New South Wales Supreme Court CITATION : CSR Investments Pty Limited v Alcan Northern Territory Alumina Pty Limited [2003] NSWSC 1137 HEARING DATE(S) : 2/12/03 JUDGMENT DATE : 2 December 2003 JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Motion dismissed. CATCHWORDS : Practice and Procedure - Commercial Contract - Claim for equitable set off - Summary dismissal - General Steel considerations - Practice and Procedure - Separate question determination - Overriding Purpose Rule Customs Regulations 1926 (Cth) LEGISLATION CITED : Supreme Court Act 1970 (NSW) Supreme Court Rules 1970 (NSW) Arrowcrest Group Pty Ltd v Gill (1993) 46 FCR 90 Australian Building Industries Pty Limited v Stramit Corporation Limited (Unreported, Federal Court of Australia, 1 December 1997; BC9706333) Australian Iron & Steel Pty Ltd v Jumbo Scheepvaart Maatschappij (Curacao) (1988) 14 NSWLR 507 Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326 AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] AC 1056 Barclays Bank v Tom [1923] 1 KB 221 Blackburn v New South Wales (Unreported, Supreme Court of New South Wales, Hunt J, 31 January 1991, Hunt J) British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] 1 QB 137 CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 Commonwealth Development Bank of Australia Limited v Windermere Pastoral Co. Pty Limited (Unreported, Supreme Court of New South Wales, 8 June 1999, Rolfe J; BC9902982) D Galambos & Son Pty Limited v McIntyre (1974) 5 ACTR 10 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Dunstan v Simmie & Co Pty Ltd [1978] VR 669 Everett v Ribbands [1952] 1 KB 112 Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] QB 927 General Credits (Finance) Pty Limited v Stoyakovich [1975] Qd R 352 General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125 GIO Australia Holdings Ltd v Steffey [2001] NSWSC 928 Government of Newfoundland v Newfoundland Railway Company (1888) 13 App Cas 199 CASES CITED : Grant v NZMC Ltd [1989] 1 NZLR 8 Griffiths v Northern Territory of Australia [2003] FCA 1177 Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 Hill v Ziymack (1908) 7 CLR 352 Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 James v Commonwealth Bank of Australia (1992) 37 FCR 445 James v The Commonwealth Bank of Australia (1992) 109 ALR 334 Just Juice Corporation Pty Ltd, Re (1992) 37 FCR 445 Landsal Pty Ltd (in liq) v REI Building Society (now the Co-operative Building Society of South Australia) (1993) 41 FCR 421 Lord v Direct Acceptance Corp Ltd (1993) 32 NSWLR 362 Love v Mirror Newspapers Ltd [1980] 2 NSWLR 112 McCann v Fenech (Unreported, Supreme Court of New South Wales, Master Malpass, 22 July 1996) MEK Nominees Pty Ltd v Billboard Entertainments Pty Ltd (1993) V Conv R 54-468 Munnings v Australian Government Solicitor (1994) 68 ALJR 169 Rajski v Carson (1988) 15 NSWLR 84 Rawson v Samuel (1841) Cr & Ph 161; 41 ER 451 Roadshow Entertainment Pty Limited v (ACN 053 066 259) Pty Ltd (1997) 42 NSWLR 462 Rocklea Spinning Mills Pty Ltd v Anti-Dumping Authority (1995) 56 FCR 406 Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 299 Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 Tepko Pty Limited v Water Board (2001) 178 ALR 634 Tooth v Brisbane City Council (1928) 41 CLR 212 Webster v Lampard (1993) 177 CLR 598 PARTIES : CSR Investments Pty Limited (Plaintiff/Cross Defendant) Alcan Northern Territory Alumina Pty Limited (Defendant/Cross Claimant) FILE NUMBER(S) : SC 50088/03 COUNSEL : Dr AS Bell (Plaintiff/Cross Defendant) Mr BP Jones (Defendant/Cross Claimant) SOLICITORS : Freehills (Plaintiff/Cross Defendant) Deacons (Defendant/Cross Claimant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Tuesday 2 December 2003 ex tempore Revised 5 December 2003 50088/03 CSR Investments Pty Limited v Alcan Northern Territory Alumina Pty Lmited JUDGMENT The proceedings 1 These proceedings relate to an agreement entered into on 21 December 2000 for the sale by CSR Investments Pty Limited ["CSRI"] and the purchase by Alcan Northern Territory Alumina Pty Ltd ["ANTA"] of CSRI's shares in Gove Aluminium Limited (GAL) ["the Agreement" or "the SSA"]. GAL is a participant in a joint venture for mining bauxite and refining it into alumina at Gove in the Northern Territory. 2 Clause 4 of the Agreement sets out the purchase price payable by ANTA to CSRI in consideration for CSRI's shares in GAL, and also makes allowance for various adjustments to the purchase price in certain defined circumstances. The claims, which are the subject of the proceedings, primarily arise out of these adjustment provisions. 3 It is unnecessary to repeat the record save to note that: · the proceedings were commenced on 8 July 2003, the amount claimed by CSRI being approximately A$32.8 million; · On 18 July 2003 the Court made orders for the conduct of the proceedings up to the close of pleadings; · On 15 August 2003, ANTA filed its defence to the summons and filed its cross-claim; · On 12 September 2003, CSRI filed its reply and defence to the cross-claim; · On 26 September 2003 ANCA filed its reply. The notice of motion 4 There is before the court a notice of motion dated 3 October 2003 brought by CSRI claiming: (a) an order that paragraph 4.9 of ANTA's Defence be struck out; and (b) an order that ANTA's Cross-claim be tried separately, and subsequently, to CSRI's Summons; or (c) alternatively to (b), an order that the questions of construction identified in the Notice of Motion be determined prior to, and separately from, the issues the subject of ANTA's Cross-claim. Overview position as put by CSRI 5 The short overview position as put from CSRI's perspective is as follows: · CSRI seeks to strike-out paragraph 4.9 of ANTA's defence (a purported claim for equitable set-off) on the basis that, whatever the merits of ANTA's cross-claim in the proceedings, no facts are said to be disclosed, pleaded or particularised that would promote that claim to the status of a defence in equity. · CSRI seeks the orders for a separate hearing on the basis that its claim is said to involve a confined legal argument on a common factual base as to the correct construction of a particular clause in an agreement between the parties. CSRI contends that, in contrast, ANTA's claims will involve a complex matrix of facts, lay evidence and technical expert evidence and consequential cross-examination of numerous witnesses, the review and discovery of extensive documentary material to be obtained from the parties and third parties and a lengthy hearing. There is said to be no factual or legal overlap between CSRI's claim and ANTA's claims. The quantum of CSRI's claim (US$21.9 million, being A$30.3 million at current exchange rates) apparently far exceeds that of both ANTA's claims together (at most, A$18.3 million). · CSRI further submits that it is appropriate for the Court to exercise its discretion to order a separate hearing and determination of CSRI's claim irrespective of the outcome of the application to strike out the defence of equitable set-off. It is said that this is because that defence, if properly available (CSRI contends it is not), is at best a partial defence to what is a very substantial claim. The claim put forward is that CSRI's claim can be disposed of quickly and in advance of the much more complex and time consuming process of dealing with the cross-claim which is, in any event, said to be the same as the alleged set-off defence. 6 Both parties have addressed detailed written submissions in relation to the motion presently before the court. The convenient course is to commence by setting out CSRI's submissions. CSRI submissions 7 CSRI advanced the following submissions in support of the orders which it seeks in the motion: " 2.2 Calculation of the purchase price 10. The purchase price payable by ANTA in consideration for CSRI's shares in GAL is calculated by reference to clause 4.1 of the Agreement. Clause 4.1 of the Agreement is " subject to clauses 4.2, 4.3, 4.4, 4.5, 4.6 and 10.10" of the Agreement. Those provisions provide for adjustments to the purchase price in certain defined but quite separate and different circumstances. 11. Clause 4.1 of the Agreement provides two alternative methods for calculating the purchase price, namely: (a) under clause 4.1(a)(1) if, on the Completion Date, Rebate Legislation (as defined in clause 4.6) has been passed and has become operative, and that Rebate Legislation meets certain other prescribed conditions, the purchase price is US$275 million, and clause 4.6 shall have no effect. (b) alternatively, under clause 4.1(a)(2), if Rebate Legislation has not been passed and has not become operative on the Completion Date, the purchase price is US$250.5 million, and clause 4.6 has effect. 