Internet Centre of Excellence 2000 Pty Ltd v Computer World (Vic) Pty Ltd - [2004] FMCA 765

FEDERAL MAGISTRATES COURT OF AUSTRALIA

INTERNET CENTRE OF EXCELLENCE 2000 PTY LTD v COMPUTER WORLD (VIC) PTY LTD

[2004] FMCA 765

TRADE PRACTICES – Misleading and deceptive conduct – credit facility – no other written agreement – representation that security amount would be paid into separate interest bearing account – express trust – breach of trust – damages.

Trade Practices Act 1974, ss.52. 80, 82, 87

Jones v Dunkel (1959) 101 CLR 298
BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1977) 16 ALR 363
J Kitchen and Sons Pty Ltd v Stewart's Cash and Carry Stores (1942) 66 CLR 116
Barclays Bank v Quistclose Investments Ltd (1970) AC 570
Re Dawson (1966) 2 NSWR 211

Applicant:

INTERNET CENTRE OF EXCELLENCE 2000 PTY LTD

Respondent:

COMPUTER WORLD (VICTORIA) PTY LTD

File No:

MLG 974 of 2002

Delivered on:

5 November 2004

Delivered at:

Melbourne

Hearing Date:

5, 6 and 13 August 2003

Date of Last Submissions:

22 August 2003

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr A Kirby

Solicitors for the Applicant:

Kenna Croxford & Co

Counsel for the Respondent:

Mr N Klooger

Solicitors for the Respondent:

Ravi James & Associates

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 974 of 2002

INTERNET CENTRE OF EXCELLENCE 2000 PTY LTD

Applicant

and

COMPUTER WORLD (VICTORIA) PTY LTD

Respondent

REASONS FOR JUDGMENT

In this application Internet Centre of Excellence 2000 Pty Ltd (the applicant) seeks relief pursuant to ss.52, 80, 82 and 87 of the Trade Practices Act 1974 (the TPA) by an application filed on 24 September 2002 (the application).
In the application the applicant seeks declarations and damages against Computer World (Victoria) Pty Ltd (the respondent).
In support of the application the applicant has relied upon three affidavits sworn by Anne Gardiner on 23 September 2002, 23 December 2002 and 18 July 2003. Ms Gardiner at all material times was the managing director of the applicant and more recently has become a consultant. In addition, the applicant has relied upon an affidavit of Peter Anthony Brown, the applicant's solicitor, sworn on 19 November 2002.
The applicant up until approximately April 2002 conducted a retail computer sales outlet in Carlton for the respondent. The respondent permitted the applicant to use its signage and supplied the applicant with stock. There is no dispute that the applicant would account to the respondent in relation to sales of stock and receive commissions from the respondent.
As part of the arrangement between the applicant and the respondent a security amount of $50,000 (the security amount) was deposited with the respondent by the applicant pursuant to a credit facility dated 6 December 2001 ("the credit facility").
It is relevant to set out the terms of the credit facility which is exhibit AG1 to the affidavit of Anne Gardiner sworn 23 September 2002 (exhibit A1) as follows:
Re credit facility.
We, the undersigned, Computer World (Vic) Pty Ltd, agree to grant you credit facility for the purchase of computers and associated goods ("goods") on the following terms and conditions:
1. That you deposit an amount of $50,000 ("security amount") (the receipt of which is acknowledged) into a separate interest bearing account to be opened in the name of Computer World (Vic) Pty Ltd and titled Internet Centre of Excellence 2000 Pty Ltd Trust Account.
2. The security amount can only be drawn upon by Computer World (Vic) Pty Ltd in the event the Internet Centre of Excellence 2000 Pty Ltd fails to pay for goods purchased within the trading terms.
3. Computer World (Vic) Pty Ltd can terminate the credit facility upon giving seven (7) days written notice to Internet Centre of Excellence 2000 Pty Ltd whereupon the security amount will be immediately released and paid from Computer World (Vic) Pty Ltd to Internet Centre of Excellence 2000 Pty Ltd, less any amount outstanding for Goods supplied.
4. Internet Centre of Excellence 2000 Pty Ltd can terminate the credit facility upon giving seven (7) days written notice to Computer World (Vic) Pty Ltd whereupon the security amount will be immediately released and paid from Computer World (Vic) Pty Ltd to Internet Centre of Excellence 2000 Pty Ltd, less any amount outstanding for Goods supplied.
The credit facility appears to be executed by the second defendant by "Muregesu Yuvarajah", a director of the respondent and "Baris Hastu" who somewhat surprisingly was then only employed as a student and casual employee of the applicant claimed to be on work experience at the time and who has since returned to his homeland of Turkey. His whereabouts at the time of the hearing were apparently unknown to the applicant.
There is no dispute that the security amount was paid by the applicant to the respondent. Ultimately the applicant sought orders as follows:
a)The respondent should pay to the applicant the $50,000 security deposit, less a minor adjustment of $653.96 being a net balance of $49,346.04.
b)The respondent should pay to the applicant interest on the security deposit calculated at the rate of 5 per cent from 6 December 2001 until the date of the application and then at the statutory rate thereafter.
c)The respondent's cross-claim should be dismissed.
d)The respondent should pay the applicant's costs in respect of the application and cross-claim including reserved costs.
The cross-claim referred to in those orders of the respondent was set out in a document entitled "Schedule of Respondent's Counterclaim" in a response filed 9 December 2002. The cross-claim relied upon an agreement entered into between the parties whereby the respondent would supply products to the applicant at an agreed price and the applicant would then sell that product to the public earning a commission on each sale for the respondent ("the agreement"). It is claimed the agreement was oral and made in or about October 2001. It is further claimed that pursuant to the agreement the respondent provided products to the applicant in the total sum of $508,119.98 and it is claimed that the applicant provided payment to the respondent in the total sum of $421,315.77, leaving a balance outstanding of $86,804.21.
In the cross-claim the respondent asserts that it incurred subsequent costs and suffered loss of income, damage to its business reputation and significant diminution of its goodwill as a result of the applicant's actions whereby on or about 25 March 2002 without notice to the respondent it closed its store in Carlton. The closure of the store was claimed to be "in breach of the agreement". Damages were then sought in the sum of $25,000 as a result of that conduct. It was acknowledged the respondent owed the applicant an amount of $3227.43 in commissions outstanding and allowed a set-off of that amount. After retaining the $50,000 security amount and allowing that by way of set‑off, the respondent sought the balance of $58,526.78. At the conclusion of the hearing the amount was modified to be the sum of $58,603.59 calculated as follows:
a)$83,603.59 by way of moneys owed pursuant to the agreement between the parties;
b)$25,000 by way of damages as compensation for a general diminution of the respondent's goodwill and damage to the respondent's business reputation as a result of the applicant's closure without notice of the Carlton store;
c)the respondent retains $50,000 of the applicant's money and allow the set-off of this amount.
The respondent relied upon affidavits declared and affirmed by Muregesu Yuvarajah on 14 October 2002, 21 November 2002 and two further affidavits of the same deponent sworn 20 December 2002 and 26 February 2003.
The deponents to the affidavits gave evidence, save for Brown, the respondent's solicitor.

