Panasonic Australia Pty Ltd v Broadtel Communications Ltd [2007] VSC 273

3 There is a powerful presumption in favour of permitting pleading amendments. That presumption is founded on basic principles of justice: since the function of courts is to decide the matters in controversy between parties, a party to litigation should be able to advance - and, to that end, plead - each claim or defence which it wishes to maintain. These are principles of long standing,[1] and they were emphatically reaffirmed by the High Court in Queensland v JL Holdings Pty Ltd:[2] "Justice is the paramount consideration ..."[3]

4 Thus a party should always be permitted to amend a pleading to raise an arguable claim or defence, unless the allowing of the amendment would cause prejudice to the other party which could not be adequately remedied by an order for costs. As Jordan CJ said long ago in Horton v Jones (No 2):[4]

"It is now a commonplace that if a party to legal proceedings establishes to the satisfaction of the Court that he is genuinely desirous of amending his pleadings for the purpose of modifying or otherwise altering some existing claim or defence, or of introducing a new ground of claim or a new matter of defence, he should be permitted to do so, subject to the imposition of such terms as may be proper, unless the proposed amendment is so obviously futile that it would be struck out if it appeared in an original pleading, or unless it is one that it would be impossible to allow upon any terms without causing substantial injustice to another party to the proceedings."

5 Leave to amend may be refused if the amendment is obviously futile, as where it does not disclose a cause of action or defence.[5] But an amendment should be refused only where futility is clearly demonstrated or irremediable prejudice clearly established. Given the importance of having before the court "the true issues and the real merits, factual and legal",[6] refusal of an amendment should be - and be seen to be - exceptional.

6 As to futility, an amendment should be allowed unless - to use one of the applicable tests - the proposed claim or defence is so obviously untenable that it cannot possibly succeed. Likewise, claims of prejudice should be carefully scrutinised. As the present case shows, it is easy to overstate the effect that an amendment will have.

7 In my opinion, an application of these principles leads to the clear conclusion that Broadtel should have leave to amend its pleading by substituting SADAC for FADAC. The appeal must therefore be allowed. My reasons are as follows.

8 There are some significant differences between FADAC and SADAC. The basic structure of Broadtel's defence and counterclaim remains the same, however. Broadtel admits that there was an agreement between itself and Panasonic, for the supply to Broadtel of Panasonic's goods as and when ordered by Broadtel. The dispute concerns the terms - both express and implied - of that agreement. Broadtel contends that Panasonic breached the terms of the supply agreement (as Broadtel alleges them to have been).

9 In the alternative, Broadtel pleads that Panasonic made certain representations in respect of the supply of its products, which representations were false or misleading in contravention of s 52 of the Trade Practices Act 1974. Broadtel claims to be entitled to set off against Panasonic's claim the loss it suffered as a result of Panasonic's breaches of contract and/or contraventions of s 52.

10 The most significant change from FADAC to SADAC concerns the pleaded terms of the supply agreement. In SADAC it is alleged for the first time that Broadtel agreed to deal exclusively with Panasonic. Broadtel's business involved the retail supply of telephony products. Broadtel claims that it agreed, at Panasonic's request, to source its telephony products exclusively from Panasonic.

11 While it was subject to the exclusivity regime, Broadtel allegedly suffered loss because it was unable to obtain from Panasonic, when required, product for re-supply to retail customers. That inability to obtain timely supply is said by Broadtel to have arisen in two situations:

(a) first, when product was ordered by Broadtel but not supplied by Panasonic when required; and

(b) secondly, when Panasonic told Broadtel that it was unable to supply a particular product. In this situation Broadtel did not order product.

12 The proposed allegation is that Broadtel agreed to -

"obtain telephony products exclusively from [Panasonic] to the extent [Broadtel] could do so (given the need for [Broadtel] to acquire telephony products from competitors of [Panasonic] to satisfy then existing orders for such products placed with [Broadtel] by retail customers or to whom [Broadtel] had at that time already marketed competitor products)."

Counsel for Panasonic points out, correctly, that no particulars are provided under the relevant paragraph of SADAC, but concedes that these were "presumably" oral terms, since the supply agreement is alleged to have been "partly oral and partly to be implied." (I deal later in these reasons with questions of particulars.)

13 The allegation of exclusivity underpins other parts of the proposed new pleading. Thus paragraph 10 of SADAC is in these terms:

"It was an implied term of the telephony product supply agreement that [Panasonic] would maintain a capacity to supply to [Broadtel] (within four or five working days of an order being placed with [Panasonic]) those of [Panasonic's] telephony products as [Broadtel] might from time to time wish to order in such quantities as [Broadtel] might reasonably be expected to require.

