Anntam Pty Ltd v Sherman

[2003] NSWSC 52

CITATION:	Anntam Pty Ltd v. Sherman and Ors [2003] NSWSC 52
HEARING DATE(S):	13 February, 2003
JUDGMENT DATE:	14 February 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Originating Process dismissed.
CATCHWORDS:	CORPORATIONS - WINDING-UP - PROOF OF DEBT - CONTRACT - Application for review of liquidators' decision to reject Proof of Debt - claims founded in contract - promise by distributor to sell to Dealer at "fair and competitive" prices - Dealer purchases stock shortly before distributor placed in administration - Administrators sell distributor's stock at 'fire sale' discounts - Dealer suffers loss in selling stock purchased prior to administration. HELD: No evidence that Dealer purchased at prices which were not "fair and competitive" as at the time of sale having regard to market conditions at that time - no breach of contract by distributor - Proof of Debt rightly rejected. CONTRACT - CONSTRUCTION - Standard form Dealership Agreement provided that Agreement would commence when executed counterpart returned to Dealer by distributor - copy executed by Dealer but counterpart not returned by distributor to Dealer - distributor placed in administration - whether binding contract existed despite non-fulfilment of precondition. HELD: No contract in existence.
LEGISLATION CITED:	Corporations Act 2001 (Cth) - s.1321 Trade Practices Act 1974 (Cth) - s.51A, s.52
PARTIES :	Anntam Pty Limited - Plaintiff Steven John Sherman - First Defendant Peter Murray Walker - Second Defendant Outboard Marine Corporation (Aust.) Pty Ltd (In liq) - Third Defendant
FILE NUMBER(S):	SC 2037/02
COUNSEL:	M.R. Aldridge SC - Plaintiff B.A.J. Coles QC, J.E. Marshall - First, Second and Third Defendants
SOLICITORS:	Rodd Peters Lawyers - Plaintiff Clayton Utz - First, Second and Third Defendants

The facts

1 This is an application under s.1321 of the Corporations Act 2001 (Cth) seeking review of the decision of the First and Second Defendants, as liquidators of the Third Defendant (“OMC”), to reject the Plaintiff’s Proof of Debt in the winding-up of OMC.

2    The facts may be shortly stated. The Plaintiff has for many years carried on the business of selling to the public and servicing marine equipment and boats. It trades under the name “Hirecraft Marine”. OMC has for many years supplied Evinrude and Johnson outboard motors, parts and spares to retailers pursuant to Dealership Agreements. The Plaintiff has been an OMC dealer since about 1965.

3    Dealership Agreements between the Plaintiff and OMC between 1965 and 1998 have not been produced in evidence and it may have been the case that during those years the Dealership Agreement was not evidenced in writing. Whatever might have been the position prior to 1998 does not really matter because in 1998 the Plaintiff and OMC entered into a written Dealership Agreement, the form of which has not materially altered in subsequent years.

4    Clause 14(a) of the Dealership Agreement provides that the Agreement is to commence on a date to be inserted in a blank space provided “or when a fully executed Agreement is returned to the Dealer, whichever is the later, and shall expire on” a date to be inserted in the space provided. The Dealership Agreement executed in 1998 stipulated the commencement date in Clause 14(a) as “21 October 1998” and the expiry date as “31 December 1999”. The Dealership Agreement executed at the expiry of the 1998 Agreement stipulated the commencement date in Clause 14(a) as 31 January 2000, and the expiry date as 31 December 2000.

5    A Dealership Agreement executed by the Plaintiff on 20 December 2000, that is, before the expiry of the Agreement executed in January of that year, stipulated the commencement date in Clause 14(a) as 1st January 2001, and the expiry date as 31 December 2001.

6    The Dealership Agreement executed by the Plaintiff on 20 December 2000 was sent to OMC, but a counterpart executed by OMC has never been returned to the Plaintiff. No doubt that occurred because Administrators were appointed to OMC on 2 January 2001. On 23 April 2001, a meeting of creditors of OMC resolved to place the company into liquidation and the Administrators were appointed its liquidators.

7    On 21 May 2001, the Plaintiff lodged a Proof of Debt with the liquidators claiming a total of $158,997.45 under various headings. On 8 January 2002, the liquidators gave notice to the Plaintiff rejecting its Proof of Debt.

8    The Plaintiff has abandoned a number of the claims made in its Proof of Debt and now pursues only four of them. All of them are claims for unliquidated damages for breach of a covenant contained in a Dealership Agreement which, it says, has come into existence in the terms of the document executed by it on 20 December 2000. The liquidators have rejected those claims on the basis that no Dealership Agreement came into existence as alleged because the Dealership Agreement executed by the Plaintiff on 20 December 2000 was never executed by OMC and returned to the Plaintiff. Further, and in the alternative, the liquidators say that even if a binding Dealership Agreement did come into existence, the conduct on the part of OMC of which the Plaintiff complains did not amount to a breach of any covenant in that Agreement.