12. The parties agree that, on the Completion Date, Rebate Legislation (as defined in clause 4.6) had not been passed. Accordingly, ANTA paid US$250.5 million in consideration for CSRI's shares in GAL and the operation of clause 4.6 of the Agreement was triggered. The effect of clause 4.6 of the Agreement is summarised below. 13. Each of the adjustment provisions in clauses 4.2 to 4.6 of the Agreement deals with a distinct subject matter and, depending on the prevailing circumstances at the relevant time, any one or more of the adjustment provisions may or may not be applicable. Each of those adjustment provisions is distinct from, and operates independently of, the others. CSRI's claim in the Proceedings relates to clause 4.6 of the Agreement ( Fuel Oil Rebate claim ) , while ANTA's claims relate to wholly different subject matter arising through clauses 4.2, 4.3 and 7.5 of the Agreement ( Working Capital claim ), and through clause 4.5 of the Agreement ( Ore Reserves claim ). Set out below is a summary of each adjustment provision and the related dispute between the parties. 2.3 Fuel Oil rebate 14. Clause 4.6 of the Agreement provides for an adjustment to the purchase price payable by ANTA in circumstances where Commonwealth legislation is passed before or within two years of Completion which entitles the participants in the Gove Joint Venture to receive a rebate on excise duty (defined as including customs duty) paid on fuel oil imports used by the Gove Joint Venture ( Excise Duty ). 15. The Rebate Adjustment is payable by ANTA within 10 Business Days of the later of the legislation becoming operative, and the parties agreeing (or the Rebate Expert determining) the appropriate adjustment amount under clause 4.6(f) of the Agreement. 16. As noted above, as relevant legislation had not been passed by the Completion Date, clause 4.6 of the Agreement was triggered. However, as at Completion, interim allowances had been made (by Regulation) which, the parties agreed, entitled CSRI to an additional sum of US$2.6 million on Completion. CSRI accepted this sum without prejudice to its rights to make further claims for Rebate Adjustments under clause 4.6 in respect of any Rebate Legislation passed after Completion. Further legislation was passed after Completion which, CSRI contends, and ANTA disputes, falls within the definition of Rebate Legislation in clause 4.6 of the Agreement as correctly construed. ANTA has had (and will continue to have) the benefit of the rebate contemplated by the Agreement and provided by the legislation passed since Completion. Accordingly, CSRI contends that it is entitled to be paid the sum of US$21.9 million representing a purchase price adjustment. 17. The dispute between the parties involves: (a) the true construction of clause 4.6 of the Agreement; and (b) whether pursuant to clause 4.6 of the Agreement, CSRI is entitled to further payments from ANTA by reason of the passing of Rebate Legislation entitling the participants in the Gove Joint Venture to continue to receive the rebates of Excise Duty paid in relation to fuel oil. 18. ANTA contends (it is submitted, incorrectly) that on a true construction of the Agreement: (a) only one Rebate Adjustment is payable under the Agreement and this has already been paid to CSRI; (b) the legislation identified in paragraph 8 of CSRI's Summons is not "Rebate Legislation" for the purpose of clause 4.6 of the Agreement; and (c) the proper construction of clause 4.6(f) requires the calculation called for by that clause to take into account "any clear likelihood of the supply of natural gas to Gove within the foreseeable future". Alternatively, ANTA contends that a clause to this effect should be implied into the Agreement. 2.4 Management Accounts and Completion Balance Sheet 19. Clause 4.2 of the Agreement provides that the parties are to use their best endeavours to procure that management prepares Management Accounts (being the pro-forma balance sheet of GAL as at the Completion Date) and a Completion Balance Sheet. 20. An adjustment to the purchase price may be payable, in the form of an additional payment by one of the parties, based on the Management Accounts. That adjustment must be paid as soon as is reasonably practicable, and in any event within 5 business days after completion of the Management Accounts (which must be prepared as soon as possible, and in any event within 14 days after Completion). 21. Clause 4.3 of the Agreement provides for the payment of a further adjustment if there are differences between the figures in the Completion Balance Sheet and the figures in the Management Accounts. Any adjustment payable pursuant to clause 4.3 is to be made within 5 days after the delivery of the Completion Balance Sheet and Auditors Report pursuant to clause 7.4, or if applicable, within 5 days of the Audit Expert's determination pursuant to clause 7.5. 22. In brief summary, ANTA alleges: (a) that it was entitled to dispute the audit of the Completion Balance Sheet which was issued in relation to GAL's accounts on Completion; (b) it was entitled to appoint an Audit Expert to review the accounts and make a determination based on that review; and (c) based on the results of that determination, CSRI is obliged to pay ANTA A$1.941 million. 23. CSRI says that the purported dispute notice issued by ANTA was invalid because it was not issued in accordance with the terms of the Agreement. CSRI also says (without prejudice to the first issue) that the determination was not made in accordance with clause 7.5 and is not valid or binding. 2.5 Development capital 24. In understanding the adjustment regime in the Agreement it should be noted that there are other quite different events which have self-contained adjustment provisions. For example, clause 4.4 of the Agreement provides for an adjustment to the purchase price payable to CSRI at Completion in the event that GAL contributes to specified capital projects or makes payments pursuant to specific obligations in clause 5 of the Gove Joint Venture Agreement. 2.6 Ore Reserves 25. Clause 4.5 of the Agreement provides a mechanism for determining whether the total net tonnage of bauxite ore reserves (with a certain average grade tolerance) at Gove as at 31 December 1999 is 189 million tonnes. 26. The process prescribed by clause 4.5 contemplates the preparation of a report by Kidman & Associates Pty Limited ( Kidman Report ). The Kidman Report was to provide an assessment of the total tonnage of bauxite ore reserves (as adjusted for grade correction factors) at Gove as at 31 December 1999. 27. Depending on the report's findings, an adjustment would be payable by CSRI to ANTA if the total estimated tonnage of reserves (as adjusted) was less than 189 million tonnes as at 31 December 1999. Although the adjustment is payable within 10 business days of the "final" report being delivered to ANTA and CSRI, there is no set time provided for in the Agreement within which the final Kidman Report is to be prepared. 28. ANTA alleges: (a) that a Kidman Report was prepared by Kidman & Associates Pty Limited and that ANTA is entitled to issue a Dispute Notice and appoint a Reserves Expert pursuant to clause 4.5(g) of the Agreement to review Mr Kidman's assessment documents; or (b) alternatively, ANTA accepts the validity of the documents prepared by Kidman & Associates Pty Limited and alleges that, based on Kidman & Associates Pty Limited's assessment of the total estimated tonnage of bauxite ore reserves, CSRI is obliged to pay ANTA US$8.4 million. 29. CSRI says that, as the report prepared by Kidman & Associates Pty Limited was not a "final" report as required by the terms of the Agreement, there is no event which has triggered the requirement for CSRI to make any payments to ANTA. Further, CSRI says that the Dispute Notice issued by ANTA was not a valid notice under the terms of the Agreement. Alternatively, CSRI says that if the report prepared by Kidman & Associates Pty Limited is the Kidman Report, then that report contains manifest errors entitling CSRI to deliver a dispute notice for the purposes of clause 4.5(g) of the Agreement. 