Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd (No 2)

[2010] NSWDC 83

CITATION:	Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd (No 2) [2010] NSWDC 83
HEARING DATE(S):	12/3/10
JUDGMENT DATE:	19 May 2010
JURISDICTION:	Civil
JUDGMENT OF:	Bozic SC DCJ
CATCHWORDS:	CONTRACT - construction of terms - whether goods returned are to be taken into account in determining commission - INTEREST - whether plaintiff is entitled to interest
CASES CITED:	Falkner v Bourke (1990) 19 NSWLR 575 Perri v Flavell (No 2) NSW Court of Appeal, unreported, 20 September 1995
PARTIES:	Smart Distribution Services v General Wholesale Pty Ltd (plaintiff) General Wholesale Pty Ltd (defendant)
FILE NUMBER(S):	4244/08
COUNSEL:	Mr N Chen (plaintiff) Mr S Bell (defendant)
SOLICITORS:	Hunt's Lawyers (plaintiff) Williamstown Lawyers (defendant)

JUDGMENT

Introduction
1 On 27 October 2009 I delivered a judgment in this matter dealing with the question of the date of termination of an agreement between the plaintiff and the defendant dated 6 August 2007 (“the Agreement”) and the construction of the term “wholesale sale” in the Agreement: Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd [2009] NSWDC 274 (“the October judgment”). This judgment should be read in conjunction with the October judgment.

2 At paragraph 13 of the October judgment I stated:

“13 At the hearing two questions were isolated for determination by the Court. It was said that the determination of these two questions should enable the parties to work out what amount, if any, is owing to the plaintiff by way of commission. This will obviate the need for the Court to determine the quantum of the plaintiff’s claim.”

3 Unfortunately the expectation that the October judgment would obviate the need for further court proceedings was overly optimistic.

4 The parties now seek the determination of the following further issue in relation to the calculation of the commission payable, namely, whether it is necessary to take into account goods returned by Dick Smith Electronics Pty Ltd (“DSE”) to the defendant.

5 At the further hearing on 12 March 2010 the plaintiff relied on an affidavit of Peter McCook dated 24 November 2009. Mr McCook set out various matters going to the calculation of amounts said to be owing by the defendant to the plaintiff. The defendant relied on the affidavits of Mr de Greef which had been read at the previous hearing.

6 In the October judgment I set out at paragraph 19 the relevant provisions of the Agreement. For present purposes the relevant clauses are clauses 6, 9, 12 and 13:

“6. SDS shall receive 25% (“the SDS percentage”) of the gross profit arising from wholesale sales of AVS units by GWS to DSE.
9. The SDS percentage shall be paid by GWS to SDS within seven (7) days after GWS receives the payment from DSE.
12. All commissions shall be paid by GWS to SDS within 7 days of full payment for the relevant goods being received by or on behalf of GWS
13. “Gross Profit” shall be defined as sale price, less rebates, less cost price, the cost price being the cost of the products landed in Australia.”

7 In the October judgment I found that a wholesale sale referred to in clause 6 of the Agreement occurred when a DSE purchase order was received by the defendant in respect of goods ordered by DSE.

8 The defendant submits that in order to determine the amount of the commission owing under the Agreement there are two calculations to be carried out. The first is the calculation of gross profit on the purchase orders calculated in accordance with clauses 6 and 13. The second calculation is to be carried out after payment has been received from DSE. It is a calculation carried out to determine the amount of commission by reference to purchase orders in respect of which the defendant has received payment from DSE. The defendant submits that if DSE returns goods and does not pay any amount to the defendant in respect of the goods no commission is payable.

9 In my view returns are not to be taken into account in determining commission for the following reasons.

10 First, in the October judgment I determined that there was a sale for the purposes of the Agreement when a purchase order for the goods was placed by DSE with the defendant. It is this sale which founds the basis for the calculation of the commission.

11 Secondly, under clause 6 of the Agreement the commission is to be calculated on the gross profit arising from wholesale sales. Of significance in the context of the present issue is that clause 13 provides the relevant formula to apply in calculating gross profit. Theoretically there are two ways of calculating wholesale profit:

(i) sales price, less rebates, less returns, less the cost price; or
(ii) sales price, less rebates, less the cost price.

12 The difficulty with this interpretation contended for by the defendant is that it ignores the very terms of clause 13. The clause expressly deals with the calculation of wholesale profit. It makes no mention of deducting returns from the sale price. The only deductions referred to are in respect of rebates and cost price. Thus once payment has been received by the defendant, clause 13 of the Agreement contains the formula to be applied to that payment: “sale price less rebates less cost price, the cost price being the cost of products landed in Australia.”

