Woodchem Australia Pty Limited v D & R Henderson Pty Ltd - [2020] NSWSC 1250 - NSWSC 2020 case summary — Zoe

NSWNSWSC

Woodchem Australia Pty Limited v D & R Henderson Pty Ltd

[2020] NSWSC 1250

Supreme Court of NSW|2020-04-06

View original source

At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2020-04-06

Source

Original judgment source is linked above.

Judgment (34 paragraphs)

[1]

Judgment

HER HONOUR: By notice of motion filed 31 January 2020, the plaintiff seeks: 1. an order pursuant to r 14.28 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that paras [4(c)], [4(e)], [7] and [11(b)] of the defence filed 4 September 2019, and paras [5], [6], [7], [9(a)] and [10] of the first cross claim filed 4 September 2019, be struck out; 2. an order pursuant to UCPR 13.4 that the first cross claim filed 4 September 2019 be dismissed; and 3. in the alternative, an order pursuant to UCPR 28.4 and s 62(2) of the Civil Procedure Act 2005 (NSW) that the following questions of fact be determined as a separate issue before final hearing of the proceedings: 1. what contract or contracts between the plaintiff and the defendant governed the supply of goods by the plaintiff to the defendant in 2018 or 2019 that are the subject of the pleaded claim or cross claim in the proceedings; and 2. was there in any such contract or contracts for the supply of goods in 2018 or 2019 a price limitation clause in the terms asserted in para [5] of the first cross claim?
Paragraph [4], which seeks discovery, has been stood over for determination at a later date. It is not the subject of this judgment.
The plaintiff is Woodchem Australia Pty Ltd ("Woodchem"). The defendant is D & R Henderson Pty Ltd ("Henderson"). On 4 September 2019, Henderson, the cross claimant, filed a cross claim against Woodchem, the first cross defendant, and Borg Manufacturing Pty Ltd ("Borg"), the second cross defendant. It is pleaded that in 2017, Borg acquired a particle board business, and left that business in 2019. During all times relevant to this judgment, Woodchem was a wholly-owned subsidiary of Board Group Investments Pty Ltd.
It appears that although the notice of motion only refers to Woodchem, the parties have prepared their arguments on the basis that Woodchem and Borg are seeking the orders sought.
Woodchem relied on three affidavits of Mr William James Snelson ("Mr Snelson") dated 8 November 2019, 31 January 2020 and 25 March 2020. Henderson relies on the affidavit of Mr David Walter Henderson dated 18 March 2020. These were included in the parties' three volumes of joint court books.

[3]

The pleading framework

Before considering the dismissal of the cross claim, it is convenient that I briefly set out the pleading framework.
By amended statement of claim ("ASC") filed 16 August 2019, Woodchem claims a debt from Henderson for unpaid invoices. At paras [4] and [4A] it pleads: "4 On or about 6 February 2019, the plaintiff entered into a contract with the defendant where under in consideration for the plaintiff agreeing to supply and deliver certain goods, namely varying quantities of resin ("the goods") to be delivered by the plaintiff from its premises at Oberon for the price stipulated on the tax invoice ("the price") the defendant agreed to pay for the goods 30 days after the end of the calendar month that the goods were delivered ("the contract"). PARTICULARS OF CONTRACT The contract was partly in writing and partly implied. The written parts comprised in the defendant's purchase orders a list of which appear at Schedule A to the Amended Statement of Claim, the plaintiff's tax invoices, a list of which appear at Schedule B to the Amended Statement of Claim and the plaintiff's Terms and Conditions of Sale. The implied parts, so far as material, are implied by operation of sections 6, 8, 30, 31 and 38 of the Sale of Goods Act 1923. 4A Each of the defendant's purchase orders listed in Schedule A to the Amended Statement of Claim were accepted by the plaintiff by conduct and thereby impliedly dispensing with the need for communication of acceptance. PARTICULARS As a consequence of a past course of dealings between the parties, the defendant when issuing a Purchase Order directed the plaintiff to deliver specified quantities of resin to the defendant's nominated premises at a nominated time on nominated days. Upon receipt of a Purchase Order from the defendant, the plaintiff scheduled the production of the resin to meet the quantities and delivery schedule as stipulated in the defendant's Purchase Order. The plaintiff then transported and delivered the resin to the delivery place nominated by the defendant at which time the defendant accepted the goods. The plaintiff relies upon clause 3 of the plaintiff's Terms and Conditions of Sale and section 38 of the Sale of Goods Act 1923."
It is important to observe that at para [4], Woodchem alleges that the contract is partly written and party implied. Woodchem also pleads that there was a past course of dealings between the parties.
On 4 September 2019, Henderson filed a defence and cross claim.

