New South Wales Supreme Court CITATION : Pioneer Computers Australia Pty Ltd v Tech Precision Pty Ltd [2009] NSWSC 395 HEARING DATE(S) : 6 February 2009 JUDGMENT DATE : 22 May 2009 JURISDICTION : Common Law JUDGMENT OF : Hislop J at 1 I make the following orders: 1. Plaintiff's appeal dismissed. 2. Defendant's cross-appeal as to interest allowed. 3. Defendant's cross-appeal as to the costs order in favour of the plaintiff in the court below dismissed. DECISION : 4. The plaintiff is to pay the costs of the appeal and cross-appeal. 5. The parties are to furnish to my associate by 4.00pm on Friday 29 May 2009 a joint memorandum as to: a. the agreed interest to be included in the judgment on the cross-claim b. the judgments to be entered for the defendant (i) on its cross-claim (ii) after set-off of the plaintiff's verdict c. confirming that the parties consent to the judgments being entered by me in chambers. CATCHWORDS : LOCAL COURT – appeal – contract – construction of terms Civil Procedure Act 2005 LEGISLATION CITED : Local Courts Act 1982 Uniform Civil Procedure Rules CATEGORY : Principal judgment Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 CASES CITED : Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 Keefe v Marks (1989) 16 NSWLR 713 Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 PARTIES : Pioneer Computers Australia Pty Ltd (Plaintiff) Tech Precision Pty Ltd (Defendant) FILE NUMBER(S) : SC 14493/08 COUNSEL : M Pesman (Plaintiff) R P Clynes (Defendant) SOLICITORS : DLA Phillips Fox (Plaintiff) Snedden Hall & Gallop (Defendant) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : LC 8158/05 LOWER COURT JUDICIAL OFFICER : Andrews LCM LOWER COURT DATE OF DECISION : 1 August 2008 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Hislop J 22 May 2009 14493/08 PIONEER COMPUTERS AUSTRALIA PTY LTD v TECH PRECISION PTY LTD JUDGMENT Introduction 1 This is an appeal and cross-appeal from proceedings in the Local Court at Campbelltown. 2 The plaintiff, in its amended statement of claim, claimed $44,176.10 for computer spare parts sold and delivered to the defendant. The plaintiff, at first instance, made concessions the effect of which was to reduce the value of its claim to $21,017.70. Of that amount $15,231.70 was conceded by the defendant. The difference is $5,786.00. His Honour, Magistrate J. S. Andrews held that the plaintiff was entitled to recover on its claim $15,231.70 plus interest and incidentals and gave judgment for the plaintiff on its claim for $20,469.79. 3 The defendant cross-claimed for $39,100.80 for money had and received in relation to money paid by it on invoices rendered by the plaintiff. His Honour held that the defendant was entitled to recover $39,100.80 plus incidentals on its cross-claim and gave judgment for the defendant on its cross-claim for $39,428.80. 4 His Honour set off the entitlements of each party and entered judgment for the defendant for the balance of $18,959.01. His Honour made no order for interest in respect of the defendant's claim. He ordered the defendant to pay one-third of the plaintiff's costs of the plaintiff's action. He ordered the plaintiff to pay the defendant's costs of the cross-action. 5 The plaintiff has appealed seeking to recover the additional sum of $5,786.00 and to overturn the verdict for the defendant on the cross-claim. 6 The defendant opposes the plaintiff's appeal and has cross-appealed against his Honour's failure to award interest pursuant to s 100 of the Civil Procedure Act 2005 (CPA) and the order that it pay one-third of the plaintiff's costs of the amended statement of claim. The plaintiff, on appeal, did not dispute the sum claimed by the defendant was in fact paid by it but submitted that the recovery of the amount was vitiated by error on the part of his Honour in construing the agreement. 7 The appeal to this court is limited to error in point of law (Local Courts Act, 1982 s 73(1), or, by leave, on a ground that relevantly involves a question of mixed law and fact or costs (Local Courts Act, 1982 s 74). There is no appeal against the determination of a question of fact. 8 Section 75(1) of the Local Courts Act 1982 provides that the Supreme Court may determine an appeal made under s 73(1) or s 74: "(a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Court for determination in accordance with the Supreme Court's directions; or (d) by dismissing the appeal." Background 9 The following facts were agreed between the parties: (a) The plaintiff is a retailer of laptop and other computers, both directly and through resellers. (b) Until the present dispute arose in 2005, the defendant provided a warranty repair service to customers who had purchased computers from the plaintiff. (c) Those services were provided only