Aldridge Electrical Industries Pty Ltd v Mobitec AB

[2001] NSWSC 823

Reported Decision: (2001) 39 ACSR 287
[2001] NSWSC 823
[2001] ACL Rep 120 NSW 125
(2002) 20 ACLC 99

New South Wales

Supreme Court

CITATION:	Aldridge Electrical Industries P/L v Mobitec AB [2001] NSWSC 823
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4434/00
HEARING DATE(S):	14/05/01
JUDGMENT DATE:	20 September 2001
PARTIES :	Aldridge Electrical Industries Pty Limited (ACN 075 367 458) (Plaintiff) Mobitec AB (Defendant)
JUDGMENT OF:	Santow J

COUNSEL :	I R Sanderson (Plaintiff/Appellant) M K Minehan (Defendant/Respondent)
SOLICITORS:	Rowley & Ross Lawyers (Plaintiff/Appellant) Letherbarrow Laywers (Defendant/Respondent)
CATCHWORDS:	CORPORATIONS - Statutory demands arising from a transaction in foreign currency - Convenient but reasonably contemporaneous date chosen in the Statutory Demand for conversion of foreign currency to A$ - If a defect, because not an appropriate date - no evidence adduced to demonstrate "substantial injustice" to debtor for purposes of s459J - no offsetting claim.
LEGISLATION CITED:	Corporations Law s459E; s459H; s459J Corporations Regulations (reg 1.0.03 and reg 1.0.04)
CASES CITED:	Byrne v Australian Airlines Limited (1995) 185 CLR 410 Daewoo Australia Pty Limited v Suncorp Metway Limited (2000) 48 NSWLR 692 Re Ikin, ex parte Lambourghini Tractors of Australia Pty Limited (1985) 4 FCR 582 MEC Import Sales v Iozzelli (1998) 16 ACLC 1,617 Miliangos v George Frank (Textiles) Limited [1976] AC 443 Ronnoc Finance Limited v Spectrum Network Systems Limited (Santow J, SCNSW, 14 August 1996, unreported) Spencer Constructions v G&M Aldridge (1997) 15 ACLC 1,001 Sturdy Components Pty Limited v Burositzmobelfabrik Friedrich W Dauphin Gmbh & Company [1999] NSWSC 595 Topfelt Pty Limited v State Bank of NSW Limited (1994) 12 ACLC 15 Vehicle Wash Systems Pty Limited v Mark VII Equipment Inc (1997) 80 FCR 571
DECISION:	Appeal from decision of Master fails.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

No. 4434/00

SANTOW J

20 September 2001

Aldridge Electrical Industries Pty Limited (ACN 075 367 458) v Mobitec AB

Judgment

INTRODUCTION

1 This is an appeal by the Plaintiff/Appellant distributor, Aldridge Electrical Industries Pty Limited (“Aldridge”), from a judgment of Master McLaughlin dated 13 February 2001 dismissing an application to set aside the Defendant/Respondent manufacturer Mobitec AB’s statutory demand. It proceeds on essentially agreed facts.

2 The grounds of appeal argued before me derive from the original challenge. They were first that there was an implied contract between the Appellant and Respondent giving rise to an “offsetting claim”, one that exceeded the amount of the debt demanded, within the meaning of s459H(2) of the Corporations Law. Second, that by choosing an “arbitrary” date on which to convert the debt in foreign currency to Australian dollars, the statutory notice was fundamentally flawed. The Appellant contends that these grounds require that the demand be set aside under ss459H and 459J of the Corporations Law (now the Corporations Act). For convenience I here set out the three grounds as stated:

“1. The Master erred in rejecting evidence of prior negotiations between the Respondent and an associated company of the Appellant.
2. The Master erred in finding that there was no evidence that could support the existence of an implied contract between the Appellant and the Respondent for the continued supply of components manufactured by the Respondent to enable the Appellant to continue to fulfil contracts between it and bus manufacturers.
3. The Master erred in finding that the Statutory Demand claiming an amount converted from a foreign currency on an arbitrary date was a valid Statutory Demand.”

SALIENT FACTS

3 The Respondent is a Swedish company that manufactures bus destination signs. The Appellant is an Australian company that, among other activities, imported signs manufactured by the Respondent and on-sold those signs to the operators and manufacturers of buses.

