Auluaulu International (Pvt) Ltd v G.S. Logistics Pty Ltd
[2017] VCC 1204
•29 August 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-14-00454
| AULUAULU INTERNATIONAL (PVT) LTD [PV 82215] and AULUAULU INTERNATIONAL PTY LTD [ACN 156 292 116] | First Plaintiff Second Plaintiff |
| v | |
| G.S. LOGISTICS PTY LTD [ACN 139 076 565] | Defendant |
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JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 & 28 February, 2, 3 & 17 March, 10 May 2017 | |
DATE OF JUDGMENT: | 29 August 2017 | |
CASE MAY BE CITED AS: | Auluaulu International (PVT) Ltd & Anor v G.S. Logistics Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 1204 | |
JUDGMENT
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CONVERSION – Goods manufactured in Sri Lanka and shipped to Australia – defendant freight forwarder sold goods to third party relying on commercial lien – did either plaintiff own the goods at the time – effect of lien – were goods converted
UNCONSCIONABLE CONDUCT – Did defendant engage in unconscionable conduct under s20 of the Australian Consumer Law
INDUCE BREACH OF CONTRACT – Did defendant commit tort of intentionally inducing breach of contract
Judgment for the defendant
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr L Magowan | M A Legal |
| For the Defendant | Mr M Ravech | Carmody Lawyers |
HER HONOUR:
The plaintiffs (Auluaulu) are related companies engaged in arranging the manufacture and importing of various swimwear from Sri Lanka to Australia. The first plaintiff is a Sri Lankan company (Auluaulu SL). The second plaintiff is an Australian company (Auluaulu Aust).
Both Auluaulu companies are owned by and directed by Mr Rohan Fonseka and Mrs Nirosha Fonseka. They were often referred to both in submissions and in evidence as if they were interchangeable. I will refer to Auluaulu when it is not necessary to distinguish between the two plaintiffs in this judgment, and as Auluaulu SL and Auluaulu Aust when it is necessary to distinguish; for example when it is a question of which of the two companies contracted with a third party.
Auluaulu SL entered into a contract with an Australian company, Watersun Swimwear Pty Ltd (Watersun), to sell it swimwear made to its specifications and carrying brand names licenced to Watersun. Auluaulu SL arranged for that swimwear to be manufactured in Sri Lanka. There were two manufacturers for the swimwear that was made for the purpose of selling it to Watersun. The main manufacturer, in terms of quantity, was Linea Aqua PVT Limited (Linea Aqua).
The defendant is a freight forwarding company (Logistics). Watersun asked for the swimwear to be shipped to Australia by Logistics. Linea Aqua made the swimwear and then delivered it to Logistics’ agent in Sri Lanka, Atlas Logistics Lanka (PVT) Ltd (Atlas) for shipping to Australia. Linea Aqua filled in the necessary consignment documents required by Logistics, naming itself as consignor and Watersun as consignee. Importantly, given the dispute that followed, the consignment document included a clause giving Logistics a lien over the swimwear, if it was owned by Watersun, to secure payment of money owing from Watersun to Logistics.
The documentation between the parties was confusing and incomplete. I deal with that below. In short, whilst Linea Aqua invoiced Watersun for the goods, it never actually gave Watersun those invoices. Instead, it gave them to Auluaulu SL. Auluaulu SL then sent invoices to Watersun for the goods. Customs duty was paid on the relevant Auluaulu SL invoice when the goods were shipped to Australia.
The shipments arrived in Australia in September and October 2013. Auluaulu paid Linea Aqua the amounts for the shipped goods that Linea Aqua had invoiced Watersun.
However, Watersun did not ever pay Auluaulu for the swimwear shipments the subject of this dispute.
On 25 October 2013, Auluaulu Aust and Watersun entered into a written agreement (referred to in the statement of claim, and in this judgment, as the variation agreement). It is an unusual agreement, and dealt with further below. In it, although the original contract for the supply of the swimwear was between Auluaulu SL and Watersun, Auluaulu Aust purported to agree with Watersun to extend the credit arrangements for the debts owed to Auluaulu SL on various shipments by Watersun, and provided that payment should be made to Auluaulu Aust. The variation agreement referred to Auluaulu Aust having a lien over the goods, and provided that Watersun would renounce any claims to ownership of the goods and they would be deemed to be owned by Auluaulu Aust if they were not paid for by the extended payment dates, the latest of which was 25 November 2013.
In the meantime, Logistics was holding onto the swimwear at the docks. It moved them to a bonded warehouse still under customs’ control to reduce storage costs. Watersun still had not paid for the goods by 25 November 2013. On 27 November 2013 or 4 December 2013, Auluaulu Aust says it entered into an agreement with Logistics to have the swimwear released to Auluaulu. Whether there was any concluded release agreement was disputed by Logistics. In any event, in the course of the discussions at that time, it is common ground that Logistics said it would require $54,250.30 in storage and freight fees it had incurred in relation to the goods before it could release them to Auluaulu Aust. Auluaulu says Logistics agreed to invoice it for that amount, replacing the invoices Logistics had already issued to Watersun for freight and storage. Auluaulu had another buyer lined up.
On 4 December 2013, Logistics told Auluaulu that it was going to exercise its right of lien over the goods and sell them to a third party, and apply the proceeds to the debt Watersun owed it for freight services. It was owed money not only for these shipments, but also earlier shipments of goods in which it provided freight forwarding services to Watersun. Auluaulu Aust objected strongly, sending a letter from its solicitor saying that Auluaulu Aust “and the manufacturer” were “the owner of the goods”, and, in any event, Logistics had agreed to the release of the goods to it.
