Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2010] NSWCA 14 (18 February 2010)

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Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2010] NSWCA 14 (18 February 2010)

Last Updated: 22 February 2010

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2010] NSWCA 14


FILE NUMBER(S):
298107/2009

HEARING DATE(S):
2 February 2010

JUDGMENT DATE:
18 February 2010

PARTIES:
Santos Coffee Company Pty Ltd
Direct Freight Express Pty Ltd

JUDGMENT OF:
Allsop P Giles JA Handley AJA

LOWER COURT JURISDICTION:
District Court

LOWER COURT FILE NUMBER(S):
4897/07

LOWER COURT JUDICIAL OFFICER:
Murrell SC DCJ

LOWER COURT DATE OF DECISION:
31 October 2008

LOWER COURT MEDIUM NEUTRAL CITATION:
Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2008] NSWDC 235

COUNSEL:
Mr D Bennett QC, Mr J P Donohoe (Appellant)
Mr E White (Respondent)

SOLICITORS:
Bryan Killalea (Appellant)
Watson Stafford Zipkis (Respondent)

CATCHWORDS:
CONTRACT - construction and interpretation of contracts - limitation clauses - whether any or both of two relevant limitation clauses in the relevant contracts applied

LEGISLATION CITED:


CATEGORY:
Principal judgment

CASES CITED:
Atlantic Shipping & Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250
Devaynes v Noble (1816) 1 Mer 572; ER 35 781 (Clayton’s Case)
Coulton v Holcombe [1986] HCA 33; 162 CLR 1
Nash v Hodgson (1855) 6 De GM & G 474; 43 ER 1318
Re Footman Bower & Co [1961] 1 Ch 443
Smeaton Hanscombe & Co Ltd v Sassoon I Serty, Son & Co [1953] 1 WLR 1468
The ‘Auditor’ (1924) 18 Lloyd’s List Law Rep 402 and 464

TEXTS CITED:
A McGee Limitation Periods (5th ed 2006 Sweet & Maxwell)
B G Coote Exception Clauses (1964 Sweet & Maxwell)
D Oughton et al Limitation of Actions (1998 LLP)
P R Handford Limitation of Actions; the Laws of Australia (2nd ed 2007 Thomson Lawbook Co)

DECISION:
On or before 5 March 2010 the parties file:
(1) an agreed draft short minute of order or, failing agreement, competing draft short minutes of order to give effect to these reasons and
(2) submissions as to costs below and on appeal.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

2009/298107

ALLSOP P

GILES JA

HANDLEY AJA

Thursday, 18 February 2010

SANTOS COFFEE COMPANY PTY LTD v DIRECT FREIGHT EXPRESS PTY LTD

Headnote

The appellant, Santos Coffee Company Pty Ltd ("Santos") and the respondent, Direct Freight Express Pty Ltd ("Direct") had a contractual arrangement for the delivery and return of pallets upon which Direct delivered Santos' goods to customers. Direct was obliged to replace pallets taken on deliveries with an equivalent number to Santos within a week.

In early 2007, Santos discovered that from 2004 to 2007 Direct had not replaced a total of 1067 pallets. During this period, Santos hired more pallets from the pallet supplier, Chep Australia Ltd ("Chep"), in order to have pallets for delivery of its goods. Santos made a complaint to Direct on 22 January 2007.

Santos claimed Direct was in breach of contract and was liable to pay the cost of hire of an equivalent number of pallets that Santos had paid to Chep. Direct argued that its liability was limited by the operation of one or both of two relevant limitation clauses: condition 3 of the main transport or first contract and/or clause 4 of the second contract dealing with pallets and their return.

At first instance, a judge of the District Court held that condition 3 applied to protect Direct from any liability up to October 2006 and that thereafter no loss was suffered by Santos because during this period Direct had returned more pallets than were used in deliveries. Santos appealed to the Court of Appeal.

The question on appeal concerned the application (or not) of condition 3 of the first contract, and the meaning and application of clause 4 of the second contract.

Held per Allsop P, Giles JA and Handley AJA:

1. Condition 3 did not apply and the primary judge erred in concluding that condition 3 was relevant.

2. Clause 4 applied to limit the respondent's liability to a period 90 days before 22 January 2007.

3. The excess number of pallets delivered by the respondent after October 2006 should be allocated:

(i) first, to any prior week's deficiency to avoid a breach of contract,

(ii) secondly, from the earliest breaches in the period of 90 days prior to 22 January 2007, and

(iii) thirdly, should any pallets remain unallocated from a return, then to overdue pallets from weekly breaches before the commencement of the 90 day period.

