Australian v Cranswick

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2021 of 2004 Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd JUDGMENT 1 Master: This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand served by the defendant upon the plaintiff. The demand was dated 26 February 2004 and sought recovery for an amount of $242,312.21. This was a claim for goods sold and delivered in an amount of $216,949.58 and the balance of $25,362.63 for interest pursuant to the credit terms upon which the goods were sold. 2 The application is made on the basis that the plaintiff has an offsetting claim against the defendant. In submissions there was also articulated a claim that there existed a genuine dispute in respect of the debt based upon a retention of title clause in the contract between the parties. This claim however was not in any way raised or foreshadowed in the affidavits filed within time and accordingly cannot be dealt with on this application. See Process Machinery Australia Pty Ltd v ACN 057 260 590 (2002) NSWSC 45 and POS Media Online Ltd v B Family Pty Ltd (2003) 21 ACLC 533; [2003] NSWSC 147. 3 The plaintiff is a wine distributor. The defendant is a supplier of wines to companies such as the plaintiff. On 24 May 2002 the plaintiff acquired the distribution businesses from the liquidators of certain companies who had previously dealt with the defendant. After the completion of the purchase there were conversations between officers of the plaintiff and the defendant about continuing the supply of wines through the plaintiff company. 4 On 27 June 2002 the defendant made an application for credit with the plaintiff. That application was granted and contained a number of relevant terms. In particular, clause 1(a) of the terms provided that: "Any purported supplement, qualification or change thereto shall be void unless accepted in writing signed by director or secretary of Cranswick."

The credit terms also included provision for interest and the following in respect of cancellation and return: "4. CANCELLATION AND RETURN (a) Cranswick will not accept return of goods for credit or exchange unless previously agreed in writing signed on behalf of Cranswick by a director or secretary;

(b) Goods returned must be accompanied by a delivery docket stating original invoice number, date and reason for return;

(c) Inward freight, packing, insurance and delivery charges for any good returned are the responsibility of the Customer". 5 On 3 August 2002 a 'Temporary Supply Agreement' was entered into between the Plaintiff and the Defendant. That supply agreement relevantly provided as follows:

· "Effective from 15th July, CPW will supply goods to ABD on an 'order by order' basis. · Pending a resolution of the potential Evans and Tate merger agreement, this is a temporary supply agreement, and will continue until notified in writing from myself. · All orders/invoices are to be paid in line with agreed terms i.e. 60 days from statement · The agreed maximum monthly credit amount of $200,000 is not to be exceeded · The 'Retention of Title' clause, as attached, is applicable for all goods/orders delivered by CPW. · All orders are to be approved by me before facilitation occurs" 6 On 8 January 2003 the Defendant wrote to the Plaintiff clarifying the basis upon which termination of the supply agreement could occur, stating:

