Makani 2001 P/L v Rackley Trading P/L

[2016] QDC 174

DISTRICT COURT OF QUEENSLAND

CITATION:

Makani 2001 P/L v Rackley Trading P/L & Ors [2016] QDC 174

PARTIES:

MAKANI 2001 PTY LTD
ACN075263142
(plaintiff)

v

RACKLEY TRADING PTY LTD
ACN103677176
(first defendant)

and

DARREN DESMOND RACKLEY
(second defendant)

and

VERONICA IRENE RACKLEY
(third defendant)

FILE NO/S:

BD3448/14

DIVISION:

PROCEEDING:

Civil Trial

ORIGINATING COURT:

District Court of Queensland

DELIVERED ON:

13 July 2016

DELIVERED AT:

Brisbane

HEARING DATE:

15 and 16 February and written submissions to 18 February 2016

JUDGE:

Andrews SC, DCJ

ORDER:

JUDGMENT FOR THE PLAINTIFF AGAINST THE FIRST, SECOND AND THIRD DEFENDANTS IN THE SUM OF $269,336.63

THE PARTIES ARE AT LIBERTY TO MAKE SUBMISSIONS AS TO INTEREST, AS TO THE TERMS OF ORDER FOR THE RECOVERY OF POSSESSION OF THE RESIDENCE AND AS TO COSTS

ADJOURNED TO 9.30AM ON 13 JULY 2016

CATCHWORDS:

CONTRACT – whether the parties agreed an amount was owing – whether the creditor provided consideration for the debtors’ promise to pay – whether the debtors impliedly requested the creditor to forbear from suit – whether the debtors impliedly requested the creditor to forbear from terminating a contract

TORT – CONVERSION – whether the defendant converted stock – whether the plaintiff proved what stock was converted

Carter and Harland, Contract Law in Australia (4^th ed) Butterworths 2002 at [355]

COUNSEL:

P Ahern for the plaintiff
N Jarro for the defendant

SOLICITORS:

Merthyr Law for the plaintiff
Robert Bax & Associates for the defendants

Background

1. To understand the issues, I first set out what appears to be the uncontentious background.  The plaintiff’s financial controller performed a stocktake at its Brisbane warehouse. The warehouse was generally under the control of Mr Rackley.  The stocktake suggested that stock which cost the plaintiff no less than $299,899.91 was missing.  The plaintiff alleges that on completion of the stocktake Mr Rackley, the second defendant, agreed that sum of money was owing, that the first defendant Rackley Trading Pty Ltd (“Rackley Trading”) would pay and that Mr Rackley and his wife would provide a mortgage over their residence as security for repayment.  Four days later Mr and Mrs Rackley provided the plaintiff with a mortgage over their residence to secure “all money owing” by them or by Rackley Trading.  $30,000.00 was subsequently repaid to the plaintiff.  The plaintiff then served on Mr and Mrs Rackley a notice of exercise of power of sale under the mortgage that $269,336.63 remained outstanding and gave them thirty days within which to pay.  The plaintiff alleged a further alternative claim against Mr Rackley and Rackley Trading that those two defendants converted the missing stock causing loss of $299,899.91.

Issues

1. Firstly, did Mr Rackley agree that $299,899.91 was owing or was the amount owing left unresolved? If the amount was unresolved the defendants argue that the agreement was uncertain and that there is no debt for the plaintiff to seek repayment of. (The agreement was for that sum.  It was not uncertain.)  Secondly, was the agreement unenforceable, for lack of consideration from the plaintiff? (The agreement was enforceable as there was consideration.)  Thirdly, did Mr Rackley and Rackley Trading convert some or all of the stock recorded as missing? (Yes, they converted all the stock recorded as missing.)  Fourthly, did the plaintiff prove the amount of stock converted? (Yes, no less than stock of a market value of $299,899.91.)  Fifthly, has Mr Rackley proved a cause of action for unpaid consultancy services of $46,475.00 on account of a failure by the plaintiff to pay that amount in respect of 13 invoices? (No.)  Sixthly, did he counterclaim for payment for it or only plead a set off? (It is unnecessary to answer.)  Seventhly, can a claim for unpaid consultancy services be set off against the plaintiff’s claims for payment of a debt or for damages for conversion? (It is unnecessary to answer.)  Mr and Mrs Rackley signed a mortgage to secure unspecified amounts.  Eighthly, was the mortgage unenforceable for uncertainty, because the amount owed is an uncertain amount? (The amount was certain.)  Ninthly, was the mortgage unenforceable for failure by the plaintiff to provide consideration? (No, as it operates as a deed no consideration was required.) Tenthly, should the mortgage be “set aside on the ground of misrepresentation”?

Facts

1. The plaintiff was at material times engaged in the business of meat processing and wholesale selling and distribution of meat to Queensland, New South Wales and Western Australia.  Rackley Trading was at all material times in the business of selling meat products as an independent selling agent.  The second defendant, Mr Rackley, was at all material times the sole director, company secretary and shareholder of Rackley Trading.  The third defendant, Mrs Rackley, is Mr Rackley’s wife.  Mr and Mrs Rackley are and were at all material times registered proprietors of a property at 58 Perrins Road, Ashwell in the State of Queensland, more particularly described as lot 500 on Crown Plan CH31433, County of Churchill, Parish of Walloon, title reference 12253114 (“the Ashwell Property”).

1. On about 16 August 2010 the plaintiff and Rackley Trading entered into a Contract Services Agreement (“the CSA”).[1]  Pursuant to the CSA, Rackley Trading was to provide the plaintiff with services as a selling agent of meat products.  Rackley Trading was free to decide how it achieved a sales result.  It could “place” any order from a supplier up to the value of $50,000.00 without approval from the plaintiff.  It had authority to hold up to $250,000.00 worth of stock at a location endorsed by the plaintiff.  Rackley Trading was to invoice the plaintiff for 35% of net profit weekly each Friday.  That net profit was to be calculated from sales, less the cost of goods sold and the cost of cold storage, rent, wages, administration expenses, freight and any other expense incurred or paid by the plaintiff in relation to the sales made in Queensland.  The plaintiff agreed to pay such invoices 28 days from the date of the invoice, provided the invoice was in a form acceptable to the plaintiff and enabling the plaintiff to claim GST if applicable and provided the invoice was accompanied by such records as may be required by the plaintiff to support the invoice, for example, proof of delivery of the goods. 

