MICHELIN AUSTRALIA PTY LTD v NTI LIMITED [2010] NSWCA 223 | Case summary

31 August 2010 MICHELIN AUSTRALIA PTY LTD v NTI LIMITED Judgment 1 JUDGMENT of the COURT delivered by BASTEN JA: On 16 February 2002, a prime mover and trailer owned by Suttram Pty Ltd ("Suttram") was badly damaged when the driver lost control of the vehicle on the Hume Highway near Gundagai in southern New South Wales. Suttram alleged that one of the tyres was defective and it claimed damages from the supplier of the tyre and Michelin Australia Pty Ltd ("Michelin Australia"), which it asserted had manufactured or imported and distributed the tyre. Michelin Australia (sometimes referred to as MAPL) was the second defendant in the proceedings below. 2 Suttram went into liquidation prior to judgement in the District Court; its insurer NTI Limited ("NTI"), the present respondent, was substituted as plaintiff in the District Court. 3 The proceedings against the supplier of the tyre were discontinued before trial. Cogswell DCJ identified three issues which needed to be determined on the question of liability, namely:

(a) what happened in the accident; (b) was the tyre defective, and (c) did Michelin Australia manufacture the tyre: at [3]. 4 His Honour concluded that the accident was caused by a defective tyre and that the tyre was manufactured by Michelin Australia. The trial resulted in a judgment for NTI against Michelin Australia in an amount just under $160,000. Michelin Australia appeals from that judgment. 5 The principal judgment was delivered on 21 May 2009, but his Honour did not make orders at that time as he sought clarification of an issue going to the amount of the judgment: Suttram Pty Limited v S & A Cooke Pty Limited and Michelin Australia Pty Limited [2009] NSWDC 119. Some two and a half months later Michelin Australia sought leave to reopen its case and adduce further evidence to show that it was not the manufacturer of the tyre. In a second judgment, delivered on 8 October 2009, Cogswell DCJ refused Michelin Australia's motion to reopen and made orders in favour of NTI: Suttram Pty Limited v Michelin Australia Pty Limited [2009] NSWDC 408. A further judgment related to costs: Suttram Pty Limited v Michelin Australia Pty Limited [2009] NSWDC 409. Issues on appeal 6 By its notice of appeal, Michelin Australia challenged the finding that it was the manufacturer of the tyre, that the negligent manufacture of the tyre caused the accident and his Honour's refusal to grant leave to reopen. 7 The second ground was reformulated pursuant to an amended notice of appeal filed on 7 May 2010. In its original form, ground 2 merely contested the finding that the tyre had been negligently manufactured. The amended ground changes the focus entirely from the manufacture to the condition of the tyre and its causal link with the accident. 8 The written submissions filed by the respondent (in amended form) on 30 July 2010, appeared to be directed, not to the amended ground 2, but the original ground. In any event, no objection was taken to the amendment. 9 For reasons given below, ground 2 need not be addressed. Michelin Australia is entitled to succeed on the basis that the evidence before the trial judge did not establish on the balance of probabilities that it was the manufacturer of the tyre. But for its relevance to costs, that conclusion would render it unnecessary to resolve the appeal with respect to the application to reopen, but, for the reasons given briefly below, the appeal would not have succeeded on that ground. Manufacturer of tyre 10 As pleaded, it was unclear whether the liability of Michelin Australia depended upon it being the manufacturer of the tyre. The second further amended statement of claim, on which the matter went to trial, alleged that the tyre was "imported or manufactured, and distributed" by Michelin Australia: par 10. In respect of the cause of action in negligence, the same language was used as forming the basis of a duty of care: par 29. The particulars of negligence continued the uncertain formulation. In its defence, Michelin Australia admitted that it imported and distributed the tyre, but denied manufacture: defence, par 10. 11 In opening the case, counsel for the plaintiff stated: "We know that in September 2000 the tyre which is going to become the subject of this whole case was manufactured and I tender a letter from the second defendant Michelin, 21 January 2005 addressed to my instructing solicitors Fraser Clancy.": Tcpt, 15/04/08, p 3(5). 12 The letter was admitted as Ex C without objection. Later on the same morning, counsel referred to the pleadings in which Michelin Australia admitted it was an importer and distributor, but denied it was the manufacturer and continued (Tcpt, p 26(25)): "Your Honour will see the relevance of the tender of Exhibit B [C?] I think it is, the letter, because they clearly do admit in that letter that they are the manufacturer." 13 There was no other evidence relied on by the trial judge to suggest that Michelin manufactured the tyre. It is therefore convenient to set out the whole of the letter, dated 21 January 2005. "Michelin Australia Pty Ltd (MAPL) confirms receipt of your letter on the 4 th January 2004 [2005?]