Toveill Pty Ltd v Australian Quality Plus Pty Ltd

[2010] NSWSC 1003

CITATION:	Toveill Pty Ltd v Australian Quality Plus Pty Ltd; Joe's Citrus pty Ltd v Australian Quality Plus Pty Ltd [2010] NSWSC 1003
HEARING DATE(S):	01/09/10
JUDGMENT DATE :	7 September 2010
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	In each of 2010/143247 and 2010/143245 the orders are as follows: 1. Order that the interlocutory process filed on 6 July 2010 be dismissed. 2. Order that the applicant under the interlocutory process pay the respondent’s costs of the interlocutory process.
CATCHWORDS:	CORPORATIONS - winding up - application for leave to proceed against company in liquidation - purported proprietary and restitutionary claims - whether serious question to be tried - SALE OF GOODS - passing of property - title retention clause - whether implied term that proceeds of on-sale by buyer should be held on trust for seller - where buyer had agreed to on-sell before delivery by seller - CONTRACTS - implied terms - conditions for implication of terms in written contract
LEGISLATION CITED:	Civil Procedure Act 2005, s 93 Corporations Act 2001 (Cth) Part 5.3A, ss 500(2)
CATEGORY:	Principal judgment
CASES CITED:	Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 BHP Steel Ltd v Robertson (Aust) Pty Ltd [2002] NSWSC 336 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (1992) 28 NSWLR 338 Cook v Alto Prestige Pty Ltd [2010] NSWSC 92 Dowling v Betjemann (1862) 2 J & H 544; 70 ER 1175 General Motors Acceptance Corporation of Australia v Southbank Traders Pty Ltd [2007] HCA 19; (2007) 227 CLR 305 Len Vigden Ski & Leisure Ltd v Timaru Marine Supplies (1982) Ltd [1986] 1 NZLR 349 McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303 Ogilvie-Grant v East (1983) 7 ACLR 669 Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567 Twinsectra Ltd v Yardley [2002] 2 AC 164 Vagrand Pty Ltd v Fielding (1993) 41 FCR 550
PARTIES:	(1) Toveill Pty Ltd - Plaintiff Australian Quality Plus Pty Ltd - Defendant (2) Joe's Citrus Pty Ltd - Plaintiff Australian Quality Plus Pty Ltd - Defendant
FILE NUMBER(S):	SC (1) 2010/143247; (2) 2010/143245
COUNSEL:	Mr J T Johnson - Plaintiffs Mr J E Hynes - Defendants
SOLICITORS:	Sally Nash & Co - Plaintiffs Minter Ellison Lawyers - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

TUESDAY 7 SEPTEMBER 2010

2010/143247 TOVEILL PTY LTD v AUSTRALIAN QUALITY PLUS PTY LTD
2010/143245 JOE’S CITRUS PTY LTD v AUSTRALIAN QUALITY PLUS PTY LTD

JUDGMENT

1 Australian Quality Plus Pty Ltd (“AQP”) is subject to creditors voluntary winding up as a sequel to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth).

2 Each of Toveill Pty Ltd and Joe’s Citrus Pty Ltd wishes to pursue separate but like proceedings in this court against AQP and, to that end, each applies for leave under s 500(2) of the Corporations Act. AQP’s liquidator, Mr Mathews, opposes the applications.

3 The causes of action asserted against AQP (and the remedies sought) are, in each case the same. The factual circumstances are also relevantly the same. In the course of the hearing, attention was paid to the Toveill matter on the agreed footing that the outcome in relation to it would be applicable also to the Joe’s Citrus application.

4 The principal relief Toveill seeks against AQP is as follows:

“1. A declaration that the Plaintiff [Toveill] has a valid retention of title clause in its contracts with the Defendant [AQP] being clause 3:-
‘3.1 Title in all goods shall remain with the seller until payment in full has been received by the seller in cleared funds.
3.2 Risk in all goods shall pass to the buyer upon delivery by the seller to the port of shipment.’
2. A declaration that the sum of $152,034.80 is impressed with a quistclose [sic] trust for the purpose of payment to the Plaintiff [Toveill].
3. That the Defendant [AQP] pay forthwith the sum of $152,034.80 without deductions, including liquidators remuneration and expenses.”

