An Australian provider of global healthcare solutions has received $3.7 million after an overseas contractor blamed COVID restrictions for its failure to replace half a million defective facemasks during the pandemic in 2020.
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On April 17 that year, Aspen Medical, which has a Canberra head office, entered a contract with Canadian firm BA Capital Inc. for the latter to supply 20 million N95 masks at a cost of $140.4 million.
The contract required delivery by instalments within a tight timeframe and allowed Aspen to change the total masks and cost if BA Capital failed to provide 20 million in the period.
Days before entering the contract, Aspen paid $35.1 million in advance for the first supply.
By mid-May, only 5 million masks were supplied after BA Capital failed to deliver three instalments by April 28.
The total agreed masks were reduced to 10 million then five million because of delays.
In March 2021, Aspen launched legal action in the ACT Supreme Court where it sought recovery of $3.5 million and interest from BA Capital for failing to replace defective masks.
It is in the interests of justice that the plaintiff's claim should not be further delayed nor should the plaintiff be put to further expense in conducting this litigation.
- Acting Justice Robert Crowe SC
Aspen's statement of claim said it was notified by Chinese customs in August 2020 that 500,000 of the masks delivered to its warehouse in Shanghai failed tests measuring the tensile strength of the straps.
The firm's procurement and logistics manager then contacted BA Capital's CEO Artan Agolli numerous times about replacements.
On one occasion, Mr Agolli said "they are in contact with Ligentia [Aspen's warehouse agent] and they tell me they have worked out a solution".
Mr Agolli later told the manager that "the goods that failed the Chinese testing, I am arranging to be replaced".
After more follow ups, Mr Agolli said the masks would be replaced by October 19, 2020, but Aspen in early November cancelled the order for those masks and requested $3.5 million be repaid.
Aspen also claimed that BA Capital failed to remove them at its storage warehouse, adding to its costs.
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In its defence filed to the court, BA Capital said mandatory COVID restrictions in China hampered its operations and ability to meet deadlines.
It said such restrictions were a force majeure - a clause that allowed it to avoid contractual obligations because of an event outside its control.
It also denied that the masks were defective and that it had no obligation to replace them.
It said an independent surveyor inspected the masks before delivery and certified them as being compliant with the contract and that Chinese customs' testing was inaccurate.
BA Capital said it was unreasonable for Aspen to rely Chinese customs' testing in the context of the bilateral trade relations between Australia and China at that time.
In a recent judgment, acting Justice Robert Crowe SC found in favour of Aspen, saying its evidence was cogent and sufficient to prove its statement of claim.
Acting Justice Crowe said the contract showed that the parties agreed COVID was not a force majeure and that BA Capital's related defence was "spurious and without substance".
"The allegation that the surveyor had certified the facemasks as compliant is factually wrong and, in the context of the testing carried out by the Chinese customs officials, irrelevant," he said.
"The evidence demonstrates that the surveyor carried out only visual inspections."
He said BA Capital did not show any facts that it was unreasonable for Aspen to rely on Chinese customs' test results.
Acting Justice Crowe's judgment came after Andrew Fernon SC for Aspen applied for the court to find in favour of his client without a contested hearing.
It was made after BA Capital failed to comply with two court-ordered procedural directions during the early stages of legal proceedings.
Acting Justice Crowe said BA Capital had "an ample opportunity to file evidence in support of its defence" and it was reasonable to infer that it did not have evidence to contradict Aspen's.
"It is in the interests of justice that the plaintiff's claim should not be further delayed nor should the plaintiff be put to further expense in conducting this litigation," he said.
The $3.5 million for Aspen was in addition to $45,162 for storage costs and $153,590 in interest.
BA Capital was also ordered to pay Aspen's legal costs.
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