Salandra v Metcash Food & Grocery Pty Ltd - [2016] SASC 40

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
SALANDRA & ORS v METCASH FOOD & GROCERY PTY LTD
[2016] SASC 40
Judgment of The Honourable Chief Justice Kourakis
22 March 2016
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - OTHER MATTERS
Appeal to a single Judge of the Supreme Court from a decision made in the Magistrates Court.
Judgment was entered for the respondent in the Magistrates Court in the sum of $43,439.22 for goods and services delivered to the third appellant.
The appellants owned and operated the business of an IGA supermarket.
The respondent is a wholesaler of food products to independent grocers in South Australia.
The third appellants entered into two agreements with the respondent. The first was an IGA branding agreement, and the second allowed the appellant to purchase goods from the respondent and to arrange for payment by the respondent of the accounts of third party suppliers, under a seven day credit agreement.
In August 2013, the third appellant entered into an agreement for sale of the supermarket to a third party. A contract of sale was entered into but the sale was never completed.
The third party managed the supermarket pending settlement pursuant to a loose oral arrangement. The broad terms were that the third party would assume responsibility for ordering goods for the supermarket and making payments to the respondent.
In January 2014, the third party fell behind in payments to the respondent. The respondent withheld the supply of some stock due to non-payment. The third party vacated the supermarket in February 2014.
The respondent brought an action to recover the amount outstanding for goods and services it had provided.
Amongst other grounds, the appellants argued that the Magistrate failed to consider the express instructions given to the respondent that it did not authorise the supply of goods by the respondent to the third party if the account fell into arrears (ground 9).
Held per Kourakis CJ, allowing the appeal:
1.    The judgment sum to be adjusted to take into account the goods to the value of $3,161.71 supplied in breach of the appellants instructions to the respondent.
2.    All other grounds of the appeal are dismissed.
3.    Parties to be heard on the precise amount having regard to any effect on interest and the question of costs.

SALANDRA & ORS v METCASH FOOD & GROCERY PTY LTD
[2016] SASC 40
Magistrates Appeal: Civil

KOURAKIS CJ: This is an appeal against a judgment entered for Metcash Food & Grocery Pty Ltd (Metcash) in the sum of $43,439.92 for goods and services delivered to the third defendant, Ella Property Pty Ltd (Ella Property), and against Francesco (Frank) and Daniela Salandra (Mr and Mrs Salandra) as guarantors of the indebtedness of Ella Property.
Ella Property is a company controlled by Mr and Mrs Salandra. From 2010 it operated the business of an IGA supermarket situated in a shopping centre at Clearview (the Clearview supermarket) and was the trustee of the Nella Property Trust. Besswell Pty Ltd, another company controlled by Mr and Mrs Salandra, is the owner of that shopping centre.
Metcash operates through wholly owned subsidiaries in several Australian States. In South Australia, its subsidiary is IGA Distribution (SA) Pty Ltd. IGA is a business name under which some supermarkets supplied by Metcash trade. On taking over the Clearview supermarket, Ella Property entered into two agreements with Metcash. The first was an agreement which allowed Ella Property to brand the Clearview supermarket as an IGA store (the Branding Agreement). The second allowed Ella Property to purchase goods from Metcash, and to arrange for the payment by Metcash of the accounts of third party suppliers to Ella Property, under a seven day credit agreement (the Credit Agreement).
In August 2013, Ella Property entered into an arrangment for sale of the Clearview supermarket to Kevan Williams, Tee-Jay Williams, and Diane Williams (the Williams family).
A contract for the sale of the business was entered into between Ella Property and the Williams family on 17 August 2013. It was signed by the Williams family on 30 August 2013. The contract provided for the payment of $450,000 plus GST, if applicable, which was ‘to be fully paid’ and settlement ‘finalised’ on 23 November 2013. A loan agreement by which vendor finance was to be provided was drawn up but never executed. The sale was never completed.
