Bluescope Distribution Pty Ltd v Beerens (No 1)
[2010] VCC 1802
•20 December 2010
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL
GENERAL DIVISION
Case No. CI-09-01729
| BLUESCOPE DISTRIBUTION PTY LTD | Plaintiff |
| (ACN 096 380 068) | |
| v | |
| THOMAS BEERENS | Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20, 23, 24 and 31 August and 1 and 2 September 2010 | |
DATE OF JUDGMENT: | 20 December 2010 | |
CASE MAY BE CITED AS: | Bluescope Distribution Pty Ltd v Beerens (No 1) | |
MEDIUM NEUTRAL CITATION: | [2010] VCC 1802 | |
REASONS FOR JUDGMENT
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Catchwords: GUARANTEE AND INDEMNITY – contract for the supply of steel – guarantee by director of customer – calculation of price of steel – whether price at order or delivery – winding up of customer – whether liable for price of undelivered goods – whether repudiation of supply contracts – whether economic duress caused signing of guarantee – whether economic duress illegitimate – whether guarantee enforceable – damages – mitigation .
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T R Messer and Mr K J Naish | Turks Legal |
| For the Defendant | Mr J Dixon SC and Ms R Kaye | Foster Nicholson Legal |
HIS HONOUR:
1 Bluescope Distribution Pty Ltd (“Bluescope”) sues Mr Thomas Beerens on a Guarantee and Indemnity dated 30 October 2007.
2 Bluescope is a distributor of steel products. It had previously been known, until on or about 17 December 2007, as Smorgon Steel.[1] Smorgon Steel supplied Griffiths & Beerens Pty Ltd, which manufactured guide bars, for use in chainsaws and on timber harvesting equipment, and chainsaw steel sprockets. Mr Beerens was the director of Griffiths & Beerens. It was placed into receivership on 10 September 2008 and was wound up on 11 September 2008.
[1]Transcript (“T”) 58. The Amended Statement of Claim pleads that Bluescope was at all material times, before about 17 December 2007, known as Smorgon Steel Distribution Pty Ltd (paragraph 1 (c)).
3 Mr Beerens formed a new company, GB Manufacturing Pty Ltd, which continued in substantially the same business as Griffiths & Beerens. By agreement reached with the receiver, it acquired Griffiths & Beerens’ manufacturing equipment, raw materials and work in progress. It took over the business at the same premises. It required supplies of steel product.
4 Two amounts are claimed under the Guarantee and Indemnity: $131,007.08 for delivered goods and $391,175.88 for manufactured goods which were not delivered, less the price obtained on the resale of the manufactured goods. Once the amounts obtained on resale are deducted, the second is the amount of $312,897.32 being the amount of damages that Bluescope alleged it had suffered.[2]
[2]T 34
5 In respect of the undelivered goods, Bluescope alleges that Griffiths & Beerens repudiated the Credit Agreement regulating the supply of steel, because by reason of the appointment of receivers and managers and its winding up, it was incapable of performing an essential obligation, in that it was unable to pay for steel products previously ordered, but not delivered. Bluescope argues that it accepted the repudiation by terminating the Agreement or, by force of a clause of the Conditions of Sale, it was entitled to, and did, terminate the Credit Agreement and withhold delivery of the manufactured goods. It claims to have suffered loss and damage, being the amount owing in respect of the undelivered goods.
6 Mr Beerens is alleged to be liable for this loss and damage pursuant to the Guarantee and Indemnity.
7 Although at times in argument, and in submissions, the question of the undelivered goods was argued as a debt, it also was treated as giving rise to a claim for damages flowing from the repudiation of the Credit Agreement that applied to the supplies of steel products – thus the argument about mitigation of damages.[3]
[3]See e.g. T 624 -626
8 Save in respect of the issues set out below, there was no dispute about the fact that Bluescope manufactured the quantities of steel that are the subject of this proceeding or, that it had delivered the steel product for which the sum of $131,007.08 is claimed. I will on occasion refer to Smorgon Steel and Bluescope interchangeably.
Terms of Guarantee and Indemnity
9 The Guarantee and Indemnity upon which Bluescope sues provides that Mr Beerens:
“… unconditionally and irrevocably guarantees to the Supplier the due and punctual payment of all debts and monetary liabilities, including without limitation, costs and expenses which are, or which may become, payable by the Customer to the Supplier or any related body corporate on any account and in any capacity (the ‘Guaranteed Moneys’) and, as a separate and independent obligation, agrees to indemnify and keep the Supplier and any related body corporate indemnified from any and against any claim, action, loss, damage, liability, cost, expense, outgoing or payment, suffered, paid or incurred by the Supplier or such related body corporate in relation to the non payment or non recovery of the Guaranteed Moneys.”
Issues for determination
10 The issues for determination in the proceeding are:
Issue 1
Was it a term of the agreement between Bluescope and Griffiths & Beerens that the price for steel delivered to Griffiths & Beerens would be the price at the time the order was placed or, at the delivery date?
Issue 2
Was it a term of the agreement between Bluescope and Griffiths & Beerens that Griffiths & Beerens was obliged to pay for goods manufactured, but not delivered? .
Issue 3
Was there an enforceable agreement made between the parties in July 2007 to alter the credit terms upon which Bluescope supplied steel product to Griffiths & Beerens?
Issue 4
Was the guarantee signed by Mr Beerens unenforceable because Bluescope obtained it by illegitimate economic duress?
Issue 5
Has Mr Beerens established that Bluescope failed to mitigate its loss?
Construction of commercial contracts
11 Before dealing with each of these issues, it is helpful to consider briefly the manner in which commercial contracts should be construed. In McCann v Switzerland Insurance Australia Ltd,[4] which was a professional indemnity insurance case, Gleeson CJ stated:
“A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.”[5]
[4](2000) 203 CLR 579
[5](supra) at 589 [22]
12 In Zhu v Treasurer of the State of New South Wales,[6] Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ stated:
“The Deed Poll was a standard form instrument designed to apply to TOC’s dealings with a wide range of persons. The execution of the Deed Poll pursuant to an obligation in, and at the same time as, the Agency Agreement, meant that it had to be given a construction conformable with the Agency Agreement. It was necessary to construe the Deed Poll so as to avoid it making commercial nonsense or working commercial inconvenience. Its commercial purpose – the purpose of reasonable persons in the position of TOC and the plaintiff - was relevant. That, in turn, required attention to ‘the genesis of the transaction, the background, the context, the market,’ in which the parties were operating, as known to both parties.”[7]
[6](2004) 218 CLR 530
[7](supra) at 559 [82]
13 In the recent New South Wales Court of Appeal decision of Franklins Pty Ltd v Metcash Trading Ltd,[8] Campbell JA stated:
“There is a close connection between the requirement to construe commercial agreements in a way that does not affront business common sense and the principles by reference to which surrounding circumstances are admissible as an aid to construction.”[9]
[8][2009] NSWCA 407
[9](supra) [361]
14 I will apply these principles in determining the issues in this proceeding.
Issue 1: Was it a term of the agreement between Bluescope and Griffiths & Beerens that the price for steel delivered to Griffiths & Beerens would be the price at the time the order was made or at the delivery date?
15 The pattern of trade between Bluescope and Griffiths & Beerens was as follows. Bluescope would send price lists to Griffiths & Beerens from time to time. Such price lists were tailored to the requirement of the particular customer. They informed the customer that the price would increase from a particular date and the new price.
16 Griffiths & Beerens would submit a purchase order for steel product containing a price taken from the price list. Bluescope would confirm that it had received a purchase order by noting the new order on the stock status report, which it sent regularly to Griffiths & Beerens. Bluescope would usually take about six weeks to have the steel manufactured into steel plates of the required length. The steel was then stored at Bluescope’s Westall premises. Delivery was piecemeal and cross-referenced to purchase orders. Delivery occurred when it was required by Griffiths & Beerens, usually following a request for next day delivery. Bluescope invoiced Griffiths & Beerens when delivery was made. Griffiths & Beerens usually paid for the steel product within 60 to 90 days of delivery, although on occasion payments were outstanding for longer periods.
