C-Mac Industries (Aust) Pty Limited v Juan Carlos Invernizzi & Ors

District Court of NSW|2008-05-28

CITATION: C-Mac Industries (Aust) Pty Limited v Juan Carlos Invernizzi & Ors [2008] NSWDC 88

CATCHWORDS: Guarantee arising under contracts for sale of goods - Romalpa Clause - Consideration of seller's ability to sue purchaser for price when property had not passed - Sale of Goods Act 1923 - Consideration of S 51 and S 52 and quantification of damages

LEGISLATION CITED: Sale of Goods Act 1923 (NSW) Civil Procedure Act 2005

PARTIES: C-Mac Industries (Aust) Pty Limited (Plaintiff) Juan Carlos Invernizzi & Ors (Defendants)

COUNSEL: R C Scruby (Plaintiff) R W Tregenza (Second Defendant)

1 The plaintiff in these proceedings, C-Mac Industries (Aust) Pty Limited, is a metal trade workshop which specialises in the manufacture of custom made equipment such as conveyers and bagging machines.

2 From late 2003 to mid 2005 Aussie Tyre Recycling Pty Limited (the "Debtor") was a customer of the plaintiff. The Debtor's business included the manufacture, sale and marketing of tyre recycling equipment. Much of the equipment which the plaintiff supplied to the Debtor was custom built by the plaintiff for the Debtor according to the Debtor's specifications.

3 The Debtor was placed into voluntary administration on 11 May 2005 and it was wound up on 7 June 2005.

4 Between 16 March 2004 and 28 February 2005 the plaintiff invoiced the Debtor for goods sold and delivered in varying amounts totalling $693,655.18, the break-up of which is set out in paragraph 9 of the Affidavit of Robert James McMaster (exhibit B), the general manager of the plaintiff. Of the invoiced amount the plaintiff claims that is owed a balance of $108,748.08.

5 The three defendants were the directors of the Debtor. This case only concerns the plaintiff's claim against the second defendant, Raymond Goldberg, as the Court was informed that the plaintiff has obtained default judgment against the first and third defendants.

6 The plaintiff's claim against Goldberg arises out of the guarantee which he executed in the plaintiff's favour on 24 February 2004. Exhibit A is the agreed bundle of documents and the guarantee is located at A 15.

7 The guarantee recites that in consideration of the plaintiff agreeing to provide the Debtor with goods and services that Goldberg, as a director of the Debtor, agreed that: "I/We shall be answerable and responsible to C-Mac for the due payment by the company for all such goods and/or services as you, C-Mac supply the company."

8 Goldberg also agreed in the guarantee as follows: "I/We shall indemnify and keep C-Mac indemnified against all losses, damages, costs, charges and expenses which may be incurred by C-Mac as a result of any default by the company or me/us."

9 The plaintiff's claim relates to four specific invoices. It is therefore necessary to consider the transactions the subject of each of those invoices in order to determine whether or not Goldberg has any liability to the plaintiff arising out of the guarantee.

10 The four invoices in question are numbered 131944, 132111, 132242 and 133638. The goods the subject of the first three invoices were ordered by the Debtor from the plaintiff with the intention to export the goods to the United State of America. The Debtor's customer, Bailey's Recycling LLC, was proposing to build a tyre recycling plant in Indiana, USA. The goods to be supplied included granule grinders. A granule grinder is a machine which reduces used tyres to tiny bits of rubber which can be used in the manufacture of other products such as adhesive paint, flooring underlay mats, playgrounds and as components in road surfaces.

11 Also included in the goods ordered for the Indiana plant was a bagging machine. A bagging machine is one which collects rubber crumbs left over in the recycling plant process.

12 The remaining goods the subject of these three invoices were purpose built conveyers.

13 Goldberg's primary defence in relation to the plaintiff's claim for the monies owing to it by the Debtor in respect of the goods destined for Indiana was that the plaintiff agreed to cancel these orders when it was told that the Debtor's contract for the supply, installation and commissioning of the Indiana plant would not be proceeding. Although in paragraph 11 (b) of his defence Goldberg alleged that such agreement on the plaintiff's part occurred following discussions between him and Mr Obaid on behalf of the Debtor and Mr Jackett on behalf of the plaintiff, Obaid was not called to give evidence and so the Court infers that any evidence Obaid might have given if called would not have assisted Goldberg's case (Jones v Dunkel (1959) 101 CLR 298).