The Williams family managed the Clearview supermarket pending settlement pursuant to a loose oral arrangement with Ella Property from late August 2013. The broad terms of the arrangement were that the Williams family assumed responsibility for ordering goods for the Clearview supermarket from Metcash and other third party suppliers and for making payments to Metcash and other suppliers from the takings. The cash sales proceeds were taken by the Williams family for that purpose. Payments made electronically (EFTPOS takings) were paid into Ella Property’s bank account and from there paid to Besswell Pty Ltd for rent. The Williams family were entitled to any surplus.
Even though settlement was not effected in November, the Williams family continued to operate the Clearview supermarket under the loose arrangement I have described. As of late December 2013, approximately $20,517 was due to be paid to Metcash on 31 December 2013 with another $15,599.40 due on 7 January 2014. In January 2014, the Williams family fell behind in the payments to Metcash. A statement issued on 5 January 2015 showed that the amount of $20,517 was not paid on 31 December 2013 and was therefore overdue. The amount of $15,599.40 fell due on 7 January 2014 with a further amount of $12,994.95 scheduled to fall due on 14 January 2014.
In the same period, the stock of the Clearview supermarket was run down because Metcash withheld the supply of some stock due to non-payment and because of the reduction in orders placed by the Williams family. Eventually, in February 2014 the Williams family vacated the Clearview supermarket and its operation ceased.
On 20 May 2014, Metcash brought an action against Ella Property and Mr and Mrs Salandra in the Magistrates Court to recover the amount outstanding for the goods and services it had provided to the Clearview supermarket.
Ella Property and Mr and Mrs Salandra defended Metcash’s claim on the primary ground that on about 19 August 2013 Metcash was informed that Ella Property had sold the Clearview supermarket to the Williams family and that on about the same date the Credit Agreement between Ella Property and Metcash was terminated. They pleaded that at that time Ella Property informed Metcash that it would no longer order goods and services pursuant to the Credit Agreement. Ella Property and Mr and Mrs Salandra pleaded that the Williams family were not authorised to act on their behalf in respect of the Credit Agreement and that the orders placed by the Williams family were placed on their own behalf and not on behalf of Ella Property.
Ella Property also defended Metcash’s claim on the alternative ground that if the Williams family were placing orders on its behalf, Metcash nonetheless had breached an instruction given to it on 26 August 2013 and 8 January 2014 not to supply stock to the Clearview supermarket if any account was overdue (the breach of instruction defence). The defence case on this ground was expanded by the time of closing addresses. Ella Property submitted that Metcash was not entitled to the amount outstanding because it had supplied goods ordered by the Williams family to the Clearview supermarket against the instruction given to Metcash by Ella Property on 26 August 2013 not to do so whilst any amount was overdue. No objection was taken to this expanded case at trial. On this appeal, Metcash did not claim that it had been prejudiced at trial by this elaboration of the defence case.
On 1 September 2014, Mr and Mrs Salandra brought a third party claim against the Williams family claiming an indemnity for the amount owing to Metcash on a variety of grounds. Judgment was entered in favour of Mr and Mrs Salandra and no appeal is brought by the Williams family against that judgment.
The Magistrate found that the goods supplied to the Clearview supermarket were supplied to Ella Property under the terms of the Credit Agreement. The Magistrate did not deal with the breach of instruction defence.
Ella Property and the Salandras (hereafter jointly referred to as the appellants) appeal on the following grounds:
(a)the Magistrate erred in finding that the agreement between Ella Property and Metcash was not terminated in August 2013 and replaced by a separate credit and supply agreement between Metcash and the Williams family (grounds 1-8, ground 16 and ground 18);
(b)the Magistrate failed to consider the express instructions given by Ella Property that it did not authorise the supply of goods by Metcash to the Williams family if the account fell into arrears (ground 9);
(c)the Magistrate erred in finding that the goods continued to be supplied under Ella Property’s Credit Agreement when Metcash had unilaterally and wrongly refused to ‘close the account’ at Ella Property’s request (ground 10);
(d)the Magistrate wrongly had regard to the relationship between Ella Property and Besswell Pty Ltd (ground 15);
(e)the Magistrate erred in the use made of an email sent by Mr Adam Salandra to the Williams family on 16 January 2014 (ground 11);
(f)the Magistrate erred in rejecting the testimony of Mr Adam Salandra that he had closed the account (ground 12);
(g)the Magistrate erred in rejecting the testimony of Frank Salandra (ground 13 and ground 14); and
(h)the Magistrate erred in failing to find that the ‘credit account’ between Metcash and Ella Property necessarily came to an end on it falling into arrears (ground 17).