   [1]Exhibit 1, Tab 1.

1. Duties and responsibilities of Rackley Trading to the plaintiff were set out in the CSA.  They included the responsibility to do a full stocktake every Friday at the close of business trading and to be “accountable for and absorb the cost of any stock loss.   Any stock losses will be deducted from Rackley’s invoice to Makani the following Friday after each stocktake”.  Rackley Trading agreed to responsibility to keep adequate records of work undertaken.  It had responsibility to assist the plaintiff’s management team staff member to perform a bi-monthly stock audit.

1. The plaintiff does not claim on the basis of Rackley Trading’s obligation in the CSA to be accountable for and absorb the cost of any stock loss.  The plaintiff’s claims of an oral agreement to pay and in conversion have different elements from an agreement to account for stock loss.  If a third party had stolen the stock the obligation under the CSA would arguably oblige Rackley Trading to account for the loss which occurred without fault on its part.  Theft by a third party would not be a conversion by Rackley Trading.  Under the CSA the plaintiff and Rackley Trading had an agreement about compensating for stock losses revealed by a stocktake.  That was arguably limited to a stocktake to be done weekly by Rackley Trading rather than the bi-monthly stocktake by the plaintiff.  In fact, Mr Rackley did not do stocktakes weekly.  He did them about every six weeks and forwarded the results to the plaintiff’s Sydney office.   Rackley Trading had an interest in the accuracy of stocktakes.   It was to be accountable for and absorb the costs of any stock loss.  I infer that Mr Rackley was competent to judge whether a stocktake had been properly undertaken.  I also infer that Mr Rackley on behalf of Rackley Trading maintained a keen interest in the accuracy of the plaintiff’s records of sales, cost of goods sold and any other expense incurred by the plaintiff in relation to sales made by Rackley Trading.  Mr Rackley’s interest in these matters would arise from the fact that those matters directly affected the amount of any invoice Rackley Trading could supply to the plaintiff when claiming 35% of net profit.

1. The express terms of the CSA do not include any clause which obliges the plaintiff to pay Mr Rackley or Rackley Trading for “consultancy fees” or for “sale of stock, delivery of stock, picking of orders, unloading of trucks, loading of trucks, picking up checks, banking, picking up mail, administration services”.[2]  On the contrary, the CSA at clause 2a contained an agreement that “the payment of fees would constitute full payment for the provision of Services by Rackley Trading including all work undertaken by Rackley Trading”.  The payment of fees referred to in clause 2a was set out in clause 2b.  It was 35% of the net profit on a weekly basis.  There was no provision for a regular weekly consultancy fee.  Notwithstanding that, it seems that Rackley Trading fell into a pattern of sending invoices weekly for “consultancy fees” for $3,250.00 and that the plaintiff paid them.  I infer that because Rackley Trading failed to carry out the weekly stocktake which it was obliged to perform there was no mechanism for calculating the 35% net profit on a weekly basis which would have allowed Rackley Trading to invoice the plaintiff pursuant to the CSA.  If the plaintiff and Rackley Trading fell into a custom whereby the plaintiff paid invoices for “consultancy fees” one would ordinarily expect that it would eventually be subject to adjustment once stocktakes were done.  Whether the parties made such adjustments is not important for the purposes of this proceeding.  Significantly for this proceeding, Rackley Trading had no right under the CSA to payment of a weekly consultancy fee.  Its right to payment was for 35% of net profit.  There was no evidence about the existence of net profit, weekly or otherwise, for the months of June, July or August 2013. The claim made by Rackley Trading for payment of 13 invoices for consultancy services is dealt with below. Its fundamental flaw is that it is a claim made pursuant to the CSA which makes no provision for payment for consultancy services and is inconsistent with such a claim.

   [2]T2-99 lines 18-20.

1. In about 2010 the plaintiff gave Mr Rackley a key to the plaintiff’s warehouse at 1201 Lytton Road, Hemmant in Queensland to assist Rackley Trading and Mr Rackley to provide the services to the plaintiff pursuant to the CSA.  Between August 2010 and May 2013 Rackley Trading and Mr Rackley were authorised by the plaintiff to and they did access the warehouse when Mr Rackley considered it necessary, using the key and removing stock as required to provide the services to the plaintiff pursuant to the CSA.  From August 2010 until about May 2013 Rackley Trading provided services to the plaintiff pursuant to the CSA and rendered invoices pursuant to the agreement.

1. Mr Paul Kasparian, the managing director of the plaintiff, and Ms Quarmby, the plaintiff’s financial controller, had each become concerned about the accuracy of the reported levels of stock held in the Brisbane warehouse.  Ms Quarmby, due to these concerns, flew to Brisbane on 22 May 2013 and met with Mr Rackley.[3]  In cross-examination Mr Rackley agreed that Ms Quarmby met with him at about this time and that she told him that she was concerned about the levels of stock, because she had noticed that Mr Rackley was making adjustments to stock counts after they were made.[4]  Ms Quarmby’s evidence was that Mr Rackley replied to her that he had been “fudging the stocktake” and that there was stock missing, and that as a result of this Ms Quarmby decided to personally conduct a stocktake of the Brisbane warehouse. Mr Rackley denied that he said this.  It is consistent with events which came to light on 30 and 31 May 2013 and with Mr Rackley’s general willingness to accept responsibility for his misconduct.  I accept that Mr Rackley made this admission to Ms Quarmby.

   [3]T1-51 lines 17-41.

   [4]T2-80 line 24 to T2-81 line 17.