· "Cranswick Premium Wines Ltd agree to give ABD a minimum of one (1) months notice of intention to terminate the temporary supply agreement · On completion of the termination notice, CPW agree to take back and issue credits for any unsold stock. On the proviso that this stock is of current vintage and in resaleable condition. (Full cases only) This will be checked and verified by either myself or another officer of Cranswick Premium Wines." 7 Shortly after this letter there was a conversation between Mr James of the plaintiff and Mr Every of the defendant when Mr James complained about the terms of the letter. He wanted to have a longer period for compensation. After hearing his complaints Mr James asserts that Mr Every said: "Calm down. I will arrange to get all the stock credited and the consignment arrangement in place and I am sure we could stretch the compensation to at least a couple of months. I need you to keep selling until we have some real indication of the sale or merger." 8 Nothing seems to have happened to put in place any such arrangements as allegedly promised. 9 On 5 March 2003 the defendant wrote to the plaintiff and gave notice of termination of the temporary Supply agreement. They proposed a number of payments including payment of one month's compensation in the sum of $21,051.00. The letter also went on to deal with the return of any unsold stock. The letter asked for confirmation of this proposal. There was a conversation immediately afterwards between the same two gentlemen in which Mr James totally rejected the proposal. There does not seem to be any complaint that the termination was otherwise than in accordance with the contract between the parties. All deliveries and dealings pursuant to the contract thereafter ceased and from time to time the parties turned their mind to resolving any outstanding issues concerning the termination. 10 Mr James deposes to having had a discussion in the second half of 2003 with Mr Peter Konzewitsch, the general manager of the defendant. The conversation was in the following terms: "Peter, we are still waiting for your company to fix up the credits on the stock and we are also getting returns of your Cranswick products from your customers who are short paying accounts owed to us. We are not willing to allow this to happen and you need to advise your customers that we are no longer the distributors and are not responsible for your products. If your customers do return product to us and short paying monies owed to us from business that is unrelated to your product we will be charging you a restocking and handling fee of 10%. We have completed a full reconciliation of the accounts and as a sign of good will and in an endeavour to resolve this matter this month we have included a 2 month profit compensation period even though we believe we are entitled to at least 12 months." 11 Mr Konzewitsch is alleged to have replied in these terms:- "Yes, that is OK but let me know who is returning the stock so that I can take up the issues with them directly. I will get the matter resolve[d] immediately." 12 In a letter of 6 October 2003 the plaintiff wrote to the defendant giving a reconciliation and claiming as credits and storage the sum of $244,560.67. After allowance of the admitted amount, which at 30 April 2003 was $216,949.58, it claimed an amount owing by the defendant to the plaintiff of $27,611.09. That prompted a reply from the defendant of 22 October, which questioned a substantial number of the claims made by the plaintiff. It requested supporting documentation and in particular referred to the terms of the letter of 5 March 2003, which dealt with the terms upon which, stock could be credited. None of the information requested was supplied and all that happened thereafter was that the plaintiff alleged it sent two letters at the beginning of December and the beginning of January requesting resolution of the matter. The evidence of the defendant, which I accept, was that the defendant did not receive these letters. 13 It is plain from the terms of the correspondence between the parties and the defendant's demand for the payment of storage fees that the plaintiff has not returned any of the wine to the defendant, in respect of which it seeks credit. Whether it has sold the wine as it threatened, does not appear in the evidence. The plaintiff's offsetting claims 14 The offsetting claims made by the plaintiff were set out in the letter of 6 October 2003 and ignoring some other minor items were for the following:

Cranswick stock $114,312.00 Labels for Bay Hill $8,570.00 Wine returned by ALM & Woolworths $56,954.00 Storage $8,185.00 ALM handling fee $6,256.00 Termination payment $42,102.00 Primo promotion deal $7,244.00

TOTAL $243,623.00 15 I will deal with each of these particular claims and note that they are offsetting claims. 16 The Court's task in assessing an offsetting claim has been dealt with in a number of cases. For instance, in Edge Technology Pty Ltd v Lite-On Technology Corp (2000) 18 ACLC 576, Santow J had the following to say at paras 24 and 25: "It is here again true (as it was in Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456) that it 'is not my task in the present proceedings to seek to resolve the competing claims of the Plaintiff and the Defendant': per Austin J at 462. Rather, it is to 'resolve whether, for the purposes of s 459(H)(1)(a), there is a genuine dispute between the Plaintiff and the Defendant about the existence or amount of the debt to which the Defendant's statutory demand relates': Austin J at 462. Or alternatively, whether there is a genuine counter-claim, set-off or cross-demand against the Defendant and, if so, in what amount. In particular, how should it be quantified; at a nominal $1 or at a large figure and if the latter, how is the quantification to be arrived at? The latter question essentially asks whether the counter-claim or set-off is fictitious or merely colourable; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Limited (No 2) (1994) 12 ACLC 490; 13 ACSR 787. In that context, to come up with a plausible contention to (sic) requiring further investigation which, if later established, would preclude there being an offsetting claim. That would not establish that the counter-claim or set-off was fictitious, or merely colourable. In that sense, the counter-claim or set-off is not the reciprocal of the statutory demand debt. Rather it is a means of offsetting the statutory demand debt with a genuine counter-claim or set-off.