[4]

The defence

The plaintiff seeks that the following paragraphs in the defence be struck out pursuant to UCPR 14.28.
Paragraphs [4(c)], [4(e)] [7] and [11(b)] of the defence filed 4 September 2019 plead: "4(c) says that the terms of the contract included that the plaintiff would supply up to 100% of Henderson's resin requirements for its particle board manufacturing business at prices adjusted on a quarterly basis, any price variation being limited to the actual cost movement of the resin ingredients incurred by the plaintiff; Particulars Letter from Henderson to the plaintiff dated 3 November 2005. 4(e) says that from time to time the plaintiff affirmed the method of pricing under the contract; … 7 In answer to paragraph of the claim Henderson: (a) repeats its answer in paragraph 4, 4A and 5 of this defence; (b) admits it has not paid the invoices; (c) says that on 17 April 2019 Henderson complained in writing to the plaintiff that increases in prices charged by the plaintiff to Henderson since the first quarter of 2018 had resulted in overcharging of Henderson by approximately $2.2 million and requested an audit of the plaintiff's ingredients costs relating to the prices in the invoices, which request the plaintiff refused; (d) says that in breach of the contract between the parties, the plaintiff overcharged Henderson for supplies of resin from January 2018 onwards in the invoices, by increasing the price of the resin in excess of the movement in resin ingredient costs incurred by the plaintiff; (e) says that the conduct of the plaintiff in relation to the supply of resin to Henderson was in contravention of the Competition and Consumer Act 2010 (Cth) and/or the Competition Code as applicable in New South Wales for reasons set out in the cross claim filed in these proceedings; (f) says that in all of the circumstances set out here and in the cross claim, Henderson is entitled to a set off of its loss caused by that breach and the conduct of the plaintiff as set out in the cross claim, against any claim by the plaintiff in the claim; and (g) otherwise, denies the allegations made in the paragraph. … 11 In answer to paragraph 11 of the claim, Henderson: … (b) repeats its answer in paragraph 7 of this defence and denies it is liable to pay the claimed sum."

[6]

The paragraphs of the cross claim in dispute

Henderson pleads at paras [5] to [7], [9(a)], [10] to [11]: "5 The terms of the contract for the supply of Resin Products by Woodchem to Henderson [were] set out in paragraph 4 of Henderson's Defence in these proceedings, including the term pursuant to which prices charged for the resin products by Woodchem were adjusted according to quarterly movements in the actual costs incurred by Woodchem for resin ingredients (Price Limitation Clause). 6 During the period from January 2018 and 2019 Woodchem, in breach of the Price Limitation Clause: (a) issued invoices to Henderson with prices for the sale of Resin Products increased by amount that were in excess of the actual cost movement of resin ingredients; (b) and did not provide Henderson with details of the calculations of price movements of those ingredients. 7 As a consequence of the breach of the Price Limitation Clause: (a) the prices for the supply of resin products were greater than permitted by the Price Limitation Clause. (b) Between January 2018 and January 2019, Henderson paid more than it was obliged to for the supply of resin products. (c) Between February 2019 and April 2019, Henderson was invoiced for more than was permitted by the Price Limitation Clause. … Particulars Letter from Henderson to [Borg] dated 17 April 2019. The estimated overcharging in the prices imposed by Woodchem was $2.2 million for the period January 20918 to March 2019. Further particulars of the loss will be provided once discovery has been provided. 9 During the period from June 2018 to April 2019, Borg and Woodchem engaged in the following conduct: (a) Increased prices for the sale of resin products by Woodchem to Henderson by amounts that were in excess of the actual cost movement of resin ingredients in breach of the Price Limitation Clause, negatively affecting Henderson's capacity to compete with the other remaining participants in the particleboard market. … 10 The conduct engaged in by Borg and Woodchem had the purpose or had effect or was likely to have the effect, of lessening competition in the Particleboard Market. Particulars (i) Between January 2018 and January 2019, Henderson paid prices that substantially in excess of the price that was payable under the Price Limitation Clause and but for the Conduct, and suffered loss; (ii) Henderson was unable to locate sufficient alternative suppliers of the Resin Product. (iii) Henderson was substantially less able to complete in the Particleboard market and suffered loses; and (iv) The conduct was likely to have the effect of rendering Henderson unable to conduct its business in the Particleboard Market, removing one of the three remaining competitors of Borg in an already highly concentrated market and leaving Borg as one of two remaining competitors. 11 The Conduct of each of Borg and Woodchem contravened section 46 of the Competition Law."
As previously stated, these paragraphs of the defence are mirrored in the cross claim. The challenged paragraphs of the defence and cross claim fall into two categories. The first is Henderson's admitted failure to pay the invoices in breach of the contract ("the contract claim"). The second is Woodchem's and Borg's alleged breach of the Competition and Consumer Act and/or the Competition Code under s 150C of the Act ("the competition law claim").
The basis of Henderson's contract claim is its allegation that a term of the parties' agreement was that Woodchem would supply Henderson with resin at prices adjusted quarterly, but that any price variation would be limited to the actual cost movement of the resin ingredients incurred by Woodchem. As foreshadowed, I will set out this alleged Price Limitation Clause later in this judgment.