1. Ms Quarmby is the financial controller of the plaintiff and has been for about 10 years.  In the early 1980’s she did an accounting course up to Stage 3.  Part of her duties as financial controller are and were to oversee the financial reporting, such as the reports of the profit and loss, the balance sheet, the trial balance, the general ledger and the movement of money in and out.  The plaintiff uses an accounting software program called System 77.  Ms Quarmby has used that program since she started work with the plaintiff.  It has been used by the plaintiff every day and has always worked properly. 

1. At relevant times the plaintiff has maintained operations in Western Australia, in Queensland at the warehouse at Hemmant and at Prospect, a suburb of Sydney in New South Wales.  The main location is at Prospect.

1. With respect to the accounting software program, System 77, Ms Quarmby explained: sales and expenses are entered into the system which can generate profit and loss.  Information from Rackley Trading would be entered into System 77.  Rackley Trading’s sales figures would be sent by facsimile or by email daily to Sydney.  The sender would be either Mr Rackley or staff in Queensland.  The information sent would be a description of the product, the quantity, the customer name, the delivery address and the weight of the product.  Upon receipt of that information in Sydney, one of the administration staff would enter the information into System 77.  Ms  Quarmby would not do the data entry.  She oversees the administration staff.  The information would be entered into the “sales order entry program”.  System 77 would generate an invoice.  In Queensland, at the warehouse, a network printer was connected to the server in New South Wales.  It meant that when System 77 generated an invoice it would print the invoice in Queensland.  The invoice was supposed to go with the goods when they were delivered. Rackley Trading was responsible for delivery.

1. Mrs Quarmby would use System 77 to generate a sales analysis every Friday.  It would show the tonnage sold, a description of the stock sold, the cost of that product and the profit margin.  She would give a copy of that to the director of the plaintiff, Mr Kasparian. 

1. Ms Quarmby would, monthly, give a copy of the weekly reports to Mr Rackley.  Ms  Quarmby would also use System 77 to create monthly a profit and loss account for Queensland and would send it to Mr Rackley with an analysis of that month’s sales invoices for Queensland.  She sent it by email.   That information would show what sales had been made during that month and what expenses had been incurred during that month.  It would be supported by the relevant invoices.  Ms Quarmby would also email the information to Mrs Rackley, the third defendant. 

1. Each of the plaintiff’s employees had access to System 77 at relevant times.  Each individual has an individual login and unique password.  Ms Quarmby and Mr Kasparian are the only persons who had access to general ledger information.  They and all other employees had access to sales, accounts receivable, inventory, purchases and accounts payable.  General ledger information, viewable by Ms Quarmby and Mr Kasparian, included information such as sales, expenses, balance sheet items such as plant and equipment, motor vehicles, trade creditors and debtors and bank balances. 

1. Anyone was permitted to do data entry to enable invoices to be generated.  This was commonly done by transferring data from a “picking slip”.  A picking slip is a document typed up by a staff member of the plaintiff.  It includes information such as the customer’s name, a description of the product, the weight, the price and the delivery address.  Commonly, Mr Rackley would send a picking slip to Sydney and staff there would generate an invoice.

1. On or about Thursday 30 May 2013, Ms Quarmby performed a stocktake at the warehouse.  In conducting that stocktake, Ms Quarmby tried to reconcile the stock that Mr Rackley and Rackley Trading had removed from the warehouse with the stock which was recorded in the invoices that Rackley Trading had rendered to the plaintiff pursuant to the CSA.  I infer that Ms Quarmby tried to reconcile the stock which, according to records compiled using System 77 should have been in the warehouse, with the stock which was actually at the warehouse.  During the stocktake the staff under her direction did some cross checks to reduce the risk of counting errors.[5]  Mr Rackley was present at the warehouse during the stocktake, was concerned about the prospective result because he knew stock would be discovered to be missing and he helped with some of the counting personally.  Mr Rackley accepts that Ms Quarmby showed him a document which was in material respects a copy of the stocktake variance report[6] which shows variances of  $299.899.91.  I accept Ms Quarmby’s evidence that she gave him a copy that day and that she advised her superior, Mr Kasparian of the result. Mr Rackley accepted in evidence that the actual stocktake count of what stock was present in the warehouse at the time of the stocktake was correct.[7]

   [5]T2-22.

   [6]Exhibit 1 tab 2.

   [7]T2-85 line 20.

1. I accept that the stocktake produced the result that, after crediting the positive variances, there was stock shown to be missing at a cost of $299.899.91.  The cost of per unit recorded was the average cost to the plaintiff, including the cost of freight, of the all the units of product of the same description.[8]  Ms Quarmby considered the possibilities that a recent transaction had not yet been entered into System 77 or that there had been an error in additions within an invoice and looked at the big invoices to be sure that they had been entered correctly into System 77.  She did not check every sale and purchase for the month.  She found nothing which caused her to amend the stocktake.[9]  Wherever there was a major variance, such as 200 kg, or 100 kg for expensive product such as tenderloins, Ms Quarmby directed a recount.  She contacted Sydney and directed two staff there to do audit checks on all purchases and invoices, by which I infer she meant sales invoices.[10]

   [8]T2-22 and 23.

   [9]T2-12.

   [10]T2-25 and T2-78 line 43.

1. The plaintiff alleged[11] that the stocktake “disclosed that the plaintiff’s stock listed in Annexure A to the Statement of Claim, totalling $299,899.91 was missing from the Warehouse”. 

   [11]Amended Statement of Claim, paragraph 14.