5 There is an alternative claim to be referred to presently.

6 Toveill is a producer of oranges. Its principal contention is that it sold oranges to AQP upon an implied term that, if AQP on-sold the oranges to a third party before having paid Toveill for them, the proceeds received by AQP would be held by it upon trust for Toveill until payment of the price by AQP to Toveill.

7 Upon the application under s 500(2), Toveill therefore maintains that its principal claim is a proprietary claim not suitable to be proved in the winding up of AQP. That, if correct, would militate in favour of a grant of leave. The guiding principle is that stated by McPherson J (with whom Wanstall CJ and Sheahan J concurred) in Ogilvie-Grant v East (1983) 7 ACLR 669:

"The effect of [the equivalent of s 500(2)] is to require the claimant to adopt the course of lodging proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute."

8 It was accepted on both sides that, in the circumstances of this case, the central question to be decided on the s 500(2) application is whether the principal claim to a proprietary interest in particular moneys has “a solid foundation and gives rise to a serious dispute” so that there is a “serious question to be tried”: Vagrand Pty Ltd v Fielding (1993) 41 FCR 550 at 556.

9 It was submitted on behalf of Toveill that there is a serious question to be tried in relation to the proprietary claim it intends pursuing, with the result that one of the main conditions for the grant of leave is satisfied. It was submitted on behalf of the liquidator that that condition is not satisfied.

10 The evidence shows that Toveill was a regular supplier of oranges to AQP and that there existed at material times a written agreement between the two companies dated 2 September 2009. Relevant provisions of the agreement are as follows (Toveill being the “Seller” and AQP being the “Buyer”):

“ RECITALS
A. The Seller intends to sell certain goods to the Buyer.
B. The Seller and the Buyer have entered into this agreement to govern the terms of such sales from the Seller to the Buyer.
AGREEMENT
1. SEPARATE CONTRACT
1.1 Each supply of goods from the Seller to the Buyer shall comprise a separate contract and shall be governed by the terms of this Agreement unless this Agreement is varied or excluded by the Parties in writing.
2. PAYMENT
2.1 Payment for all goods supplied by the Seller to the Buyer shall be for 55 days ex port of shipment.
3. TITLE AND RISK
3.1 Title to all goods sold shall remain with the Seller until payment in full has been received by the Seller in cleared funds.
3.2 Risk in the goods shall pass to the Buyer upon delivery by the Seller to the port of shipment.
…
9. GOVERNING LAW AND JURISDICTION
9.1 This Agreement is governed by the law of New South Wales.
9.2 Each Party irrevocably and unconditionally submits to the non exclusive jurisdiction of the courts of New South Wales.”

11 Toveill’s orange growing operations are based in southern New South Wales. AQP’s export business was carried on in Adelaide. It seems to be common ground that the “shipment” referred to in clause 2.1 (and also in clause 3.2) was shipment by AQP to an overseas party to whom it on-sold. The documents about to be mentioned show that AQP regularly sold to overseas buyers fruit acquired by it from Toveill, with Toveill, at AQP’s request, delivering the fruit to a vessel nominated by AQP.

12 The course of trade between Toveill and AQP seems to have contemplated, in the first place, the placing of orders by AQP with Toveill by email specifying the description and quantity of oranges required, the price per kilogram and the vessel and port to which the oranges were to be delivered. Thus, in a sample order of 7 October 2009, AQP ordered 25,800 kilograms of juice grade Valencia oranges 60 – 75m at a price of 52 cents per kilogram and specified the vessel “APL Colombia” with an estimated departure date of 16 October 2009 from Melbourne and an estimated arrival date of 3 November 2009 at Hong Kong. The order concluded:

“Pls cnfm you can meet this vessel.”

