Southern Sheet and Coil Pty Limited v Portacomm Building Systems Pty Limited
[2013] NSWSC 38
•05 February 2013
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Southern Sheet & Coil Pty Limited v Portacomm Building Systems Pty Limited [2013] NSWSC 38 Hearing dates: 16-23 April, 27 April, 30 April, 1-4 May, 10 May, 14-22 May, 18-19 June 2012 Decision date: 05 February 2013 Before: Hislop J Decision: 1.Judgment for the plaintiff against the first and second defendants for $2,067,429.12.
2.The defendants to pay the plaintiff's costs as agreed or assessed up to 13 March 2012 and for the defendants to pay the plaintiff's costs on an indemnity basis from 14 March 2012.
3.Judgment for the cross defendant (plaintiff) on the cross claim.
4.The cross claimant (first defendant) to pay the cross defendant's costs of and related to the cross claim as agreed or assessed up to 13 March 2012 and the cross claimant (first defendant) to pay the cross defendant's costs of and related to the cross-claim on an indemnity basis from 14 March 2012.
Catchwords: Contracts - sale of goods - failure to pay - guarantee - cross claim - Sale of Goods Act 1923 - sale by description - Trade Practices Act 1997 - misleading or deceptive conduct - misrepresentation Legislation Cited: Sale of Goods Act 1923
Competition and Consumer Act 2012
Trade Practices Act 1997
Civil Procedure Act 2005
Evidence Act 1995Cases Cited: Deanplan Limited v Mahmoud (1993) Ch 151 at 170
James v Surf Road Nominees Pty Limited [2004] NSWCA 475 at [41]
Commercial Bank of Tasmania v Jones [1893] AC 313 at 316Category: Principal judgment Parties: Southern Sheet & Coil Pty Limited (Plaintiff) Portacomm Building Systems Pty Limited (1st Defendant)
Cross Claim:
Ralph Keller (2nd Defendant)
Portaccomm Building Systems Pty Limited (Cross Claimant)
Southern Sheet & Coil Pty Limited (Cross Defendant)Representation: D.L. Williams SC/P S Weinberger (Plaintiff/Cross Defendant)
F. Corsaro SC (Defendants/Cross Claimant)
Deutsch Partners (Plaintiff/Cross Defendant)
Gadens Lawyers (Defendants/Cross Claimant)
File Number(s): 2008/286123
Judgment
Introduction
The plaintiff carried on business as a supplier of steel products. It was part of the Southern Steel Group, a large independent Australian steel distributor. Its general manager was Mr Larkin. The plaintiff operated primarily in the eastern states of Australia. It had a BlueScope Steel products franchise in New South Wales. It was a distributor of steel products imported from overseas, particularly from Taiwan, Malaysia, and India. It also sold steel products purchased by it from other Australian sources. It had no office or other facilities in Western Australia, although it distributed steel directly to a small number of customers in Perth, Western Australia.
The first defendant was established in mid 2005 by its original directors, Gary James and the second defendant. Its office was initially located in Perth, Western Australia but in mid 2006 it relocated to Karratha, Western Australia. The first defendant was a supplier of steel related products. It was one of a group of companies of which the second defendant was a director.
On 4 August 2005 the plaintiff and the first defendant entered into an agreement relating to the supply by the plaintiff to the first defendant of steel products. The directors of the first defendant guaranteed performance of the obligations of the first defendant under the agreement.
Thereafter the first defendant from time to time ordered steel products from the plaintiff. The majority of the steel products were supplied by the plaintiff to the first defendant pursuant to a consignment arrangement. The first defendant ordered the steel products, the plaintiff delivered the steel products to the first defendant, the first defendant advised the plaintiff of its usage of those products (often monthly) and the plaintiff would then raise an invoice in respect of the amount of the steel products used. Some urgent orders were placed over the telephone and were invoiced shortly thereafter.
The first defendant fell into arrears in paying for the steel products invoiced by the plaintiff.
On 23 July 2008 the plaintiff issued a statement of claim in this court claiming arrears of $978,370.93 together with interest from the first defendant. The same sum was claimed from the second defendant pursuant to the guarantee.
On 4 September 2008 the plaintiff filed an amended statement of claim amending the amount claimed from the defendants to $1,643,473.75 together with interest. Some minor adjustments to that figure were subsequently made and ultimately the plaintiff's claim was quantified at $1,648,297.28 (see amended schedule 1 to the amended statement of claim) and interest.
The first defendant cross claimed against the plaintiff. In its second amended cross claim it sought damages for breach of contract in failing to supply goods which conformed to the description "BlueScope Steel products" contrary to s 18 of the Sale of Goods Act 1923. It also claimed damages under s 236 of the Australian Consumer Law (Schedule 2) of the Competition and Consumer Act, 2010. It was accepted that the reliance upon the Australian Consumer Law was inappropriate and that that part of the cross claim should have been pleaded under ss 52 and 53 of the Trade Practices Act 1979. The parties conducted the matter on the basis that a claim was made under the Trade Practices Act.
There are three liability questions for the Court's determination:
(a) what is the first defendant's liability to the plaintiff (ignoring the cross claim);
(b) is the second defendant liable to the plaintiff pursuant to the guarantee;
(c) is the first defendant entitled to succeed on its cross claim.
These questions are considered hereunder.
What is the first defendant's liability to the plaintiff (ignoring the cross claim)?
It was conceded, or at least not seriously contested, that the first defendant was indebted to the plaintiff (subject to any set-off for the cross claim). The issue was the quantification of that indebtedness.
The breakdown of the amount claimed by the plaintiff is set out in the amended schedule 1 to the amended statement of claim. It commences with invoices dated 31 July 2007 and concludes with invoices dated 22 August 2008. The schedule filed with the original statement of claim claimed on the invoices from 31 July 2007 to 30 June 2008 only.
Prior to October 2007 the accounts of the plaintiff and first defendant were in some disarray. In October 2007 the first defendant's accountants and staff and the plaintiff's credit manager performed a reconciliation of the account records of the plaintiff and the first defendant. The reconciliation established that $1,372,316.40 was owing to the plaintiff at the end of October 2007. The second defendant had directed the accountants and the first defendant's staff to perform the reconciliation. He was also directly involved in the process himself. He was aware of the result and, I infer, accepted it at the time as appears from the following evidence by him:
"Q. And a reconciliation had been arrived at by 30 October, 2007, hadn't it?
A. From my accountant's point of view, yes. However, I do see inconsistencies in the spreadsheet from the latest reconciliation on some of these numbers."
Later issues arose as to whether the first defendant had been overcharged for some material and whether some long products had been damaged by salt water during shipping. These issues were resolved. The plaintiff accepted products which the first defendant wished to return and provided credits by re-invoicing at a lower rate for the long products.
The credits were recorded in the plaintiff's statement of account as of 31 May 2008. That statement showed that the sum of $875,151.65 was owing by the first defendant as at 29 May 2008. The second defendant, in his evidence, agreed the sum of $875,151.65 was owed by the first defendant to the plaintiff as at 29 May 2008.
The first defendant continued to use steel in May, June, July and August 2008 for which it received invoices from the plaintiff. The first defendant made no payments to the plaintiff after 9 May 2008 when $200,000 was paid.
