1st Fleet Pty Ltd (in liquidation) v Kingtex International Pty Ltd [2014] NSWLC 14 | Case summary

Is the equitable set-off closely connected to the plaintiff's claim? 10The plaintiff's claim is for payment of invoices for services rendered to the defendant. The defendant conceded at the commencement of the hearing that based on the invoices provided by the plaintiff, the plaintiff was entitled to payment of the invoices. The defendant maintained that the defendant could set-off the value of the defendant's loss due to undelivered or late delivered goods against the debt owed to the plaintiff. 11In my earlier decision I reviewed the authorities in relation to equitable set-off, and in particular reviewed the case of Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd (receiver & manager appointed) (formerly Cel Home Video Pty Ltd) (1997) 42 NSWLR 462 in some detail (refer [31]-[38]). That case detailed some of the features of equitable set-off, including that an issue is whether the equitable set-off is claimed against sums owed under the original contract, and not owed under a new contract. The Court also found that, in principal, equitable set-off was available for liquidated cross-demands which are not payable when the proceedings are commenced, just as it is available for unliquidated cross-demands before they have been liquidated by verdict or judgment. 12The set-off claimed by the defendant must be closely connected to the plaintiff's claim. The plaintiff referred me to authorities dealing with the issue of when an equitable set-off could be considered sufficiently connected to the claim (for example, AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705). In that case it was noted that relevant matters for consideration included how closely the respective claims are related, particularly as to time and subject matter. The Court observed (at 711) that there must be something additional to the fact of a cross-demand to cause the court to require the plaintiff to set-off against its claim the claim of the defendant. The Court noted that the requirement has often been expressed in language to the effect that the equitable set off must go to the root of, or impeach, the plaintiff's claim; and whether an equitable set off exists will require an examination of the closeness of the respective claims (at 712). The case of Equititrust Ltd & Anor v Franks [2009] NSWCA 128 found, on the facts of that case, that equitable set-off was not available because the debts were distinct and separate, and the claimed set-off did not impeach the plaintiff's title - a necessary element of an equitable set-off (refer [61] of that case). 13At [37-005] of the text by the learned authors Meagher, Gummow and Lehane, "Equity Doctrines and Remedies", fourth edition, it is stated that: A set-off is said to exist when a defendant, in answer to a plaintiff's claim, is able to plead successfully that a countervailing claim which he has against the plaintiff absolves him, wholly or partially, from liability to the plaintiff. It is to be distinguished from a counter claim, in that a counter claim is never a defence to the plaintiff's claim but an entirely different action brought by a defendant against a plaintiff although in the same proceedings. 14The plaintiff's claim is for payment for goods which were delivered on behalf of the defendant by the plaintiff - the invoice numbers of the particular deliveries for which payment is claimed, are set out in the Statement of Claim. In affidavit evidence and annexures, the plaintiff has provided evidence, including proof of delivery (POD) documents, in respect of each invoice claimed. That evidence supports a finding that the plaintiff delivered the defendant's goods as per the contract. The plaintiff's title, or right to payment, is due to the plaintiff's performance of the service contracted for, namely delivery of the particular goods, subject of the particular consignment note, for which the particular invoice for payment was issued. 15The defendant's set-off goes to other deliveries/invoices and not to the deliveries/invoices for which payment is claimed by the plaintiff. In the annexures to her affidavit, Ms Zeng sets out the deliveries which she states were either not delivered or late delivered - she identifies the particular deliveries by the plaintiff's invoice number, amongst other identifiers. None of those invoice numbers match the invoice numbers for which payment is claimed in the plaintiff's Statement of Claim. 