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  • Unreported Judgment

Interline Hydrocarbon Inc v Brenzil Pty Ltd

 

[2007] QSC 294

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

17 October 2007

DELIVERED AT:

Supreme Court, Brisbane

HEARING DATE:

22 May 2007

JUDGE:

Douglas J

ORDER:

Application dismissed with costs.

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – SUMMARY JUDGEMENT- contractual dispute as to performance of obligations under an agreement - application after staged delivery of witness statements - whether a defendant’s summary judgment application was of the nature of a submission of no case to answer requiring the defendant to elect at that stage whether to call evidence at any trial of the matter – whether there was evidence or questions of interpretation of the relevant agreements sufficient to require the matter to go to trial.

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT –PLEADING –strike out application in the statement of claim- where application fails on the basis that the essential elements of the relevant causes of action have been pleaded and there is sufficient evidence to establish the allegations pleaded.

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT –PLEADING –  strike out application in reply and answer- where application fails on the basis that time has not yet come for the plaintiff to deliver witness statements responding to the allegations made in the defence and counterclaim.

Brian Geaney Pty Ltd v Close Constructions Pty Ltd [2003] QSC 235, distinguished

COUNSEL:

Mr J Bond SC with Mr D Williams for the applicant

Mr R J Douglas SC with Mr D de Jersey for the defendant

SOLICITORS:

Bennett & Philp for the applicant

Clayton Utz for the defendant

[1] Douglas J:  This is an application by the defendants for summary judgment on the plaintiff’s claim.  Alternatively, they seek to strike out a large number of paragraphs of the further amended statement of claim as disclosing no reasonable cause of action and to strike out paragraphs of the second further amended reply and defence to the counterclaim also as disclosing no reasonable course of action. 

[2] In the further alternative they seek an order that the plaintiff deliver statements of its evidence in chief supporting allegations in the paragraphs of both pleadings that they seek to strike out by 31 May 2007.  They also seek orders that the plaintiff serve any statements which are purely responsive to material contained in the statements served by the defendants and which concern issues on which the defendants or either of them bear the onus of proof and that the second defendant by counterclaim, an American corporation which owns the plaintiff, deliver its witness statements.  In default of compliance with the latter orders, they seek orders that the relevant paragraphs of the statement of claim and reply and defence to the counterclaim be struck out. 

[3] At the heart of the application lies a dispute as to the nature of the plaintiff’s claim, the proper interpretation of the contract on which it is based and questions of the onus of proof in respect of aspects of the claim and of the defence. 

Background

[4] The plaintiff is a company incorporated in the United States of America, the first defendant, Brenzel Pty Ltd, and the second defendant, Nationwide Oil Pty Ltd, are Australian companies forming part of a group of companies experienced in the collection, treatment and recycling of used oil in Australia. 

[5] The plaintiff designed, manufactured and installed an industrial plant for the defendants for processing used oil into commercially marketable products.  The plant has subsequently been used by Nationwide and there is a debate as to whether the plant that was constructed may be regarded as a “unit” for the purposes of a unit purchase agreement which govern the obligations of the plaintiff to design, manufacture and install the plant.  The second defendant became a party to the unit purchase agreement on 25 June 1997 pursuant to a written novation agreement.  At the same time the first defendant was given an exclusive licence to use certain technology, expertise and intellectual property relating to the processing of used oil into commercially marketable products which obliged it to pay the plaintiff a royalty for all finished products produced using the units and sold by it.  In that licence agreement the words “initial unit” were defined to mean the unit to be constructed and assembled by the plaintiff under the unit purchase agreement.

[6] The plaintiff’s claim is for a total of approximately US$186,000 plus interest as monies claimed to be owed under the unit purchase agreement.  Those sums are said to be payable by Nationwide. There is a further claim for royalty payments for the products produced by the plant of about US$2,800,000 plus interest claimed to be owed pursuant to a contractual obligation by both defendants to pay the plaintiff royalties for the output produced by that plant and sold by Nationwide.

[7] The defendants resist the plaintiff’s case on the basis that the industrial plant produced by the plaintiff was defective in many respects and failed to meet performance levels claimed to be warranted under the unit purchase agreement.  The consequence pleaded is that the industrial plant could not be regarded as a “unit” within the meaning of the relevant contracts so that the obligation to pay royalties did not crystallise. 

[8] The plaintiff’s case is that it delivered the plant and assembled it between October 1997 and August 1998, has not been paid in full for the plant and has not been paid royalties for products produced by the plant.  The defence case is that the plant does not meet the specifications of the “unit purchase agreement” made between the plaintiff and a company called Transpacific Industries Group Ltd, the parent company of the second defendant, such that the plaintiff has failed to design and manufacture a “unit” under that agreement and the plaintiff is not entitled to the payments it seeks. 