17 The informal relationship between Smorgon Steel and Griffiths & Beerens had existed for many years. No written credit application was signed until 2007 in the circumstances later described.
18 The issue arose whether the purchase price was that prevailing at the time of order or, at the time that the steel was delivered.
19 Bluescope operated under written Conditions of Sale dated April 2004. Griffiths & Beerens submitted that these Conditions had to be read in the context of the actual course of dealings between the parties. Each of the Invoices contained the sentence:
“All goods supplied by Bluescope Distribution Pty Ltd ABN 88 096 380 068 are supplied under the Bluescope Distribution Conditions of Sale.”
20 The Invoice then stated that the Conditions of Sale were available from sales centres, from a web site or by calling a telephone number.
21 I find that the Conditions of Sale did apply to each agreement to supply steel. Indeed both parties relied on particular provisions of them as part of their case. However, they applied as modified by the trading pattern between Bluescope and Griffiths & Beerens.
22 Clause 5 of the Conditions of Sale is headed “Price and GST” and paragraph 5.1 states:
“The price of Goods or Services or both of them will be the supplier’s prevailing price at the time of delivery.”
23 The term “prevailing price” was not defined.
24 The parties also referred to Clause 1 of the Conditions of Sale, which is headed “Quotations, Orders, Contract” and provides:
“1.1A written quotation issued by the Supplier to the Purchaser is an offer to sell and overrides the Supplier’s prevailing price list. A written quotation expires on the date specified as an expiry date. If no expiry date is specified, the written quotation expires 30 days after the date of the written quotation.
1.2 The Supplier may withdraw, revoke or vary a written quotation at any time prior to the Purchaser submitting an order which accepts the offer to sell comprised by the written quotation.
1.3 A contract for the supply of Goods is made when the Purchaser communicates (by writing or conduct) to the Supplier its acceptance of a written quotation.
1.4 An order from the Purchaser on terms which are inconsistent with the terms of a written quotation is an offer by the Purchaser to buy Goods from the Supplier. A contract for the supply of Goods is made if the Supplier communicates that it is prepared to supply the ordered Goods only on the terms of these Conditions and the Purchaser accepts delivery of the ordered Goods in which case the contract is deemed to have been made as at the date of the Purchaser’s order.
1.5A contract made pursuant to clauses 1.3 or 1.4 is wholly documented by any specific terms agreed by the Supplier and the Purchaser in writing including, without limitation, in a quotation and these Conditions. To the extent that any inconsistency arises between:
(a) the terms of a quotation and clause 6.2 of these Conditions, the terms of the quotation prevail to the extent of the inconsistency;
(b)the terms of a quotation and any clause of these Conditions other than clause 6.2, the terms of these Conditions prevail to the extent of the inconsistency.
1.6 Where in the period between acceptance of a quote and delivery of the relevant Goods, the Supplier incurs an increase in the cost of producing and/or delivering the Goods, the Supplier reserves the right to increase the quoted price of those Goods at any time prior to delivery (‘a price escalation’). The purchaser shall accept any such price escalation.
1.7 The provisions of these Conditions prevail over any terms and conditions of trade of the Purchaser whether or not any inconsistency arises.”
Submissions of the Parties
25 Bluescope submitted that the identification of the price payable for steel delivered was largely a matter of fact. The prevailing price was the price according to the price list at the time of delivery. Bluescope argued that when Griffiths & Beerens dispatched a purchase order, it accepted the offer contained in it, when it commenced work on the order. The price list provided a mechanism to fix the price of the work, which was an essential term of the contract. The price lists were not quotations. A contract was completed at the time the purchase order was accepted, with the price calculated in accordance with the price list at the time of delivery. There was evidence that, for instance, contracts were quoted with customers that want “20 months fixed and firm”.[10]
[10]T 143 L 16-21
26 Bluescope relied on the absence of complaint from Griffiths & Beerens about the calculation of the price during the twenty five years’ trading relationship with Smorgon Steel. Griffiths & Beerens own records recorded purchases of steel with the price that Bluescope claimed was owing.
27 Bluescope argued that, by asking it to carry stock for its convenience and not sending an invoice until delivery of the product, Griffiths & Beerens ran the risk that it would need to pay a higher price when the goods were delivered.
28 Mr Beerens argued that the prevailing price was the price at the time of the order. The price list at the time the steel products were ordered was a quotation. It then followed that whenever Griffiths & Beerens placed a purchase order in response to the price list, it thereby communicated its acceptance of the written quotation for the purposes of clause 1.3. A contract for the supply of goods was made at that time, with the price set. This followed from clause 1.1 which provided that the procedure for quotation overrode the supplier’s prevailing price list. There was no scope for the operation of clause 5.1. While clause 1.6 provided a price escalation clause, Bluescope did not rely on it in this case. Mr Beerens submitted that Bluescope’s storage cost was built into its price. Mr Beerens referred to evidence from Mr Azzolini, Bluescope’s Market Development Manager, that Griffiths & Beerens was allowed to submit orders at old prices until the date when the price rise took effect.
29 The effect of the application of Mr Beerens’ argument is that the Griffiths & Beerens had been overcharged $73,891.60, which it claimed to be entitled to set-off. Griffiths & Beerens had paid the invoices, which were said to include over charging.
Decision on Issue One
30 In the absence of a written quotation, the prevailing list price applies. This conclusion is supported by the terms of clause 5.1, whereby the parties agreed that the price payable for Bluescope steel would be the price at delivery. Transactions, which are not the subject of a written quotation, are regulated in respect of price by the price list prevailing at the time of delivery.
31 The opening words of clause 1.1 of the Conditions of Sale provide that a written quotation overrides the price list. However, that subclause only applies in the case of a specific written quotation issued in respect of the supply of steel product or other goods. I do not consider that the price list is a written quotation. A written quotation performs a separate function from the price lists which were circulated when price increases were impending. The quotation locks in the price, regardless of any later increase following the issue of a new price list. No written quotation of this character was provided in respect of the supplies that are the subject of these proceedings.
32 The result reached is consistent with a businesslike interpretation of the arrangement between the parties. Griffiths & Beerens was given a choice. It could either request a formal written quotation, or it could accept the price prevailing at the time of the delivery of the steel product. In the meantime, it was permitted to leave the steel product at Bluescope’s Westall yard.
33 The conclusion that I have reached is also supported by the trading history between the parties. That history, although it is not conclusive, rather supports the interpretation for which Bluescope contends. The history does not reveal, prior to the events giving rise to this litigation, any contention by Griffiths & Beerens of its method of the calculation of the price. It is true, however, that it is difficult to identify from the evidence where similar circumstances have arisen previously.
34 I therefore decide the first issue in favour of Bluescope.
Issue 2: Was it a term of the agreement between Bluescope and Griffiths & Beerens that Griffiths & Beerens was obliged to pay for goods manufactured, but not delivered?
35 The second issue was whether Griffiths & Beerens was liable to pay for goods manufactured, but not delivered. As stated previously, Bluescope stored steel product in its Westall yard until Griffiths & Beerens requested delivery of it.
36 When Griffiths & Beerens was placed into receivership and then wound up, significant quantities of steel product had not yet been delivered and never were. Bluescope sent Griffiths & Beerens an invoice for this stock on 13 October 2008 for a total of $391,175.88, including GST.[11] By that time a winding up order had been made against Griffiths & Beerens.
[11]Court Book (“CB”) 61
37 The Conditions of Sale included a retention of title clause (see Clause 4.1 and 4.5) providing that the Supplier retained legal and equitable title to the goods until it received payment in full from the purchaser of the goods.[12]
[12]The provisions of s 23 of the Goods Act 1958 were not relied on by the parties.