On 6 December 2013, Logistics entered into a deed of guarantee and sale, and sold the swimwear to the director of Watersun, Mr Paul Peterson, for an immediate payment of some $63,000.00 and a promise of a guarantee from him of payment of other monies owing by Watersun to Logistics. The goods were subsequently sold by Watersun in Australia.
Auluaulu sued Logistics in this case, alleging variously that it converted its goods, acted unconscionably and induced a breach of the contract Auluaulu had with Watersun. Logistics denied all these matters.
The issues I need to decide are:
·Did Logistics convert Auluaulu’s goods when it sold the swimwear to Mr Peterson?
·Was the release of the goods unconscionable under s20 of the Australian Consumer Law (the ACL)?
·Did Logistics intentionally induce Watersun to breach Watersun’s contract with Auluaulu?
·If Auluaulu is successful on any of these claims, what damages is it entitled to?
There were initially more claims and defences which were not pursued by close of trial. These included an estoppel claim and a claim by Auluaulu SL alleging a lien as an unpaid seller. The claims and defences remaining to be considered are those set out in the pleadings filed after the fourth day of the trial, as refined in submissions.
Mrs Fonseka, one of the two directors of Auluaulu Aust and Auluaulu SL, gave evidence for Auluaulu of the arrangements between Auluaulu SL and Linea Aqua, and between Auluaulu and Watersun. She also gave evidence of arranging for the swimwear to be manufactured in Sri Lanka and shipped to Australia, of the variation agreement and of the release discussions.
Mr Anura Lakshman, a finance manager from Linea Aqua, gave evidence of accounting arrangements involving Linea Aqua.
The other director of Auluaulu, Mr Fonseka, was not called although he was in Court.
Mr Rob Brodie, a director of Logistics, gave evidence on its behalf. His evidence chiefly concerned the release discussions, and events surrounding that.
An agreed court book was relied on, culled at the end of the trial so that it reflected only the documents that the parties agreed be tendered as relevant.
Did Logistics convert Auluaulu’s goods when it sold the swimwear to Mr Peterson?
Auluaulu pleads that “the plaintiffs were at all material times the owners of the goods and entitled to possession of the goods on the failure of Watersun to pay the plaintiffs”. It then says that Logistics converted the goods to its own use.
Although the statement of claim pleads that “the plaintiffs” were the owners, the case was run on the basis that either Auluaulu SL or Auluaulu Aust was the owner when Logistics sold the swimwear to Mr Peterson, and that this amounted to conversion. To establish its case in conversion, either Auluaulu SL or Auluaulu Aust must establish it owned the goods at the time of sale by Logistics to Mr Peterson.
Each Auluaulu entity has a different claim to ownership:
(i) Auluaulu SL says that it purchased the goods from Linea Aqua, and owned the goods from the time they were put on the ships by Linea Aqua. It says that property never passed to Watersun because Watersun never paid for them. However, Logistics says Watersun was the owner of the goods from the time when they were put on the ships and consigned to it.
(ii) Alternatively, if Watersun became the owner when the goods were loaded onto the ships, Auluaulu Aust says that it became the owner of the goods by virtue of the variation agreement, after 25 November 2013 when Watersun had still failed to pay for them. Logistics disputes the effect of the variation agreement, but says, in any event, if Auluaulu Aust had become the owner of the goods by then, its ownership rights were subject to Logistics’ lien over the goods. It says it did not convert the goods as it was entitled to rely on its lien as against Auluaulu Aust in selling the goods. It says that at the time the goods were loaded on to the ships by Atlas, its agent, Watersun owned the goods. Watersun owed Logistics money for previous shipments, and incurred more fees in relation to these ones. It says the lien attached when the goods were loaded on the ship, and if Auluaulu Aust became the owner after 25 November 2013, its title to the goods was subject to Logistics’ lien.
The contractual arrangements between the relevant parties are complex, and the documentation underlying them was incomplete and, at times, contradictory. The case was presented for Auluaulu on the basis that it did not matter which of the Auluaulu companies had entered into which contracts as it was argued that each acted as agent for the other. No evidence was given of how relevant payments and debts were dealt with in the financial records of the Auluaulu companies. The only relevant invoices produced by either Auluaulu entity were of invoices Auluaulu SL provided to Watersun in relation to the goods the subject of this dispute. Evidence was given for Linea Aqua that it invoiced Auluaulu SL.
Mrs Fonseka explained that her background had been in manufacturing swimwear in the past. She set up a business where Auluaulu was a buying office. When Watersun wanted particular swimwear, she was involved in approaching manufacturers in Sri Lanka and having various samples designed to specifications. After the samples had been shown to Watersun by Auluaulu, Watersun decided on the final versions it wanted manufactured. Watersun told Auluaulu what swimwear it wanted. At that point, Auluaulu sent purchase orders to the manufacturers, including Linea Aqua.
Most of the evidence at trial involved invoices from Linea Aqua, and evidence was given by one of its employees. There were also minor orders placed with Stewart’s Manufacturing (Stewart’s) by Auluaulu SL. (Due to the small amounts claimed in relation to goods manufactured by Stewart’s in the context of the overall claim, the parties agreed that I should treat the goods manufactured by Stewart’s in the same way as I treat those manufactured by Linea Aqua, without the need for evidence regarding Stewart’s beyond the invoices in evidence).