Applicant's evidence

Ms Gardiner gave evidence on behalf of the applicant and adopted the affidavits to which reference has made.
It should be noted at the outset that the applicant's case included an allegation that the lodging of the security amount with the respondent was subject to the credit facility which in turn required the deposit to be placed in a separate interest bearing account by the respondent and that this never occurred. The fact that it never occurred only became apparent, it was claimed, after proceedings were instituted and accordingly the applicant claims that there was misleading and deceptive conduct on the part of the respondent in circumstances where the representation made in the credit facility was that the security amount would be paid into a separate interest bearing account. It was claimed that the money was put up as a performance bond to allow the applicant to trade with the respondent in circumstances where the applicant effectively was the distributor of the respondent's computer products.
Clause 2 of the credit facility was described as being a performance bond with the money being "put up" to allow the applicant to continue trading and distributing the respondent's computer goods. It was claimed that the money was intended to be and should have been held by the respondent on trust for the applicant which then had a duty to account for those moneys and the balance of account at any time. By being placed in a separate account it was argued that the applicant could quickly see the balance at any given time. It is common ground that that did not occur and there is an onus on the respondent as trustee at all times to provide a satisfactory accounting of those moneys.
The applicant relied upon certain correspondence including a letter dated 8 April 2001 (which should be 2002) addressed from the applicant to the respondent which states in part the following:
Please find listed below every invoice we have received from Computer World (Victoria). We have checked our records and all invoices listed below have been paid in full via credit card, cheque payments and cash deposits into your account.
Can you please confirm by close of business today that you agree that all invoices as sent to us are listed below. If there are invoices on your records that are not listed below can you please supply the invoice number, date and amount.
It was suggested that this correspondence was an endeavour to sort out any difficulties by Ms Gardiner. A further letter dated 10 April 2002 from the applicant to the respondent signed by Ms Gardiner states the following:
I have not received any response to my letter of 8 April regarding any outstanding invoices you may have. With this I have proceeded to reconcile our accounts listed below.
Payments to Computer World $432,503.95
Invoices received from Computer World $436,500.55
Stock to be returned $28,000
Funds held in trust $50,000
In reference to the above figures, ICE 2000 requires $24,003.40 to be refunded when left-over stock is returned and the trust account amount of $50,000 to be returned.
A further letter dated 15 April 2002 is relied upon from the respondent to the applicant which states for the first time the accounting reconciliation of the respondent in the following terms:
You are aware that we have given you a credit limit of $50,000 and in the last instance, you have even exceeded that amount by $2703.94.
The same letter goes on to refer to what is claimed to be a lack of professionalism by the applicant in the conduct of its branch.
A further letter from the respondent to the applicant dated 20 April 2002 contains the following:
We are reconciling all accounts at the final stage and we need the following information to sort out some problems.
1. Please send us all AGC flexi rent, easy pay and direct deposits for each customers and individual breakdowns showing date, your invoice number, customer's name and amount.
2. You have sent the monthly summaries for credit cards and EFTPOS but we need those summaries for every day showing each date and respective amounts for that day.
It is common ground that the AGC flexi rent, easy pay and direct deposits were arrangements whereby customers financed the purchase of goods with a third party credit provider. An application form is sent to the respondent and then the respondent deals directly with the credit provider. It was observed by the applicant's representative that it was odd for the respondent to be seeking these details when it would be presumed they would be within its own control and knowledge. That is, those details should be part of the respondent's own banking arrangements.
In any event, the details requested by the respondent in the letter of 20 April 2002 was the subject of a response from the applicant by letter dated 23 April 2002.
The next item of relevant correspondence is a letter dated 29 April 2002 from the respondent to the applicant which states the following:
For taxation purposes, we would like to request you to send us the following invoices that are missing …
The letter then lists various invoice numbers for different months. Those invoice numbers refer to the applicant's own tax invoices. It is common ground the arrangement was that the goods would come across from the respondent to the applicant with a stock transfer number and when goods are collected by customers, the customer would be given one of the applicant's own tax invoices which were reflected in this letter in part for the period referred to.
By letter dated 7 May 2002 from the respondent to the applicant certain attachments were enclosed and in part the letter states the following:
Above all, we have transferred around $488,999.50 worth of goods, you have a credit around $433,976 in our account and invoices total either around $401,424.65, which is really confusing for us regarding the deposits and sales from your side. We require some more clarifications about all these sales and transfer amounts to clear above queries.
