Crossmark Asia v Retail Adventures
[2013] NSWSC 55
•23 January 2013
Supreme Court
New South Wales
Medium Neutral Citation: Crossmark Asia v Retail Adventures [2013] NSWSC 55 Hearing dates: 23/01/2013 Decision date: 23 January 2013 Jurisdiction: Equity Division - Corporations List Before: McDougall J Decision: Declaration as sought by plaintiff.
Catchwords: CONTRACT - agreements - termination cancellation.
TRADE MARKS - registered trade marks - whether consent of registered owner was obtained.
PRACTICE & PROCEDURE - application for declaratory relief - circumstances in which granting declaratory relief appropriate - declaration made.Legislation Cited: Corporations Act 2001 (Cth)
Personal Properties Securities Act 2009 (Cth)
Sale of Goods Act 1923 (NSW)
Trade Marks Act 1995 (Cth)Cases Cited: Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR Category: Principal judgment Parties: Crossmark Asia Limited (Plaintiff)
Retail Adventures Pty Limited (Administrators Appointed) ACN 135 890 845 (Defendant)Representation: Counsel:
M K Condon SC (Plaintiff)
N Kabilafkas (Defendant)
Solicitors:
Price & Company Solicitors (Plaintiff)
Herbert Smith Freehills (Defendant)
File Number(s): 2012/399011
Judgment (EX TEMPORE - REVISED 23 JANUARY 2013)
HIS HONOUR: I am concerned with a dispute as to the ownership of and right to sell a consignment of electric convection ovens and a consignment of electric pedestal fans. In each case, the goods were sold by the plaintiff (Crossmark) to the defendant (RAPL). The goods carried RAPL's brands.
The matter has been dealt with in circumstances of urgency. It is obviously desirable that the fans be sold in summer, whilst people have need of them. Equally, whilst the goods remain unsold, storage charges are accruing at a substantial rate.
Common sense would suggest that the parties might have agreed to the sale of the goods, on the most advantageous terms, with the proceeds to be held in an agreed fashion whilst the court decided the question of entitlement. Unfortunately - and I express no view as to why - common sense did not prevail.
In those circumstances, the matter was heard, on a final basis, during the vacation. The circumstances of urgency require me to give my reasons orally, on the day following the day when the hearing concluded. Thus, what I have to say will be neither as detailed nor as polished as I might otherwise have wished. In particular, it will focus on what I perceive to be the decisive issues, and leave unresolved the other issues that might have arisen. Further, I do not propose to recount in any detail the very helpful submissions put for each party.
The real issues
The parties agreed that the real issues arising on the pleadings may be stated as follows:
(1) Were the contracts made on the terms set out in Crossmark's pro-forma invoice (PFI) or set out or incorporated in RAPL's purchase orders (POs)?
(2) Have the contracts of sale (on whatever basis made) been terminated, and if they have, has property in the goods revested in (if ever it left) Crossmark?
(3) If the contracts were made on Crossmark's terms, what is the effect of s 267(2) of the Personal Properties Securities Act 2009 (Cth)(the PPSA) on the retention of title, or ROT, clause in the PFIs?
(4) What, if any, are Crossmark's remedies under s 24 and s 42 of the Sale of Goods Act 1923 (NSW)?
(5) Would any sale by Crossmark in Australia of the goods infringe RAPL's trademarks?
(6) If Crossmark otherwise makes good its case, should it be granted declaratory relief?
There had been an issue raised on the pleadings as to the grant of leave pursuant to s 440D of the Corporations Act 2001 (Cth) (RAPL having entered voluntary administration on 26 October 2012, and being under voluntary administration at all material times since). Mr Kabilafkas of counsel, for RAPL, withdrew that issue in the course of the hearing.