Submissions of the Parties
38 Bluescope submitted that it was entitled to charge for goods manufactured, but not delivered, because a contract had been formed once the order was placed. It had changed its position by manufacturing the steel product based on the orders made by Griffiths & Beerens. It was entitled to refrain from delivering that steel once Griffiths & Beerens became insolvent. It was clear that it could not pay for the stock, so there was no requirement to deliver it. No request for the product was received from the receiver or liquidator of Griffiths & Beerens. Mr Beerens gave evidence that the receivers stated that they had no use for the steel product.[13] However, that did not detract from Griffiths & Beerens’ obligation to pay for the product
[13]T154
39 Bluescope argued that once the winding up of Griffiths & Beerens had occurred, the obligation to deliver the steel product was suspended. The winding up of Griffiths & Beerens indicated its inability to perform the contracts and pay for the goods, so the contract was thereby repudiated and Bluescope was entitled to terminate the contract or contracts. Bluescope was thereafter entitled to sue for damages. Reliance was placed on Clause 6.6, which provided:
“If the Purchaser breaches a provision of these Conditions, including without limitation, a provision relating to the payment of money or if the Purchaser, being a natural person, is the subject of any personal insolvency event including, without limitation, arising out of the Purchaser committing an act of bankruptcy or if the Purchaser, being a company, has a receiver, receiver and manager, official manager, trustee, administrator, other controller (as defined in the Corporations Act) or similar official appointed or steps are taken for such appointment over any of the assets or undertaking of the Purchaser or if the Purchaser suspends payment of its debts generally or is or becomes unable to pay its debts when they are due or is presumed to be insolvent under the Corporations Act or if the Purchaser ceases or threatens to cease to carry on business or any guarantee or security given to the Supplier in relation to the Purchaser is purported to be revoked or asserted to be unenforceable then the Supplier may, without limiting any other rights it may have, do any or all of the following things:
(a) withdraw any credit facilities which may have been extended to the Purchaser and require immediate payment of all moneys owed to the Supplier by the Purchaser;
(b) terminate without the Supplier incurring liability to the Purchaser any contract in force between the Supplier and the Purchaser for the sale or supply of Goods or Services or both and, without limitation, withhold any deliveries of Goods or performance of Services pursuant to any purchase order accepted by the Supplier.
(c) suspend performance under or terminate, in either case without the Supplier incurring liability to the Purchaser, any contracts in force between the Supplier and the Purchaser, not being contracts for the supply of goods.”
40 Mr Beerens submitted that there was no term, express or implied, in the Conditions of Sale entitling Bluescope to charge Griffiths & Beerens for goods manufactured, but not delivered to it. The Court should not imply such a term. Mr Beerens referred to Clause 6.1 of the Conditions of Sale as the provision dealing with the payment of the purchase price. That subclause stated:
“Unless the Supplier has agreed to extend credit to the Purchaser, payment for Goods must be made by the Purchaser in immediately available funds on or immediately prior to delivery of the Goods.”
41 Mr Beerens argued that by agreeing that payment for goods must be made with delivery, it was implicit that Griffiths & Beerens’ obligation to pay only arose at that time. Clause 6.2 had the same consequence. It stated:
“Unless otherwise agreed by the Purchaser and the Supplier, the Supplier will be entitled to deliver the goods in one or more instalments. Where delivery of the Goods is effected by way of part delivery, the Supplier will be entitled to invoice the Purchaser for pro-rata progress payments in respect of Goods delivered.”
42 Mr Beerens argued that the goods were not delivered and therefore remained the property of Bluescope and could be sold to someone else. Mr Beerens relied on the evidence of Mr Persaud, the State Credit Manager for Bluescope, that stock which was manufactured for Griffiths & Beerens, but not delivered to it, belonged to Bluescope until either it was paid for, or Griffiths & Beerens took possession of it.[14]
[14]T 357, L4-6, L16-24
Decision on Issue Two
43 A resolution of this issue requires a business like approach to be given to the dealings of the parties in the context of the Conditions of Sale. They did not provide for a situation where Bluescope held the steel for some time after manufacture. However that feature of the actual trading relationship did not absolve Griffiths & Beerens from the obligation to pay for the goods which had been manufactured in accordance with its requirements. It cannot be that the delivery could be held off indefinitely so that no obligation to pay the agreed price occurred. It was not suggested that the receiver or liquidator ever requested delivery of the steel that had been manufactured at Griffiths & Beerens’ request.
44 However there are difficulties in characterising Griffiths & Beerens’ liability to Bluescope as a debt. The Conditions of Sale and the trading relationship provided for payment on, or following, delivery. There is no evidence that prior to 11 September 2008, when Griffiths & Beerens was wound up in insolvency, that Bluescope had requested it to take delivery of the steel stored at the Westall premises.
45 The appointment of receivers to Griffiths & Beerens and its winding up made clause 6.6 of the Conditions of Sale applicable. Griffiths & Beerens was no longer able to perform a fundamental obligation of the contracts and the Credit Agreement made between the parties, by accepting possession of the steel and paying for it. The receivers did not want the steel as they ceased trading on 24 October 2008.[15] They therefore refused to pay for it. Clause 6.6 (b) entitled Bluescope to terminate the contracts.
[15]T 154 see CB 112
46 The winding up of a company per se does not entitle the other party to a contract to rescind it.[16] However a combination of clause 6.6 and the unwillingness of the receivers, and the liquidators, to take possession of and pay for the steel, entitled Bluescope to terminate the contracts. The contracts for the supply of steel had also been repudiated by Griffiths & Beerens, its receivers and liquidators. Bluescope exercised it right to terminate the contracts, or to accept the repudiations, at the latest by the commencement of this proceeding in 2009. Bluescope’s claim, as pleaded in paragraphs 11 to 21 of its Amended Statement of Claim, is principally for the recovery from Mr Beerens, under the Indemnity, of damages suffered by it because of the repudiation of the Credit Agreement, made between the parties on 30 October 2007 in the circumstances described below.
[16]Austin and Ramsay, Ford’s Principles of Corporation Law (14th edition) p.1544
47 The termination or repudiation of the Credit Agreement resulted in the termination or repudiation of the many contracts for the supply of steel made under it and under the payment terms established by the trading relationship.
48 I therefore find that Bluescope has suffered damages in respect of the undelivered steel product, but was not entitled to sue for a debt. I will return to the calculation of the damages to which Bluescope is entitled to after considering alternative submissions made by Mr Beerens in respect of the undelivered goods.
Alternative Arguments about Undelivered Goods
49 In the alternative, Mr Beerens argued on a number of grounds that even if Bluescope was entitled to charge for goods that were never delivered, it had inflated its claim.
50 In the first instance this argument was that the price for the goods was that at the time of order, not delivery. I have given my reasons for not accepting that argument in dealing with issue one.
GST
51 The second argument relied on by Mr Beerens in this section of his argument, was that Bluescope was not entitled to claim the Goods and Services Tax payable on the price of goods manufactured, but not delivered.
52 Mr Beerens argued that there had been no sale and there was no tax invoice on which Griffiths & Beerens could be liable for GST.
53 Bluescope argued that once the contract was formed, there was a right to claim GST. Clauses 5.2, 5.3 and 5.4 of the Conditions of Sale deal with GST. They provide:
“5.2 Where a party to these Conditions (Supply Maker) makes a Taxable Supply (within the meaning of the GST Act) under or in connection with these Conditions to another party to these Conditions (Recipient) and the consideration otherwise payable for the taxable Supply is not specifically stated to include GST, the Supply Maker will be entitled to recover from the Recipient as an additional amount the amount of any GST payable on the Taxable Supply.
5.3The amount of any cost recovery or compensation for costs under or in connection wit these Conditions shall be reduced by the amount of any Input Tax Credits (within the meaning of the GST Act) available in respect of those costs.
5.4 A party to these Conditions will not be obliged to pay any amount in respect of GST to the other party unless and until a Tax Invoice (within the meaning of the GST Act) has been issued in respect of that GST.”
54 Clause 14 of the Guarantee provided that the guarantor agreed to pay the GST inclusive amount of any taxable supply made under or in connection with the Guarantee.
55 Bluescope argued that there was a taxable supply, because a contract had been formed. Griffiths & Beerens was liable for the steel product manufactured, but not delivered. The GST legislation contained an expansive definition of supply. Under the Conditions of Sale and under the Guarantee, the customer was liable for the GST.
Conclusion on GST
56 I consider that Bluescope’s claim in respect of the goods manufactured, but not delivered, is a claim in damages. It is therefore for Bluescope to prove that it is, or will be, liable for GST on the steel products manufactured, but not delivered.