pursuant to the National Third Party Warranty Agreement between the plaintiff and defendant dated 1 September 2003 ("the Agreement") (but not executed until 18 November 2003) both by the defendant directly and also by subcontractors (usually in regional areas) retained by the defendant. (d) Those services often required that a part of a computer be replaced. In that circumstance the defendant would order the part from the plaintiff and install it (or provide it to its subcontractor for installation). (e) During the warranty period in the event the faulty part was returned to the plaintiff within ten days the defendant did not have to pay for the replacement part. (f) On many occasions a part was not returned within the ten day period because the defendant's subcontractors did not return the part to the defendant or the plaintiff. The defendant was charged for those parts (and until mid 2005 paid for them). (g) In about February 2005 there was a change of control in the defendant's business. The new management of the defendant reviewed the Agreement (and the relationship with the plaintiff generally) and a dispute arose between the parties as to the Agreement as it related to the length of the warranty period and the circumstances in which parts would be replaced by the plaintiff without charge. (h) One implication of that review was that the defendant formed the view that it had made the payments in (f) above by mistake in that it was not legally obliged to do so. That contention became the subject of the defendant's cross-claim. 10 It was common ground between the parties on appeal, that an error in construction of the Agreement was an error of law – Pioneer Shipping Limited v BTP Tioxide Limited [1982] AC 724 per Diplock LJ at 736, Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 at [102] and that the starting point for construing the agreement was "… to ascertain what the mutual intentions of the parties were as to the legal obligations each assumed by the contractual words in which they… chose to express them: or, perhaps more accurately, what each would have led the other reasonably to assume were the acts that he was promising to do or to refrain from doing or by the words in which the promises on his part were expressed – Pioneer Shipping Limited at 736. Similarly "…in endeavouring to discover the intention of the parties from the words of the contract, regard should be had to the whole of it, and provisions should be construed, if possible, to render them "all harmonious one with another" – Australian Broadcasting Commission v Australasian Performing Rights Association Limited [1973] HCA 36; (1973) 129 CLR 99 per Gibbs JA at 109 – 110. 11 The Agreement provided: "7.2 Article and Paragraph Titles: Paragraph titles or captions contained herein are inserted only as a matter of convenience: and for reference, and in no way define limit, extend, or describe the scope of this Agreement, or the intent of any provision thereof… 7.5 Contradiction The language in all parts of Agreement shall be in all cases constituted according to its fair meaning and not strictly for or against either party hereto. If any term, convenient, condition, or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unreasonable, the remainder of the provisions hereto shall remain in full force and effect". The Appeal 12 The primary issue on appeal is the proper construction of cl 2.0c) and cl 4.0 of the Agreement. Clause 2.0c) 13 Clause 2.0c) provides: "(i) Contractor shall perform maintenance and repair services on the products under Seller's warranty (specified in Exhibit B); (ii) Parts used will be supplied free of charge by Seller within the warranty period. Where the Contractor fails to provide a faulty part within ten working days of the service the Seller will bill the Contractor for the part." 14 Exhibit B is headed "Warranty Service Fees." It sets out the plaintiff's warranty pricing schedule of notebooks [laptops] as follows: 1 year $30.00; 2 year $85.00; 3 year $130.00. At the bottom of the schedule it states "prices based on 12-36 months Manufacturer's Warranty on Parts". 15 The plaintiff submitted that the warranty period for the purposes of cl 2.0c)(ii) was 12 months, being the manufacturer's warranty on the faulty parts replaced by the defendant. The defendant submitted that the warranty period was determined by reference to exhibit B to the Agreement and was for a period between 1 to 3 years, depending on the warranty given by the plaintiff to its customer. 