The first attachment to that letter is a document entitled "Transfer Not Accounted By ICE 2000". It refers to a total amount of $66,134. Although that figure appears to remain throughout the accounting period, it was noted that the customers and the items change. That change is consistent with the applicant's view of a lack of consistency in the respondent's accounting, its figures and customers and how transfer numbers changed throughout the course of the process.
A significant complaint of the applicant was a claimed lack of consistency in the respondent's accounting. In particular, there was criticism of the figures of the customers and transfer numbers which appeared to change during the process. Reference was made to a letter dated 13 June 2002 from the respondent to the applicant regarding what is described in the letter as "sub-reconciliation of total amount owed by ICE 2000 to Computer World". That document is a further reconciliation by the respondent and includes again reference to an item described as "total stock not counted by Carlton" being a sum of $66,134.
By a further letter dated 11 July 2002 the applicant's solicitors in a letter to the respondent's solicitors address the concern of amounts allegedly outstanding by the applicant to the respondent and attaches a schedule which it is claimed addressed all outstanding items except for four matters which totalled $3474. Effectively, it is claimed that the analysis provided by the applicant's solicitors accounts for all the matters outstanding, save for the amount of $3474 which is extinguished by commission payments owing at that time claimed by the applicant to be approximately $4000, though considered by the respondent to be approximately $3200.
The applicant's solicitors by letter dated 3 September 2002 to the respondent's solicitors states the following:
We refer to our previous correspondence and note that you have not responded to our inquiry as to whether you have instructions to accept service. Please advise whether you have these instructions.
In relation to the sum of $50,000 paid by our client to your client in accordance with the agreement dated 6 December 2001, please advise -
1. Whether or not the sum of $50,000 is still held in an interest bearing account in accordance with the agreement between the parties.
2. If so, please provide full particulars of the account including a current bank statement indicating the amount of funds presently held in the account, together with your client's undertaking not to deal with the account in any manner pending resolution of this matter (including the resolution of any proceedings between the parties).
It is claimed that at that point the applicant did not know the particulars of the account, though ultimately after proceedings were commenced became aware that the money was not paid into a separate account but rather found its way to the respondent's general account. That much appeared to be common ground, as indicated earlier in this judgment.
In her affidavit sworn 23 December 2002 Anne Gardiner deposes to the arrangements between the applicant and the respondent. In paragraph 4 of the affidavit she states:
From the time of signing by both Computer World and ICE 2000 of the "credit facility" dated 6 December 2001 up until the termination of the relationship in March 2002 ("the relevant period"), the trading terms and arrangements between ICE 2000 and Computer World were as follows:
(a) at the time when a customer placed an order with ICE 2000 for Computer World stock a deposit would be taken from the customer, either via EFTPOS (credit or debit card), cheque or cash. In each case, the deposit was credited directly to Computer World. In case of EFTPOS transactions, this was done instantaneously. In the case of cash and cheque payments, these were deposited into Computer World's account by ICE 2000 either on the date of receipt or on the next day;
(b) an order form would then be sent by facsimile by ICE 2000 to Computer World in Dandenong;
(c) delivery of stock would then be made by Computer World to ICE 2000 when the stock was available with an invoice (or "stock transfer") issued by Computer World to ICE 2000 in respect of the order;
(d) a customer would then be contacted by ICE 2000 to collect the stock. Payment would be made by the customer upon collection. Collection by the customer could take anything up to a week. As with the deposits, the final payment again could be made either by EFTPOS, cash or cheque. The payment/banking procedure was the same as for deposits (refer paragraph (a) above). Upon collection the customer was provided with an invoice issued by ICE 2000; and
(e) ICE 2000 would be paid a commission of 5 per cent by Computer World on all sales.
In her affidavit Anne Gardiner also sets out the procedure which will be followed where a customer sought to purchase equipment with the benefit of finance from a credit provider. The procedure set out in paragraph 5 of her affidavit of 23 December 2002 did not appear to be contradicted and includes the following:
(a) customer would fill out the credit application form at ICE 2000's premises when ordering their purchase of Computer World stock;
(b) the credit application form (and order form) would be faxed by ICE 2000 to Computer World Dandenong;
(c) Computer World would forward the credit application form to the relevant credit provider;
(d) the credit provider would contact Computer World once the application was approved;
(e) Computer World would then contact ICE 2000 to inform it that the approval had been granted;
(f) ICE 2000 would inform the customer of the approval;
(g) the stock would be delivered by Computer World to ICE 2000 with an invoice issued by Computer World to ICE 2000 in the usual manner;
(h) the customer would then collect the stock and be issued with an invoice from ICE 2000 which recorded the purchase;
(i) ICE 2000 would have no contact with the credit provider during this process and the purchase price was paid directly by the credit provider to Computer World; and
(j) ICE 2000 would receive its usual commission of 5 per cent on purchases which were financed in the above manner.