[12]

The competition law claim

Henderson's competition law claim, set out in the cross claim, is on the basis that between January 2018 and April 2019, the only participants in the market for the manufacture and supply of resin in the eastern states of Australia were Woodchem and Hexion. Hendersays that Hexion was unable to supply Henderson with resin products because its production capacity was exhausted by other participants, Borg Carter Holt Harvey Plywood Limited ("Borg Carter Holt") and Fletcher Building Limited ("Fletcher").
Henderson says that Woodchem held a substantial degree of market power in relation to the resin market, and that Borg and Henderson operated in competition in the particleboard market. Between 2017 and 2019, Borg acquired the particle board business, including operating plants, of Borg Carter Holt, and Borg Carter Holt ceased to be a participant in the particleboard market.
In late 2017, Borg acquired the Oberon and Mount Gambler plants of Borg Carter Holt. In April 2019, Borg acquired the Tumut plant of Borg Carter Holt and then closed it down in May 2019. In February 2019, Borg commissioned a further plant in Oberon and commenced particleboard production.
Henderson says that the particleboard market consisted of a national output of approximately 1 million cubic metres of product annually. By February 2018, of the 1 million cubic metres, Borg produced approximately 600,000, Fletcher produced approximately 300,000 and Henderson produced approximately 100,000.
Woodchem was a wholly owned subsidiary of Borg Group Investments Pty Ltd, whose directors were John Anthony Borg ("John Borg") and Michael Paul Borg ("Michael Borg"). Michael Borg Pty Ltd and John Borg Investments Pty Ltd each held 50% of the shares in Borg Group Investments. Michael Borg and his wife, Leah, each held 50% each of the ordinary shares in, and were directors of, Michael Borg Pty Ltd. John Borg was the sole director and shareholder of John Borg Investments Pty Ltd. In addition to being the directors of Borg, John and Michael Borg were also its shareholders, each holding 50% of the ordinary voting shares.
It is Henderson's case that from January 2018 onwards, Borg issued communications from Woodchem to Henderson regarding the supply and pricing of resin. John, Michael and Leah Borg were persons related to Borg within the meaning of s 46 of the Competition Code. Borg had the capacity to determine, and did determine, the decisions of Woodchem concerning the supply and pricing of resin products to Henderson. Borg had an understanding of arrangement with Woodchem, Borg Investment Group Investments Pty Ltd, John Borg Investments Pty Ltd, Michael Borg Pty Ltd, and John, Michael and Leah Borg that Woodchem would conduct itself towards Henderson in the supply and pricing of resin products to Henderson so as to advance Borg's interests in the particleboard market.
By reason of those understandings or arrangements, Borg had to power to manipulate and control the supply of resin products to participants in the particleboard market. As such, Borg, and through it Woodchem, had a substantial degree of power in the particleboard market within the meaning of section 46 of the Competition and Consumer Act.
Henderson alleges that during the period from June 2018 to April 2019, Borg and Woodchem engaged in the following conduct: 1. increased prices for the sale of resin products by Woodchem to Henderson by amounts that were in excess of the actual cost movement of resin ingredients in breach of the Price Limitation Clause, negatively affecting Henderson's capacity to compete with the other remaining participants in the particleboard market; 2. gave assurances and made representations to Henderson that Woodchem would continue to supply resin products to Henderson in the future; and 3. on or about 14 April 2019, Borg advised Henderson that Woodchem would cease supply of resin in 3-4 months.
Henderson alleges that the conduct engaged in by Borg and Woodchem had the purpose or had effect or was likely to have the effect, of lessening competition in the particleboard market.

[14]

(2) Strike out paragraphs of the defence and cross claim

At the hearing, Woodchem focused its submissions only on certain paragraphs of the defence, and the paragraphs in the cross claim that correspond with those in the defence that it seeks to strike out pursuant to UCPR 14.28.
Rule 14.28(1) of the UCPR provides that at any stage of the proceedings, the Court may order that the whole or any part of a pleading be struck out in three circumstances: if the pleading discloses no reasonable cause of action, defence or other case appropriate to its nature; if the pleading has a tendency to cause prejudice, embarrassment or delay in the proceedings; or if the pleading is otherwise an abuse of the process of the court.
UCPR 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under UCPR 14.28(1). The parties have relied on evidence.
The relevant principles in relation to striking out parts of a pleading were summarised in Szanto v Bainton [2011] NSWSC 985, where Ward J stated at [135]-[138]: "[135] If, on an examination of the pleadings, there is no possibility of the facts pleaded giving rise to a good cause of action then the cause of action may be struck out (Dey v Victorian Railway Cmrs [1949] HCA 1; (1949) 78 CLR 62 at [90]). In the well-known passage in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, Barwick CJ stated (at [129]): It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense.' [136] If the pleading defect can be cured by amendment, then the court ought grant leave to amend rather than exercise the power to strike out (Republic of Peru v Peruvian Guano Co (1887) 36 Ch D 489 at [496]; Worthington & Co Ltd v Belton (1902) 18 TLR 438 at [439]; Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at [536]). (It is noted in Ritchie's that this discretionary approach is particularly appropriate where the plaintiff is a litigant in person referring to Mann v Cahill). [137] On a strike out application such as this, the General Steel test is to be applied (General Steel Industries at [130]), namely, it must be established that the case of the plaintiff is so untenable that it cannot possibly succeed (and see Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937 at [944-5], where it was said that the power to strike out should be exercised only in plain and obvious cases as it precludes the court from an interim enquiry about the real merits of the plaintiff's case). [138] Considerations of efficiency are relevant to the exercise of the discretion to strike out the pleading (see ss 57(1)(c) and 60 of the Civil Procedure Act)."