2.7 Ore Reserves - Warranty 30. Clause 4.5(h) of the Agreement provides, as an alternative, that if the Kidman Report has not been delivered to the parties, CSRI warrants that the total bauxite ore reserves as at 31 December 1999 are 189 million tonnes (as adjusted for grade correction factors). 31. ANTA alleges that, alternatively to the Ore Reserves claim, CSRI is obliged to pay ANTA US$11.9 million on the basis that CSRI has breached the warranty in clause 4.5(h) of the Agreement. ANTA alleges that the total bauxite ore reserves are 154 million tonnes and not 189 million tonnes as warranted by CSRI. 32. CSRI denies that it has breached the warranty. It also contends ANTA is not entitled to make any claim under clause 4.5(h) of the Agreement because ANTA has failed to comply with the notification of the limitation of time provisions in clauses 10.7 and 10.8 of the Agreement. 3 ANTA's Defence of equitable set-off 33. ANTA alleges (it is submitted, incorrectly) that the claims the subject of its Cross-claim are sufficient to give rise to an equitable set-off. ANTA's allegation of an equitable set-off is set out in paragraph 4.9 of its Defence as follows: (a) liquidated claim for A$1.941 million pursuant to clauses 4.3 and 7.5 of the Agreement; (b) liquidated claim for US$8.4 million pursuant to clause 4.5(g) of the Agreement; (c) alternatively to (b), an unliquidated claim for US$11.9 million pursuant to clause 4.5(g) of the Agreement; (d) alternatively to (b) and (c), an unliquidated claim for US$11.9 million pursuant to clause 4.5(h) of the Agreement. 34. Despite CSRI's 3 September 2003 request (exhibit HKCS1, pages 224-225) for an explanation of the basis on which ANTA alleges its Cross-claim creates an entitlement to an equitable set-off, ANTA has not provided any additional information to support its Defence. Instead, ANTA's 7 September 2003 response to CSRI's request for particulars (exhibit HKCS1, page 226-228), merely refers to various paragraphs of its Cross-claim as "particulars" of its Defence. CSRI submits paragraph 4.9 is merely a repeat of ANTA's Cross-claim. The claims brought by ANTA are entirely unrelated to CSRI's claim and do not provide a basis for a defence of equitable set-off. 3.1 Law of equitable set-off in Australia 35. In Rawson v Samuel (1841) Cr & Ph 154; 41 ER 451 (at 458) Lord Cottenham established that the mere existence of a cross-demand is not a sufficient basis for an equitable set-off. Instead, what is required is that the applicant for relief show good equitable grounds for being protected from the plaintiff's demand such that the plaintiff's title to its demand is impeached. Accordingly, the defence of equitable set-off will not necessarily be available in circumstances where the basis for the claim is that the cross-demand arises out of the same contract as the claim against which the set-off is sought. 36. The test established by Lord Cottenham in Rawson v Samuel has been applied and explained in numerous decisions in Australia: e.g. Hill v Ziymack (1908) 7 CLR 352 at 360-362. In Lord v Direct Acceptance Corp (1993) 32 NSWLR 362 at 367, Sheller JA (with whom Kirby P and Meagher JA concurred) approved the view of the concept of equitable set-off as stated in Meagher, Gummow and Lehane, Equity, Doctrines and Remedies , 3rd ed (1992), paragraph 3709(h) at 818, to the effect that: "It is an indispensable requirement of equitable set-off that the set-off actually go to the root of, be essentially bound up with, and "impeach" the title of the plaintiff." 37. Similarly, in Just Juice Corporation Pty Ltd, Re; James v Commonwealth Bank of Australia (1992) 37 FCR 445, Gummow J applied and discussed the formulation of the test in Rawson v Samuel . His Honour stated at 457-458: "... equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from his adversary's demand and the mere existence of cross-demands is not sufficient. …" 38. Gummow J cited the New Zealand Court of Appeal's decision in Grant v NZMC Ltd [1989] 1 NZLR 8 at 13 where the Court observed that "it is neither necessary, nor decisive , [for equitable set-off to be available] that claim and cross-claim arise out of the same contract" (emphasis added). 39. The learned authors of the 4th edition of Meagher, Gummow and Lehane's, Equity, Doctrines and Remedies (Butterworths, 4th ed., 2002) have noted that " in Australia, the initial test of impeachment is still generally applied " (paragraph 37-050, page 1062) and a similar observation has been made by the learned author of The Law of Set-Off (Derham, R., The Law of Set-Off , Oxford University Press, 3rd ed., 2003, paragraph 4.21) as follows: "In Australia the courts have been more prepared to emphasize impeachment of title as the basis of equitable set-off, and generally have tended to be more conservative on questions of equitable set-off than their English counterparts." 40. The concept of "impeachment" has been expressed in various ways. It has been described: (a) as requiring a cross-demand to go to "the very root of the plaintiff's claim": British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137 at 145; or (b) as requiring the cross-demand to call into question, impugn, disparage or impede the title to the claim: MEK Nominees Pty Ltd v Billboard Entertainments Pty Ltd (1993) V Conv R 54-468; or (c) as requiring the cross-claim to flow out of and to be inseparably connected with the dealings and transactions which also give rise to the claim: Tooth v Brisbane City Council (1928) 41 CLR 212 at 224; Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] AC 1056; or (d) as requiring that the link between the respective demands must be such that the two demands in effect are interdependent: Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 at 312. 41. Another formulation of the test of equitable set-off, which appears to derive from the decision of Lord Denning in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] QB 927, suggests that the ultimate test is whether it would be unjust, or inequitable, that a plaintiff should be allowed to proceed with its claim without regard to the claim of the defendant. This formulation of the test requires consideration of the relationship and closeness of connection between the two claims and the general conduct of the parties and has been applied in certain instances in Australia: see AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705, especially at 710-711, per Giles J; Australian Mutual Provident Society v Specialist Funding Consultants (1991) 24 NSWLR 326 at 328-9, per Rogers CJ. 3.2 ANTA's Cross-claim does not entitle it to an equitable set-off 42. ANTA's Cross-claim does not "impeach" or "go to the root of" CSRI's title to its claim. 43. The clauses giving rise to ANTA's claims (working capital and ore reserves adjustment) are entirely unrelated to, and operate quite independently of, the clause giving rise to CSRI's claim (fuel oil rebate). Each clause is self-contained and provides its own source of entitlement to adjustment. Any entitlement ANTA may have to an adjustment to the purchase price under clauses 4.2 / 4.3 (Working Capital) or 4.5 (Ore Reserves), does not impugn or call into question CSRI's claim to an adjustment under clause 4.6 of the Agreement. 44. The operation of each adjustment provision in the Agreement is summarised in paragraphs 14 to 32 of these submissions. It can be seen from that summary, and from a reading of clause 4 of the Agreement, that there is no relevant connection between the subject matter of each adjustment provision. Moreover, to the extent that an adjustment is payable, the time for the payment of each adjustment also operates independently of each other adjustment provision. For example, clause 4.5 of the Agreement contemplates an adjustment being paid by CSRI to ANTA on the basis of the findings contained in the Kidman Report as to the quantity of ore reserves at Gove as at 31 December 1999. There is no time prescribed by clause 4.5 (or at all) for the preparation of the Kidman Report. By contrast, where an adjustment is payable pursuant to clause 4.6 of the Agreement (fuel oil rebate), that adjustment is payable within 10 Business Days of the later of the Rebate Legislation becoming operative, and the parties agreeing (or the Rebate Expert determining) the appropriate adjustment amount under clause 4.6(f) of the Agreement. For an adjustment to be payable, the Rebate Legislation must have become operative before or within 2 years of Completion. 