Annexed to the affidavit of Anne Gardiner sworn 23 December 2002 was a set of Computer World invoices or stock transfers during the relevant period, a set of deposit slips for the respondent's bank account with the National Bank which evidenced the cash and cheque deposits made by the applicant to that account in respect of purchases, and a set of the respondent's NAB statements during the relevant period. A further exhibit was provided based on those documents, namely a spreadsheet prepared by the applicant.
Having regard to those documents, Ms Gardiner states in her affidavit the following:
7. Based on the documentation referred to in paragraph 6 above (in particular the totals in the spreadsheet) during the relevant period the total number of invoices issued by Computer World to ICE 2000 was $444,245.44. The total amount of payments made by ICE 2000 to Computer World in respect of these invoices was $439,591.54. The difference is therefore $4653.90 which is to be set off by ICE 2000 against the commissions which are owed by Computer World to ICE 2000.
It was clear during the cross‑examination of Ms Gardiner that she did not have any direct knowledge of the negotiations which led to the execution of the credit facility. It was equally clear that the signatory on behalf of the applicant did not appear to be an officer of the company at the material time and he was in fact unknown to Ms Gardiner. I accept her evidence, however, that there were no contact details available for Mr Hastu and that reasonable attempts were made to determine his whereabouts.
Ms Gardiner asserted in her affidavit material and repeated in evidence that it was her belief that all outstanding amounts had been paid by the applicant to the respondent and the result was that the entire security amount and any accrued interest should be repaid to the applicant. She complained that contrary to the credit facility agreement and/or representations made which were said to be in breach of s.52 of the Trade Practices Act, the respondent did not deposit the security amount in a separate interest bearing account and had failed to release it to the applicant upon termination of the credit facility.
In the absence of pleadings in this application it is noted that Ms Gardiner further relies upon s.51 of the TPA on the basis that the representations referred to earlier were made by the respondent who had then no reasonable basis for making the representations. It was further claimed that the respondent had committed a breach of trust in respect of the dealings with the security amount and had otherwise breached the terms of the credit facility thereby causing loss and damage to the applicant.
Ms Gardiner was cross‑examined closely about the basis upon which the calculations were made on behalf of the applicant in relation to the commissions earned and goods sold. It was clear she was relying upon the business records of the applicant and not her own personal knowledge. As a bookkeeper, however, she was able to give evidence concerning spreadsheets and accounts which were annexed to her affidavits and the subject of cross‑examination. She stated that she had gone through every single line item that the respondent had put forward in relation to the reconciliation of accounts. It was clear in her evidence under cross‑examination that she had produced exhibit AG8 to her affidavit sworn 23 December 2002 after analysing credit card slips and a copy of every deposit slip with the bank recording payment to the respondent. The document also recorded in what are described as "T numbers" a record of stock transferred to the applicant. They do not record details of the items of stock, but only the person's name. She stated that she went through "everything that was deposited". At one point she described the process as "a huge mess".
In her affidavit sworn 18 July 2003 Ms Gardiner attempts to respond to material filed on behalf of the respondent, and in particular the affidavit material of Mr Muregesu Yuvarajah. Her detailed analysis refutes the suggestion of inconsistency and notes the claim of $63,354.71 after allowing a credit of $50,000 for the security deposit. She otherwise confirmed her earlier reconciliations annexed to other affidavits. She then meticulously deals with each and every item of stock transfer and provided further attachment by way of spreadsheets to her affidavit sworn 18 July 2003.

Respondent's evidence

Muregesu Yuvarajah gave evidence on behalf of the respondent and adopted affidavits sworn by him on 14 October 2002, 21 November 2002, 20 December 2002 and 26 February 2003.
At all material times as the director of the respondent he claimed the arrangements between the applicant and the respondent were subject to an understanding that the trading name of the applicant would change to "Computer World (Victoria) - Carlton" and that all invoices, purchase orders were to be under that name. He further claimed the applicant was to report on trading and provide regular statements of accounts to the respondent and that for its part the respondent would include the applicant and promote them as a retail outlet of the respondent in Carlton. Goods were to be supplied to the applicant by the respondent on a cash-on-delivery basis (“COD”) but free of delivery or other courier charges and the applicant was to operate a retail outlet professionally and upkeep the goodwill of the respondent which in turn would pay commission to the applicant on the different products according to the agreement. The respondent was to be liable for any service warranty on any item retailed by the applicant through the Carlton outlet.
He claimed that this was an oral agreement and that after a month of operating due to the applicant expressing difficulties paying on a COD basis, credit facilities were requested by the applicant of the respondent which were denied. Instead, he claims that after having a discussion with Mr Hastu of the applicant, that on 6 December 2001, the credit facility document was duly executed. He referred to various complaints concerning the operation of the business by the applicant in terms of operating hours and method of operation. Ultimately he was advised the Carlton store was to be closed down and he claimed it was due to the difficulties the applicant experienced in finding and retaining competent staff. He otherwise referred to the loss and damage sustained by the respondent referred to earlier in the cross-claim.
He relied upon spreadsheets attached to his affidavit material and the exchange of correspondence to which reference has already been made. He acknowledged that the respondent owed the applicant $3427.91 in outstanding commissions and that the respondent retained the amount of $50,000 paid to it by the applicant in or about December 2001 as the security amount or security deposit. In general terms, he otherwise confirmed the contention of the respondent the applicant owes it the sum of $58,603.59 being $83,603.59 by way of moneys owed, together with $25,000 damages, less the amount of $50,000 held by way of security amount. That was based upon an accounting system and reconciliation calculated by reference to total stock transferred to the applicant and reference to total payments received by the respondent from the applicant in relation to that stock which, according to his calculations, included stock to the value of $502,780.27 transferred to the applicant during the relevant period, according to Mr Yuvarajah's affidavit sworn 26 February 2003 (paragraph 4(b), exhibit "MY8").