I allow the appeal on ground 9 only and dismiss the appeal on all other grounds. My reasons follow.
The Branding Agreement and the Credit Agreement
On a date unknown in late 2010, Ella Property entered into the Branding Agreement with IGA Distribution (SA) Pty Ltd, a wholly owned subsidiary of Metcash, pursuant to which it entered into an ‘alliance’ with Metcash. By the Branding Agreement, the IGA brand and systems could be used in the Clearview supermarket. Ella Property agreed to use its best endeavours to preserve and maintain the value and validity of the IGA brand. It was Metcash’s responsibility to design and develop coordinated marketing which Ella Property was required to use, and Ella Property was precluded from using other marketing material. Clause 18 of the Branding Agreement provided that it was personal to the retailer and could only be assigned with the prior written approval of Metcash. Clause 18.2 provided that Ella Property required Metcash’s written consent to assign the Branding Agreement to a third party, which consent IGA could not unreasonably withhold. Clauses 21 and 22 provided for termination for breach.
The appellants rely on a special condition handwritten into the Branding Agreement by Mr Salandra, or at his direction, which provided:
As discussed with Raghida Duin some of the clauses do not apply to Annella Property Trust. I also reserve the right to sell the business if the owner wishes to do so.
The first sentence has no application to the matters in dispute. It can be accepted for the purposes of this appeal that the second sentence is a reservation by Ella Property of a right to sell its Clearview supermarket business as and when it wished to do so. To the extent that the clause has any meaningful or useful operation it provides, for the purpose of removing any uncertainty, no more than that Ella Property could sell its property in the Clearview supermarket business. That reservation could not, however, extend to a right to sell Metcash’s intellectual property. The special condition is therefore subservient to those clauses of the Branding Agreement which are calculated to protect Metcash’s property. The clause does not allow Ella Property to unilaterally assign the rights which the Branding Agreement expressly provides are personal to Ella Property. Ella Property could not, pursuant to that reservation, unilaterally bind Metcash to an ‘alliance’ with another retailer.
On 24 November 2010, Ella Property applied for a credit account with Metcash. The credit application nominated Mr and Mrs Salandra as the persons authorised to operate the credit account (the Credit Application). The course of trading between Metcash and Ella Property thereafter shows that the application was accepted by Metcash. It is the resulting contract to which I refer as the Credit Agreement.
Clause 3I of the Credit Agreement provided that in the event that the applicant, Ella Property, failed to pay for goods when due then any credit terms for further orders for and the supply of goods would cease immediately and the applicant’s right to sell the goods would be immediately terminated.
It is important to observe that that clause does not terminate the Credit Agreement itself. It abrogates Metcash’s obligation to supply goods on credit pursuant to the Branding Agreement and brings into play a retention of title clause with respect to goods already supplied on credit. Those legal consequences are for Metcash’s benefit alone and as such can be waived by it unilaterally. Indeed, clause 26.7 of the Branding Agreement expressly so provides with respect to waiver generally. Clause 3I of the Credit Agreement does not bind Metcash to stop supplying Ella Property in the event of a breach. Nor is Clause 3I of any assistance in the construction of the subsequent communications between Ella Property and Metcash or in determining the legal consequences of those communications. Ground 17 must be dismissed.
The Credit Agreement was conditional on Ella Property entering into the Branding Agreement. The terms and conditions of the Branding Agreement were subject to unilateral variation by Metcash but any variation gave rise to a right to terminate the Branding Agreement by giving seven days notice.
The Credit Agreement included the following term (the charge through facility clause):
CHARGE THROUGH FACILITY
ACKNOWLEDGMENT
I/We acknowledge that I/We understand the operation of the ‘Charge Through’ system arranged by ‘The Company’ as billing/payment agent for its members and I/We agree to the terms and conditions of operation for the system as published from time to time.