I adopt the approach of the Full Federal Court in Spencer Constructions Pty Limited v G & M Aldridge Pty Limited (1997) 15 ACLC 1,001 at 1,011, (1997) 76 FCR 452 at 464; that a genuine dispute requires that 'the dispute be bona fide and truly exist in fact' and that the 'grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived'. The same applies to the counter-claim or set-off. One asks: Is it bona fide, is it real and not spurious?" 17 He later went on to say: "set aside on the basis of the demand debt being genuinely disputed, it must be established by the Plaintiff that the dispute concerning its existence is bona fide and not spurious, hypothetical, illusory or misconceived: Spencer's Case (supra). In other words, there must be a plausible contention requiring further investigation which genuinely puts in dispute the debt which grounds the statutory demand. But the merits are not now to be determined beyond the preliminary testing as to whether there is a serious question to be tried. The alternative basis for the demand to be set aside or reduced by reason of an offsetting claim involves, as I have said, a different test. The question is not whether there is a genuine dispute in the above sense against the offsetting claim. The question is rather whether the 'offsetting claim' can be shown to be 'not frivolous or vexatious'; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37. That places a heavier onus on the party seeking to maintain its statutory demand, than if it merely had to establish the reciprocal of a genuine dispute against the offsetting claim." Cranswick stock 18 It is evident that nothing further was done to put in place a consignment arrangement referred to in the conversation in January 2003. In these circumstances it seems plain that the terms of the contract would include the terms of the credit application, the terms of the 3 August 2002 temporary supply agreement letter and the terms of the letter of 8 January 2003. 19 In order to base any claim for the return of stock under that agreement the plaintiff would have to establish that it had an entitlement to a credit by complying with the terms of the second paragraph of the letter of 8 January 2003. The evidence clearly establishes that there has been no checking of the stock or verification of the stock to ensure that the stock is of current vintage and in resaleable condition. The plaintiffs themselves have put on no evidence of compliance with the condition. As I have mentioned none of the stock has been redelivered. In these circumstances there has been no compliance with the proviso or condition and, accordingly, there would be no liability for the defendant to take back the stock and issue credits. In these circumstances I do not see that there is an offsetting claim which is not frivolous or vexatious. Labels for Bay Hill 20 No relevant evidence was admitted in respect of this claim. Wine returned by ALM and Woolworths 21 This offsetting claim is one that seems to be separate and distinct from the arrangements for the supply of goods between the parties. As is made plain in the conversations which I have set out in paragraph 9 above, some customers were returning the goods to the plaintiff and deducting the amounts from payments which they owed the plaintiff. Apparently this was occurring after the termination of the agreement. It appears that the plaintiff has returned this particular wine to the defendant and the basis for the claim would seem to be the promises that were referred to in the conversations in paragraph 9 above. In these circumstances, it would seem to me, that this is an appropriate offsetting claim.

Storage 22 The liability for this is said to arise from a conversation held in October 2002 between Mr James and Mr Every. Although the conversation contained a suggestion that the plaintiff would need to charge the defendant for the logistics and storage if it was stored on consignment, Mr Every did not accept that proposition. In these circumstances, it seems there is no basis for this offsetting claim. ALM handling fee 23 The basis for this claim is the conversation in paragraph 9 above. It is said to be a charge 10% for handling the stock that was returned in respect of which I have allowed an offsetting claim above. The response of Mr Konzewitsch to Mr James' statement is somewhat ambiguous but construing it perhaps appropriately in the plaintiff's favour, there may be agreement on this matter. As it appears to be a separate agreement other than the supply agreement the provisions in the credit agreement probably arguably do not affect it. In these circumstances I think there is an appropriate offsetting claim. Termination payment 24 It is plain that the contract included a termination payment for one month. This claim is squarely based upon the terms of the letter of 8 January 2003 and there does not seem to be a dispute that the amount of one month's termination payment was the sum of $21,051.00. Although in the conversation in paragraph 9 Mr James suggests that it should be two months and arguably Mr Konzewitsch may have agreed the contract includes the exclusion clause to which I have already referred. Accordingly, in my view an offsetting claim for one month has been demonstrated. Conclusion 25 Having regard to my findings above, I am satisfied that there are offsetting claims in the amount of $84,261.00. The plaintiff has thus been partially successful. I will hear submissions on costs but subject to those submissions it may be appropriate for each party to pay their own costs. 26 I order that the demand served by the defendant on the plaintiff dated 26 February 2004 be varied by reducing the amount of the demand to $158,051.21. **********

Last Modified: 09/13/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.