1. The defendants did not deny that allegation.  Instead, the defendants pleaded[12] that they were then “unable to ascertain the veracity or otherwise of the allegations as despite previous requests the Defendants were only provided with ‘Annexure A’ on 8 October 2014”.  That aspect of the defendants’ pleading was left unchanged in the further amended defence filed on the first day of trial on 15 February 2016.  It was arguably a failure by the defendants to comply with the rules relating to pleading and arguably amounted to an admission.  The plaintiff did not make that submission.  I will not make the finding against the defendants that they have admitted the allegation.  However, it is relevant to consider what criticisms of the variance report the defendants made after no less than sixteen months during which they were able to consider it before trial.  The defendants did allege for the first time in the week before trial that Mr Rackley had advised Ms Quarmby that “there were data entry errors from the plaintiff’s head office” and that allegation was included in the pleading filed on the first day of trial.[13]  Because this was apparently an allegation of a conversation about data errors rather than an allegation that there had been a data error this matter was brought to the attention of counsel for the defendants on the first day of trial before evidence had been led.  He confirmed that it was not part of the defendants’ case to prove that there were data errors.[14]  As a consequence, the plaintiff carried the onus of proof that there had been no data error.  The defendants extracted from Ms Quarmby the concession that thefts of stock by persons unconnected with the defendants were possible and could result in stock variances and the concession that miscounts could cause an error. But the defendants produced no evidence that there was a data error or that there had been theft, or that they had suspected theft. Mr Rackley accepted that there had been no miscount on the occasion of the stocktake undertaken by Ms Quarmby. 

   [12]By their further amended defence filed 15 February 2016.

   [13]Further amended defence paragraph 4(b)(i).

   [14]T1-10 lines 30-39.

1. Annexure A to the Statement of Claim is entitled “Inventory 10.05.13 Stocktake Variance Report” containing, among other things, a list of meat products with the kilograms of product recorded as “on hand” contrasted with the kilograms of product “counted” with a list of the kilograms “variance”, the unit cost per kilogram and the dollar amount for the variance.  A copy of it is part of Exhibit 1.  The Annexure was printed on 10 July 2014.  Some variances appear as positive, suggesting there was more product on hand than records led Ms Quarmby to expect.  Some variances were negative suggesting that there was less stock on hand than records led Ms Quarmby to expect.  Ms Quarmby’s evidence was that after the stocktake was finished, she entered the results recorded on the stock tally sheet into the System 77 program and thereby generated a Stock Variance Report, which was allocated a specific “cycle” number, Cycle 3013.[15]  A print-out of the Stock Variance Report is Annexure A to the Statement of Claim and forms part of Exhibit 1.  The Stock Variance Report records the result of the stocktake – that $299,899.91 worth of stock was missing from the warehouse.

   [15]T1-54 line 13 to T1-55 line 20.

1. Rackley Trading had been the source of information which was fed into the System 77 program about stock at the Brisbane warehouse.  Rackley Trading staff or Mr Rackley would alert the plaintiff’s Sydney office what deliveries were required and staff at the Sydney office would create an invoice which would print at the printer in the Brisbane warehouse.  Mr Rackley was responsible for sending the invoice, with the delivery, to the customer.  Mr Rackley would inform Sydney of the results of stocktakes performed by Rackley Trading in Brisbane.[16]  The records of stock Ms Quarmby created before the stocktake she conducted on 30 May 2013 were records based on information Mr Rackley had supplied to the Sydney office: information about stocktakes performed in Brisbane by Rackley Trading, orders for meat and deliveries from the Brisbane warehouse by Rackley Trading.  However, Mr Rackley was keeping secret from the plaintiff significant supplies to at least one customer of Rackley Trading.  That customer was called Super Butcher.  It meant that, unbeknown to the plaintiff, any record which the plaintiff created for stock on hand at the Brisbane warehouse would be incorrect because it failed to deduct stock which had been delivered from the Brisbane warehouse by Rackley Trading to Super Butcher.

   [16]T2-79 line 32.

1. Mr Rackley gave evidence that Ms Quarmby told him that there was a problem with stock levels and that he responded that “a percentage of stock, around $180,000.00 had gone to Super Butcher” and that he believed the rest would be “made up of data entry errors”.[17]  Ms Quarmby confirmed that Mr Rackley told her that there were substantial unpaid deliveries to Super Butcher[18] but she did not give evidence of whether Mr Rackley had specified an amount. She specifically denied that he raised data error.  If Mr Rackley is accepted it would mean that he was suggesting to Ms Quarmby that there was almost $120,000.00 worth of data error.

   [17]T2-73 lines 39-41.

   [18]T2-32 lines 35-43.

1. The defendants did not plead that any stock had been delivered to Super Butcher.  Instead they pleaded that Mr Rackley advised Ms Quarmby that missing stock or stock loss was attributed to Rackley Trading having supplied “Super Butcher”.  It was an allegation about a conversation as opposed to an allegation about supplies.  But Mr Rackley gave evidence that there had been supplies to Super Butcher.  Mr Rackley explained that he had done so contrary to Mr Kasparian’s instructions,[19] that he knew he had “done the wrong thing” and that he did not issue invoices to Super Butcher when delivering stock to it.  I accept those admissions.  I infer that he did not issue invoices to Super Butcher because he deliberately concealed from the plaintiff that he was making supplies to that customer.  He recalled that he told Ms Quarmby that he would do everything he could to make things right.  I accept that evidence.  He had no doubt that Ms Quarmby would have presented the inventory stock variance report to him when the stocktake was completed.[20] That document made the variance figure of $299,899.91 obvious. I find that he saw the figure. Mr Rackley went on to explain in evidence that Rackley Trading had made other deliveries without invoices.[21]  That was consistent with an admission either that Rackley Trading had mistakenly failed to include with some deliveries the relevant invoices which would have been printed in the Brisbane warehouse or his evidence was consistent with admitting a history with customers other than Super Butcher of making deliveries unbeknown to the plaintiff.  Mr Rackley did not suggest that these other unspecified deliveries without invoice to unspecified customers were by mistake.  He did not suggest they were with the plaintiff’s knowledge or consent.

   [19]T2-87 line 4 to T2-88 line 24.

   [20]T2-74 lines 33-35.

   [21]T2-88 line 10.