SIGNED BY THE SAID APPLICANTS (All parties must sign)
[SIGNED]
[SIGNED]
There was no evidence of the existence or otherwise of any published ‘terms and conditions of operation’. There was evidence that the Clearview supermarket was supplied with common perishables such as bread and milk by third party suppliers like Tip Top and Lion Dairy and Drinks. Those goods were ordered directly by Ella Property and paid for by Metcash which would then recover the amounts paid from Ella Property through its weekly invoices. There was no other billing/payment agency arrangement disclosed in the evidence. The Credit Agreement also conferred on Ella Property membership of a ‘Banner Group’. The Banner Group membership conditions included use of common store livery and other collaborative arrangements.
In the context of the Credit Agreement as a whole and the arrangements covered by the Branding Agreement, I would construe the word ‘members’ in the charge through facility clause to refer to retailers like Ella Property which had entered into similar arrangements with Metcash. The charge through facility clause therefore provides for Metcash to pay the accounts of third party suppliers as Ella Property’s agent. Metcash was not the agent of the suppliers. The charge through facility clause provided at its foot for execution by the retailer/applicant for credit precisely because it is the retailer who is appointing Metcash to be its agent. Nor did the charge through facility clause appoint Metcash to be the ordering or buying agent of Ella Property. The clause expressly appoints Metcash the ‘billing/payment’ agent. The evidence was that orders were made by Ella Property directly with the third parties as the need arose. There was no evidence that Ella Property and Metcash ever contemplated or agreed that Metcash would have any authority to countermand orders with third parties.
Mr Phil Waters, Metcash’s credit control manager, explained the charge through facility as follows:
The charge through section, when we open an account for a customer we can say to that do you want to charge through the suppliers from the invoices or not. If they want it they did fill in this section at the bottom. So that is for us to open up the charge through section in their account or the direct section in their account. ... Any suppliers that go into their store, like milk and bread, Tip Top, Parmalat and Arnotts biscuits at one stage although I think now we have taken Arnotts back. Any supplier that walks into their store and wants to supply them direct and has a charge through account IGA will then allow them to charge through. ... Yes, the milk is delivered daily at the end of the week with milk and bread that is an invoice produced by Buttercup or Lion Dairy or whatever and they submitted this invoice at the end of the week through to us. We then pay them. We then on-charge it to the customer who then pays us for it.
Mr Adam Salandra testified to a similar understanding of the operation of the charge through facility.
Mr and Mrs Salandra agreed to guarantee the debts of Ella Property pursuant to a guarantee attached to the Credit Agreement. The application and the guarantee were executed by Mr and Mrs Salandra on 24 November 2010.
The Credit Agreement allowed the retailer credit in accordance with Metcash’s Trading Terms (the terms and conditions). Clause 3.1 of the terms and conditions provided that payment for goods was to be made on the ‘due date’ shown on the statement which, unless otherwise stated, was to be seven days from the date of the statement.
Management by the Williams family did not absolve Ella property of liability under the Credit Agreement
On 26 August 2013, Mr Adam Salandra wrote to Mr Waters in the following terms:
As discussed last week we understand our IGA account is still current until sale of the business is finalised. The business is being leased by a new owner Kevan Williams. If any IGA accounts are not paid on time, advise us as you usually do ASAP and hold the stock until the account has been paid.
I observe that the email:
·accepts that the Credit Agreement remained extant;
·implies that Kevan Williams will be placing orders with Metcash; and
·gives a clear instruction to hold stock when accounts are not paid on the due date.
Mr Waters did not recall receiving the email but did not deny that it was sent to him. Importantly, there was no evidence that any objection was taken by Metcash to the arrangement or the instruction. The continuation of supply thereafter on orders placed by the Williams family was tacit acceptance of the instruction.
It was put to Mr Waters that the discussion referred to in the email took place on about 19 August 2013. It was put that Mr Salandra phoned him and told him that the Williams family were taking over the Clearview supermarket and that Ella Property and the Salandras wanted to settle their account and close it. Mr Waters denied that conversation. The questioning continued:
QAnd you responded that there would be some paperwork that the Williams [family] would need to sort out with Metcash.