9    The covenant in the Dealership Agreement which the Plaintiff says OMC and the Administrators have breached is contained in Clause 2:

“The Dealer expects and the Company acknowledges that the Company will produce and provide at fair and competitive prices ‘Evinrude’ and ‘Johnson’ Outboard Motors, OMC Genuine Parts and Accessories, hereafter referred to as “Evinrude’ and ‘Johnson’ products of a quality and design that, under normal conditions and when properly adjusted and maintained, will give good performance for their owners.”

10    The remaining relevant facts may be summarised thus. In December 2000, during the currency of the Dealership Agreement expiring on 31 December that year, the Plaintiff purchased from OMC an unusually large quantity of stock at the then-current prices.

11    On 2 January 2001, as I have noted, Administrators were appointed to OMC. On 3 January 2001 the Administrators wrote to all OMC Dealers notifying them of the appointment and advising that there would be a change in prices and terms upon which goods would be supplied in future.

12    The relevant parts of the letter are as follows:

“ Warranty :

The purpose of this circular is to:

Provide you, as a key stakeholder, with some background of the issues confronting OMC; and
To outline major changes in trading terms during the administration period, details of which follow.

As Administrators of OMC we are liable for debts properly incurred following our appointment. This liability would extend to any warranty for product sold during the administration should one be given.

In the current uncertain circumstances, as Administrators we cannot sell product to you on terms that include warranty. For this reason, in consultation with OMC management, we have sought to revise certain pre-existing trading terms. Specific details of these terms are set out in a separate schedule attached under OMC cover signed by Mr Grainger McFarlane and myself. In setting the new terms we sought to balance the extinguishment of the warranty with superior discounts (from the list prices) to those you have enjoyed to date.

Current Unfilled Orders and Backorders :

A number of you may have recently submitted orders or have stock on backorder. We have withheld filling these orders at this point to allow you to consider the new terms.

For future trading in accordance with the new terms, the following will be required:

1. You sign and return by facsimile a copy of this correspondence indicating that you accept the new terms.

2. The new terms will commence (operationally) on Thursday, 4 January, 2001. All current unfilled orders including backorders placed have been ‘cancelled’. You will need to reconfirm any such order by submitting it on or after 4 January, 2001.

3. I anticipate that orders placed on 4 January, 2001 will commence being filled and shipped on that day.”

13    Enclosed with the letter were the Administrators’ trading terms, the relevant parts of which were as follows:

“ New prices

Outboard Motors will attract the following discount off the current list price (excluding GST)

Up to and including V4	V6
Evinrude	60%	65%
Johnson	45%	50%


These discounts are only available for orders paid by cash or credit card in advance of delivery. All orders must be faxed.

Revision of orders

All orders currently on hand, including back-orders have been cancelled, please re-submit these under the new trading terms.”

Similar terms were applied to sales of parts, accessories and allied lines.

14    On 8 January 2001, the Administrators wrote again to OMC Dealers in the following terms:

“We refer to our facsimile of 3 January 2001 offering extended discounts for the Johnson and Evinrude product range.

These discounts were offered in the context of the issues surrounding the Chapter 11 that OMC’s parent in the United States entered into during late December 2000.

The additional discounts over and above the previous net price that you enjoyed after rebates and discounts was to reflect the Administrators’ inability to offer warranties due to the then uncertainty on [sic] to the direction of business.

Since that time, we have received further advice from OMC’s US parent to the effect that a process for the sale of OMC’s operations is now taking place and that all efforts are being made to bring about a sale of the business on a going concern basis. Here it is anticipated that a final position concerning a sale is expected by mid to late February 2001. However, until that time, no certainty can be placed on a sale eventuating.

As a consequence of the above, the Australian operations have closed the discount arrangements offered in the communication of 3 January 2001. All orders received and approved by 5.00pm, 5 January 2001, will be honoured on the basis of the terms stipulated.”

15    After January 2001, the Plaintiff continued to order goods from OMC through the Administrators on the terms stipulated by the Administrators.

16    However, the very large discounts on outboard motors, parts and accessories which the Administrators offered to OMC Dealers between 3 and 5 January 2001 had apparently been taken up by a number of Dealers. The result was that those Dealers were able to on-sell to the public at prices far below those at which the Plaintiff could sell its stock purchased in December without making a considerable loss.

17    The Plaintiff’s Proof of Debt claims damages, essentially for the loss of profits which, it says, it ought to have been able to make on the stock purchased in December. Claims are made for incidental costs incurred in endeavouring to mitigate those losses.