16The plaintiff's case is for payment of those deliveries which are documented in the consignment notes/proof of delivery documents provided by the plaintiff in evidence (the evidence as to the operation of the consignment notes, and the contractual terms, is discussed in detail at [25]-[38] below). The defendant seeks to set off against the plaintiff's claim losses allegedly suffered on completely different deliveries/invoices. I am not satisfied that the defendant's claim impeaches the plaintiff's title to payment for the deliveries which are the subject of the plaintiff's claim. 17I also note that the defendant has not established, on the evidence, that the plaintiff did not deliver the goods. Ms Zeng states that from about April/May 2012 the defendant started to receive customer complaints about late deliveries, and she also states that she had email and other correspondence with the plaintiff in this period about goods being retained and not delivered or late delivered. She also provides evidence of correspondence from a customer, Spotlight, in relation to late deliveries. She states that initially a "delivery table" was given to her by Michael (a salesperson for the plaintiff), which showed delivery times, but although she cannot now find this document, it was used by the defendant (in booking the pick up by the plaintiff) to ensure that goods were collected by the plaintiff in time to arrive at the delivery destination, in the time frame required by the defendant's client. 18There is insufficient evidence before me that the late deliveries which are asserted by the defendant were due to any fault of the plaintiff. In relation to whether the plaintiff failed to deliver the goods, the defendant has not produced the Consignment Manifest which records the goods consigned by the defendant for delivery by the plaintiff. This was a daily record kept by the defendant and signed by the plaintiff's driver, showing all deliveries collected by the plaintiff each day. Whilst Ms Zeng stated in her evidence that she could produce records being the Consignment Manifest this document has not been produced in the proceedings. 19The defendant has established through copies of correspondence that the defendant suffered a penalty imposed by a customer, Spotlight, because of late delivery; however, the defendant has led no evidence that the late delivery was due to the actions of the plaintiff, other than to assert this is so. A document was available to the defendant, which was the Consignment Manifest, that recorded all deliveries collected by the plaintiff and the date of such collection, and the relevant consignment notes for those deliveries; however, this document was not produced in evidence. I am not satisfied that the defendant has established, on the evidence, that the plaintiff failed to deliver goods; nor am I satisfied that the defendant has established that late delivery of goods was due to actions of the plaintiff. In making this finding I have carefully considered all the evidence of the defendant being the affidavit of Ms Zeng, and annexures thereto, including emails and correspondence between the plaintiff and defendant about the deliveries. 20However, the basis of my finding that the defendant has not established equitable set-off is that I find that the set-off claimed by the defendant is not closely connected to the plaintiff's claim, so that it can be considered to have impeached the plaintiff's title for payment by the defendant. The plaintiff's right to payment by the defendant is that the plaintiff delivered the goods the subject of the invoices issued. The set-off claimed by the defendant does not go to any of those deliveries or any of those invoices. I am not satisfied that the defendant's claim for asserted losses in relation to other deliveries and other invoices goes to impeach the plaintiff's claim for payment in relation to the invoices subject of these proceedings. I am therefore not satisfied that the defendant has made out set-off in equity. The defendant may have a separate action in relation to losses suffered, or a cross-claim, but the cross-claim previously filed was withdrawn and dismissed. 21If am wrong in this conclusion, for the reason that it is considered that due to the course of dealings between the parties, the defendant is entitled to set off losses incurred in separate and later in time deliveries, which are not subject of the plaintiff's claim, then I will also consider the issue of whether liability on the part of the plaintiff is precluded by the terms of the contract between the parties and in particular the exclusion clauses. This involves construction of the agreement between the parties.