The purchase orders did not include any prices. They set out style numbers and quantities to be made. Once the goods were ready, Linea Aqua prepared an invoice to Watersun. Watersun never received that invoice. Instead, Linea Aqua’s invoice was sent directly to Auluaulu SL. On the same day that it received the invoice, Auluaulu SL created its own invoice for those same goods and provided it to Watersun. Confusing the matter still further, Auluaulu SL also gave Watersun two other invoices, each for half of the total amount in the first invoice. The first additional invoice was described as “management” and the second additional invoice as “manufacturing”. The manufacturing invoice then accompanied the goods when shipped. It was on the total of the manufacturing invoice that Australian customs duty was paid.
By way of example, invoice number 16753 was invoiced by Linea Aqua to Watersun (but sent only to Auluaulu SL) on 22 August 2013, claiming $17,595.59. Auluaulu SL then created its own invoice dated 22 August 2013 for those same goods. It gave that invoice to Watersun for $23,897.58. It also gave Watersun two other invoices, each for half of the total amount in the first invoice. The first additional invoice was described as “management” and the second additional invoice as “manufacturing”. The manufacturing invoice was included with the customs’ documentation.
Mrs Fonseka gave evidence that Mr Peterson of Watersun had requested that there be a separate invoice in relation to manufacturing because he said much of what was being charged to Watersun related to the work of designing and managing the swimwear contracts as opposed to the pure cost of manufacture. He wanted only the manufacturing component presented to customs and for Watersun to be liable for that. Mrs Fonseka said that she thought there was “something” in what Mr Peterson said and, in any event, it was Watersun who was paying the duty, so Auluaulu SL went along with this request.
Watersun and Auluaulu had been doing business for some time. Other shipments of swimwear had been sent and Watersun had paid Auluaulu SL for them. The arrangement between them was that when shipments were sent by air, Watersun had to pay for the goods before they were sent. When shipments were sent by sea, however, it was agreed that Watersun had 30 days credit. Mrs Fonseka gave evidence that in order to secure payment by Watersun, Auluaulu held on to the original of the bills of lading provided to it by Linea Aqua in relation to the swimwear at the port of departure in Sri Lanka.
Mrs Fonseka gave evidence that in relation to previous shipments, the arrangement between Auluaulu SL and Watersun was that once the shipped swimwear arrived in Australia, they would be kept by Logistics, and not released to Watersun until Auluaulu SL advised Logistics that Watersun had paid it for the shipped goods. There were various emails between Logistics and Auluaulu where this practice was acknowledged by Logistics. Once payment was made by Watersun to Auluaulu SL, the original bills of lading were provided by Auluaulu SL to Logistics, and Logistics released the swimwear to Watersun. The same arrangement was discussed in emails between Auluaulu and Logistics in relation to the goods the subject of this dispute.
Watersun informed Linea Aqua that Logistics was its preferred freight forwarder in relation to the shipment in dispute. Linea Aqua then entered into the contracts with Logistics to ship the goods to Australia to Watersun. Atlas was Logistics’ Sri Lankan agent.
No evidence was given that the question of when property would pass was ever discussed by any of the parties to the different contracts (which is of course, not unusual).
The goods were shipped, and remained at the port. On 18 September 2013, Logistics sent an email to Auluaulu saying “we will not release any cargo to Watersun unless approved by you”. It asked for the original bills of lading to be released to it. Auluaulu refused to release the bills of lading as “we are holding the original documents to release to Watersun upon receipt of the payment for the cargo… [the] understanding with them is that we will release the original documents upon receipt of payment”.
On 25 October 2013, Mr and Mrs Fonseka met with Watersun’s director, Mr Peterson.
At that meeting, the variation agreement was entered into between Auluaulu Aust and Mr Peterson. Mr and Mrs Fonseka signed on behalf of Auluaulu Aust, and Mr Peterson on behalf of Watersun. It stated:
“AGREEMENT OF PAYMENT FOR GOODS AND SERVICES PROVIDED
THIS AGREEMENT is made on Twenty Fifth day of October, 2013 between AULUAULU [AUST] ….. AND WATERSUN ....both being parties to an ongoing trade in goods and services more fully described in the Schedule hereunder and we do hereby make and enter into this agreement which shall be binding on both parties hereto in every respect and in every material particulars upon execution hereof and shall not be varied, amended, changed in any manner whatsoever or howsoever, any of the clauses contained herein without expressed and explicit consent of both parties hereto.
RECITAL
WHEREAS AULUAULU has been engaged in an ongoing business as Sourcing agents of shipments consigned to WATERSUN during the year Two Thousand and Thirteen.
WHEREAS WATERSUN failed or neglected to make payments in full, in settlement of invoices (more fully described and enumerated in the schedule hereto) for shipments dispatched from 15/08/2013 to 9/10/2013 by AULUAULU within Thirty (30) days from date of dispatch of goods pursuant to the orders placed by WATERSUN.
WHEREAS AULUAULU has encountered and experienced substantial prejudice in terms of maintaining company’s financial records in relation to balance of payments as a result of the non-payment of the amounts specified in the sea freight invoices issued to them by WATERSUN which eventually leaves or likely to leave a substantial amount in arrears and hence warrant clearance forthwith.
WHEREAS WATERSUN has made no attempt and took no effort to clear the backlog of payments already due and owed by them to AULUAULU notwithstanding numerous reminders addressed to them and the circumstances now make it imperative to have a binding agreement in place to prevent or desist WATERSUN from evading or delaying further, the payment of the amounts fallen into arrear over the aforesaid period.