Whether breach of contract

18    It is convenient to deal first with the second basis upon which the liquidators rejected the Plaintiff’s Proof of Debt because I have come to the conclusion that, even if a Dealership Agreement came into existence on and from 1 January 2001 in the terms of the document executed by the Plaintiff on 20 December 2000, nevertheless OMC did not commit any breach of that agreement, as the Plaintiff alleges.

19    The Plaintiff relies solely upon the provisions of Clause 2 of the Dealership Agreement, which I have set out in paragraph 9 above. That clause contains no warranty by OMC, express or implied, that the Plaintiff will be able to make any profit from the sale of goods supplied by OMC to it pursuant to the Dealership Agreement. All that OMC relevantly promises is that it will sell goods to the Plaintiff “at fair and competitive prices”. Clearly, that means that the prices at which it sells its goods to the Plaintiff must be “fair and competitive” at the time of the sale having regard to market conditions and wholesale prices for similar goods then existing. Whether the Plaintiff can make a profit on the resale of the goods depends on factors such as the Plaintiff’s overheads, its marketing efficiency and conditions in the market at the time of resale.

20    The Plaintiff’s complaint concerns the purchase of an unusually large quantity of stock in December 2000. If there were a breach of contract by OMC in the sale of that stock at prices which were not “fair and competitive”, it would have been a breach of the Dealership Agreement which was then in existence, not a breach of the Dealership Agreement alleged to have come into existence after the purchase, on 1 January 2001. Even so, no evidence has been adduced which suggests that when the Plaintiff placed that order in December 2000 the prices at which OMC sold the goods were not fair and competitive having regard to market conditions then existing. Indeed, quite to the contrary, the fact that the Plaintiff placed such a large order indicates that it must have thought the prices to be very favourable.

21    That inference is confirmed by the evidence of the Plaintiff’s Managing Director, Mr Hurt, who says that the December order was placed as a result of a conversation between his son and an OMC representative, on the basis of which Mr Hurt believed that the discounts then offered were good and that OMC expected that its prices would go up in the following year. Further, Mr Hurt also alleges that he had heard rumours in December 2000 that OMC was in financial difficulties and that he rang a senior executive of OMC and was given assurances that “everything is going to be OK”. He says that in reliance on those assurances he did not take steps which would have been open to him to minimise the losses resulting from OMC’s collapse and the acquisition of a large quantity of stock in December.

22 Statements by OMC representatives in December 2000 to the effect alleged by Mr Hurt, if they were indeed made and if they were relied upon by the Plaintiff, might well have founded an action against OMC for damages for misleading and deceptive conduct under s.51A and s.52 of the Trade Practices Act 1974 (Cth) if, at the time they were made, OMC knew that it was in such financial difficulties that it might well have to go into liquidation and its stock would be available at ‘fire sale prices’ or if OMC had no reasonable grounds for making the representations as to its expectation of price increases in the following year and that “everything is going to be OK”. But this case has not been fought on the basis that the Plaintiff has lodged, and the liquidators have rejected, a Proof of Debt for claims under the Trade Practices Act. The case has been fought entirely on the basis that the liquidators have rejected a Proof of Debt founded on claims that OMC has breached its contractual promise in Clause 2 of the Dealership Agreement to sell goods to the Plaintiff at “fair and competitive” prices.

23    This is somewhat strange, especially since the causes of action upon which the Plaintiff formulated its claims in the Proof of Debt are not in evidence. All that the Plaintiff has produced have been the figures included in the Proof of Debt showing how the various losses were calculated. Apparently, the Plaintiff has mislaid its copy of the Proof of Debt as lodged. For whatever reason, the case has been conducted on the basis that the Plaintiff’s claims in the Proof of Debt were laid exclusively in contract. As I have said, no evidence has been adduced which is capable of proving that the prices at which the Plaintiff purchased its December stock were not “fair and competitive” having regard to market conditions at the time of purchase.

24    It is unclear to me why the parties have regarded the existence or otherwise of a Dealership Agreement commencing on 1 January 2001 as of critical importance in the Plaintiff’s claim enunciated in its Proof of Debt. The losses in respect of which the Plaintiff claims are losses arising from its purchase of stock in December 2000 and its inability to sell that stock at a profit. The purchase of stock in December could only have been pursuant to the Dealership Agreement which expired on 31 December 2000. There was no evidence adduced of losses arising from purchases of stock from the Administrators in January 2001 or later. There was no evidence to suggest that the prices of stock purchased by the Plaintiff in January 2001 or later were not “fair and competitive” in the market conditions as they were at the time of purchase. In these circumstances, it seems to me as if the Plaintiff has been placing reliance on the existence of a Dealership Agreement operating from 1 January 2001 as if the Dealership Agreement contained some sort of warranty that OMC would not sell goods to other OMC Dealers at prices which might make unprofitable the sale of the Plaintiff’s own stock purchased previously. However, the terms of the Dealership Agreement, as they were both before and after 1 January 2001, contained no such warranty.