First issue: terms of contracts
It was common ground, on the pleadings, that Crossmark as vendor and RAPL as purchaser made:
(1) An agreement (called "the oven agreement") on 13 February 2012 and shortly thereafter whereby Crossmark agreed to sell and RAPL to buy some 2,400 convection ovens at USD27 each, exclusive of shipping and taxes; and
(2) A further agreement (called "the fan agreement") on 17 May 2012 whereby Crossmark agreed to sell and RAPL to buy some 110,000 electric fans at USD7.25 each again exclusive of shipping and taxes.
The oven agreement was partly written and partly oral. The written part comprises Crossmark's PFI numbered D1202502 signed by representatives of each party on 13 February 2002, for the sale and purchase of 2,000 ovens. That agreement was amended, orally, a few days later in a conversation between the parties' representatives. The effect of that conversation was to increase the order quantity to 2,400, and to specify a different brand name.
The fan agreement was wholly written. It comprises Crossmark's PFI numbered DL120517A signed by representatives of each party on 17 May 2012, for 110,000 fans. Those fans were to be branded with RAPL's mark "Evantair".
Both for the ovens and for the fans, RAPL, as a term of the relevant contract, directed the relevant mark to be affixed to each item of goods.
The printed, or pro-forma, terms of each PFI are identical. However, the PFI embodying the fan agreement contemplated staged delivery. It stated:
"Jarrat, [Ross, RAPL's buyer who placed each order and who signed each PFI on behalf of RAPL] will advise the DC [I think, RAPL's distribution centre] breakdown on each PO."
RAPL initially denied that each PFI constituted or evidenced a binding contract. But it withdrew from that position. It was wise to do so. See the decision of the High Court of Australia in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at, in particular, [42] to [50].
RAPL's next position was that a novation of the oven agreement and the fan agreement occurred on each occasion (or alternatively the first occasion) when it sent a PO to Crossmark. The argument as to novation was abandoned in the course of the hearing, expressly in relation to the fan agreement and at least by implication in relation to the oven agreement.
The final position taken by RAPL was that each of the oven agreement and the fan agreement was varied, on each occasion when it sent a PO to Crossmark and when Crossmark delivered goods in response, so that the terms of trade (if I may call them that) incorporated those identified in the PO.
This was put in two alternative ways. First, RAPL said, the contract was on the basis of its terms, to the extent of any inconsistency with Crossmark's terms, and otherwise on Crossmark's terms. Alternatively, RAPL said, the contract was on the basis of Crossmark's terms, and also of RAPL's terms to the extent that the latter were not inconsistent with the former.
Mr Condon of Senior Counsel, for Crossmark, submitted that the POs were merely administrative or mechanical steps in the implementation of each contract. They were not, he submitted, such as to lead to any variation of what had been agreed.
Alternatively, Mr Condon submitted, there was no consideration for any promise on the part of Crossmark to vary, that might be spelled out of what had happened.
In my view, the primary position for which Crossmark contends is correct. There are two, related, reasons for this. (Perhaps, the second is no more than an elaboration of the first.)
The starting point is that the parties negotiated and signed a formal written contract in each case. Each contract stated in full the terms of the parties' bargain. Why would the objective bystander think that, thereafter, the parties intended to vary that contract, on an ad hoc basis, on each occasion that a PO was submitted and delivery made in response?
None of the POs was signed. The only act of acceptance to which RAPL could point follows from the statement, in each PO, to the effect that the seller "by accepting this purchase order" agrees also to be bound by RAPL's terms from time to time. It may be noted that the terms in question were not stated in any of the POs. They were said to be available on RAPL's website.
I accept that if there were no underlying contract for sale, then acceptance of a PO might be seen, at least without anything further, to give rise to a contract on the terms stated in or incorporated into the PO. But that is not this case.
To my mind, "acceptance" of the PO (the act of "accepting this purchase order") connotes acceptance of the offer to buy contained in it. Thus, as I have said, if there were no antecedent offer and acceptance, and the PO could be said to be an offer to buy, delivery in response could well amount to acceptance of that offer.
In this case, however, offer and acceptance - settlement on the property and price (and indeed the parties) was a matter of extant agreement. The PO was not an offer to buy; that offer has been made and accepted.