A total of $421,245.75 was paid, according to the respondent's calculations and this meant, according to Mr Yuvarajah, a difference of $81,834.50 to which he added $5497 in relation to stock transferred direct to customers by the respondent.
He claimed deposit moneys were taken from customers by the applicant leaving the respondent to rebuild systems and deliver them to the customers. A total sum arrived at was $87,081.50 from which he subtracted the sum of $3427.91 in commission, leaving a subtotal of $83,603.59. From that amount he deducts $50,000 as security deposit, leaving $33,603.59 to which he then adds the $25,000 damages claim.
In his affidavit sworn 26 February 2003 Mr Yuvarajah analyses in detail the respondent's figures and other material in reconciling the amounts due and payable and, as indicated, relied upon a reference to total stock transferred and then reference to total payments received by the respondent from the applicant in relation to that stock.
A clear issue of concern to Mr Yuvarajah was the closure of the Carlton store without what might be described as any or any adequate notice. It was conceded, however, that there was nothing in writing which would prevent the applicant from closing the store without the respondent's permission.

Submissions

Applicant's submissions

It was submitted on behalf of the applicant that the security deposit of $50,000 should be repaid to the applicant as it had been paid to the respondent by the applicant to be held on trust but it was immediately "appropriated by the respondent and paid into a general account in breach of its duty as trustee". The duty of the trustee was to carry out the terms of the trust which were created under the "credit facility", that is, to hold the money on trust and to place it into a separate account and to then account to the applicant for those trust moneys.
It was claimed that the onus of proof is on the respondent as trustee to satisfactorily account for the trust moneys. It was argued that if the court is unable to reconcile the accounting, then the respondent will not have discharged its burden of proof in relation to its duty to account, at least for the security moneys which then should be repaid to the applicant.
In the alternative, if the court were to find that the evidence of Mr Yuvarajah of the accounting dispute by 26 February 2003 had narrowed to the items raised by the respondent in that affidavit and in particular the items set out in the MYB spreadsheet totalling $66,279.72 were to apply, then the court should be satisfied that Ms Gardiner's affidavit of 18 July 2003 accounts for almost all of the items of concern to the respondent.
It was further argued that in any event the respondent had engaged in misleading and deceptive conduct in contravention of s.52 of the TPA in failing to place the security deposit in a separate account in accordance with the representation that it would do so as set out in the credit facility. It is clear that the applicant had provided the moneys in reliance upon the terms of the credit facility signed for and on behalf of both parties.
A detailed analysis was provided of the claimed reconciliation undertaken by the respondent which demonstrates inconsistencies in the respondent's accounting method. It was noted, and I accept, that no ledger was kept by the respondent of the trust moneys, nor any account given to the applicant of those moneys prior to the closure of the Carlton store. Somewhat ironically, the respondent did not appear to have a properly functioning computer system and it is common ground that it had what might be described as a computer "crisis" during the period January to April 2002 which had produced stock transfers with the same numbers for different transactions. Handwritten changes had been made to most of the stock transfers. It was claimed that there was more than one version of the documents provided by Mr Yuvarajah on behalf of the respondent who in fact produced spreadsheets despite an order being made that he simply provide a reconciliation of accounts. Source documents were not provided and nor did the respondent call the person who allegedly had been responsible for preparing the reconciliation of accounts referred to in the evidence of Mr Yuvarajah as "Pinky".
Further detailed analysis and criticism was made of the respondent's material and ultimately it was submitted that the court should prefer the evidence of Ms Gardiner to that of Mr Yuvarajah.
After a detailed analysis of the evidence by cross-referencing the contents of the affidavit of Mr Yuvarajah and attachments with the evidence of Ms Gardiner and the evidence of both under cross‑examination, it was submitted by the applicant that it had accounted for all the items referred to in the Yuvarajah affidavit of 26 February 2003 other than the following:
a)item 5 in "AG-13" transfer of stock for ICE 2000 - total $2269;
b)items 6 and 7 in "AG-15" total $455; and
c)a $100 discrepancy in "MYD".
The total of the items conceded not to be accounted for by the applicant is therefore $2824.
It was argued that it was difficult for the respondent to dispute the applicant's accounting unless it was simply trying to avoid payment of the security deposit from its general account. It was claimed that the best example of this was in the stock transfers. First it was submitted that the respondent had attempted to rely upon stock transfers as an integral part of its accounting, though it is noted that Mr Yuvarajah admitted under cross‑examination that the respondent does not rely on the stock transfers for its taxation records, nor for its calculation of commissions to be paid to the applicant. Given that the applicant was not a branch of the respondent but a distributor, it was submitted that a transfer by the respondent to the applicant was effectively a sale as far as the respondent was concerned.
The reliance of the respondent upon the applicant was evidenced by a number of items of correspondence to which reference was made whereby the respondent sought information from the applicant relating to details of transactions. It was noted that source documents were not produced until the affidavit of Mr Yuvarajah sworn 26 February 2003, though the applicant exhibited the respondent's credit card and EFTPOS statements in the affidavit of Gardiner sworn 23 December 2002.
Whilst reference was made under cross‑examination by Mr Yuvarajah to daily summary reports faxed to him by the branches as he checked the bank account daily on the Internet, it was noted that Excel spreadsheets were apparently updated by the person referred to as "Pinky". It was submitted that the court should note that none of the spreadsheets have been produced by the respondent even though they may set out a useful contemporaneous record. The court was then invited to draw an adverse inference concerning the non-production of these documents and, as indicated, an adverse inference concerning the failure of the respondent to call the witness "Pinky" (see Jones v Dunkel (1959) 101 CLR 298). This becomes more significant, it was submitted, when the court considers that Mr Yuvarajah himself showed a lack of familiarity and understanding of his own correspondence and affidavits, having noted under cross‑examination a mistake in a letter of 15 April 2002, a request for information by letter 20 April 2002 from the applicant which should have been in the possession of the respondent and his cross‑examination in relation to the exhibits annexed to his affidavit of 26 February 2003 together with paragraphs 18 and 19 of his 14 October 2002 affidavit which dealt with the failure to set up a separate account for the security amount and a denial of any contravention of s.52 of the Trade Practices Act based upon a failure to deposit the security amount in a separate trust account.
In relation to the cross-claim for $25,000 damages, it was submitted that that cross-claim should be dismissed. The court should place little weight upon the mere assertion as to the damages set out in paragraph 16 of the affidavit of Mr Yuvarajah sworn 14 October 2002 where he simply deposes that -
the respondent also assessed a sum of $25,000 nominally as damages to their goodwill owing to the closure of the retail outlet …
Likewise, little weight should be placed upon the assertions set out in paragraphs 11 and 12 of Mr Yuvarajah's affidavit sworn 20 December 2002 where he refers to being informed by staff that in the two weeks after the branch was closed (at Carlton) the respondent received over 100 telephone calls from customers enquiring as to whether the respondent was still operating its business and a concern purportedly expressed by suppliers as to the closure of one of the respondent's "branches".
It was argued there is no legal basis provided as to how the cross-claim is brought as a matter of contract between the parties. The sole written document, namely the credit facility, embodies the agreement between the parties and it clearly states, according to the applicant's submissions, that either party can terminate the agreement upon giving seven days written notice. In any event, it was argued that the applicant closed the Carlton store because the respondent stopped delivering stock and had failed to pay commissions and noted an admission by the respondent that over $3000 in commissions are owing to the applicant.
It was argued the cross-claim is misconceived, "spurious and oppressive" and should be dismissed with costs.