In August 2008 the second defendant notified the plaintiff that the first defendant wished to retain part of the steel held on consignment. It was agreed that such would occur and that the amount to be invoiced for that steel was $436,968.80.
Senior counsel for the plaintiff contended the claim comprised the sum of three elements:
(a) $875,151.65, being the net total recorded in the plaintiff's "Statement as of 31 May 2008";
(b) the amount of $436,968.80 for steel agreed to be retained by the first defendant in August 2008;
(c) the amounts for steel consignment stock used after 29 May 2008 as shown in the plaintiff's invoices for June, July and August 2008.
Senior counsel for the plaintiff cross examined the second defendant on this basis. The second defendant made a number of admissions in cross examination which were summarised by senior counsel for the plaintiff in the following exchange:
"Q. You've agreed that you had to pay the $875,000, being the figure at the end of the May statement?
A. Yes.
Q. You've agreed with that. And you've agreed that subsequent to that May statement you agreed to keep further consignment stock in August amounting to $436,968.80?
A. Correct.
...
Q. And you agreed that you utilised further consignment stock in May, June, July and August?
A. Yes.
Q. And you agree that you had to pay for all of that, don't you?
A. Yes.
Q. And that's what the plaintiff is claiming in these proceedings, isn't it, those amounts?
A. That's what they are claiming, yes.
Q. And you agree that you are responsible to pay for it, don't you?
A. Yes."
Senior counsel for the plaintiff then took the second defendant to the June and July 2008 invoices following the last invoice in the May statement. The second defendant agreed he was not in a position to dispute any of those invoices. He agreed with the August 2008 invoices.
The second defendant gave evidence:
"Q. Can you tell his Honour in light of the evidence you have just given why it is that you have not admitted in these proceedings that you were responsible for paying those amounts to Southern Sheet & Coil?
A. I found it strange that by going off Southern Sheet & Coil's accounts why one month differs to the next. Why credits are shown and then taken away. Why payments are shown and then taken away.
As to the statement of Southern Sheet & Coil on the 31st of the 8th 2009, what we see is a considerable amount of credits being removed. What we also see is nearly every payment made to Southern Sheet & Coil is not listed. However, what we also see is a fictitious 653,701.88 of which Jim Larkin in his evidence had said they wrote that off. Therefore, now, I'm not an accountant but I can count. If I was to go off Southern Sheet & Coil's monthly statements I get three different answers."
The second defendant also gave evidence that:
"From May 2008 there was a final account given to us in 2009. That said that there was a credit for all other. I'm sorry, most or all of the credits were taken away, most or all of the payments were taken away and a lump sum credit given to us for $654,000. That said we owed them a million and sixteen. The writ against us was for $1.68 million. However, if we were to take this write off credit as we now know it today for $654,000 away we would owe them just over $700,000. If we were to accept their $654,000 write off apply our credits and our payments we only owe them $113,000, $115,000."
The second defendant accepted it was appropriate to proceed from the May 2008 statement. He said:
"A. I've agreed with these invoices, as you say. I've agreed there that I've gone through meticulously and identified the sums. If I go off the May 2008 statement, which is the closest statement that has all of the payments I can identify and as the bank can identify, and all of the credits and then move forward from there, I agree with that, yes."
Plaintiff's counsel submitted that each of the elements had been established, as a result of which the plaintiff's claim for $1,648,297.28 was made out.
The defendants sought to meet the plaintiff's claim in three ways. The first was by constructing a "reconciliation account" "Annexure A" which they annexed to their submissions and which purported to be an accurate reconciliation of the accounts from 30 April 2007 and one which took account of payments allegedly not acknowledged and credits allegedly previously acknowledged but later removed from the statement.
The last three entries in the defendants' reconciliation account were, relevantly:
Document
ID
Type
date
SSC Claim
(Schedule 1)
PBS Position
PBS Position Running Total
346624
INV
22/08/2008
5,047.35
5,047.35
1,407,744.03
9702
CRN
10/11/02008
(16,735.62)
1,391,008.41
582
CRN
30/06/2009
(653,701.89)
737,306.52
By contrast, the last three entries in the plaintiff's statement of 31 August 2009 are as follows:
Date
Type
Document
Amount
Amount
Balance
22.8.08
Inv
346624
$5047.35
$
$1,686,512.80
10.11.08
CRN
9702
$16,735.62 CR
$1,669,777.18
30.6.09
CRN
582
$653,701.88 CR
$1,016,075.30
The defendants contended that the difference between $1,669,777.18 (plaintiff's August 2009 statement) and $1,391,008.41 (defendants' reconciliation account) $278,768.77 was not owed by the defendants to the plaintiff.
The defendants had qualified an accountant, Mr Jackson, to provide expert evidence as to the plaintiff's claim. Mr Jackson dealt with this matter in his report dated 6 October 2010. The report was admitted subject to objection. The objection was not sustained. Mr Jackson, after analysing such documents as were available to him concluded:
"2.9 Based on the above analysis and observations, insufficient information has been provided to enable me to determine whether the value of the amount allegedly owed by Portaccomm to Southern is accurate, complete and/or reliable."
He sought further documents and information to assist him in reaching a conclusion but such were not forthcoming.
Mr Jackson, in his report, noted inter alia:
"3.5 (b) a number of payments and credit notes appear on the Statement issued to Portaccomm dated 31 May 2008 that are not recorded on the statement dated 30 June 2009. It is not evident from the documents provided why these transactions have been omitted in later statements.
3.5(c) the Statement issued to Portacomm dated 31 May 2008 records a payment on 9 May 2008 with a document identification number (ID) of 90508 for $200,000. On the statement dated 30 June 2009, the amount of the same document ID is recorded as $27,509. It is not evident from the documents provided why the value of this transaction has been altered on the latter statement..."
as well as uncertainty in relation to other aspects of the plaintiff's claim.
The plaintiff's accountant, Mr Ross, was retained to prepare an expert report in relation to the first defendant's alleged loss resulting from the allegations set out in the cross claim only. The content of Mr Jackson's report dated 6 October 2010 was not considered at the joint meeting of the accountancy experts.
The plaintiff submitted:
(a) the reconciliation account did not form part of the evidence in the case. It was a construct by the defendants' legal representatives which the plaintiff was shown only after the evidence was given;
(b) if the "reconciliation account" had validity it would have been the subject of supporting evidence from the accountant retained on behalf of the defendants. It was not;
(c) the running total figure derived by the defendants
"eventually comes to the same $875,000 figure at the end of May 2008. What it appears has happened is in periods prior to that time, credits have been allocated to old bills. That's why you get the differences in the running totals, but which ultimately come to the same point for the end of May 2008, 29 May 2008. But what the defendant seeks to do is to analyse that material in an inappropriate way to get to a different figure than the same agreed figure that exists on all of those statements.";
(d) the reconciliation account was an artificial and invalid analysis; it was contrary to the admissions made by the second defendant and contrary to the documentary evidence accepted by him to be correct. The document should be put to one side;
Senior counsel for the defendants submitted the onus was on the plaintiff to establish the amount owing. He described the "unsatisfactory state of affairs in connection with the way the plaintiff has sought to try and prove its case". He submitted:
"It was said that Mr Keller made admissions in relation to the amount owing. In our respectful submission the evidence does not establish that."