NOW THIS AGREEMENT witnesses and it is hereby agreed as follows:
1. THAT WATERSUN undertakes and agrees to settle forthwith and without further delay, the total sum of not less than US $265,956.22 together with the costs incurred or likely to be incurred including but not limited to demurrage charges, costs and charges arising from, associated with, and/or incidental to the costs, charges in respect of all freight and shipping and clearance charges incurred in that behalf, by bank cheque/draft, cash or otherwise acceptable to the AULUAULU.
2. THAT failure on the part of WATERSUN to settle the aforesaid sum will entitle AULUAULU to exercise a right of lien over the consignments of goods until and unless outstanding debt incurred by WATERSUN is settled in full and in total satisfaction of the total amount thereof.
3. THAT AULUAULU shall have full and unfettered rights pursuant to exercise of its right of lien vested in them as referred to in the preceding clause 2 hereof, to sell, dispose of, the goods concerned which constitute the subject matter of this agreement in any manner whatsoever, to any company, retailer, stock-lot buyer or any other purchaser of their choice for valuable consideration in order to recover value of the goods and services provided by AULUAULU including but not limited to the demurrage charges, costs and charges arising from, associated with, and/or incidental to the costs, charges in respect of all freight and shipping and clearance charges storage and expenses incurred in respect of the storage, cartage and transportation of the goods, incurred in that behalf at any time upon failure of WATERSUN to pay and/or settle the invoices on or before the dates specified in the Schedule hereto. Upon failure to settle or pay the amounts, WATERSUN will be deemed to have relinquished all or any of the claims, title, rights, benefits, entitlements, interest with respect to the goods on hold and over which the lien is exercised.
4. THAT in the event, WATERSUN is unable to make payments in full for each and every invoice listed in the Schedule herein, in compliance with the settlement dates specified in the last column of the schedule hereto, AULUAULU as vendor shall have full rights to the goods in question, in the current state inclusive of all labels and tags, to be sold off to any company, retailer, stock-lot buyer or in any other manner, at any time without any obligations, restrictions and/or limitations. WATERSUN shall relinquish all claims of ownership to such goods. The goods, for all intents and purposes, shall be deemed goods belonging to the vendor, to be disposed of in any way it wishes to. Any demurrage charges arising from the delayed clearance of such goods by the Forwarder/Vendor will have to be settled in full by WATERSUN to the Forwarder/Vendor, together with all freight and associated shipping and clearance costs.
5. THAT AULUAULU will have the rights without limitation to initiate legal proceedings and/or action against WATERSUN in respect of the losses incurred by AULUAULU.
SCHEDULE OF SEA FREIGHT INVOICES
Date Invoice Ref Amount
US $
CMB Ref Goods Cleared Date to
StorePayment date by
Watersun WK Ending
if not before15/8/13 LA/EX/16725/2013 44,510.17 CMB491 18/09/13 8/11/13 22/08/13 LA/EX/16753/2013 23,902.40 CMB496 22/09/13 8/11/13 27/08/13 LA/EXP/243/2013 3,375.50 CMB495 30/09/13 8/11/13 6/09/13 LA/EX/16791/2013 27,472.68 CMB506 14/10/13 25/10/13 6/09/13 SM/EXP/245/2013 2,351.25 CMB505 14/10/13 8/11/13 12/09/13 LA/EX/16805/2013 20,119.72 CMB509 22/10/13 8/11/13 30/09/13 LA/EX/16850/2013 76,863.88 CMB512 15/11/13 9/10/13 LA/EX/16877/2013 70,360.62 15/11/13 [Typographical errors have been retained and bold formatting added.]
GOODS ACT
I need to decide if either Auluaulu Aust or Auluaulu SL had property in the goods at the time they were sold by Logistics to Mr Peterson.
The parties agreed that s23 of the Goods Act 1958 (Vic) (Goods Act) needs to be considered in order to ascertain when property passed in each relevant contract in this matter. Section 23 sets up rules to assist in determining when property has passed in contracts for the sale of goods “unless a different intention appears”. The first three rules apply where “specific” goods have been purchased, which are goods identified and agreed on at the time of sale: s3(1) Goods Act. In this case however goods were ordered which were to be manufactured according to description, and Rule 5 applies.
Section 23, relevantly states:
“Rules for ascertaining intention
Unless a different intention appears the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer:
…
Rule 5. (1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied and may be given either before or after the appropriation is made.
(2) Where in pursuance of the contract the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer and does not reserve the right of disposal he is deemed to have unconditionally appropriated the goods to the contract.”
The delivery of the goods must be distinguished from the passing of property in them, since property may pass either before, contemporaneously with, or after delivery. Once property has passed, the seller has a good cause of action against the buyer for a liquidated debt, but the seller cannot repossess the goods in the absence of an effective retention of title clause.
Did property in the swimwear pass from Linea Aqua to Auluaulu SL?
Auluaulu submits that this occurred when the swimwear was delivered to Atlas (Logistics’ agent in Sri Lanka) and loaded on the ships.
Applying Rule 5, I find that property in the swimwear passed from Linea Aqua to Auluaulu SL when the goods were loaded on the ship. The goods were unconditionally appropriated at that time. No right of disposal was retained by Linea Aqua.
Did property pass from Auluaulu SL to Watersun?
Auluaulu submits that property was not intended to pass to Watersun until Auluaulu SL was paid. Auluaulu initially characterised the bills of lading as negotiable instruments, and argued that as it had retained the original bills of lading, it maintained a right to possession of the goods after they were sent from Sri Lanka. This claim was not pursued by close of trial. Instead Auluaulu submits that, although the bills of lading are non-negotiable and do not name Auluaulu SL, their retention is part of the evidence to be taken into account to establish that it was the intention of the parties that property would not pass, and Auluaulu SL would maintain ownership until it was paid. (The documents retained are referred to in this judgment by the traditional term of bill of lading. Nothing turns on the fact that the relevant current description is multimodal transportation document.)