16 His Honour held "There is no ambiguity on the face of the document in relation to cl 2.0c)(ii) or cl 4 of the Agreement. The contract clearly indicates that parts would be supplied free of charge during the warranty period which, as indicated in exhibit B, can only be [the plaintiff's] warranty pricing schedule. The evidence clearly establishes that the laptops either got a 1, 2 or 3 year warranty period. The parts were to be supplied free by the seller within the warranty period specified, be it 1, 2 or 3 years. I agree with the interpretation that the defendant has placed before the Court." 17 The plaintiff submitted that his Honour's construction of cl 2.0c) was erroneous, that there was ambiguity in cl 2.0c)(ii) and, as the Agreement had been prepared by the defendant, the clause should be construed contra proferentem the defendant and limited to 12 months. 18 The alleged ambiguity was said to arise because the "warranty period" was not defined in the Agreement; Schedule B provided that the longer the warranty the relatively greater sum the defendant received, and at the bottom of the page the Schedule stated: "Prices based on 12 to 36 months Manufacturers Warranty on Parts" from which it was submitted an inference could be drawn that the defendant received more money in each year to enable it to pay for parts because the warranty in cl 2.0 was only of one year. 19 Thus, it was submitted, the meaning of "warranty period" was not unambiguous and his Honour, in concluding that there was no ambiguity on the face of the document in relation to cl 2.0c)(ii) had made an error of law. 20 I disagree. In my opinion it is clear the "warranty" referred to in the expression "the warranty period" in cl 2.0c)(ii) means the Sellers warranty in cl 2.0c)(i) i.e. Exhibit B. The Sellers warranty in Exhibit B is for 1, 2 or 3 years depending on the customer's contract. The manufacturer's warranty in Exhibit B is not restricted to 1 year rather the reference at the bottom of Schedule B indicates the manufacturer's warranty is 1, 2 or 3 years. Further, if it be relevant, gradations in payments from year to year are more likely to be a consequence that as the laptops age more work would be required on them than that the parts would not be supplied free after 1 year. 21 In my opinion there is no ambiguity in cl 2.0c)(ii) and his Honour was correct in his construction of that clause. Clause 4.0 22 Clause 4.0 of the agreement provides: ARTICLE IV FORCE MAJEURE 4.0 "Unavoidable delays Neither party shall be liable for losses or damages, and shall be excused from any delay or failure in performance hereunder, caused by any labor dispute or disturbances, governmental order or requirements, acts of God, casualty, disaster, inability to secure materials and transportation facilities, wars and other civil disturbances, and other causes beyond its control including the failure of its subcontractors to perform." 23 The plaintiff submitted cl 4.0 had no application to cl 2.0 paragraph c)(ii) in circumstances where the reason the defendant did not return a faulty part within 10 days was because it did not get it back from its subcontractor. The defendant submitted that if the reason a part was not returned to the plaintiff within the 10 day period was a failure by a subcontractor to return the part, it was entitled to rely on cl 4.0 to avoid liability for the cost of the replacement part. 24 His Honour held "A combined reading of cl 2c)(ii) and cl 4 required [the plaintiff] to supply parts free of charge for any repairs within the 1, 2, or 3 year warranty period so long as they were returned within 10 days, but they were not liable to pay for parts if the delay in returning the parts was due to subcontractor delays. The words at the end of clause 4, "and other causes beyond its control including the failure of its subcontractors to perform", must be read in favour of the Defendant to include the situation where a subcontractor has failed to return a part in time … I find on the Amended Cross-Claim for the Defendant / Cross-Claimant in the amount of $39,100.80. The Defendant has paid those amounts by mistake prior to terminating the contract". 25 The plaintiff submitted his Honour's construction of cl 4.0 was erroneous essentially for the following reasons: (a) clause 4.0 was a force majeure clause; (b) There was no legal principle that such a clause must be read in favour of the party relying upon it. His Honour, in stating that the words at the end of cl 4.0 "and other causes beyond its control, including the failure of its subcontractors to perform," must be read in favour of the defendant to include the situation where a subcontractor has failed to return a part in time, had erred in law. (c) Clause 2.0c)(ii) does not create an obligation on the defendant to perform, it merely gives the defendant an election. It is impossible for the defendant to breach the clause and there is nothing for the plaintiff to enforce. As there is no obligation the force majeure clause cannot apply. A failure to return