[16]

The agreement dated 3 November 2005 and the Price Limitation Clause

Mr Henderson has explained the circumstances whereby the agreement dated 3 November 2005 came into existence. His version of events is that in early 2005, Henderson had been trialling resins supplied by Woodchem, with a view to including Woodchem as a possible resin supplier.
On 14 July 2005, Henderson received an offer from Woodchem which Henderson says made clear that pricing going forward would be quarterly and linked to raw material costs, and that price movements would be justified each quarter.
In about November 2005, Mr Henderson's father, David F Henderson, caused Henderson to enter into an agreement with Woodchem to purchase resin. Mr Henderson said his father told him that he had been called by Peter Englebert, the then-managing director and owner of Woodchem, in Late October/early November 2005. He says they had a conversation to the following effect: Englebert: My company is facing imminent closure as out largest customer, Carter Holt Harvey Oberon, has redirected all resin purchases from Woodchem Oberon to alternative resin suppliers in Melbourne. David F Hendersoin: How much resin do you need to produce in order to provide enough cash flow to keep your business afloat? Englebert: 1000 tonnes per month. David F Henderson: We could commit to that as [we] had already trialled the Woodchem resins. Englebert: I need a letter that I can show my bank, otherwise I think I will not be able to continue.
On or about 3 November 2005, Henderson sent a letter to Woodchem by email and fax. The letter contained the alleged agreement between the parties, including the alleged Price Limitation Clause. It is perhaps the pivotal document in this application.
In the letter from Henderson to Woodchem dated 3 November 2005, Henderson stated (CB 602): "I would like to take this opportunity of confirming the supply agreement, upon which our two Companies have agreed. Woodchem will supply up to 100% of our resin requirements, estimated at around 15,000 to pa, at prices agreed to by the parties on a quarterly basis, with any price variation being limited to the actual cost movement of the resin ingredients. D & R Henderson will purchase 100% of resins, which can be supplied by Woodchem on the understanding that the resins will meet D & R Henderson's specifications. This agreement to be applicable to both parties until December, 2006. I trust this briefly summarises the agreement between us." (My emphasis)
The reference in the letter above to "any price variation being limited to the actual cost movement of the resin ingredients" is the alleged Price Limitation Clause.
From the summary of evidence as follows, both parties agree that the course of conduct extended beyond December 2006.

[24]

