Product Development Solutions Australia Pty Ltd v Parametric Technology Corporation

Judgment 1THE COURT: The respondent is a supplier of computer software products. It granted the applicant a non-exclusive right to resell those products in Australia. In September 2011 the respondent sued the applicant in the District Court for $260,671.30 for software products sold and delivered under invoices dated between 13 April and 15 October 2010. The applicant filed a defence to that claim and a cross-claim. By its defence it admitted that the software products had been supplied and that the invoices remained unpaid and claimed an equitable set-off in the amount of its cross-claim. 2The cross-claim alleges misleading or deceptive and unconscionable conduct of the respondent concerning the pursuit by the applicant of an opportunity to resell the respondent's products to Cochlear Ltd and to the respondent's support of the applicant's business more generally. Allegations are made of contraventions of the former ss 51AC and 52 of the Trade Practices Act 1974 (Cth) and ss 42 and 43 of the Fair Trading Act 1987. The applicant alleges that whilst representing that it would assist the applicant to pursue that opportunity, the respondent in fact had no intention of doing so and acted to divert the opportunity to another reseller. It also alleges that the respondent redirected business leads to other resellers and encouraged them to poach the applicant's business. By reason of that conduct it is alleged that the applicant's business failed and that it became unable to pay the amounts due to the respondent. 3The respondent applied for summary judgment on its claim pursuant to UCPR r 13.1(1). The only issue on that application was whether there was a sufficiently high degree of certainty that the applicant could not rely upon its cross-claim by way of equitable set-off, to permit the entry of summary judgment: General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125; Batistatos v Road and Traffic Authority of New South Wales [2006] HCA 27; 226 CLR 256 at [46]. 4In addition to relying upon its pleaded cross-claim, the applicant led evidence from one of its directors, Mr Staka. The cross-claim alleged that the conduct described above was misleading or deceptive and unconscionable. The evidence was to the effect that the applicant's business had been "destroyed" as a consequence of the respondent's conduct with the result that the applicant was unable to pay sums owing to the respondent. 5The applicant correctly conceded in argument before the primary judge that the mere existence of the cross-claim was not enough to found a defence by way of equitable set-off and that what had to be shown was a sufficient nexus or connection between the claim for goods sold and delivered and the cross-claim such that the cross-claim could be said to "impeach" the claim. The cases relied upon included Rawson v Samuel (1841) Cr & Ph 161; 41 ER 451 and Hill v Ziymack [1908] HCA 13; 7 CLR 352. 6Rolfe DCJ considered that the applicant did not have an arguable defence of equitable set-off and on 12 April 2012 summary judgment was entered for the respondent for $328,543.49. The applicant seeks leave to appeal from that decision and order. 7By its draft notice of appeal, the applicant contends that the primary judge erred in two respects. First, it is said that he applied the wrong test in rejecting the availability of a defence of equitable set-off. Secondly, it is said that he erred in concluding that it was not arguable that there was a sufficient connection between the respondent's claim and the applicant's cross-claim to give rise to an equitable set-off. 8In our view, the applicant's prospects of succeeding on an appeal on either of these grounds are insufficient to warrant a grant of leave. As to the first, the primary judge, having referred to the test in General Steel, ultimately addressed whether the applicant had an "arguable defence of equitable set-off". He concluded it did not. No error in identifying or applying the relevant principle is identified. 9In support of the second ground, three arguments are foreshadowed. 10First, it is said that the primary judge proceeded on the basis that for misleading or deceptive conduct to give rise to a defence by way of equitable set-off to a claim in contract, the impugned conduct must have induced the entry into the contract or arise in some way in the performance of the contract. The primary judge did note that the claims in contract to which he referred (at [21]) in which an equitable set-off based on misleading or deceptive conduct had been upheld, were ones in which the conduct had induced the entry into the contract. His Honour did not, however, say or proceed upon the basis that those were the only circumstances in which such conduct may give rise to a defence by way of equitable set-off to a claim in contract. He described the relevant question more broadly and as being whether there was a connection between the respondent's claim and the conduct relied on such that the conduct went to "the root of or is essentially bound up with the plaintiff's title to sue": [20]. 11It is also said that the primary judge did not separately consider the applicant's claim of unconscionable conduct. When summarising the applicant's cross-claim, the primary judge did focus on the allegations made of misleading or deceptive conduct with respect to the Cochlear business opportunity: [9]-[11]. Those allegations included that the respondent had redirected business leads and encouraged other resellers to poach the applicant's business. However, the conduct pleaded and relied upon for the unconscionable conduct claim was essentially the same and the damages claimed and particularised were the same. The applicant does not identify any respect in which the unconscionable conduct claim is said to be connected with the respondent's claim, so as to impeach it, which is different from that relied upon in relation to its misleading or deceptive conduct claim. Nor on consideration is any difference readily apparent. 12Finally, it is said that the primary judge rejected evidence which established a necessary connection between the claim and the alleged contravening conduct. The evidence was that of its director, Mr Staka. That evidence did not establish any connection between the conduct and the claim beyond the fact that the conduct had led to the applicant's inability to pay the respondent's claim. In observing that the relevant evidence had "no weight to it" (at [19]), the primary judge was emphasising that the evidence did not identify any relevant or sufficient connection, namely one which impeached the respondent's claim in some way so as to make it unfair (because of that connection) for it to be allowed to proceed without also taking account of the cross-claim. 13The conduct upon which the applicant's cross-claim is based related to the pursuit of the Cochlear business opportunity and more generally to the sending of unproductive business leads, the redirecting of business leads to other resellers and the encouragement of other resellers to poach the applicant's business. It is alleged that this conduct caused the loss of revenues and profits on business which would have been generated from Cochlear and non-Cochlear business. That conduct occurred in the context of the reselling relationship between the applicant and respondent. 14It is not alleged that the conduct resulted in the entry into the reseller agreement or its renewal. Nor is it alleged that the applicant was induced to order the products which are the subject of the respondent's claim by reason of that conduct or that it was unable to resell them or realise their full value because of that conduct. Although it is alleged that the applicant is unable to pay for those products because of the failure of its business, it is not alleged that the applicant was induced to purchase those products on the basis that they would be paid for from revenues or profits generated from the Cochlear business opportunity or the business leads which are the subject of the complaint. The only connection between the respondent's claim and the alleged conduct is that the supply and conduct took place in the context of a relationship which included the reseller agreement. 15The circumstances of the present case are similar to those in Forsyth v Gibbs [2008] QCA 103; [2009] 1 Qd R 403. In that case it was observed that the fact that misconduct may have contributed in a general way to a defendant's failure to make profits or to its inability to make repayments of loans is clearly an insufficient connection to give rise to an equitable set-off. What must be shown is a connection between the claim and cross-claim beyond the mere fact that the payment of the claim has been rendered more difficult than would have been the case had it not been for the matters the subject of the cross-claim: per Keane JA at [15]. See also Hill Corcoran Constructions Pty Ltd v Navarro [1992] QCA 17 at 8-9. 16The applicant did not identify before the primary judge or this Court any connection between the conduct complained of and the respondent's claim which might arguably impeach or go to the root of the respondent's claim so as to justify an equitable set-off. 17For these reasons, the application for leave to appeal should be refused with costs. That does not, of course, preclude the applicant from pursuing its cross-claim separately.