13 I was also taken to a sample invoice issued by Toveill to AQP, although not the invoice relating to the order just mentioned. The invoice stated AQP’s order number, the description and quantity of the oranges concerned and their price, and carried this notation:

“Please note condition of sale is that ownership to these goods does not transfer until payment is made.”

14 Another document put into evidence was an invoice addressed by AQP to a company in Hong Kong. This does not relate to the same goods as either of the earlier documents mentioned but again serves to demonstrate the general nature of the process. The invoice is for a stated quantity and description of oranges at a stated price consigned from Melbourne to Hong Kong by the vessel “APL Colombia”. The invoice is expressed to be payable “60 days from bill of lading date”.

15 Toveill says that, given the course of trade indicated by these documents, it is the case (or, at least, is cogently arguable) that the proceeds of sale received by AQP from the Hong Kong buyer for oranges acquired by AQP from Toveill and, at AQP’s request, delivered by Toveill to a Hong Kong bound vessel nominated by AQP are, upon receipt by AQP from the Hong Kong buyer, held by AQP upon trust for Toveill if, at the time of AQP’s receipt, AQP has not already paid Toveill the price payable by AQP for those oranges; and that the trust in respect of that money subsists until AQP pays Toveill the price payable for those oranges, whereupon the trust is extinguished and AQP holds the proceeds to its own use freed from any beneficial interest of Toveill.

16 The trust is said by Toveill to come from an implied term of the agreement of 2 September 2009. The implied term is, it is said, one that requires AQP to hold proceeds received by it “in a separate account and on trust, to enable satisfaction of the invoice price for goods supplied by” Toveill (the quoted words appear in the written submissions of counsel for Toveill).

17 The normal conditions for the implication of terms in a formal written contract such as that of 2 September 2009 are stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 as follows:

“. . . for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

18 In the present case, reference should be made at once to condition (3). In the light of that condition, it is relevant to note that there are many reported cases in which the provision Toveill claims to be implied has been expressly adopted. Take, for example, the express terms considered in General Motors Acceptance Corporation of Australia v Southbank Traders Pty Ltd [2007] HCA 19; (2007) 227 CLR 305, a case concerning sales of motor vehicles by a wholesaler to a retailer. The contract provided that property in the vehicles was not to pass to the retailer until the price was paid; also, however, that the retailer might, before payment, sell to a third party in the ordinary course of business as agent of the wholesaler, in which event “the purchaser [retailer] shall hold the proceeds of any sale on trust for the vendor [wholesaler] and shall keep the proceeds separately and apart from the purchaser’s own moneys” and “the purchaser shall account to the vendor for the proceeds on demand”.

19 In BHP Steel Ltd v Robertson (Aust) Pty Ltd [2002] NSWSC 336, a retention of title clause was accompanied by both a provision allowing the buyer to sell as the “fiduciary agent” of the seller and the following express stipulations:

“(g) The customer further acknowledges that if it sells any of the product before making full payment for them, the customer shall hold that part of the proceeds of sale that is of equal value to the amount owing to BHP [the seller] in a separate account in trust for BHP.
. . .

(i) The amounts to be held on trust under para (g) . . . above must be kept in a separate account and may not be mixed with any other monies, including the customer's own monies.”

20 In both these cases (as in a great number of others that could be mentioned), the parties expressly recognised that, despite the retention of title clause, the buyer might in fact on-sell the relevant goods and thereby generate proceeds. Having acknowledged that, the parties made specific provision under which the seller was to have an interest in the proceeds, with that interest taking the place, as it were, of the originally reserved interest in the goods themselves. If, in those cases, the parties took care to adopt the express term regarding isolation and retention of the proceeds of sale, how can it be, one asks rhetorically, that such a provision is so obvious that it goes without saying?