4. Damages should be calculated as the hire cost from Chep of all such pallets not returned in accordance with the contract after the relevant date 90 days prior to 22 January 2007 until their return or the termination of the contract (29 March 2007), at which time any pallets not returned should be bought out at $29.50 per pallet.


IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

2009/298107

ALLSOP P

GILES JA

HANDLEY AJA

Thursday 18 February 2010

SANTOS COFFEE COMPANY PTY LTD v DIRECT FREIGHT EXPRESS PTY LTD

Judgment

1 THE COURT: The appellant, Santos Coffee Company Pty Limited (“Santos”) distributes coffee and comestibles. In June 2004, Santos engaged Direct Freight Express Pty Limited (“Direct”) to carry goods to customers on pallets. A necessary aspect of the commercial relationship concerned the supply and return of pallets.

2 The general nature and structure of the contractual arrangements agreed upon were largely not contested on appeal. As well as carrying the goods on pallets by reference to a list or tariff of charges, Direct agreed to replace pallets taken in deliveries with equivalent numbers of pallets. Thus, Santos would only bear the cost of hiring or otherwise procuring a body of pallets sufficient to shift its stock on a regular basis. The pallets taken in delivery were to be replaced by Direct within a week by return of an equivalent number to Santos.

3 The dispute between the parties arose because from 2004 to 2007 Direct did not replace pallets taken from Santos with an equivalent number of other pallets. Santos, in order to have pallets to use in the delivery of its goods, hired more and more pallets from the relevant supplier, Chep Australia Ltd (“Chep”). When the management of Santos made its own calculations in early 2007, it became apparent that over 1000 pallets had not been replaced by Direct. There was no dispute that the relevant figure was 1067 pallets. The primary judge found ([53] of her Honour’s reasons) that Mr Avramides on behalf of Santos, made a complaint to Direct about the non-return of pallets on 22 January 2007.

4 Santos claimed that Direct had breached the contractual arrangements and that Direct was liable to pay Santos, as damages for those breaches, the cost of hire of an equivalent number of pallets that Santos had paid to Chep.

5 Direct asserted that, if it were in breach of contract (something not contested on appeal), it was protected by one or both of two relevant limitation clauses in the relevant contracts.

6 The primary judge concluded that condition 3 of what we will call the main transport contract or first contract protected Direct from any liability up to October 2006 and that thereafter there was no loss suffered by Santos because during this period Direct had returned more pallets than were used in deliveries. Various other matters were decided by her Honour which are unnecessary to address.

7 The relevant features of the contractual relationship of the parties were not in contest on appeal. They arose from the following facts:

(a) On 22 June 2004, the general manager of Santos, Mr Avramides, signed contractual documentation for the transport of goods. Within the contractual documents was a set of standard terms and conditions which included, as condition 3, the following clause:

“3. This consignment and services provided including storage, whether the goods are delivered or not, shall be subject to these conditions and shall be governed by the laws of New South Wales. No claim in respect to loss or damage of goods may be made unless a notice of claim is lodged in writing at the Registered office of the Carrier within seven (7) days after delivery was effected or would in the ordinary course of business have been effected. Further, the Carrier shall in any event be discharged from all liability whatsoever in connection with the goods unless suit is brought within three (3) months from their delivery or from the date on which in the ordinary course of business delivery would have been effected. The Carrier shall not be bound by any agreement purporting to vary these conditions unless such agreement shall be in writing and signed by an Executive Officer of the Carrier.” (emphasis added)

The word “goods” was defined in the standard terms to mean:

“the cargo accepted from the sender together with any container, packaging or pallets supplied by or on behalf of the sender” (emphasis added).

(b) On the day before this contract was entered into, Mr Avramides and Mr Terry Moorfield, the relevant officer of Direct, discussed the pallet control system to be employed. Mr Moorfield explained the system in general terms whereby the pallets would be reconciled weekly through a pallet control docket to enable Direct to keep a record of how many pallets had been taken and returned.