In my opinion, the onus was upon the plaintiff to establish the amount which was due and owing to it. In this case the defendants have put in issue the sum of $278,768.77 which they contend is not owed by them to the plaintiff as it is the result of payments allegedly not acknowledged [or only partially acknowledged] and credits allegedly previously acknowledged but later removed from the statement. That there were payments and credits so treated is apparent from an examination of the plaintiff's records and is confirmed by Mr Jackson.
It may be that there is a legitimate explanation for the payments and credits being so treated, but it was not apparent to Mr Jackson nor is it apparent to me. These matters are peculiarly within the knowledge of the plaintiff.
I do not regard the "admissions" as foreclosing this argument to the defendants. The admissions were not in the nature of formal admissions and if the relevant evidence is read as a whole it is apparent the defendants were conceding the invoices for May, June, July and August 2008 were correct and correctly entered in the statements but were reserving the argument as to that part of the plaintiff's claim which involved issues as to payments allegedly not being acknowledged or fully acknowledged and credits allegedly previously acknowledged but later removed from the statements. In my opinion, the plaintiff has not established that it is entitled to the $278,768.77 disputed or any part thereof.
The second way in which the defendants sought to meet the plaintiff's claim was to rely on the plaintiff's statement as of 31 August 2009 which showed the balance owing to be $1,016,075.30.
The plaintiff led evidence from Mr Larkin that the last entry in the statement as of 31 August 2009 represented an internal accounting record in respect of a bad debt write-off as to part of the amount owed by the first defendant. A copy of a typewritten page which was glued into a bad debts ledger of the plaintiff was admitted into evidence. The document was headed
"BAD DEBT WRITE OFF JUNE 2009
SOUTHERN SHEET AND COIL"
The page listed entries for a number of companies including an entry for Portaccomm beside which was the figure $653,701.88 and a number, 582, which was located in a sequence of numbers from 575 to 587. These numbers were the only entries on the page which were handwritten.
Senior counsel for the plaintiff submitted:
(a) the entry for the "credit" has the document number 582 allocated to it. This coincides with the number allocated to the corresponding entry in the bad debts ledger page. It is different from the number sequences otherwise used in the August 2009 statement. It supports the conclusion that the entry was of a different character than other entries in the statement and that it relates to a bad debt write off;
(b) there was no satisfactory evidence of anything that would give rise to a credit in June 2009 and no satisfactory evidence of any agreement to give a credit at that time. The defendants are unable to point to any such evidence. Evidence supporting the second defendant's contention that there was "a credit for all other" after taking away most payments, was not produced. Mr Jackson observed he had not been provided with any relevant credit note. The "credit" was given as at the end of the financial year;
(c) the figure was representative of a bad debt write-off made by the plaintiff for the plaintiff's internal purposes and being irrelevant to the claim against the defendants. Clearly it had been placed on the statement in error.
The defendants submitted that the entry in the statement was evidence of a credit and, as with the other credits, should be deducted from the amount claimed as:
(a) the onus was on the plaintiff to prove its entitlement to the amount claimed;
(b) the entry type was "CRN". Earlier entries marked "CRN" had been deducted from the balance;
(c) the entry was on a document intended to be forwarded to the defendants;
(d) the alleged source of the entry was pasted into a ledger. The plaintiff's other financial records were kept on computer;
(e) the write-off was an unusually precise figure for a partial write-off;
(f) Mr Larkin had been unaware of the write-off or the ledger prior to the issue arising during the hearing. He was unable to explain how the write-off was derived or calculated. No business records were produced to explain how the bad debt was derived;
(g) the person responsible for making the entry had not been called to give evidence and there was no explanation offered for his or her absence;
(h) the plaintiff's solicitors had been reluctant to produce the original ledger relating to the write-off and had sought to avoid production of the relevant document on unmeritorious grounds;
(i) the statement contained an entry immediately before that in question which was also for a credit which was deducted. It was dated November 2008. The basis for that credit was not apparent but it was not contested.
The issue is not free from doubt but ultimately I have concluded that, more probably than not, the entry is a write-off for taxation purposes and not a matter in respect of which the first defendant should have a credit. The major factor leading me to that conclusion is the presence of documentary evidence supporting a write-off and the absence of any satisfactory evidence of a factual basis for a credit or that the plaintiff had agreed to give a credit. The number allocated to the entry both in the statement and in the ledger page is also supportive.
The third way the defendants sought to meet the plaintiff's claim was by relying upon the fact that Mr Jackson was unable to determine the amount owed by the first defendant to the plaintiff. However, he had not been provided with all of the information which was available and relevant. He set out in his report the information that he would expect to see and would need to see to be able to determine what may be payable but this, apparently, was never supplied to him.
Subject to any set-off for the cross claim, the plaintiff is entitled to judgment for $1,391,008.41, interest thereon pursuant to s 100 of the Civil Procedure Act 2005 and costs.
Is the second defendant liable to the plaintiff pursuant to the guarantee?
On 4 August 2005 the second defendant and Mr James signed a "Credit Application and Deed of Guarantee for a New or Lapsed Account". The document contained, on the front page, a number of printed questions and handwritten responses relating to details of the first defendant and its directors. These included the following:
"Annual Sales $1,000,000
How long established 3 months
Credit requirements per month $100,000
Product to be purchased Coil"
The front page also contained an acknowledgement in the following terms:
"The Applicant hereby acknowledges and agrees that 'The Company' is entitled to undertake/initiate all and any necessary and/or reasonable enquiries, investigations, and assessments to ensure the accuracy of the information provided above; and further, that such information, as verified, may be used by 'The Company', and any authorised agent, employee, or subcontractor engaged by 'The Company', for the purpose of reviewing, vetting, monitoring and, if necessary, actioning The Applicant's use and performance in the operation of the Account/Credit facility, including recovery of any outstanding account balance.
I have read, accept, understand and agree to be bound by the standard Terms and Conditions of sale on the reverse side of this Credit Application and acknowledge that failure to comply with said conditions may result in the withdrawal of credit facilities and thereafter possible legal proceedings."
and a personal guarantee in the following terms:
"[We]...Guarantee to 'The Company' [which includes the plaintiff] by way of continuing guarantee that I/we will be jointly and severally liable with 'The Applicant' to 'The Company' for the due observance of all conditions expressed or implied in the Conditions of Sale set out in this form as well as the due payment by 'The Applicant' of every sum payable by it under this or any past or future sale and the due performance of the conditions thereof. The granting of any concession or the making of any composition with or the waiver of any default by 'The Company' or the forbearance of 'The Company' to enforce any condition will not discharge this guarantee which includes an obligation to pay 'The Company' a sum equal to any other payment to 'The Company' which may be set aside under any insolvency law. If any condition is not enforceable for any reason, I/we agree to indemnify 'The Company' against all moneys which would have been recoverable from 'The Applicant' had that condition been fully enforceable."