Logistics submits first, that the relevant contract was between Linea Aqua and Watersun and that Auluaulu SL was only a sourcing agent. It submits that there was never a contract between Auluaulu SL and Watersun. It relies on the fact Linea Aqua invoiced Watersun initially.
The difficulty with the argument that there was a contract between Linea Aqua and Watersun is that, other than the invoices initially created by Linea Aqua to Watersun (which I find were given to Auluaulu SL, not Watersun) and the consignment notice, there is otherwise no evidence of such a contract. Linea Aqua’s financial records, produced at trial, show that it recorded the debts owed to it for the goods as being owed by Auluaulu SL, and it emailed Auluaulu SL regarding payment. There is no evidence of it having any dealings with Watersun. Watersun instead was sent invoices by Auluaulu SL, and dealt with its directors, Mr and Mrs Fonseka, regarding payment and shipping terms. The fact that Auluaulu SL paid Linea Aqua for the relevant goods (apart from once when Auluaulu Aust did), rather than waiting to be first paid by Watersun, is another indication that the relationship was such that it was purchasing the goods from Linea Aqua and then on-selling them. I find that there was a contract between Linea Aqua and Auluaulu SL, and that the goods were then sold by Auluaulu SL to Watersun.
Logistics next submits that, if Auluaulu was not a sourcing agent, ownership of the goods passed from Auluaulu SL to Watersun when the goods were that loaded onto the ship at the port of departure in Colombo “FOB Sri Lanka”. At that point, it says, Logistics’ agent, Atlas, took control of the goods and the risk in them passed to Watersun. It submits that Auluaulu SL did not reserve a right of disposal pending the fulfilment of any conditions, and property passed immediately (just as it had in the contract between Linea Aqua and Auluaulu SL). It relies on the fact that the variation agreement did not refer in any way to Auluaulu SL (or Auluaulu Aust) owning the goods at the time Auluaulu Aust purported to extending credit.
On the other hand, Auluaulu SL relies on the fact that it was given by Linea Aqua, and retained, the bills of lading. Although it was not named on them as a holder, nor as endorsee, and although the bills do not refer to Auluaulu SL at all, it argues that the retention of them until payment showed the parties’ intention that property would not pass until payment by Watersun.
The question in applying rule 5(2) of the Goods Act is whether Auluaulu SL reserved the right of disposal when it delivered the goods to Watersun. Auluaulu SL says it did, citing the principle discussed in James v The Commonwealth (1939) 62 CLR 339 at 384-385. It also refers to Martin Davies in Transfer of Ownership in International Trade (Kluwer Law International, 2011) at 9:
“Where the sale contract provides for payment against shipping documents, as is often the case, seller is taken to have reserved the right of disposal at least until payment is made: see paragraph D. below. In that situation, the parties would have manifested an intention about the passing of property, namely, that property passes when payment is made in return for the shipping documents, which would be sufficient to ensure that Rule 5 did not apply”.
Mr Davies, at paragraph D, deals with transfer of ownership through a bill of lading or other transport document. It sets out that:
“Under Australian law the bill of lading is not a document that gives title to the goods, in the sense that the holder of the bill has property in the goods for that reason alone. A bill of lading represents title to the goods. …[it is] not the actual vehicle by which a transfer is made.”
In paragraph 2, at 14, Davies states:
“Even in the absence of express agreement about the passing of property, the parties will be assumed to have manifested an intention contrary to Rule 5(2) if they have contracted on the customary basis that the bill of lading or other transport document is to represent the goods. Thus, the Sale of Goods Acts provide that the seller is deemed prima facie to reserve the right of disposal where the goods are shipped and the bill of lading states that the goods are deliverable to the order of the seller”. [citations omitted]
Here the relevant bills of lading did not state that the goods were deliverable to the order of the seller. They were non-negotiable bills of lading, naming Logistics as consignor, and Watersun as consignee. Auluaulu SL was not mentioned on them. The fact that Auluaulu kept the bills of lading is consistent, not only with an intention in the parties that property only pass once payment occurs, but also with Auluaulu SL having a lien to enforce payment (but property having passed already to Watersun).
The language of the variation agreement which, as Mrs Fonseka said, was prepared by Auluaulu’s solicitors on her instructions, is to the effect that Auluaulu Aust had no proprietary interest in the goods but was hopeful, as at 25 October 2013, of acquiring a proprietary interest in the goods from Watersun, if Watersun did not pay for the swimwear. I cannot be satisfied that Auluaulu SL had the intention that property would not pass until payment was made. Intention is to be determined from all the facts and here the variation agreement satisfies me, on the balance of probabilities, that the intention of the parties was for Watersun to obtain property in the goods immediately when they were loaded on the ship.
Counsel for Auluaulu submitted that I should not take this agreement into account in deciding what Auluaulu SL’s intention was at the time it contracted with Watersun to sell Watersun the goods. He said it was prepared without the people preparing it knowing what they were doing, under time pressure and in relation to complex law. However, it was prepared by a lawyer consulted by Mrs Fonseka, who herself had completed a law degree before embarking on her business career. It is significant that it nowhere records that Auluaulu SL already owns the goods. Instead, it states that “failure of Watersun to settle the aforementioned sum will entitle Auluaulu to exercise a right of lien”, and to have the right to sell the goods in exercise of its right of lien.