25    For these reasons, I am of the view that the liquidators were justified in rejecting the Plaintiff’s Proof of Debt on the basis upon which the claims therein were made, namely, breach of contract. Whether the Plaintiff could have made a claim on the basis of misleading and deceptive conduct is not an issue which I can entertain in these proceedings because the parties have not addressed it either in evidence or in submissions.

Whether 2001 Dealership Agreement in existence

26    The conclusion I have reached is sufficient to dispose of this case adversely to the Plaintiff. However, because the question of the existence of a Dealership Agreement in 2001 has been fully argued and, I am informed, a decision on that point may assist in the resolution of claims made against OMC by other OMC Dealers, I will shortly state my views.

27    In my opinion, the liquidators are correct in their contention that no binding Dealership Agreement came into existence in respect of the 2001 year. My reasons are as follows.

28    It is trite law that whether, and when, parties to a negotiation are to be contractually bound by concluded terms is a question of their intention ascertained, not by reference to their subjective states of mind, but by reference to what they have said and done, understood objectively in the context of the surrounding circumstances of which they were both aware or ought reasonably to have been aware.

29    In the present case, the document signed by the Plaintiff on 20 December 2000, which was in a standard form prepared by OMC, unequivocally evinced in Clause 14(a) an intention on the part of both parties that no binding agreement should come into existence unless and until OMC returned its executed copy of the Dealership Agreement to the Plaintiff. Such a stipulation may well be for the benefit of both parties in contractual negotiations: each may desire a fail-safe mechanism of ascertaining whether they are legally bound and, if so, at what particular time.

30    It is not to the point in the present case to appeal to what may have happened in earlier years when the parties continued dealing with each other in the interregnum between despatch of an executed Dealership Agreement by the Plaintiff and return of an executed counterpart by OMC. The circumstances in which the parties then found themselves may well have left them content to deal with each other on an ad hoc basis until the Dealership Agreement had become binding according to its terms.

31    But at the end of 2000 the situation was very different from what it had been in earlier years. Clearly, OMC was facing imminent insolvency although that fact was doubtless unknown to the Plaintiff. No course of dealing between the parties during December 2000 could indicate an intention different from that expressed in Clause 14(a) of the document executed by the Plaintiff on 20 December because that course of dealing would obviously have been pursuant to the Dealership Agreement which was then in force. Further, there was no established course of dealing between the parties after expiry of the 2000 Dealership Agreement. The Administrators were appointed to OMC on the first business day of 2001 and, on the next day, they circularised OMC Dealers, including the Plaintiff, and notified them of the new regime.

32    There is no conduct on the part of the Administrators after 2 January 2001 which amounts to an unequivocal representation to the Plaintiff that its Dealership Agreement for 2001 is on foot despite non-fulfilment of the precondition stipulated in Clause 14(a), such as could found an estoppel. Mr Aldridge SC, in his capable argument, relies on a number of letters and circulars sent by the Administrators to all OMC Dealers, including the Plaintiff, as support for the proposition that the Administrators were thereby representing to the Plaintiff that it was still a Dealer by virtue of a currently existing Dealership Agreement. He refers in particular to the letters dated 3, 8, 12 and 25 January and 27 February and 26 March 2001.

33    All of these letters are addressed to OMC Dealers at large, with the exception of the letters of 25 January and 26 March. The general letters, fairly read, are designed to provide information to all those who are or have been OMC Dealers, regardless of their individual status and the peculiarities of their own positions. I do not think that they can properly be read by the Plaintiff as confirming its own particular contractual status with OMC. Indeed, if anything, the letters give clear notice that the Administrators are dealing with sales of OMC goods to Dealers very much on an ad hoc basis rather upon the terms of any existing Dealership Agreements.

34    The letters addressed to the Plaintiff itself are concerned either with transactions which occurred in December 2000 or with dealings thereafter on an ad hoc basis. They cannot be fairly read as representing to the Plaintiff that OMC regarded the Dealership Agreement for 2001 as coming into existence despite non-fulfilment of the precondition in Clause 14(a).

35    Finally, there is no evidence that the Plaintiff acted to its detriment or changed its position in reliance on any representation as to the existence of a Dealership Agreement for 2001, so as to found the estoppel asserted. Indeed, the evidence is to the contrary in that the Plaintiff took a dealership with Mercury in February 2001, which would have been in breach of an exclusive dealership provision in the Dealership Agreement with OMC if such agreement had then existed.

36    For these reasons also, I am of the view that the liquidators rightly rejected the Plaintiff’s Proof of Debt founded upon claims in contract.

Orders

37    The Plaintiff’s Originating Summons is dismissed. I will hear argument as to costs.

– oOo –

Last Modified: 02/17/2003