57 The GST legislation, A New Tax System (Goods and Services Tax) Act 1999 (Commonwealth) states that a taxable supply occurs when a supply is made and consideration is passed.[17] Supply is widely defined and includes a supply in any form of supply whatsoever, a supply of goods and:
“… a creation, grant, transfer, assignment or surrender of any right.”[18]
[17]See A New Tax System (Goods and Services Tax) Act 1999, s.9-5.
[18]A New Tax System (Goods and Services Tax) Act 1999, s.9-10
58 Much of the steel product remains at Bluescope’s premises. Bluescope did ultimately demand payment for the undelivered product by sending the invoice dated 13 October 2008, but by then Griffiths & Beerens had been wound up. The right of Griffiths & Beerens to the supply of the steel product was terminated.
59 Bluescope has suffered damages because of the termination or, repudiation of the Credit Agreement and the contracts for the supply of steel. I was not referred to any statutory provision, or authority, that establishes that GST is payable in such circumstances. Nor was there any evidence that Bluescope has paid any GST on the contracts for the supply of steel with Griffiths & Beerens, where the steel has not been delivered.[19]
[19]See evidence of Mr A Azzolini T 182
60 Bluescope’s claim for GST has not been established.
Steel not ordered, Interest and Costs
61 Thirdly Mr Beerens argued that Bluescope was not entitled to charge for 3.12 tonnes of 10 millimetre MAT G x 8000 steel product, for which the sum of $16,392.37, excluding GST and delivery costs, was claimed.[20] His evidence was that that stock was never ordered by Griffiths & Beerens and was simply an oversupply by the mill to Bluescope.[21] That evidence was really not challenged by Bluescope and I accept it.
[20]See T 178 -180 and Exhibit 1 page 4 line 1
[21]See T 392- 395
62 Finally, Mr Beerens argued that Bluescope was not entitled to charge interest in the sum of $1,142. 02 and costs of $958.19, which appear on its final invoice, as Bluescope had not attempted to justify those charges. Bluescope did not really press the claim for interest and costs contained in the invoice of 13 October 2008.[22]
[22]T 669
Decision on Unordered Steel, Interest and Costs
63 I accept Mr Beerens argument in respect of the 3.12 tonnes of steel, interest and costs. Bluescope is not entitled to those sums as part of its damages and Mr Beerens is not liable for them under the Guarantee and Indemnity.
Right to Claim a Set-off
64 There was another point argued that I found unnecessary to determine because of my conclusion that no overcharging occurred. However, as it was an issue in the proceedings, I should state my conclusions about it.[23] The issue is: was there a right of set-off available to Mr Beerens that entitled him to argue that his liability for the debts of Griffiths & Beerens for product that had been delivered and paid for, should be reduced by any amount by which it had been overcharged for steel product. On Mr Beerens’ case this overcharging amounted to $73,891.60.
[23]State Securities Pty Ltd v Droni [2010] VSCA 264 at paragraph [53]
65 Clause 6.5 of the Conditions of Sale provides:
“The Purchaser must not retain or withhold any money owing to the Supplier notwithstanding any breach or alleged breach by the Supplier of these Conditions including the supply of allegedly faulty or defective Goods. The Supplier expressly disclaims any right of the Purchaser to set off amounts due or alleged to be due from the Supplier to the Purchaser against amounts due or alleged to be due from the Purchaser to the Supplier under these Conditions.”
66 Bluescope argued that no set-off was available and relied on the decision of the Full Court of the Supreme Court of Victoria in Indrisie v General Credits Limited[24] which decided that a guarantor under a guarantee, which made him liable, without more, for the full indebtedness of the debtor, cannot rely upon a cross-claim for unliquidated damages, which may be available to the principal debtor as against the creditor in reduction of, or as a defence to, his liability under the guarantee.
[24][1985] VR 251
67 There was an issue as to whether a set-off had been pleaded by Mr Beerens, but I consider that the issue arose sufficiently when the pleadings are read together.
68 Mr Beerens argued that a running account existed between Bluescope and Griffiths & Beerens. He was not in fact claiming a set-off, but only properly calculating the debt owed by Griffiths & Beerens. Griffiths & Beerens did not have to be a party to the proceeding in order for him to rely on the set-off because it was in liquidation. Mr Beerens relied on the recent decision of the New South Wales Supreme Court in Jinhong Design & Construction Pty Ltd v Xu.[25] In that case, Johnson J drew a distinction between a guarantee, whereby the guarantors promised to guarantee payment of the contract price and therefore without any deduction and, on the other hand, a promise to guarantee all monies that the principal debtor was obliged or, could be compelled to pay. In that latter case the guarantor could rely upon any set-off, equitable or otherwise, available to the principal debtor.[26] Johnson J decided that where the principal debtor was a company and was in liquidation it was unnecessary that it be a party.
[25][2010] NSWSC 523 and cf Cellulose Products Pty Ltd v Truda (1970) 72 WN (NSW) 59
[26]at paragraph 116
69 However, the decision in Indrisie v General Credits Ltd, by which I am bound, stated:
“Then, what is a no less formidable obstacle for the appellants, is the fact any right to an equitable set-off would vest, of course, in the company. But it is not the company that seeks to rely on it but the appellants. They are strangers to the contract breach of which the company is asserting has conferred on it a claim for unliquidated damages. There is no authority to which the Court was referred in which there was acknowledged the right any such transference of an alien claim to meet an obligation by way of equitable set-off. Nor in our opinion should the Court as a matter of principle now take the step hitherto not taken of extending to a stranger to the cross-claim any right that properly should be that of the cross-claimant alone. In any event for such a step to be taken the company would have to be before the Court as party: see Wilson v Mitchell.”[27]
[27][1985] VR 251 at 254 and see to like effect O’Donovan and Phillips ‘The Modern Contract of Guarantee’ (3rd edition) pps 550-551 as to the rationale for the liquidator being a party when a set-off is relied on.
70 I do not consider that the reasoning in Indrisie v General Credits is distinguishable because Griffiths & Beerens may have a right to reclaim amounts overcharged, rather than to sue for unliquidated damages.
Conclusion on the Set-off Point
71 The Guarantee provided for payment by the guarantor of all debts and monetary liabilities which are, or may become payable, by the customer to the supplier. Had I considered that Griffiths & Beerens had been overcharged in respect of goods previously delivered and paid for, I would not have accepted that Mr Beerens had a right of set-off in respect of that overcharging. I consider that such a claim would extend beyond the adjustment of a running account. It would have involved a fundamental question about the meaning of the terms of trading and if successful a clam for repayment. I consider that the application of Indrisie v General Credits prevents that outcome. Neither Griffiths & Beerens, nor its liquidator, is a party to this proceeding.
72 I also consider that the second sentence of Clause 6.5 precludes reliance on any set-off.
73 However, Mr Beerens is not precluded from challenging the elements of the debt, or damages, sued for by Bluescope.
Issue 3: Was there an enforceable agreement made between the parties in July 2007 to alter the terms of credit upon which Bluescope provided steel product to Griffiths & Beerens?
74 The next issue was whether an enforceable agreement had been reached in July 2007 to alter the terms of credit on which steel was supplied. This issue was relevant to whether the cessation of supply in October 2007 and the requirement of a guarantee to reinstitute supply was the exercise of illegitimate commercial pressure. The circumstances in which the Credit Account Application was signed were as follows.
75 Negotiations commenced in about March 2007 between Griffiths & Beerens and Smorgon Steel about the terms on which invoices were paid. Smorgon Steel wished to obtain a Credit Account Application signed by Griffiths & Beerens.
76 On 18 June 2007, Smorgon Steel stopped the supply of steel to Griffiths & Beerens.[28]
[28]See CB 223
77 Mr Beerens, with Mr M Kennedy, Finance and Administration Manager, discussed the supply of steel with Mr Day, Smorgon Steel’s Finance & Administration Manager, and Mr Azzolini.
78 At first, Mr Walker, Finance Manager of Griffiths & Beerens returned the Conditions of Sale, with many of the clauses crossed out, but subsequently, Mr Beerens agreed to sign a Credit Account Application. Discussion by email continued about the terms for restoring the account to payment by sixty days from the end of the month.