a part in time was not "a failure of performance" that needs to be "excused". (d) Events which fall within a force majeure clause are, by their very nature, infrequent and serious. The failure of subcontractors to return defective parts was not an uncommon event, it occurred hundreds of times. It is thus unlikely that such events would be contemplated by a force majeure clause. The words "including the failure of its subcontractors to perform" ought to be construed noscitur a sociis with the balance of the clause. (e) The obligations in cl 4.0 are conjunctive. The failure of the subcontractor in performance must be beyond the control of the defendant. His Honour does not appear to have considered this question. Had he done so the issue could not have been decided in favour of the defendant on the available evidence for the reasons which follow. (f) The failure by a subcontractor to return the defective part was not beyond the control of the defendant as: (i) the subcontractor had a contractual obligation to the defendant to return parts; (ii) the defendant could, and did, make contractors pay for parts they didn't return; (iii) on occasions the defendant chose not to enforce those obligations because it wanted to preserve its relationship with its subcontractors. (iv) the defining feature of a matter being beyond the control of a party is that that party has no choice in the matter. That was not the situation here and thus this matter is not within cl 4.0. (g) Neither party regarded cl 4.0 as having application until after the defendant's change of control in or about 2005. (h) In any event, given it appears impossible to distinguish what part of the cross-claim fell within cl 2.0c) (i.e. the warranty dispute) and what part fell within cl 4.0 (i.e. the subcontractor's dispute) if either argument is accepted the defendant will not have proved its loss in the cross-claim. 26 The defendant submitted: (a) Clause 4.0 contains two headings, "Force Majeure" and "Unavoidable Delays". However regard may not be had to those headings as a guide to construction (cl 7.2). Clause 4.0 bears the hallmarks of a clause that has been cobbled together, the first part of the clause is in traditional force majeure terms whilst the later part of the clause is differently worded and performs a different function. Thus the closing words are not to be read down in the light of the force majeure portion of the clause. His Honour placed the only tenable construction available in the circumstances upon the closing words of cl 4.0. (b) No positive obligation is placed on the parties by cl 2c)(ii) except in the sense that c)(ii) works as some kind of sanction that the plaintiff wanted back the parts within 10 days or otherwise, as a result of the failure to send the parts back within the 10 days, the liability/financial responsibility for the defective parts then falls upon the defendant. If it gets the part back within 10 days then it gets the part for free. (c) If one looks at cl 4.0 the relevant words from the defendant's perspective are in the first line "any delay" or, "failure in performance". If one focuses upon "any delay" as well as "failure in performance" there are two elements and "other causes beyond its control, including the failure of its subcontractors to perform" links with the words "the contractor fails to provide a faulty part within ten days" because otherwise it's a bit hard to see what work the words in cl 4.0, including "the failure of its subcontractors to perform", address. (d) The evidence before the Court was plainly that the defendant's subcontractors were beyond its control in an absolute sense. The defendant took every reasonable measure to enforce the performance of its subcontractors and that is all that is required to be done by cl 4.0. The evidence established that there was a reminder system, a follow up on the reminder system, actual policing and enforcement of the contractual obligations of the subcontractors about the return of faulty spare parts within 10 days. In some cases there is only one operator in some centres. Consideration 27 The Agreement appears to be primarily the product of the melding by non-lawyers of conditions, phrases and clauses taken from different business and/or legal documents. This is reflected in cl 4.0. 28 In construing the Agreement titles or captions are to be ignored (cl 7.2) and the language of the Agreement is to be constituted (construed) according to its fair meaning and not strictly for or against either party (cl 7.5). 