[9] The design capacity of the unit under clause 2.2 of the unit purchase agreement was 91,000 litres of used oil “processed per 24 hours of continuous operation”.  Clause 4.4 provided that the plaintiff should conduct an acceptance test that would be deemed successful if certain specifications were met in ex. B to that agreement.  It also provided that the plaintiff may repeat the acceptance test until it had been successfully completed.  Clause 4.5 then provided that, when the acceptance test had been successfully completed, Transpacific Industries Group Ltd should execute and deliver to the plaintiff a certificate of final acceptance accepting the unit as installed. 

[10] The defendants argue that no successful acceptance test has been carried out, that such a test is a prerequisite to the plaintiff’s entitlement to sue and, therefore, its action must fail.

The summary judgment application

[11] The plaintiff submitted that, because this application has been brought after the staged delivery of witness statements requiring it to deliver statements of its proposed evidence in chief, except statements purely responsive to material contained in the statement served by the defendants and which concern an issue on which the defendants or either of them bear the onus of proof, where the second stage of the proposed delivery of witness statements required the defendants to deliver their statements of the witnesses proposed to be called by them including expert witnesses, then the defendant’s summary judgement application here was of the nature of a submission of no case to answer.  The plaintiff therefore submitted that I should, before I proceed with the application on its merits, require the defendants to elect not to go into evidence at all in the principal proceeding.  That seems to me not to be appropriate to an application of this nature before a trial.

[12] That distinguishes the situation from a decision relied on by the plaintiff where Dutney J, in dealing with a defendant’s summary judgment application made at trial but before the close of the plaintiff’s case, required a defendant to make such an election; Brian Geaney Pty Ltd v Close Constructions Pty Ltd [2003] QSC 235. Accordingly, I propose to deal with the application on its merits without requiring the defendants to make such an election.

[13] The plaintiff’s argument is that the witness statements it has delivered prove the elements of the causes of action which it has pleaded.  The principal focus of the defendants’ summary judgment application is an argument that the plaintiff has not performed its obligations to provide a unit in conformity with the terms of the unit purchase agreement and, in particular, that the unit supplied has not completed an acceptance test required by that agreement. 

[14] The plaintiff argues that it is entitled to enforce its rights to the last of a number of staged payments which were to be made in relation to the original contract price, namely an amount of $US170,128 payable at the completion of the acceptance test on the basis that the unit purchase agreement was a divisible contract, not an entire one, such that the plaintiff can enforce its rights without complete performance of all of its executory obligations.  This approach, what may be called the plaintiff’s argument based on the interpretation of the agreements, stems, to some extent, from the terms of cl. 4.4 of the unit purchase agreement which provides that, if, after six months from the date of the first acceptance test, the acceptance test has still not been successfully completed, then the plaintiff should pay liquidated damages in accordance with other terms of the contract.  Clause 8.2 provided a warranty that, if the unit did not successfully complete at least one acceptance test over a seven day period, then the plaintiff would pay liquidated damages.  The agreement went on to provide in clause 8.6 that in no event should the plaintiff’s aggregate liability for any failure to meet specifications exceed a sum of $500,000 as liquidated damages.  Exhibit E to the agreement also provided that the liquidated damages should be in the form of a credit against royalties payable to the plaintiff under the licence agreement.

[15] There is a factual dispute as to whether an acceptance test was performed and completed successfully but it seems to me that the interpretation argument is also important in determining whether there is an issue that should go to trial dealing with the plaintiff’s performance of its obligations under the unit purchase agreement.  The defendants assert that the evidence suggests strongly that the precise requirements for a successful acceptance test have not been met and that the testing by a Mr Pritzel should not be regarded as an acceptance test for the purposes of the contract.  There seems to me, however, to be a sufficient issue raised by the evidence of Mr Pritzel in relation to whether the acceptance test had been completed successfully to require the matter to go to trial. 

[16] The operational specifications contained in ex. B to the unit purchase agreement referred to proportions of products of water, fuel, asphalt extender, base oil and colour calculated “approximately” by reference to percentages or by reference to a figure in the case of the colour specification.  There is disagreement about whether the observations made fell within those approximate measurements.  That degree of imprecision on the evidence before me leads to a factual argument that should be resolved at a trial.  Mr Pritzel’s observations were also criticised as not recording figures over the period of a week required by the acceptance test but there is also a contention on the evidence that he did conduct his observations over that period, another matter that requires a trial to resolve the differing views of the evidence.  That conclusion is reinforced by the arguments relating to the construction of the contract to establish an entitlement in the plaintiff to payment in any event subject to any obligation in it to pay liquidated damages.

[17] There also seems to me to be a reasonable case to be made at trial on the plaintiff’s interpretation argument that the plaintiff has a claim for royalties under the licensing agreement.  It is clear that a plant of some description has been supplied from which finished products have been sold in significant quantities.  There are arguments about the conformity of the plant with the specifications in the unit purchase agreement but also arguments as to the construction of the agreements to the effect that a liability to pay royalties might accrue even if the unit had not been built to specification or passed the acceptance test.  These too are issues that should go to trial. 

