Woodchem Australia Pty Limited v D & R Henderson Pty Ltd

1. [1]

   HER HONOUR: By notice of motion filed 31 January 2020, the plaintiff seeks:

   1. (1)

      an order pursuant to r 14.28 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) that paras [4(c)], [4(e)], [7] and [11(b)] of the defence filed 4 September 2019, and paras [5], [6], [7], [9(a)] and [10] of the first cross claim filed 4 September 2019, be struck out;

   2. (2)

      an order pursuant to UCPR 13.4 that the first cross claim filed 4 September 2019 be dismissed; and

   3. (3)

      in the alternative, an order pursuant to UCPR 28.4 and s 62(2) of the Civil Procedure Act 2005 (NSW) that the following questions of fact be determined as a separate issue before final hearing of the proceedings:

2. [2]

   Paragraph [4], which seeks discovery, has been stood over for determination at a later date. It is not the subject of this judgment.

3. [3]

   The plaintiff is Woodchem Australia Pty Ltd (“Woodchem”). The defendant is D & R Henderson Pty Ltd (“Henderson”). On 4 September 2019, Henderson, the cross claimant, filed a cross claim against Woodchem, the first cross defendant, and Borg Manufacturing Pty Ltd (“Borg”), the second cross defendant. It is pleaded that in 2017, Borg acquired a particle board business, and left that business in 2019. During all times relevant to this judgment, Woodchem was a wholly-owned subsidiary of Board Group Investments Pty Ltd.

4. [4]

   It appears that although the notice of motion only refers to Woodchem, the parties have prepared their arguments on the basis that Woodchem and Borg are seeking the orders sought.

5. [5]

   Woodchem relied on three affidavits of Mr William James Snelson (“Mr Snelson”) dated 8 November 2019, 31 January 2020 and 25 March 2020. Henderson relies on the affidavit of Mr David Walter Henderson dated 18 March 2020. These were included in the parties’ three volumes of joint court books.

Background

1. [6]

   Woodchem is a business which supplies raw materials collectively referred to as “resin”. The primary raw materials used to manufacture resin are melamine, methanol and urea.

2. [7]

   Henderson is a manufacturer, distributor and reseller of softwood timber, particleboard and melamine laminated products.

3. [8]

   From November 2005 to 2008, Woodchem supplied resin to Henderson.

4. [9]

   From 2008 to April 2009, Henderson briefly purchased resin from Hexion Inc (“Hexion”). However, in April 2009, Henderson recommenced purchasing resin from Woodchem and continued to so until April 2019.

5. [10]

   In or around June 2018, while still buying resin from Woodchem, Henderson began to construct its own resin plant. On 10 April 2019, Henderson ceased purchasing resin from Woodchem.

6. [11]

   Henderson has paid all of its invoices from Woodchem for resin supplied from 2005 up until commencement of the first quarter of 2019. Woodchem alleges that Henderson has refused to pay its invoices for resin supplied between 11 February 2019 and 12 April 2019. According to Woodchem, the outstanding invoices total $2,243,665.16.

7. [12]

   Woodchem seeks to strike out the defence pursuant to UCPR 14.29 and the cross claim pursuant to UCPR 13.4, or alternatively, to strike out certain paragraphs of the defence and cross claim.

8. [13]

   I will consider first the dismissal of the cross claim, followed by whether to strike out paragraphs of the defence and cross claim. Finally, I will turn to consider the application for a separate determination.

9. [14]

   Before considering the dismissal of the cross claim, it is convenient that I briefly set out the pleading framework.

10. [15]

    By amended statement of claim (“ASC”) filed 16 August 2019, Woodchem claims a debt from Henderson for unpaid invoices. At paras [4] and [4A] it pleads:

11. [16]

    It is important to observe that at para [4], Woodchem alleges that the contract is partly written and party implied. Woodchem also pleads that there was a past course of dealings between the parties.

12. [17]

    On 4 September 2019, Henderson filed a defence and cross claim.

13. [18]

    The plaintiff seeks that the following paragraphs in the defence be struck out pursuant to UCPR 14.28.

14. [19]

    Paragraphs [4(c)], [4(e)] [7] and [11(b)] of the defence filed 4 September 2019 plead:

15. [20]

    By cross claim filed 4 September 2019, Henderson seeks, firstly, damages for breach of contract; secondly, an order setting off the damages payable to Henderson against any amount payable by Henderson to Woodchem pursuant to the ASC; thirdly, an order for compensation or refund pursuant to ss 87(1) or 87(2)(c) of the Competition and Consumer Act 2010 (Cth); fourthly, an order refusing to enforce the invoices claimed in the ASC to the extent that they charged prices for the supply of resin to Henderson in excess of the actual movement of costs for resin ingredients incurred by Woodchem; and finally, in the alternative, an order varying the contract for supply of resin products between Henderson and Woodchem so that its terms are consistent with the alleged “Price Limitation Clause”, set out later in this judgment.