1. The day after the stocktake or on the second day of the stocktake but after it was complete, that is, on or about Friday 31 May 2013, Ms Quarmby and Mr Rackley met at 1201 Lytton Road and discussed the results of the stocktake.  At that meeting, Mr Rackley was aware that the stocktake showed that stock costing $299,899.91 was missing from the Warehouse.  Ms Quarmby had by that time consulted with the plaintiff’s managing director Mr Kasparian and with the plaintiff’s solicitor and she had drafted a document.  At that meeting Mr Rackley signed and returned to Ms Quarmby her document which provided:

“31^st May 2013
I hereby agree to give a Mortgage of all real property that I own in favour of Makani 2001 Pty Limited to secure repayment of all money that I owe the company on any account.”

Mr Rackley signed it and Ms Quarmby witnessed the signature.  Mr Rackley signed:

“Because I’d gone against Paul wishes – Paul’s wishes, and I wanted to make things right”.[22] 

[22]T2-75 line 7.

1. He explained in evidence:

“I was in fear of my job, in fear of a multitude of things, including going to jail.  I’d done the wrong thing, and I wanted to make things right…”[23] 

[23]T2-75 line 17.

1. Mr Rackley told Ms Quarmby at the meeting that he would refinance his house[24] and that he would speak to his wife that night.  Mr Rackley had to speak with Mrs Rackley because she was the joint owner of their home.[25]  He knew he had to persuade his wife to sign a document indicating her consent to his provision of security for a loan to repay the plaintiff.[26]  I am satisfied that he spoke with her that night about the need to secure repayment of a debt to the plaintiff by a mortgage over the home.  Soon after, he went to Suncorp-Metway and asked to borrow as much as it would lend on the security of a mortgage over the home.[27]

   [24]T2-86 line 21.

   [25]T2-87 line 7.

   [26]T2-87 lines 29-30.

   [27]T2-86 lines 43-46.

1. On or about Tuesday 4 June 2013, Mr and Mrs Rackley provided a mortgage[28] over the Ashwell property to the plaintiff.  The mortgage was registered on 20 June 2013 as registered mortgage 715151859.  Mrs Quarmby witnessed Mr and Mrs Rackley’s signatures to the mortgage.  During that meeting Ms Quarmby said words to the effect that the defendants would continue to work while the plaintiff and the defendants tried to resolve the matter.[29]

   [28]Exhibit 1, Tab 4.

   [29]Amended Reply, paragraph 7(c)(ii).

1. Relevant terms of the mortgage included the following:

5. Description of debt or liability secured
all money owing or at any time owing or outstanding by the Mortgagor or anyone or more of them to the Mortgagee and/or by Rackley Trading… under an equitable mortgage between the first named Mortgagor and the Mortgagee dated 31 May 2013 and/or under a Contract Services Agreement dated 16 August 2010 or on any account whatsoever.

6. Covenant/Execution The Mortgagor covenants with the Mortgagee in terms of:… attached schedule…
  SCHEDULE
…
2. The Mortgagors, and each of them, acknowledge and agree that they have mortgaged and charged all of their right title and interest in the mortgaged property… to secure the payment or repayment of all monies owing or due to be paid to the Mortgagee:

(a) By the first named Mortgagor Darren Desmond Rackley pursuant to an equitable mortgage dated 31 May 2013 signed by the said Darren Desmond Rackley in favour of the Mortgagee;

(b) By Rackley Trading Pty Ltd… under a Contract Services Agreement… and

(c)By the Mortgagors and/or either of them from time to time or at any time on any account whatsoever.

…
4. The outstanding balance due and owing to the Mortgagee from time to time will bear interest, calculated on a monthly basis in arrears, at the rate of 9% per annum calculated daily.
…
6. The Mortgagors will repay all money currently owing to the mortgagee as at 31 May 2013 in full within three (3) months of that date…

1. Rackley Trading issued 13 invoices to the plaintiff, one each week, from 4 June 2013 to 28 August 2013, each claiming the sum of $3,575.00 for consultancy services.

1. On each of 23, 25 and 26 July 2013 Mr Rackley paid $10,000 to the plaintiff totalling $30,000.00. It was not attributed by the defendants to any indebtedness other than in respect of the missing stock.

1. By letter[30] dated 18 August 2013 Mr Rackley wrote to Mr Kasparian, the managing director of the plaintiff, and acknowledged that he owed a debt to the plaintiff and that Mr Kasparian could send him to prison.  He made no request for the plaintiff to provide particulars of the debt.  The absence of such a request does not inevitably mean that there was a prior agreement by Mr Rackley with Ms Quarmby to pay $299,899.91 shown in the Stock Variance Report.

   [30]Exhibit 1 Tab 5.

1. On 29 August 2013 and 17 September 2013 the defendants’ solicitor formally requested particulars of the alleged missing stock and/or stock loss alleged to be due and owing.  By that date it was clear to Mr Rackley that he could not raise sufficient funds to repay the plaintiff any substantial part of $269,889.91.  I do not accept that these requests by the solicitor tend to suggest that Mr Rackley had invited Ms Quarmby on 31 May 2013 to give particulars of the stocktake so they could discuss the loss.

Did Mr Rackley offer to repay $299,899.91 or did he make an offer which was uncertain as to amount because it was conditional upon the plaintiff’s first properly particularising the amount owing for missing stock?

1. For the defendants it was submitted that there was no ‘meeting of the minds’ about the “debt” which formed the basis of the security (i.e., the registered mortgage); the parties never reached a concluded agreement about the amount for which the plaintiff asserted Rackley Trading was liable; if the parties reached a concluded agreement, then the amount would presumably have been included in the 31 May 2013 agreement to give a mortgage[31] or in the registered mortgage; neither the mortgage nor the May 2013 collateral agreement identifies the precise dollar value assigned to the “debt”. The defendants submit that the plaintiff’s only relief is a claim for damages.[32]

   [31]Exhibit 1, Tab 3.

   [32]Defendants’ outline of submissions paragraph 2.

1. I find that Ms Quarmby did show Mr Rackley a copy of the stocktake result and that he saw the figure owing.  It is unnecessary to decide whether she correctly remembers leaving a copy with Mr Rackley, though I accept that she did.  What is significant is that he knew and understood the dollar figure for the cost of allegedly missing stock.