. MAPL accepts on face value that the subject tyre is as follows, however this tyre has never been inspected by a representative of MAPL: Tyre Size and Pattern: Michelin 11R22.5 XZE2 TL 148/145L DOT: 3L 3T CFA x 3600 Serial #: EVP 17605J Manufacturing Plant: Thailand (Week 36 of 2000) MAPL is presently not aware of any similar problems with this particular tyre. MAPL declares that the subject tyre does not form part of the Recall concerning Michelin 295/80R22.5 XZE2+ TL 152/148M. It is a different size and tread pattern. Therefore there are not product warnings or recalls with respect to this tyre. We understand that the subject tyre has been disposed of, however Michelin requests that this tread section be made available for analysis by our R&D department. Please note, that at this stage we are unable to confirm if any analysis of the tread would shed any further light on the cause of the tyre damage. Michelin also requests that a copy of the tyre expert report be made available to give better perspective on the tyre damage." 14 The first point arising from the letter is that it is a response to a letter from the solicitors for the plaintiff said to have been received on 4 January 2004. The written submissions in this Court assumed that that letter was not in evidence. Working on that assumption (which was in fact false, but appears to have been that also relied on below), it was likely that some of the details set out in the table were provided by the solicitors' letter as, except for the last line, it was unlikely that the detail could otherwise have been known to Michelin Australia, which had not seen the tyre. 15 Secondly, the two paragraphs following the table suggest that Michelin Australia had been asked whether there were any similar problems associated with that particular type of tyre and whether it was the subject of any product warning or recall. There is no suggestion that the plaintiff was seeking information at that point as to the manufacturer of the tyre. The response came from the "Technical Manager - Truck" for Michelin Australia. 16 The trial judge stated: "[56] I infer from that letter, being exhibit C, that the second defendant manufactured the tyre in this case. As I said, the second defendant ' accepts on face value ' that the tyre was a Michelin tyre and asserts that the manufacturing plant was in Thailand. That assertion is unqualified by any suggestion that the plant was operated by another person or entity. [57] Exhibit C is a letter written to legal practitioners acting on behalf of a company which had encountered a problem with its Michelin tyre. Had the ' manufacturing plant ' been operated by someone other than the second defendant, one would expect the assertion to be qualified. I infer from exhibit C that the second defendant manufactured the tyre in this case." 17 After a short adjournment, the judgment being delivered orally, his Honour returned to the topic to note an argument that the letter did not constitute an admission as to the manufacture of the tyre because "the tyres are manufactured in Thailand and the second defendant is an Australian company and took no part in it whatsoever": at [60]. His Honour proceeded to reject that submission on the basis that "exhibit C is unqualified and does not contain anything upon which I could conclude … that the second defendant, which authored the letter, took no part whatsoever in the manufacture of the tyre". 18 Further, his Honour did not consider that "the fact that the second defendant is an Australian company as alone [providing?] any basis for concluding that it took no part in the manufacture of this tyre". In these further comments at [60], his Honour came close to reversing the onus of proof. However, the preferable understanding is that his Honour was dealing, as an afterthought, with arguments put on behalf of Michelin Australia, which he was rejecting. Had he addressed the arguments before reaching the conclusion, it is likely that the conclusion would, as indicated at [56], have been formulated as a positive state of satisfaction. 19 The letter (taken in isolation) does not bear the weight placed on it by the trial judge. First, although it is a letter to solicitors, the reply is not prepared by the company's solicitor. There is no reason to suppose that the technical manager who responded was doing more than providing information as to previous complaints or problems (or the lack thereof) in respect of that particular tyre. It may be inferred that he would regularly take that step on behalf of Michelin Australia, not because it was the manufacturer of the tyre in particular, but because it was the importer and distributor in Australia of Michelin tyres. 20 Secondly, the reference to the "manufacturing plant" might be a matter of some importance in respect of quality control issues, whether or not the plant was owned or operated by Michelin Australia. If there were a problem with a particular tyre, Michelin Australia would be concerned, one would infer, to know the source, without any implication that it was itself the manufacturer of the tyre. 21 Thirdly, the fact that the manufacturing plant is located in Thailand certainly makes it less likely that Michelin Australia, a proprietary company, was the manufacturer, than if the plant had been located in Australia. Further, as the appellant noted in its written submissions, an inference that because a person sells goods, it also manufactures them may be described as "fanciful": referring to the discussion of assumptions underlying representations discussed by Deane and Fitzgerald JJ in Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 200, referred to with approval by the High Court in Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; 202 CLR 45 at [104]. 