FEDERAL COURT OF AUSTRALIA Soufflet Beheer v AWB Limited [2004] FCA 518 practice and procedure – whether orders should be made to determine certain separate and preliminary questions – insufficiency of factual foundation – orders refused Federal Court Rules, O 29 r 2 Reading Australia Pty Ltd v Australian Mutual Providete Society [1999] FCA 718 followed Olbers Co Ltd v Commonwealth (No 3) [2003] FCA 651 followed Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 applied Carl Zeiss Stiftung v Herbert Smith & Co [1969] 1 Ch 93 referred to Dunstan v Simmie & Co [1978] VR 669 referred to CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 referred to Jacobson v Ross [1995] 1 VR 347 followed SOUFFLET BEHEER v AWB LIMITED ACN 081 890 459 V 587 of 2002 KENNY J 28 APRIL 2004 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 587 OF 2002 BETWEEN: SOUFFLET BEHEER APPLICANT AND: AWB LIMITED ACN 081 890 459 RESPONDENT JUDGE: KENNY J DATE OF ORDER: 28 APRIL 2004 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties' application for orders, by consent, to be made in conformity with the minute of order filed on 18 March 2004 be refused. 2. The matter be fixed for further directions at 10 am on 12 May 2004. 3. There be no order as to the costs of today. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 587 OF 2002 BETWEEN: SOUFFLET BEHEER APPLICANT AND: AWB LIMITED ACN 081 890 459 RESPONDENT JUDGE: KENNY J DATE: 28 APRIL 2004 PLACE: MELBOURNE REASONS FOR JUDGMENT introduction 1 The parties to this proceeding seek orders under O 29 r 2 of the Federal Court Rules for the determination of separate and preliminary questions. The proposed questions are: (a) whether, on about 3 August 1999, Soufflet USA and the respondent entered into a binding agreement whereby the respondent would pay to Soufflet USA the sum of US$421,380.22; (b) if so, whether, in the circumstances, the applicant is entitled to recover from the respondent the sum of US$421,380.22 for which it is liable under that agreement. On 18 March 2004, the parties submitted a minute of orders proposing this course. Counsel for both parties attended Court this morning to support their proposal. The applicant also relied on written submissions that were filed on 20 April 2004. 2 Order 29 rules 1 and 2 provide: 1. In this Order, question includes any question or issue in any proceeding, whether of fact or law or partly of fact and partly of law, and whether raised by pleadings, agreement of parties or otherwise. 2. The Court may make orders for - (a) the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings; and (b) the statement of a case and the question for decision. the proceeding 3 By a further amended application, which was filed 8 September 2003, the applicant seeks the following relief: 1. a declaration that, in the circumstances, the respondent is estopped from relying upon the provisions of clause 36 of the charter party to deny, and from otherwise denying, the applicant's claim for payment of the compromise amount, US$421,380.22; 2. damages, being the Australian dollar equivalent of US$421,380.22 converted at the exchange rate applying on the day of judgment; 2A. alternatively, equitable compensation, being the Australian dollar equivalent of US$421,380.22 converted at the exchange rate applying on the day of judgment; 3. alternatively, damages pursuant to section 82 of the Trade Practices Act 1974 (Cth); 4. alternatively, compensation pursuant to section 87 of the Trade Practices Act 1974 (Cth); 5. such further or other orders and relief (including orders pursuant to section 87 of the Trade Practices Act 1974 (Cth)) as the Court may deem necessary or appropriate in the circumstances; 6. interest; 7. costs. 4 The applicant, Soufflet Beheer, is a company incorporated in the Netherlands and claims as the assignee under certain deeds of assignment. According to the further amended statement of claim, which was filed on 8 September 2003, by these deeds of assignment, Soufflet USA Inc, which is a wholly owned subsidiary of the applicant, assigned to the applicant "Soufflet USA's right, title and interest in the debt being the subject of this proceeding" and "all of Soufflet USA's right, title and interest in the choses in action being the subject of this proceeding". The respondent was, at all relevant times, the chartered owner of the ocean going vessel MV Panamax Star ("the vessel"). In addition, according to the further amended statement of claim, "Soufflet Négoce acted as the agent of Soufflet USA with respect to negotiation of contractual and other business arrangements between Soufflet USA and third parties". 