16. [21]

    Henderson pleads at paras [5] to [7], [9(a)], [10] to [11]:

17. [22]

    As previously stated, these paragraphs of the defence are mirrored in the cross claim. The challenged paragraphs of the defence and cross claim fall into two categories. The first is Henderson’s admitted failure to pay the invoices in breach of the contract (“the contract claim”). The second is Woodchem’s and Borg’s alleged breach of the Competition and Consumer Act and/or the Competition Code under s 150C of the Act (“the competition law claim”).

18. [23]

    The basis of Henderson’s contract claim is its allegation that a term of the parties’ agreement was that Woodchem would supply Henderson with resin at prices adjusted quarterly, but that any price variation would be limited to the actual cost movement of the resin ingredients incurred by Woodchem. As foreshadowed, I will set out this alleged Price Limitation Clause later in this judgment.

19. [24]

    Both Woodchem and Borg have filed defences to the cross claim.

20. [25]

    In a reply filed 8 November 2019, Woodchem denies that any agreement with Henderson contained the alleged (or any) Price Limitation Clause, and denies any overcharging.

The law

1. [26]

   As previously stated, Woodchem seeks to dismiss Henderson’s cross claim pursuant to UCPR 13.4, or alternatively, to strike out specified paragraphs of the defence and cross claim.

2. [27]

   Henderson’s case must be taken at its highest. Henderson has foreshadowed that having regard to the matters in evidence, it intends to seek leave to amend its defence or cross claim to plead alternative relief against Borg. The proposed amendments will reflect a further claim that the invoices issued by Woodchem constituted misleading or deceptive conduct, in that they represented that the cost of the raw materials had increased by an amount greater than it had (Aff, 25 March 2020 at [62]).

(1) Dismissal of cross claim

1. [28]

   Woodchem seeks that the first cross claim be dismissed pursuant to UCPR 13.4.

2. [29]

   UCPR 13.4(1) provides that the Court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances: if the proceedings are frivolous or vexatious, if no reasonable cause of action is disclosed or if the proceedings are an abuse of the process of the Court.

3. [30]

   In General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Barwick CJ stated at 129:

4. [31]

   Henderson’s claim in contract, set out in the cross claim, is made on the basis that during the period from January 2018 to April 2019, in breach of the alleged Price Limitation Clause, Woodchem issued invoices to Henderson with prices for the sale of resin that had increased by amounts in excess of their actual cost movement, and did not provide Henderson with details of the calculations of those price movements. Henderson says that as a consequence of the breach, the prices for the supply of resin were greater than permitted under the contract, and that between January 2018 and January 2019, Henderson paid more than it was obliged to for the supply of resin. Henderson says that between February 2019 and April 2019, it was invoiced for more than was permitted by the Price Limitation Clause. Henderson says that it has therefore suffered loss and damage in the amount of an estimated $2,200,000.

5. [32]

   Henderson’s competition law claim, set out in the cross claim, is on the basis that between January 2018 and April 2019, the only participants in the market for the manufacture and supply of resin in the eastern states of Australia were Woodchem and Hexion. Hendersays that Hexion was unable to supply Henderson with resin products because its production capacity was exhausted by other participants, Borg Carter Holt Harvey Plywood Limited (“Borg Carter Holt”) and Fletcher Building Limited (“Fletcher”).

6. [33]

   Henderson says that Woodchem held a substantial degree of market power in relation to the resin market, and that Borg and Henderson operated in competition in the particleboard market. Between 2017 and 2019, Borg acquired the particle board business, including operating plants, of Borg Carter Holt, and Borg Carter Holt ceased to be a participant in the particleboard market.

7. [34]

   In late 2017, Borg acquired the Oberon and Mount Gambler plants of Borg Carter Holt. In April 2019, Borg acquired the Tumut plant of Borg Carter Holt and then closed it down in May 2019. In February 2019, Borg commissioned a further plant in Oberon and commenced particleboard production.

8. [35]

   Henderson says that the particleboard market consisted of a national output of approximately 1 million cubic metres of product annually. By February 2018, of the 1 million cubic metres, Borg produced approximately 600,000, Fletcher produced approximately 300,000 and Henderson produced approximately 100,000.

9. [36]

   Woodchem was a wholly owned subsidiary of Borg Group Investments Pty Ltd, whose directors were John Anthony Borg (“John Borg”) and Michael Paul Borg (“Michael Borg”). Michael Borg Pty Ltd and John Borg Investments Pty Ltd each held 50% of the shares in Borg Group Investments. Michael Borg and his wife, Leah, each held 50% each of the ordinary shares in, and were directors of, Michael Borg Pty Ltd. John Borg was the sole director and shareholder of John Borg Investments Pty Ltd. In addition to being the directors of Borg, John and Michael Borg were also its shareholders, each holding 50% of the ordinary voting shares.