45. Further, the language of the relevant provisions in the Agreement is drafted in terms of additional payments to and from each of the parties at various times after completion rather than in terms of adjustments to be made to the Purchase Price or a setting-off exercise to be conducted in relation to those additional payments. For example, clause 4.1(c) states: "Any payments made by the Seller under clause 4.2, 4.3, 4.5 or 10.6 shall be in reduction of the Purchase Price. Any payments made by the Buyer under clauses 4.2, 4.3, 4.4 or 4.6 shall increase the Purchase Price." As noted above, each of those payments is to occur at a different time. 46. In substance the matters raised as grounding the defence of equitable set-off are no more than a repeat of distinct claims more properly raised as cross-claims and which should be dealt with in that way. Equity does not require that they be permitted to be raised by way of (in this case partial) defence. In this context, there is nothing that makes it "positively unjust" or generates an "equity" in ANTA that requires its Cross-claim to stand as an equitable defence. In short, it is neither unjust nor inequitable that CSRI should be permitted to proceed with its claim without regard to ANTA's claim which is sought to be raised by way of defence. 47. The plea of equitable set-off as a defence is also deficient in point of pleading and particularity. 48. Accordingly, CSRI submits that paragraph 4.9 of ANTA's Defence should be struck-out. 4 Separate Determination/Separate Hearing 4.1 Summary of basis for application 49. CSRI submits that it is appropriate for the Court to exercise its discretion and hear CSRI's claim separately and in advance of ANTA's claims principally for the reason that CSRI's claim involves a narrow question of construction which can be heard in one day. By contrast, the allegations made in the Working Capital claim and the Ore Reserves claim, and CSRI's Defence to those allegations, raise a number of issues which will require an extensive analysis of complex facts, require both lay and highly technical expert evidence and will involve a lengthy trial. 50. In addition: (a) there is no risk of an inconsistent finding of fact if CSRI's claim is heard separately from, and in advance of, ANTA's Cross-claims; (b) the separate early determination of CSRI's claim would dispose of the whole of CSRI's claim and, therefore, a substantial part of the proceedings; (c) there is a clear demarcation (both factually and legally) between the issues raised in CSRI's claim and those raised in ANTA's Cross-claims and, therefore, the issues in CSRI's claim are clearly severable; (d) there is a significant disparity between the time required for preparation and hearing of CSRI's claim, and the time required for the preparation and hearing of ANTA's Cross-claims; (e) there is a significant disparity between the quantum of CSRI's claim (A$30.3 million) and ANTA's claims (at most, A$18.3 million); (f) it is neither just nor equitable that the determination of CSRI's substantially greater and wholly different claim be delayed pending the resolution of ANTA's factually and legally complex Cross-claim. (g) an order for a separate determination will not give rise to any material delay in ANTA prosecuting its claims; (h) an order for a separate determination is unlikely to burden the parties with any material additional expenses in preparing for trial; and (i) as no witnesses are required for determination of CSRI's claim, there is no issue of the credibility of witnesses material to the remaining issues in the Proceedings. 4.2 Court's power to order separate determination 51. CSRI submits that its claim is appropriate for resolution separately and in advance of ANTA's claims in accordance with the requirements of Part 6 Rule 4(a) of the Supreme Court Rules 1970 (NSW) ( SCR ) or Part 31 Rule 2 of the SCR. 52. Part 6 Rule 4(a) of the SCR provides that: "Without limiting the generality of Part 26, the Court may, at any stage of the proceedings, on terms: (a) order that any Cross-claim or any question or issue in or arising on any Cross-claim be separately tried; …" The terms of SCR Rule 6 Part 4(a) enable the Court to make an order for a separate (and subsequent) trial of ANTA's Cross-claims. In this context, CSRI submits that the discretionary principles discussed in paragraphs 59 to 73 below are applicable. 53. SCR Part 31 Rule 2 provides that: "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." 54. A "question" includes any question or issue in any proceedings, whether of fact or law or partly of fact and partly of law, and whether raised by pleadings, agreement of parties or otherwise. 55. The court also has an inherent power, as an incident of its power to control its own procedure, to make an order for the separate determination or trial of an issue: Landsal Pty Ltd (in liq) v REI Building Society (now Co-op Building Society of South Australia) (1993) 41 FCR 421; Arrowcrest Group Pty Ltd v Gill (1993) 46 FCR 90. 56. The power of the Court to order the separate determination (or trial) of an issue is discretionary and must be exercised judicially, but is otherwise not fettered: Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215; Dunstan v Simmie & Co Pty Ltd [1978] VR 699. 57. Although in the ordinary course all issues in the proceedings should be decided at the same time, there are circumstances, such as here, when it will be in the interests of justice to order a separate determination: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141; Love v Mirror Newspapers Ltd [1980] 2 NSWLR 112; in the context of SCR Part 6 Rule 4(a) see Barclay's Bank v Tom [1923] 1 KB 221 at 223-224; Blackburn v The State of NSW (unreported, NSWSC, 31 January 1991, Hunt J); Australian Iron & Steel Pty Ltd v Jumbo Scheepvaart Maatschappij (Curacao) (1988) 14 NSWLR 507 at 521. 58. In exercising the power, the Court is required to give effect to the overriding purpose of the SCR, namely to facilitate the "just, quick and cheap" resolution of the real issues in the proceedings: SCR Part 1 Rule 3; see also Idoport Pty Ltd v National Australia Bank Limited at paragraph 7(3); GIO Australia Holdings Ltd v Steffey [2001] NSWSC 928 at paragraph 17. 4.3 Relevant principles for the exercise of the Court's discretion 59. Set out below are the principles which can be distilled from the authorities as relevant to the exercise of the Court's discretion to order a separate determination or separate hearing. We have addressed each principle in the context of CSRI's submission by reference to the facts of this case. No risk of an inconsistent finding of fact · Where there is a clear demarcation between the issues sought to be determined separately, including issues going to credit of witnesses, a separate determination may be more readily entertained: Rajski v Carson (1988) 15 NSWLR 84; Tallglen Pty Ltd; CBS Productions Pty Ltd. · Conversely, it is often the case that the need to make findings of fact for a decision of the separate question, especially findings which may involve issues of credit, tells strongly against the making of an order because related facts, and renewed issues of credit, will or may arise at a later stage in the proceedings: Tallglen Pty Ltd. 60. There is a clear demarcation between the issues sought to be resolved in CSRI's claim and those in ANTA's Cross-claims. There is no overlap in the factual or legal issues which the court is required to consider to resolve each claim. Indeed, there are no contentious factual issues in CSRI's claim. On the basis of a number of admissions which ANTA makes in its Defence (see below), CSRI will not need to lead any evidence in support of its claim other than a limited documentary tender. Accordingly, there is no risk of any inconsistent finding of fact if the Court makes an order for a separate trial or a separate determination of CSRI's claim. 