21 In the present case, the contract, construed in the light of the course of trade indicated by the other documents I have mentioned, appears to recognise that AQP is an on-seller of oranges ordered from Toveill, being oranges delivered or consigned by Toveill but not yet paid for by AQP. One possible characterisation of the nature and consequences of the transactions is therefore that stated by Roskill LJ in Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 at 690 (in the following passage, “the defendants” correspond with AQP and “the plaintiffs” with Toveill):

“I see no difficulty in the contractual concept that, as between the defendants and their sub-purchasers, the defendants sold as principals, but that, as between themselves and the plaintiffs, those goods which they were selling as principals within their implied authority from the plaintiffs were the plaintiffs' goods which they were selling as agents for the plaintiffs to whom they remained fully accountable. If an agent lawfully sells his principal's goods, he stands in a fiduciary relationship to his principal and remains accountable to his principal for those goods and their proceeds. A bailee is in like position in relation to his bailor's goods. What, then, is there here to relieve the defendants from their obligation to account to the plaintiffs for those goods of the plaintiffs which they lawfully sell to sub-purchasers? The fact that they so sold them as principals does not, as I think, affect their relationship with the plaintiffs; nor, as at present advised, do I think—contrary to argument of counsel for the defendants—that the sub-purchasers could on this analysis have sued the plaintiffs on the sub-contracts as undisclosed principals for, say, breach of warranty of quality .”

22 In the Romalpa case, however, the contract for sale contained not only a retention of title clause with respect to the goods sold but also an elaborate provision about the consequences of mixing of those goods with others in a manufacturing process, the general thrust of which was that the seller of the original goods was to have ownership of the new product until payment. The fact that the parties had adopted that provision played a part in the Court of Appeal’s decision on a question not directly addressed by the contract, namely, the right of the seller to trace and recover proceeds of on-sales made by the buyer before payment of the price. But the principle stated by Roskill LJ in the quoted passage does not obviously depend on the existence of any contractual provision regarding the proceeds. It turns rather on the existence of authority of the buyer to sell the goods to which it has no title, which authority is seen to be a product of agency. And once agency is recognised, the possibility that the agent may owe fiduciary duties to the principal arises and indicates the potential availability of equitable remedies.

23 Whether a buyer in the position of AQP is properly regarded as the agent of a seller such as Toveill in effecting a sub-sale depends on the manifested intentions of the parties. An alternative characterisation of circumstances, in the case of an authorised sub-sale, is that the ability of the buyer to effect the sub-sale arose because, despite the retention of title clause, the passing of title from seller to buyer was accelerated, the true bargain being that the seller would retain title until the earlier of re-sale by the buyer and payment by the buyer. In that case, the fiduciary possibility recognised in the Romalpa case simply does not arise.

24 A point emphasised by counsel for the liquidator, however, is that, under the agreement of 2 September 2009, the price for a particular consignment of oranges does not become payable by AQP to Toveill until a fixed future date. The words in clause 2.1 are that payment “shall be for 55 days ex port of shipment”. In the context, that probably means 55 days after shipment from the port to which Toveill makes delivery at AQP’s direction (Melbourne, in the examples quoted). Counsel for the liquidator pointed out, however, that, in the case of the Hong Kong buyer from AQP to which attention was given, payment is not due to AQP until “60 days from bill of lading date”. Thus, if one assumes that the date of shipment relevant for the purposes of the agreement between Toveill and AQP and the “bill of lading date” relevant to the sale by AQP to the Hong Kong party coincide (or are, at least, very close to one another), the possibility that AQP will receive proceeds from the Hong Kong buyer before it is required to pay Toveill is largely academic. It is therefore unlikely that there will ever be anything to which the postulated equitable right of Toveill attaches, with the result that business efficacy will be in no way enhanced by the term for which Toveill contends.