4 By agreement dated 27 August 1996 the Respondent appointed a company called Aldridge Electrical Industries (Aust) Pty Ltd, an affiliate of the Appellant (“the Affiliate”) as its distributor in Australia. That agreement was supplemented by a further agreement made on 15 May 1997 whereby that company was authorised to assemble the Respondent's product in Australia.

5 The Distribution Agreement provided, in paragraph 10, that it could be terminated by either party giving 9 months advice in writing. That agreement also provided, in paragraph 6, for the terms of trade between Aldridge Electrical Industries (Aust) Pty Ltd and the Respondent.

6 Paragraph 6 of the Product Assembly Agreement provided for the payment by Aldridge Electrical Industries (Aust) Pty Ltd of a license fee to the Respondent at the rate of 6% of the amount set out in that agreement.

7 It is reasonable to suppose that the relationship between these two companies proceeded. However, by the time that invoices were forwarded from the Respondent for the supply of products for on-sale to the operators of the Perth, Brisbane and Sydney bus fleets, those invoices were directed to the Appellant Aldridge and not the Affiliate. That conclusion is demonstrated by the fact that the invoices, which are annexed to the affidavit of Mr Roger Letherbarrow sworn 17 November 2000, and which are the basis for the claim under the Statutory Demand, are clearly directed to the Appellant. The Appellant contends that it is also significant that one of those invoices seeks payment of a license fee from the Appellant to the Respondent, coincidentally calculated at 6% of an amount.

8 The Appellant negotiated with the operators of the Sydney, Perth and Brisbane bus fleets for the supply to them of signs manufactured by the Respondent. The Respondent was aware of these negotiations. The Appellant was awarded the contracts. It was expected by the Appellant that these contracts would be performed over a number of years. There are no separate agreements between the Respondent and the Appellant for the supply of all of the signs required for the satisfaction of these contracts. However, examples of the type of documentation that came into existence are exhibits "A" and "B". Those documents show a not unusual chain of documentation in commercial relations of orders from the ultimate purchaser and orders and invoices directed from the Appellant to the Respondent.

9 On 12 April 2000 the Respondent forwarded correspondence to the Appellant advising that it wished to terminate the Distributor Agreement and the Product Assembly Agreement as soon as possible, presumably in accordance with paragraph 10 of the Distribution Agreement. That document is annexure "N" to Mr Aldridge's affidavit at page 43. Although that document was addressed to the Appellant it identified one of the parties to the agreement as being the Affiliate, Aldridge Electrical Industries (Aust) Pty Ltd. On 19 June 2000 the Respondent purported to terminate the Distributor and Product Assembly Agreements between the Appellant (not Aldridge Electrical Industries (Aust) Pty Ltd) and the Respondent immediately. That document is annexure "O" to Mr Aldridge's affidavit, at page 44. There was subsequent correspondence between the Appellant and the Respondent as well as correspondence between the Respondent and a company Volgren Australia Pty Ltd advising that company that the Respondent would be "taking over" from Aldridge as soon as possible. That correspondence is part of exhibit "D". The Respondent has taken over the supply of its products to the operators of the Perth, Sydney and Brisbane bus fleets.

10 On 16 October 2000 the Respondent served the Appellant with a Statutory Demand dated 11 October 2000. That Statutory Demand was supported by an affidavit of Thomas Jacobsson sworn 10 October 2000. The Demand claimed a sum in Australian dollars of $503,730.26. It was apparent from the face of the demand that in fact the original debt was denominated in Swedish krone. The amount in Swedish currency was said to be SEK 2,708,205 and was converted, according to the face of the document and the affidavit in support, at the rate applicable on 26 September 2000. The Respondent contends that the date of conversion was the last date on which the conversion could be done, as the affidavit in support of the Statutory Demand was to be forwarded to Sweden for swearing. As events transpired the affidavit was sworn in Melbourne 14 days later.