29 Accordingly, in construing cl 4.0 of the Agreement I have ignored the titles or captions "Force Majeure" and "Unavoidable Delays". I have read in the words "a party" before "shall be excused" as it is not suggested the clause should be construed by reading the opening words "Neither party" before "shall be excused" and I have not sought to apply the contra proferentem rule by reason of cl 7.5 and by reason of the fact that I do not consider there is an ambiguity to be resolved by resort to that rule. Instead I have endeavoured to construe both cl 4.0 and cl 2.0 according to their fair meaning. 30 Clause 4.0 provides that a party shall be excused from any delay or failure in performance hereunder caused by any of a number of specified events. One of the specified events is "other causes beyond its control". The failure of [the defendant's] subcontractors to perform is identified as one such "other cause". Accordingly cl 4.0 relevantly should be read as [the defendant] shall be excused from any delay or failure in performance hereunder, caused by the failure of the defendant's subcontractors to perform. 31 The subcontractors had a contractual obligation to the defendant to return faulty parts. The failure to so perform resulted in loss to the defendant. 32 As his Honour held, the words "and other causes beyond its control including the failure of subcontractors to perform" must be read to include the situation where a subcontractor fails to return a part in time. In my opinion his Honour did not err in this conclusion. Such a construction is, of course, favourable to the defendant. 33 However, there must also be "a delay or failure to perform hereunder" caused by the subcontractor's non-performance if the defendant is to be excused under cl 4.0. The plaintiff has submitted there was no obligation and thus nothing to be excused. 34 I disagree. Clause 2.0, in its express terms, imposes an obligation on the plaintiff to supply parts free of charge within the warranty period. The same clause expressly provides for the consequences if the defendant fails to return a faulty part. Obviously, for whatever reason, the plaintiff required faulty parts to be returned to it promptly. The matter was of importance as the failure to do so gave rise to the sanction in cl 2.0c)(ii). The use of the word "fails" in that subclause is indicative of an obligation imposed on the defendant to return faulty parts. In my opinion such an obligation is to be implied into the Agreement. 35 Accordingly, in my opinion, the defendant is entitled to be excused from any delay or failure in performance under the Agreement caused by the failure of the subcontractor to perform. His Honour was correct in his conclusion that the defendant should succeed on the cross-claim. The claim for interest 36 Section 100(1) of the Civil Procedure Act ("CPA") provides: "In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money; and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect." 37 Rule 6.12 of the Uniform Civil Procedure Rules 2005 (UCPR) contains the following relevant provisions: "(1) A statement of claim or summons must specifically state the relief claimed by the plaintiff… (6) An order for interest up to judgment must be specifically claimed. (7) In the case of a liquidated claim, a claim for an order for interest up to judgment: (a) must specify the period or periods for which interest is claimed; and (b) may specify the rate or rates at which interest is claimed. (8) If no rate of interest is specified under subrule (7)(b), the rate at which interest is claimed is taken to be the relevant rate of interest prescribed by Schedule 5 for the purposes of s 101 of the Civil Procedure Act 2005." 38 The cross-claim and the amended cross-claim each included a claim for "Interest pursuant to s 100 of the Act". The claim was not otherwise particularised. 39 The defendant, in its written submissions in the court below, included calculations as to its claim for statutory interest at the rate of 9% from 23 July 2007 to 23 July 2008 and continuing at a specified daily rate. 40 His Honour did not award the defendant interest on its verdict. His Honour said in his judgment "In written submissions, the Plaintiff has referred to the failure of the Defendant to plead the date or dates from which interest was to accrue on its Statement of Cross-Claim and to the provisions of Rule 6.12(7) of the UCPR which provides that a claim for an order for interest up to judgment, must specify the period or periods for which interest is claimed and must specify the rate or rates at which interest is claimed. The defendant has failed to specify such a date". I note r 6.12(7) provides that in the case of a liquidated claim the claim "may specify the rate" claimed. It is not mandatory. 41 The solicitor for the defendant deposed, on appeal, that the written submissions referred to by his Honour had not been served and did not come to the attention of the defendant or its legal representatives prior to the judgment being published. I do not understand this evidence to be contested. 