25 A related point was considered in the New Zealand case of Len Vigden Ski & Leisure Ltd v Timaru Marine Supplies (1982) Ltd [1986] 1 NZLR 349. A factor taken into account there in deciding whether a retention of title clause resulted in an equitable right of the seller to the proceeds of on-sale by the buyer was that the proceeds might be received before the expiration of the period of credit allowed by the seller to the buyer, with the result that the postulated equitable right of the seller to the proceeds would cut across the buyer’s contractual right to withhold payment until the end of the credit period.

26 Counsel for the liquidator placed particular reliance on the decision in Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (1992) 28 NSWLR 338. Cohen J there paid attention to the circumstances in which an agent holds in trust for his or her principal money received in the course of the agency. His Honour said (at 346):

“It has been said, in considering whether money held by an agent is in trust, that one of the tests is whether he is obliged to keep the money in a separate account: see Benjamin's Sale of Goods, 3rd ed (1987) at 381 and the reference to Henry v Hammond [1913] 2 KB 515. In that case it was held that where a person is not bound to keep money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon is to hand over an equivalent sum of money, then he is not a trustee of the
money but merely a debtor: see also, Walker v Corboy (1990) 19 NSWLR 382 which also dealt with agents, and in particular Meagher JA (at 398) (with whom Priestley JA agreed (at 386)) and Clarke JA (at 389), quoting with approval Henry v Hammond .

Other cases requiring an agreement for the holding of moneys in a
separate account so as to produce a trust relationship are Nanwa Gold Mines Ltd, Re Ballantyne v Nanwa Gold Mines Ltd [1955] 1 WLR 1080; [1955] 3 AllER 219 and Quistclose Investments Ltd v Rolls Razor Ltd (In Liq) [1970] AC 567, and cases which have followed the principles set out in the latter case.”

27 It is to the possibility based on Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567 that Toveill seeks to resort in its proposed proceedings against AQP (see order 2 at paragraph [4] above). That intention is confirmed by the reference, in written submissions of counsel for Toveill, to paragraphs [151] to [153] of the judgment of Bergin CJ in Eq in Cook v Alto Prestige Pty Ltd [2010] NSWSC 92.

28 For a “Quistclose trust” in favour of Toveill to attach to the proceeds held by AQP in consequence of receipt from a buyer to whom AQP had on-sold goods, it would be necessary to find that AQP had received the funds for a particular purpose only and not for any other purpose and that Toveill placed its trust and confidence in AQP to ensure the proper application of the money (this is a paraphrase of what was said by Lord Millett in Twinsectra Ltd v Yardley [2002] 2 AC 164 at 186).

29 This is where the analysis breaks down in the present case. The parties who adopted the retention of title clause in the agreement of 2 September 2009 said nothing at all about proceeds of on-sale by AQP; nor, unlike the parties in the Romalpa case, did they agree on any protective mechanism for the unpaid seller in the event of another circumstance causing that seller’s ownership to come to an end (use of the goods in a process causing them to lose their existence).

30 The references in the agreement of 2 September 2009 to “port of shipment”, read in the context of the course of dealing indicated by the order and the invoices to which I was taken (see paragraphs [12] to [14] above), make it clear that AQP was entitled and expected to on-sell despite the retention of title clause. Indeed, the fact that Toveill was to deliver to a particular port for consignment by a particular vessel on a particular day indicates that AQP had already agreed to on-sell to a particular overseas buyer at the time it placed its order with Toveill. This is borne out by the fact that the invoice issued by AQP to the overseas buyer and referred to at paragraph [14] above bears a date corresponding with the specified departure date of the vessel from Melbourne. The invoice would, of its nature, have followed the making of a contract for sale between AQP and that overseas buyer.

31 The circumstance just mentioned excludes the possibility that AQP sold as agent of Toveill. Rather, AQP needed particular oranges for shipment to a party to which it was already committed to sell; and it was in order to satisfy that pre-existing contractual obligation that AQP purchased oranges from Toveill and directed delivery of them by Toveill to a particular ship departing on a particular day. That, plus the circumstance that direct delivery by Toveill to the ship meant that AQP never had possession of the goods so as arguably to be a bailee, means that there is no basis for any conclusion that Toveill came to owe fiduciary obligations to AQP.