Even more significant is the fact that this agreement is the only documentary evidence of what Watersun intended the position to be so far as its ownership of the goods was concerned. Mr Peterson was not called to give evidence and there are no contractual documents surrounding Watersun’s arrangements with Auluaulu SL in evidence, except Auluaulu SL’s invoices to Watersun. Since I must consider the parties’ intentions at the time the contracts for the sale of the goods were made, this evidence of what the directors of Auluaulu SL and the director of Watersun considered to be the position only a few months later at the time of the variation agreement is relevant.
I find that property passed to Watersun when the goods were put on the ships to be shipped to it. This was either at the same time, or immediately after, property passed to Auluaulu SL from Linea Aqua.
Did Auluaulu Aust become the owner due to the variation agreement?
Logistics argued that the variation agreement had no legal effect, and Watersun continued to be the owner of the goods throughout until Logistics sold them, purporting to exercise its lien.
The variation agreement has many difficulties. Not least is the fact that whilst the original contract to sell the swimwear to Watersun was made by Auluaulu SL, the agreement to extend credit and for the consequences of non-payment was made by Auluaulu Aust. One of those consequences set out in it was:
“THAT failure on the part of WATERSUN to settle the aforesaid sum will entitle AULUAULU to exercise a right of lien over the consignments of goods”
No argument was advanced that I should treat this agreement as having been entered into by Auluaulu Aust on behalf of Auluaulu SL. There would have been real difficulties in successfully putting such an argument in any event.
There is no evidence that any consideration was given by Auluaulu Aust under the contract, and on that basis, it is unenforceable.
In any event, the variation agreement mandates that if Watersun did not pay in time, Auluaulu Aust would have a lien it could exercise in order to sell the goods and Watersun would “relinquish all claims of ownership”, not that Auluaulu Aust would become the owner of them. It therefore cannot succeed in any event in an action for conversion.
Given my findings about the efficacy of the variation agreement, it is not necessary for me to decide the issue of the lien. However, as some time was spent on this issue at trial, I make the following comments.
Logistics says that it exercised its lien under the consignment notice and applied the proceeds from the sale of goods in relation to freight and associated charges connected to the Linea Aqua/Watersun shipments in an amount of approximately $115,000.00. It also applied it against amounts owing by Watersun for carriage of goods consigned by Stewart’s and another manufacturer.
Relevantly, the consignment notice provides:
“1.3‘Client’ shall mean the Client or any person or persons acting on behalf of and with the authority of the Client. Where more than one Client has entered into this agreement, the Clients shall be jointly and severally liable for all payments of the Price.
1.4‘Consignee’ shall mean the person to whom the Goods are to be delivered by way of G.S.L’s Services.
…
1.6‘Goods’ shall mean cargo together with any container, packaging or pallet(s) to be moved from one place to another by way of G.S.L’s Services, or for storage by G.S.L.
…
15.1The Client expressly warrants to G.S.L that the Client is either the owner or the authorised agent of the owner of any Goods or property that is the subject matter of this contract of cartage and/or storage and by entering into this contract the Client accepts these conditions of contract for the Consignee as well as for all other persons on whose behalf the Client is acting.
…
21.1G.S.L shall have a lien on any Goods owned by the Client and in the possession or control of G.S.L (and any documents relating to those Goods) for all sums payable by the Client to G.S.L, and G.S.L shall have the right to sell such Goods, such sale to be undertaken in accordance with any legislation applicable to the sale or disposal of uncollected Goods. G.S.L shall be entitled to retain the sums due to it, in addition to the charges incurred in detention and sale of such Goods or cargo, from the proceeds of sale and shall render any surplus to the entitled person.”
Logistics asserts that if any title was conveyed to Auluaulu Aust under the variation agreement it was subject to Logistics’ lien. This is because at that time, Logistics’ contractual lien had taken effect in possession.
Auluaulu said the lien only was effective when it was exercised in December 2013, which was after Auluaulu Aust had become the owner under the variation agreement. However, I disagree.
The lien clause in the agreement between Logistics and Watersun, on its terms, conferred on Logistics a contractual lien over the goods. As a matter of construction, the lien clause in 21.1 “for all sums payable” allows Logistics to sell the goods to offset any debts owed by Watersun to Logistics. The clause evinces the intention of contractual parties to confer a general lien exercisable against all debts owed by Watersun as the lienee to Logistics.
The contractual lien took effect upon possession. Logistics’ lien over the goods was perfected when its agent (Atlas) took possession of the cargo in Sri Lanka. The lien did not only take effect when it was exercised in December 2013. The primary indication that the lien took effect upon possession is the express terms of the contract. The contract purports to confer a general lien on goods owned by Watersun and “in the possession or control of” Logistics (cl 21.1). The intention of the parties, as evinced in those words in clause 21.1, was for Logistics to assume a lien over the cargo once it was in possession or control of goods owned by Watersun. In essence the lien is a right of the freight forwarder to treat the cargo as security for all debts owed by Watersun to Logistics. Without Logistics being in possession or control of the cargo, Logistics would have no recourse to the cargo to satisfy any debts owed by Watersun.
Logistics argued that the contractual lien was a security interest for the purposes of the Personal Property Securities Act 2009 (Cth) (PPSA), and was perfected by possession (under s22 of the PPSA).