5 According to the further amended statement of claim, on about 18 February 1999, Soufflet USA and the respondent entered into a charter-party, pursuant to which the respondent agreed to charter the vessel to Soufflet USA to carry a cargo of hard red winter wheat ("the wheat") from Paulina, Louisiana, USA, to Damietta or El Dekheila, Egypt. The charter-party is said to be in writing. The applicant alleges that there were terms of the charter-party that: · the vessel was to be loaded by no later than 15 March 1999, failing which the respondent would pay to Soufflet USA demurrage in accordance with the charter-party; · the respondent was to pay to Soufflet USA a despatch premium if the vessel was despatched sooner than provided in clauses 12 and 20 of the charter-party; · the respondent was to pay to Soufflet USA an overage premium in the event that the age of the vessel exceeded 10 years, which premium was to be in accordance with the Lloyd's scale; · all disputes arising out of the charter-party were, within three months of the discharge of the cargo, to be referred to an arbitrator (or arbitrators) appointed under the charter-party and, in the absence of such appointment, all claims were deemed to be waived and absolutely barred; and · if the respondent wished to raise a dispute arising out of the charger party, it would notify Soufflet USA of that dispute within the time limit specified in clause 36 to enable Soufflet USA to exercise its rights under the charter-party. By its defence, filed on 17 October 2003, the respondent denies the first and last of these terms. 6 The applicant alleges that, in breach of the charter-party, the respondent did not complete loading the vessel until 28 March 1999. The parties agree that the wheat was discharged on 27 April 1999. The applicant further alleges that, as a consequence of the respondent's charter-party breach, Soufflet USA was unable to deliver the wheat to its Egyptian purchaser on time, thereby incurring additional charges and expenses. It claims that its loss amounted to US$439,557.83. By its defence, the respondent puts this matter in issue and says, in any event, it would not be liable for such a loss because of cl 37 of the charter-party. The respondent denies that it is liable to pay the amount of US$439,557.83. 7 By its further amended statement of claim, the applicant also alleges that, on 3 August 1999, Soufflet USA and the respondent entered into an agreement to compromise Soufflet USA's claim against the respondent in respect of the charter-party breach and incidental charges by reducing it from US$439,557.83 to US$421,380.22 ("the compromise amount"). The compromise agreement is alleged to be in writing. The applicant also alleges an accord and satisfaction, alternatively, an account stated. The applicant claims: In reliance upon the contract of compromise and/or the accord and satisfaction and/or the account stated, and the respondent's failure to advise that the parties were in dispute, Soufflet USA took no further action against the respondent believing that its claim in respect of the charter party breach and the incidental charges had been accepted. The applicant alleges that, in breach of these arrangements, the respondent has failed to make payment of the compromise amount. By its defence, the respondent denies this part of the applicant's case. 8 The applicant also pleads that, by its conduct, the respondent represented to Soufflet USA and caused it to assume that there was no dispute between the parties as to the amount Soufflet USA was entitled to receive in respect of the charter-party breach or that the dispute had been resolved. The applicant further alleges that, in reliance upon these assumptions, it did not take any further action against the respondent to enforce the charter-party and acted to its detriment in so doing. The applicant's case in this regard is that, in the circumstances, it is unconscionable for the respondent to rely on cl 36 of the charter-party to defeat its claim or to refuse payment of the compromise amount. Also, according to the applicant, the respondent is estopped from relying upon cl 36 or otherwise denying Soufflet USA's entitlement to payment, or has waived any such rights in this regard. By its defence, the respondent denies all these allegations. 9 Finally, the applicant alleges that the conduct of the respondent was misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth), in that the respondent did not notify Soufflet USA Inc "that they were in dispute, had no intention of being bound by its agreement to pay the compromise amount and failed to disclose that intention to Soufflet USA". The respondent denies this allegation. 