10. [37]

    It is Henderson’s case that from January 2018 onwards, Borg issued communications from Woodchem to Henderson regarding the supply and pricing of resin. John, Michael and Leah Borg were persons related to Borg within the meaning of s 46 of the Competition Code. Borg had the capacity to determine, and did determine, the decisions of Woodchem concerning the supply and pricing of resin products to Henderson. Borg had an understanding of arrangement with Woodchem, Borg Investment Group Investments Pty Ltd, John Borg Investments Pty Ltd, Michael Borg Pty Ltd, and John, Michael and Leah Borg that Woodchem would conduct itself towards Henderson in the supply and pricing of resin products to Henderson so as to advance Borg's interests in the particleboard market.

11. [38]

    By reason of those understandings or arrangements, Borg had to power to manipulate and control the supply of resin products to participants in the particleboard market. As such, Borg, and through it Woodchem, had a substantial degree of power in the particleboard market within the meaning of section 46 of the Competition and Consumer Act.

12. [39]

    Henderson alleges that during the period from June 2018 to April 2019, Borg and Woodchem engaged in the following conduct:

13. [40]

    Henderson alleges that the conduct engaged in by Borg and Woodchem had the purpose or had effect or was likely to have the effect, of lessening competition in the particleboard market.

14. [41]

    It would be difficult to summarily dismiss the cross claim, as even on the plaintiff’s case, the representations were partly written and partly implied, and there has been a past course of dealings between the parties. In its cross claim, Henderson relies on what it alleges to be a binding contract entered into on 3 November 2005 with the Price Limitation Clause. There is conflict between the parties’ oral evidence and their interpretations of their past dealings, as well as the charges, graphs and movements of the resin products. The dispute over whether Woodchem has overcharged Henderson, and whether it engaged in conduct in violation of Australian competition law, can only be resolved by the parties giving evidence at trial.

15. [42]

    In my view, it cannot be said that Henderson’s cross claim does not disclose a reasonable cause of action, is frivolous or vexatious or cannot possibly succeed. Hence, it is not appropriate to make an order for summary judgment.

16. [43]

    Under the next heading, I provide a full explanation as to why, in my view, certain paragraphs in the cross claim should not be struck out.

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

1. [44]

   At the hearing, Woodchem focused its submissions only on certain paragraphs of the defence, and the paragraphs in the cross claim that correspond with those in the defence that it seeks to strike out pursuant to UCPR 14.28.

2. [45]

   Rule 14.28(1) of the UCPR provides that at any stage of the proceedings, the Court may order that the whole or any part of a pleading be struck out in three circumstances: if the pleading discloses no reasonable cause of action, defence or other case appropriate to its nature; if the pleading has a tendency to cause prejudice, embarrassment or delay in the proceedings; or if the pleading is otherwise an abuse of the process of the court.

3. [46]

   UCPR 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under UCPR 14.28(1). The parties have relied on evidence.

4. [47]

   The relevant principles in relation to striking out parts of a pleading were summarised in Szanto v Bainton [2011] NSWSC 985, where Ward J stated at [135]-[138]:

5. [48]

   In order to fully understand the parties’ arguments, as Woodchem has quoted only select portions of the relevant documents, it is convenient that I now set out these central documents and evidence relied upon by the parties.

6. [49]

   In summary, Henderson relies upon a draft product sale agreement dated 13 May 2016, as well as emails from Mr Stuart Toakley (“Mr Toakley”) of Borg, on behalf of Woodchem, to Mr David Henderson (“Mr Henderson”) of Henderson dated 21 June 2018 and 27 June 2018.

7. [50]

   Henderson asserts that the parties’ course of conduct (past the date of December 2006) is consistent with the alleged Price Limitation Clause, and/or that from time to time, Woodchem affirmed it.

8. [51]

   Henderson also asserts that during the five-quarter period from January 2018 to April 2019, in breach of the alleged Price Limitation Clause, Woodchem issued the subject invoices to Henderson for prices exceeding the actual cost movement of resin ingredients. In other words, Henderson asserts that Woodchem overcharged it by $2,000,000.

9. [52]

   Mr Henderson has explained the circumstances whereby the agreement dated 3 November 2005 came into existence. His version of events is that in early 2005, Henderson had been trialling resins supplied by Woodchem, with a view to including Woodchem as a possible resin supplier.

10. [53]

    On 14 July 2005, Henderson received an offer from Woodchem which Henderson says made clear that pricing going forward would be quarterly and linked to raw material costs, and that price movements would be justified each quarter.