Course of dealings between Woodchem and Henderson

Both parties agree that there was a course of dealings between them.
For his part, Mr Snelson, the chief executive officer of Borg, reviewed the relevant documents and provided a summary of the course of dealings between the parties (CB 370-374). The relevant documents show that Woodchem supplied resin to Henderson from November 2005 to 2008. Mr Snelson says that the pricing method described in the letter from Henderson to Woodchem dated 3 November 2005 is in line with the methods Woodchem used to determine the price of resin each quarter.
Mr Snelson says that the price at which Woodchem sold resin fluctuated as a result of price movements for the major raw materials, as well as fluctuations in the foreign exchange rate and freight costs. Each quarter, Woodchem reviewed its prices and sent Henderson a price review listing its offered supply price for the next quarter. Each quarterly price review included charts recording the raw material commodity index prices over the previous years, as well as a table comparing the price Woodchem was offering to sell resin for the next quarter with the price it offered for the previous quarter. The information set out in the charts is publically available.
Henderson would then send quarterly purchase orders to Woodchem stipulating its desired quantities and delivery dates. The resin would then be produced and delivered as ordered. Following delivery, Woodchem would send an invoice to Henderson for the resin supplied.
Mr Snelson has been unable to locate copies of any quarterly price review documents or purchase orders for the period prior to 2009. However, based upon the documents that he has reviewed and his knowledge of the business, he says Woodchem always adopted the following practice (Aff, 8 November 2019 [23]-[25]). Once the resin was produced, it was delivered to Henderson's premises at Benalla, Victoria. After the resin was delivered to Henderson, Woodchem sent individual invoices to Henderson for the resin supplied. The unit price for the supply of the resin listed on the tax invoices is the same as the price listed in each of the quarterly price reviews sent to Henderson for the relevant quarter. The terms and conditions of sale applied to the sale of the goods listed in the tax invoices.
As set out earlier in this judgment, there was a period from 2008 to March 2009 where Henderson sourced its resin from Hexion, not Woodchem. Then in April 2009, Woodchem recommenced supplying resin to Henderson. An email exchange between David Chidgey, previous manager of Woodchem, and George Kaspa of Henderson dated 13 March 2009 records the supply arrangements effective from April 2009. While the arrangement was stated to be for a one year period, Mr Snelson says that from 2009 through to April 2019, Woodchem and Henderson engaged in the same course of dealings for the sale and supply of resin.
It is Mr Snelson's view that the course of dealings between Woodchem and Henderson from April 2009 to April 2019 is consistent with there being no Price Limitation Clause.
However, Mr Henderson (Aff, 18 March 2020) refers to a letter from Woodchem dated 14 July 2005 (CB 580), in which Woodchem made an offer to Henderson on terms that "pricing going forward will be quarterly and linked to raw material costs". This letter reads (CB 601): "D & R Henderson Resin Offer - 14/7/05 • An invoice will accompany each delivery • Payment to be by the end of the following month. Eg: all deliveries in July will be paid by the end of August • A discount of $5.00 for the MUF resin and $3.00 for the UF resin will be give for payment on time • pricing going forward will be quarterly and be linked to raw material costs. Price movements will be justified each quarter."
At para [25] of his affidavit, Mr Henderson says that on 12 June 2009, he had a meeting with David Chidgley and Darren Hope, then a finance manager of Henderson. At that meeting, they discussed Henderson resuming the supply of resin products from Woodchem. Mr Chigley said that Woodchem "would agree to [a] price movement formula like the old one with Peter [Englebert]." (CB 583).
At para [58], Mr Henderson says that at the meeting, they discussed the pricing as outlined in a letter previously provided by Woodchem which set out the movements in raw materials actually paid by Woodchem, and proposing new prices (CB 586). He provided a schedule of letters between the parties from 24 February 2009 to 28 August 2017. It was Mr Henderson's practice to take brief notes in his notebook or to made notes on the price letters they were discussing at the time. He has included those notes in the exhibit to his affidavit (CB 586-587).
As stated earlier, Henderson has paid the invoices for all resin supplied since 2005 up until the commencement of the first quarter of 2019.
On 10 April 2019, Henderson ceased purchasing resin from Woodchem. It is within this period that Henderson stopped paying Woodchem's invoices.

[25]

Woodchem's submissions

Woodchem submitted that paras [4(c)], [4(e)], [7] and [11(b)] of the defence, as well as to paras [5], [6], [7], [9(a)] and [10] of the cross claim, are untenable and should be struck out as an abuse of process. This is because Henderson's case depends solely upon a finding that the contract for the supply of resin in 2018 and 2019 included the alleged Price Limitation Clause. If the court fails to make such a finding, both Henderson's contract and competition law claims fail.
Woodchem submitted that the evidence of its pricing policy and methodology support its case. Woodchem's position is that the four documents Henderson has particularised in [4(c)] and [4(e)] of the defence do not support the existence of the Price Limitation Clause.
As to the first document, the letter from Henderson to Woodchem dated 3 November 2005, Woodchem submitted that it has been inaccurately transcribed. At [4(c)] of the defence, Henderson has pleaded it as including an express contractual term that Woodchem would supply resin at "...prices adjusted on a quarterly basis, any price variation being limited to the actual cost movement of the resin ingredients incurred by the plaintiffs". Woodchem submitted that there was no Price Limitation Clause in that letter, and that the agreement referred to expired in December 2006.
The second document is cl 3.2 of a draft product sales agreement dated 13 May 2016. At [4(e)] of the defence, Henderson asserted that this draft agreement "affirmed the method of pricing under the contract". Woodchem submitted that there is no Price Limitation Clause in this document, and that cl 3.2, which deals with the right to change the price of products, is in fact consistent with the Woodchem's ordinary pricing methodology. Further, it was a precondition in cl 2.1 of this document that the ACCC approved of the acquisition of the business of "Alpine MDF" by Borg. Woodchem noted that it is not in issue that the acquisition of Alpine MDF did not proceed to completion.
The third and fourth documents are the emails from Mr Toakley of Borg to Mr Henderson dated 21 and 27 June 2018, as set out earlier in this judgment. At [4(e)] of the defence, Henderson states that these emails affirm what Henderson alleges to have been the agreed method of resin pricing. Woodchem submitted that Mr Henderson's email stating that Woodchem's methodology "makes sense" is an admission that the methodology was acceptable. Following this email exchange, Woodchem continued to provide Henderson with its published quarterly price reviews listing the price it would charge Henderson for resin in the next quarter. Henderson continued to place orders and make full payment of relevant tax invoices on that basis up until the subject five quarters in 2019.
As to the remaining available evidence, Woodchem submitted that its offer dated 14 July 2005; the email exchange between Mr Chidgey and Mr Kaspa dated 13 March 2009; and the quarterly price review letters are all consistent with Woodchem's price methodology. Woodchem says that by his email dated 28 June 2018, Mr Henderson acknowledged the appropriateness of this methodology. Moreover, the fact that Henderson continued to purchase resin from Woodchem following the email exchange in June 2018 is inconsistent with the assertion that their arrangement included the Price Limitation Clause. Henderson paid all invoices for resin supplied from 2005 up until the commencement of the first quarter of 2019, and only raised objection after it established its own capacity to produce resin.
For these reasons, Woodchem submitted that the pleadings at [4(c)], [4(e)], [7] and [11] of the defence are untenable by reference to the known and admitted circumstances, and should be struck out. The same applies equally to [5], [6], [7] of the cross claim.
As to the competition law claim, Woodchem submitted that it is also dependent on the court finding that the agreement between Henderson and Woodchem included the Price Limitation Clause. Henderson asserts that from the period from June 2018 to April 2019, both Borg and Woodchem engaged in conduct contravening s 46 of the Competition and Consumer Act. At [9(a)] of the cross claim, Henderson alleges that Woodchem increased resin prices in excess of the actual cost movement of resin in breach of the Price Limitation Clause. At [10(a)], Henderson alleges that such conduct was intended to lessen competition in market. That is, the scope of facts properly relevant to this issue includes the particulars to para [10] that between January 2018 and January 2019, Henderson paid prices that were substantially in excess of the price that was payable under the Price Limitation Clause.
Woodchem submitted that the likelihood of a serious factual dispute concerning the Price Limitation Clause does not emerge from the specifically pleaded allegations or the evidence served on the application. The specific documents relied upon by Henderson, contrary to its assertions, are antithetical to the existence of the Price Limitation Clause governing the conduct of the parties. As such, its claim is unmeritorious, and the court should strike out the identified paragraphs.
Finally, Woodchem submitted that as Henderson's claims in contract and competition law fail, the Court is be entitled to enter judgment for Woodchem on its claim for the admitted unpaid invoices. There is no dispute that the goods were ordered for specified prices and delivered to, and accepted by, Henderson. Presumably, Henderson used those goods to its benefit.