Thus, I conclude, acceptance of a PO, by making delivery in response, is no more than acceptance of an instruction to deliver, pro tanto, on the terms of the relevant underlying contract. It is not acceptance of an offer to make a contract.
The second reason (or elaboration of the first) is that the POs were no more than steps in the administration or performance of the contracts that had been made. In each case, they are requests for, or directions to make, delivery of the stated quantities of goods.
That is clear, particularly, in the case of the fan agreement. It contemplated expressly that the obligation to deliver would be triggered by POs from time to time. It is in my view unlikely in the extreme that the parties, regarding their conduct objectively, intended on the occasion that each PO was sent (for the purpose of procuring a delivery of some of the goods agreed to be sold) to vary the underlying contract.
Although the oven agreement did not contain a similar express reference to POs as (in my view) an adjunct to or trigger of delivery, it seems to me to be unlikely in the extreme that the parties intended their first, oven, contract to be varied by each PO, but not their second, or fan, contract.
Thus, in my view, neither the POs themselves nor Crossmark's deliveries of goods in response to them varied the terms of the underlying agreement.
Were it necessary to do so, I would conclude in any event that there was no consideration for any promise to vary that might be spelled out of the POs and their "acceptance".
Mr Kabilafkas submitted that the contracts, on the terms of Crossmark's PFIs, were uncertain as to the terms of payment, and that the POs clarified this. Thus, he submitted, there was something of value moving from RAPL or to Crossmark arising out of acceptance of the POs.
I do not agree with that submission. The PFI stated the terms of payment as "45 days T.T. upon surrender copy BL [Bill of Lading]" - ie, surrender to RAPL's forwarding agent in China. The PFIs also gave a schedule of dates which would have reflected that agreement if the goods were delivered in accordance with them.
But more importantly, the "terms and conditions of sale" stated on each PFI said, so far as is relevant, as to payment:
""PAYMENTS": All invoices are payable in USD dollars [sic] unless otherwise stated and by the due date referred to on the invoice..."
Thus, so long as the date stated on each invoice conformed to the 45 day term (from surrender of the bill of lading), the payment obligation was clear and unequivocal. Of course, if the date purported to shorten that term, RAPL was under no obligation to comply.
Thus, as I have said, I conclude that the "consideration" on which Mr Kabilafkas relied in submissions is non-existent, or illusory, as the case may be.
It follows that for each agreement the terms of sale included the following:
"ORDERS: Orders once accepted by CAL [Crossmark) are not subject to cancellation by the intending purchaser except upon the written approval of CAL. In the event that the intending purchaser cancels an order which has been accepted by CAL or otherwise refuses or fails to take delivery of the goods CAL may at its option recover from the intending purchaser as liquidated damages an amount equal to the costs incurred by CAL including costs of transportation and any other re-stocking cost. CAL may however sue the intending purchaser for breach of contract and seek to recover its loss and damage. CAL will not be liable for any delay or failure to perform where such delay or failure to perform is caused by any force majeure, Act of God, strike, labour dispute or any other cause beyond the reasonable control of CAL.
TRADE MARK: In the event that the intending purchaser cancels an order, CAL reserves the right to sell goods that are produced under the intending purchaser "BRAND" without modification. Alternative CAL may recover from the intending purchaser as liquidated damages an amount equal to the cost incurred by CAL including cost of transportation, cost of storage of goods and cost for all rework.
