Supreme Court New South Wales

• Medium Neutral Citation: Mellare v United Pacific Industries Ltd [2014] NSWSC 1626
• Hearing dates: 12/11/2014
• Decision date: 12 November 2014
• Jurisdiction: Common Law
• Before: Campbell J

Decision

I direct the parties to bring in short minutes of order giving effect to my reasons for decision at 10 am on Thursday 13 November 2014.

• Catchwords: CONTRACT LAW - breach - defective goods - indemnity - damages arising from 3rd party suffering personal injury
• Legislation Cited: Civil Procedure Act 2005 (NSW), ss 76, 100 and 101; Judiciary Act 1903 (Cth), ss 79 and 80; Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 5; Trade Practices Act 1974 (Cth) , ss 75AD
• Cases Cited: Agar v Hyde [2000] HCA 41; 201 CLR 552; Damberg v Damberg [2001] NSWCA 87; 52 NSWLR 492
• Texts Cited: K Lewison and D Hughes, The Interpretation of Contracts in Australia (Thomson Reuters, 1st Australian Edition, 2002)
• Category: Principal judgment
• Parties: United Pacific Industries Pty Ltd (Cross Claimant); Taiwan Stanch Company Limited (Cross Defendant)
• Representation: Counsel: P S Jones (Cross Claimant); N Nygh (Solicitor) (Cross Defendant); Solicitors: HWL Ebsworth (Cross Claimant)
• File Number(s): 2011/00230025

ex tempore Judgment (Revised)

1 By notice of motion filed on 21 August 2014, the defendant/ cross-claimant, which I will refer to as "United Pacific", claims summary judgment on its cross-claim against the cross defendant, which I will refer to as "Taiwan Stanch".

2 The basis of the cross-claim is United Pacific's liability to the plaintiff under the judgment of this court entered by Hidden J on 20 August 2014. That judgment relates to a claim for personal injuries. The plaintiff was, at the time of the injury, which I will detail in a moment, an infant and was still in his minority at the time of the settlement. Hidden J approved the settlement in accordance with the provisions of s 76(3) Civil Procedure Act 2005 (NSW) and entered judgment for the plaintiff in the sum of $685,000 by way of damages. It was a term of the settlement that the defendant would pay the plaintiff's costs on the usual basis. The amount of those costs was subsequently agreed between the plaintiff's lawyers and United Pacific's lawyers in a sum of $215,000. In short, United Pacific claims indemnity for a total sum of $900,000 from Taiwan Stanch.

3 United Pacific and Taiwan Stanch had been in an ongoing contractual relationship for many years prior to the plaintiff's injury involving the supply by Taiwan Stanch to United Pacific of goods, manufactured by the former, of a therapeutic type. Those goods included a product known as Thermoskin, which was re-supplied by United Pacific for sale over the counter by pharmacies in Australia, including New South Wales.

4 The plaintiff's case was that his mother had purchased a Thermoskin product, which is sometimes referred to as a gel pack and can be used as a cold pack in the treatment of injuries involving swelling. The boy, who was only three years and nine months of age, had suffered a burn to his hand, and his mother applied the Thermoskin pack to treat the burn. The plaintiff, in the momentary absence of his mother, bit into the skin of the pack, puncturing it and ingesting some of its contents, which were poisonous.

5 He suffered from serious personal injury by way of ethylene glycol poisoning. His condition deteriorated rapidly, and he required treatment under a medically induced coma. Part of the complications of the poisoning included renal failure treated with dialysis and, as a long-term consequence, it was alleged on his behalf that he suffered from an acquired brain injury including a degree of cognitive impairment and inability to control his emotions.

6 I should pause to record that Taiwan Stanch does not actively oppose this application. In written submissions filed on 5 November 2014, it states that it "neither supports nor opposes the notice of motion". Indeed, although Taiwan Stanch is represented before me by Ms Nygh, solicitor, it went so far as to indicate that it would consent to having United Pacific's motion determined in chambers on the papers, without the need for any party to attend upon a hearing.

7 This approach to the application by Taiwan Stanch, which, if I may say, on the evidence before me seems to be an entirely proper one, makes United Pacific's task of satisfying the stringent test for summary judgment so much the easier.

8 The test for summary disposal of proceedings has been stated many times in many decisions of high authority and requires no detailed exposition by me. However, I direct myself by reference to Agar v Hyde [2000] HCA 41; 201 CLR 552 at 575 [57] where four Justices of the High Court said:

It is, of course, well accepted that a court whose jurisdiction is regularly invoked in respect of a local defendant (most often by service of process on that defendant within the geographic limitations of the court's jurisdiction) should not decide the issues raised in those proceedings in a summary way except in the clearest of cases. Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.