Mr James and the second defendant each signed the acknowledgement and the guarantee. Printed terms and conditions of sale were on the reverse side of the document. Those terms and conditions did not fully align with the terms of the agreement asserted by either party.
The plaintiff has sought to recover its loss from the second defendant pursuant to the guarantee.
The second defendant, in the third further amended defence, pleaded he was not liable to the plaintiff as he had been discharged from the guarantee:
(a) by the plaintiff releasing Mr James from the guarantee without the consent of the second defendant and without reserving any remedies against Mr James;
(b) if it be found the agreement, as pleaded by the defendants in the cross claim, was varied to include the purchase and sale of steel coil manufactured by other than BlueScope, the second defendant says that the guarantee was discharged in relation to him as he did not agree to the variation;
(c) if it be found the agreement, as pleaded by the first defendant in the cross claim, was varied to include a credit allowance or limit greater than $100,000, the second defendant says that the guarantee was discharged in relation to him as he did not agree to the variation.
In its reply to the third amended defence the plaintiff pleaded:
(a) it did not release Mr James from the guarantee;
(b) if it did release Mr James from the guarantee, the release was obtained on fraudulent grounds and, accordingly, was invalid.
Release
The evidence relied upon in this regard comprised evidence of the second defendant and letters dated 8 June 2006 and 6 December 2010 respectively.
Mr James, after he left the first defendant, became a customer of the plaintiff. The second defendant gave evidence that in February 2010 he had a conversation with Mr James about Mr James' potential liability under the guarantee. He alleges Mr James said:
"'Ralph, I have been assured by Jim Larkin that I am not a guarantor in your dispute. Jim and I have an agreement that I am taken off the guarantee and not included in your dispute in any way.'"
Mr Larkin was not cross examined about this evidence nor as to any particular form of the words that were used in the conversation.
The letter dated 8 June 2006 was written on the first defendant's letterhead and was addressed to Southern Steel Group Pty Limited. It purported to be signed by the second defendant. The second defendant denied he had consented to the release of Mr James. He denied the letter bore his signature. He was not challenged on this. The letter states:
"Please be advised that effective 1st June 2006, Mr Ralph Keller will control 100 percent ownership of Portaccomm Pty Limited as Mr Gary James has resigned as a director and sold his shareholding effective 31 May 2006.
Therefore can you please confirm in writing that any personal guarantee in the name of Gary James will no longer be enforced for Portaccomm Pty Limited."
Mr Larkin gave evidence he had not seen the letter prior to 2011.
The letter dated 6 December 2010 was on the letterhead of Southern Steel Group, signed by Carol Lowe, Credit Manager, Southern Steel Group and addressed to Mr James. Relevantly it stated:
"Based on the letter from Portaccomm to Southern Sheet & Coil Pty Limited dated 8 June 2006, Southern Steel & Coil Pty Limited released you from any new debt incurred on the Portaccomm account from 01 June 2006.
Southern Sheet & Coil has no intention of pursuing you under the guarantee provided by you on 4 August 2005."
The authorities distinguish between a release and a covenant not to sue.
In Deanplan Limited v Mahmoud (1993) Ch 151 at 170 it was held:
"A covenant not to sue is not a release. It is merely a contract between the creditor and the joint debtor which does not affect the liabilities of the other joint contractors ...the same principles apply to a contract between the creditor and one of joint and several debtors."
The question for determination is whether the evidence establishes a covenant not to sue or a release.
In James v Surf Road Nominees Pty Limited [2004] NSWCA 475 at [41] it was stated:
"It is a question of construction whether a covenant operates as a release or a covenant not to sue. If, upon its proper construction, in the context of the whole document in which the covenant is found, an intention is found not to release all joint and several promisors, that will point to a covenant not to sue. In that case, a co-promisor will not be discharged from liability."
In Commercial Bank of Tasmania v Jones [1893] AC 313 at 316 the Privy Council stated:
"Language importing an absolute release may be construed as a covenant by the creditor not to sue the principal debtor, where that intention appears, leaving such debtor open to any claims of relief at the instance of his sureties."
The plaintiff submitted the first defendant sought an undertaking from the plaintiff that the guarantee provided by Mr James would not be enforced. The plaintiff stated that it had no intention of pursuing Mr James under the guarantee. In the result, the proper construction of the abovementioned documents (assuming validity in light of the claimed forgery) results in a covenant by the plaintiff not to sue Mr James and not a release. Accordingly, it does not prevent the plaintiff from proceeding on the guarantee against the second defendant.
The second defendant submitted that:
"If your Honour wants to know how one categorises what happened orally between Mr James and Mr Larkin with Mr James saying, "Mr Larkin told me I am not a guarantor", it is best seen by the letter which is a confirmation of the nature of that arrangement, provided on 6 December 2010. I will give your Honour a reference to the transcript which, on its face, confirms the nature of the arrangement between Southern Sheet and Coil and Mr James consequent on the change of shareholding as a release. It specifically uses that terminology.
We say that there is no suggestion that the release given by Larkin orally, communicated to James orally in those discussions, contained some reservation. The analysis as to the guarantee pursued by the plaintiff is flawed because it seeks to determine whether or not there is a reservation by looking at the letter requesting the release rather, than the transaction by which it was granted, that being the oral conversation. Thirdly, it fails to acknowledge the reference to release by reference to that conversation as being confirmatory of what occurred.
...
Most importantly for there to be inducement for Larkin to release Larkin would have had to have seen the letter. Larkin's clear and unequivocal evidence by reference to his 5 September 2011 affidavit, ...confirms to your Honour that even if the letter was a forgery or fraudulently provided he had never seen that letter, yet, has by February 2010 released James. The nature of the release being confirmed in the letter subsequently written which refers to the release."
(a) The second defendant bears the onus of establishing there was a release of Mr James by reason of which the second defendant is discharged from potential liability to the plaintiff under the guarantee;
(b) the second defendant relies upon the letter dated 6 December 2010 as confirming that the oral agreement between Mr Larkin and Mr James was for the release of Mr James. Particular emphasis was placed on the use of the word "released" in the first paragraph of the letter. However, the second paragraph of that letter clearly assumes the guarantee is continuing and the plaintiff's covenant not to sue Mr James applies;
(c) the first paragraph of the letter dated 6 December 2010 records what occurred previously. It purports to be based on the letter dated 8 June 2006. The letter dated 8 June 2006 requested confirmation of a covenant not to sue;
(d) the conclusion that the guarantee continues but that Mr James would not be sued by the plaintiff is consistent with the second defendant taking 100 percent control of the first defendant from 1 June 2006;
(e) The alleged conversation between the second defendant and Mr James was consistent with the guarantee continuing and the plaintiff covenanting not to sue Mr James thereon. In my opinion this is the preferable construction.
(f) in my opinion, the second defendant has not established that the plaintiff had released Mr James thereby discharging the second defendant from potential liability to the plaintiff under the guarantee.
Fraud
The plaintiff submitted that however one looks at it, whatever promise was forthcoming from the plaintiff was procured by fraud. Fraud unravels all. If it was not obtained by fraud, then the second defendant had consented to the release of Mr James. However, the allegedly forged letter was not read by Mr Larkin until after he had agreed the plaintiff would not sue Mr James under the guarantee. It thus had no operative role.