22 The letter, read without an eye on the issue which is now the focus of the litigation, says nothing as to the identity of the manufacturer of the tyre. His Honour relied on no other evidence that Michelin Australia manufactured the tyre. There was, therefore, no basis upon which the trial judge could properly have been satisfied that Michelin Australia manufactured the tyre. On that material, this Court is not so satisfied. 23 As explained by counsel for the respondent in this Court, the letter to which Ex C responded was in evidence at the trial. The request for information was a letter dated 16 December 2004 (though received on 4 January 2005, not 2004, as stated in Ex C) which was headed as if in proceedings between parties named as "Suttram Pty Ltd v Michelin Australia Pty Ltd and Cookes Truck Tyre Centre". In fact, such proceedings were not commenced until more than 20 months later. Further, the letter referred to other correspondence, suggesting that there had been a series of exchanges, either with Michelin Australia, or of which it was aware. The solicitors for the plaintiff promised shortly to provide "documentation supporting our client's claim against Michelin". The letter made clear that the plaintiff's solicitors were well aware that the tyre had been manufactured in Thailand and stated: "As Michelin will no doubt be aware, it has had various problems with its tyres from the Thailand manufacturing plant." 24 In seeking information, as the letter did, in relation to other similar problems, product warnings, product recalls and any other complaints, it referred to tyres manufactured at "Michelin's Thailand manufacturing plant". 25 Counsel for the respondent sought to persuade the Court that this letter provided support for the finding made by the trial judge. 26 The letter takes the matter no further. Indeed, if anything, it counts against the inference drawn by the trial judge. To the extent that his Honour thought that the request for information called for a denial that Michelin Australia manufactured the tyres, if in fact it did not, the letter of 16 December 2004 demonstrates that the plaintiff's solicitors were already well aware that the tyre was not manufactured in Australia and were able to identify the country in which it was manufactured. Secondly, although it may be inferred that the solicitors believed the plaintiff had a claim against Michelin Australia, for the most part the letter referred to "Michelin" or "Michelin tyres" in a generic sense. Thirdly, as no claim had then been made against Michelin Australia, let alone a claim based on its presumed role as manufacturer, the letter tends to demonstrate that no occasion had arisen which might have given rise to an expectation of a denial in relation to manufacturing. 27 Counsel for the respondent also drew attention to a vehicle recall notice issued by the Queensland Government in May 2004, which referred to "Michelin tyres manufactured in Michelin's truck tyre factory in Thailand". It was not suggested that this document demonstrated any defect in the particular tyre in question, but rather that Michelin owned or operated a tyre factory in Thailand. 28 In common with the letter from the plaintiff's solicitors, this document appeared to distinguish between Michelin Australia and the use of "Michelin" in a generic sense. There was nothing in the document which identified Michelin Australia as owning or operating a tyre factory in Thailand. His Honour placed no reliance upon this document and it takes the matter no further. 29 There was, however, a letter of instructions from Michelin Australia's solicitors to the expert briefed by it, dated 25 May 2007. That letter stated at paragraph 3.2: "Michelin is an importer and a distributor of, amongst other things, tyres. It does not manufacture tyres." 30 That statement may provide flimsy support for the proposition it contains, but it was in evidence and, it might be inferred, was based upon instructions given by Michelin Australia. It was consistent with the admissions and denial contained in the pleadings and may be taken into account in assessing whether the finding of the primary judge as to place of manufacture was correct. 31 There was no additional material before the trial judge which supported his Honour's conclusion. That conclusion not being warranted in the circumstances, the judgment based on this finding must be set aside. 32 As the judgment was not based on any other cause of action, and there is no notice of contention seeking to assert any alternative basis for a judgment in favour of NTI, there must be a judgment in favour of Michelin Australia, on the basis that the plaintiff failed to prove its case. Reopening 33 The trial judge correctly refused to permit Michelin Australia to reopen the evidence after the judgment on the question of liability had been delivered. 