[26]

Henderson's submissions

Henderson submitted that there is a clear factual dispute between Woodchem and Henderson. Woodchem has also filed its motion despite serious matters being raised in the cross claim which can only sensibly be resolved at final hearing.
It is Henderson's position that the strike out application, as developed in Woodchem's written submissions, is really a complaint that the particulars to certain pleadings do not support the pleaded case. Not only is that complaint factually incorrect, but it confuses the role of particulars with the role of evidence. Henderson says that in focussing its complaint on the particulars to certain parts of the pleading, Woodchem has overlooked the fact that the pleadings as drafted do, in fact, disclose a cause of action.
Significantly, Henderson says that Woodchem has not identified the basis upon which it says that the relevant parts of the defence and cross claim ought to be struck out. Instead, the most it says is that those paragraphs are "untenable by reference to the known and admitted circumstances and should be struck out." Henderson says that this complaint, even if made good, would not warrant the paragraphs complained of being struck out.
Woodchem complains about para [4(e)] of the defence, where Henderson pleaded that "from time to time [Woodchem] affirmed the method of pricing under the contract". Whether or not that occurred is a matter for evidence. Nothing put forward by Henderson tells against that conclusion at a level which would make that allegation "so manifestly untenable that it cannot possibly succeed".
Woodchem also complains that the draft product sale agreement dated 13 May 2016 does not contain the Price Limitation Clause. Even if that were accepted, Henderson submitted that Woodchem appears to conflate particulars with evidence. As Mr Henderson explains, the significance of the draft agreement is that during its negotiation, Mr Snelson, on behalf of Woodchem, affirmed the Price Limitation Clause.
As to the emails from Mr Toakley to Mr Henderson dated 21 June 2018 and 27 June 2018, Woodchem puts great emphasis on Mr Henderson's statement that "[t]he methodology makes sense". Woodchem then seeks to elevate this statement to what it describes as an "admission and acknowledgement that the methodology described was acceptable". Henderson submitted that Mr Henderson was not agreeing that the methodology was acceptable; rather, he was stating that the basis upon which it was put made sense. As Mr Henderson explained at para [103] of his affidavit, he was, in writing those words, referring to direct material costs. The surrounding circumstances, as explained in Mr Henderson's affidavit, belie any such admission or acknowledgment even having been made.
Woodchem also point to their offer dated 14 July 2005. However, Henderson submitted that the Price Limitation Clause is not contained in that document, but in the letter of 3 November 2005. That letter is quite clearly in different terms to the letter of 14 July 2005, and does contain the Price Limitation Clause.
Woodchem then concedes that the contractual arrangements continued on the basis of the 3 November 2005 letter. Henderson submitted that although Woodchem seeks to argue that the Price Limitation Clause was not in that letter, the Price Limitation Clause as pleaded refers to that letter and is in materially the same terms as the clause set out in that letter.
Henderson submitted that Woodchem's claim is not assisted by the fact that Henderson continued to purchase resin from Woodchem and pay for that resin until the first quarter of 2019. Firstly, the conduct of Henderson in continuing to pay for the resin is irrelevant to the question of whether or not Woodchem breached the contract. Secondly, having regard to the essential nature of Woodchem's supply of resin to Henderson, it is not unexpected that Henderson would continue to purchase resin from Woodchem in circumstances where, as Mr Henderson explains at [104(c)] of his affidavit, it had no other source of resin and was concerned that Woodchem would cut off supply if Henderson complained.
Finally, Henderson submitted that Woodchem's contention that the cross claim is an abuse of process is unsupported. The fact that by filing its cross claim, Henderson has prevented Woodchem from immediately obtaining judgment (even if they were otherwise entitled to it), does not render the cross claim an abuse of process. Henderson submitted that even if Woodchem's strike out application were successful, Henderson's cross claim would survive. Woodchem cannot sensibly submit that it is untenable, or that it is being brought for an improper or collateral purpose, as it has brought no evidence to support such submissions.
Henderson submitted that the filing of Woodchem's motion is an attempt to forestall the hearing of an application which raises serious questions about the conduct of Borg, both in relation to Woodchem's contractual relations with Henderson, and more generally, in relation to Borg's conduct in the market for particleboard and resin in Australia.