1. I reject Mr Rackley’s evidence that he told Ms Quarmby that there were data errors.  I prefer Ms Quarmby’s evidence that she would have remembered if he had raised this.  Having made that finding, it becomes more plausible that there was an opportunity for agreement on 31 May 2013.  I accept the evidence of Ms Quarmby and Mr Rackley that she showed Mr Rackley the stock variance report, and I accept the evidence of Ms Quarmby that she said words to the effect: “There is close to $300,000.00 worth of stock missing. What do you propose to do with the stock loss?” and that Mr Rackley said that he was responsible for it and that he would try to pay it back.

1. I find that Mr Rackley did thereby impliedly acknowledge that he and Rackley Trading were responsible for the whole loss and offered on behalf of himself and Rackley Trading to repay the figure shown in the Stock Variance Report which was $299,899.91.  He was then fearful of imprisonment, of losing his company’s employment with the plaintiff, of thereby losing his best opportunity to earn and fearful of losing his home.  It seems likely that he resigned himself to the fact that his wrongdoing was discovered and that he was then offering, without qualification, to do whatever he could to make amends to the plaintiff. It seems unlikely that he then raised an issue of historical data entry errors, especially as he could point to no example of one at trial.

Was Mr Rackley’s offer to repay unenforceable by the plaintiff for lack of consideration?

1. The plaintiff made a written submission in response to a proposition from the bench on the first and last days of trial that the plaintiff was obliged to show that it provided consideration for the offer to repay before it could enforce Mr Rackley’s promise to pay $299,899.91.  It was probably unfair to the plaintiff for me to raise the issue of lack of consideration because the defendants did not raise it.  It was not the defendants’ contention by their pleading or their submissions that the plaintiff failed to supply sufficient consideration to enforce an agreement to pay, if it had been made on 31 May 2013.  The defendants’ argument for impeaching the plaintiff’s case of an agreement to pay $299,899.91 was that there was no agreement as to the amount owed.[33]  The defendants accepted that a cause of action based upon a promise to pay existed but that there was no amount upon which to sue.  They did not contest the plaintiff’s proposition that there was an implied request to the plaintiff that it forbear from suit.  They argued “forbearance to sue did not arise because the value of the money already lent (sic) was not identified”.  I have found that the value of the debt was identified and agreed.  If there was unfairness to the plaintiff from my raising the consideration issue, it fortunately is irrelevant having regard to my view that there was consideration.

   [33]Defendants’ outline paragraphs 2 and 27.

1. In response to my concern about consideration the plaintiff submitted: forbearance from suing even for a limited period is good consideration, a request to forbear need not be express, and as the learned authors of Contract Law in Australia put it, “the cases suggest that a request will be easily inferred, as least where a debtor promises the creditor to secure payment of the debt”.[34]

   [34]Contract Law in Australia (4^th ed) at [355].

1. The plaintiff is not confined to a proving an implied request for it to forbear from suit and subsequent forbearance from suit as a basis for proving that it provided consideration.

1. Mr Rackley frankly acknowledged that he realised that, in the circumstances of the meeting with Ms Quarmby on 31 May 2013, the plaintiff might immediately sue for in respect of this missing stock,[35] that Rackley Trading’s employment with the plaintiff pursuant to the CSA was in jeopardy and that his imprisonment was a possibility.  The plaintiff could, at the very least, that day have given thirty days’ notice to terminate the CSA so as to terminate the services of Rackley Trading.  Mr Rackley was desperate to be permitted to remain trading so that he would be better able to appease Mr Kasparian and repay the plaintiff.

   [35]T2-94 line 23.

1. Mr Rackley made no express request to the plaintiff to forbear from suing or from terminating the CSA on 31 May 2013 when admitted he was responsible and that he would try to pay it back.  But I find that there was an implied requests to forbear from terminating the CSA, to forbear from suit and to give Mr Rackley the opportunity to continue to trade to reduce his debt to the plaintiff.

1. In fact, the plaintiff did forbear from terminating the CSA until August 2013 and from suit until 2014.  By those forbearances the plaintiff provided consideration for Mr Rackley’s agreement on 31 May to pay.

1. I find that on 31 May 2013 Mr Rackley on his own behalf and on behalf of Rackley Trading agreed with Ms Quarmby for the plaintiff that a debt in the amount of $299,899.91 was owing by them to the plaintiff.

1. On 5 February 2014 the plaintiff served a notice on Mr and Mrs Rackley which purported to be pursuant to s 84 of the Properly Law Act 1974 (Qld) requiring payment of $269,336.63 alleged to be outstanding.

1. The next day, on 6 February 2014 and again on 27 February, 4 March and 28 May 2014, the defendants’ solicitor again requested the plaintiff to particularise the alleged missing stock and or stock loss that the plaintiff alleged was due and owing.

1. Mr and Mrs Rackley did not pay the amount of $269,336.63 demanded within 30 days of service upon them.

Has Mr Rackley proved a cause of action for unpaid consultancy services of $46,475.00 on account of a failure by the plaintiff to pay that amount in respect of 13 invoices?

1. Mr Rackley’s services were suspended in early July 2013.[36]  It meant that he could no longer go to the warehouse where the meat was stored.  His diaries were taken by Mr Kasparian.  Photocopies of 13 invoices were produced in Court for the price of consultancy services allegedly provided by Mr Rackley.  The first is dated 4 June 2013.  The fifth to thirteenth invoices are dated from 3 July 2013 until 28 August 2013 and relate to nine weeks which were probably after Mr Rackley’s services were suspended.  Rackley Trading’s services were terminated on about 9 August 2013.  What was the evidence that the services were provided?

   [36]T2-50 line 13.

1. Rackley Trading continued to work after the stocktake, though with restrictions.[37]

   [37]T2-99 lines 1-7.