The term was implied into the telephony product supply agreement in order to give business efficacy to it. It is also a necessary implication given the express terms and context of the telephony product supply agreement.

[Broadtel] was at all relevant times primarily engaged in the business of retailing key telephone systems. The retail side of the market for such systems was extremely competitive, with [Broadtel] having in excess of 200 competitors. [Broadtel] needed to be in a position to be able to offer timely service to prospective customers in order to compete effectively and, once a customer had placed an order, needed to be able to provide a timely service to meet its customer commitments and to mitigate the risk of the customer cancelling the order and acquiring product from a competitor.

In the context of an exclusivity commitment, the result of any incapacity of [Panasonic] to supply promptly would, therefore, be financial difficulties for [Broadtel], with the extent of those difficulties being a function of the duration and extent of [Panasonic's] incapacity.

By necessary inference [Panasonic] was aware of that result when Jim Calegis (on behalf of [Panasonic]) approached Hasan Rifat (on behalf of [Broadtel]) in or around November 2002 seeking to have [Broadtel] commit to acquiring [Panasonic's] telephony products, exclusively (which [Broadtel] did)."

14 Panasonic contends that this pleading "fails to set out a proper basis for the implication of this term". More particularly, it is contended that:

• the implied term fails the test of necessity. That is, the agreement as pleaded is effective without the implication of this term; and
• the implied term is "vague and incapable of expressing a fixed meaning."

"where, as here, there is no formal contract complete on its face (even Panasonic pleads a supply contract that is partly written, partly oral and partly to be implied) it is enough if the term said to be implied is necessary for the reasonable or effective operation of a contract of the nature under consideration in the circumstances of the case. ...

[I]t is not futile to suggest that the reasonable or effective operation of the supply arrangements ... necessitates the implication of a term dealing with capacity to supply, in a context where Broadtel's retail telephony business depended entirely on Panasonic maintaining such a capacity (given the exclusivity arrangements)."

16 Broadtel relies on what was said in Byrne v Australian Airlines Ltd,[7] as recently applied by Sundberg J in Miller v JLCS Pty Ltd.[8] In Byrne, after referring to the criteria listed in BP Refinery (Westernport) Pty Ltd v Shire of Hastings,[9] the High Court (Brennan CJ, Dawson and Toohey JJ) said:

"[A]s Deane J has observed,[10] the cases in which the criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings have been applied in this Court are cases in which there was a formal contract, complete on its face. He pointed out that a rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention."[11]

Their Honours then quoted the observations of Deane J in Hawkins v Clayton[12] as to the test to be applied in cases where the parties have not spelt out the full terms of their contract:[13]

"[A] court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case." (emphasis added)

17 In my opinion, Broadtel's submission must be upheld. This is not the occasion for deciding whether the particular term should be implied into the contract. A number of considerations will be brought to bear on that question.[14] Rather, the question is whether there is any sufficient reason for denying Broadtel the ability to contend at trial - and hence to plead - that the implication should be made.

18 It cannot be said that the argument for the implication of this term is obviously hopeless. On the contrary, there appears to be a cogent basis for its implication. It is clearly arguable that the promise which Panasonic allegedly secured from Broadtel - that it would deal exclusively with Panasonic - had as its corollary the assumption by Panasonic of an obligation to maintain sufficient stock to meet Broadtel's reasonable requirements from time to time. The detailed particulars which appear in the draft pleading make quite clear how Broadtel proposes to advance the argument in support of the implication.

19 Nor am I persuaded that the alleged term is incapable of clear expression. Stripped to its essentials, the contention is that Panasonic impliedly agreed to ensure that it was in a position to meet Broadtel's reasonable requirements during the life of the agreement. That is a simple and coherent proposition. The words "in such quantities as Broadtel might reasonably be expected to require" are, of course, favourable to Panasonic. Panasonic was not expected to be in a position to deal with unforeseeable demand for its products. Rather, its implied promise was - on Broadtel's case - to be in a position to meet Broadtel's reasonably predictable requirements.

20 Counsel for Panasonic also objected that the allowing of an amendment to plead this implied term would be -

"highly prejudicial to Panasonic as it would expose for discovery every document in Panasonic's possession as to its supplies of telephony products from November 2002 until December 2003. ... This would clearly delay the fair trial of this proceeding."

21 With respect, this contention seems to be based on a misunderstanding of the proposed pleading. If the amendment is allowed, the issues to be tried will be: whether such a term should be implied into the supply agreement; if so, whether Panasonic breached that term; and, if so, whether Broadtel suffered any recoverable loss as a result. Relevant documents would include those which record or identify the orders placed by Broadtel but not fulfilled by Panasonic, and the orders which Broadtel had wished to place with Panasonic but did not, having been advised by Panasonic that the product in question was not available.