Respondent's submissions

The respondent drew the court's attention to what was regarded as the two issues in the case, namely:
a)whether there are any moneys owing to the respondent by the applicant; and
b)whether the respondent is entitled to damages as a result of the closure of the applicant of the Carlton store.
The respondent contends that it is owed the sum of $58,603.59 calculated as follows:
(a) $83,603.59 by way of moneys owed pursuant to the agreement between the parties;
(b) $25,000 by way of damages as compensation for a general diminution of the respondent's goodwill and damage to the respondent's business reputation as a result of the applicant's closure without notice of the Carlton store; and
(c) the respondent retains $50,000 of the applicant's money and allows a set-off of this amount.
Reliance was placed upon the reconciliation statement of Mr Yuvarajah in his affidavits of 20 December 2002 and 26 February 2003. The reconciliation statements are calculated by a reference to total stock transferred to the applicant and reference to the total amounts received by the respondent from the applicant in relation to that stock.

A detailed analysis was then undertaken as to the process of reconciliation presented by Mr Yuvarajah in his affidavit and attachments. It was claimed that Mr Yuvarajah had first-hand knowledge of the matters he deposes to in his affidavits, as well as in his evidence before the court. It was contended that a term incorporating a notice period was an express term of the agreement between the parties or one to be implied so as to give business efficacy to the agreement.
Some reliance was placed upon the evidence of Mr Yuvarajah who claimed that there was an agreement between him and Mr Hastu that the parties would give each other two weeks' notice of any decision to terminate the trading relationship. It was claimed that the rule in BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 at 365 applied and that the five elements of the rule in that case had been complied with in the present case, namely that it is reasonable and equitable, necessary to give business efficacy to the contract, so obvious that it goes without saying, capable of clear expression and does not contradict any express term of the agreement.
It was further submitted that there is authority for the proposition that a contract of indefinite duration is not terminable at will and that the onus is on the party asserting the contrary (J Kitchen and Sons Pty Ltd v Stewart's Cash and Carry Stores (1942) 66 CLR 116 at 125). It was submitted that such a term was contained in the agreement, whether expressly or by implication, and that the applicant has breached the term by the closure of the Carlton store without notice to the respondent. As a result of the breach, the respondent has suffered the damage claimed.

In relation to the sum of $50,000 retained by the respondent, it was submitted that the credit facility was simply "an acknowledgment that the applicant had provided the sum of $50,000 and was akin to a receipt". Reliance was placed upon the evidence both in the affidavit and before the court of Mr Yuvarajah as to an agreement between him and Mr Hastu on behalf of the applicant that moneys would not be placed in a separate account and that the signing of the document had been a mistake. Further, it was submitted that the respondent has maintained at all times the position that if there are moneys owed to it by the applicant that the applicant is entitled to the return of its $50,000 deposit.
An attack was made upon the applicant's evidence, and in particular, the evidence of Ms Gardiner who it was claimed had no direct involvement with the applicant and no contact whatsoever with the respondent until after the relationship between the parties had been terminated. Whilst she had book qualifications, she had no direct knowledge of the agreement in place between the parties, nor of the way the trade was conducted between the parties or of the manner in which the relationship was terminated. Accordingly, it was argued a great deal of the material of Ms Gardiner in her affidavit could properly be regarded as hearsay and should not be given any weight whatsoever. It was further noted that a great deal of the material prepared for the purpose of the Gardiner affidavit had in fact been prepared by another person referred to as "Cherie" who was not called to give evidence and in this instance the court was also asked to draw an adverse inference (see Jones v Dunkel).
It was further argued in relation to inferences that the court should draw an adverse inference in relation to the failure of the applicant to call Mr Hastu.
It was argued that a number of concessions were made by Ms Gardiner in her evidence including that the information was "a mess" and that the system of the applicant was a "terrible system". The spreadsheets were based upon information from various sources and compiled, it was submitted, in a confusing manner. There was a failure to account for an amount of approximately $28,000 in stock supplied by the respondent to the applicant and that Gardiner was not able to account for that stock. Ultimately, it was submitted the evidence of Mr Yuvarajah should be preferred and that the respondent is entitled to repayment from the applicant of the sum of $58,603.59.