(c) The standard terms contained a provision (condition 15) which presumed at least some use of a pallet control system different to that which was discussed and agreed upon. It dealt with the transfer of pallets from the hire account of the party in the position of Santos with Chep to the hire account of Direct with a company such as Chep. That system of so-called de-hiring was not the contractual arrangement between Santos and Direct.

(d) On 23 June 2004, the day after the first contract was signed by Mr Avramides, Mr Moorfield attended upon Mr Avramides. He gave him a book of “Weekly Pallet Control Dockets” and explained their use. The conversation included the following:

“Also here’s a book of the pallet control dockets I was talking about. ... We’ll control the return of pallets to you with the information recorded in these dockets. It’s an efficient system and in practice it’s no different from the wood for wood system your other carriers have been using, except that you’ll be getting your pallets back after the end of each week, rather than on each delivery. You’ll see that each docket covers one working week, Monday to Friday. You keep the book here at Santos, at the dispatch dock. When this one runs out we’ll give you another one. Whenever we take a pallet from you, our driver or your dispatch person writes down the number of pallets taken or returned, our truck’s registration number, and our driver’s name. Our driver will sign the docket. Each Friday or the first working day of the next week if there’s no collection on a Friday our driver will take the first two copies of the docket away from him. The top copy goes back to our office where the information on it will be recorded in our system. Also, when we return pallets to you, your person will write in the number returned in the docket, plus his name, and sign it. That information will go back to our office at the end of every week and be returned into our system, so that we have an accurate record of how many pallets we owe you at any time. Every week we will return to you a number of pallets equal to the number which we owe you from the previous week.”

(e) The dockets given to Mr Avramides on this occasion and those used during the course of the relationship up to its conclusion in 2007 contained the following clear notation on the front and at the bottom of each docket:

“PLEASE NOTE: 1. THIS FORM MUST BE RETURNED TO DIRECT FREIGHT WITH DRIVER EVERY FRIDAY.

2. PALLETS WILL NOT BE RETURNED WITHOUT DIRECT FREIGHT DRIVER’S NAME, SIGNATURE AND REGISTRATION DETAILS COMPLETED.

3. PALLETS OWING WILL BE RETURNED THE FOLLOWING WEEK.

4. NO CLAIM FOR PALLETS OWING BY DIRECT FREIGHT WILL BE ACCEPTED AFTER 90 DAYS.”

8 There was no dispute on appeal about the following contractual structure:

(a) There were two contracts: the primary transport contract and the contract concerning the dealing with pallets and their return.

(b) Direct was contractually obliged on a weekly basis to deliver to Santos a number of empty pallets equal to the difference between pallets taken and returned the previous week.

(c) This obligation was either an implied term of the first contract (as found by the primary judge in [11] of her reasons) or an express term of the second contract arising from the words of Mr Moorfield on 23 June 2004 and/or the terms of the dockets to be used.

(d) It was a term of the second contract arising from clause 4 on the face of the docket that:

“No claim for pallets owing by Direct Freight [would] be accepted after 90 days.”

The application or not of condition 3 of the first contract

9 The primary judge concluded that condition 3 operated to exclude any claim other than for a three month period prior to the raising of the problem by Mr Avramides on 22 January 2007.

10 In our view, the primary judge erred in concluding that condition 3 was relevant. Whilst “goods” were defined as including pallets and whilst the second limb of the condition was expressed in broad terms (“Further ... shall in any event be discharged from all liability whatsoever”), the protection was given (interpolating the relevant parts of the definition of goods) “in connection with pallets supplied by [Santos].”

11 The relevant reach and breadth of the phrase “in connection with” depends on its context. Here, the context is a limitation clause which in case of ambiguity ought to be read contra proferentem. The three month time limit runs from the date of delivery of the goods or the date on which the goods should have been delivered. That assists in appreciating that the relevant connection is with the pallets supplied – that is the pallets taken from Santos’ premises. In our view, the clause does not deal with the consequences of failing to comply with a separate contractual obligation to return the number of pallets referable to the previous week’s deliveries, being the difference between pallets taken and returned. This is not in connection with pallets supplied by Santos within the meaning of this provision.

The application of clause 4 on the face of the docket

12 There being no issue about the contractual status of cl 4, a number of questions arose as to its application and meaning.