61. The critical admissions made in the pleadings by ANTA, which remove any disputed question or issue of fact from CSRI's claim, are set out below. (a) Clause 4.6 of the Agreement provides for an adjustment to the Purchase Price in favour of CSRI where Commonwealth legislation (defined in the Agreement as "Rebate Legislation") is "passed before or within two years of Completion" which entitles GAL to a rebate on Excise Duty paid in respect of fuel oil imports used by the Gove Joint Venture (ANTA admits this in paragraph 1 of its Defence). (b) Completion of the Agreement occurred on 31 January 2001 (ANTA admits this in paragraph 1 of its Defence). (c) Within two years of Completion legislation was passed, in three separate tranches, which entitled GAL to a rebate on Excise Duty paid in respect of fuel oil imports used by the Gove Joint Venture: (1) The first tranche of legislation came into effect on or about 28 June 2000, and was accordingly passed "before or within two years of Completion" (see paragraphs 17 and 19 of CSRI's Summons). ANTA admits this in paragraph 1 of its Defence; (2) the second tranche of legislation came into effect on or about 1 October 2001 (see paragraphs 23 and 25 of CSRI's Summons). ANTA admits this in paragraph 1 of its Defence; and (3) the third and final tranche of legislation came into effect on or about 20 December 2002 (see paragraphs 32 and 34 of CSRI's Summons). ANTA admits this in paragraph 1 of its Defence. (d) Each tranche of legislation would, if it had been in operation for the whole of the year ending 31 December 1999, have enabled GAL to have rebated any Excise Duty paid in respect of fuel oil imports used by the Gove Joint Venture (see paragraphs 11, 20 and 35 of CSRI's Summons). ANTA admits this in paragraph 1 of its Defence. Clear demarcation between issues · Where the separate question sought to be tried is a question of law, it is desirable that facts upon which that question of law is to be tried should be clearly and definitively established: Rocklea Spinning Mills Pty Ltd v Anti-Dumping Authority & Fraser (1995) 56 FCR 406; Griffiths v Northern Territory of Australia [2003] FCA 1177. 62. The separate question to be tried in CSRI's claim is a legal question concerning the proper construction of clause 4.6 of the Agreement and the effect of the admitted facts on the clause properly construed. Clause 4.6 of the Agreement provides for an adjustment to be paid to CSRI in circumstances where legislation is passed before or within two years of completion which would have entitled GAL to a rebate on Excise Duty paid in respect of fuel oil imports used by the Gove Joint Venture in the year that those imports were subject to the Excise Duty. 63. In short, the parties join issue as to: (a) whether, properly construed, the definition of "Rebate Legislation" in clause 4.6(a)(3) of the Agreement contemplates one, and only one, change to the fuel oil rebate regime as suggested by ANTA or, alternatively, whether clause 4.6 of the Agreement contemplates more than one change to the fuel oil rebate regime as submitted by CSRI; and (b) whether, the proper construction of clause 4.6(f) requires the calculation called for by that clause to take into account "any clear likelihood of the supply of natural gas to Gove within the foreseeable future" or alternatively whether a clause to this effect should be implied into the Agreement. 64. ANTA's Cross-claims on the other hand, although also arising out of the Agreement, have no legal or factual relationship to the claim put forward by CSRI. 65. ANTA's Working Capital claim involves consideration of whether: (a) a notice of dispute was properly delivered in accordance with clauses 7.5 and 14.1(a) of the Agreement; (b) the proper construction of those provisions; (c) consideration of the effect of delivering a notice of dispute out of time; and (d) consideration of whether the without prejudice determination of Mann Judd factually and legally complies with clause 7.5. 66. ANTA's Ore Reserves claim involves: (a) analysis of whether the report produced by Kidman & Associates Pty Ltd constitutes a final report complying with clause 4.5(a)(2) of the Agreement; (b) analysis of the specific requirements of the AUSIMM Joint Ore Reserves Committee code; (c) an assessment of the methodology adopted by Mr Kidman in preparing his report involving substantial, and likely contentious, expert analysis as described in paragraph 57(2) of CSRI's Affidavit; (d) on the assumption that Mr Kidman's methodology is inadequate, an assessment of the actual bauxite reserves at Gove as at 31 December 1999 including some drilling and sampling of the ore body and including the expert analysis described in paragraph 57(2) of CSRI's Affidavit; and (e) lay evidence in relation to the preparation of the report produced by Kidman & Associates Pty Ltd and the drilling and measurement work carried out at the mine as described at paragraph 58 of CSRI's Affidavit. Preparation and hearing times 67. In addition to the absence of any overlap between the respective claims, CSRI submits that the timing of the preparation required for each claim, and the time which will be required for hearing of those claims, are factors relevant to whether the Court should exercise its discretion in the circumstances. 68. ANTA's claims will require an investigation of complex factual matters and the preparation of extensive evidence (CSRI's Affidavit, paragraphs 56-65). Many months of preparation time will be required before ANTA's claims are ready for hearing, and a number of weeks, and possibly months, will be required for the hearing of ANTA's claims (CSRI's Affidavit, paragraphs 6-8 and 54-65). 69. By contrast, CSRI's claim can proceed without the need to adduce any evidence. CSRI submits that its claim is substantially ready for hearing and will be ready to proceed to a final hearing soon after the date of the determination of the Notice of Motion (CSRI's Affidavit, paragraph 66). On the basis that the parties will prepare written submissions, CSRI's claim will likely occupy no more than one day (and possibly only half a day) of the Court's time. Substantially narrowing the field of controversy · While it is not a necessary precondition that the separate determination have the effect of disposing of the whole claim, it must at least "substantially narrow the field of controversy": CBS Productions Pty Ltd v O'Neill [1985] 1 NSWLR 601 at 606; Everett v Ribbands [1952] 1 KB 112; see also Love v Mirror Newspapers Ltd. 70. The separate determination of CSRI's claim will have the effect of disposing of the whole of CSRI's claim and, therefore, a substantial part of the proceedings. As noted, the quantum of CSRI's claim is US$21.9 million (A$30.3 million), which is far in excess of the total quantum of ANTA's claims (at most, A$18.3 million). Accordingly, an order for the separate determination of CSRI's claim will provide the parties with certainty in relation to the most significant claim (in monetary terms) at issue between them. No delay, expense or hardship · If fragmentation of the proceedings is likely to bring delay, expense and hardship greater than that which the making of an order is intended to avoid, such an order will usually not be contemplated: Tallglen Pty Ltd. Similarly, an order for a separate trial should not generally be made where such an order will result in protracted overall hearing time, and an increase in costs, or where it would involve a risk of inconsistent findings by different tribunals on the issue: McCann v Fenech (unreported, NSWSC, Malpass M, 22 July 1996). 71. An order for the separate trial of ANTA's Cross-claim, or the separate determination of CSRI's claim, will not give rise to any material delay, expense or hardship which is greater than that which the making of the order is intended to avoid. 72. CSRI submits that the separate early determination of its claim will not have the effect of prolonging the overall hearing time of ANTA's Cross-claim, nor will there be an increase in the overall cost of the proceedings. 