ANo.
QAnd there was a suggestion by you that the Williams’ could use the Salandras existing account in the immediate short term while that paperwork was sorted out.
ANo.
QNot long after that you got another call from Adam Salandra again around 19 August where he told you that the Salandras would only be willing to be responsible for orders for the first two weeks after the Williams’ moved in.
ANo.

Mr Waters could not recall anything of the conversation to which the email referred but testified:
I rang for payment one day and Kevan [Williams] answered the phone and he told me there was an agreement between the Salandras and the Williams’ that they are in there to try to buy but the Salandras were still running the business. I couldn’t tell you, but that is the first time I was aware of ... being in there.
Mr Adam Salandra gave evidence that he was overseeing the running of the Clearview supermarket for Ella Property part-time until August 2013. On 19 August 2013 he became aware that the business was to be assigned to Kevan Williams. He said that he had no access to the business after that. He testified:
AYes, the morning of the 19^th Frank Salandra informed me that the ownership changed to Kevan Williams and instructed me to notify all suppliers of the change of ownership and to make sure all of our accounts were finalised and paid up until 18 August.
QWhat did you do based [on] that.
ASo, the first account I notified was Metcash, obviously that is our biggest account. I rang and spoke [to] Phil Waters.
Q... Did you speak to other people because of that instruction that was given to you.
AYes, I notified all suppliers of the change of ownership.
QHow did you do that.
AVia phone.
QCan you remember now what in general terms were you saying to each person you told.
AEach supplier I got a list together of all our suppliers and went through and rang up and let them know that the business has now changed ownership to Kevan Williams, here is [their] contact number and the other part obviously besides notifying them was to reconcile our account up until the 18^th and to make sure we made the final payment.
Mr Salandra testified that the suppliers he gave that information to included suppliers who were ‘direct suppliers’ meaning persons who supplied the supermarket with goods directly but were paid through Metcash. I observe that Mr Adam Salandra’s evidence that he contacted those suppliers, be it true or false, shows an understanding that orders were placed with those suppliers by the Clearview supermarket business manager and not Metcash. When pressed for detail Mr Salandra could not recall the names of the persons he spoke with.
Mr Adam Salandra gave the following evidence about a conversation with Phil Waters on 19 August 2013.
I remember the conversation well because it was a significant date for me and the business. I rang Phil and firstly notified him that the business had been sold to Kevan Williams and the ownership has changed over as of the 19^th which was that day. I said that Kevan is going to be ordering and paying for his stock and that he had [an] application in progress to open his own Metcash account and I passed on Kevan Williams’ mobile number to Phil which he took note of and in response to that he said that he knew Kevan from previous dealings with him in the past. ... Following that, I stated that we wanted to close and finalise … our Metcash account and he immediately came back with the account cannot be closed until a sale of contract has been received by them... I took on board what was their position and I said I will pass that information on to Frank Salandra and then I said nevertheless, we want to finalise the account and it just so happens that handover time coincided with the billing cycle of Metcash so our final payment would be to 27 August which was all Metcash stock paid for up until 18 August.
That passage of evidence shows no more than that Mr Adam Salandra sought to close the Ella Property’s accounts and put in place alternative credit agreements for which the Williams family would be responsible but that Mr Waters did not agree to the request. Metcash was ‘unilaterally’ entitled to refuse to enter into a new credit agreement with the Williams family. Metcash having refused to enter into a new credit agreement, Ella Property, for obvious reasons which suited its financial interests, did not terminate the Credit Agreement whilst the Williams family were managing the supermarket. Ground 10 must be dismissed.
Mr Adam Salandra was taken to the email of 26 August 2013. He was asked about his request that Ella Property be advised ‘ASAP’ and stock be withheld if the account was not paid, and responded:
That is in reference to what my – what Frank said in regards to being liable for two weeks of stock from the handover date because the account is paid weekly and if he didn’t pay when it was due on that Monday you would usually get an email pretty quickly from Phil saying where is the payment.