13 There was no issue about the fact that the primary judge was wrong at [36] of her reasons in saying that cl 4 could not operate to exclude claims according to its terms. Both sides to the appeal accepted that cl 4 had contractual status and operated relevantly according to its terms.

14 There was debate at the appeal about the content and meaning of cl 4. The first issue as to the meaning of cl 4 concerned the date from which the 90 days ran. Mr DMJ Bennett QC, who, with Mr J Donohoe, appeared for Santos, said there were a number of possibilities and, reading the clause contra proferentem, the possibility least favourable to Direct should be chosen. The relevant date urged by Santos was the time that Santos discovered the deficiency in the return of the pallets – that is 22 January 2009.

15 We do not agree. From the substance of the explanation from Mr Moorfield as to the operation of the system, from the form and content of the dockets themselves including, in particular, cl 3 on the face of the docket and from commercial common sense, the 90 days were intended to run from the Friday following the week covered by the docket (or the Monday following that Friday if there were no delivery on that Friday). The following Friday (or the next Monday) was the day on which Direct was contractually bound to return the relevant number of pallets. If it did not do so, it was in breach of contract (a proposition not disputed on appeal). In circumstances where both sides to the arrangement could look at copies of the same document and see immediately whether the contract had been performed, it made eminent good sense to commence any contractual limitation period from the date for performance: the date on or by which returns referable to the previous week should have been delivered.

16 The second issue as to the meaning of clause 4 concerned the meaning of “will not be accepted” and the effect of the passage of 90 days without a claim. Mr Bennett conceded in argument that the word “accepted” should not be read absolutely literally. He acknowledged that the words amounted to an agreement that after the passage of 90 days no claim for pallets owing could be made.

17 The third issue as to the meaning of clause 4, and closely related to the second, is whether the clause extinguished the underlying fact of the pallets being “owed” or whether it only contractually barred a remedy by claim. In the simple contractual framework of the second contract such a distinction may be seen to be overly refined and legalistic. The reality is that the parties agreed that after 90 days no claim could be made for so-called “pallets owing”. Such a clause bars the claim altogether: Smeaton Hanscombe & Co Ltd v Sassoon I Serty, Son & Co [1953] 1 WLR 1468 at 1472, and can be seen to have a substantive operation: destroying or extinguishing liability: B G Coote Exception Clauses (1964 Sweet & Maxwell) at 11 and 154-155; Atlantic Shipping & Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250 at 258 (Lord Dunedin), 259 and 261-262 (Lord Sumner); The ‘Auditor’ (1924) 18 Lloyd’s List Law Rep 402 and 464 at 465.

18 The fourth issue as to the meaning of cl 4 concerned the meaning of the word “claim”. Mr White, who appeared for Direct, submitted that the clause required a degree of specificity and precision as to number and period identified in the relevant communication. We doubt that proposition. There was no appeal from the primary judge’s finding in [53] that a relevant claim was made on 22 January 2007. Whether or not some earlier general assertion by a storeman at Santos that “we are owed pallets” or “we haven’t had a delivery of pallets for some time” would amount to a claim is a question appropriate to answer only in the context of a particular communication. For reasons that will become apparent, we do not need to decide this question.

The application of cl 4 here

19 Santos argued that there was sufficient evidence of informal requests for more pallets throughout the period 2004 to 2007 to raise an inference that cl 4 may not apply in terms. It submitted that Direct had failed to discharge the onus of proof upon it to show that it fell within the metes and bounds of the clause.

20 Direct objected to this point being taken. It submitted that the case at trial had not involved any triable issue as to whether any communication before January 2007 was a claim for the purposes of cl 4.

21 A reading of the pleadings, the transcript and the written submissions bears out Direct’s submission that this was not an issue for trial.

22 Santos pointed to the evidence of Mr Moorfield in chief in which he referred to some occasions when requests were made for pallets and to Direct’s co-operative and compliant response to same. The context and purpose of this evidence was, however, another issue altogether. Direct had pleaded a failure by Santos to mitigate its damage. One aspect of seeking to make out this defence was to show that Santos had not been reasonable in its own administration of the contract. If Santos had attended to its own contractual entitlements reasonably it could have made requests which would have been met. Whether or not such an argument could properly found a plea of mitigation is a question that need not be answered. But that was the clear context and purpose of the evidence. No issue was presented for determination by the pleadings or the conduct of the case that there were claims before January 2007 sufficient to answer the description in cl 4.