10 In summary, by its defence, the respondent admits the charter-party and such of its terms as were in writing, but otherwise denies virtually all of the substantive allegations in the further amended statement of claim. In particular, the respondent denies that part of the applicant's case concerning the compromise amount. consideration 11 Order 29 r 2 gives the Court wide powers to regulate the procedures for the hearing and determination of a proceeding. The principles that govern the circumstances in which an order of the kind presently sought by the parties may be made are set out in Reading Australia Pty Ltd v Australian Mutual Providete Society [1999] FCA 718 ("Reading Australia") at [7] and [8] per Branson J. Her Honour's statement of these principles was recently reiterated by French J in Olbers Co Ltd v Commonwealth (No 3) [2003] FCA 651 ("Olbers") at [7]. In Reading Australia at [8], Branson J summarised the relevant principles as follows: The principles that govern the circumstances in which an order will be made under O 29 r 2 are relatively well established. They may be summarised as follows: (a) the term "question" in O 29 r 1 includes any question or issue of fact or law in a proceeding. The distinction in the rule between an "issue" and a "question" is the distinction between that which, when resolved, will result in an adjudication in favour of one party or the other, being an "issue", and less decisive matters of dispute being "questions" (Landsal Pty Ltd (in liq) v REI Building Society (1993) 113 ALR 643 at 647); (b) a question can be the subject of an order for a separate decision under O 29 r 2 even though a decision on such a question will not determine any of the parties' rights (Landsal Pty Ltd (in liq) v REI Building Society at 647); (c) however, the judicial determination of a question under O 29 r 2 must involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties (Bass v Permanent Trustee Co Ltd [1999] HCA 9 at para 45); (d) where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined (Jacobson v Ross [1995] 1 VR 337 at 341, referring to Nissan v Attorney-General [1970] AC 179 at 242-243 per Lord Pearson; Bass v Perpetual Trustee at para 53); (e) care must be taken in utilising the procedure provided for in O 29 r 1 to avoid the determination of issues not "ripe" for separate and preliminary determination. An issue may not be "ripe" for separate and preliminary determination in this sense where it is simply one of two or more alternative ways in which an applicant frames its case and determination of the issue would leave significant other issues unresolved (CBS Productions Pty Ltd v O'Neill [(1985) 1 NSWLR 601] per Kirby P at 606); (f) factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may – (i) contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or (ii) contribute to the settlement of the litigation (CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 per Kirby P at 607). (g) factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may – (i) give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial (GMB Research & Development Pty Ltd v The Commonwealth [1997] FCA 934); (ii) result in 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 (GMB Research & Development Pty Ltd v The Commonwealth; Arnold v Attorney-General for Victoria [1995] FCA 727). This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or (iii) prolong rather than shorten the litigation (GMB Research & Development Pty Ltd v The Commonwealth). 12 As French observed in Olbers at [8]: The overarching consideration informing the discretion to make an order under O 29 r 2 is efficient case management. It is subject to the limitation that the Court cannot give an advisory opinion on theoretical or hypothetical facts even if such an opinion were likely to lead to a settlement or resolution of the proceedings. 13 The parties invite the Court to make an order pursuant to O 29 r 2 upon the basis that: [T]he Court is to have regard to the following, which shall be treated as evidence for the purposes of that determination: (a) agreed statement of facts; (b) statement of Jean-Marc Philouze dated 19 June 2003, together with the annexures referred to in it; and (c) statement of Rohitha Welmillage dated 11 August 2003. The parties propose that the contents of these documents be treated as evidence for the purposes of the determination of the separate and preliminary questions. They also propose that they each have an opportunity to rely on an expert report "in respect of the term 'final accounts'". The respondent has filed a statement by Nicholas Simon Swales, on which the respondent proposes to rely, as an expert's report on the expression "final accounts" in the shipping industry. 14 The applicant submits that the parties propound a secure factual foundation for the Court to determine the proposed questions. Counsel for the applicant made clear today that the parties intended the questions to raise only the existence of the compromise agreement and liability under it. The applicant contends that the questions, if answered, will resolve the applicant's contractual claim, although it concedes claims involving estoppel, waiver, unconscionability and the Trade Practices legislation will remain. The applicant (with the respondent's consent) seeks to delay trial on these latter matters because, so it says, if the contractual claim is resolved in favour of the applicant, this will bring an end to the proceeding. Further, in its written submissions, the applicant submitted that: [T]he estoppel/waiver claims raise substantial factual issues, in terms of, for example, assumptions, reliance and, in the case of the TPA claim, damages. The question of damages on the TPA claim is likely to be particularly difficult to resolve, the quantum of the applicant's loss being the amount which would be recovered by Soufflet USA in arbitral proceedings for breach of the charter party … . The resolution of contentious factual questions arising in connection with the estoppel/waiver and TPA claim are likely to be exacerbated by the fact that both the applicant's and respondent's witnesses are overseas. 