Variations
The defendants' senior counsel submitted that:
"It is a well recognised rule that a material variation of a contract between a creditor and principal debtor will if made without the guarantor's consent discharge the guarantor." - Holme v Brunskill (1877) 3 QBD 495, Ankar Pty Limited v National Westminster Finance (Australia) Limited 1986-1986 162 CLR 549.
Variation 1 - supply non-BlueScope product
This defence is predicated upon a finding that the agreement was varied to include any purchase and sale of steel coil manufactured other than by BlueScope.
In my opinion, for reasons which appear later in this judgment, the initial agreement was for the provision of both non-BlueScope and BlueScope steel coil. The supply of non-BlueScope manufactured steel coil did not result in a variation of the original agreement.
Variation 2 -the credit allowance or limit
The credit application form, on its face, referred to credit of $100,000 per month. Mr Larkin gave evidence the words "per month" were erroneous and should be excluded. The defendants accepted this though there was no application to rectify the document. There was evidence the plaintiff sought to vary the credit limit by increasing it to $500,000 in June 2006 and subsequently to $2,000,000. However, the defendants did not respond to requests from the plaintiff in this regard and there was no evidence the increase was approved by the plaintiff's managing director as, on the better view, was required. There is no evidence to establish any formal acknowledgement of a variation to the credit limit. It was submitted for the second defendant that even if the plaintiff did allow the account to slip beyond the credit limit, it should not be taken as being a variation whereby the guarantor consented to guaranteeing it. The second defendant submitted he did not guarantee any sales beyond the credit requirements which were discussed and agreed, namely $100,000.
The plaintiff submitted:
"What actually happened is that which is contemplated by the umbrella agreement, namely, that after the document has been entered into, from time to time orders would be placed and orders fulfilled. What your Honour will see is that there is no contractual entitlement or obligation to credit of any particular amount. Your Honour will see half way down the first page that the defendant mischaracterises this $100,000 figure. That is said to be credit requirements per month. There is no contractual provision that requires the provision of credit for that or any other amount. There is no contractual provision that limits the obligations of either the customer, Portaccom, or the guarantors, to sums up to $100,000 per month, or of any particular sum. Rather, the personal guarantee provides for an obligation on the guarantors to guarantee due payment on future sales. That is what happened. There were future sales to which the guarantee attaches.
...
Secondly, there is no variation of any contractual arrangement as to credit, because there is no contractual obligation in relation to credit. What my learned friend has sought to do is elevate the description 'Credit requirements per month of $100,000' to be first of all a contractual term, which it is not and, secondly, to rule out the 'per month', so that it somehow involves a credit limit of $100,000. That's not made good on the document."
The credit relationship between the first defendant and the plaintiff, if more tightly controlled by the plaintiff, may have resulted in a lesser amount being owed by the first defendant to the plaintiff. However, the second defendant was in control of the first defendant with Mr James until 1 June 2006 when he assumed total control. He was in control of the first defendant's operations at all times and, in my opinion, consented to and was responsible for the increase in moneys due to the plaintiff.
The guarantee was a continuing guarantee whereby the second defendant accepted liability for the due payment "by 'The Applicant' of every sum payable by it under this, or any past, or future sale." In my opinion, the second defendant's liability under the guarantee was not limited to $100,000 but extended to the whole of the first defendant's indebtedness to the plaintiff.
Other variations
The second defendant also made submissions as to two other variations though neither of these was pleaded. The first such variation related to the alleged supply of product on consignment which had not been established as being specifically ordered. The second defendant submitted the plaintiff had the onus of proving orders were placed for non-BlueScope product with the second defendant's consent. However, the work of placing the orders was delegated to persons other than the second defendant. The second defendant's consent was not a prerequisite. If a consignment of product arrived which had not been specifically ordered, it could be returned to the plaintiff if not accepted. The first defendant incurred no liability in respect of that consignment if it was not used.
The second such variation was the supply of some product with prices outside the range previously agreed. There was an acceptance of this by Mr Larkin and appropriate adjustments to price were made. The second defendant has failed to establish any material variation in this regard.
In my opinion, the second defendant is liable to the plaintiff on the guarantee in such sum as is awarded to the plaintiff against the first defendant and costs.
Is the first defendant entitled to succeed on the cross claim?
Each party relied in his or its pleadings on the agreement reached during the meeting on 4 August 2005 between the directors of the first defendant and Mr Larkin. However, there was a significant dispute as to what was said and agreed at the meeting. The second defendant's evidence was that the conversation was primarily about the supply of BlueScope Colorbond. There was no reference to imported steel products.
The first defendant pleaded in the second amended cross claim that the plaintiff agreed:
(a) to sell and deliver BlueScope Steel products to the first defendant as ordered by the first defendant;
(b) to charge the first defendant $1500-1600 per tonne for BlueScope Steel Galvabond and Zincalume slit coil steel and to charge the first defendant at prices equivalent to prices BlueScope Steel would charge the first defendant for BlueScope Colorbond steel;
(c) to deliver the steel to the first defendant at its Perth or Karratha premises (as required) free of charge for sale or return at the plaintiff's cost if not used, up to a credit limit of $100,000, per month, delivered stock to be paid for within 60 days of use.
It is alleged by the defendants that the first defendant entered into the agreement because it relied on Mr Larkin's assurance that the plaintiff would supply only BlueScope Steel product to the first defendant and, accordingly, the agreement included an implied term that what the plaintiff would supply would correspond with the description BlueScope Steel product. This implication was available by virtue of s 18 of the Sale of Goods Act 1923. As it was not in issue that BlueScope Steel products came with the BlueScope Steel warranty, the agreement, by implication, included a term that the steel supplied by the plaintiff to the first defendant would have the benefit of the BlueScope Steel warranty.
Mr Larkin disputed the second defendant's version of the conversation and agreement. He gave evidence that the conversation was primarily about the sale of imported non-BlueScope Steel slit coil which he could supply directly to the first defendant in Perth (or Karratha), at a cost saving to the first defendant. There was no reference to Colorbond at that meeting though there may have been at a subsequent meeting. He did not agree to sell only BlueScope steel products to the first defendant. He would not have been commercially able to do so. The agreement pleaded in the plaintiff's amended statement of claim was for "the supply by the plaintiff to the first defendant of steel related product".
Those present at the meeting on 4 August 2005 were Mr James, the second defendant and Mr Larkin. Mr James did not give evidence. There was no contemporaneous written account of what transpired save for the credit application which referred to the product simply as "coil".
Each of the parties advanced a number of reasons why their version should be preferred. Foremost amongst those reasons was the lack of credibility of the opposing principal witness.
Senior counsel for the defendants submitted that Mr Larkin was not a witness of credit and that his evidence should not be accepted when it was in conflict with that of the second defendant. It was asserted Mr Larkin was not frank in giving evidence. He did not make concessions where concessions were called for. He was evasive and many times disregarded the cross examiner's question to advocate the plaintiff's position. He often blustered. He even went so far as to disown his own evidence in his own affidavits when his own material was put to him during his cross examination. This exposed either the fallacy of the evidence in the affidavits or indicated that Mr Larkin was prepared to tailor the evidence, even to the extent of modifying his own, to best advance the interests of the plaintiff in the litigation. The first defendant provided a schedule of examples which, it submitted, established those matters.