The Court of Appeal has recently said that the powers of the court to summarily dispose of cases should only be exercised in plain and obvious cases: Ekes v Commonwealth Bank of Australia [2014] NSWCA 336 at [88] per Bathurst CJ (Beazley P and Emmett JA agreeing). For the reasons I will give, I am satisfied that the cross claimant has, in this case, comfortably cleared that high bar.

9 I should also record that the plaintiff's claim against United Pacific was based upon a single cause of action arising under federal law being s 75AD of the Trade Practices Act 1974 (Cth). Accordingly, I am, in deciding this case, exercising the Court's federal jurisdiction, and applying applicable Federal law as required by the provisions of s 79 and s 80 of the Judiciary Act 1903 (Cth). To that extent, in accordance with the provisions of s 80, state law may be picked up to operate as surrogate federal law, so far as the laws of the Commonwealth are not applicable or their provisions are insufficient to carry them into effect, or to provide adequate remedies. Of course, no question of punishment arises in the present case.

10 I remind myself of those legal matters because the first ground upon which United Pacific relies is contribution or indemnity under the provisions of s 5 Law Reform (Miscellaneous Provisions) Act 1946 (NSW), a statute which may have some application, if its terms are engaged, given that there is no Commonwealth statute of general application providing for apportionment of liability, or contribution, between or amongst persons who may be jointly and severally liable in respect of a liability that arises under a law of the Commonwealth. United Pacific also, in the alternative, claims damages for breach of contract and, finally, contribution for co-ordinate liability on general law principles.

11 Before dealing with the various ways in which Mr Jones of counsel put his argument on behalf of United Pacific, I think it appropriate to deal with the facts established by the evidence about the relationship between United Pacific and Taiwan Stanch. As I have said, those companies had an ongoing commercial relationship over many years prior to the events giving rise to United Pacific's liability to the plaintiff.

12 The evidence read on the application is attached, as it were, to the affidavit of Jason William Stevens sworn on 4 September 2014. Mr Stevens is a solicitor employed by the cross-claimant's solicitor, and has the day to day conduct of the litigation. His affidavit contains a narrative of the facts upon which the cross-claimant relies, substantiated by to a bundle of attachments consisting of 484 pages referred to in his affidavit as Ex. JWS1. It should be said, from the defence filed by Taiwan Stanch to the plaintiff's amended cross-claim, the basic facts relating to the nature of their contractual relationship is not in issue.

13 On the pleadings the issues essentially come down to a denial that representations made as to the nature of the contents of the Thermoskin gel pack were terms of the contract; a denial that the contract was breached; and a denial that the contractual relationship between the parties was governed by the law of New South Wales or, for that matter, any Australian jurisdiction. In this latter regard Taiwan Stanch says Taiwanese law applies.

14 l return to the narrative of fact. In his affidavit sworn 19 March 2014, a Mr Maurie Callinan, who was the managing director of United Pacific from March 1992 until September 2012, deposes as to facts about the negotiations, to which he was a party, with a Ms Catherine Chang, who had authority on behalf of Taiwan Stanch. Those negotiations related to the proposal that Taiwan Stanch manufacture the Thermoskin packs on behalf of United Pacific.

15 During the course of those negotiations and on 21 September 1998, Taiwan Stanch provided United Pacific with a sample invoice that would be used in their commercial dealings, if the contract was made. The invoice referred to a number of different "compress" packs. However, the document contained the following representation, allowing for some syntactical infelicity in the original: "Above all products contained 'non-toxic gel'".

16 In November 1998, Mr Callinan and Ms Chang met in Atlanta, Georgia, and continued their negotiations, during which discussion Mr Callinan said to Ms Chang:

United Pacific wants to sell the gel products manufactured by Taiwan Stanch in Australia on the basis that they do not contain any toxic substance. This is very important to United Pacific, and we rely on your description that the contents of the gel packs are non toxic. Would you please confirm what the contents of the gel packs are so we can use that information in selling and distributing the products in Australia.

17 The background to that exchange includes the consideration that, in order to market the packs in Australia, it was necessary for United Pacific to obtain registration of them on the Australian Register of Therapeutic Goods.

18 On 20 January 1999, Mr Callinan emailed Ms Chang placing the first purchase order for the supply of the Thermoskin gel packs. The email included the following statement:

The formula of the "GEL" contents of the product is to be as per sample supplied in December 1998.

19 The business relationship between the companies continued for a number of years. The system described by a Mr Symington, in his affidavit sworn in March 2014, was for a contract for a specific supply to be concluded by a number of discreet steps. United Pacific would lodge a purchase order by facsimile with Taiwan Stanch in Taiwan. Normally this was followed up, if no early response was received. Taiwan Stanch would then, again, by facsimile transmit a pro forma invoice setting out information relating to the specific supply involving all the essential terms of that particular contract and requiring payment by telegraphic transfer in advance. The proper understanding of those steps, I think, is that the purchase order was an invitation to treat, and the pro forma invoice was as an offer which was accepted by the United Pacific purchasing officer signing, and returning it by facsimile to Taiwan Stanch, which would later provide information about the despatch date and likely delivery date in Australia.