73. The dissimilarity between the subject matter of the parties' claims means that there will be no duplication in the cost of preparing for each claim and there will not be any material increase in the overall hearing time of each of the claims. The confined preparation and hearing time required for the determination of CSRI's claim means that there will be no impediment to the parties continuing with the extensive preparation required for ANTA's claims." Deciding the issue 8 I have come to the clear decision that, in general terms, the submissions of ANTA are of substance and should be acceded to. They are generally adopted in what follows. But before proceeding further it is appropriate to note some general matters: · Caution requires to be taken before the Court, particularly in a case such as the present, peremptorily carries out radical surgery in terms of the making of orders for separate hearings [as here sought in terms of the proposed separate hearing of the cross-claim] or otherwise orders that particular questions be determined prior to and separately from other issues; · Clearly enough the Supreme Court Rules, and importantly the Overriding Purpose Rule, require that the appropriate discretion be exercised in a manner such as to achieve a just, quick and cheap resolution of the real issues in the proceedings; · Each case requires to be determined on the instant facts and there can be no real generalizations; · Ultimately however applications such as those presently before the Court call for a judgmental decision against a background where it is not uncommon to find that the apparent early attraction of bifurcated hearings or separate question determinations prove ultimately to have been inefficient, or even worse, on occasion may cause the hearing to miscarry: cf Tepko Pty Limited & Ors v Water Board (2001) 178 ALR 634, Kirby and Callinan JJ (paragraph 168 at 675) put the matter as follows: "The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others and they all overlap." · Experience in relation to the proper construction of a complex commercial agreement proves that the type of background matters sought to be relied upon on one or other of a number of possible bases require careful attention at a forensic level and, depending upon rulings as to admissibility, may require very careful attention as part and parcel of the determination of the proceedings. That evidence is commonly tendered to establish the commercial matrix in which the subject agreement was entered into. That matrix may have a relevance to allegations that particular terms should be implied into a contract and will often be relevant in other ways. Whilst it may be possible in any given case to have that matrix examined on different occasions and by reference to evidence which may differ, that situation should obviously be avoided where possible; · Section 63 of the Supreme Court Act has a particular purpose to ensure that all disputes between parties be determined to the extent practicable together and at the same time. 9 In other words, sometimes the adage "the longest way is often the shortest way" holds true. In my view the case presently before the Court shows such a circumstance, and more particularly so because of the commonality of background evidence likely to be called on the issues in the proceedings proper and on the cross-claim proceedings. 10 Further it is correct to say that what CSRI is about, at least at one level, amounts effectively to an application for a summary dismissal of the claim to the equitable set-off. General Steel considerations arise. 11 Whilst of course the Court has the power, even on such a summary dismissal application, to enter into an examination of complex questions of legal principle which may include the construction of a complex commercial contract, the exercise of that power requires caution in a case such as the present. 12 Clearly enough, there would seem to be no point to a separate hearing of the summons if the equitable set-off defence is not struck out. 13 ANTA seeks to establish an equitable set-off. There is no issue but that relevant tests have been enunciated by the authorities as set out in CSRI's submissions. It cannot be said that the authorities are always four-square with one another. The matter is pointed up by the following extract from Sterling Press Pty Limited [Supreme Court of New South Wales, 19 March 1998; BC 9801692, Einstein J at BC 11-13]: "I note in passing that equitable set-off has been examined recently. In Re Just Juice Corporation Pty Limited; James v The Commonwealth Bank of Australia (1992) 109 ALR 334, Gummow J's decision as to the matter did not turn on the issue of equitable set-off. Nonetheless, his Honour held that had he decided the matter differently he would have found that there was a right of equitable set-off. Gummow J considered in some detail the applicable principles in cases of equitable set-off. His Honour stated that: 'Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from his adversary's demand and the mere existence of cross-demands is not sufficient [109 ALR 334 at 347]. His Honour rejected the line of authority based on the decision of the Privy Council in Government of Newfoundland v Newfoundland Railway Company (1888) 13 AC 199 in which the right of equitable set-off was held to exist only 'flowing out of and inseparably connected with dealings and transactions which also give rise [to the plaintiff's claim]. His Honour accepted a statement of the principle by the applicants in that case, and accepted by the respondents, that: 'For there to be an equitable set-off, the set-off must essentially be bound up with and go to the root of, challenge, call into question or impinge the "title" of the applicant [109 ALR 334 at 347].' Gummow J referred to AWA Ltd v Exicom Australia Ltd (1990) 19 NSWLR 705 in which Giles J said that equitable set-off was permitted to be raised where it would be unjust or inequitable for the plaintiff to be permitted to proceed with its claim without making allowance for the cross-claim. Giles J held that all the circumstances of the case must be considered. In particular, the factors which a court may consider in determining this question include the nature of the claim, the closeness of the connection between the claims, and the conduct of the parties [at 712E to F]. On the facts of the case, Giles J found it would be unjust and inequitable for AWA to proceed without Exicom being able to prosecute its claim as an equitable defence. The claim by a purchaser under a contract for the sale and purchase of a business for damages for breach of warranty or so closely related to a claim by the vendor for moneys due under a contract by way of adjustments consequent upon the transfer of the business that it would be unjust to deny the equitable set-off. His Honour held that both claims were by way of working out the terms between the parties and that both claims concerned sale price viewed in the wider sense. The question which arises from a close examination of the decisions in Just Juice and AWA is as to whether the words used by Gummow J in AWA, 'call into question or impinge the title of the applicant', may, for practical purposes, be said to be relevantly equivalent to the words used by Giles J: '… a calling into question of the closeness of the connection between the claims.' Different approaches have then been taken by Gummow J and Giles J as to whether the line of authorities based on the decision of the Privy Council in The Government of Newfoundland case should be followed. The editors of Meagher Gummow and Lehane plainly regard the requirements for equitable set-off propounded in the Newfoundland case to be too liberal and an undesirable departure from the original rule that equitable set-off had to 'impeach' the plaintiff's case. They are similarly critical of the few Australian cases, such as AWA v Exicom which follow that line of authority." 14 Further the relevant tests need to be read in the light of the decisions made in the cases concerned. 15 As ANTA has submitted, it is of relevance to note that defences of equitable set-off were permitted in the following five cases: (1) In British Anzani , the U.K. High Court held that a tenant could set off a claim for unliquidated damages against the landlord's claim for rent even where the claim for damages arose, not under the lease, but under a separate agreement; (2) in Grant v NZMC , the New Zealand Court of Appeal held that a tenant was entitled to set off an unliquidated claim for damages against the landlord's claim for rent notwithstanding that the unliquidated claim for damages was based, not on a claim under the lease, but on a claim under a contract collateral to the lease; (3) in Just Juice , the Federal Court (Gummow J) was prepared to hold that a bank could set off against a receiver's claim for indemnity for debts incurred by the receiver during the course of a receivership the bank's claim for damages for breach of receiver's duties of care; (4) in AWA v Exicom Giles J felt that the purchaser of a business was entitled to set off a breach of warranty claim against a claim for the purchase price of that business; (5) in AMP v Specialist Funding , Rogers J held that a section 52 claim could be set off against a claim for money lent. 16 As Gummow J observed in Just Juice (at 348): " [The cases] show that the requirement of 'impeachment' and the phrase 'title to the legal demand' have not been narrowly construed". 