[27]

Resolution

It is common ground that Henderson has not paid Woodchem the amounts in the invoices as particularised in the ASC. The pivotal document is the letter dated 3 November 2005, which "briefly summarises the agreement between the parties". In it, Henderson says it "would like to take this opportunity of confirming the supply agreement, upon which our two companies have agreed". The agreement is on terms that "Woodchem will supply up to 100% of Henderson's resin requirements, estimated at around 15,000 to pa, at prices agreed to by the parties on a quarterly basis, with any price variation being limited to the actual cost movement of the resin ingredients". The letter then states that the agreement is to be applicable to both parties until December 2006. Both parties agree that the agreement continued until 2009. Henderson's case that it continued after that date.
It was in 2009 that Henderson recommenced purchasing resin from Woodchem after purchasing resin from another supplier, Hexion, for approximately a year. After 2009, the parties' conduct, together with other documents, is relevant to determining their obligations.
I have set out the relevant documents, as well as the conduct of the parties, earlier in this judgment. The parties have different interpretations of the meaning of the documents, and what is shown by the relevant graphs and reports in relation to the price movement of the resin products. These documents and conduct are open to interpretation, and the varied versions of events can only be reconciled by the parties giving evidence at trial. Woodchem submitted that as Henderson has admitted that the invoices have not been paid, it is entitled to judgment for the unpaid amount. I do not agree, as Henderson has claimed that it does not owe the amount in the invoices because Woodchem overcharged it in the sum of $2,200,000. In my view, it cannot be said that Henderson's contract claim is an abuse of process of the Court, nor that it discloses no reasonable cause of action such that the relevant paragraphs should be struck out.
The competition claim, as particularised in the pleading of the cross claim, is also arguable. It is pleaded that Borg had a substantial degree of power in the particleboard market between June 2018 and April 2019, and increased prices for the sale of resin in excess of the actual price incurred, which negatively affected Henderson's capacity to compete in the market. It is further pleaded that Borg gave assurances and made representations to Henderson that Woodchem would continue to supply resin to Henderson in the future, and that it was only on or about 14 April 2019 that Borg advised Henderson that Woodchem would cease supply of resin in 3-4 months. In these circumstances and on the available evidence, I cannot conclude that Henderson does not have a reasonable cause of action. The proceedings should be permitted to go to trial. As such, it is not appropriate to strike out the specified paragraphs of the defence and cross claim.

[28]