32 I return to the conditions set out at paragraph [17] above. I have already referred, in relation to condition (3), to the point that the agreement of 2 September 2009 omits a provision that is made express in many other retention of title agreements. That is a very strong indicator indeed against the proposition that the provision is “so obvious that it goes without saying”. Condition (2) is also unsatisfied in this case. A contract containing a retention of title clause which contemplates delivery by the seller to a particular vessel for carriage to a person to whom the buyer has already agreed to on-sell but which does not include the postulated term about retention of the proceeds of that on-sale on trust for the seller is perfectly workable without the additional term. The effect of such a contract is that the seller retains title until payment of the price or earlier passing of property under the contract between the buyer and the sub-purchaser; and, upon that earlier passing of property, the seller remains entitled to recover the price from the buyer at the end of the credit period. There is nothing odd or incongruous about a contract in those terms. It is intelligible and effective as a matter of business efficacy.

33 For these reasons, I am not persuaded that the case with respect to an equitable entitlement to proceeds of on-sales by AQP that Toveill wishes to pursue in proceedings against AQP (in liquidation) has a solid foundation amounting to a serious question to be tried. Leave under s 500(2) of the Corporations Act will therefore be refused in relation to the claims at paragraph [4] above.

34 Reference has been made to an alternative claim against AQP (in liquidation) in relation to which Toveill also seeks leave under s 500(2). The alternative claim is for orders as follows:

“4 That the Defendant [AQP] account to the Plaintiff [Toveill] for the oranges shipped by the parties which had not been delivered to their destination being:-
Vessel No of containers Order No

[particulars omitted]

5. That the Plaintiff [Toveill] account to the Defendant [AQP] for the cost of shipment of the Plaintiff’s [Toveill’s] oranges in orders referred to in the preceding paragraph.
6. That the Defendant [AQP] pay to the Plaintiff [Toveill] only the difference between the amount in paragraph 4 and 5 without any deduction, including remuneration and expenses of the liquidator.”

35 The meaning of the claims thus framed is not altogether clear. Counsel for Toveill indicated, however, that claim 4 is intended to be a claim for specific restitution and delivery up of particular oranges, based on the proposition that Toveill, by a statement made by one of its directors to the voluntary administrator of AQP, terminated the contact for sale in relation to each specified batch of oranges and thereby acquired a right to possession of those oranges.

36 The claim to recover the particular oranges is properly characterised, I think, as a claim in detinue. A common law judgment in detinue would leave the defendant with an option of returning the property or paying its assessed value. Specific restitution could be ordered in equity – but would only be ordered if damages would not be an adequate remedy (such as in the case of a unique painting (Dowling v Betjemann (1862) 2 J & H 544; 70 ER 1175); and the power under s 93 of the Civil Procedure Act 2005 to order delivery up of goods would be exercised according to the same principle (McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303). In the case of a widely available commodity such as oranges, the court would not order specific restitution. The foreshadowed claim for an “account” of oranges shipped must therefore be seen as no more than a claim for damages quite suitable to be made the subject of a proof of debt in the winding up of AQP and therefore not meriting a grant of leave under s 500(2).

37 In the result, therefore, the application for leave under s 500(2) will be dismissed in relation to the whole of the claims in Toveill’s paragraphs 1 to 6 (see paragraphs [4] and [33] above).

38 As I have said, it was agreed by the parties that the outcome in the Toveill case would apply also to the Joe’s Citrus application. In each of 2010/143247 and 2010/143245, therefore, the orders are as follows:

1. Order that the interlocutory process filed on 6 July 2010 be dismissed.

2. Order that the applicant under the interlocutory process pay the respondent’s costs of the interlocutory process.

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