Mode E Moda Pty Ltd v Physico Clothing Company Pty Ltd

[2006] NSWCA 251

New South Wales

Court of Appeal

CITATION:	Mode E Moda Pty Ltd v Physico Clothing Company Pty Ltd [2006] NSWCA 251
HEARING DATE(S):	29/08/06
JUDGMENT DATE:	29 August 2006
JUDGMENT OF:	Hodgson JA at 26; Ipp JA at 1; McColl JA at 25
EX TEMPORE JUDGMENT DATE:	08/29/2006
DECISION:	(1) Appeal dismissed with costs (2) Ordered pursuant to Rule 41.3 of the Uniform Civil Procedure Rules that money paid into Court in this matter be paid out to the respondent after 7 days.
CATCHWORDS:	CONTRACT - whether parties entered into a contract for the delivery of goods - appellant accepted delivery of goods - whether intention to create a legally binding contract existed - application of objective test. D
CASES CITED:	Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty (1988) 14 NSWLR 523
PARTIES:	Mode E Moda Pty Ltd (Appellant) Physico Clothing Company Pty Ltd (Respondent)
FILE NUMBER(S):	CA 40846/05
COUNSEL:	S M Kettle (Appellant) S R Donaldson SC/R D Marshall (Respondent)
SOLICITORS:	Martin J Watts (Appellant) Zabow & Wise (Respondent)
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 4739/04
LOWER COURT JUDICIAL OFFICER:	Phegan DCJ
LOWER COURT DATE OF DECISION:	30/09/05

CA 40846/05
DC 4739/04

HODGSON JA
IPP JA
McCOLL JA

Tuesday 29 August 2006

MODE E MODA PTY LTD v PHYSICO CLOTHING COMPANY PTY LTD

Judgment

1 IPP JA: The appellant, to which I shall refer as Materna Moda, is a retailer of maternity wear. In February and March 2004 the respondent, Physico, made 3 deliveries of Benetton maternity wear to Materna Moda. Physico contended that those deliveries were made pursuant to a contract it had entered into with Materna Moda and asserted that $175,646.45 was owing to it as the purchase price of the goods it had supplied. Materna Moda admitted the deliveries but denied that it had entered into a contract with Physico for the supply of the maternity wear in question. It denied it owed Physico anything.

2 Physico brought proceedings in the District Court against Materna Moda claiming the sum of $175,646.45. Physico based its claim on contract and alternatively unjust enrichment. Phegan DCJ upheld both causes of action. Materna Moda appeals against his Honour’s decision.

3 In regard to the appeal against the finding that Materna Moda had entered into a contract with Physico, Materna Moda argues that the judge erred in holding that the facts found by him established the contract as asserted by Physico. In view of the conclusion to which I have come it is not necessary to discuss the unjust enrichment aspects of the appeal.

4 The background to the dispute is as follows: Since 2001 Materna Moda had had a contract with Urban Essentials International Pty Ltd whereby Urban supplied it with Benetton products. In April 2003 Materna Moda placed its winter orders for Benetton maternity wear with Urban. These orders were for goods that had not yet been manufactured but were described in the order forms completed by Materna Moda and submitted by it to Urban. The orders so placed were subject to Urban’s standard terms and conditions that were generally applicable to all Materna Moda orders.

5 In the latter part of 2003, negotiations of a complex nature occurred between Urban, Benetton, Mr Stafrace, a director of Urban, and others. The negotiations were aimed at changing the way in which Benetton products were distributed in Sydney. These negotiations led to an agreement whereby Physico became the distributor in Sydney of certain Benetton products instead of Urban. Following this agreement Benetton delivered a substantial quantity of Benetton maternity ware to Physico and Physico paid Benetton the purchase price for these goods.