1. Mr Rackley accepted his counsel’s leading proposition that Rackley Trading did particular work to justify invoices dated 7 and 14 August 2013.  But this was for periods after Mr Rackley Trading’s suspension and in the case of the second invoice it was probably for a period after its termination.  Mr Rackley argued that Mrs Rackley was the person who created invoices and that she was so honest that she would not have created them unless there had been a good reason.  That character evidence about Mrs Rackley was not sufficient, by itself, to satisfy me on the balance of probabilities that Mr Rackley rendered the services referred to in the 13 photocopy invoices.  Mr Rackley implied by that, that he had no particular memory of providing services in the period referred to in the 13 photocopy invoices, but that Mrs Rackley must have known when preparing original invoices that services had been provided by Mr Rackley.  Mrs Rackley gave no evidence about whether the services referred to in the 13 photocopy invoices had been provided.  Mr Rackley was shown one photocopy invoice and was asked to describe what services were encompassed by the words “consultancy services” and he described certain services.  I infer that he was recalling generally what he used do to earn a fee for ‘consultancy services’.  I am satisfied that in the months when the plaintiff had been prepared to pay for ‘consultancy services’ and when they had been provided by Mr Rackley, they had been of the kind he generally described.  I am not satisfied that Mr Rackley recalled providing any services after his services were suspended in July 2013.

1. I am not satisfied that Rackley Trading provided any services to the plaintiff beyond the first few days of July 2013.  The issue is narrowed to whether Rackley Trading has established its alleged entitlement to payment for those ‘Consultancy Fees’ described in the first four or five of the 13 invoices.  The defendants pleaded that the plaintiff is ‘liable …for the … invoices in accordance with the Contract Services Agreement”.

1. There was no obligation in the CSA upon the plaintiff to pay for such services.  The plaintiff’s obligation was to pay a percentage of net profit.  Rackley Trading has not claimed a percentage of net profit and has not established that the plaintiff is liable to pay for services or that there was a basis for fixing the price of services at $3,575.00 per week.                   

Was the mortgage unenforceable for failure by the plaintiff to provide consideration?

1. The defendants submitted that the consideration for a mortgage is usually an advance of money agreed to be lent or, where already lent, forbearance to sue.  They argued that there was no advance of money because no amount was ever agreed to.  I infer the argument that there was no debt agreed on 31 May 2013 because Mr Rackley then alleged significant date errors were to be accounted for.  They further submitted that no forbearance to sue arose because the value of the money sued for was not identified. 

1. If this submission involved an implied submission that the mortgage was unenforceable for lack of consideration, the submission fails.  The mortgage was registered.  That meant[38] that the mortgage takes effect as a deed.  Lack of consideration would not prevent the plaintiff from seeking to enforce the terms of the mortgage. 

   [38]Land Title Act s 176.

Was the mortgage unenforceable for uncertainty?

1. The defendant argued that the mortgage was void for uncertainty.  The argument was not centred upon uncertainty in the wording of the mortgage but was rather concerned with uncertainty as to the amount of the debt.[39]  The defendant accepted that if the Court found that a particular amount was owed by Rackley Trading to the plaintiff the mortgage would apply to it.[40]

   [39]Defendants’ outline of submissions paragraphs 13, 16, 18, 20 and 27.

   [40]T3-6 lines 7-11.

1. The mortgage secured all money owing or at any time owing or outstanding by Mr Rackley and/or by Rackley Trading on any account whatsoever. 

1. The mortgage was apt to secure money owing by Mr Rackley and Rackley Trading pursuant to the agreement reached on 31 May 2013 to pay $299,899.91. It was and is not uncertain. It secured the $269,899.91 owing after $30,000 had been repaid. That finding effectively disposes of a subsidiary argument that the notice of exercise of power of sale served on the second and third defendants was “not accurate in identifying the basis for the amount claimed to be in default and there was too much uncertainty”. It claimed that $269,336 was outstanding.

Conversion claim

1. In his evidence in chief, and in a response to a question from the bench while he was under cross-examination, Mr Rackley stated that he had delivered $180,000.00 worth of the plaintiff’s stock to Super Butcher.[41] Mr Rackley’s evidence was that he was wrong to have delivered any product to Super Butcher, as he had been instructed not to do this, and he agreed that he told Mr Wallis on 31 May 2013 that he had supplied certain product to Super Butcher, but didn’t invoice them as he had been told not to serve them. It is clear from Mr Rackley’s evidence that Mr Rackley, through his company Rackley Trading, delivered $180,000 worth of stock other than as the plaintiff had directed, and that the first and second defendants thereby deprived the plaintiff of that stock and converted the stock to their own use.

   [41]T2-73 lines 39-41; T2-85 lines 7-8.

1. By the written submission for the plaintiff, it pressed it claim for conversion in respect of $180,000.00 worth of its stock which Mr Rackley admitted delivering to Super Butcher.

1. The defendants’ only attack on that aspect was to correctly observe in oral submissions that Mr Rackley admitted that the stock delivered to Super Butcher was “around” $180,000 worth.

1. In its oral submissions, the plaintiff, consistently with its amended statement of claim, expanded its claim for damages for conversion to a claim that the whole amount of $299,899.91 was converted.[42] 

   [42]T3-22 lines 28-29.

1. Was the stocktake correct in identifying missing stock and the cost variances and the variance balance?  This issue is directly relevant because the plaintiff alleged[43] that Rackley Trading and or Mr and Mrs Rackley dealt with the stock particularised in a manner inconsistent with the plaintiff’s rights as owner and thereby converted the stock.

   [43]Amended statement of claim paragraph 37.

1. Data errors would have directly affected the amount of net profit to which Rackley Trading was entitled. Had there been errors or potential errors known of or suspected by Mr Rackley it is likely that Mr Rackley would have alerted Ms Quarmby irrespective of the stocktake done on 30 and 31 May.

1. When Mr Rackley was giving evidence he was given the opportunity to identify what data errors he allegedly referred to on 31 May 2013.  Mr Rackley explained that there were complaints about data errors going back years.  The generality of that is unconvincing. 