17 ANTA submits and I accept that there are three relevant areas of sharp dispute. · ANTA contends that CSRI's equitable set-off submission must meet the onerous General Steel test and that it does not do so. · ANTA contends that, on any test, the terms of the share sale agreement which is central to this litigation establish the validity of ANTA's claimed equitable set-off. · ANTA contends that the basis of the equitable set-off has been adequately pleaded. The General Steel Test 18 The applicable principle is conveniently summarised in the joint judgment of Northrop, Lindgren and Lehane JJ in Australian Building Industries Pty Limited v Stramit Corporation Limited & Anor - BC9706333. At page 17 under the heading "Legal Principles", their Honours address statements of principle made in: · Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and 92; · General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125; · Fancourt v Mercantile Credits Limited (1983) 154 CLR 87; · Webster v Lampard (1993) 177 CLR 598; · Munnings v Australian Government Solicitor (1994) 68 ALJR 169 (at 171) and 429. 19 All the statements cited are to much the same effect and are fairly represented by the passage from Fancourt cited in Stramit which includes the passage: "The power to avoid summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. ..." 20 CSRI's submissions, as I accept, appear to proceed as if ANTA's entitlement to a set-off was being finally determined following a ventilation of the relevant factors and legal principles in the ordinary course of litigation, rather than facing up to the test that CSRI must meet on an application for interlocutory orders that part or all of a defence be struck out; i.e. establishing that ANTA's equitable set-off defence prospects are such that there is no real question to be tried. Ultimately, as I understood him, Dr Bell accepted that the General Steel test required to be satisfied but contended that this was seen to be the case here. 21 The approach of Rolfe J in Commonwealth Development Bank of Australia Limited v Windermere Pastoral Co. Pty Limited (Supreme Court of NSW, Rolfe J, 08.06.99, unreported) is an illustration of the correct approach to the application of the General Steel principle to an application to strike out a defence of equitable set-off. Rolfe J put the matter as follows: [20] The plaintiff must therefore meet the onerous test which applies to a strike-out application, in circumstances where the defendant is relying on an equitable set-off… [61] The present case introduces facts of some novelty, in the sense that there is the close inter-relationship, at a financial level, between the plaintiff, the defendant and the debtor, which enabled the plaintiff to have and exercise substantial financial control over the affairs of the debtor by virtue of the Deed made on 18 March 1992 and thus, one may infer, simultaneously with the first mortgage and prior to the second mortgage. The relationship between the parties ie the plaintiff and the debtor, therefore, at least arguably, gave rise to a situation from which the causes of action raised by the cross-claim could come about in circumstances giving rise to an equitable set-off. The further questions are then whether that is a claim of which the defendant can take advantage in circumstances where the reasonable inference is that the debtor is either in real financial difficulty or insolvent, and, if it can, whether there is any provision in the security documents precluding its doing so. [62] When all these matters are considered in the light of the principles governing summary judgment applications, it seems to me that it is not possible to say that the defendant's case is not one where there is not a real question to be determined upon which the rights of the parties depend, nor that it is one which is "so obviously untenable that it cannot possibly succeed", nor "manifestly groundless", nor one disclosing "no real question to be tried". It is a case, to use the words in Webster v Lampard, at p611, where the material before me is "clearly not such as to justify a finding that the proceedings against ... are 'hopeless' in that they will inevitably fail if allowed to proceed to trial in the ordinary course". Nor is it a case, as I have sought to show, where the interpretation of the mortgage, necessarily, leads to the conclusion that an equitable set-off or cross-claim is precluded. 22 ANTA has further advanced the following submissions: ANTA Has an Equity Arising From The SSA 17. The SSA involved ANTA paying a price for CSRI's shares in GAL. 18. Clause 4 of the SSA makes it clear that a provisional and a final price is contemplated. 19. The provisional price is either $USD275M or $USD250.5M depending on events. 20. The "final" price is either $USD275M adjusted as required by Clauses 4.2, 4.3, 4.4, 4.5 and 10.10 or $USD250.5M adjusted by the clauses referred to above plus Clause 4.6. 21. The real dispute between the parties, now that all adjustment claims have been made, is what the final purchase price is. ANTA'S set-off defence submission, in a nutshell, is that, all adjustment claims having been made and being before the Court, a claimant for one adjustment has its title to that adjustment impeached by the existence of claims for other adjustments. 22. In paragraphs 44 and 45 of the CSRI submissions, much is made of the fact that the agreement contemplated adjustments at different times under the different sub-clauses referred to. 23. ANTA makes two responses to this. 24. First, Clause 4 of the SSA assumes a series of expeditious expert determinations, the validity of which are not contested in the courts . This is an entirely different situation from the present position in which both parties are challenging the validity of expert determinations via crystallised claims. 25. Second, the defence of equitable set-off has been held to have been validly pleaded in a number of cases in which the plaintiff had claimed a liquidated amount which was undoubtedly due and payable, while the equitable set-off related to an unliquidated claim which, though claimed, was not then due and payable. Without being exhaustive, we refer to: · De Galambos & Son Pty. Limited v McIntyre (1974) 5 ACTR 10; · General Credits (Finance) Pty. Limited v Stoyakovich [1975] Qd R 352; · AWA v Exicom (1990) 19 NSWLR 705; · Commonwealth Development Bank of Australia Limited v Windermere Pastoral Co. Pty. Limited (Supreme Court of NSW, Rolfe J, 08.06.99, Unreported). 26. ANTA submits that, a fortiori, in appropriate circumstances, one unliquidated claim can be set off against another. 23 In my view the submissions raise arguable issues appropriate for resolution on a final hearing. Adequacy of the pleading of the relevant terms of the SSA 24 In my view ANTA's equitable set-off defence is squarely based on the terms of the SSA. It identifies the paragraphs of the SSA upon which it relies, that is to say paragraph 4.9 of the defence identifies the paragraphs of the SSA upon which it relies. 25 ANTA then submits that it would be entitled to succeed on its set-off defence if the matter were being determined finally at the conclusion of litigation conducted in the ordinary way and that, a fortiori, CSRI has not established the untenability of the set-off defence to the extent necessary to succeed under General Steel principles. It is only necessary for the Court presently to accept that a real issue has been shown which is appropriate for final determination in proceedings on all issues. 26 ANTA further submitted as follows: "34. First, there is a considerable "bootstraps" element in CSRI's submission that, in effect, it has a firm $24M claim which dwarfs CSRI's claims. 35. In order to establish its $24M claim, CSRI must succeed on several difficult and controversial construction points and succeed with respect to the term (either implied or arising as a matter of proper construction) for which ANTA contends. 36. With respect to the strength of the alleged terms relating to the introduction of natural gas, the Court should note the opening words of clause 4.6 (page 19) of the SSA: "The purchase price stated in clause 4.1(a)(I) of US$275 million assumes the excise paid on fuel oil imports will in the future be largely rebated under an expanded Diesel Fuel Rebate Scheme." 37. Should the Court find a Fuel Oil Rebate sunset provision (either as a matter of construction or implication or both), CSRI's Fuel Oil Rebate adjustment claim would be significantly reduced." 