79 On 13 July 2007, Mr Day sent an email to Mr Kennedy, in which after commenting on the crossing out of the various clauses, stated:
“It is in neither party’s interest to get bogged down in this potential legal merry go round, and without a full comparative analysis of each clause of the respective T &Cs I propose that we conclude this matter in good faith. I propose that Griffith & Beerens complete Sections 1 & 8 of our Account Application form, safe in the knowledge that the relationship and trading history between the two parties provide the implied terms and precedent which shall be maintained in the future. The exception to this statement however is the payment frequency which we have been discussing for some time. (Please note I have also acquired a copy of our competitor’s T & Cs and can assure that they are every similar in content to SSG’s).
Once a signed application form is provided, SSG would then like to re-iterate our request for payment within 65 days from end of invoice month. In the event that this cannot be met, we request some recent financial statements (P&L/ Balance Sheet) which would assist in our efforts to provide credit beyond 65 days.
I look forward to your reply on these matters.”
80 On 16 July 2007, Mr Kennedy responded, stating:
“Please forward the SSG Account Application Form and T & Cs which I will complete and have Tom sign in good faith.
In terms of your request for payment within 65 days from end of invoice month – we have already provided you with our proposed payment plan which was accepted by you on the condition that we complete Sections 1 and 8 of your Account Application Form. Again, this will be done in good faith.
In terms of us providing any additional information which would assist in your efforts to provide credit terms beyond 65 days – we believe that the signed T &Cs and our proposed payment plan together with the long term relationship between the parties should be sufficient for your continued support over the next 5 months. By which time we would be inside your 65 day credit terms.”
81 On 17 July 2007, Mr Day emailed Mr Kennedy, stating:
“…thank you for your agreement to fill in the Account Application form as discussed, this is a positive step towards resolution of this matter.
With regard to your payment plan (issues 07/06), please understand that it has not been accepted and that acceptance was conditional upon both the Account form and some supporting financial data. The decision to trade outside 60-65 days is made at Corporate Office and neither, Omar nor I can approve these terms. Omar and I will discuss this case further with our National Credit Managers and push strongly to continue to trade outside the stated terms (as per your payment schedule), upon receipt of the Account Application form, however please do not construe this as acceptance of your schedule at this stage.
I have placed the Account Application in the mail and suggest that you notify me once it has been completed and I will arrange for it to be picked up.”
82 The next day, Mr Kennedy responded, stating that he would need Smorgon Steel to have accepted a payment schedule before he could ask Mr Beerens to sign the Credit Account Application.
83 On 27 July 2007, Mr Kennedy emailed Mr Day, enclosing “this week’s payment ($47,589.06) which clears the April accounts”. He then set out a payment plan with the effect that “by the end of November we would have achieved your target of a 65 day account”.
84 On 31 July 2007, Mr Day emailed Mr Kennedy, stating:
“We have approved the reduction in payment terms as proposed below with the clear view to be within 60 days by the end of 12/07.
This is on the following provisos:
1) T & C signed and held without amendment by 3/8/07.
2) Account is to be blocked at day 60 from 1/1/08.
Thank you for your ongoing co-operation in seeking resolution in this matter. If you have any queries please don’t hesitate to contact me.”
85 On 2 August 2007, Mr Kennedy emailed Mr Day:
“I am attaching hereto remittance advice for this week’s payment.
Tom has signed the SSG Account Application and I have forwarded same to you in the mail.”
86 Mr Beerens and Mr Kennedy gave evidence that Mr Beerens completed sections 1 and 8 of the Credit Account Application, which recorded the customer’s account details on the first page and also provided for the signatures of all trustees/directors/partners/sole traders. Mr Kennedy’s gave evidence that he returned the form to Bluescope. The supply of steel then recommenced.
87 Mr Kennedy’s evidence was he only returned to Mr Day the Credit Account Application with sections, or clauses, 1 (Customer’s Account details) and 8 (Signatures of all Trustees/Directors/Partners/Sole Trader) completed.[29] He did not return the document containing the Conditions of Sale. However clause 5 of the “Conditions of Sale” stated:
[29]T 505 -506
“The Supplier’s Conditions of Sale (Issue Date: 1April 2004) (Conditions) are attached with this Application.
The Conditions are incorporated into each and every contract (Contract) for supply of goods made between the Supplier and the Customer after the date (Acceptance Date) that the Supplier agrees to provide credit to the Customer.
(Various obligations of the customer were then set out).
…
By signing this Application in the space provided in section 8, the Customer:
(a) expressly acknowledges having received notice of the Conditions including, in particular, those Conditions drawn to the Customer’s attention in the box above,
(b) expressly agrees that the Conditions are incorporated into each and every Contract for supply of goods made between the Supplier and the Customer after the Acceptance Date; and
(c) expressly agrees that if the Supplier varies the Conditions from time to time after the Acceptance Date and provides reasonable notice to the Customer of the variation, the Conditions as varied are incorporated into each and every contract for supply of goods made between the Supplier and the Customer after the date of such notice.”
88 On 6 August 2007, Mr Day replied:
“Thanks Michael - I will let you know if I don’t receive it in the next few days.”
89 There was an issue raised by the evidence of whether the completed Credit Account Application was ever sent by Mr Beerens, or received by Smorgon Steel. On the evidence of Mr Kennedy, I find that it was posted to Smorgon Steel. Mr Day never informed Mr Kennedy that he had not received the Application.
Submissions of the Parties
90 Bluescope contended that the provision of the signed Credit Account Application would not have constituted a binding contract. Bluescope had provided a mere indulgence, and no consideration had been given. The Bluescope Conditions of Sale already bound the parties. Bluescope relied on the judgment of Gibbs J in the Full Court of the Supreme Court of Queensland in Re Associated Electronic Services Pty Ltd[30] that:
“The position of the parties after the agreement had been concluded and the entries had been made in the books was exactly the same as it had been before; all they had done was to give a new label to an existing debt. The company did no more than promise to do something that it was already bound to do, and such a promise was no consideration for the alleged contract (authorities omitted). The appellant’s right to the dividend was not discharged by accord and satisfaction.”
[30][1965] Qd R 36 at 41 cf McManus v Bark (1870) LR 5 Exch 65
91 Mr Beerens contended that consideration had been given for an agreement to extend credit terms, because by the execution of the Credit Account Application, the existing loose, informal terms of trade had been converted into a binding repayment scheme and Bluescope had agreed to the extension of credit. There were two agreements that provided consideration for each other. Bluescope obtained the formalisation of its relationship. The second element of consideration was the agreement on credit terms. This was the negotiation of a separate agreement.
Conclusion on Issue Three
92 The negotiations between the parties described above resulted in Bluescope receiving a payment schedule to bring the account back to the required payment limits of 60 days from the end of the month and a signed Credit Account Application. This was not a mere indulgence by Bluescope, or an agreement to perform an obligation by which Griffiths & Beerens was already bound. Rather in respect of an account that was in arrears, Bluescope received an agreed promise of repayment on a particular payment schedule and in turn agreed to re-supply credit. These measures were of practical benefit to Bluescope and Griffiths & Beerens and constituted valuable consideration.[31]
Issue 4: Was the Guarantee signed by Mr Beerens unenforceable because Bluescope obtained it by illegitimate economic duress?
[31]See e.g. Musumeci v Windadell Pty Ltd (1994) 34 NSWLR 723 at 747
93 The next issue is whether the giving of the Guarantee was procured by illegitimate economic duress.
The evidence concerning the giving of the Guarantee
94 Proline Private Limited was a Singapore based company and a customer of Griffiths & Beerens. It issued a statutory demand to Griffiths & Beerens. Griffiths & Beerens did not contest the demand due to an oversight. Proline then issued a winding up application based on the failure to comply with that demand.
95 Griffiths & Beerens issued a statement attacking the notice, alleging that it had been issued for an improper purpose and attributing its failure to dispute the notice of demand to an oversight. The statement announced that to resist the winding up application, Griffiths & Beerens must, and would, prove its solvency to the Supreme Court and would rely on other grounds such as the non-genuiness of the debt.