Reasoning

In this matter I am satisfied that the only document which provides evidence of the agreement between the parties is the credit facility which I accept has been signed for and on behalf of both the applicant and respondent. That document, in my view, contains clear requirements, and, I am satisfied and accept, created either an express or implied trust for the benefit of the applicant. I do not accept the evidence of Mr Yuvarajah that a separate oral agreement was entered into which relieved the respondent of the obligations under the credit facility to establish a separate interest bearing account to be opened in the name of Computer World (Vic) Pty Ltd and titled "Internet Centre of Excellence 2000 Pty Ltd Trust Account".
I am further satisfied that the credit facility gave both parties the right to terminate upon the giving of seven days' written notice to each other and that upon that notice the security amount then held should be immediately released by the respondent to the applicant after deducting "any amount outstanding for goods supplied".
The starting point, therefore, in my view, despite the unsatisfactory nature of the evidence and indeed what might properly be described as a very loose arrangement between the parties, are the terms of the credit facility and a calculation of what, if any, amounts should be deducted from the $50,000 which I am satisfied should be returned to the applicant and should have been placed in a separate interest bearing account.
It is clear from my finding that I reject the evidence of Mr Yuvarajah that a separate oral agreement had been entered into between him and Mr Hastu which relieved the respondent of complying with the terms of the credit facility. I find implausible the suggestion by Mr Yuvarajah that he signed the credit facility by mistake. It was clearly designed to provide assistance to the parties in facilitating their ongoing relationship and the demand by the respondent that goods be provided on a COD basis.
It is perhaps regrettable that the parties did not see fit to enter into any other formal contract but simply commenced trading. I accept that in the circumstances, whilst not a franchise agreement, the respondent did at least provide advertising and other facilities to the applicant which had effectively been represented to the public as a branch or outlet of the respondent. In the absence, however, of any written agreement or indeed any clearly definable terms which may have arisen from any discussions between the parties, I am not able to find that closure of the Carlton store was in breach of any agreement or that any loss or damage should flow from that act by the applicant.
It leaves the court in the position where it has to determine on the somewhat unsatisfactory evidence presented by both parties the issue of whether or not the total amount of $50,000 should be returned to the applicant as a result of my finding that the credit facility clearly established a trust, either implied or express, requiring prima facie the amount to be repaid by the respondent to the applicant.
I specifically find that in fact it is clear from the credit facility that the trust may properly be described as either an express trust or a special purpose trust and otherwise apply the principles referred to in Barclays Bank v Quistclose Investments Ltd (1970) AC 570. In the present case I am satisfied the intention of the parties was that the moneys in question would be held for a specific purpose where the respondent as recipient was not free to simply apply the money for other purposes but was required to hold the money on trust for the applicant. Ultimately it could be used as security for the payment of any outstanding amounts due and payable by the applicant to the respondent, and upon termination the balance then payable should have been provided by the respondent to the applicant.
I am satisfied and find that the respondent has breached its obligations as trustee as it did not carry out the terms of the trust by not paying the moneys into a separate interest bearing account. To simply appropriate the trust moneys soon after they were received into its general account has in fact added to the confusion and difficulties in this application. By the respondent’s witness admitting under cross‑examination that it accounted for the security deposit as revenue and not a liability on its balance sheet, it has demonstrated a misconception about its role and responsibility as trustee and, in my view, has clearly breached the fiduciary duty arising out of the trust.
I accept the criticisms by the applicant that the respondent prior to closure of the Carlton store did not keep a ledger for the trust moneys and indeed no account was ever given to the applicant of the trust moneys. I further accept that indeed had, as claimed by Mr Yuvarajah, invoices not paid within allowed time been the subject of a debit on the deposit, then the confusion between the parties in determining what may or may not be outstanding at any given time may have been avoided. Had the account been placed in a separate interest bearing account the task would have been easier.
It is somewhat ironic that in determining what may or may not be owed by the applicant to the respondent, that the respondent despite being a retailer of computer systems did not appear to have any or any adequate computer system upon which the court could draw appropriate conclusions. If the respondent in support of its cross-claim and by way of rebuttal to the claim had a more effective system in place, then it would not have been necessary for Mr Yuvarajah to present spreadsheets to the court or explain the process in a number of affidavits when that could easily have been achieved by negotiation between the parties based upon a proper accounting and computer system. The findings against the respondent are therefore not matters of credit but rather preferring the Applicant’s method of analysis over what I have concluded is the unsatisfactory approach of the Respondent.
I accept and find that the respondent in fact had what might be described as a computer crisis during the period January to April 2002 and that this produced stock transfers with the same numbers for different transactions (see exhibit A6). I otherwise accept the criticism of the respondent's system as set out in the applicant's submissions earlier in this judgment. A number of examples may be highlighted to demonstrate the unreliability of the respondent's calculations. In his affidavit sworn 20 December 2002 Mr Yuvarajah had claimed on behalf of the respondent a sum of $33,486.30 after allowing a credit of $50,000 for the security deposit and excluding the damages claim. That affidavit without leave of the court exhibited a series of spreadsheets prepared by a person not called to give evidence. In the case of the person identified as "Pinky", I am prepared to draw an inference adverse to the respondent that the witness, if called, would not have assisted the respondent's case. As indicated earlier I am not prepared to draw a similar inference in relation to the witness Hastu of the applicant as I am satisfied on the evidence before me that that witness was not available at all material times to be called for and on behalf of the applicant.