15 As I indicated in Court today, I am unpersuaded that the parties have in truth propounded a "secure factual foundation" for determining the proposed questions. The information in the agreed statement of facts is sparse. The parties are agreed on the principal contractual documents, the identity of the parties, the basis upon which the applicant, as assignee, claims an entitlement to sue, some central events (e.g. the delay in loading the vessel and its departure date), and some matters pertinent to the assessment of damages. The latter matters bear on the second proposed question. The remainder of the agreed statement of facts bears, generally, on the first question. The agreed "facts" are, however, scarcely adequate in relation to contractual liability or, indeed, quantum. 16 The witness statement of Jean-Marc Philouze, which was filed on 24 June 2003, provides more detail than the agreed statement of facts. Mr Philouze is an employee of Soufflet Négoce and was chief of operations between 1997 and 2000. Mr Philouze's statement describes the nature of his employer's business and the history of its dealings with the respondent. Mr Philouze narrates some of the events that concern entry into and performance of the charter-party between Soufflet USA and the respondent. He provides copies of the documents that bear upon his account. Much of his statement relates to the nature of the additional charges that Soufflet USA incurred as a result of the shipping delays, the circumstances in which Soufflet USA made payments to the respondent, and the subsequent negotiations between Soufflet USA and the respondent. It is evident, however, that a significant part of Mr Philouze's statement would, if tendered as evidence at trial, be inadmissible, being irrelevant, or opinion or hearsay evidence. When this is taken into account, Mr Philouze's statement is a relatively insubstantial document. 17 The second witness statement, to which the parties invite the Court to refer, is that of Rohitha Welmillage, which was filed on 12 August 2003. Ms Welmillage is a chartering officer employed by the respondent and held that position at the time of the matters in dispute. Her statement describes the way in which the respondent finalised accounts including calculations under charter-party agreements. She sets out certain details appearing on the respondent's file and her calculation of the balance of account of freight amounts due under the charter-party between Soufflet USA and the respondent. She also refers to the correspondence that ensued between the respondent and Soufflet USA on or after 3 August 1999. Leaving aside some real questions about the admissibility of some of this material if tendered at trial, Ms Welmillage's statement largely bears on the second of the proposed preliminary questions. The extent to which her statement does so may, however, well be a matter of debate. 18 The recently filed affidavit of Mr Smales, which was referred to above, also raises the possibility that there will be a significant contest in this case as to the meaning of "final accounts" in the shipping industry; the status of Mr Smales; and whether expert evidence is properly admissible in this regard. 19 I am not persuaded that it is just and convenient to make the orders sought by the parties under O 29 r 2. Plainly enough, the questions that the parties propose in this case are mixed questions of fact and law. In Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at 358, the High Court of Australia said as follows: Special problems can arise where the preliminary question is one of mixed fact and law. As Brooking J pointed out in Jacobson v Ross [[1995] 1 VR 337 at 341], it is necessary in that situation that there be precision both in formulating the question and in specifying the facts upon which it is to be decided. His Honour added: "Care must be taken to ensure that, in one way or another, all the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable … as facts assumed to be correct for the purposes of the preliminary determination, or as facts which both sides accept as correct, or as facts which are judicially determined. Failure to do this, and in particular failure to perceive that the facts alleged in a pleading are some only of the facts relevant to the determination of the preliminary question, may make the order for preliminary determination unfruitful." Quite apart from rendering the "order for preliminary determination unfruitful", the failure to identify the relevant facts or the means by which they are to be ascertained m ay result in procedures which do