The email of 26 August must be given an objective construction informed by the context of the dealings between Metcash and Ella Property. Mr Adam Salandra’s belief as to what he was arranging by sending that email and its legal consequence is of no relevance. Contextual consideration supports that construction. A natural reading of the text shows that the email proceeds on the premise that the Clearview supermarket business had not yet been sold but that it was ‘leased’. On that premise Ella Property’s liability to Metcash for goods ordered by the Williams family remained intact. The email gives an instruction to Metcash which is consistent with that premise, and inconsistent with the sale of the business, to ‘hold stock until the [Ella Property] account’ is paid. Ella Property could give no such instruction unless the goods were purchased under its account. The email was an instruction advising Metcash that the Williams family had authority to order goods for and on behalf of Ella Property but only within the terms of the Credit Agreement. Plainly enough the Clearview supermarket business was dependent on the supply of goods through the credit agreement with Metcash. Unless and until the Williams family entered into its own credit agreement, Ella Property and the Salandras knew that supply could only continue under the existing Credit Agreement. Mr Adam Salandra acknowledged that he never asked any member of the Williams family whether they had opened an account. Mr Adam Salandra acknowledged that the Salandra family through Besswell had a vested interest in keeping the Clearview supermarket open. The Magistrate’s reference to the relationship between Besswell and Ella Property did no more than properly have regard to the identity of the common principals of those companies for contextual purposes. Appeal ground 15 must be dismissed.
The appellants also complain by ground 11 of the Magistrate’s reliance on an email sent by Mr Adam Salandra to the Williams family on 16 January 2014. The email reads:
As discussed today, the original arrangement from August 2013 remains the same, and we agree to let you pay the rental in arrears from 10/2/14. From this date we will debit $3,500 from weekly eftpos to catch up on rental arrears. As stated previously you are solely responsible for all of the stock you are ordering and keeping the related accounts up to date.
The Magistrate commented on that email as follows:
At this time, Adam Salandra well knew that the Ella Property account remained open. He had specifically referenced the email of 26 August to that effect. The email from Phil Waters of 8 January 2014 had been received without dissent. Nothing had changed between August 2013 and January 2014. Adam Salandra’s statement to the Williams that ‘the original arrangement from August 2013 remains the same’ confirms this to be the case as he well knew.
Adam’s statement to the Williams that they were solely responsible for all the stock they were ordering, confirms Ella Property’s interest in the outstanding account. That interest was that Ella Property were primarily liable to Metcash as Adam Salandra realised.
Mr Adam Salandra’s understanding is of course not determinative of the state of the contractual arrangements between the parties but the Magistrate was correct to observe that Mr Adam Salandra’s email was consistent with the objective state of affairs which I have described.
It follows from the above that Ella Property remained liable under the Credit Agreement.
Appeal grounds 1-8, 11, 16 and 18 must be dismissed.
Magistrate’s assessment of the evidence of the Salandras
The Magistrate rejected the evidence of Mr Frank Salandra for the following reasons:
Frank Salandra told the Court that he instructed his son to speak to Metcash and close the account. Mr Adam Salandra gave evidence that he did this. I find Adam Salandra’s evidence on this topic to be incredible. It is in complete conflict with his own email communications. When asked to explain some of the email communications Adam Salandra paused for some time and I am satisfied that during those pauses, he was attempting to construct a satisfactory response to the difficult questions he was being asked.
Had Frank Salandra spoken to his son as he claimed, then I am satisfied his son would have telephoned Mr Waters and closed the account. This did not happen. I therefore disbelieve Frank Salandra as well.
The totality of the evidence shows the email communication of 22 May 2014 to be a dishonest attempt by Mr Frank Salandra to avoid his contractual responsibilities to Metcash. In that attempt Mr Salandra was prepared to use extravagant language and accuse Metcash of fraud. This was completely unnecessary and demonstrates an unhappy lack of personal accountability. I am unprepared to give any weight to the evidence of Adam or Frank Salandra where that evidence is in conflict with evidence given by Mr Waters or where it is otherwise contentious.