(3) The application for a separate determination

In the alternative to the relief discussed above, Woodchem seeks an order pursuant to UCPR 28.4 and s 62(2) of the Civil Procedure Act that the questions set out at paras [3(a)] and [3(b)] of the motion be determined as a separate issue before final hearing of the proceedings.
The separate questions are: 1. what contract or contracts between the plaintiff and the defendant governed the supply of goods by the plaintiff to the defendant in 2018 or 2019 that are the subject of the pleaded claim or cross claim in the proceedings; and 2. was there in any such contract or contracts for the supply of goods in 2018 or 2019 a price limitation clause in the terms asserted in para [5] of the first cross claim?
Rule 28.2 of the UCPR reads: "28.2 Order for decision The court may make orders for the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings."
The general rule is that proceedings are listed for trial generally, for the hearing of all questions and issues arising in the proceedings: see ss 56(1) and 56(2) of the Civil Procedure Act. The court's power to make orders for the decision of any question separately from any other question under UCPR 28.2 arises as an exception to the general rule.
Although there are many authorities on this topic, the legal principles that apply in exercising the discretion of whether to make the order for separate determination are comprehensively set out in the decision of Hallen J in Southwell v Bennett [2010] NSWSC 1372 ("Southwell"). At [15], his Honour set out those principles, which have been summarised as follows. 1. As a general rule, the discretionary power to order the separate determination of a question should be approached with caution. 2. In exercising its discretion, the overriding purpose of the Civil Procedure Act, namely the just, quick and cheap resolution of the real issues in the proceedings under s 56, must be given effect. 3. Generally, all questions of fact and law should be determined at the one time, and if the court is to depart from that position, the party seeking the separate determination of a question must satisfy the court that it would be "just and convenient" for that order to be made. 4. While it may appear superficially attractive to order the trial of a separate question, experience often shows that it will not be so. For example, complications can arise in relation to appeals, or overlapping factual issues, or questions of credit, if the same witnesses have to give evidence in relation to a question that is separated and those that are not. 5. The experience of courts suggests that the separation of proceedings often does not result in the quicker and cheaper resolution of proceedings, but often has the reverse effect. 6. It sometimes happens that it turns out to be productive of the disadvantages of delay, extra expense, appeals and uncertainty of outcome which it is intended to avoid. 7. Before a question is to be separately determined, it must be possible to clearly see that it will facilitate the quicker and cheaper resolution of the proceedings. 8. Where findings as to the credit of a witness is, or of witnesses are, or may be, involved in the consideration of the evidence relevant to the question, it is inappropriate to order a separate trial. 9. One factor that may tell against the making of an order is where there is likely to be a significant overlap between the evidence adduced on the hearing of the separate question and at trial, possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding. There is always a risk of inconsistent findings arising from determination of separate questions. 10. While the decision is ultimately one for the court to determine, it will have regard to the attitude of the parties.
Sections 56, 57 and 60 of the Civil Procedure Act are also relevant. I do not need to reproduce them here.

[30]

Henderson's submissions

In summary, Henderson submitted that there are notorious risks of unforeseen complications in hearing separate questions. Caution is required. Henderson referred to Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 ("Idoport"), where Einstein J listed the circumstances in which separately determining an issue will rarely be an appropriate procedure. These include where there are intertwined issues of fact or law (such that the determination of the separate question would not have any substantial effect on the width of the field of litigious controversy or the prospect of the settlement of the balance of the litigation); where there is a commonality of witnesses and issues of credit; and where there is a possibility that the resolution of the separate issue will not finally determine the issue, but merely result in an appeal from that decision in relation to that separate issue creating a multiplicity of proceedings, interruptions to the court and undesirable fragmentation of the proceedings.
Henderson submitted that all of those features are present in this case. Woodchem have advanced no cogent reason to support the hearing of a separate question.
As to the form of the questions sought, Henderson submitted that the first question is plainly inappropriate. It is open-ended, and would require the Court to identify the relevant contract or contracts. A separate question should be capable of being answered "yes" or "no". Henderson submitted that it is not clear how Woodchem can reasonably submit that the answer to the first question would dispose of the proceeding.
Henderson similarly submitted that it is not clear how the answer to the second question would conclude the matter. Even if the question concerning the Price Limitation Clause were determined adversely to Henderson, the balance of the cross claim would remain. Also, given that the answer to the question of the Price Limitation Clause would necessarily involve the cross-examination of witnesses, there is a commonality of witnesses and issues of credit such that separate determination is inappropriate.

[31]

Resolution

As a general rule, the discretionary power to order the separate determination of a question should be approached with caution. In exercising the Court's discretion, the overriding purpose of the Civil Procedure Act, namely the just, quick and cheap resolution of the real issues in the proceedings pursuant to s 56, must be given effect.
As the general rule is that all questions of fact and law should be determined in a single hearing, the party seeking that certain questions be determined separately must satisfy this Court that it would be "just and convenient" for that order to be made.
As set out earlier in my judgment, the pivotal question in these proceedings is whether the Price Limitation Clause in the letter dated 3 November 2005 continued to be adhered to after 2009. Answering the question of whether the parties' conduct continued to be in accordance with this clause, such that it governed the contract for the supply of goods by Woodchem to Henderson in 2018 or 2019, will require oral evidence, primarily from Mr Snelson and Mr Henderson. They will be assessed as to their credit in light of their evidence and the emails and documents set out earlier in this judgment. Were a separate determination of those questions ordered, is more than likely that both Mr Snelson and Mr Henderson would be required to give evidence at both trials. This could lead to different findings on credibility.
In my view, there is no bright line as to where the evidence which is relevant to the separate questions begins and ends. Granting the application for a separate determination would not accord with the principles set out in ss 56, 57 and 60 of the Civil Procedure Act, as hearing of the separate questions will not afford the parties of a quick, cheap and just outcome. For these reasons, in my view it is not appropriate to order that these questions be considered separately. Hence, I decline to make that order pursuant to UCPR 28.4 and s 62 of the Civil Procedure Act.
The result is that the plaintiff's notice of motion filed 31 January 2020 is dismissed.

Woodchem Australia Pty Limited v D & R Henderson Pty Ltd

At a glance

Court

Decision date

Source

Judgment (34 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (8)

Cited By (1)