Strike out application – statement of claim

[18] There is a strike out application in respect of the allegations pleaded in the statement of claim, which for the reasons I have expressed in respect of the summary judgment application should fail on the basis that the essential elements of the relevant causes of action have been pleaded and there is sufficient evidence to establish the allegations pleaded.  They are analysed usefully in annexure one to the plaintiff’s written submission.

Strike out application –reply and answer

[19] The application to strike out passages from the reply and answer requires me to analyse orders made by McMurdo J in supervising the case on 25 January 2007. His Honour made these orders:-

“1. By 28 February 2007, the plaintiff will serve on the defendants a signed written statement of the proposed evidence-in-chief of each witness (including expert witnesses) to be called by it (other than witnesses covered by paragraph 3 below).

2. By 30 April 2007 the defendants will serve on the plaintiff a signed written statement of the  proposed evidence-in-chief of each witness (including expert witnesses) to be called by them.

3. By 12 June 2007 –

(a)the plaintiff will serve any statements which are purely responsive to material contained in the statements served by the defendants and which concerns an issue on which the defendants (or either of them) bear the onus of proof;

(b)Interline Resources Corporation delivers its witness statements.

4. Where the party serving a statement does at trial call the intended witness –

(a)the statement delivered by the party will stand as the evidence-in-chief of the intended witness;

(b)that party may not, without the leave of the court, lead evidence from that witness if the substance of the evidence is not included in the statement served.

5. Save with the leave of the court, no party may adduce evidence from any witness, in respect of whom witnesses statements have not been served in accordance with the directions made by the Court.

6. The matter be reviewed on a date to be fixed after 12 June 2007 for further directions, if required, in respect of delivery of witness statements.”

[20] The plaintiff’s submission is that it was not required to serve statements proving the matters alleged in its reply and answer and which concerned an issue on which the defendants or either of them bore the onus of proof until after it had received the defendants’ witness statements. 

[21] The defendants have argued that the plaintiff’s failure to provide evidence in respect of the allegations in the reply means that those allegations should be struck out. 

[22] The better view of paragraph 3(a) of his Honour’s orders seems to me to require the plaintiff to serve statements purely responsive to material contained in the statement served by the defendants and which concern an issue on which the defendants bear the onus of proof after the delivery of the proposed evidence in chief of each witness for the defendants.  That has not yet happened because of this dispute between the parties. 

[23] The defendants bear the onus of proof on their counterclaim and the plaintiff argues that where allegations in the defence go beyond a mere traverse and involve an affirmative plea of facts which, if established, constitute a good defence, then the defence bears the onus of proving every material part of that plea.  That seems to me to be correct and, when one analyses the allegations in the reply, the plaintiff’s submission is that it has consciously not yet put in evidence in respect of matters where it argues the defendant bears the onus of proof. 

[24] For example in respect of paragraphs 10 and 11 of the reply, which include allegations of breaches of contract by the second defendant as an explanation for a number of alleged breaches of contract which the defendants assert against the plaintiff in the defence and counterclaim, the plaintiff’s argument is that their witnesses intend to respond to the second respondent’s complaints about performance of the unit in a subsequent round of statements responsive to the second respondent’s complaints about performance of the unit.  It seems to me that it is appropriate to approach his Honour’s orders in that fashion even if one would not expect the plaintiff to split its case at the trial of the action in respect of such issues. 

[25] Other allegations made in the reply and answer also seem to be covered by evidence led in respect of allegations in the statement of claim.  Accordingly it seems to me that it is not appropriate at this stage to strike out any parts of the reply and answer as the time has not yet come for the plaintiff to deliver witness statements responding to the allegations made in the defence and counterclaim. 

Future performance of McMurdo J’s orders

[26] In my view the orders made by his Honour should also continue to determine the method by which the evidence is to be delivered before the matter goes to trial.  One issue is that the defendants allege that the plaintiff built the plant in such a way that it did not conform to the specification and that the defendants then modified the unit.  The plaintiff argues that it makes sense to have the defendants deliver statements articulating why the plaintiff did not conform with the specifications, how the plant was modified and then to have the plaintiff respond to make sure that both sides were not boxing at shadows.  That seems to make sense to me also. 

Order

[27] The result is that the application by the defendants should be dismissed.  I shall hear the parties as to costs. 

Close

Editorial Notes

  • Published Case Name:

    Interline Hydrocarbon Inc v Brenzil Pty Ltd

  • Shortened Case Name:

    Interline Hydrocarbon Inc v Brenzil Pty Ltd

  • MNC:

    [2007] QSC 294

  • Court:

    QSC

  • Judge(s):

    Douglas J

  • Date:

    17 Oct 2007

Litigation History

No Litigation History

Appeal Status

No Status