11. [54]

    In about November 2005, Mr Henderson’s father, David F Henderson, caused Henderson to enter into an agreement with Woodchem to purchase resin. Mr Henderson said his father told him that he had been called by Peter Englebert, the then-managing director and owner of Woodchem, in Late October/early November 2005. He says they had a conversation to the following effect:

12. [55]

    On or about 3 November 2005, Henderson sent a letter to Woodchem by email and fax. The letter contained the alleged agreement between the parties, including the alleged Price Limitation Clause. It is perhaps the pivotal document in this application.

13. [56]

    In the letter from Henderson to Woodchem dated 3 November 2005, Henderson stated (CB 602):

14. [57]

    The reference in the letter above to “any price variation being limited to the actual cost movement of the resin ingredients” is the alleged Price Limitation Clause.

15. [58]

    From the summary of evidence as follows, both parties agree that the course of conduct extended beyond December 2006.

16. [59]

    This email reads (CB 450):

17. [60]

    This email reads (CB 450):

18. [61]

    Clause 3.2 of the product sales agreements reads (CB 433):

19. [62]

    It is Henderson’s case that this draft produce sales agreement affirmed the Price Limitation Clause. I accept that cl 3.2 does not specify that the product price is limited to the actual cost movement of the resin ingredients. However, it is a draft product sales agreement, not a final agreement.

20. [63]

    The letter to Henderson from Stuart Toakley, of Borg, dated 18 June 2018 reads (CB 356):

21. [64]

    This email relevantly reads (CB 355):

22. [65]

    This letter reads (CB 360):

23. [66]

    This email reads (CB 359; 360):

24. [67]

    This email reads (CB 447):

25. [68]

    Both parties agree that there was a course of dealings between them.

26. [69]

    For his part, Mr Snelson, the chief executive officer of Borg, reviewed the relevant documents and provided a summary of the course of dealings between the parties (CB 370-374). The relevant documents show that Woodchem supplied resin to Henderson from November 2005 to 2008. Mr Snelson says that the pricing method described in the letter from Henderson to Woodchem dated 3 November 2005 is in line with the methods Woodchem used to determine the price of resin each quarter.

27. [70]

    Mr Snelson says that the price at which Woodchem sold resin fluctuated as a result of price movements for the major raw materials, as well as fluctuations in the foreign exchange rate and freight costs. Each quarter, Woodchem reviewed its prices and sent Henderson a price review listing its offered supply price for the next quarter. Each quarterly price review included charts recording the raw material commodity index prices over the previous years, as well as a table comparing the price Woodchem was offering to sell resin for the next quarter with the price it offered for the previous quarter. The information set out in the charts is publically available.

28. [71]

    Henderson would then send quarterly purchase orders to Woodchem stipulating its desired quantities and delivery dates. The resin would then be produced and delivered as ordered. Following delivery, Woodchem would send an invoice to Henderson for the resin supplied.

29. [72]

    Mr Snelson has been unable to locate copies of any quarterly price review documents or purchase orders for the period prior to 2009. However, based upon the documents that he has reviewed and his knowledge of the business, he says Woodchem always adopted the following practice (Aff, 8 November 2019 [23]-[25]). Once the resin was produced, it was delivered to Henderson’s premises at Benalla, Victoria. After the resin was delivered to Henderson, Woodchem sent individual invoices to Henderson for the resin supplied. The unit price for the supply of the resin listed on the tax invoices is the same as the price listed in each of the quarterly price reviews sent to Henderson for the relevant quarter. The terms and conditions of sale applied to the sale of the goods listed in the tax invoices.

30. [73]

    As set out earlier in this judgment, there was a period from 2008 to March 2009 where Henderson sourced its resin from Hexion, not Woodchem. Then in April 2009, Woodchem recommenced supplying resin to Henderson. An email exchange between David Chidgey, previous manager of Woodchem, and George Kaspa of Henderson dated 13 March 2009 records the supply arrangements effective from April 2009. While the arrangement was stated to be for a one year period, Mr Snelson says that from 2009 through to April 2019, Woodchem and Henderson engaged in the same course of dealings for the sale and supply of resin.

31. [74]

    It is Mr Snelson’s view that the course of dealings between Woodchem and Henderson from April 2009 to April 2019 is consistent with there being no Price Limitation Clause.

32. [75]

    However, Mr Henderson (Aff, 18 March 2020) refers to a letter from Woodchem dated 14 July 2005 (CB 580), in which Woodchem made an offer to Henderson on terms that “pricing going forward will be quarterly and linked to raw material costs”. This letter reads (CB 601):

33. [76]

    At para [25] of his affidavit, Mr Henderson says that on 12 June 2009, he had a meeting with David Chidgley and Darren Hope, then a finance manager of Henderson. At that meeting, they discussed Henderson resuming the supply of resin products from Woodchem. Mr Chigley said that Woodchem “would agree to [a] price movement formula like the old one with Peter [Englebert].” (CB 583).