96 Ultimately in December 2008, Associate Justice Efthim, in the Supreme Court of Victoria, found that there had been an abuse of process. His Honour noted that Griffith & Beerens:
“… was not wound up as it was a going concern and had paid the debt due, pursuant to the statutory demand, into Court. Further, no supporting creditor appeared to support the application despite considerable efforts made by Proline to notify creditors.”[32]
[32]Proline Private Limited v Griffiths & Beerens Pty Ltd (Supreme Court of Victoria, 23 December 2008) paragraph [4]
97 However, by then, Griffiths & Beerens had been wound up in insolvency following a separate application by the Deputy Commissioner of Taxation.[33]
[33]T 449
98 On or about 8 October 2007, following the issue of the Proline winding up application, Bluescope reintroduced supply on cash on delivery terms. This affected Griffiths & Beerens’ ability to comply with the payment plan of July 2007. Bluescope argued that circumstances existed which made clause 6.6 of the conditions of supply. Griffiths & Beerens was presumed insolvent pursuant to s.459C(2) of the Corporations Law.
99 There is a contest in the evidence as to how the Guarantee came to be signed. The contest is a narrow one. It is whether Mr Persaud, on behalf of Bluescope, told Mr Beerens and Mr M Gwynne, who was also a director of Griffiths & Beerens, that unless a personal guarantee was given, Bluescope would become a supporting creditor in the winding up application instituted by Proline.
100 Mr Beerens stated that about a week after the winding up application was made, Mr Persaud, Smorgon Steel’s Credit Manager arrived unannounced at Griffiths & Beerens’ North Sunshine office, which was located about fifteen or twenty minutes from Bluescope’s premises on the other side of Sunshine. Mr Gwynne was also present at the meeting. According to Mr Beerens, Mr Persaud stated that if he wanted to get off COD terms he had to sign a guarantee and that if he did not, Bluescope would “get on the back of the winding up proceeding”. Mr Beerens’ evidence was that he was horrified that he was being threatened with a winding up application that forced him to sign a guarantee. The meeting did not last long.[34]
[34]T 405- 406
101 Mr Gwynne, who was chief operating officer of Griffiths & Beerens, and Mr Beeren’s brother-in-law, supported this account of the meeting, stating that Bluescope was looking to get a guarantee otherwise it would support the winding up application. He could recall the general thrust of Mr Persuad’s comments, but not the exact words. The general thrust was that “we needed to sign the guarantee otherwise they’d support the winding up proceeding.”[35] Mr Gwynne stated that after the meeting he and Mr Beerens formed the view that they did not have much choice, although he personally was not in a position to provide a guarantee. He did not consider it was in Griffiths & Beerens’ interest to provide a guarantee.
[35]T479, 481 see also T473-474
102 Mr Gwynne gave evidence that a guarantee had been discussed previously, but the difference on this occasion was that Bluescope was stating that it would support the winding up application.
103 Mr Persaud denied that he had made any such threat. His account of the meeting was that Mr Beerens wanted to know what he had to do to get more steel. Mr Persuad explained to him that he had to sign a Credit Account Application and a guarantee was required.[36]
[36]T270
104 After the meeting with Mr Persuad, Mr Beerens contacted his solicitor, who negotiated with Bluescope’s solicitors the terms on which he would sign the Guarantee. Mr Beerens gave evidence that he received legal advice that Griffiths & Beerens would lose the solvency hearing if Bluescope, or anyone else, supported the winding up application. Griffiths & Beerens would then have been wound up.[37]
[37]T 451
105 There were substantial discussions and negotiations between the solicitors, about the terms of the guarantee. A series of emails were exchanged on 26 October 2007. The first contained the following statement from Mr Beerens’ solicitor:
“As, you are aware, I will have the two directors of GB with me this afternoon, and would like to resolve the form of the guarantee and any payments that have to be made by 5.00 pm today.
The guarantee hasn’t been signed because I think there are some aspects of it that are inconsistent wit the trading arrangements between the parties.”
[various aspects of the guarantee were then discussed]
“I would like to convey that the application brought by Proline Private Limited is an abuse and is based on false affidavits.
GB has evidence that the ‘commissions’ referred to by the Proline accounts girl are private commissions paid to Kua Si Lin and have never been paid to Proline, and could never been claimed by Proline. Hence I firmly believe that on 10/11 December 2007 the winding up application will be struck out with costs.
I have been instructed to issue proceedings for over A$100,000 by GB and Somers Engineering against Proline for the monies owed by Proline to GB.
The claim by Proline has everything to do with trying to interfere with GB before the Duggan Hearing in early 2008.
The reaction of Smorgan, although understandable, is exactly the reaction Mr Duggan and Mr Kua Si Lin wanted to create.”
106 Mr Duggan was a former business associate of Mr Beerens and a former part owner of Griffiths & Beerens.
107 On 26 October 2007, Griffiths & Beerens’ solicitor wrote to Bluescope’s solicitor stating, inter alia, that various sums would be shortly paid, raising issues in respect of provisions in the Guarantee and stating:
“All this is predicated on the fact that your clients resume trading with our client on their usual trading terms, and of course that Smorgan would not support the current (abuse of process) application by Proline.”
108 Bluescope’s solicitor responded twice later on 26 October 2007. On the first occasion the solicitor stated that subject to the making of various payments, the amendments to the guarantee that had been proposed were agreed and stating:
“Further, the signed amended guarantee is to be delivered to my client no later than midday next Monday.
Upon completion of the above conditions my client will resume trading with your client at the current capped level.”
109 The second email sent by Bluescope’s solicitor later on 26 October 2007 stated:
“As requested I confirm that my client will not support the Proline application, subject of course to compliance by your client with the terms of the credit agreement, & conditions outlined today regarding the guarantee.”
110 Further communication regarding the Guarantee occurred on 29 October 2007. Griffiths & Beerens’ solicitor sent an email about the financial arrangements that had been agreed and stated:
“Our client is attempting everything in its power to maintain its relationship with your client. We simply ask that you recognize that this is being done and that the position is significantly enhanced once the guarantee is signed.”[38]
[38]T 462, CB 252
111 Mr Beerens gave evidence that eventually his solicitor negotiated with Bluescope’s solicitor “terms on which I would sign the guarantee” and that the Guarantee was delivered to Mr Kennedy, who “put it in front of me” and that he signed it and gave it back to Mr Kennedy.[39]
[39]T406-407
112 Mr Beerens gave evidence that it was only the threat by Bluescope to join the winding up proceeding that forced him into a position where he had to sign the Guarantee.[40] Mr Beerens’ evidence was that he signed the Guarantee because if Bluescope supported the winding up petition, Griffiths & Beerens would be unable to prove its solvency. His family had also advanced money to Griffiths & Beerens, which would be at risk if it were wound up.
[40]T 409
113 Once the Guarantee was signed on 30 October 2007, further supplies of steel were made to Griffiths & Beerens and invoiced on credit terms up until the appointment of the receivers.
Findings about the Giving of the Guarantee
114 I prefer the evidence of Mr Beerens and Mr Gwynne concerning the meeting with Mr Persaud in October 2007. I consider that Mr Persaud was uncertain about details of the meeting, including the place where it occurred. I find that his evidence about the location of the meeting was incorrect. This was a significant detail. I accept that the meeting was held at Griffiths & Beerens’ office as Mr Beerens and Mr Gwynne stated. Mr Persaud did not have a clear recollection of who was present at the meeting.[41] The statement by Mr Persaud about the requirement of a guarantee was of great significance to Mr Beerens and it is likely that his recollection of the conversation, and that of Mr Gwynne, were more accurate.
[41]T 270
115 I therefore find that Mr Persaud informed Mr Beerens that Smorgon Steel (Bluescope) would support the winding up application, unless a guarantee was provided by him, or by someone else associated with Griffiths & Beerens.