I agree there were aspects of Mr Larkin's evidence which were unsatisfactory. He tended to be an advocate in the plaintiff's cause and this affected the reliability of his evidence, which at times was internally inconsistent. However, I do not accept the broad submission that his evidence should not be accepted when it was in conflict with that of the second defendant.
Senior counsel for the plaintiff submitted the first defendant's cross claim was a dishonest and contrived attempt by the second defendant to evade the first defendant's payment obligations in respect of steel ordered received and used by it in its business. Its case was entirely based upon the uncorroborated and unsubstantiated evidence of the second defendant.
Senior counsel for the plaintiff submitted the second defendant was evasive, he wasn't prepared to tell the truth, he was commercially dishonest. He was dishonest in his evidence. He didn't make concessions that were appropriate to be made and he was time and time again caught out in giving evidence contrary to the documentary contemporaneous material...[He was] rarely prepared to give a straight answer to anything. One would not accept anything that he said unless it was independently corroborated. Most of what he said was not.
The allegations made against the second defendant were, generally, supported by the evidence though there were some concessions made by the second defendant which could be, and were, accepted. The second defendant had demonstrated commercial dishonesty. I did not regard him as a reliable and credible witness. I reject senior counsel for the defendants' submission that the second defendant was naïve, "perhaps intellectually unable to deal with the cross examiner". In the circumstances it is necessary to assess the probabilities of what occurred, particularly by reference to the surrounding circumstances and objective evidence if available.
The first defendant's directors, at the time of the meeting, were making some use of Colorbond material and intended to increase that use in the future. The first defendant had ordered a roll forming machine which was to be used to make broad sheet profile but it was yet to be delivered. In my opinion, the first defendant's directors would have had an interest in discussing the possibility of accessing Colorbond from the plaintiff in the future. Similarly, Mr Larkin represented a steel distributor and it would be expected he would have an interest in ascertaining whether there was a prospect of increasing the plaintiff's profits by doing business with the first defendant. Accordingly, it seems to me more likely than not, that the conversation would have made reference to Colorbond material contrary to what Mr Larkin has said.
The plaintiff had access to imported galvanised slit coil which it could directly supply to the first defendant more cheaply than BlueScope slit coil. The first defendant was a user of slit coil and would have had an interest in ascertaining whether a lower price was obtainable from the plaintiff. In my opinion, contrary to what the second defendant has said, it is likely the plaintiff would have sought to sell imported galvanised slit coil to the first defendant and would have informed the first defendant's directors that the coil to be supplied would be imported.
In my opinion, it is more likely than not, that the agreement was not limited to the supply of BlueScope steel product. That this is so is confirmed by the nature of the orders placed by the first defendant with the plaintiff and the absence of evidence that the plaintiff could have undercut the prices charged by BlueScope or other suppliers of BlueScope steel as it was able to do using imported steel.
Mr Larkin said that what happened in practice was that the first defendant's designated person (Mr James from 4 August 2005 until he resigned on 31 May 2006, Mr Hardie from June 2006 until he resigned in August 2007 and Mr Hart from August 2007 until he resigned on 28 October 2007) would place an order for steel by some written or other communication with Mr Larkin who would communicate with them as to what he was able to provide and the price at which he was able to provide it and then he would do so. The second defendant did not personally place any orders for steel with the plaintiff nor did Mr Schrimpf, who commenced as the operations manager for the first defendant in October 2007. The last order for steel to be supplied by the plaintiff to the first defendant was placed by Mr Hart in September 2007.
The defendants alleged that the first defendant ordered steel products from the plaintiff by reference to the steel product and colour description in the BlueScope colour chart but, in breach of s 18 of the Sale of Goods Act, the plaintiff largely supplied imported product and very little BlueScope product. This supply of imported product was also contrary to the plaintiff's representation that the steel product to be supplied was BlueScope.
The defendants' senior counsel opened the case as one where the first defendant was never informed that the product delivered was not BlueScope Steel. Additionally, the first defendant received documentation which continued to represent that BlueScope Steel products were being supplied. That was misleading and deceptive. The second defendant gave evidence he believed the product supplied was BlueScope Steel product. In the second amended cross claim, the first defendant pleaded:
"Acting in reliance upon the conduct of the cross defendant's, the cross claimant assumed that all the steel sold and delivered to it by the cross defendant was BlueScope Steel product."
The defendants submitted they were unaware until March 2008 that the plaintiff was supplying non-BlueScope Steel product to the first defendant. I do not accept this submission. In my opinion, there is ample evidence that the first defendant was aware from the time of the agreement that non-BlueScope Steel product would be supplied to the first defendant pursuant to the agreement.
The second defendant, despite stressing in his evidence the importance to the first defendant of using only steel products manufactured by BlueScope, was not averse to using non-BlueScope steel product in that:
(a) prior to the meeting on 4 August 2005 the first defendant was using coil as steel framing for transportables. The coil was supplied by Bon Pacific (New Zealand). As the defendants knew, the coils were not manufactured by BlueScope;
(b) inquiries of various steel manufacturers and suppliers as to the availability of slit coil for supply to the first defendant were being made by the second defendant prior to the meeting on 4 August 2005. The second defendant denied making any inquiries of the plaintiff. However, on 21 June 2005 the plaintiff's Mr Faulkner forwarded an email to the second defendant in which email the plaintiff offered galvanised G550 which was stated to be "much cheaper than the BlueScope offer on zincalume or galvabond!!" This distinguished between the product being offered and the BlueScope equivalent, Galvabond. The email commences "Hello Ralph". This suggests it was sent in response to an enquiry by the second defendant as to non-BlueScope steel coils. The second defendant says he "can't recall this email now". It is presumed to have been received by the second defendant - s 161(d) Evidence Act 1995 (NSW);
(c) the second defendant gave evidence that the defendants first knew in February/March 2008 that the plaintiff had supplied non-BlueScope Steel products to the first defendant. However the defendant continued to use the non-BlueScope Steel in its various business enterprises after that date. Mr Schrimf, who took over Mr Hart's role, gave evidence that by August 2007 he knew all stock remaining was non-BlueScope steel. It was put to the second defendant that he knew by August 2007 as a result of reading an invoice that described non-BlueScope steel as the relevant product that the plaintiff was supplying non-BlueScope steel products to the first defendant. He initially agreed but then retracted that agreement.
The first orders placed pursuant to the agreement were for non-BlueScope steel product:
(a) the initial order was for galvanised coil. The order was supplied in September/October 2005. Mill certificates in respect of the order were forwarded to Mr James, at his request. The certificates identified the steel as manufactured by Essar Steel Limited, Mumbai. The second defendant agreed it was obvious that the steel was not a BlueScope product. The delivery was accepted;
(b) the first quotation by the plaintiff to the first defendant for coloured coil (for sheeting) was on 5 September 2005. It referred expressly to "Superguard" and the colours Blue Horizon and Off White. "Superguard" was manufactured by Australian Coloured Coaters (ACC) as was well known in the industry. The colours Blue Horizon and Off White were not registered BlueScope colours. The second defendant, in his evidence, agreed Superguard was an ACC product;
(c) on 4 October 2005 Mr James wrote as follows to Mr Larkin:
"The following is our upcoming requirement for coil.