34. [77]

    At para [58], Mr Henderson says that at the meeting, they discussed the pricing as outlined in a letter previously provided by Woodchem which set out the movements in raw materials actually paid by Woodchem, and proposing new prices (CB 586). He provided a schedule of letters between the parties from 24 February 2009 to 28 August 2017. It was Mr Henderson’s practice to take brief notes in his notebook or to made notes on the price letters they were discussing at the time. He has included those notes in the exhibit to his affidavit (CB 586-587).

35. [78]

    As stated earlier, Henderson has paid the invoices for all resin supplied since 2005 up until the commencement of the first quarter of 2019.

36. [79]

    On 10 April 2019, Henderson ceased purchasing resin from Woodchem. It is within this period that Henderson stopped paying Woodchem’s invoices.

37. [80]

    Woodchem submitted that paras [4(c)], [4(e)], [7] and [11(b)] of the defence, as well as to paras [5], [6], [7], [9(a)] and [10] of the cross claim, are untenable and should be struck out as an abuse of process. This is because Henderson’s case depends solely upon a finding that the contract for the supply of resin in 2018 and 2019 included the alleged Price Limitation Clause. If the court fails to make such a finding, both Henderson’s contract and competition law claims fail.

38. [81]

    Woodchem submitted that the evidence of its pricing policy and methodology support its case. Woodchem’s position is that the four documents Henderson has particularised in [4(c)] and [4(e)] of the defence do not support the existence of the Price Limitation Clause.

39. [82]

    As to the first document, the letter from Henderson to Woodchem dated 3 November 2005, Woodchem submitted that it has been inaccurately transcribed. At [4(c)] of the defence, Henderson has pleaded it as including an express contractual term that Woodchem would supply resin at “...prices adjusted on a quarterly basis, any price variation being limited to the actual cost movement of the resin ingredients incurred by the plaintiffs”. Woodchem submitted that there was no Price Limitation Clause in that letter, and that the agreement referred to expired in December 2006.

40. [83]

    The second document is cl 3.2 of a draft product sales agreement dated 13 May 2016. At [4(e)] of the defence, Henderson asserted that this draft agreement “affirmed the method of pricing under the contract”. Woodchem submitted that there is no Price Limitation Clause in this document, and that cl 3.2, which deals with the right to change the price of products, is in fact consistent with the Woodchem’s ordinary pricing methodology. Further, it was a precondition in cl 2.1 of this document that the ACCC approved of the acquisition of the business of “Alpine MDF” by Borg. Woodchem noted that it is not in issue that the acquisition of Alpine MDF did not proceed to completion.

41. [84]

    The third and fourth documents are the emails from Mr Toakley of Borg to Mr Henderson dated 21 and 27 June 2018, as set out earlier in this judgment. At [4(e)] of the defence, Henderson states that these emails affirm what Henderson alleges to have been the agreed method of resin pricing. Woodchem submitted that Mr Henderson’s email stating that Woodchem’s methodology “makes sense” is an admission that the methodology was acceptable. Following this email exchange, Woodchem continued to provide Henderson with its published quarterly price reviews listing the price it would charge Henderson for resin in the next quarter. Henderson continued to place orders and make full payment of relevant tax invoices on that basis up until the subject five quarters in 2019.

42. [85]

    As to the remaining available evidence, Woodchem submitted that its offer dated 14 July 2005; the email exchange between Mr Chidgey and Mr Kaspa dated 13 March 2009; and the quarterly price review letters are all consistent with Woodchem’s price methodology. Woodchem says that by his email dated 28 June 2018, Mr Henderson acknowledged the appropriateness of this methodology. Moreover, the fact that Henderson continued to purchase resin from Woodchem following the email exchange in June 2018 is inconsistent with the assertion that their arrangement included the Price Limitation Clause. Henderson paid all invoices for resin supplied from 2005 up until the commencement of the first quarter of 2019, and only raised objection after it established its own capacity to produce resin.

43. [86]

    For these reasons, Woodchem submitted that the pleadings at [4(c)], [4(e)], [7] and [11] of the defence are untenable by reference to the known and admitted circumstances, and should be struck out. The same applies equally to [5], [6], [7] of the cross claim.

44. [87]

    As to the competition law claim, Woodchem submitted that it is also dependent on the court finding that the agreement between Henderson and Woodchem included the Price Limitation Clause. Henderson asserts that from the period from June 2018 to April 2019, both Borg and Woodchem engaged in conduct contravening s 46 of the Competition and Consumer Act. At [9(a)] of the cross claim, Henderson alleges that Woodchem increased resin prices in excess of the actual cost movement of resin in breach of the Price Limitation Clause. At [10(a)], Henderson alleges that such conduct was intended to lessen competition in market. That is, the scope of facts properly relevant to this issue includes the particulars to para [10] that between January 2018 and January 2019, Henderson paid prices that were substantially in excess of the price that was payable under the Price Limitation Clause.