23 It would be unfair to allow this point to be raised on appeal. It was a factual question requiring enunciation, focus and evidence. It is a point which could possibly have been met by evidence, including focused cross-examination; and should not be allowed to be argued on appeal: Coulton v Holcombe [1986] HCA 33 at [9]- [10]; [1986] HCA 33; 162 CLR 1 at 7-8.

24 The terms of [53] of the primary judge’s reasons do not negate or undermine this conclusion. There her Honour said:

“[53] There was vague evidence in relation to several earlier complaints, but the only complaints about which the evidence was clear were those made by Mr Nicholas Avrimedes on 22 January 2007 (Mr Avramides affidavit of 17 September 2008, [15]) and by Mr Avramides on 27 February 2007 (affidavit of 3 June 2008, [50]).”

25 This paragraph might lead one to expect that the status of earlier communication as claims for the purpose of cl 4 was litigated. In fact, it was not.

26 Clause 4 applies. The relevant claims to which attention was directed were those that commenced on 22 January 2007. Santos could therefore only pursue breaches of contract commencing 90 days prior to 22 January, and continuing until the end of the relationship.

27 The approach of the primary judge to this issue can be found at [54] of her reasons (in applying condition 3, rather than cl 4):

“[54]. Applying condition 3 and limiting Direct's liability for 'lost' pallets to the period of three months preceding any claim, I am not satisfied that Direct failed to replace pallets. Between 31 October 2006 (approximately three months before 22 January 2007) and 28 February 2007, Santos hired an additional 168 pallets (2078 - 1910 pallets, Exhibit 5). If one compares the figure for 31 October 2006 (1910) with that for 31 March 2007 (1898), the level of pallet hire was almost unchanged. Exhibit JPA5 shows that, between 22 October 2006 and 27 February 2007, the ‘accumulative pallet balance’ dropped from 1192 to 1075, ie Direct returned more pallets than it removed. I am not satisfied on the balance of probabilities that Santos hired excess pallets in the three-month period preceding the claims.”

28 As can be seen the primary judge dealt with the period in question as one unit of time and concluded that because Direct delivered more pallets in the period than it had taken, Santos had not suffered any loss.

29 In dealing with this question, it must be recalled that the breaches were weekly. If, in the week following a given week in which more pallets had been taken than delivered, Direct did not make good the previous week’s deficit of pallets, it was in breach of contract. There was no dispute about that proposition on appeal. The 90 day period then commenced. Thus, the 90 day period prior to 22 January 2007 (commencing on 24 October 2006) starts with the number of pallets that should have been then returned in that week, referable to the previous week’s deficit (if any). Thus, one goes back 97 days to understand the commencing point of the obligation of Direct to return pallets.

30 From 17 October 2006 (97 days before 22 January) until 22 January 2007 there were no returns of pallets. Thus, a series of breaches of contract occurred at the end of the weeks commencing in the week following 17 October 2006 until 22 January 2007.

31 On 22 January 2007, 150 pallets were returned; on 9 February 2007, 3; on 12 February 2007, 150; on 19 March 2007, 60; on 23 March, 2. The question arises how these returns are to be allocated or attributed. On these dates, there was an accumulated number of overdue pallets arising from the various weekly breaches from 2004. There was no debate but that returned pallets should be allocated first to fulfil Direct’s current week’s obligation in respect of the previous week to avoid Direct being in breach of contract. If the number returned exceeded that number, how was the excess to be allocated? The available possibilities are:

(a) to the earliest historical breaches from 2004 (on a first in first out or FIFO basis);

(b) to the earliest historical breaches within the 90 day period (on a last in first out or LIFO basis);

(c) if (b) were chosen and there were still an excess of returns, would that excess could be (i) allocated to past breaches (that is before the 90 day period) or (ii) kept on account for attribution to future contractual obligations after the commencement of the 90 day period.

32 The primary judge’s approach was to employ (b) and to use the second alternative in (c) above. Her Honour ignored the earlier period prior to the commencement of the 90 day (in her reasons, the three month period). Santos argued for the approach in (a).