What was the agreement between the parties? 23The plaintiff's case was that the agreement with the defendant was their usual agreement, being the Terms of Trade, a credit agreement, quotation and the terms and conditions printed on the back page of each consignment note. Both parties were unable to produce the original written documentation signed at the time of their initial dealings in 2007. The plaintiff relies on their standard documents and usual business practice to evidence the terms of the agreement. The plaintiff also relies on the terms and conditions printed on each consignment note for each delivery undertaken for the defendant. The plaintiff's case is that the terms exclude the liability claimed by the defendant. The defendant denies that they were issued the usual written agreement, and denies that there is any agreement as to Terms of Trade. As such the defendant states that no exclusion clause applies to exclude liability. 24The plaintiff states that services were provided pursuant to a contract, the terms of which were embodied in the usual Terms of Trade and set out in the consignment notes for each delivery. Mr Michael Murray, who was previously the General Manager Finance and Administration, for the plaintiff, gave evidence about the usual standard procedure when a new client account was opened. He agreed that he had no specific recollection of the defendant, however gave clear evidence of the standard procedure invariably used by the plaintiff. That standard procedure included a consultation between a sales representative and prospective clients, preparation of a quotation which included (1) the plaintiff's rate cards for applicable delivery charges; (2) standard terms of quotation and terms of trade (a copy of this document is p 16 of exhibit 1 - this exhibit will be referred to as exhibit MM1 in this judgment); (3) an application for credit (a copy is at pp 17 to 25 of MM1); and (4) documents were attached to the application of the credit including the standard terms and condition of carriage (copy at p 19 of MM1), freight safe warranty registration form (pp 20 to 24 MM1), credit card payment authority (p 25 MM1). 25Mr Murray states that upon acceptance of the quotation and the terms of trade the client would execute the quotation and return it to the sales representative. The sales representative would request the client complete and return the application for credit including the executed Terms and Condition of Carriage, and other documents. Upon receipt of the executed documents the accounts department would conduct a credit check and a trade reference check (calling at least 3 referees). If the checks were positive a credit account would be set up in the debtors ledger allowing invoicing of the client to begin. The rates, as set out in the quotation to the client, would be imputed to the billing system to allow consignment notes to be rated and invoices to be generated. Under cross-examination Mr Murray stated that it was not possible to issue invoices to a client unless the credit application had been processed, accepted and a credit account set up. 26Mr Murray stated that the consignment note was a four page carbon document, and a page was issued to each party to the consignment at the relevant time (e.g. the sender, etc). The consignment note included details such as the signature of the sender and the driver, and the date and signature of the receiver. Mr Murray's evidence was supported by the documents annexed to his affidavit, which included consignment notes containing these details (sender signature and/or receiver signature, etc). The first page of the consignment note was titled "invoice" and would be provided to the consignor upon collection of the freight. This page would be executed by the driver and the consignor. The second page of the consignment note would be executed by the receiver on delivery and was titled "POD" (Proof of Delivery); this page was retained by the plaintiff. The third page was a copy of the second page that was titled "Receivers" and was retained by the receiver. The fourth page was another copy of the second page; it was titled "Sender's" and was retained by the sender of the freight. Printed on the reverse side of each of the four pages of the consignment note were the plaintiff's terms and condition of contract - a copy of this is at page 30 of exhibit MM1. 27Whilst the evidence of Mr Murray was very clear as to the usual practice, he was unable to give any evidence of the initial agreement with the plaintiff in 2007. 28Ms Zeng gave evidence for the defendant. Ms Zeng is the wife of the sole director and shareholder, Mr Li. The key areas of responsibility of Ms Zeng were financial matters for the defendant including payments, receipts, and choice of service providers. The general manager of operations would report to either Ms Zeng or Mr Li. To the best of her recollection the defendant started to use the services of the plaintiff from about 2007 until the plaintiff was placed in liquidation in early May 2012. Ms Zeng arranged payment of the plaintiff's invoices. A representative of the plaintiff, named Michael (not Michael Murray), met with her on three or four occasions. She maintains that during a discussion she stressed the importance of goods being delivered on time (paragraph 11 of affidavit) and that Michael stated that the plaintiff could be trusted to deliver the goods on time. She also states that she indicated she would pay the invoices 28 days after delivery and does not recall any agreement for payment upon collection. Ms Zeng states to the best of her recollection, knowledge and belief, she does not recall ever seeing the document entitled "Terms and Conditions of Carriage" nor did she sign such a document. 