45. [88]

    Woodchem submitted that the likelihood of a serious factual dispute concerning the Price Limitation Clause does not emerge from the specifically pleaded allegations or the evidence served on the application. The specific documents relied upon by Henderson, contrary to its assertions, are antithetical to the existence of the Price Limitation Clause governing the conduct of the parties. As such, its claim is unmeritorious, and the court should strike out the identified paragraphs.

46. [89]

    Finally, Woodchem submitted that as Henderson’s claims in contract and competition law fail, the Court is be entitled to enter judgment for Woodchem on its claim for the admitted unpaid invoices. There is no dispute that the goods were ordered for specified prices and delivered to, and accepted by, Henderson. Presumably, Henderson used those goods to its benefit.

47. [90]

    Henderson submitted that there is a clear factual dispute between Woodchem and Henderson. Woodchem has also filed its motion despite serious matters being raised in the cross claim which can only sensibly be resolved at final hearing.

48. [91]

    It is Henderson’s position that the strike out application, as developed in Woodchem’s written submissions, is really a complaint that the particulars to certain pleadings do not support the pleaded case. Not only is that complaint factually incorrect, but it confuses the role of particulars with the role of evidence. Henderson says that in focussing its complaint on the particulars to certain parts of the pleading, Woodchem has overlooked the fact that the pleadings as drafted do, in fact, disclose a cause of action.

49. [92]

    Significantly, Henderson says that Woodchem has not identified the basis upon which it says that the relevant parts of the defence and cross claim ought to be struck out. Instead, the most it says is that those paragraphs are “untenable by reference to the known and admitted circumstances and should be struck out.” Henderson says that this complaint, even if made good, would not warrant the paragraphs complained of being struck out.

50. [93]

    Woodchem complains about para [4(e)] of the defence, where Henderson pleaded that “from time to time [Woodchem] affirmed the method of pricing under the contract”. Whether or not that occurred is a matter for evidence. Nothing put forward by Henderson tells against that conclusion at a level which would make that allegation “so manifestly untenable that it cannot possibly succeed”.

51. [94]

    Woodchem also complains that the draft product sale agreement dated 13 May 2016 does not contain the Price Limitation Clause. Even if that were accepted, Henderson submitted that Woodchem appears to conflate particulars with evidence. As Mr Henderson explains, the significance of the draft agreement is that during its negotiation, Mr Snelson, on behalf of Woodchem, affirmed the Price Limitation Clause.

52. [95]

    As to the emails from Mr Toakley to Mr Henderson dated 21 June 2018 and 27 June 2018, Woodchem puts great emphasis on Mr Henderson’s statement that “[t]he methodology makes sense”. Woodchem then seeks to elevate this statement to what it describes as an “admission and acknowledgement that the methodology described was acceptable”. Henderson submitted that Mr Henderson was not agreeing that the methodology was acceptable; rather, he was stating that the basis upon which it was put made sense. As Mr Henderson explained at para [103] of his affidavit, he was, in writing those words, referring to direct material costs. The surrounding circumstances, as explained in Mr Henderson’s affidavit, belie any such admission or acknowledgment even having been made.

53. [96]

    Woodchem also point to their offer dated 14 July 2005. However, Henderson submitted that the Price Limitation Clause is not contained in that document, but in the letter of 3 November 2005. That letter is quite clearly in different terms to the letter of 14 July 2005, and does contain the Price Limitation Clause.

54. [97]

    Woodchem then concedes that the contractual arrangements continued on the basis of the 3 November 2005 letter. Henderson submitted that although Woodchem seeks to argue that the Price Limitation Clause was not in that letter, the Price Limitation Clause as pleaded refers to that letter and is in materially the same terms as the clause set out in that letter.

55. [98]

    Henderson submitted that Woodchem’s claim is not assisted by the fact that Henderson continued to purchase resin from Woodchem and pay for that resin until the first quarter of 2019. Firstly, the conduct of Henderson in continuing to pay for the resin is irrelevant to the question of whether or not Woodchem breached the contract. Secondly, having regard to the essential nature of Woodchem’s supply of resin to Henderson, it is not unexpected that Henderson would continue to purchase resin from Woodchem in circumstances where, as Mr Henderson explains at [104(c)] of his affidavit, it had no other source of resin and was concerned that Woodchem would cut off supply if Henderson complained.