22 Also discoverable would be records of the amounts of stock which Panasonic had on hand at the relevant times; and of communications between Broadtel and Panasonic about the unavailability of stock. But this is hardly likely to be a monumental task, especially given the discovery that has already taken place. I can see no basis for the Panasonic argument that allowing the amendment could render "hundreds of thousands (if not millions) of documents ... discoverable". (That submission relied on a Panasonic affidavit dealing with a separate - and extraordinarily wide - request by Broadtel for discovery which, unsurprisingly, was earlier rejected by the Court) .

23 SADAC contains a much expanded paragraph alleging that, in performance of the supply agreement (as Broadtel alleges it to have been) and/or in reliance on Panasonic's representations, Broadtel -

(a) committed to obtaining telephony products exclusively from Panasonic to the extent it could do so;

(b) marketed only Panasonic's products to its prospective customers;

(c) trained its new sales and service personnel only in relation to Panasonic products, and retrained existing personnel in relation to those products; and

(d) ceased to obtain supply from competitors of Panasonic and thereby terminated its relationship with those competitors.

24 Counsel for Panasonic objected that these allegations were not properly pleaded because they were "vague as to detail and ambiguous as to meaning". I am not persuaded by this submission. It is true that the relevant sub-paragraphs do not specify the dates on which the steps were taken but it is, in my view, quite clear what case Panasonic has to meet. In short, Broadtel alleges that following the making of the supply agreement, and consequent in particular upon the exclusivity term, it took each of the steps alleged. Whether Broadtel will be able to prove any of the allegations is, of course, a matter for evidence. If Panasonic requires further specificity about when any of these events occurred, it can always seek particulars.

25 A similar objection is made to the proposed paragraph 14, which is concerned with allegations that various of Panasonic's products "became periodically unavailable for supply", with the result that Broadtel was unable to meet orders from its customers. I reject the complaint, for similar reasons. Those orders from Broadtel customers which allegedly could not be met have been identified in the particulars.

26 As noted earlier, Broadtel alleges in the alternative that Panasonic impliedly represented to Broadtel that -

(a) it had the capacity to supply its products to Broadtel within four or five working days of an order being placed; and

(b) would maintain a capacity to supply "such of its products as Broadtel might from time to time wish to order in such quantities as Broadtel might reasonably be expected to require."

27 The first of these implied representations is alleged in the existing pleading, although the particulars given are different in SADAC. The second alleged representation is new, but relies on the same set of particulars as the first. Those particulars are as follows:

"The representation was implied as a necessary result of [Panasonic's] request that [Broadtel] commit to obtaining telephony products exclusively from [Panasonic] to the extent [Broadtel] could do so (given the need for [Broadtel] to acquire telephony products from competitors of [Panasonic] to satisfy orders for such products placed with [Broadtel] by retail customers and existing at the time of the request or to whom [Broadtel] had at that time already marketed competitor products) and [Panasonic's] express representation that it would supply those of its telephony products as were from time to time ordered by [Broadtel] within four or five working days of [Broadtel] placing the order. That request and representation were made at the Glebe conference."

28 I see no difficulty with these allegations as a matter of pleading. Whether Broadtel will establish that the implied representations were made is a matter for the trial Judge. But the basis advanced for the implication is coherent enough. Like the implied contractual term, these representations are said to be the corollary of Panasonic's request to Broadtel that Broadtel commit to obtaining telephony products exclusively from Panasonic.

29 SADAC alleges a further implied term, in these terms:

"[Panasonic] would act in good faith in relation to the exercise of its rights and the performance of its obligations under the agreement and would do everything necessary on its part to do to enable [Broadtel] to have the benefit of the agreement.

The term was implied in law or in order to give business efficacy to the agreement. It is also a necessary implication given the express terms and context of the agreement."

30 Panasonic refers to the decision of the Court of Appeal in Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL.[15] The Court there said that the law does not always imply a duty of good faith into commercial contracts.[16] So much may be accepted. But the Court went on to say that it may be appropriate in a particular case to imply such an obligation. The question in the present case, therefore, will be whether the implication should be made. Broadtel relies on both the terms and the context of the agreement - that is, the nature of the business relationship between the parties - and on considerations of business efficacy. Whether those matters will suffice to justify the implication will be a matter for decision by the trial Judge. There is no defect in the proposed pleading.