RESOLUTION OF LEGAL QUESTIONS
First Question

12 The Appellant contends that the Master rejected a significant amount of correspondence that evidenced prior negotiations between the Respondent and the Appellant’s Affiliate, Aldridge Electrical Industries (Aust) Pty Limited, that was annexed to the affidavit of Peter Aldridge sworn 30 October 2000. In so doing, the Appellant argues, that the Master rejected evidence grounding an off-setting claim which the Appellant contends existed by virtue of the defendant’s breach of an implied term. That term was said to be not to terminate the agreements of supply that it knew that the Appellant relied upon to service long-term contracts with state transit companies. However, the relevant documents, including the distributorship agreement between the Respondent and Aldridge Electrical Industries (Aust) Pty Limited, were relied upon in the affidavit of Peter Aldridge as evidencing the relationship between the Appellant and the Respondent. For example, in paragraph [4] of Peter Aldridge’s affidavit of 30 October 2000 he deposed that “By an agreement made 27 August 1996, the Defendant appointed the Plaintiff as its exclusive distributor of passenger information systems in Australia and New Zealand.” Put in such terms, the affidavit does not contend that the agreement was between the Respondent and a third party, and subsequently became by way of a course of conduct, agreement, or otherwise, an agreement between the Appellant and Respondent. Before the Master at first instance there was no evidence in the form of cross-examination [T, 17.50], nor additional affidavits, to explain why it was that some negotiations had been conducted with the transit companies by Aldridge Electrical Industries (Aust) Pty Limited yet at the time entering into the contractual arrangements Aldridge Pty Limited came to be the contracting party. That being the basis on which the evidence was put and relied upon before the Master, it is difficult to sustain an appeal against the Master’s rejection of that evidence at first instance.

13 In any event the Appellant contends that there was sufficient evidence before the Master, even without the excluded documents, from which the Master could reasonably infer an implied term of continued distribution. Accordingly, the Appellant claims that because of the nature of its contracts with the transit companies as a result of products manufactured by the Respondent; the knowledge of the Respondent with respect to the size of the contracts; and the time over which the Appellant would be required to perform those contracts, it is possible to imply a contract. Its terms were that the Respondent would continue to supply the Appellant with products to enable the Appellant in turn to perform its contracts. On the other hand, the Respondent contends that the terms of the contract between the parties were such that the respondent would supply goods on an invoice basis, or an order by order basis (T, 18.50) and that there was no implied term that they were bound to supply equipment to the Appellant, for either a particular period or until the Appellant fulfilled its bus contracts.

14 Leaving aside the documents that the Master did not admit into evidence, it is clear that a number of documents that were in fact in evidence before the Master suggested a blurring of the corporate relationships between the Appellant, Respondent and Aldridge Electrical Industries (Aust) Pty Limited. For example, Invoice 13 from Mobitec AB invoiced “Aldridge Electrical Ind” for 6% of AUD which was described on the order as a “license fee” and appeared to be referable to the Licence fee of 6% agreed between the Respondent and Aldridge Electrical Industries (Aust) Pty Limited in clause 6.1 of the Distributorship Agreement. Likewise, the notice of termination addressed to “Mr Peter Aldridge, Managing Director, Aldridge Electrical Industries Pty Limited” advised of the termination of the Distributorship Agreement between Mobitec AB and Aldridge Electrical (Aust), an agreement to which the Appellant was not on its face a party (Annexure “N” - Affidavit of Mr Peter Aldridge dated 30 October 2000).

15 However, in the absence of evidence of an express contract between the Appellant and Respondent in relation to, or containing matters relevant to, distribution, it is clear that the actual terms of the contract must be inferred before any question of implication arises: per McHugh & Gummow JJ Byrne v Australian Airlines Limited (1995) 185 CLR 410 at 440. Accordingly, one must arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention. In the absence of such evidence it is impossible to determine whether the express terms were adequate to make the contracts efficacious or whether any of those express terms would contradict the proposed implied term: per McHugh & Gummow JJ in Byrne v Australian Airlines Limited (supra) at 442. To simply rely upon documents evidencing pre-contractual negotiations between the Respondent and a party other than the Appellant without providing any real evidence of the express terms of the contract purported to exist between the parties must be insufficient, even on the basis of a plausible contention requiring investigation, to ground a claim for an implied term or contract, for the continued supply of components manufactured by the Respondent to enable the Appellant to continue to fulfil contracts between it and bus manufacturers.