34 The pleadings demonstrated that there was an issue between the parties as to whether Michelin Australia manufactured the tyre. The plaintiff had asserted that it did, although the pleading was unclear as to what reliance was placed on that assertion, but Michelin Australia had, in express terms, admitted its role as importer and distributor, but denied that it was the manufacturer. Secondly, it was clear from the opening on behalf of the plaintiff, as noted above, that the letter was relied upon as evidence as to the identity of the manufacturer. 35 In a written outline of issues dated 23 September 2008, counsel for Michelin Australia identified the question of duty as arising in relation to a "distributor or importer, not being the manufacturer" of the tyre. It apparently assumed at that stage that the allegation of it being a manufacturer was no longer a live issue. The question was not addressed in the written submissions. 36 In written submissions dated 13 March 2009, the plaintiff expressly asserted that the letter "directly concedes that Michelin manufactured the tyre": par 26. Liability was asserted on that basis, amongst others: par 346. 37 Confronting this issue in written submissions in reply, dated 17 March 2009, Michelin Australia expressly addressed the question of manufacture and asserted that there was "no evidence to prove that the Second Defendant was anything other than the importer and distributor of tyres (which matters the second defendant admitted on the pleadings)": par 1.2. 38 These statements demonstrate that the identity of the manufacturer was in issue and was known to be an issue by both sides prior to the judgment on liability. 39 On 13 August 2009, in support of the reopening application, the plaintiff filed an affidavit of its solicitor, Simon Walter Johnson. In part the affidavit stated: "6. On or about 18 October 2006, I received instructions from MAPL to act on its behalf in relation to a claim made by the Plaintiff in relation to the Tyre. 7. I was instructed by MAPL that it was the principal importer and distributor of Michelin tyres in Australia. My instructions were that MAPL had never manufactured Michelin tyres, or any tyres for that matter, and that it was not the manufacturer of the Tyre." 40 Mr Johnson then explained that no evidence had been called because in his view, following discussions with counsel, the plaintiff was "unlikely to discharge its onus to prove that MAPL was in fact the manufacturer of the Tyre": par 11. 41 This evidence did not support the reopening application: indeed, it signed its death knell. In effect, the legal representatives of Michelin Australia knew at all relevant times that it had not manufactured tyres, that it did not manufacture the tyre in issue, but a forensic decision was made not to call evidence to that effect. There was no issue about fresh evidence, nor was there any doubt about the issues in play in the litigation. The failure to call evidence was purely the result of a strategic decision made by the legal representatives. A party is bound by such decisions in the conduct of litigation. The reopening application was, in these circumstances, tantamount to an abuse of process. Orders 42 The orders made in the District Court on 8 October 2009 were as follows: "1. The application is refused and the notice of motion dated 14 August 2009 is dismissed. 2. The Court enters verdict and judgment for the plaintiff in the sum of $159,162.83. 3. The second defendant should pay the plaintiff's costs of these proceedings. Those costs should be on an ordinary basis up to an including 11 November 2007 and on an indemnity basis from 12 November 2007. 4. The plaintiff is to bear its own costs of joining the first defendant. 5. The second defendant should pay the plaintiff's costs of the notice of motion dated 14 August 2009 on an indemnity basis. 6. The plaintiff should pay any costs incurred by the second defendant as a result of the amendment of the statement of claim in relation to the Third Amended Statement of Claim. 7. In respect of 10 July 2009 each party is to bear its own costs. In respect of 14 August 2009 each party to bear its own costs. In respect of 21 August 2009 the plaintiff is to pay the second defendant's costs thrown away. In respect of 8 September 2009 the plaintiff is to pay the second defendant's costs thrown away." 43 Orders 1 and 5 relate to the reopening application and should be allowed to stand. Although the payment of the costs on an indemnity basis appears to have been based on an offer of compromise predating the reopening application (but not presently relevant), the order should stand because the reopening application was hopeless and tantamount to an abuse of process. 44 Orders 4, 6 and 7 either impose costs obligations on the plaintiff or require the parties to bear their own costs of interlocutory steps. They should stand. 45 Order 2 involving a judgment for the plaintiff should be set aside and a judgment entered for the second defendant in the District Court. 