An example of inconsistencies referred to in the respondent's submissions, and which I accept in relation to the respondent's accounting, is found in exhibit MY3 of the affidavit sworn by Mr Yuvarajah 20 December 2002. It contains a list of transfers allegedly not accounted for by the applicant, and by comparing that to the list of approximately the same amount attached to the respondent's letter dated 13 June 2002 five items in that earlier letter are no longer referred to. The new editions in MY3 include four other customers.
Further, I note that in the affidavit sworn by Mr Yuvarajah on 26 February 2003 he deposes in paragraph 3 that he made the affidavit "in response to the affidavit of Anne Gardiner dated 23 December 2002". He then includes a further reconciliation of the accounts by the respondent and exhibits a different set of spreadsheets also prepared by "Pinky" to the reconciliation statement contained in the earlier affidavit sworn 20 December 2002. It is noted that in his evidence under cross‑examination Mr Yuvarajah when referred to his affidavit of 26 February 2003 whereby he claimed $33,604 was prepared to make due allowance for $3427.50 owing to the applicant in unpaid commissions.
I am otherwise satisfied that the detailed criticism of the respondent's accounting method and the details in the documents relied upon by the respondent as set out in the applicant's submissions at the very least cause the court concern and render the respondent's assessment of any amounts outstanding unreliable. Given the respondent has a responsibility and onus under the cross-claim and indeed, having regard to the trust obligations which I found, a further onus, in my view, to refute the suggestion that the trust moneys should be returned to the applicant, the unreliability of the respondent's calculations becomes significant and crucial in this application.
On the other hand, having considered in detail the evidence of Ms Gardiner and her approach to the task by examining each and every alleged deficiency in detail and referring back to appropriate business records of the applicant combined with the material ultimately provided by the respondent, I prefer the procedure adopted by Ms Gardiner. The arrangements of receipt as set out in the Gardiner affidavit of 23 December 2002 (see paragraphs 31 and 32 hereof) appear to me to provide the proper basis upon which the analysis of the material can be undertaken. She has appropriately then analysed each and every item queried by the respondent and appropriately, in my view, analysed credit card slips and a copy of a every deposit slip with the bank recording payment to the respondent.
I accept her evidence that she went through "everything that was deposited" and although it is clear on a proper reading of all the material that her description of the documents as being "a huge mess" is perhaps accurate, I am prepared to accept that she has painstakingly undertaken her task as a bookkeeper and analysed the business records of the applicant and those ultimately provided by the respondent in an appropriate and reliable manner. Relying upon that evidence, I accept the submissions for and on behalf of the applicant that it is appropriate to make a finding that the applicant has accounted for all the items alleged by Mr Yuvarajah in his affidavit of 26 February 2003, save and except for the transfer of stock of a total of $2269 and the $455 being specific items 6 and 7 in exhibit AG15, together with the $100 discrepancy referred to in the exhibit "MYD".
However, that means in net terms that the respondent owes the applicant the balance of the security deposit totalling $49,346.10. I am satisfied that the details concerning the total number of invoices issued by the respondent was $444,245.44 and the total amount of payments made by the applicant to the respondent in respect of those invoices was $439,591.54 with a difference of $4653.90. From that amount owed to the respondent by the applicant should be deducted what appears to be commission owed by the respondent to the applicant in respect of sales during the relevant period. That amount is claimed by the applicant to be $3999.94, though it is noted the respondent would suggest that it was $3474 and ultimately, as I understood the evidence, $3200. Although I have accepted the respondent's calculations in general as being based upon a preferred methodology despite what might be regarded as the absence of source documents from both parties, I find it difficult to precisely assess the amount of commission owed and in all the circumstances I am only prepared to find that it is a sum of approximately $3200. It is that sum of $3200 which should be deducted from the amount of $4653.90 owed by the applicant to the respondent leaving a balance of $1453.90. Deducting that from the $50,000 security deposit leaves a balance of $48,546.10.
In my view, whilst it is probably be unnecessary to make a finding in relation to misleading and deceptive conduct, I am satisfied that the credit facility did in fact contain a representation the security amount would be paid into an interest bearing separate account and that the applicant relied upon that representation which I find was misleading and deceptive. However, having made the finding in relation to the breach of trust, it may be unnecessary for me to make any further findings, and specifically, may be unnecessary to make a finding that at the time of making the representations the respondent had no reasonable basis for making that representation in breach of s.51 of the TPA. To the extent that it is necessary, however, I am prepared to make that finding and damages will be consistent with the damages which follow, in any event, from the breach of trust and the contractual obligation of the respondent to return to the applicant the sum that

I have identified earlier in this judgment.
I am not satisfied that there is any basis upon which the respondent can sustain a claim for loss and damage as a result of the cancellation of the credit facility and closure of the Carlton store. Unfortunately for the respondent there was no written agreement and indeed only very vague assertions as to any other oral agreement which would not provide a proper basis which would support the cross-claim. It follows that the cross‑claim should be dismissed. It follows therefore that the order of the court should be that the respondent pay to the applicant the sum of $48,546.10.
The remaining issue to consider is the claim by the applicant for interest arising out of the credit facility. I am prepared to accept that as the credit facility provided for payment of the security amount to be made into a "interest bearing account" that it is reasonable to calculate interest on and from the date when the amount was paid, namely 6 December 2001 up to and including the date the application was filed at the rate of 5 per cent (see Re Dawson (1966) 2 NSWR 211 at 217‑220) and that there should be interest at the statutory rate thereafter to the date of judgment.
The respondent should pay the Applicant’s costs of and incidental to the application and cross-claim including reserved costs, if any.
I shall hear counsel regarding the precise form of orders.

I certify that the preceding ninety-two (92) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 5 November 2004