42 The defendant cross-appeals from the failure to award interest on the grounds that the plaintiff's failure to serve the submissions resulted in a breach of the principles of natural justice in that the defendant was denied the opportunity to provide countervailing submissions. 43 The defendant submitted it had complied with the rules. The amended cross-claim in the prayer for relief claimed "interest pursuant to s 100 of the CPA." The defendant's submissions in the court below attached a schedule of calculations specifying the interest rate and the period during which the interest was claimed. There was thus compliance with the requirements of r 6.12(7). 44 In my opinion an error of law occurred in that the defendant was denied natural justice on this issue. The amended cross-claim appears to base itself upon either a claim for money had and received (which would be a liquidated claim) or alternatively a claim for repudiation and subsequent damages. His Honour found for the defendant on the basis of money had and received. Strictly r 6.12(7) required that the period for which interest was claimed should be specified and, in my opinion, such should have been set out in the statement of claim by reason of r 6.12(1). However I do not regard that as being of any moment where the details of interest claimed were otherwise provided to the plaintiff. 45 In Keefe v Marks (1989) 16 NSWLR 713 Gleeson CJ said, at 717 C-D, "…if for some reason no claim for interest were pleaded, an application at the hearing to amend the pleading by including a claim for interest would ordinarily be virtually irresistible, unless there existed some special circumstance giving rise to a discretionary consideration." 46 Meagher JA in the same case said at 728: "…a mere failure to include a prayer for interest in a statement of claim does not prevent one from asking for interest at the hearing, whether with or without an amendment, and any such application is automatically granted." 47 As a general rule interest will be awarded under s 100 to a party which has been kept out of its money. No reason is apparent to me why the general rule should not apply in this case. 48 In my opinion the defendant is entitled to interest under s 100 on the judgment. I uphold the cross-appeal on this ground. Costs 49 His Honour ordered that the defendant pay one-third of the plaintiff's costs of the plaintiff's action. The defendant submitted that the costs order did not reflect the fact that the plaintiff came out of the litigation in an entirely negative position. It had pursued a claim for $44,176.10 and ended up with a verdict against it of $18,959.01, in circumstances where the substantive element of its claim had been conceded. It was submitted that there should have been no order for the plaintiff's costs made against the defendant. Leave should be granted to cross-appeal against the costs order and it should be overturned. 50 I do not agree. His Honour in his judgment said: "In relation to the issue of costs, the parties have requested that the Court give a provisional assessment as to what the order as to costs should be, but reserve liberty to the parties to apply. I intend to make a provisional order in relation to the Amended Statement of Claim and having regard to the fact that the plaintiff was only successful as to $15,231.70 in relation to a claim of $44,156.10, that the defendant pay 1/3 of the plaintiff's costs as agreed or as assessed…" His Honour made that order. He further ordered that the order be stayed for 14 days but to commence if no party filed an application for a different costs order within 14 days. 51 The defendant made no application for a different costs order pursuant to the leave granted by his Honour. An appeal against an order for costs lies only by leave. In my opinion the circumstances outlined above are such that leave to appeal against the costs order should be refused. Orders 52 I make the following orders: (1) Plaintiff's appeal dismissed. (2) Defendant's cross-appeal as to interest allowed. (3) Defendant's cross-appeal as to the costs order in favour of the plaintiff in the court below dismissed. (4) The plaintiff is to pay the costs of the appeal and cross-appeal. (5) The parties are to furnish to my associate by 4.00pm on Friday 29 May 2009 a joint memorandum as to: (a) the agreed interest to be included in the judgment on the cross-claim (b) the judgments to be entered for the defendant (i) on its cross-claim (ii) after set-off of the plaintiff's verdict (c) confirming that the parties consent to the judgments being entered by me in chambers. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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