33 The period commencing in October 2006 and concluding with the termination of the contract on 29 March 2007 is not a self-contained block of time reflecting one breach of contract. It is a period of time in which the parties continued a commercial relationship that had commenced in 2004. The relationship was characterised by frequent, though not continuous, breaches of contract by Direct failing to return pallets in number to make up a deficit from the previous week.

34 The returns from 22 January should be allocated in accordance with the intention of the parties, in the first instance, in so far as that intention (express or inferred) can be discerned. Honest business common sense forms the backdrop to the ascertainment of that intention. If no relevant intention can be discerned, it is necessary to impose a rule.

35 One needs to examine the behaviour of the parties, in particular Direct. When Mr Avramides explained the problem to Mr Moorfield, Mr Moorfield and Direct’s sales manager, Mr Lopino, accepted that Direct was responsible for resolving the problem. The primary judge referred to two pieces of evidence in this regard at [37] and [38] of her reasons:

“[37]. When a deficiency (said to be 1177 pallets) was drawn to the attention of Mr Moorfield, on 28 February 2007 he said:

“We'll have all those pallets de-hired from your CHEP account by the end of this week.”

[38]. That did not occur. On 9 March, the sales manager of Direct, Mr Lopino, said that he would get back to Santos, commenting:

“We don't just have 1200 pallets lying around the yard that we can bring back to you.”

36 Later, in April, Direct offered to provide Santos with 200 pallets a month for five months, subject to no further claims.

37 Direct did not seek to rely on its rights arising from either limitation clause (condition 3 or cl 4) until proceedings were commenced.

38 The returns made on and after 22 January 2007 can be seen in a factual context in which Direct was accepting that it had failed to return pallets and that it should make good substantially all the deficiency in pallets. They could not all be obtained at once and so they would be returned in blocks as and when they could be. From this we would infer that the parties, and in particular Direct, were intending to return pallets against the whole “account” owing.

39 The effect of cl 4 in law was to bar the claim for earlier pallets. Nevertheless, Direct, during the relevant period (January to March 2007) was delivering pallets greater than the previous week’s contractual obligation in an attempt to reduce the overall number of pallets owing from the commencement of the operation. There was no evidence as to whether this was a mistake based on a failure to appreciate the legal significance of cl 4 or whether a conscious choice was made to return all pallets notwithstanding the appreciation of the legal significance of cl 4.

40 Clearly, there was no express appropriation. It can be inferred that Direct was returning pallets in an attempt to mollify an existing customer and against its whole liability for pallets owing. It can be readily inferred that Mr Moorfield and others at Direct were aware of the terms of cl 4 on the face of the docket. It was not an obscurely placed limitation clause in small font in standard terms. In the face of cl 4, Direct was intending to return pallets to make up substantially the whole deficiency. That inference, however, falls short of an inferred intention that the returns be allocated or attributed to the oldest “indebtedness” first. The parties did not address allocation or attribution. Neither side on appeal submitted that the conduct of the parties manifested any relevant intention to allocate or appropriate pallets returned. In the absence of an express or inferred intention of the parties, it is necessary to turn to the law for a legal rule. Neither party submitted that there was any appropriation or allocation by any act in the conduct of the litigation, including by the pleadings.

41 Santos relied on the rule in Clayton’s Case (Devaynes v Noble (1816) 1 Mer 572 at 608-609; ER 35 781 at 792-793) as the operative rule of law. It sought to draw an analogy between a running account between banker and customer and the cumulative total of pallets owing from weekly breaches. The analogy with a running account is imperfect. The accumulated deficiency was the product of multiple weekly breaches of contract by Direct. Where there is truly a running account, there is a single balance which is the product of mutual dealings in the past.

42 As to appropriation and statute barred debts, the rule is that where there is no true running account, if neither party makes an election it will be assumed that claims that have not become statute barred are paid before those that have become barred: Nash v Hodgson (1855) 6 De GM & G 474 at 482-487; 43 ER 1318 at 1321-1323; D Oughton et al Limitation of Actions (1998 LLP) at 158; A McGee Limitation Periods (5^th ed 2006 Sweet & Maxwell) at 390; and P R Handford Limitation of Actions; the Laws of Australia (2^nd ed 2007 Thomson Lawbook Co) at 279-281 [5.10.2220]. If, on the other hand there is a true running account (absent intention) it is incorrect to apportion the payment among the various items making up the balance: Re Footman Bower & Co [1961] 1 Ch 443.