The email of 22 May 2014 to which the Magistrate referred reads in part:
I am very disappointed the way Metcash has continued to bill me for the stock when there is a new operator at the IGA. We also advised you in writing that from about the 19^th of August 2013 Kevan Williams, TeeJay Williams and Dianne Williams would be responsible for any stock ordered as from that time, and would not be responsible for any stock from the above date.
You were advised by Frank Salandra and Adam Salandra in writing and verbally, I also informed all the other [suppliers] and they took notice and followed instruction that were to bill Kevan Williams direct and they all did so. ... and I handed the IGA business on those recommendation [to sell the business to the Williams family] from you. As you also aware Kevan came to Metcash office to obtain your approval to be the store operator and we acted on those recommendation from Metcash, then he became a tenant which paid rent for the premises from the 19^th of August 2013...
You continued to supply Kevan even though he was not paying you and you were advised that from that date we were not longer responsible for any stock ordered by Kevan for the IGA at Clearview from the time he had taken over. You know very well that we personally did not order any further stock for the IGA or receive any from around the 19^th of August 2013.
This is a very serious matter as you continued to use unauthorised account and a closed account for your benefit, it is fraud when you know very well and were advised in writing and verbally that we were not longer responsible for any stock ordered by Kevan from that date he took over the IGA, you decided to continue to supply stock to Kevan just for your benefit and even though he was not paying for the stock.
I urge you and Metcash to withdraw the summons by the 26^th May 2014 as I have an excellent credit ratings and if this causes issues with the Salandra Group, we will hold you and Metcash responsible for any financial loss, inconvenience, etc because of your actions.
The findings made by the Magistrate were open on the evidence. He had the benefit of observing Mr Frank Salandra and Mr Adam Salandra testify. For that reason, grounds 12 to 14 must be dismissed. The email communications of Mr Adam Salandra and his acknowledgement that he never made enquiries of the Williams family, and had no other reason to believe that they had entered into a credit agreement of their own, contradicts his claim that he believed that Ella Property’s obligations under the Credit Agreement had come to an end. However, I repeat again that the subjective understanding of Adam and Frank Salandra is of no consequence. The email of 26 August 2015 must be construed objectively. The email was sent following the conversation to which Mr Adam Salandra deposed and is the final word on the matter. The effect of Mr Adam Salandra’s testimony was that he asked for the Credit Agreement to come to an end and for Metcash to supply the Williams family under a separate agreement with them. Mr Adam Salandra acknowledged that Metcash did not agree to do so. Their reasons for not agreeing are not to the point. The email and indeed the subsequent course of conduct show that Ella Property and the Salandras acted in accordance with the objective construction that must be given to the email.
Appeal grounds 12, 13 and 14 must be dismissed.
The instruction not to supply
On 27 November 2013, Mr Waters wrote to Mr Adam Salandra by email as follows:
Once again we are having trouble receiving payment on time, can you please note this may result in orders being held. I trust you will take the necessary steps to make sure payments are received on time. Your assistance is appreciated.
Mr Adam Salandra testified that on or about 8 January 2014 he had a discussion with Mr Waters who was chasing up payments. Mr Waters informed him that he was having trouble receiving payments from Kevan and insisted that the Salandras were responsible for the Metcash account.
According to Mr Adam Salandra he reminded Mr Waters of the conversation on 19 August 2013 and the email sent on 26 August 2013. The following exchange in answer to questions from the Magistrate then occurred.
QWhy did you tell him not to supply another customer account then.
AI did that because we had a vested interest in the supermarket because it was in our centre.
QKeeping as much stock as possibly on the shelves.
AYes, you want to keep stock on the shelves. But I sent that email as we were trying to mediate the situation and even though they were having trouble receiving payment, we were also having trouble receiving rent so we wanted to assist in the situation and work in a team to try and come to a solution.
On 8 January 2014, Mr Adam Salandra sent Mr Waters an email which repeated the instruction given on 26 August 2013:
As discussed please do not send anymore stock to the store until the outstanding bill is brought up to date. We do not accept responsibility for two weeks worth of stock. As stated in email sent 26/8/13 we said to advise us as soon as an account is not paid on time. There is two weeks outstanding and we should have been notified when the first week was not paid by the due date. We will follow up with Kevan to see if this account can be finalised ASAP.