6 Physico then communicated with Urban’s customers to inform them of the change in supplier, of its intention to supply the orders that Urban had not yet fulfilled, and future orders. On 29 December 2003 Physico wrote to Materna Moda as follows:

“This letter is to introduce Vicenzo Pty Ltd, a subsidiary company of Physico Clothing Company Pty Ltd as the new supplier of the Benneton group labels.
Enclosed is a credit application that we need completed and returned to us as soon as possible to set up credit facilities and account details.
When making future payments please make all cheques payable to Physico Clothing Company Pty Ltd. Any direct bank payments are to be made to Westpac Banking Corp:
Account name: Physico Clothing Company Pty Ltd
Branch: 341 George St, Sydney
BSB: 032-000 Account number: 740910”

7 The statement in the letter that “Vicenzo” was a subsidiary of Physico was wrong. Physico held no shares in Vicenzo. Vicenzo at one time was to be involved with Physico and Benetton in the distribution of Benetton products, but this plan never materialised.

8 Relevantly, the letter informed Materna Moda that an entity related to Physico was to be the new supplier of Benetton, future payments had to be made to Physico (and, by necessary implication, not Urban) and if Materna Moda required credit, it had to complete and return the enclosed credit application.

9 Early in February 2004 Ms Dennis, the accountant of Physico, telephoned Ms Cobden-Jones, an officer of Materna Moda. The following exchange occurred:

“Ms Dennis: I am the accountant from Physico. I sent you a credit application a month ago. We haven’t got it back yet.
Ms Cobden-Jones: I don’t know Physico.
Ms Dennis: Physico has taken over your winter order from Urban Essentials. So that Physico can deliver the orders of Benetton & Sisley winter stock to you, you need to fill out and return Physico’s credit application.
Ms Cobden-Jones: What happened to Urban Essentials and Joe?
Ms Dennis: I don’t know the whole story but I know Joe Stafrace is operating a Melbourne office for Physico.
Ms Cobden-Jones: Okay. You send me another credit application I will fill it out and send it back to you so we can get our stock delivered from you.
Ms Dennis: We cannot deliver anything to you until the credit application is completed by you. Until then we cannot deliver to you anything.”

10 In this conversation, Ms Dennis informed Ms Cobden-Jones that Physico had “taken over the winter order”. Ms Dennis made it clear that Physico was a different entity to Urban and if Materna Moda wished to obtain delivery of the winter order and other goods in the future it had to complete the credit application. Ms Cobden-Jones agreed to this and asked Ms Dennis to send her another credit application so that she could fill it out and obtain delivery of the goods Materna Moda had ordered.

11 On 20 February 2004 Physico wrote to Materna Moda. The letter was in the same terms as the letter of 29 December 2003, save that the first paragraph read:

“This letter is to introduce Vicenzo a division of Physico Clothing Company Pty Ltd. We are the new supplier of the Benetton product, taking over distribution from Urban Essentials.

12 The letter of 20 February 2004 again referred to Vicenzo, this time describing it as a “division” of Physico. The letter of 20 February 2004 has to be understood in the light of the telephone conversation between Ms Dennis and Ms Cobden-Jones, when Ms Dennis explained that Physico was going to take over the winter order from Urban. The telephone conversation and the letter made it plain that Physico, whether through Vicenzo as one of the divisions in the company or otherwise, was the entity that was offering to supply the goods that Materna Moda had previously ordered from Urban. Physico, and no other entity, was the party intending to contract with Materna Moda for the supply of the Benetton goods. It was also made quite clear that without a completed credit application there would be no credit advanced and that all payments for goods had to be made to Physico. All of these matters were consistent with the express words used by Ms Dennis when she said that Physico was taking over the winter order from Urban.

13 The credit application reinforced the statement that it was Physico, and not Urban, that would be selling and supplying the Benetton winter orders. The credit application was headed “Physico Clothing Company Pty Ltd” and contained the following words:

“I agree to the trading terms listed on this form and any … conditions of sale”.