20 During the ongoing course of the conduct between the companies, Taiwan Stanch's service department emailed United Pacific making the following representations. Firstly, they represented an ingredient of the gel was propylene glycol and stated the following:

We have tested our gel by SGS and proved it to be non-toxicate gel. Therefore, it does not affect the human body in any way if accidentally swallow it. However, to swallow it in quantity may cause slight diarrhoea and there will be no other side effects.

(The syntax is as per the original.)

21 The context in which that representation was made, was United Pacific had raised with Taiwan Stanch a concern that a consumer had swallowed some of the gel and had made enquiries about what it consisted of. Moreover, in product data safety sheets provided by Taiwan Stanch Co to United Pacific over the years, representations were made as to the nature of the gel, which included the descriptions of the components of the gel as including propylene glycol, and the representation that if the gel was swallowed:

No health effects are expected ... if symptoms develop, such as diarrhoea, nausea, vomiting, cramps, weakness, collapse. Drink large amounts of water and get medical attention.

22 In a case like this, where the contract may be taken to be constituted by a course of conduct over a period of years which conduct includes the making of representations partly in writing and partly oral, the objective principle by which the rights and liabilities of parties to a contract are determined has some particular nuances, especially when the question is whether representations made are taken as promissory in nature. The question for the court, in the current context, is whether it is beyond argument, on the totality of the evidence, that it was the intention of the parties to the contract that the representations made as to the benign nature of the contents of the gel are promissory in character.

23 It seems to me that, considering all of the evidence to which I have referred, and the other matters Mr Jones urged upon me in writing, that the representations as to the nature of the gel are not merely representational but are promissory in character and form a term of the contract. Naturally, as I have said, the question of whether this is so depends upon the intention of the parties (See K Lewison and D Hughes, The Interpretation of Contracts in Australia (Thomson Reuters, 1st Australian Edition, 2002) at pp 102 to 105, para 3.12). The factors which led me to this conclusion are: the fact that the representations have frequently been put in writing in the context of the ongoing relationship between the parties; the representations contain a statement of fact as to the contents of the gel and its nature of a type that would be within the knowledge of Taiwan Stanch but not the knowledge of United Pacific ; indeed, the knowledge of Taiwan Stanch in that regard might be taken to be special knowledge; and having regard to the nature of the negotiations between the managing director of United Pacific and Ms Chang, it may be taken that the representations were made in a serious commercial setting and, for the purpose of inducing United Pacific to enter into the contract with Taiwan Stanch.

24 For these reasons, I am satisfied to the necessary, high degree that it was a term of the contract that the gel contained propylene glycol and was non- toxic in nature.

25 The evidence in the case also demonstrates to the high standard necessary for an application for summary disposal, the Thermoskin supplied to United Pacific, which was introduced into the Australian market and, acquired by the plaintiff's mother as a consumer, was supplied in breach of that warranty.

26 Australian Government tests, after the event, demonstrated that the Thermoskin pack contained not propylene glycol but ethylene glycol, a poisonous substance. This is also borne out by the treatment of the plaintiff subsequent to his ingestion of the gel, as to which see the report of Professor Robert Ouvrier dated 19 December 2012. The results of testing is in a report from the Australian Therapeutic Goods Administration, which commences at page 183 of the exhibit to Mr Stevens' affidavit. Samples provided tested positive for ethylene glycol. The expert who carried out the tests also stated that no propylene glycol was detected in any of the samples tested by her.

27 Moreover, in subsequent negotiations or discussions between United Pacific and Taiwan Stanch, the latter made admissions about this. Mr Callinan says that in a meeting on 11 September 2008, a Mr Wilson Chang said to him:

Taiwan Stanch formulated the gel contained in the gel packs using ethylene glycol instead of propylene glycol. Taiwan Stanch will agree to compensate United Pacific for all costs relating to the costs of product recall.

28 Moreover, that promise was subsequently consummated, if I may use that expression, in a deed described as a settlement deed, which related to the costs of a product recall that was initiated after the plaintiff's poisoning came to light. This document was admitted in evidence without objection.

29 One of the recitals to that deed is in the following terms:

Taiwan Stanch admits that the product manufactured by it did not meet the specifications and standards set out in the safety data sheet and that they used ethylene glycol (ammonia glycol) instead of propylene glycol in the products.

Although this was a settlement of the product recall dispute, the parties acknowledged by clause 2 of the deed, that United Pacific did not release Taiwan Stanch from any claims including claims relating to personal injury suffered by third parties for which United Pacific may be liable. This, of course, is such a case.