46 Order 3 required that Michelin Australia should pay the plaintiff's costs of the proceedings in the District Court, from 12 November 2007 on the indemnity basis. The fact that they were payable on the indemnity basis was based on an offer of compromise made by the plaintiff, which was not accepted, but which is now irrelevant. 47 The respondent submitted that that order should be maintained because the proceedings involved "an apportionable claim" within the meaning of that term in Part 4 of the Civil Liability Act 2002 (NSW). That being the case, the respondent sought to rely upon the terms of s 35A of the Civil Liability Act which provides: " 35A Duty of defendant to inform plaintiff about concurrent wrongdoers (1) If: (a) a defendant in proceedings involving an apportionable claim has reasonable grounds to believe that a particular person (the other person ) may be a concurrent wrongdoer in relation to the claim, and (b) the defendant fails to give the plaintiff, as soon as practicable, written notice of the information that the defendant has about: (i) the identity of the other person, and (ii) the circumstances that may make the other person a concurrent wrongdoer in relation to the claim, and (c) the plaintiff unnecessarily incurs costs in the proceedings because the plaintiff was not aware that the other person may be a concurrent wrongdoer in relation to the claim, the court hearing the proceedings may order that the defendant pay all or any of those costs of the plaintiff. (2) The court may order that the costs to be paid by the defendant be assessed on an indemnity basis or otherwise." 48 The respondent accepted that the power to award costs under s 35A was discretionary, but submitted that it was engaged in the present case. It is sufficient for present purposes to assume (without deciding) that the conditions in pars (1)(a) and (b) are satisfied. There remains a question as to whether the plaintiff unnecessarily incurred costs because it was not aware of the identity of the manufacturer of the tyre, for the purposes of par (1)(c). As indicated by the history of the proceeding set out above, there was a degree of uncertainty as to the basis upon which the plaintiff proceeded against Michelin Australia. If it had taken an unequivocal stance that the liability of Michelin Australia depended upon its role as manufacturer of the tyre, one would have expected, on receiving a clear denial of that role, that some further inquiry might have been made as to the identity of the manufacturer. That was not done. It could not be inferred, in that circumstance, that the proceedings against Michelin Australia would have been discontinued had the identity of the manufacturer in Thailand been provided. Beyond that, there was no indication as to how the costs in fact incurred in the proceedings might have been rendered "unnecessary", if the identity of the manufacturer in Thailand had been known. The third condition of engagement was not established. 49 Even if s 35A(1) were engaged, the manner in which the proceedings were run below did not favour the exercise of a discretionary power to order Michelin Australia to pay all or any of the plaintiff's costs, on the basis of the non-disclosure. Each party went to trial on an inadequate evidentiary basis with respect to the identity of the manufacturer. Each party was to blame for the situation in which it found itself. The order sought by the respondent on this basis should be refused. 50 Michelin Australia sought an order that its costs be paid from 22 December 2006 on an indemnity basis. On that date it made an offer of compromise under the Uniform Civil Procedure Rules (NSW), r 20.26 in an amount of $5,000, plus costs to be assessed or agreed. Almost a year later, on 5 December 2007, a further offer was made, expressed to be made pursuant to both Calderbank principles and r 20.26. The offer required a judgment in favour of Michelin Australia, payment of its costs thrown away by the vacation of the trial date in November 2007 and payment of half the balance of its costs. (It is not necessary to explore whether the second offer complied with r 20.26(2) in relation to costs.) Michelin Australia sought the costs of the trial on an indemnity basis from the date of the earlier offer, or alternatively the later offer. 51 In relation to the first offer under r 20.26, Michelin Australia, as the second defendant, having obtained a judgment more favourable than the offer is entitled to indemnity costs from the date of the offer, unless the Court orders otherwise: r 42.15A. Because the offer was made without disclosing the true identity of the manufacturer, it is appropriate to order otherwise by limiting Michelin Australia to its costs on the usual basis: see Civil Procedure Act 2005 (NSW), s 56(3) and (5). The same consideration applies in relation to the second offer, which hardly qualifies as a genuine offer of compromise at all. To the extent that the offers invoke Calderbank principles, the power to award indemnity costs is discretionary. The circumstances set out above apply equally to deny Michelin Australia indemnity costs so claimed. 52 The appropriate orders are therefore as follows:

MICHELIN AUSTRALIA PTY LTD v NTI LIMITED

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