31 The proposed pleading alleges that Panasonic failed to supply, within the agreed time, products which Broadtel ordered. Panasonic objects that the allegation does not make clear whether it is said that the products were supplied late, or were not supplied at all. The objection is without substance. It is sufficient to establish breach of the contract term as pleaded that the products were not supplied within the agreed time. There is no ambiguity in the pleading. In any case, the particulars of loss and damage indicate that Broadtel's case is that the goods were not supplied at all. Thus Broadtel claims to have lost its 150 per cent mark-up "on the ordered goods not supplied".

"failed to maintain a capacity to supply to [Broadtel] within four or five working days of an order being placed with [Panasonic] those of [Panasonic's] telephony products as [Broadtel] might from time to time wish to order in such quantities as [Broadtel] might reasonably be expected to require".

The particulars do not specify which products required by Broadtel were not able to be supplied. Instead, the particulars of this allegation state that officers of Panasonic advised officers of Broadtel -

"on an almost daily basis of [Panasonic] not having capacity to supply for prompt delivery either any or adequate quantities of various items of [Panasonic's] telephony stock."

Panasonic's breach of the implied obligation to maintain adequate stock is said to have occasioned loss and damage of $2.5 million. That figure is not particularised.

33 In my view, Panasonic is entitled to proper particulars, both of the allegation that Panasonic lacked the capacity to supply particular products at particular times, and of the very substantial loss allegedly suffered as a result. But a deficiency in particulars is no bar to the allowing of an amendment otherwise properly pleaded. It is the allegations of material fact, not the particulars, which are essential to the validity of a pleading: r 13.02(1)(a). A number of Panasonic's objections concern the adequacy of particulars. Those matters should be dealt with by way of a request (formal or informal) for further particulars.

34 Panasonic objects to a proposed allegation by Broadtel, in the alternative, that even if it has failed to pay for products delivered by Panasonic (which is denied), Panasonic is not entitled to maintain its action in debt. Broadtel's argument runs as follows.

35 Panasonic sues in debt. It alleges that the contract under which the debt arises is partly written, partly oral and partly to be implied. The written component of the contract is said to be constituted by a document entitled "Application for Commercial Credit Account".

36 A debt claim is a claim for a liquidated sum presently due, owing and payable.[17] Broadtel argues that the purchase price on a sale of goods does not become due and payable until that for which the purchaser has bargained has been provided viz property in the relevant goods. Broadtel refers in its particulars to s 51 of the Sale of Goods Act 1923 (NSW) (being the governing law of the standard terms of trading incorporated into the "Application for Commercial Credit Account" document), which provides for only two circumstances in which an action for the price of goods may be maintained.

37 The first is where property in goods has passed. If title to goods is not received, the price for them is not payable. Broadtel alleges that terms incorporated into the "Application for Commercial Credit Account" document provide that, until paid for, property in goods supplied by Panasonic does not pass. Hence, if the relevant goods were not paid for, title to them did not pass to Broadtel and an action for the price cannot be maintained. The second circumstance provided for by s 51 is where the price is payable on a day certain irrespective of delivery. Broadtel alleges that the "Application for Commercial Credit Account" makes no provision for payment on a day certain.

38 It was not contended by Panasonic that these propositions were untenable as a matter of law or fact. Whether they will be made good is a matter for trial. Relevantly for present purposes, I consider that the pleading adequately identifies the contention which Broadtel wishes to advance, and the basis for it.

39 During the course of argument on the appeal, I raised with counsel a concern that, although the proceeding was already three years old, disputes about the pleadings had still not been resolved. I suggested that these commercial parties should consider mediation at the earliest opportunity, with a view to resolving the whole dispute without the incurring of further legal expense. Both parties indicated a readiness to participate in a mediation. I will give directions accordingly.

[1] See, for example, Cropper v Smith (1884) 26 Ch D 700; Clough and Rogers v Frog (1974) 48 ALJR 481.

[2] [1997] HCA 1; (1997) 189 CLR 146, 154-5 (Dawson, Gaudron and McHugh JJ).

[4] (1939) 39 SR (NSW) 305, 309-10.

[5] See Gimson v Victorian WorkCover Authority [1995] VicRp 14; [1995] 1 VR 209, 215-6 (McDonald J) and the authorities there cited.

[6] Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146, 169 (Kirby J) citing Commonwealth v Verwayen (1990) 170 CLR 394, 456 (Dawson J).

[7] [1995] HCA 24; (1995) 185 CLR 410, 422.

[8] [2007] FCA 74 , [112]-[113].

[10] In Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 121.

[11] Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410, 422.

[14] See BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337. See generally, D W Greig and J L R Davis, The Law of Contract (1987), Ch 10.

[15] [2005] VSCA 228.

[17] Binshell Pty Ltd v Broadway Australia Pty Ltd [2002] NSWSC 54, [40] citing Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85, 86 (McPherson J).