13 Thirdly, not only is there no mention of returns in clause 13 there is no mention anywhere in the Agreement of returns. There is nothing in the Agreement or indeed the common knowledge of the parties in entering into the Agreement as to how the defendant would be paid by DSE and, in particular, when and how returns would be accounted for.

14 Fourthly, the Agreement provides for the provision of documents by the defendant to the plaintiff presumably so that the plaintiff can verify for itself the amounts owing. Under clause 16 the defendant is required to provide to the plaintiff copies of all purchase orders relating to the sales of products relevant to the Agreement. Nowhere is there any obligation to provide any statement or original documents by which the plaintiff can verify the amount of returns.

15 Fifthly, as I indicated in paragraph 60 of the October judgment the relevant factual matrix for the construction of the Agreement is the common understanding of the parties that the plaintiff would not deal with DSE thereby permitting the defendant to operate freely in relation to DSE. Once the Agreement commenced the defendant would continue soliciting and receiving orders from DSE. The plaintiff had no control over the quality of goods supplied by the defendant to DSE. It is consistent with this common understanding that the defendant bore the risk of returns from DSE. This is perhaps reinforced by the fact that under clause 6 of the DSE Purchase Order Trading Terms DSE is entitled to return goods if it finds fault with the goods. The quality of goods supplied by the defendant to DSE was something over which the plaintiff had no control.

16 I should add that even if I were of the view that returns had to be taken into account, the evidence in the present case does not enable me to say that in fact there were returns of goods by DSE in relation to specific purchase orders. The affidavit of Mr de Greef dated 28 July 2009 appears to show that from month to month payment was received from DSE. Taking the month of December 2007 for example Annexure D shows payment of invoices 246, 250, 251, 262 and 269. There is then an amount of “-$9599.49” shown. The invoice type was designated “RFC” which counsel for the defendant said stood for “Returned for Credit.” The lack of identity between any particular invoice and the amount of returns was reflected in the defendant’s written submissions in which it was asserted that:

“We also see on 14 December 2009 there is a deduction of $9,599.49. The effect of the deduction is that invoice 00000251 or 00000250 or 00000256 or 00000269 was short paid. That is full payment was not received. The Commission payable is less as full payment has not been received.”

17 Although Mr de Greef asserted in his affidavit at paragraph 9 that annexure D annexed remittance advices which showed which invoices were being paid, the rebate amount and the amount of returns from the invoiced goods it is by no means clear from the summary of payments or the remittance advices to which invoices the ‘RFC’ entries relate. What annexure D shows is that payments were made in relation to itemised invoices and, in the same month certain amount deducted. While it is not clear from annexure D to which invoices the amounts designated ‘RFC’ relate, it is clear that amounts in respect of specific invoices were paid.

Quantum

18 The parties agreed that if the plaintiff’s construction of the Agreement was accepted then the plaintiff was entitled to judgment in the sum of $159,866.20. There has, however, been an interim payment by the defendant of $57,335.44. As at today’s date, therefore, the amount owing to the plaintiff is $102,530.85.

Interest

19 There was an issue as to whether the plaintiff was entitled to interest.

20 While the award of interest is discretionary it is rare for interest not to be awarded: Falkner v Bourke (1990) 19 NSWLR 575. The purpose of the provision enabling an award of interest is to allow the party entitled to judgment to recover the full value of the judgment together with money that could have been earned upon it if it had been paid at the date that it was due: Perri v Flavell (No 2) NSW Court of Appeal, unreported, 20 September 1995, per Kirby P.

21 I propose therefore to award interest from the date that the commission became payable to the plaintiff from the defendant up until today’s date.

22 The plaintiff provided a number of spreadsheets calculating interest at either 9% or 10% up until 12 March 2010. Schedule 5 to the Uniform Civil Procedure Rules provides interest from 1 January 2007 to 5 March 2009 at 10% and from 5 March 2009 to date at 9%. I propose therefore to award interest at the rate of 9.5% from the date that the commission became payable to the plaintiff from the defendant up until today’s date in accordance with the methodology set out in the spreadsheets A and B in the bundle of documents relied upon by the plaintiff at the resumed hearing.

Costs

23 The plaintiff has succeeded both in relation to the issues dealt with in the October judgment and in relation to the issues dealt with in this judgment. Ordinarily orders for costs are to be made in accordance with UCPR r 42.1 and r 42.2 unless some other order or orders are appropriate. I propose to order the defendant to pay the plaintiff’s costs on the ordinary basis. I will grant leave to either party to apply if some other costs order is sought.

Short Minutes

24 I direct the parties to bring in short minutes of order in accordance with these reasons.