27 Here again there is some substance in ANTA's submissions which at the least point up factors to be taken into account. Issues required to be determined together 28 ANTA has submitted as follows: "41. Of course, the general rule is that all issues should be determined together unless there is some good reason why this should not be so. In this respect, see paragraph [31.2.2] of Ritchie. 42. It is important to bear in mind the observations of Kirby P in CBS Productions Pty. Limited v O'Neill [1985] 1 NSWLR 601 at 605C: "Care must also be taken in utilising the procedures now available for the determination of preliminary points to avoid such determination in cases which are not ripe for this treatment. A matter is 'ripe' for separate and preliminary determination when it is a central issue in contention between the parties, the resolution of which will either obviate the necessity of litigation altogether or substantially narrow the field of controversy." 43. ANTA contends that the separate hearing sought for certain Fuel Oil Rebate issues claim is not such a case. … 45. ANTA contends that, for the reasons given below, the attractions of the separate hearing sought for certain Fuel Oil Rebate issues will be more chimerical than real. 46. The classic cases of separate hearings (leaving defamation aside) are: (a) Cases where liability and damages are separately determined. (b) Cases where significant Court time which would otherwise be wasted is saved by determining a preliminary issue which, once determined, will make the expenditure of that Court time otiose. 47. Mr. Steele's affidavit and CSRI's submissions make it clear that the Court will still need to devote considerable Court time to the resolution of the remaining disputes regardless of the outcome of the separate hearing of certain issues sought. 48. It is also important to bear in mind that the hearing of the nominated issues is likely to involve three categories of evidence. Evidence as to the SSA's Surrounding Commercial Matrix 49. First, will be evidence to establish the commercial matrix surrounding the SSA which, of course, is both admissible and relevant to the construction of the SSA generally and as to whether the term asserted in paragraph 4.8 of ANTA's defence should be implied into it. Evidence as to the Way in Which the Parties Approached the July 2000 Section 164 Settlement 50. The second category of evidence is as to the way in which the parties approached the July 2000 s.164 amendment. 51. If Clauses 4.6 (a) (3) and 4.6 (d) of the SSA are read literally, and in isolation from the rest of Clause 4.6, they might well be construed so that "Rebate Legislation ... passed before or within two years after Completion ..." refers to four pieces of legislation, namely: · The 1995 Customs Regulation 126(v) made pursuant to s.163 of the Act which grants a rebate on fuel oil used as a reactant in the calcination process (the Calcination Regulation). · The July 2000 amendment to s.164 of the Act (the July 2000 s.164 amendment) which granted a rebate to fuel oil used in mining operations until 30 June 2002. · The October 2001 amendment to s.164 which extended its operations to 30 June 2003. · The December 2002 Customs Regulation 126(1)(za) which grants a rebate to fuel oil used in raising steam for calcination and electricity generation pursuant to s.163. 52. ANTA will contend that, properly construed, the reference to "... passed before ... Completion" in Clause 4.6 (b) is to be construed as "before ... Completion but after the signing of this agreement" . As a result, the Calcination Regulation is not Rebate Legislation for the purposes of Clause 4.6 (b). 53. ANTA hopes to be in a position to lead evidence to establish that CSRI and ANTA agreed to treat the July 2000 s.164 amendment as legislation becoming operative after the SSA was signed because the July 2000 s.164 amendment became operative only days before the SSA was signed and was not reflected in it. 54. On this basis, ANTA will contend that the July 2000 s.164 amendment is Rebate Legislation for the purposes of Clause 4.6(b) and, as a matter of construction, is the only Rebate Legislation to which Clause 4.6(b) refers. Availability of Natural Gas at Gove 55. The third category of evidence will be evidence as to the likelihood of the availability of natural gas at Gove by 2005. This is asserted in paragraph 4.8 of the defence and not admitted in paragraph 3.2 of the reply. Summary of Significance of Evidence Likely to be Called 56. This evidence is referred to, not to suggest that the separate hearings sought will be anything but much shorter than the hearing of ANTA's Gove Bauxite Reserve claim, but rather to emphasise the possibility that the first category of evidence may become relevant, not just to the Fuel Oil Rebate adjustment sought by CSRI, but also to the Working Capital and GBR adjustments sought by ANTA. CSRI's Interest Protection 57. One factor relevant to the exercise of the Court's discretion is CSRI's interest protection. The relevance of this factor is clear from the following passage of the judgment of the NSWCA in Roadshow Entertainment Pty. Limited v CEL Home Video Pty. Limited (1997) 42 NSWLR 462 at 489E : "... CEL/Vision were protected against delay by their prima facie entitlement, under s.94 of the Supreme Court Act 1970, to pre-judgment interest from the date their causes of action accrued." 58. CSRI's position in this respect is particularly robustly protected because of Clause 14.9 (p.41) of the SSA which provides, in effect (see definition of "Default Interest Rate" in Clause 1.1 at p.3) provides for an interest regime of 2% above market lending rates compounded monthly. This, of course, translates into an onerous simple interest rate. 29 Ultimately the CSRI contention has been that the ethos underpinning the practice and proceeding of the Commercial List is for the efficient determination of commercial disputes and that the Court has presently before it for decision by paradigm example, a case crying out for that treatment. I have no doubt but that the reference to the ethos underpinning the practice and proceeding of the Commercial List is of substance as long as the overriding purpose rule is regarded as a correct statement of that ethos. The matter here for decision, however, concerns the proper exercise of the Court's discretion to make the summary orders sought in the motion in this particular set of proceedings. 30 In my view and notwithstanding the submission by CSRI that stripped of the baggage comprising the equitable set-off claims, these proceedings would take only a few hours to be determined on a final basis and are ready now for that treatment, the proper exercise of the Court's discretion is to dismiss the motion. The equitable set-off issue is indeed that – an issue. ANTA is entitled to its day in court on that issue. And significantly ANTA is entitled to litigate a case asserting that all adjustment claims having been made and being before the Court, a claimant for one adjustment has its title to that adjustment impeached by the existence of claims for other adjustments. This is an arguable issue. Whether and, if so, to what extent ANTA succeeds upon an application to call evidence in support of its claimed construction and/or in support of the implied terms for which it contends will remain to be seen, but what is common ground is that, to adopt the words used by the High Court in Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 299 at 292-293: "It is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties operated. Such statements exemplify the point made by Brennan J in his judgment in Codelfa: "The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used". Holding 31 For those reasons the motion is appropriate to be dismissed. The parties will be heard in relation to costs and further directions. Formal Orders 32 The formal orders of the Court are: 1. I order that the motion be dismissed; 2. I reserve the question of costs; 3. Any submissions by the plaintiff on the question of costs should be furnished to my associate and served by 5 pm on 3 December; 4. Any submissions in response by the defendant should be furnished to my associate and served by noon on 4 December. I certify that paragraphs 1 - 32 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 2 December 2003 ex tempore and revised on 5 December 2003 ___________________ Susan Piggott Associate 5 December 2003 Last Modified: 12/09/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.