TITLE OF GOODS: The legal and equitable title to and the property in the goods shall not pass from CAL to the purchaser until the purchaser has paid the full invoice price relating to those goods in full to CAL. Until such time the purchaser shall possess the goods as fiduciary agent and bailee of CAL entrusted as such by CAL and shall not re-sell or transfer possession of the goods other than in the ordinary course of business of the purchaser and shall store the goods separately from other goods in such a way that they may be recognised and remain identifiable as the property of CAL. In this regard, the purchaser hereby irrevocably authorises CAL or any agent of CAL to enter upon or into any premises where the unpaid goods are stored or located for the purposes of CAL removing and recovering same, and the purchaser hereby warrants that it is the lawful occupier of any such premises or is duly authorised on behalf of the lawful occupier to give such warranty, and in the event of CAL (in its sole and absolute discretion) exercising its right of entry and repossession of any such goods sold by CAL to the purchaser, the purchaser covenants to release and indemnify CAL from any claim of whatsoever nature in relation to any such repossession, and the purchaser further covenants that the purchaser shall not impede nor inhibit CAL exercising any such right of repossession. Where the purchaser sells and disposes the goods before the invoice amount has been paid in full, the purchaser shall hold the proceeds of the sale and the benefits of all contracts and/or agreements for sale of the goods in a separate account and shall account forthwith to CAL for the proceeds. Where goods have not been paid for but are returned by any person or entity to CAL for repair or servicing then CAL shall be at liberty to retain the said goods until payment in full for any outstanding invoices is made, and the purchaser shall indemnify and keep indemnified CAL from and against all suits, claims, demands, actions, losses, expenses and liabilities arising out of or incidental to the retention of such goods by CAL.
Second issue: termination
Crossmark pleaded that each agreement had come to an end by accepted repudiation. At the hearing, it put an alternative and narrower case based on accepted cancellation. That case depended on a subset of the particulars of repudiation. Mr Kabilafkas accepted that RAPL was not prejudiced by this alternative formulation.
The case on cancellation relied on an exchange of emails on 26 September 2012. The first email was from Mr Lee of Crossmark to officers or employees of RAPL. It made complaint of slow or delayed payment and stated that Crossmark:
"...should have a process in place that payment should be paid when it falls due."
The email referred further to what was said to be RAPL's "very high risk" credit rating, and gave reasons for this. Then, the email stated:
"Effective today RAPL is now revert [sic] back to CBD (payment is required before loading).
If you require any goods to be released that is sailing on the water now, including cooling, you will need to pay immediately.
For any POs ready to ship from China you will require to pay before loading."
A response to that email came a few hours later. Omitting formal parts, it stated:
"RAPL do not accept the change in trading terms as you have outlined in your email below. Therefore effective today any existing orders are cancelled."
A few hours later again, Mr Lee replied. Omitting formal parts, he said:
"We have accepted your cancellation on all orders effective immediately.
We advise you that all shipment to [RAPL's agent] will be terminated and all trans shipment goods consignee will be changed to [another and unrelated company] effective immediately."
It was the second and third emails - the one purporting to cancel and the one purporting to accept cancellation - that were said to give rise to the cancellation, and which were also particularised as part of the case on repudiation.
Later again on the same day, a fourth email was sent from RAPL to Crossmark. Omitting formal parts, that email stated:
"All orders that have not shipped or have not being [sic] delivered to our freight forwarders are cancelled. The title to goods in shipment has already passed and no changes can or will be made to these orders."
I interrupt the narrative to note that, on the conclusion to which I have come as to the terms of trade, the statement that title "has already passed" was incorrect.
Mr Kabilafkas relied on later emails which, he submitted, showed that the parties had not intended to cancel the agreements. Mr Condon submitted that, once (as he put had occurred) there was termination by accepted cancellation, then the subsequent emails were at most attempts to negotiate some new agreement or arrangement. More fundamentally, he submitted, they shed no permissible light on the proper characterisation of the events of 26 September 2012.
In my view, the emails in question mean what they say. The starting point is to note that the terms and conditions of sale include the one which I have set out, to the effect that accepted orders cannot be cancelled except with the written approval of CAL. It is open to view the second and third emails as constituting just that: an attempt to cancel and acceptance thereof, as contemplated expressly by the contract.
Mr Kabilafkas submitted that there was some inconsistency in the words "any existing orders" in RAPL's first email (the one purporting to cancel such orders). I do not agree. That email was a response to Mr Lee's email. Mr Lee's email plainly contemplated both orders yet to be placed and delivered, and orders "sailing on the water now".