Very little was argued in relation to the PPSA by Logistics, and even less by Auluaulu. It was not pleaded as being relevant. The case was not argued as a dispute between competing security interests under the PPSA. However, I think Logistics is most likely correct in submitting that the PPSA is engaged in this case. The PPSA serves to clarify that the contractual lien between Logistics and Watersun was a security interest over chattels.
The PPSA was enacted to supplant what was described as a complex, inconsistent and “ad hoc web of common law and legislation” and create a uniform law on securities over personal property.[1] One of the purposes of the legislation was to create more certainty and efficiency by clarifying what constitutes security interests in chattels and when such interests are perfected.[2] Prior to the PPSA, the case law that considered the scope of contractual liens mainly arose in the context of priority disputes involving liquidators seeking delivery of chattels from defendants alleging a lien, and between banks asserting registered charges over assets against a defendant carrier asserting a pledge over goods. These priority disputes were determined according to an intersection of the corporations’ legislation and common law. The PPSA sought to simplify the resolution of such disputes by clarifying what kinds of security interests are formed, when they are perfected, and whether priority between interests was determined temporally or hierarchically
[1]Personal Property Securities Bill 2009, Second Reading Speech, Hansard, 24 June 2009, p.6960.
[2]Personal Property Securities Bill 2009, Second Reading Speech, Hansard, 24 June 2009, p.6960; Explanatory Memorandum to Personal Property Securities Act 2009, Outline, p. 11.
The PPSA is not a code and it has been held that sale of goods legislation is applicable.[3] It does, however, incorporate some of the common law principles on what constituted a personal security interest. Moreover the uniform law established a “functional” approach to determining whether an interest is a security interest – when the substance of the transaction is that an “interest in personal property provided for by a transaction that secures payment or the performance of an obligation.”[4] The form of the transaction, the name given to it, or the identity of the party with title to the property, does not affect whether the interest is a security interest.[5]
[3]PPSA s254; Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd & Ors [2014] VSC 644; 291 FLR 407, [35] and [47] per Sifris J.
[4]PPSA s3, ‘Guide to this Act’.
[5]PPSA s3, ‘Guide to this Act’.
The security interest of a “pledge” derives from the common law notion where goods are delivered into a party’s (pledgee) possession, and the goods act as security for the payment of a debt or performance of an obligation. The pledgee can sell the goods to enforce the pledgee’s rights in the payment of a debt.[6] Pledges were perfected upon taking possession according to the common law, and this approach is reflected in s. 22 of the PPSA. Though the cases are not referred to expressly in the explanatory materials to the PPSA, the approach in the Act echoes the dicta of those cases.
[6]Re Vital Learning Aids and the Companies Act [1979] 2 NSWLR 442 at 447, quoting Ex parte Hubbard: Re Hardwick (1886) 17 Q.B.D. 690, 697 per Lord Esher MR, and 698 per Bowen LJ; Great Eastern Railway v Lord’s Trustee [1909] A.C 109 at 113 per Loreburn L.C, at 115 per Lord Macnaghten.
In Re Vital Learning Aids and the Companies Act [1979] 2 NSWLR 442 the Court considered whether or not a general lien was created in favour of the defendant for the purposes of determining whether any lien constituted a charge requiring registration under the NSW Companies Act and whether the lien was enforceable against the liquidator. The Court found that the transaction between the parties was essentially a pledge and not a registrable charge. The Vital Learning Aids case had been regarded as supporting the principle that a possessory lien with a power of sale is in substance a pledge, with the right conferred upon delivery of the goods into possession, and is not to be equated to a charge.[7]
[7]Seka Pty Ltd (in prov liq) v Fabric Dyeworks (Aust) Pty Ltd (1991) 4 ACSR 455 at 460; Australia and New Zealand Banking Group Ltd v Curlett, Cannon and Galbell Pty Ltd [1992] 2 VR 647, 658.
In that case, the applicant was the liquidator of Vital Learning Aids Pty Ltd (an importer of educational equipment). The respondent operated a business as a customs agent and international air and sea forwarder. Vital Learning Aids engaged the respondent as a customs agent to have goods it purchased from overseas imported into Australia. The agreement involved the customs agent taking possession of the goods, given voluntarily to the customs agent by agreement with the company, and then upon possession the contractual term creating the lien took effect and granted the power of sale.[8]
[8][1979] 2 NSWLR 442 at 443-444.
The agreement contained a clause purporting to confer a lien in favour of the customs agent over the goods. The lien read as follows (‘the Company’ refers to the respondent customs agent):
“All goods (and documents relating to goods) shall be subject to a particular and general lien for monies due either in respect of such goods or for any particular or general balance or other monies due from the Sender, Owners or Consignees to the Company. If any monies due to the Company are not paid within one calendar month after notice has been given to the person from whom the monies are due to his or her last known address that such goods are detained, they may be sold by auction or otherwise at the sole discretion of the Company…”[9]
[9]Ibid.
Once the relevant goods arrived in Australia, the respondent, as the customs agent, cleared the goods through customs and took possession of the goods.[10] At the time of entering the contract, Vital Learning Aids was indebted to the respondent for previous services rendered, and additionally had not paid the respondent for the contract the subject of the dispute.[11]
[10]Ibid.
[11]Ibid.
In the present case, Logistics retained an interest in the goods as security for all payments by Watersun. The contractual lien may be viewed in line with the “functional approach” of the PPSA, in looking to the substance of the transaction rather than the form or labels accorded to the transaction.[12] The clause in the agreement between Logistics and Watersun describes the interest as a “lien”, but in substance the personal property security created between Logistics and Watersun is more like a pledge under s12(2)(f) of the PPSA. It follows that the clause in the agreement between Logistics and Watersun reflects that of a pledge, and would have been perfected upon Logistics taking possession of the goods.