43 The appropriate rule here is that drawn by analogy from statute barred debts where there is no running account, but separate debts. No running account was ever kept. The contractual arrangements did not provide for one. Rather, the contractual arrangements provided for weekly satisfaction of a contractual obligation. The barring of the claim by cl 4 is the equivalent of a statute bar. In Atlantic Shipping v Dreyfus at 261 Lord Sumner said that the parties to the contract “provided their own statute of limitations”. To all intents and purposes cl 4 removes Direct’s legal responsibility to return the earlier overdue pallets. Any such liability is extinguished. That Direct nevertheless intended to return them can be accepted, but the operation of cl 4 can be seen either to destroy the earlier obligation or at least to change its character to one that was not enforceable.

44 The rule that we would employ conforms with the coherent business operation of cl 4. Further, just as Santos urged an approach which viewed the pallet account as the equivalent of money for the operation of Clayton’s case, the close analogy of pallets owing with money owing makes it appropriate to apply by analogy the clear rule as to statute barred debts viewed as debts incurred each week.

45 Thus, the correct approach, in our view, is to apply returns after October 2006:

(a) first to the previous week’s obligation, and

(b) then to the earliest historical breaches within the 90 day period, and

(c) if there remains any excess from that particular body of returns then to past (barred) breaches before the 90 day period.

46 This being the correct approach, the question arises as to the measure of damages. Santos pressed for a calculation based on the cost of hire of the number of pallets not returned up to a point shortly after the termination of the relationship in late March 2007. From that date, Santos accepted that it was obliged to “buy out” the pallets owed from Chep at $29.50 per pallet, rather than continuing to pay hire. This buyout sum should be added to the rent to that point. If there are any pallets outstanding this approach is appropriate.

47 A differential calculation will also have to be made in respect of some pallets outstanding from October 2006. If pallets owing from October 2006 were returned, but not on time and a hiring charge was paid in respect of the pallets from the time when in accordance with the contract the return should have been made to the time when it was made according to the allocation, that sum is due by Direct.

48 During the appeal the Court raised the question whether the hire cost to Chep of every non-returned pallet was the correct measure of damage. It raised the question whether Santos should have proved that it would have returned each and every pallet promptly to Chep. No such point was taken below. The damages below were claimed on a hiring cost basis. Prima facie the hiring paid to Chep was a cost incurred by Santos that would not have been incurred had Direct complied with its contract, rather than almost continually breach it. In circumstances where the matter raised by the Court was not litigated, we would not consider it appropriate or permissible to rely on it.

49 Direct also submitted that Santos had failed to mitigate its damage. On the view we have taken as to the effect of the conduct of the trial, it is unnecessary to deal with this point. Certainly there was no failure to mitigate after 22 January 2007.

Conclusion

50 The correct approach differs in principle, to a degree, from the approach used by the primary judge. There may, however, only be a small sum to which Santos is entitled. The parties should bring in short minutes reflecting a calculation of damages in accordance with these reasons and summarised as follows:

(a) Clause 4 applies to limit liability to a period 90 days before 22 January 2007.

(b) The pallets owing in this period are referable to weekly breaches and should not be calculated by reference to one block of time as the primary judge did.

(c) Rather, returns of pallets should be allocated:

(i) first, to any prior week’s deficiency to avoid a breach of contract, and

(ii) secondly, from the earliest breaches in the period of 90 days prior to 22 January 2007, and

(iii) thirdly, should any pallets remain unallocated from a return, then to overdue pallets from weekly breaches before the commencement of the 90 day period.

(d) The damages should be calculated as the hire cost from Chep of all such pallets not returned in accordance with the contract after the relevant date 90 days prior to 22 January until their return or the termination of the contract (29 March 2007) at which time any such pallets not returned should be bought out at $29.50 per pallet.

(e) Prejudgment interest should be calculated from the dates of the relevant breaches.

51 We would permit the parties to file short written submissions on costs below and on appeal.

52 The orders we would make are that on or before 5 March 2010 the parties file (1) an agreed draft short minute of order or, failing agreement, competing draft short minutes of order to give effect to these reasons and (2) submissions as to costs below and on appeal.

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LAST UPDATED:
18 February 2010