29Ms Zeng states that the practice was that the plaintiff would place a trailer at the defendant's premises, and sometimes an extra trailer would also be brought; the defendant would place into the trailer the goods bearing a delivery address (a consignment note); the plaintiff would remove the laden trailer from the premises on a daily basis; the consignment note for the job would be printed from computer software provided by the plaintiff. The defendant would print a consignment manifest at the end of the day showing all jobs collected by the plaintiff on the day and they would ask the driver of the plaintiff to sign that daily consignment manifest as a record for the defendant of the collection of the trailer by the plaintiff. 30Considerable detail was given, in the proceedings, by both Mr Murray and Ms Zeng, about the documents executed by the parties which formed the agreement - both witnesses were cross-examined about this issue. The plaintiff's evidence was that the defendant would have executed the standard documents which are annexed to the affidavit of Mr Murray (detailed above). Page 16 of MM1 of is a document on the plaintiff's letterhead which states at the top of the page "Please complete and return to [the plaintiff]". The document is entitled "Terms Of Trade" and states that on return of the application for credit form, all clients will be credit referenced, prior to acceptance of trade on account. The document states that there is strict 7 day payment from date of invoice, and that a copy of a credit card payment form is attached. It is clearly stated that the plaintiff "Is not a common carrier, for conditions of cartage refer to the reverse side of our consignment note". The document states that "we accept the above rates for cartage and have read and accept the conditions of quotation. Terms of trade and transport as outlined above and on the rear of the quotation form, which will form the basis of the contract on any other consignment note used". 31Page 19 of exhibit MM1 is the attached terms and conditions of carriage, clause 1 of which states that the plaintiff is not a common carrier and accepts no liability as such. Clause 3 exempts the plaintiff from liability for non-delivery or late delivery whether the plaintiff is at fault or not. At clause 17 it states in capitalised text that insurance is a responsibility of the consignor. 32The terms and condition of contract are on the back of every page of the consignment note (a copy is at p 30 of MM1). Clause 6 of the consignment note 'terms and condition of contract' contains a similar exclusion clause to that contained in the Terms and Condition of Carriage (p 19 MM1). 33Ms Zeng states that the defendant, after delivery, would request a Proof of Delivery (POD) from the plaintiff if required. Invoices were issued by the plaintiff on a weekly basis, and sometimes by monthly statement, and Ms Zeng would arrange payment after 28 days of receiving the month end statement. She would pay March invoices at the end of April for example. 34Mr Murray gave evidence that the system used by the plaintiff was that where payment was made after the issuing of invoices, then a credit agreement was required. The application for credit would have to be signed by the applicant and credit checks were undertaken before a credit account was created; this was always done. The staff in the accounts department were unable to raise an invoice unless a credit account had already been created. The fact that invoices were raised and sent to the defendant meant that there was a credit account created and to create this credit account there was a need for a whole suite of documents (the evidence in relation to this is set out above). Mr Murray agreed that he had been unable to find the written documents signed by the defendant. He had no personal knowledge of how goods were loaded at the defendant's premises. Mr Murray also it stated that for an invoice to be sent to the defendant, the consignment note would have to be completed. Where a consignment note was signed by a receiver it generally meant the goods were received. 35Under cross-examination Ms Zeng agreed that the first contact with the plaintiff was with a sales representative (a person called Michael) and agreed that she was then provided with a quotation. It was put that the quotation included the standard Terms of Trade and she stated "he mentions this but I did not read it at that time". She said she received an offer and an application form. It was put to her that page 16 of exhibit MM1 formed part of the quotation given by the plaintiff and she responded "yes I agree with that". It was put that Mr Murray had stated that the application for credit formed part of the quotation, and Ms Zeng and said "yes I agree". She was then asked to look at page 17 through to page 25 of exhibit MM1 and did not agree that she completed those pages. She said it was a different application form which she completed. When it was put to her that she had previously stated that she had only received one page, and it was page 16, she stated that the application she received was similar to the page 16 but not exactly the same. When asked whether she still had the original papers she could not recall. 36The annexures to Mr Murray's affidavit (detailed above) contain documents relied upon as being the contract between the parties, and include at page 16 of MM1 "Terms of Trade". This was the one page which Ms Zeng initially stated in her evidence she had been given. 37The plaintiff states that the provisions of the contract, which included all the documents that the plaintiff said would have been signed by the defendant, exempt the plaintiff from any liability for late delivery or non-delivery of the defendant's goods. The defendant states that these terms were never agreed to or made known to the defendant. 