116 I also accept that it was important to Smorgon Steel to obtain a guarantee and that the absence of a guarantee became of particular significance when Proline brought its winding up application. Mr Persaud’s evidence was that he had, in August, September and October 2007, followed up requests for a guarantee and that the winding up application brought things to a boil. There was a real risk that if Griffiths & Beerens was wound up that payments previously made by it to Smorgon Steel might be recoverable as preferences.[42]
[42]See e.g. T 262
117 I also accept that the comments by Mr Persuad requiring a guarantee caused Mr Beerens to sign the Guarantee dated 30 October 2007. Bluescope argued that there was no mention of any threat in correspondence from Mr Beerens’ solicitor to Bluescope’s solicitor. The first mention of duress was a year later on 30 October 2008, when Mr Beerens’ solicitor, as part of correspondence relating to Bluescope’s claim, wrote to its solicitor stating:
“In addition to this, our client will contest the validity of the alleged guarantee, particularly in circumstances where our client was placed under duress to execute the guarantee.”
118 I am entitled to assume, from the failure to call Mr Hoenig, the National Credit Manager, that his evidence would not have assisted Bluescope’s case in respect of the instructions given to Mr Persaud about the requirement of a guarantee.[43] Even without that inference, the position is clear enough.
[43]Jones v Dunkel (1959) 101 CLR 298; O’Donnell v Reichard [1975] VR 916
119 However, of great significance, is the fact that Mr Beerens, who had long resisted giving a guarantee, only gave one after the conversation with Mr Persaud about the winding up application. The evidence is clear that Mr Beerens gave the Guarantee because of the suggestion that Bluescope would support the winding up of the company.
120 The question then becomes whether Mr Persaud’s statement, that Bluescope would support Proline’s creditor’s application if a guarantee was not provided, constituted illegitimate economic duress.
Submissions of the Parties about economic duress
121 Mr Beerens argued that Bluescope had no right to be, or to suggest that it might be a supporting creditor, because no debt was due and payable. Bluescope had no basis for terminating the payment plan agreed in July or August 2007. There was no debt properly due at the time that a guarantee was required. Payments had been made as required by the payment plan. Bluescope had made no demand for the repayment of any outstanding debt, nor invoked the rights given to it by clause 6.6 of the Conditions of Sale. Bluescope’s action in placing Griffiths & Beerens on cash terms meant that it did not have the cash flow to pay cash on delivery for steel. The statutory demand procedure could not be used to collect a debt.
122 Bluescope submitted that under clause 6.6 of the Conditions of Sale, it was entitled to terminate the trading relationship on the presentation of an application to wind up application Griffiths & Beerens. Bluescope could have demanded repayment of all sums owing by Griffiths & Beerens to it and become a supporting creditor. It had every right to refuse to extend further credit and to demand further payment of all moneys due. Griffiths & Beerens was free to obtain steel from elsewhere if it chose. It could have resisted the demand.
123 Mr Beerens executed the Guarantee because he wished his company to have further supply of steel on credit. Griffiths & Beerens could have resisted the demand or sought supply elsewhere.
Legal Principles Relating to Economic Duress
124 The issue of duress was considered in Crescendo Management Pty Ltd v Westpac Banking Corporation.[44] McHugh JA stated:
“The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.”
[44](1988) 19 NSWLR 40 at 46 cf Westpac Banking Corporation v Cockerill (1998) 152 ALR 267
125 In PMP Print Pty Ltd v Wood,[45] Dodds- Streeton J stated:
“While Mr Wood doubtless felt pressured, and felt that he had no alternative but to sign the December guarantee, the pressure arose from the severe financial problems of Design Graphics (which were not attributable to any fault of, or misconduct by, PMP), coupled with justifiable apprehension that PMP would proceed to exercise its legitimate legal remedies to recover the outstanding debt should he fail to comply with the condition to which he had agreed in order to secure further indulgence. Such circumstances do not constitute duress by PMP.”[46]
[45][2005] VSC 230
[46]at [95]
126 In CTN Cash & Carry v Gallaher,[47] Steyn LJ took into account, in determining that there was no economic duress, three factors. First, that the dispute arose out of arm’s length commercial dealings between two trading companies. Second, that the supplier would have been lawfully entitled to refuse to enter into future contracts with the customer. Thirdly, the supplier bona fide thought that it was entitled to the sum in question.
[47][1994] 4 All ER 714 at 717-718
127 A payment made in response to the threat of legal proceedings is not per se illegitimately coerced or compelled. In McKay v National Australia Bank[48] the Court of Appeal stated that the question of whether a payment was made voluntarily or under compulsion was a question of fact and the guarantors bore the onus of proving the compulsion.
[48][1998] 4 VR 677
Decision on Issue Four
128 None of the authorities to which I was referred support the conclusion that the obtaining of the Guarantee, in the prevailing circumstances, was to use illegitimate economic pressure. I find that the requirement of a Guarantee imposed by Bluescope was not the exercise of illegitimate economic pressure.
129 I have reached this conclusion for the following reasons. First the trading relationship between the parties had changed significantly because of the making of the winding up application. Both Bluescope and Griffiths & Beerens faced new risks in their trading relationship. Prudent commercial practice required a reconsideration of the terms on which Bluescope would trade with Griffiths & Beerens after the winding up application was made. The trading terms negotiated in July and August 2007 had not contemplated the winding up of Griffiths & Beerens.
130 Second, Bluescope was entitled to invoke the rights given by clause 6.6 of the Conditions of Sale, and issue a demand for payment and become a supporting creditor in the winding up. Bluescope could have made the debt immediately due and payable by making a simple demand for payment, once a receiver was appointed to Griffiths & Beerens and again when a liquidator was appointed. It was entitled to refuse to extend further credit and to demand immediate payment of all moneys due. Bluescope bona fide believed that it was entitled to the debts owed by Griffiths & Beerens.
131 Third, Bluescope was lawfully entitled to refuse to accept new purchase orders from Griffiths & Beerens.
132 Fourth, Mr Beerens obtained legal advice and the Guarantee was only entered into after substantial negotiation.
133 Fifth, there were other suppliers of steel with whom Griffiths & Beerens might have obtained steel product.
Issue 5: Has Mr Beerens established that Bluescope failed to mitigate its loss?
134 The next issue is whether Mr Beerens has established that Bluescope failed to mitigate that part of its loss that relates to the undelivered steel product. Both parties proceeded on the basis that mitigation principles were applicable to Bluescope’s claim in respect of the undelivered goods.
135 Some mitigation has occurred, which has reduced the claim in respect of the goods manufactured, but not delivered, to $312, 897.32, including GST. Some of the remaining stock has been sold: two sales to Griffiths & Beerens totalling $4945.18 and a sale of steel back to Bisalloy of $45,316.[49] These amounts have to be deducted from the amount claimed. As I understand it, these sales have been brought into account in the reduced claim.
[49]T 34 and T 48. See Further and Better Particulars at paragraph 18, dated 25 August 2010.
136 The remaining mitigation arguments relied on by Mr Beerens fall into three categories. First the offers, both general and specific, made by GB Engineering to purchase the undelivered steel product. Second the possibility of selling the product to other purchasers – a possibility referred to in submissions as the hypothetical, alternative purchaser. Finally if the product was to be sold as scrap, a higher price than suggested by Bluescope should be adopted.
Facts Relevant to Mitigation
137 Mr Beerens gave evidence that GB Manufacturing needed steel and that in October 2008, it offered to acquire all, or some, of the undelivered steel. Mr Kennedy negotiated the purchase of it, but Bluescope refused to deal with him.
138 On a number of occasions in October 2008, Mr Azzolini informed Mr J Hoenig, Bluescope’s National Credit Manager, of GB Manufacturing’s interest in the remaining steel.
139 On 23 October 2008, Mr Hoenig instructed Mr Azzolini that:
“Under no circumstances are we to talk to these proposed ‘purchasers’. Please step back entirely.”
140 On 24 October 2008, Mr Hoenig told Mr Azzolini that to sell the stock to GB Manufacturing would:
“… add great complexity and diminish our legal position with the company, the guarantor and the Receiver.”
141 Mr Hoenig refused Mr Azzolini permission to attend at GB Manufacturing’s premises to meet with Mr Kennedy, to discuss supply of materials to the new company.
142 Mr Azzolini therefore emailed Mr Kennedy and told him that Bluescope would not sell the stock to GB Manufacturing. Mr Azzolini repeated that response when, on 30 October 2008, Mr S Thompson, of GB Manufacturing, emailed him and told him that GB Manufacturing had recently been incorporated for the purpose of manufacturing components of the type that had previously been manufactured by Griffiths & Beerens. Mr Thompson expressed a strong interest in acquiring some, or all, of the remaining materials and wished to meet to negotiate a possible arrangement.