16 Accordingly, I find that Master McLaughlin correctly rejected the Appellant’s contention in respect of an off-setting claim.

The Second Question

18 In Daewoo Australia Pty Limited v Suncorp Metway Limited (2000) 48 NSWLR 692 Austin J observed that a number of difficulties might be caused if a statutory demand based on a contractual obligation to make payment in foreign currency could not be expressed solely in the foreign currency concerned. One such problem arises on the facts of the case before me.

19 At issue is the Respondent’s conversion of a debt originally denominated in Swedish krone, being SEK 2,708,205, to Australian dollars at the rate and date as set out on the Schedule attached to the Statutory Demand. The date selected for conversion of the currencies, 26 September 2000, was not the date of payment of any particular invoice due (which specified payment as being “60 days net” from the date of issue). Nor was that date the date on which the Statutory Demand was issued or served, nor the date of an enforceable judgment by an Australian Court. Instead the date selected for conversion was the date at which the affidavit in support was forwarded to Sweden for swearing. It was however chosen as the last practicable date on which conversion could be done, as the affidavit in support of the Statutory Demand had to be sworn in Sweden, in time for the Statutory Demand to be taken out on 11 October 2000, just over a fortnight later. That means the date chosen was reasonably contemporaneous but not of course coincident. Accordingly, this case raises a number of issues for determination: that is, whether a creditor can unilaterally convert the debt due from a foreign currency into Australian dollars; what dates, if any, are appropriate for the conversion of foreign currencies in statutory demands; and whether the choice of an “arbitrary date” for conversion amounts to such a defect, or so fundamental a deficiency in the Statutory Demand as requires it to be set aside or declared not to be a demand because incapable of assuming that description.

20 By “fundamental deficiency” I here adopt what was said by way of dicta by Lockhart J in Topfelt Pty Ltd v State Bank of New South Wales (1994) 12 ACLC 15 at 25:

“There may, however, be cases where deficiencies in the form of demands are so fundamental that the demands are incapable of assuming the description of statutory demands within the meaning of the Corporations Law. This is a question to be decided in future cases.”

21 However as is pointed out in Spencer Constructions v G & M Aldridge (1997) 15 ACLC 1,001 at 1,006, Lockhart J did not regard the case before him as such a case whereas the Full Federal Court did. His Honour held that the demand was erroneous because it could not be complied with on its face “even allowing for misstatements” (at ACLC 27; FCR 242). In Topfelt the demand required the payment of the debt which was described as “$179,722.73 together with interest from 11 March 1993 to date and continuing”. It was not suggested that the debtor was in fact misled by the description but his Honour observed (at ACLC 27; FCR 242) that the debtor had to make “inquiries of one kind or another in order to ascertain the amount of interest that is said to be payable, whether he makes the inquiries from his solicitor or from the Supreme Court or others”. Lockhart J concluded (at ACLC 28; FCR 242) that it was not the obligation of a debtor to calculate the interest which the creditor requires him to pay and that: “In all the circumstances I am satisfied that the defects in the statutory demand in this case are of such a kind and magnitude that they constitute good reasons why the demand should be set aside under s459J(1)(b).”

22 In MEC Import Sales v Iozzelli (1998) 16 ACLC 1,617 Senior Master Mahoney observed that the demand for the judgment debt, disclosed in the schedule as a total of DM 524,800.22 being A$525,053.41 at an exchange rate of A$1 to DM 1.0338, was a fundamental non-compliance with s459E(2)(a) requiring the demand to be set aside. That provision required the respondent to “specify the debt and the amount of the debt” which was due and payable by the applicant to the respondent. Although in that case the schedule referred to both the judgment and the judgment debt, the Master was of the view (at [25]) that in going on to refer to an exchange rate and an Australian dollar sum the creditor thereby changed the specification of the debt and the amount of the debt. Accordingly, the amount finally specified was not one that was due and payable, and could thus be set aside under s459J(1)(b) by reason that the demand did not comply with the requirements of s459E of the Corporations Act.