Please place all coil on
Superguard G550AZ150
Double sided 25% gloss colour/grey underside .42x940
100 tonne Blueridge
100 tonne Manor Red
100 tonne Cottage Green
100 tonne Sandbank
200 tonne standard galv both sides
zinc"
(d) after discussion between Messrs James and Larkin, on 7 October 2005, Mr Larkin placed an order for 50 tonne Blue Horizon, 20 tonne Heritage Red, Caulfield Green and Sandalwood and 50 tonne Galv zinc. This was an example of Mr Larkin advising the first defendant what the product was the plaintiff was able to and would provide. The colours ordered were non-BlueScope equivalent to BlueScope registered colours identified in the first defendant's 4 October 2005 letter. The second defendant agreed that Mr James had ordered and been provided with Superguard ACC material;
(e) the supply of non-BlueScope steel continued thereafter. Mr Larkin gave uncontroverted evidence of a conversation with Mr Hardie confirming the importation of coil from the Taiwanese manufacturer, Yieh Phui;
(f) the second defendant gave the following evidence:
"Q. Mr Keller, may we take it that the only coloured sheet coil that Portaccomm had up until mid 2006 was that which was the subject of the large order that we have identified from late 05?
A. Yes
Q. Is it the case then that to the extent that you, that is Portaccomm, supplied coloured sheeting as part of any of its products up to at least 2006, it did so from the batch provided pursuant to the order of Mr James we've discussed?
A. Yes.
Q. You now know that to be imported ACC product, don't you?
A. Yes
Q. Yet whilst you say you didn't know that at the time, it is obvious from looking at the communication between Mr James and Mr Larkin that that is the case?
A. Yes.
Q. If you had looked at that material at the time you would have appreciated that as well?
A. I would have had concerns to that, yes.
Q. You would have been able to identify that perhaps with a few questions that you asked of somebody?
A. Well, I would want to know why the product is not BlueScope.
Q. But it would have been readily identifiable to you, do you say, had you looked at any of the order documents at the time that what you had obtained was non-BlueScope product, do you agree?
A. Yes."
In March 2006 Mr Larkin and Mr Michael McNee of ACC met with Mr James at the first defendant's premises. The purpose of the meeting was to correct problems associated with the use of ACC coil on the first defendant's roll forming machine. Mr James had complained that the first defendant was having difficulty roll-forming ACC material. There was no challenge to this evidence.
The second defendant agreed that Mr Larkin and Mr McNee visited the first defendant in March 2006. He claims he did not talk to Mr McNee beyond being introduced. He claims that he did not know why Mr McNee was there with Mr James and Mr Larkin. I do not accept that evidence. The second defendant appeared to me to be a man who would endeavour to keep himself informed of all aspects of his business. Such a person would, it seems to me, have ascertained the reasons for Mr McNee's presence.
The undisputed fact is that there was, to the second defendant's knowledge, an ACC representative at the first defendant's premises discussing ACC product (non-BlueScope product) with the first defendant's director who was responsible for ordering steel.
The origin of the products was identified by their packaging labels and stickers. These were clearly observable.
The coloured sheet coil that the first defendant had been supplied was used throughout 2006 and well into 2007. That those coils were ACC product was obvious to the naked eye.
The packaging of the coils from overseas made it clear that they were imported as they contained labels so stating. BlueScope steel was clearly identifiable by its distinctive labelling and by its dot matrix form of identification.
The coils were stored on the first defendant's site. Their origin would have been apparent when checked on receipt, when the coil was being moved or used and during stocktaking, quite apart from casual observation.
The first defendant from time to time between 16 January 2007 and 28 May 2008 forwarded to the plaintiff a list of the coil stock held by it. The description of the coils was such as made clear that the vast majority of the coils were non-registered BlueScope colours and thus it would have been clear to the defendants that the bulk of the steel which had been supplied and which was in its possession was non-registered BlueScope colours. Mr Schrimpf gave evidence that by August 2007 the first defendant had used up the BlueScope steel supplied to it and that all the stock it had was imported non-BlueScope steel.
The first defendant was only liable under the consignment arrangement to pay for product actually used and if it did not use it could be returned to the plaintiff. Thus the decision to use the coil and any liability or loss resulting from that use was attributable to the first defendant once it knew that the product supplied was not BlueScope steel product. In my opinion, the first defendant knew at all relevant times through Mr James and later managers and staff as well as documentary material that non-BlueScope steel was being ordered by the first defendant and supplied by the plaintiff. The first defendant did not reject any product on the basis it was a non-BlueScope steel product. Such products were accepted - Sale of Goods Act 1923, s 38 and promises to bring its account up to date were made.
The invoice relating to the sale to Mr Mees was dated 31 July 2007. It was identified by the second defendant. The entirety of the coil there described was non-BlueScope product. The second defendant claimed that he relied on the description in the invoices and that he used to look at them as they came in and examined them. However the evidence demonstrates that the second defendant examined invoices for the purposes of this case - not as and when they came in. Furthermore the second defendant said that Mr James was receiving the invoices. He gave the following evidence:
"Q: What I am saying to you is that if you bothered to look at the communications between your company and Southern Sheet and Coil you would have appreciated that what was being ordered and provided was substantial quantities of non-BlueScope steel; that's right isn't it?
A: If I had looked at the documentation which doesn't come to me, it goes to Garry James' house- to his email address, his fax number, of course I would have observed, yeah, that the material was not BlueScope as to what we discussed and as to what we set out to order."
The defendants did not call any evidence from Messrs James, Hardie or Hart as to the first defendant's dealings with the plaintiff. It was said that the second defendant had had a "falling out" with Messrs James and Hardie and for that reason they were not called by the defendants to give evidence. Nevertheless, either party could have called these witnesses who, if appropriate, could have been cross examined pursuant to s 38 of the Evidence Act. It was a matter for the defendants as to whether they chose to call those witnesses or not. The onus of establishing breach of s 18 of the Sale of Goods Act and ss 52 and 53 of the Trade Practices Act rested with the first defendant. The onus was not discharged.
The plaintiff submitted that in order to demonstrate the sale by description within the meaning of s 18 of the Sale of Goods Act, the buyer must rely on the description when entering into the contract. In the present case, there was no such evidence.
The first defendant submitted that the purchase orders referred to BlueScope products. However they also referred to non-BlueScope products. It was encumbent upon the first defendant to identify the precise contract which it claimed was breached by the plaintiff, the manner in which it was breached and how it is that the breach of the precise contract caused the first defendant loss.
The second defendant admitted making promises to the plaintiff to pay outstanding invoices in order to persuade the plaintiff to keep the consignment arrangement running. It was conceded that the first defendant was unable to pay its debts as and when they fell due from at least September 2007. The plaintiff relied upon a schedule of the defendants' broken promises of payment, promises which it was submitted were made without any real expectation by the defendants of being kept.