Ms Cobden-Jones signed the credit application on behalf of Materna Moda under these words. Then followed a personal guarantee form which was deleted, apparently by Ms Cobden-Jones. Underneath the personal guarantee form appeared a number of terms. These included the following:

“ Terms
Initial Transaction – Cash before delivery unless other terms have been agreed upon by Physico Clothing Company Pty Ltd
Accounts – 5% settlement discount 7 days or 2.5% discount 30 days settlement.
Return/Credits
Goods are sold on firm sale.
Returns are only accepted if Physico Clothing Pty Ltd authorized employee has given authorization and notification is given within seven (7) days of receipt of goods. Goods may only be returned by the company nominated carrier. A handling charge may apply to returned goods.
Property and delivery of goods
Full title of goods does not pass till said customer has paid for the goods in full. This is understood by the person authorizing any orders and any subsequent invoice and by signing has accepted that Physico Clothing Pty Ltd has the right to recover goods until the full and correct amount has been received and cleared by the bank. This includes all stock ordered and display material. Goods are not sold on consignment or sale of return. Any claims for short orders or faulty stock must be made within [indistinct] delivery of stock.
Overdue Accounts
Goods will not be supplied to overdue accounts until such time as the account is brought up to date. Physico Clothing Company Pty Ltd reserved the right to charge both interest at the prevailing overdraft rate of the company and an administration fee totalling 2% per month on overdue payments until any outstanding amount is paid.”

14 The credit application was obviously a document intended to have contractual effect. That Ms Cobden-Jones understood it as such is manifest from her act in striking out the part dealing with personal guarantee. The credit application contained the terms on which Physico was offering to supply. These terms differed from the Urban standard terms and conditions.

15 In my view the effect of the telephone conversation of 20 February, the letter of 20 February and the credit application was unequivocal. Physico was not offering to stand in the shoes of Urban; it was offering to supply goods of the same description as those that Materna Moda had ordered from Urban, but on different terms. It was not offering to enter into a novation; it was offering to enter into a separate and independent contract with Materna Moda alone. There was no intention on Physico’s part that Urban would be a party to that contract. Physico was making an offer to Materna Moda as a principal to supply the goods that Materna Moda had ordered from Urban in April 2003, at the same price but on different terms.

16 Ms Cobden-Jones duly completed the credit application and sent it to Physico. In February and March 2004 Physico, in three batches, delivered the goods that had been ordered. Physico then sent invoices to Materna Moda in respect of the goods that had been delivered. Materna Moda did not assert that Physico had wrongly raised the invoices. It did not complain that invoices should have been sent by Urban.

17 In April 2004, Materna Moda returned faulty stock to Physico. It sought a credit for these returns and Physico granted it a credit as claimed.

18 Physico sent accounts to Materna Moda for the money it asserted that was owing to it. An officer of Physico telephoned Materna Moda to find out why it had not paid. Eventually in June 2004 Materna Moda wrote Physico a letter asserting that it had no contract with Physico.

19 The relevant factual circumstances establish unambiguously that Physico offered to take over itself, as a principal, the winter orders that Materna Moda had placed with Urban. By accepting delivery of the orders, Materna Moda accepted that offer: see Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 535.

20 Counsel for Materna Moda submitted that the subjective state of mind of the officers of Materna Moda was such that they believed that Physico was merely acting as a distributor for Urban and was fulfilling the orders Materna Moda had placed with Urban. He submitted that Mr Stafrace had brought about this belief. Mr Stafrace, however, was not an agent of Physico. Physico is not responsible for anything he said or did.

21 The intention to create a legally binding contract is to be determined objectively, by what the parties said and did and what they wrote: see, for example, Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 337. That is to say, In deciding whether an offer has been made and accepted, the courts apply an objective test and determine the issue by construing the parties overt actions.

22 Applying this test, it is apparent that Materna Moda’s argument that Physico delivered the goods merely as a conduit on behalf of Urban must fail.

23 I would dismiss the appeal with costs.

24 HODGSON JA: I agree.

25 McCOLL JA: I agree.

26 HODGSON JA: The orders of the Court will be as proposed by Ipp JA. The Court makes further order pursuant to Rule 41.3 of the Uniform Civil Procedure Rules that money paid into Court in this matter be paid out to the respondent after 7 days (from today).

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