1. There was no correspondence before or after the stocktake suggesting data errors in general or for particular entries. Mr Rackley knew on 22 May 2013 that the stocktake would occur on 30 May. If he suspected data errors before 30 May 2013 it is implausible that he failed to bring them up in conversation until after he was confronted with the data variance report after the conclusion of the stocktake.  But that was the effect of his evidence.

1. In the long period since 31 May 2013 Mr Rackley has not identified any stock entry at any time which he suspects to have been in error.

1. The allegation by the defendants that Mr Rackley complained of data errors was raised for the first time in pleadings the week before the trial.  That causes me to further doubt the reliability of Mr Rackley’s evidence about the conversation. 

1. On the other hand, the evidence of Ms Quarmby about the accounting software, System 77 and her supervision of data entry was not challenged indirectly or directly.  Significantly, the defendants did not allege in their pleading that the accounting by the plaintiff was inaccurate because of data errors.  On the contrary, they pleaded that Mr Rackley alleged data error in a conversation as a partial explanation for the variances in the stocktake. I accept the evidence of Ms Quarmby that if Mr Rackley had suggested to her that there had been data errors she would have remembered it, that it would have been important.[44]

   [44]T2-33 lines 33 and 47.

1. I reject Mr Rackley’s evidence that he alleged to Ms Quarmby that there were data entry errors.

1. If there were variances between stock on hand and stock which ought to have been on hand as a result of information supplied to the Sydney office by Rackley Trading, what was the explanation? There was an explanation offered by Mr Rackley in evidence and some hypotheses suggested by defence counsel and accepted as possible by Ms Quarmby. Theft was one. Mr Rackley did not refer to any theft which had occurred or been suspected. It is possible that stock was not converted because it was stolen by a third party or was lost or there may have been data or counting errors of which Ms Quarmby was unaware. Notwithstanding those possibilities, I am satisfied that stock revealed by the variance report to be missing was missing because Mr Rackley had knowingly caused it to be delivered to customers without the plaintiff’s authority or consent.

1. I am satisfied that the plaintiff’s accounting system for recording stock which should have been in the Queensland warehouse was probably correct and that there was no data error made by the plaintiff. Variances appeared because of misinformation deliberately supplied to the plaintiff by Mr Rackley.

1. For the plaintiff it was submitted that there was insufficient evidence of an intent to deprive the plaintiff of its immediate right to possession of the stock because there was no evidence about Mr Rackley’s state of mind.[45] I disagree that there was no evidence of Mr Rackley’s state of mind. If that submission is not accepted the defendant submitted that the assessment of damages for conversion was premised upon the unreliable Stocktake Variance Report and must fail.

   [45]Defendants’ outline of submissions paragraphs 36 and 37.

1. I accept the plaintiff’s submission that a classical mode of conversion consists in an unauthorised delivery of goods to someone not entitled. 

1. Having rejected the evidence that Mr Rackley raised data error as an excuse, the only direct evidence which might explain the missing stock are Mr Rackley’s admissions that stock was delivered to Super Butcher without invoices and that he had made other deliveries without invoices.  I am satisfied that no less than $299,899.91 worth of stock was delivered by Rackley Trading to Super Butcher or to Super Butcher and other customers, contrary to the plaintiff’s requirement that it be notified and that the customers be invoiced with invoices of which the plaintiff was aware.  I used the word “worth” ambiguously.  I refer to the cost to the plaintiff of the missing stock including the cost of freight to the warehouse in Brisbane.  I am satisfied that Mr Rackley knew in respect of every delivery to Super Butcher and every delivery without an invoice that the delivery was to occur and was not and would not have been authorised by the plaintiff.

1. The normal measure of damages for conversion is the market value of goods converted.  It is reasonable to infer that the market value of the stock sold was at least as high as the cost to the plaintiff of the stock including the cost of freight of the stock to the plaintiff’s warehouse in Brisbane.  The plaintiff might have claimed more on account of the missing stock but appears content to give credit to the defendant for the positive variances which were revealed in the Stocktake Variance Report. 

1. The plaintiff has established its alternate claim against Mr Rackley and against Rackley Trading on the basis of conversion. As $30,000 has been repaid it has proved a loss of $269,899.91.

Should the mortgage be “set aside on the ground of misrepresentation”?

1. This was pleaded as relief sought. Mrs Rackley gave evidence that during the meeting on 4 June 2013, Ms Quarmby said that mortgage would only be held until the dispute was resolved; and Mr Rackley’s job would be secure and that he would not lose his job.[46] Mrs Rackley did not state whether these matters were said before, or after, she signed the mortgage. Mr Rackley did not give any evidence that these representations were made during the 4 June 2013 meeting – in fact his evidence was to the contrary, as he could not recall anything being discussed about the document.[47]

   [46]T2-105 lines 11-17.

   [47]T2-77 lines 7-15.

1. Ms Quarmby denied making the representations, explained that she could not have made the second alleged misrepresentation, as it was not her decision whether the CSA would be terminated. I am not satisfied that the alleged representations were made.

1. Mrs Rackley did not give any evidence that she relied on the alleged misrepresentations; not is any such reliance pleaded. Reliance is fundamental to such a claim. The claim that the mortgage be set aside fails.

Relief

1. By its Claim filed 5 September 2014 and its Amended Statement of Claim filed 8 October 2014, the principal relief sought by the plaintiff is for judgment against the first, second and third defendants in the sum of $269,336.63 and for interest pursuant to statute; and as against the second and third defendants, recovery of possession of the mortgaged property and as against the first defendant for costs and against the second and third defendants costs on an indemnity basis. The defendants argued that their further amended defence operated as an implied counterclaim for consultancy services. I disagree. If I am wrong, I find that counterclaim is dismissed.

1. I note that the sum sued for is marginally less than the loss proved by the plaintiff. The plaintiff is entitled to recover the sum sued for.

1. The parties are at liberty to make submissions as to interest, as to the terms of order for the recovery of possession of the residence and as to costs.