56. [99]

    Finally, Henderson submitted that Woodchem’s contention that the cross claim is an abuse of process is unsupported. The fact that by filing its cross claim, Henderson has prevented Woodchem from immediately obtaining judgment (even if they were otherwise entitled to it), does not render the cross claim an abuse of process. Henderson submitted that even if Woodchem’s strike out application were successful, Henderson’s cross claim would survive. Woodchem cannot sensibly submit that it is untenable, or that it is being brought for an improper or collateral purpose, as it has brought no evidence to support such submissions.

57. [100]

    Henderson submitted that the filing of Woodchem’s motion is an attempt to forestall the hearing of an application which raises serious questions about the conduct of Borg, both in relation to Woodchem’s contractual relations with Henderson, and more generally, in relation to Borg’s conduct in the market for particleboard and resin in Australia.

58. [101]

    It is common ground that Henderson has not paid Woodchem the amounts in the invoices as particularised in the ASC. The pivotal document is the letter dated 3 November 2005, which “briefly summarises the agreement between the parties”. In it, Henderson says it “would like to take this opportunity of confirming the supply agreement, upon which our two companies have agreed”. The agreement is on terms that “Woodchem will supply up to 100% of Henderson’s resin requirements, estimated at around 15,000 to pa, at prices agreed to by the parties on a quarterly basis, with any price variation being limited to the actual cost movement of the resin ingredients”. The letter then states that the agreement is to be applicable to both parties until December 2006. Both parties agree that the agreement continued until 2009. Henderson’s case that it continued after that date.

59. [102]

    It was in 2009 that Henderson recommenced purchasing resin from Woodchem after purchasing resin from another supplier, Hexion, for approximately a year. After 2009, the parties’ conduct, together with other documents, is relevant to determining their obligations.

60. [103]

    I have set out the relevant documents, as well as the conduct of the parties, earlier in this judgment. The parties have different interpretations of the meaning of the documents, and what is shown by the relevant graphs and reports in relation to the price movement of the resin products. These documents and conduct are open to interpretation, and the varied versions of events can only be reconciled by the parties giving evidence at trial. Woodchem submitted that as Henderson has admitted that the invoices have not been paid, it is entitled to judgment for the unpaid amount. I do not agree, as Henderson has claimed that it does not owe the amount in the invoices because Woodchem overcharged it in the sum of $2,200,000. In my view, it cannot be said that Henderson’s contract claim is an abuse of process of the Court, nor that it discloses no reasonable cause of action such that the relevant paragraphs should be struck out.

61. [104]

    The competition claim, as particularised in the pleading of the cross claim, is also arguable. It is pleaded that Borg had a substantial degree of power in the particleboard market between June 2018 and April 2019, and increased prices for the sale of resin in excess of the actual price incurred, which negatively affected Henderson’s capacity to compete in the market. It is further pleaded that Borg gave assurances and made representations to Henderson that Woodchem would continue to supply resin to Henderson in the future, and that it was only on or about 14 April 2019 that Borg advised Henderson that Woodchem would cease supply of resin in 3-4 months. In these circumstances and on the available evidence, I cannot conclude that Henderson does not have a reasonable cause of action. The proceedings should be permitted to go to trial. As such, it is not appropriate to strike out the specified paragraphs of the defence and cross claim.

(3) The application for a separate determination

1. [105]

   In the alternative to the relief discussed above, Woodchem seeks an order pursuant to UCPR 28.4 and s 62(2) of the Civil Procedure Act that the questions set out at paras [3(a)] and [3(b)] of the motion be determined as a separate issue before final hearing of the proceedings.

2. [106]

   The separate questions are:

3. [107]

   Rule 28.2 of the UCPR reads:

4. [108]

   The general rule is that proceedings are listed for trial generally, for the hearing of all questions and issues arising in the proceedings: see ss 56(1) and 56(2) of the Civil Procedure Act. The court’s power to make orders for the decision of any question separately from any other question under UCPR 28.2 arises as an exception to the general rule.

5. [109]

   Although there are many authorities on this topic, the legal principles that apply in exercising the discretion of whether to make the order for separate determination are comprehensively set out in the decision of Hallen J in Southwell v Bennett [2010] NSWSC 1372 (“Southwell”). At [15], his Honour set out those principles, which have been summarised as follows.

   1. (1)

      As a general rule, the discretionary power to order the separate determination of a question should be approached with caution.

   2. (2)

      In exercising its discretion, the overriding purpose of the Civil Procedure Act, namely the just, quick and cheap resolution of the real issues in the proceedings under s 56, must be given effect.

   3. (3)

      Generally, all questions of fact and law should be determined at the one time, and if the court is to depart from that position, the party seeking the separate determination of a question must satisfy the court that it would be “just and convenient” for that order to be made.