The latter category of orders is clearly capable of description as "existing orders". Such orders were not fully executed. Because the contracts were made on the terms of the relevant PFI, property in the goods had not passed and they were not in RAPL's possession (that possession was held as fiduciary agent and bailee of Crossmark ). Likewise, RAPL had not performed its obligation to pay the goods.
Further, the purported acceptance of the cancellation was an acceptance "on all orders". The acceptance stated, further, that all shipment to RAPL's agent would be terminated, and details of the consignee of goods in "trans-shipment" (which I take to refer to goods "sailing on the water now") would be changed.
Finally, it is to be noted that the first email - that from Mr Lee to RAPL - referred to "any goods that is sailing on the water now, including cooling". Clearly enough, that was intended to refer to the shipment of fans that was indeed on the high seas at the time that email was sent.
I conclude that there was a cancellation and an acceptance thereof. The attempts, after acceptance, to limit the cancellation were ineffective. That refers not only to the emails of subsequent dates, but also to the last of the chain of emails sent on 26 September 2012.
Alternatively, and were it necessary to do so, I would find repudiation. The facts in relation to the emails (which as I have said are relied on as part of the repudiatory conduct) are set out.
It is also necessary to bear in mind that, in my view, RAPL was hopelessly insolvent when the administrators were appointed on 26 October 2012. I draw that conclusion from a report prepared by the administrators for the first creditors' meeting of RAPL.
That report contains the following features:
(1) Under the heading, "Reasons for Failure - Financials", it summarises the last three years (prior to the appointment of the administrators) of trading. For the 16 months to 30 June 2010, RAPL incurred a negative EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) of $39 million. The figures for the following financial years were negative EBITDAs of $47 million and $28 million respectively. It is correct to note that the gross margin on sales improved somewhat over those three years. But it is equally obvious that very significant improvements would have been needed to reverse the negative outcomes.
(2) Next, the report shows that over the period from 24 May 2010 to 26 October 2012, RAPL's shareholders had pumped in some $80.4 million, apparently in an attempt to keep it afloat. Even those substantial cash injections did not prevent it from failing.
(3) A balance sheet prepared by the administrators as at the date of administration shows that RAPL had current assets of $123.2 million, trade creditors of $96.9 million, other current creditors of $49.7 million, other payables of $19.7 million, employee obligations of $17.3 million, and (with other liabilities) a deficit of liabilities over assets of $117.7 million.
(4) On the ratio between current assets and current liabilities, it is clear that RAPL could not meet its liabilities from its assets as and when they fell due. It is equally clear that RAPL had a very significant deficit of liabilities over assets. Further, it is open to infer from the earlier material to which I have referred that the losses that had been made were in effect funded by shareholder loans, and that without those loans RAPL would have become insolvent at an earlier date.
There are other aspects of the report which support the view that, at the date of administration, RAPL was unable to meet its liabilities as and when they fell due.
I see no reason to believe that the situation would have been any different a month earlier, on 26 September 2012. On the contrary, I infer that the position was in no material respect different.
Thus, were it necessary to do so, I would conclude that as at 26 September 2012, RAPL could not pay Crossmark except preferentially, and hence voidably.
In fact, and bearing that position in mind, I conclude, as at 26 September 2012 or a few days later, RAPL was reserving for itself, and manifesting to Crossmark, an intention to pay Crossmark not in accordance with its contractual obligations but, rather, as and when it suited RAPL to do so.
This comes in part from an email sent by Ms Moss of RAPL to Mr Lee of Crossmark on 28 September 2012. That email refers to the terms of trade and says among other things:
"With the exception of $264K, the amount you are claiming...is not yet due."
Ms Moss was cross-examined upon this, as was Mr Scott of RAPL. Mr Scott accepted that he did not know from where the admitted debt of $264,000 could be paid. Ms Moss sought to suggest that it could have been paid, had RAPL wished to do so. I regard that aspect of Ms Moss's evidence as entirely unsatisfactory and in my view it is not worthy of serious consideration. To my mind, it is obvious that RAPL did not have access to sufficient money to enable it to pay all its creditors, and that it was relying on incoming cash flow to meet liabilities. In that respect, I think, it was the squeakiest hinges that were getting the lubricant of cash.