not conform to the judicial process. These observations are a salutary reminder that the Court should exercise the power conferred by O 29 r 2 with some caution, having particular regard to the proposed questions and proposed factual foundation. Intention will, it seems, be a critical element in determining contractual liability. The test of the intention is objective. The parties' subjective intention does not determine this issue. Generally, the intention of the parties will be inferred objectively from their conduct, including what they wrote, and from any other relevant circumstance, including the context in which the agreement is alleged to have arisen. I am not satisfied that, if the Court proceeded as the parties invite it to do, it would have a sufficiently secure and clear basis to determine matters of intention and the like, which are relevant to contractual enforceability. As I have indicated, the parties have not provided, by way of agreement, a sufficiently secure factual foundation to enable the proposed questions to be resolved efficiently and reliably. 20 Further, unless the applicant succeeds in having the Court resolve these questions in its favour, the resolution of them will not bring an end to the proceeding in a way contemplated in the authorities: see Carl Zeiss Stiftung v Herbert Smith & Co [1969] 1 Ch 93 at 98-99; Dunstan v Simmie & Co [1978] VR 669 at 671; and CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 at 607. If the applicant fails on this part of its case, there remain its other claims. Counsel for the applicant indicated today that the applicant presently intended to maintain all the causes of action set out in its further amended statement of claim (save, perhaps, for that arising directly from the charter-party itself). If the applicant is unsuccessful, it seems likely that the matters relevant to the proposed questions would also be relevant to the determination of the remainder of the applicant's claims (or some of them). I note that the facts upon which the applicant relies to support the "compromise agreement" are the same facts upon which it relies to support an "accord and satisfaction" and an "account stated". The same facts are also relevant to the applicant's claims of estoppel, waiver, unconscionable conduct, and breach of trade practices legislation. Given the insecure nature of the factual foundation proposed for determination of the preliminary questions, there is, it seems to me, a real risk that the Court would find itself determining different aspects of the same case on different factual footings. 21 The proposed preliminary questions do not emerge from the pleadings with the clarity that the authorities require: see Dunstan v Simmie & Co [1978] VR 669 at 671. The questions are loosely drafted and without requisite particularity: compare Jacobson v Ross [1995] 1 VR 347 at 340 per Brooking J. For example, the second proposed question asks whether "in the circumstances" the applicant is entitled to recover the sum specified. The expression "in the circumstances" is an insufficient description of the events upon which the applicant relies to support its entitlement to payment. The respondent submitted today that the only relevant circumstance was intended to be an enforceable compromise agreement. This serves, however, to emphasise the lack of clarity in the questions proposed. 22 Counsel for the respondent stated it supported the proposed orders because it considered that the remaining causes of action alleged against the respondent had no real prospects of success, and that settlement was likely to ensue once the question of the compromise agreement was resolved. The applicant did not submit, however, that the preliminary and separate determination of the proposed questions would be likely to lead to a settlement of the proceeding as a whole. I am, therefore not persuaded that the resolution of the proposed questions would significantly improve the prospects of settlement. Bearing in mind this and the other matters I have mentioned, it seems to me that, if I were to make the orders the parties seek, there is a real risk that the ensuing litigation will be made longer, and not shorter as the applicant submits. 23 For the reasons stated, I refuse to make an order under O 29 r 2 in the form and to the effect sought by the applicant, with the respondent's agreement. There will be no order as to costs. 24 At the hearing today, counsel for the parties discussed how the matter might proceed. There are, plainly, a number of possibilities. The parties should be given some additional opportunity to consider their position. To this end, I propose that the matter be fixed for directions on 12 May 2004. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 28 April 2004 Counsel for the Applicant: Ms W A Harris Solicitor for the Applicant: Dibbs Barker Gosling Counsel for the Respondent: Mr P J Riordan SC Solicitor for the Respondent: Blake Dawson Waldron Date of Hearing: 28 April 2004 Date of Judgment: 28 April 2004