   4. (4)

      While it may appear superficially attractive to order the trial of a separate question, experience often shows that it will not be so. For example, complications can arise in relation to appeals, or overlapping factual issues, or questions of credit, if the same witnesses have to give evidence in relation to a question that is separated and those that are not.

   5. (5)

      The experience of courts suggests that the separation of proceedings often does not result in the quicker and cheaper resolution of proceedings, but often has the reverse effect.

   6. (6)

      It sometimes happens that it turns out to be productive of the disadvantages of delay, extra expense, appeals and uncertainty of outcome which it is intended to avoid.

   7. (7)

      Before a question is to be separately determined, it must be possible to clearly see that it will facilitate the quicker and cheaper resolution of the proceedings.

   8. (8)

      Where findings as to the credit of a witness is, or of witnesses are, or may be, involved in the consideration of the evidence relevant to the question, it is inappropriate to order a separate trial.

   9. (9)

      One factor that may tell against the making of an order is where there is likely to be a significant overlap between the evidence adduced on the hearing of the separate question and at trial, possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding. There is always a risk of inconsistent findings arising from determination of separate questions.

   10. (10)

       While the decision is ultimately one for the court to determine, it will have regard to the attitude of the parties.

6. [110]

   Sections 56, 57 and 60 of the Civil Procedure Act are also relevant. I do not need to reproduce them here.

7. [111]

   Woodchem submitted that the determination of these questions will substantially dispose of the proceedings and render unnecessary any need for further trial in the proceedings.

8. [112]

   In summary, Henderson submitted that there are notorious risks of unforeseen complications in hearing separate questions. Caution is required. Henderson referred to Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 (“Idoport”), where Einstein J listed the circumstances in which separately determining an issue will rarely be an appropriate procedure. These include where there are intertwined issues of fact or law (such that the determination of the separate question would not have any substantial effect on the width of the field of litigious controversy or the prospect of the settlement of the balance of the litigation); where there is a commonality of witnesses and issues of credit; and where there is a possibility that the resolution of the separate issue will not finally determine the issue, but merely result in an appeal from that decision in relation to that separate issue creating a multiplicity of proceedings, interruptions to the court and undesirable fragmentation of the proceedings.

9. [113]

   Henderson submitted that all of those features are present in this case. Woodchem have advanced no cogent reason to support the hearing of a separate question.

10. [114]

    As to the form of the questions sought, Henderson submitted that the first question is plainly inappropriate. It is open-ended, and would require the Court to identify the relevant contract or contracts. A separate question should be capable of being answered “yes” or “no”. Henderson submitted that it is not clear how Woodchem can reasonably submit that the answer to the first question would dispose of the proceeding.

11. [115]

    Henderson similarly submitted that it is not clear how the answer to the second question would conclude the matter. Even if the question concerning the Price Limitation Clause were determined adversely to Henderson, the balance of the cross claim would remain. Also, given that the answer to the question of the Price Limitation Clause would necessarily involve the cross-examination of witnesses, there is a commonality of witnesses and issues of credit such that separate determination is inappropriate.

12. [116]

    As a general rule, the discretionary power to order the separate determination of a question should be approached with caution. In exercising the Court’s discretion, the overriding purpose of the Civil Procedure Act, namely the just, quick and cheap resolution of the real issues in the proceedings pursuant to s 56, must be given effect.

13. [117]

    As the general rule is that all questions of fact and law should be determined in a single hearing, the party seeking that certain questions be determined separately must satisfy this Court that it would be “just and convenient” for that order to be made.

14. [118]

    As set out earlier in my judgment, the pivotal question in these proceedings is whether the Price Limitation Clause in the letter dated 3 November 2005 continued to be adhered to after 2009. Answering the question of whether the parties’ conduct continued to be in accordance with this clause, such that it governed the contract for the supply of goods by Woodchem to Henderson in 2018 or 2019, will require oral evidence, primarily from Mr Snelson and Mr Henderson. They will be assessed as to their credit in light of their evidence and the emails and documents set out earlier in this judgment. Were a separate determination of those questions ordered, is more than likely that both Mr Snelson and Mr Henderson would be required to give evidence at both trials. This could lead to different findings on credibility.

15. [119]

    In my view, there is no bright line as to where the evidence which is relevant to the separate questions begins and ends. Granting the application for a separate determination would not accord with the principles set out in ss 56, 57 and 60 of the Civil Procedure Act, as hearing of the separate questions will not afford the parties of a quick, cheap and just outcome. For these reasons, in my view it is not appropriate to order that these questions be considered separately. Hence, I decline to make that order pursuant to UCPR 28.4 and s 62 of the Civil Procedure Act.

16. [120]

    The result is that the plaintiff’s notice of motion filed 31 January 2020 is dismissed.

Costs

1. [121]

   Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the defendant’s costs on an ordinary basis.