Thus, I conclude, as at 28 September 2012, RAPL was prepared to pay only if and when it suited it to do so. Again, there is no reason to think that the position was any different two days earlier, and I would infer that there was no material difference.
Third and fourth issues: the PPSA and the Sale of GoodsAct
Mr Kabilafkas accepted that if I were to come to the conclusions that I have on the terms of the contract and cancellation, then:
(1) S 267 of the PPSA did not apply;
(2) Hence the ROT clause was valid; and
(3) Crossmark had no need to rely on such rights as it had under the Sale of Goods Act because property in the goods remained with it, and it was entitled to possession and to sell them accordingly.
Fifth issue: infringement of trademarks
RAPL relied on s 120 of the Trade Marks Act 1995 (Cth). By that section, a person infringes a registered trademark if (among other things) the person uses the mark or something substantially identical with or deceptively similar to it.
Crossmark relied on s 123(1) of the Trade Marks Act. By that subsection, despite s 120, a person who uses a registered trademark does not thereby infringe if the trademark has been applied to the goods in question with the consent of the registered owner of the trademark.
This part of the argument proceeds on the basis that RAPL is the registered owner of the marks in question. As I have said earlier, in each case the relevant mark was affixed at its express direction. That must amount to a "consent" for the purposes of s 123(1).
Further, and to the extent that it matters, I note in any event that, bearing in mind my conclusion that the terms of each contract are governed by Crossmark's PFI, RAPL has authorised Crossmark to sell the goods in question with the marks affixed to them.
Sixth issue: declaratory relief
Mr Kabilafkas submitted that the court should not grant declaratory relief as sought. He said that the grant of relief lacked utility because it would not quell the controversy.
Mr Kabilafkas relied on what he said was the apparent purpose for which relief was sought: namely, to obtain the release of the goods from the warehouse where they are presently stored, and to sell them to a third party. However, Mr Kabilafkas noted, neither the warehouseman nor the third party were parties to these proceedings. Thus they would not be bound by any declaration made.
It seems to be reasonably clear - and in any event seems to me to be a matter of plain common sense - that Crossmark wishes to vindicate its title to and right to possession of the goods so that it can sell them. But to my mind there is a distinction between the purpose for which relief is sought and the controversy that will be quelled by the grant of declaratory relief.
In the present case, there is a real and present controversy between Crossmark and RAPL. That controversy is as to the ownership of, and right to possession of, the goods in question. That controversy will be quelled by the grant of declaratory relief.
The underlying purpose or rationale may remain open to argument, but that is not to the point. Whether or not the other entities decide to release the goods, or buy them, is a matter for them to decide. But their ability to make that decision does not require them to be bound by the outcome of these proceedings. Conversely, the fact that they are not bound by the outcome of these proceedings does not mean that the grant of a declaration would not quell the controversy that is the subject of these proceedings.
Orders
It follows that Crossmark is entitled to the declaration of right that it seeks.
There is also the question of damages and the question of costs. My tentative view as to the former is that it should be held over. Prima facie, questions of damages should be dealt with through the mechanism of proof of debt.
As to the latter: prima facie, Crossmark should have its costs to date.
In each case, however, I will hear the parties on those questions.
[Counsel addressed.]
I make the following orders:
(1) Declare that the plaintiff is entitled to sell, dispose of or otherwise deal with the goods which are the subject of the February order referred to in para 13 of the affidavit of David Lee sworn and filed in these proceedings on 24 December 2012; and the May order referred to in para 17 of the said affidavit.
(2) Order the defendant to pay the plaintiff's costs to date of the proceedings.
(3) Adjourn the proceedings for directions to 12 July 2013.
(4) Grant liberty to apply on five days' notice.
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Decision last updated: 06 February 2013
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