Mr Waters replied on the same day:
This account remains under your customer number and ownership. Until the sale of the business is finalised and a new account has been opened for Kevan the account remains your responsibility to ensure it is paid within trading terms as you remain liable for all debts on the account. The account will remain on hold until we receive your payments that are due.
Metcash delivered goods to the Clearview supermarket on 8 January 2014 but it is accepted by Ella Property and the appellants that it was not possible to stop that delivery at the time the email of 8 January 2014 was received. Mr Waters testified:
Yes. They were to be picked, most probably picked the day before or picked that morning. So they would have been on the road or on the way to the store before we would have received that email.
Mr Adam Salandra subsequently wrote to the Williams family making arrangements for a weekly debit from the EFTPOS taking to catch up on rental arrears. Mr Salandra also wrote:
As stated previously you are solely responsible for all of the stock you are ordering and keeping the related accounts up to date.
On 29 January, Mr Waters wrote to Mr Adam Salandra by email enclosing a screen print of the balance of the account showing that an amount of $37,391.64 was overdue. The email advised that a payment of $10,000 had been received on 21 January and a payment of $17,000 on 17 January.
On 11 February, Mr Waters emailed Mr Adam Salandra warning that if the account was not fully paid within seven days it would be closed completely. The email advised that the current balance was $40,728.63.
On 13 February 2014, Mr Waters wrote to Mr Adam Salandra advising that a payment of $5,000 had been received on 12 February leaving a current balance of $38,253.17 of which $26,142.33 was overdue.
There is no reason why Ella Property could not authorise others to order goods on its own behalf pursuant to the Credit Agreement. Nor is there any reason why Ella Property could not impose limits on that authority of the kind imposed by the email of 26 August 2013 and 8 January 2014. On the other hand, it was open to Metcash to reject that limitation. Metcash would have been entitled to take the position that it was not prepared to keep track of the account for the purposes of withholding supply if any amount was overdue. Metcash, however, did not do so. It accepted that the email had been sent and indeed relied heavily on it to show that the account had not been ‘closed’.
There is no reason therefore why Metcash would not be bound by its tacit acceptance of that term.
The goods supplied by Metcash after 8 January 2014 were supplied in breach of that condition. The amount claimed by Metcash for goods supplied in contravention of that direction which the parties agree is $3,161.71 must be deducted from the judgment sum.
The charge through account
Of the amount claimed by Metcash, the sum of $34,354.18 is for payment to third party suppliers. The appellants contend that in some way Metcash breached its instruction not to supply goods by paying for the goods ordered from, and supplied by, others in accordance with the charge through facility.
The emails sent by Mr Adam Salandra are expressed in terms of Metcash withholding the supply of goods if its accounts were overdue. The supply referred to must be the supply from Metcash’s warehouses. Goods supplied by third parties, but paid through the Metcash charge through facility, are not goods supplied by Metcash. As I explained in para [24] above, Metcash was the payment agent for Ella Property Ltd. Neither in form nor substance did it supply goods on behalf of the third party suppliers. Metcash had no means of knowing when those goods were delivered or of stopping the delivery of the goods. Only the direct suppliers were in a position to do so, a fact implicitly acknowledged by Mr Adam Salandra in testifying that he phoned them.
It was of course always open to Ella Property, on the giving of reasonable notice, to terminate its participation in the charge through agreement. However, it chose not to do so. The reasons for that are obvious enough. To have withdrawn the charge through facility would have endangered the continued operation of the Clearview supermarket which remained important to the wider Salandra interests and Besswell in particular.
I reject the appellants’ contention that Metcash breached the instruction not to supply goods by paying for goods supplied by others in accordance with the charge through facility.
Conclusion
I allow the appeal for the purposes of adjusting the judgment sum in accordance with para [58] above to take into account the goods to the value of $3,161.71 supplied in breach of Mr Adam Salandra’s instructions.
I will hear the parties on the precise amount having regard to any effect on interest and on the question of costs