23 Master McLaughlin did not adopt such reasoning in Sturdy Components Pty Limited v Burositzmobelfabrik Friedrich W Dauphin Gmbh & Company [1999] NSWSC 595. He sought (at [27]) to distinguish the Victorian case simply on the basis that in MEC Import Sales there was no affidavit accompanying the statutory demand explaining and verifying how and at what date the conversion was undertaken. The logic adopted in MEC Imports Sales (that there was a failure to specify the debt because of the conversion of it to a foreign currency) must operate to prevent conversion from a foreign currency to Australian dollars at any date, appropriate or otherwise. Moreover the format of Form 509H prescribed under the Corporations Regulations (reg 1.0.03 and reg 1.0.04), provides for the creditor to state that the debtor owes it “the amount of $ (insert amount)”. That suggests that the amount of the statutory demand is to be expressed in Australian dollars and any conversion may therefore be done to bring that about. It is also not consistent with the expectations of creditors and the cases. Cases pre-Daewoo Australia proceeded on the basis that it was necessary to comply with the prescribed form by converting debts claimed into Australian dollars (see Re Ikin, ex parte Lambourghini Tractors of Australia Pty Limited (1985) 4 FCR 582; Vehicle Wash Systems Pty Limited v Mark VII Equipment Inc (1997) 80 FCR 571 at 577-78). Then there is Austin J’s assumption in Daewoo Australia that conversion is permissible, even if not the preferred mode of setting out the sum owed. That means that the Form 509H should not preclude both the A$ amount being stated and foreign currency equivalent.

24 If, as I have found, it is permissible for a creditor to serve a demand for the Australian dollar equivalent of a debt owed, it is necessary squarely to determine whether the conversion date can be any date that appeals to the creditor at the time, or at least such reasonably contemporaneous date as is convenient to effect the conversion.

25 Earlier in Sturdy Components Pty Limited (supra), Master McLaughlin observed that the parties had contemplated that the plaintiff would pay the defendant in German Deutschmarks, that amount expressly set forth in the statutory demand. He also concluded that the conversion into Australian dollars was set forth only in order to comply with the requirement, thought to exist before the decision in Daewoo Australia, that there should be a reference to an amount in Australian currency in the demand itself. On that basis, the Master concluded that the statutory demand requiring payment of an amount in Australian currency, being the equivalent to a precisely calculated amount in the currency in which the parties contemplated any indebtedness should be paid, did not constitute a defect in the form of the demand. However, in that case unlike the present, it is important to observe that the date of conversion was the date that the creditor issued the statutory demand and not some “arbitrary date”.

26 However, if one applies without qualification, the proposition that the conversion out of foreign currency does not constitute a defect, even in circumstances where the statutory demand were converted unilaterally at any date during a period of great currency fluctuation, the statutory demand could be manipulated as an instrument to maximise creditor gain. Indeed, as the House of Lords recognised in Miliangos v George Frank (Textiles) Limited [1976] AC 443 the rapid fluctuation of exchange rates from day to day means that whichever date is selected for conversion can greatly effect the financial returns of corporations on their foreign currency obligations. The consequences include arbitrary allocation of windfall gains and losses. In order to prevent such abuse it ordinarily would be reasonable to ascertain an appropriate date or dates of conversion.

27 Although the House of Lords decision in Miliangos v George Frank (Textiles) Limited (supra) is concerned with the issue of jurisdiction to give judgment in a foreign currency, and its necessary corollary, being the date at which conversion of the sterling amount should be made, it provides by analogy some guidance for the choice of appropriate dates for conversion of a statutory demand under the Corporations Law. In Miliangos Lord Wilberforce (at 468) ultimately favoured as the appropriate date, the date of payment, in the sense of the date the Court authorises enforcement of the judgment; this was as against other possibilities namely the date the action was brought and the date of judgment. By analogy, albeit imperfect, and subject to the contract between the parties, the appropriate dates would ordinarily be: (i) the date of the statutory demand, consistent with Lockhart J in Topfelt Pty Limited v State Bank of NSW Limited (supra) at 22 who expressed the view that it was prudent for a creditor to state the amount actually due at the date of the demand ; (ii) the date of service, which is said to be a less preferred date (see Lockhart J in Topfelt Pty Limited (supra); or (iii) the date for the scheduled payment which had not been made, that being the date of breach.