143 On 24 March 2010, GB Manufacturing offered to purchase the remaining stock for $75,000 cash.[50]
[50]CB 123C
144 In June 2010, GB Manufacturing offered $125,000 for the balance:
“Of the old Griffiths & Beerens’ stock as listed below. Bluescope will need to cancel any action against Tom Beerens”.
145 Mr Azzolini responded that the sale of the material would not result in Bluescope cancelling the action against Mr Beerens and stating:
“If you still require the material, please confirm and forward payment directly.”
146 Mr Kennedy responded;
“No I don’t require the material.
This was an attempt to settle the matter and give Bluescope the opportunity to avoid scrutiny of their pricing policy during the period.”
147 GB Manufacturing had to purchase the steel that it required from another supplier.
148 The stock which was manufactured but not delivered Griffiths & Beerens was marked with stickers “COM”, meaning customer owned material and with a sign “do not sell”. Between October 2008 and 2010, the stock, most of which sat and continues to sit in the Westall yard, developed rust and it is argued is now worth a lot less than in October 2008, when GB Manufacturing offered to purchase it. Mr Beerens visited Bluescope’s premises in January 2010 and photographed the steel, showing some evidence of rust.
Submissions of the Parties
149 Mr Beerens submitted that Bluescope had failed to mitigate its loss by not accepting its offers for the undelivered steel. Mr Beerens also relied on the fact that other customers of Bluescope could have been potential buyers of the steel. His evidence was that the Bisalloy 10-millimetre and 8-millimetre products were “standard materials which could be sold in the market place” and that the Bisalloy sheets could be cut for different orders.[51]
[51]T377-378
150 Mr Beerens argued that its value was greater because there was an offer by GB Manufacturing to purchase the stock as scrap for $75,000. Bluescope’s valuation at the scrap price was a lower scrap price than applied in October 2008.
151 Bluescope responded that it was only under a duty to act reasonably to mitigate its loss and only to take such steps as a prudent person ought reasonably take to mitigate the loss.[52] Bluescope could not be criticised for declining to deal with GB Manufacturing on credit terms. The initial approach made was on the basis of opening a credit account with Bluescope. GB Manufacturing would only purchase on condition that all claims against Mr Beerens under the Guarantee were discharged. There was no evidence that GB Manufacturing possessed the means to make good on its offer in 2010 to purchase the remnant stock on cash terms. Bluescope had offered the remnant stock for sale in the market place and some had been sold.
[52]See Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507.
Conclusion on Issue Five
152 I will express my conclusion on this first category of mitigation before dealing with the remaining categories.
153 The onus to establish that Bluescope failed to mitigate its loss lies on Mr Beerens. He must establish that it failed to take reasonable steps that were open to it.
154 I find that Mr Azzolini knew that GB Manufacturing was running the same business as that which Griffiths & Beerens had run prior to its liquidation. Mr Azzolini was unable to offer any good reasons why Bluescope refused GB Manufacturing’s offer to purchase the stock manufactured, but not delivered to Griffiths & Beerens, apart from directives from superior officers, particularly Mr Hoenig. The first offer of $75,000 that GB Manufacturing had made for a sale on a cash sale basis. The directives from Bluescope’s management prevented that offer being accepted.
155 The evidence supports the conclusion that GB Manufacturing would have paid $75,000 for the material manufactured and not delivered. GB Manufacturing had assumed most of Griffiths & Beerens’ business and was best placed to make use of the steel plate.
156 In determining whether Mr Beerens has established that Bluescope acted unreasonably, it is appropriate to take into account that the step not taken, namely the acceptance of $75,000 from GB Manufacturing, with which Mr Beerens was then associated in March 2010, meant that Bluescope was being required to deal with the person whose company had gone into liquidation.
157 Nevertheless, I consider it unreasonable for Bluescope not to have accepted it. Bluescope appears on the evidence to have taken no alternative steps to sell the stock that it held until this year. Bluescope appeared to take a blanket approach in not dealing with GB Manufacturing because of its association with Mr Beerens. Bluescope made no attempt to require proof that GB Manufacturing could provide the purchase price.
158 Mr Beerens has established that Bluescope failed to mitigate its damages by refusing to accept the sum of $75,000 offered by GB Manufacturing.
159 Mr Beerens has not established that Bluescope acted unreasonably in refusing to accept the offer of June 2010 of $125,000, which was conditional on the discharge of all claims against Mr Beerens. It was not unreasonable for Bluescope to wish to continue with its proceeding against him.
Failure to call Mr Hoenig
160 The failure of Bluescope to call as a witness, Mr Hoenig, who, at the time of trial continued to be employed by Bluescope, to explain why the directives to Mr Azzolini were given, is significant. I am entitled to infer that his evidence would have not have assisted Bluescope.[53]
[53]Jones v Dunkel (supra); O’Donnell v Reichard (supra)
Alternative Purchaser
161 I am not satisfied that a failure to mitigate by selling the stock to other hypothetical customers has been established. Mr Beerens’ counsel referred to the rule against double recovery[54] and submitted that the onus shifted back to Bluescope to explain why it had not sold to alternative customers. It is true that there was some evidence from Mr Azzolini that some of the steel product could have been cut for other orders. However, much of the steel was made specifically for Griffiths & Beerens. I do not consider that the evidence discloses a basis for concluding that the undelivered steel product could have been sold at a higher price than the unconditional offer of $75,000 made by GB Engineering.
[54]Boncristiano v Lohman [1998] 4 VR 82 and Morris v Riverwild Management Pty Ltd [2009] VSC 439
Scrap Metal
162 As I understood the submissions, the argument about scrap value of the remaining steel product was put as an alternative means of calculating how Bluescope’s damages should be reduced to take account of its failure to mitigate its damages. Mr Beerens referred to the amount that Bluescope had notionally credited for the remaining steel product giving it a value as scrap material of 103.798 ton at $270 a ton producing $28,025.46 according to Sims Metal’s prevailing price. This was calculated using the scrap metal price of $270 a ton in July 2010. It was agreed that the scrap price in October 2008 had been $326 a ton producing a price of $33,838.14.[55] While the scrap metal price fluctuates, there was no evidence that at any relevant time the scrap price for the remaining steel would have produced a price exceeding the sum of $75,000 offered by GB Manufacturing.
[55]T371
163 I therefore do not consider that the scrap price was determinative for the purposes of mitigation of damages.
Damages recoverable by Bluescope in respect of the undelivered steel product
164 I have concluded that Griffiths & Beerens repudiated its obligation to take delivery of, and pay for, steel products which it had contracted to purchase and that Bluescope has suffered damages as a result.
165 Bluescope’s claim was $312,897.32. I have decided that Bluescope is not entitled to the GST on that amount. I have also decided that Bluescope is not entitled to $16, 392.37 for the 3.12 tonnes of product, the sum of $1,142.02 for interest and $ 958.19 for costs. In addition, the sum of $75,000, or perhaps that sum less GST, is to be deducted because of Bluescope’s failure to mitigate its loss. On the other hand, the deduction for the scrap value of the remaining steel of $28,025.46 will have to be added back to the sum owing.
166 Mr Beerens is liable under the Guarantee and Indemnity for the sum owing in respect of the delivered goods, as that amount is a debt or monetary liability. He is also liable for the damages suffered by Bluescope in respect of the undelivered steel products. Those damages fall at least within the terms of the Indemnity. I will hear the parties about the final calculation of those damages, in accordance with the amounts set out in the previous paragraph and about any matter arising of an arithmetical nature.
167 Mr Beerens remains liable for those damages although Griffiths & Beerens is wound up.
Conclusion
168 Mr Beerens is liable under the Guarantee and Indemnity to Bluescope for the following amounts:
(a) $131, 007.08 in respect of goods delivered to Griffiths & Beerens;
(b for damages in respect of the steel products to be calculated by an aggregation of the amounts set out above.
169 I will hear the parties about the final judgment sum, interest and costs.
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