin. They are: (v) Whether a hearing date for the District Court hearing had been allocated. (Para 22).

(vi) Whether the cause of action in the cross claim was distinct from the subject matter of the defence. (Para 23).

The current proceedings 6 By statement of claim filed in the District Court Creasy's plead that between 3 August 1998 and 19 January 1999 the plaintiff, at the request of the defendant supplied and delivered goods being malting barley. By various invoices and statements the plaintiff has claimed the total sum of $184,404.32 being the agreed price for the said good. Despite repeated requests for payment Maltco has failed to pay that sum. 7 By defence and cross claim it is pleaded that the plaintiff would supply to the defendant barley described in the written part of the agreement being Arapiles Malt 1 and Malt 2, and barley being supplied pursuant to the agreement would be reasonably fit for the purpose of processing a malt. It was an implied term of conditions of the agreement that barley supplied would be reasonably fit for the purpose for which it was purchased. It was also an implied term or condition of the agreement that the barley supplied would be of merchantable quality, or in the alternative it was an implied term that barley, during storage, would be monitored and cared for so as to prevent high screenings weevil damage, and/or dead grains result from germination in storage. 8 It is alleged that a portion of the barley was firstly, not fit for the purpose of malt production; secondly, not barley of the quality described in the agreement; and thirdly, in the alternative not properly stored and consequentially damaged thereby not being fit for the purpose of malt production. The defendant/cross claimant pleads that as a result of the malt being of unacceptable quality it lost custom, was required to reimburse clients, could not use amounts of barley and there were consequential delays in the production process. Further, Maltco alleges that it lost a contract to supply brewing malt to Saigon Beer Company of Vietnam which is the largest brewing company in Vietman arising out of the supply of the defective barley supplied to the plaintiff by the defendant. 9 On 9 June 1999 Maltco, in the District Court proceedings, obtained a preliminary report from an independent accountant, Denis M Foley & Associates for the purpose of determining the loss incurred by it arising out of the loss of a contract for supplying brewing malt to Saigon Brewing Company. On page 4 of the preliminary report, Denis M Foley & Associates estimate the potential loss of profits of Maltco in the District Court proceeding as ranging between $1,4040,000 and $1,752,000. In addition, Maltco has further losses amounting to $64,361.14. There is a second accountant's report by GCA Gower & Company, Chartered Accountant dated 27 March 2001, which quantifies the loss. Paragraph 35 of that report states that the loss of profits of Maltco arising out of the cancellation of Contract SBC/001 and loss of future profits and ongoing relationship from Saigon Beer Company before interest is assessed at $1,606,370 and with statutory interest of $392,395. The total is calculated at $1,998,765. Thus, prima facie, Maltco's damages are likely to exceed the jurisdictional limit of the District Court. 10 However, Creasy's submitted that this application for transfer was an abuse of process and made for an improper purpose. As this is a serious submission I have considered the evidence very carefully. 11 On 23 November 2000, Maltco's solicitor Mr Andrew Williams of Kell Moore Solicitors, wrote to Maltco. At para (h) the solicitor wrote: "The sole objective of the removal of these proceedings from the Supreme Court, and the firming up of the report of Denis M Foley is to place further pressure on Creasy's insurers to negotiate a settlement of the dispute on terms which improves the current position of Maltco Pty Ltd, after taking into account costs. So far Creasy's have shown a determination to pursue this matter to a hearing. That being the case, Maltco has only two options: (i) Settle the matter now on the best terms that it can. It is certainly apparent that the solicitors for Creasy's do not take the report of Denis M Foley sufficiently seriously to offer any compromise in respect of their claim, at this stage. For that reason, we are of the view that the production of a report by a more authoritative accounting firm specialising in dispute analysis and quantification of loss will bring more weight to bear. One benefit of making the application to the Supreme Court for the removal of the proceedings is that Creasy's Solicitors and expert will be going into some detail as to the perceived deficiencies of the report of Denis M Foley. (ii) When those deficiencies are made known to us, we can at that point, either: A. assess whether those objections are capable of being answered with some authority by a report from an appropriate expert; or B. determine that we have insufficient evidence to overcome those objections so that consideration can then be given to an early settlement to minimise costs." 12 At this hearing, Maltco's counsel claimed legal professional privilege over this document. Mr Williams' explanation (deposed to in his second affidavit) was that the correspondence dated 23 November 2000 is privileged communication between him and his client and such privilege has not been waived. That correspondence was inadvertently contained in the report prepared by GCA Gower & Company and that report was forwarded directly by GCA Gower & Company to the solicitors for Creasy's on 27 March 2001 in order to meet the court deadline for service of the report, without Mr Williams having an opportunity to check the annexures in the report. At the time the report was delivered to the solicitors for Creasy's Mr Williams was not aware that the correspondence on 23 November 2000 had been included in the annexures to the report. 13 Subsequently, Mr Williams corresponded with the solicitors for Creasy's objecting to the affidavit of Mr Hunt sworn 12 June 2001 and gave the above reasons as the basis of the objection. Mr Williams was not required for cross examination at this hearing. 14 Because the letter of 23 November 2000 contained assumptions, namely those set out in paragraphs (c) to (f) inclusive and they formed the basis of the GCA Gower report, it is my view that legal professional privilege has been waived. 15 Creasy's counsel referred to a passage from a decision of Hodgson CJ in Eq (as he then was) in Idoport Pty Limited & Anor v National Australia Bank Limited & Ors [2001] NSWSC 222 (2 April 2001) where at para 52 his Honour stated [counsel] submitted that it is an abuse of process to bring proceedings, not in order to prosecute them to a conclusion, but in order to use them as a means of obtaining some advantage for which they are not designed, or some collateral advantage beyond what the law offers: Williams v Spautz (1992) 174 CLR 509 at 526-7. It is sufficient that this improper purpose be the predominant purpose: Spautz at 529, 537; and if it is, it does not matter that the moving party has a prima facie case: Spautz at 522. Where proceedings are brought to obtain a compromise of a claim, it will be an abuse unless the proceedings are brought to vindicate a claim, and the compromise is of that claim and not of some other claim: Flower & Hart v White Industries (Qld) Pty. Limited (1999) 87 FCR 134 at 150.