Clause 13 of the plaintiff's general terms and conditions of sale provides:
"[The plaintiff] shall not be liable for any claim whatsoever unless made in writing within two(2) weeks after delivery."
The first defendant did not make any claim until it was sued by the plaintiff long after delivery.
It has not been established that there was a misrepresentation by the plaintiff or any reliance upon alleged misrepresentations. The defendants were not misled or deceived. The first defendant has not established failure by the plaintiff to supply product conforming with its description. In my opinion for the reasons outlined above the first defendant has failed to prove breach of either the Sale of Goods Act or the Trade Practices Act or any resulting loss.
Causation
The first defendant purchased a roll forming machine. It used it to produce formed products, being the corrugated products generically described as Colorbond. The steel used by the first defendant in the manufacture of the product was allegedly non-BlueScope. The products were advertised and sold by the first defendant as Trimdek and Custom Orb. These were registered BlueScope trademarks.
The defendants knew before 2007 that the trademarks were registered to BlueScope and that the first defendant was not entitled to advertise, market or sell materials using those trademarks without the consent of BlueScope. The first defendant did not have that consent.
On 15 March 2007 a building company, Mees Constructions Pty Limited, issued two separate purchase orders to the first defendant for Custom Orb and other flashing in Ironstone and Jasper colours.
On 17 April 2007 the first defendant issued two invoices to Mees using the name Custom Orb and colours Ironstone and Jasper.
In late July 2007 the solicitors for BlueScope wrote to the first defendant alleging that it was using the BlueScope trademarks in advertisements and on its website. The letter required the second defendant to sign a written undertaking. The second defendant claimed he signed the undertaking and gave it to his accountant to post. The undertaking was not received by BlueScope's solicitors. It is likely the undertaking was not sent. The first defendant's solicitor wrote:
"Unfortunately, the failure to respond to [Blake's 2007 letter] by the first defendant not only reflects poorly on the first defendant but has no doubt aggravated the situation."
There was no evidence of any complaint or problem before the complaint by Mees Construction Pty Limited.
On 20 February 2008 BlueScope commenced proceedings in the Federal Court against the first defendant. The proceedings related to the deliberate marketing and passing off of the first defendant's product as Trimdek and Custom Orb by the first defendant.
On 8 July 2008 the proceedings were settled. The terms of settlement included a requirement that the first defendant write to every customer informing it that it had passed off non-BlueScope product as genuine BlueScope product. This gave rise to some complaints by a small number of the first defendant's customers.
Senior counsel for the defendants stated that he sought to establish the causative link between the alleged breach by the plaintiff and the alleged loss by the first defendant in the following manner:
"Portaccomm was, on the evidence, in an enterprise which required Colorbond. Secondly, it advertised and sold material as Colorbond. Thirdly, it was, by virtue of the Mees affairs, placed in a situation where its reputation was shot. Fourthly, it could not obtain Colorbond steel because of the various factors that your Honour heard in the evidence and thus lost the ability to market Colorbond and lost the ability in the Pilbara to market the homes because of reputation and inability to obtain the product."
I do not accept the defendants' submission. In my opinion, the first defendant's loss, if any, resulted from the first defendant's deliberate application of the BlueScope trademarks to the products produced, advertised and marketed by it as Trimdek and Custom Orb and its subsequent failure to provide the undertaking requested by BlueScope's solicitors. The first defendant had knowingly and deliberately contravened the BlueScope trademark at all times since it commenced to produce and market its Custom Orb and Trimdek substitutes.
The first defendant manufactured the material which it sought to pass off as Trimdek and Custom Orb by using its roll forming machine to manufacture profiled sheeting. It was the passing off of the products thus created using the Bluescope trademarks Trimdek and Custom Orb that caused the loss, if any, and that would be so whether the coloured sheet was Bluescope Steel or not.
Loss
It would be necessary for the first defendant, if it was to succeed, to establish some loss or damage was occasioned to it.
The first defendant's case was that it lost the opportunity of profiting from the sale of steel kit homes and components thereof and with it millions of dollars. There was however, no evidence of a single potential customer who did not purchase a kit home or components as a result of allegations against the first defendant. No other part of the business was alleged to have been effected.
The business of selling kit homes was not established. It was said, at most, three kit homes had been sold. It was doubtful that any of the three homes identified were true kit homes. There was a question as to whether any kit homes had been sold. The defendants did not make available sales records relating to these homes to Mr Jackson despite his requests for their production. There were no adequate feasibility studies, market research, budgets or financial plans. The calculation of possible costs and profits was speculative.
The first defendant had elected to progress its business during the relevant period not by attempting to pursue the steel kit home and components side but by expanding the existing business of selling transportables. This was a business decision made not because the second defendant had been misled or deceived by the plaintiff but because it was considered that greater profitability lay in expanding the business of selling transportables. The second defendant applied his energies to that side of the business with the consequence that during the period in respect of which damages were claimed the business enjoyed much greater profitability than hitherto. The business, as a whole, sustained no loss.
The first defendant was financially unable to make use of any alleged opportunity, the evidence being that it was unable to pay its debts as and when they fell due. No financial statements or other materials were produced to support the proposition that other companies in the second defendant's group of companies would have been able to provide the necessary financial support. It is clear that the bank would not extend credit to the first defendant and there was an outstanding tax liability of the group of $2.2 million which the group was unable to meet.
The group business was constructed in such a manner that any profits from the sale of steel kit homes and components would be received by Portaccomm Steel Pty Limited rather than the first defendant.
The overall impression which I gained was, as the plaintiff submitted, that the cross claim was a contrived attempt to establish a set-off to the plaintiff's claim. The evidence in support of the cross claim was based on the evidence of the second defendant, whose evidence I regard as unreliable. The onus of establishing loss on the cross claim rests with the first defendant. In my opinion, the onus of establishing loss has not been discharged.
Damages
The findings on liability make it unnecessary to determine damages. It is inappropriate, by reason of the credit issues, to assess damages against the possibility the matter may go further.
Interest
The plaintiff has claimed interest pursuant to s 100 of the Civil Procedure Act 2005 on any verdict in its favour. I understand its entitlement to interest is not contested and, accordingly, the judgment in favour of the plaintiff should include the sum of $676,420.71 for interest.
Conclusion
The plaintiff is entitled to a verdict of $1,391,008.41 which together with interest of $676,420.71 results in judgment for $2,067,429.12 against the first and second defendants with costs. The plaintiff is also entitled to judgment on the cross-claim with costs.
Orders
The Court makes the following orders:
1. Judgment for the plaintiff against the first and second defendants for $2,067,429.12.
2. The defendants to pay the plaintiff's costs as agreed or assessed up to 13 March 2012 and for the defendants to pay the plaintiff's costs on an indemnity basis from 14 March 2012.
3. Judgment for the cross defendant (plaintiff) on the cross claim.
4. The cross claimant (first defendant) to pay the cross defendant's costs of and related to the cross claim as agreed or assessed up to 13 March 2012 and the cross claimant (first defendant) to pay the cross defendant's costs of and related to the cross-claim on an indemnity basis from 14 March 2012.
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Amendments
26 February 2013 - Orders 2 and 4 varied
Amended paragraphs: [129]
Decision last updated: 26 February 2013
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