[12]Explanatory Memorandum to Personal Property Securities Act 2009, Outline, p. 11; PPSA s. 3, ‘Guide to this Act’.
Was the release of the goods unconscionable under s20 of the ACL?
Auluaulu pleads that the sale of the goods by Logistics was unconscionable under s20 of the ACL. It says this because it alleges that Logistics agreed, by the “release agreement” on 27 November 2013 or 4 December 2013, to release the swimwear to Auluaulu on the basis that Auluaulu Aust would pay the outstanding charges for it.
However, I find that no release agreement was entered into between Auluaulu and Logistics on or about 27 November 2013 or 4 December 2013, whereby it was agreed Auluaulu would pay Logistics the outstanding charges in relation to the goods, and Logistics would release the swimwear.
The contemporaneous email correspondence between the parties makes it clear that negotiations occurred for the release of the swimwear to Auluaulu and a method which might allow this was being explored. The effect of Mr Brodie’s evidence was that negotiations for the release of the goods to Auluaulu Aust never culminated in an agreement. There was discussion about Logistics releasing the goods to Auluaulu on payment of freight charges but the detail had not been finalised. I accept the evidence Mr Brodie that, having had a discussion about this with Auluaulu’s directors, he was then concerned about what the legal effect would be. He knew Logistics had a legal relationship with Watersun, and there were complex issues regarding the charging of freight charges and also as to how duty had been charged over the swimwear on the basis it was going into Australia that needed to be sorted out if in fact the goods were now going to be sold by Auluaulu to another buyer. Subsequent to the meeting, he advised Auluaulu that the arrangement was subject to approval, and then later that Logistics intended to exercise its lien and sell to a private buyer.
In any event, the so-called agreement lacked certainty. Crucial elements remained to be determined, including what was to occur in relation to refunding amounts paid for duty depending on who Auluaulu Aust sold the goods to.
Significantly, in the subsequent letter of 6 December 2013 made by Auluaulu’s lawyers, no release agreement was ever relied upon or even alluded to.
Further, s20 of the ACL requires there to be a taking advantage of a position of strength against a party in a weaker position. Auluaulu pointed to a number of factors which it said demonstrated it suffered from a special disadvantage. I disagree that any of these fall within the categories of special disadvantage. Logistics simply exercised what it considered to be its legal rights in relation to the goods.
In any event, Auluaulu did not suffer any loss as a result of the alleged unconscionable conduct. It did not change its position after the alleged release agreement. It was no worse off than it would have been had no such discussions occurred in early December 2013.
Did Logistics intentionally induce Watersun to breach its contract?
Auluaulu pleads that Logistics intentionally induced Watersun to breach its contract with Auluaulu SL. It claims this on the basis that it says there was a contractual term between Watersun and Auluaulu that the goods would not be released to Watersun until Auluaulu received payment; Logistics was aware of this term; Logistics persuaded or procured the director guarantee and deed of sale agreement and any private sale agreement between Logistics, Watersun and/or Mr Peterson on or about 5 or 6 December 2013; this caused a breach of contract between Auluaulu SL and Watersun, as the goods were released to Mr Peterson or Watersun without Auluaulu SL receiving payment; and Logistics intended to bring about the breach of contract as between Watersun and Auluaulu.
Logistics denied all these matters, including that there was a contractual term regarding non-release until payment was made, or that it knew about it. It said its intention was to secure payment for the debts that Watersun owed it.
I find that Logistics was not aware that it was a term of the contract between Auluaulu and Watersun that the goods had to be paid for before being provided. It is one thing to know of an arrangement; it is another to know of a contractual term.
Further, I find that the reason Logistics sold the goods to Mr Peterson was to reduce the amount owing to it by Watersun. It did not do so intending to bring about a breach of the contract between Watersun and Auluaulu.
Further, I find that Logistics did not bring about a breach of the contract between Watersun and Auluaulu. Even if there was a term, it was that Auluaulu would not release the goods to Watersun without payment. In fact, Auluaulu did not release the goods. Logistics released them. As Watersun did not have an obligation under this alleged term of the contract, Logistics cannot have induced Watersun to breach such an obligation.
Further, I am satisfied that Watersun was not in a position to pay Auluaulu for the goods or at the very least, was not intending to pay Auluaulu for the goods. It had been given an extended time to do so and still did not pay. Instead, Mr Peterson negotiated a significantly reduced sum with Logistics, which he agreed to pay, which reduced the amount Watersun owed Logistics, and enabled Watersun to eventually receive the goods, via its director, at a reduced price. There is no evidence that had Logistics not released the goods, Watersun would have paid Auluaulu for them. Watersun is now in liquidation and has placed no more orders.
Finally, Auluaulu’s argument assumes that if Watersun had paid Auluaulu for the goods, Logistics would then have released them. By that stage, Logistics had realised that it was owed $150,000.00 by Watersun for freight charges and it wanted to enforce its claim and lien. I am satisfied it would not have released the goods in any event.
This claim must fail.
What damages is Auluaulu entitled to.
Given my findings, Auluaulu is not entitled to damages.
Conclusion
I will give judgment for the defendant.
I will hear the parties on the form of any orders to be made, including in relation to costs, consequential on this judgment.
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Certificate
I certify that these 24 pages are a true copy of the reasons for decision of her Honour Judge Marks, delivered on 29 August 2017.
Dated: 29 August 2017
Samantha Marinic
Associate to Her Honour Judge Marks
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