16 While admitted that the sole object of the transfer application was to negotiate settlement of the dispute on terms which improves the current position of Maltco. There were also other objectives canvassed. Maltco's solicitor also advised Maltco that Creasy's had shown a determination to pursue the matter to a hearing and that another accountant's report should be obtained. Maltco's strategy was that to have Creasy's identify the deficiencies in an accountant's report so that Maltco could then decide whether they needed further reports or whether they should settle the matter. Settlement and identifying the true issues in dispute are legitimate. There is correspondence prior to commencement of litigation between the parties (letter dated 8 February 1999) where the parties attempted to amicably settle the concerns about the quality of barley supplied. Maltco solicitor's view is that moving these proceedings to this court may result in a settlement, it is my view that this may be misguided but it does not amount to an abuse of process. Additionally, here is evidence of the CEO and accountant's reports served by Maltco which demonstrate that the damages are likely to exceed the jurisdiction of the District Court. 17 The dispute will come down to factual disputes that can only be resolved at trial. This will include what was said in relation to the suitability of the barley held in shed No 1. Those factual findings will determine whether the accountant's bases for their calculations will be accepted. I am satisfied that the cross claim if successful, will exceed the jurisdiction of the District Court. I make orders in accordance with paragraphs (1) and (2) of the summons. Costs are discretionary. The appropriate order for costs is that costs be costs in the cause. 18 I make the following orders: (1) Orders in accordance with paragraphs (1) and (2) of the summons filed 20 November 2000.

(2) Costs, are costs in the cause. **********

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