28 The choice of the date for conversion by reference to the date of the statutory demand may in circumstances of currency fluctuations need some constraint. Drawing on the analogy of my decision in the contract damages case of Ronnoc Finance Limited v Spectrum Network Systems Limited (Santow J, SCNSW, 14 August 1996, unreported), the choice of the date of the statutory demand may, for example, need to be qualified by recognising the creditor's responsibility not to act unreasonably or unfairly to the debtor in the manner in which damage is sought to be recovered for breach, with the attendant obligation to mitigate loss, where the currency is fluctuating in favour of the creditor. Indeed, in circumstances where a creditor deliberately speculates at the debtor’s expense, the court may well conclude that the loss, here the foreign currency debt payable, should be assessed as at the time before which the behaviour of the creditor becomes clearly unreasonable. For example, inexplicable delay on the part of the creditor, suggestive of an attempt to manipulate the fluctuations of the currency market moving in the creditor’s favour, might lead to a later than anticipated date for creation of the statutory demand. However, I do not need reach any concluded view on this in the present case.

29 However, if the date selected for conversion were not one of the three appropriate dates outlined above then I consider that the statutory demand would suffer from a mere defect; one that is not ordinarily of the kind “where substantial injustice will be caused unless the demand is set aside” ; see s459J of the Corporations Act. “Defect” is defined in s9 of the Corporations Act and now Act so as to encompass either “an irregularity” or “a misstatement of an amount or total”. In such circumstances as the present case, when the attached Schedule sets out both the date and rate by which the Australian dollar equivalent of the Swedish krone has been calculated, there is no burden placed on a debtor to make its own inquiries as to whether the sum demanded was a proper representation in Australian dollars of the debt at some date appropriate under the law for conversion. Accordingly, the present case may be distinguished from MEC Import Sales (supra). In that case Senior Master Mahoney was of the view (at [26]) that the statutory demand contained a fundamental flaw. This was because the debtor had to make inquiries, which it was not obliged to make, in order to ascertain the sum payable because the conversion date used by the respondent was unknown. However, if, as here, the date of conversion (and the rate at that date) is identified either on the face of the statutory demand or in its accompanying affidavit or schedule, it will be clear that the sum demanded is calculated either on an appropriate or inappropriate date. Accordingly, the debtor will not be impermissibly burdened with the need to make inquiries outside the materials it holds, unlike the debtor in Topfelt Pty Limited v State Bank of NSW Limited for whom no interest rate had in fact been specified and on whom fell the onus of calculating the interest.

30 However, if, as in this case, the date selected for conversion is at least potentially inappropriate such that the statutory demand suffers from a defect, it is still necessary to consider whether the defect gives rise to substantial injustice so as to be set aside under s459J(1)(a) of the Corporations Act notwithstanding s459J(2). In the absence of substantial injustice, a court is precluded by s459J(2) from setting aside a demand solely on the ground that it contains defects: per Northrop, Merkel & Goldberg JJ in Spencer Constructions v G&M Aldridge (1997) 15 ACLC 1,001. In this instance the Appellant was served with the statutory demand on 16 October 2000. It commenced proceedings to set the statutory demand aside by application dated 30 October 2000. Accordingly, the Appellant had ample time in this period to file and serve affidavit evidence relating to any disadvantage or prejudice it may have suffered by virtue of 26 September 2000 being chosen as the conversion date. However, as Master McLaughlin’s judgment at first instance (at [19]) makes clear, no evidence was adduced to show that there had been any alteration in the exchange rate between the Swedish Krone and the Australian dollar from the date of 26 September 2000 and the date of the demand itself, being 11 October 2000, nor that the Appellant was otherwise disadvantaged by the choice of the earlier date for the currency conversion. Moreover, importantly, there is no substantial gap in time, but reasonable contemporaneity, in the date chosen as against the appropriate date being the date of the Statutory Demand. Accordingly, I consider there was no such substantial injustice made out in terms of s459J(1), though there was a defect (but no more than a defect). Nor, it follows, do I consider there was any fundamental deficiency in the Statutory Demand as precludes it meeting that description in the statute.

CONCLUSION

31 It follows that the Appellant’s Appeal from the decision of the Master fails. Costs should follow the event and thus be awarded to the Respondent.

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Last Modified: 01/03/2002