30 It seems to me, therefore, that so far as the claim of United Pacific is based upon breach of contract, it has established its case on the evidence led on this application to the stringent standard required by the formulation of the test in Agar v Hyde and that it is appropriate, on that basis, to accede to the application. I should add that, although there was an issue between the parties as to whether the proper law of the contract was the law of Taiwan or the law of an Australian jurisdiction, it is unnecessary for me to decide that point. There is no evidence before me to suggest that the general law of contract under Taiwanese law is different from the general law of contract at common law; and, although the presumption that the law is the same may be a weak one in the modern global economy, in the absence of any evidence to the contrary, that presumption is sufficient to enable me to decide the case without resolving where the proper law of the contract lies (see Damberg v Damberg [2001] NSWCA 87; 52 NSWLR 492 at 518 [44]; The Parchim [1918] AC 157 at 161).

31 So far as the quantum of the case is concerned, it seems to me that the measure of damages for the breach of the warranty is the amount necessary to put United Pacific in the position it would have been in had Taiwan Stanch properly performed its contract. It may clearly be reasonably supposed to have been within the contemplation of the parties, especially if one has regard to the email exchange in 2003, given the common intention as to potential uses of the product, that consumers might accidentally ingest the contents if the pack was perforated or, in the case of children, no doubt, that through playing with the packs they may deliberately bite into them and thereby swallow the contents. It seems to me that the loss suffered by United Pacific is the amount of its liability to the plaintiff in this case, applying the second limb of the principle discussed in Hadley v Baxendale (1854) 156 ER 145 at 151.

32 Again, given that the settlement, at least so far as the damages were concerned, was approved by a judge of this Court and that there is no challenge by evidence or argument to the reasonableness of the sum paid, by reference to the approach taken by the High Court in Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603, that the reasonableness of the settlement by the defendant with the plaintiff sufficiently establishes, in turn, the reasonableness of the measure of its claim. It is true that the amount of costs of $215,000 was not the subject of any approval by the Court. It is the practice of the court, in approving "infants' settlements", to require the parties to put the questions of costs to one side until after the question of the appropriateness of the compromise has been decided.

33 However, whereas I would not put too much weight on Mr Jones's argument about the plaintiff's lawyers being experienced in the area of costs in personal injuries litigation, from the fact that the costs were agreed at arm's length between experienced solicitors on both sides, who would be astute to look after the interests of their clients, I can infer that the amount allowed for costs, having regard to the complexity of the issues and the length of time during which the litigation was on foot, is reasonable.

34 Accordingly, I am satisfied, again, on the Agar v Hyde test that the measure of United Pacific loss is $900,000.

35 Having arrived at these findings it is strictly unnecessary for me to consider Mr Jones' other grounds. I do not mean any disrespect if, therefore, I deal with them extremely briefly. I would not have been satisfied to the requisite standard on the evidence led before me that United Pacific were, in fact, negligent. It seems to me that the question of whether a non-manufacturing supplier of goods owes a duty of care to the ultimate consumers depends upon the close examination of all the circumstances of the case, which the context of the present application does not permit. I make these comments, bearing in mind, that it is a necessary element of the cause of action under s 5, which I accept has been picked up as surrogate federal law in this case, that the claimant prove it is a tortfeasor liable in respect of the same damage to plaintiff as the defendant to the claim for contribution or indemnity. Moreover, I am not satisfied that it has been shown that United Pacific failed to take any available reasonable precaution to detect the defective nature of the goods supplied before re-supplying them in the Australian market. That is not to say that at a full hearing this could not have been established.

36 Moreover, in terms of any joint statutory liability of United Pacific and Taiwan Stanch arising under the Trade Practices Act, for example pursuant to Part VA, I acknowledge that the question of contribution in that instance would not be governed by statute but under general law principles dealing with contribution on equitable grounds for co-ordinate liabilities. In some cases those principles would provide an indemnity rather than simply rateable contribution. But again in my judgment, that question would depend upon a very close examination of the facts, matters and circumstances of the case. It seems highly likely on that basis an indemnity would be available to United Pacific, but I could not say that the contrary position was completely untenable in accordance with the principles discussed in Agar v Hyde.

37 In any event, for these reasons, I propose to enter judgment in favour of United Pacific against Taiwan Stanch on the amended first cross-claim in the sum of $900,000 plus interest. There was an argument about interest and Ms Nigh submitted that the rate of interest ought to be the pre-judgment rate of interest prescribed for the purposes of s 100 of the Civil Procedure Act 2005 rather than the post judgment rate under s 101.It seems to me that as the only relevance as of the judgment in favour of the plaintiff, in the circumstances, is to provide the measure of the cross-claimant's loss the former basis is the correct basis on which to assess the entitlement of United Pacific to interest.

(1) I direct the parties to bring in short minutes of order giving effect to my reasons for decision at 10 am on Thursday 13 November 2014.

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Decision last updated: 19 November 2014