38In evidence in the proceedings were a number POD documents including documents signed by a receiver indicating receipt of goods. The proof of delivery documents in evidence also included documents signed by the sender. When it was put to Ms Zeng that this would have been signed by someone on behalf of the defendant she stated that it she did not think it was the signature of anyone in the company. I find this answer implausible - it would be normal practice for a sender of goods to sign as sender and there would be no reason for anyone else to do so. Ms Zeng in her evidence appeared to be unwilling to concede any point which she thought might be adverse to the interests of the defendant in the proceedings. At one point she readily said that she had received page 16 of MM1 which contained the terms of trade, but at the same time refused to accept that she had ever read the terms of trade. She stated when shown pages 17 to 25 of exhibit MM1 that she did not complete those pages but completed a different application and that she did not receive the terms of trade. She was adamant in her evidence that she did not receive certain documents, but at the same time could not recall what documents were received, nor could she produce any document that she received from the plaintiff, and said recollection was difficult as it was some time ago, 2007. However she also gave evidence of verbal conversations which she stated she had with the salesperson, Michael, at the time. 39I found it implausible, that over a period of several years of high-volume dealings between the plaintiff and the defendant, (Ms Zeng gave evidence of one or two delivery trucks per day over what was a five-year period), the terms and condition of trade on the consignment notes (including PODs which Ms Zeng stated she requested from the plaintiff from time to time) would not be made known to the defendant. 40Ms Zeng's evidence as to the agreement was inconsistent. She said there was an agreement but it wasn't "this agreement". I found her evidence as to the original agreement to be unreliable, given the inconsistencies in her account and lack of clarity and clear recall. The evidence of Mr Murray impressed me as reliable - he readily conceded points against the plaintiff's interest (such as that he could not say that he witnessed what goods were delivered; he could not comment on the defendant's evidence as to the usual practice of the defendant loading the trailer for the plaintiff to collect; and he readily conceded that he had no knowledge of the original agreement with the defendant). However he gave clear evidence about the usual business practice. His evidence that an invoice could not be generated if there was no credit account was plausible and was consistent with extrinsic evidence such as the documentary evidence indicating that on receipt of a credit agreement a credit account would be generated - page 16 of MM1. Mr Murray's evidence as to usual practice was supported by the POD documents which showed goods were delivered and his evidence that the terms of trade were contained on these documents. 41The defendant's witness, Ms Zeng, gave evidence that she did request copies of these POD documents from time to time which would have also contained the terms of the contract. I do not accept Ms Zeng's evidence on behalf at the defendant that she did not know of the terms and condition of trade, and that the defendant did not know the terms. I consider Ms Zeng's evidence in this regard is against the weight of the evidence, and given the inconsistencies in her own evidence, and implausibility of some of that evidence, then I was unable to accept her account. Therefore Ms Zeng's account is unable to dispute the plaintiff's evidence. The plaintiff's evidence relies on usual business practice, and evidence of that usual business practice was given by a witness who gave clear and consistent evidence, which was consistent with documentary evidence. 42Whilst the original written documents executed by the defendant and the plaintiff are not in evidence it is clear that an agreement was made in 2007 on the evidence of both parties. For the reasons detailed I accept that the terms of the agreement were as detailed by Mr Murray in this evidence and I find that the exclusion clauses referred to above were terms of the agreement between the parties. The exclusion clauses were made known to the defendant in the original documentation (as detailed above) and also in the consignment notes for each particular delivery. The terms of the agreement are clear and I find that the terms exclude the plaintiff from liability for any late delivery or non-delivery of the defendant's goods. 43I observe that the plaintiff referred me to authorities which supported that evidence of usual business practice was admissible, to support a conclusion that the usual business practice was followed - there being a probability that the general course would be followed in the particular case: Connor v Blacktown District Hospital [1971] 1 NSWLR 713 (Court of Appeal, majority judgment of Asprey and Mason JJA). The case of Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 1886 was also relied upon. Whilst that case focussed on tendency evidence and provisions of the Evidence Act 1995, amongst other issues, the Court also observed, at [67], that evidence of conduct may be admissible independently of tendency evidence, as it would establish the existence of a system "the existence of a system, in the absence of evidence to the contrary, readily supports the inference that it was implemented in the particular case". These cases support the admission of the evidence of the system in place in the plaintiff's business, given by Mr Murray, and an inference that the system was implemented in the current case. The inference could be displaced by direct evidence that it was not implemented in the current case. For reasons detailed above I did not accept Ms Zeng's evidence on behalf of the defendant that the plaintiff's usual system was not followed in this case, and I do accept that the system outlined by Mr Murray was, on the evidence, followed in dealings with the defendant.

1st Fleet Pty Ltd (in liquidation) v Kingtex International Pty Ltd

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