14 Goldberg's evidence was that in about 2003 or early 2004 Bailey's Recycling LLC decided not to proceed with the factory in Indiana and he then spoke to Jackett, the sales and marketing manager of the plaintiff. Goldberg said he told Jackett that the plant in Indiana would not proceed, but that he believed the Debtor would require the granule grinders in the future and that the Debtor would re-order the goods when it needed them. Goldberg alleged that Jackett simply responded: "Please let me know when you need them." (exhibit 1, para 17)

15 Jackett denied that he said any such thing. His evidence (para 30, exhibit D) was that the conversation with Goldberg took place during May or June 2004 and during it, although Goldberg told Jackett that the Indiana job had fallen through, he said that the Debtor had a number of other projects coming through at the moment and the Indiana equipment which had been ordered would be used on those other projects as needed. Goldberg then instructed Jackett to hold onto the equipment until it was needed.

16 I do not accept Goldberg's evidence. He was an uncooperative, aggressive witness who prevaricated whilst giving his evidence. He begrudgingly conceded he was the managing director of the Debtor, when clearly this was his role. He sought to distance himself from having anything to do with payment of invoices when in reality he was always asked to cast an eye over them unless an invoice was for a trivial amount.

17 Importantly, when pressed in the witness box, Goldberg conceded he had intended to convey in his evidence-in-chief (exhibit 1) that the conversation with Jackett had occurred prior to June 2004. This was clearly incorrect having regard to the plaintiff's confirmation of the order in relation to the Indiana system dated 6 July 2004 (A80). That document also supports Jackett's version of the conversation, namely, that the plaintiff was still to go ahead with the supply of the goods but would retain some of them in its possession until the defendant was ready to receive them. In addition, Goldberg's admission in the document dated 13 July 2004 (A 1) about certain monies owing to the plaintiff by the Debtor flies in the face of his contention that the orders were cancelled.

18 I now turn to consider the other defences relied on by Goldberg in the context of each of the invoices referred to above.

19 This invoice relates to the sale of a bagging machine by the plaintiff to the Debtor for $16,725.50. Delivery was not accepted by the Debtor. The plaintiff's claim against the Debtor is therefore properly characterised as a claim for damages by reason of the Debtor's neglect or refusal to accept and pay for the bagging machine: see s 52 (1) of the Sale of Goods Act 1923 (NSW) (the "Act").

20 Mr McMaster is the general manager of the plaintiff. By trade McMaster is an experienced toolmaker. McMaster's evidence (exhibit B) was that after the Debtor refused to take delivery of the bagging machine the plaintiff tried to sell it, unsuccessfully, to two or three other customers. The difficulty was that the bagging machine had its own control box which had cost the plaintiff between $4000 to $5000 to manufacture. As a result of the failure to sell the bagging machine it was dismantled and, other than the control box system, the parts were used by the plaintiff in the manufacture and sale of other goods.

21 In accordance with s 52 (2) of the Act the measure of damages as between the plaintiff and the Debtor (and, consequently, Goldberg under the indemnity provisions of the guarantee) is the loss directly and naturally resulting from the Debtor's breach of contract. In this respect, I am satisfied that the plaintiff lost at least $4000 to $5000 by virtue of the fact that it could not re-sell the electronic control box which had been custom made for the Debtor. Although it might be thought that the appropriate award would be $4,500, I am prepared to round this figure up to $5000 in the circumstances, having regard to McMaster's evidence that two men would have taken between 4-8 hours to dismantle the bagging machine itself and so, in effect, I have allowed $500 for labour costs in respect of this item. In the absence of any evidence adduced by the plaintiff as to the monetary worth of the remaining parts of the bagging machine which were included as components in other products sold by the plaintiff, I am not satisfied that the plaintiff has discharged the onus in terms of establishing any further loss in respect of this item over and above the amount of $5000.

22 The plaintiff is therefore entitled to recover $5000 from Goldberg in respect of this invoice.

23 The invoice is dated 18 June 2004 in the amount of $157,080 and relates to four grinders, three of which were delivered to the Debtor. The Debtor supplied one to a plant in Iran, another to a plant at Wetherill Park, NSW and it kept the third at its factory at Goulburn. In relation to the grinder kept at the Goulburn factory, the Court was informed by the parties that it was the subject of "a settlement" between the Liquidator of the Debtor and the plaintiff and that the Court should therefore give a credit to the Debtor (and therefore Goldberg) of $15,000 because this amount was paid by the Liquidator.

24 The grinder in question had been sold by the plaintiff to the Debtor for a price of $35,700, leaving a balance claimed by the plaintiff of $20,700. In this respect, as there was no evidence before the Court about the settlement with the Liquidator, the appropriate inference to draw is that, as a consequence of such settlement, the Debtor was released from any further claims against it in respect of this item and therefore, so too was Goldberg, adopting the principle that discharge of a principal debtor operates as a release of the surety.

25 Accordingly, a further credit should be allowed in the amount of $20,700.

26 The plaintiff was able to sell the fourth grinder to a third party and so the parties agree that a credit of $30,000 is to be allowed against the total amount of the invoice. A further credit of $37,985.40 is to be allowed on the basis that this amount was paid by the Debtor to the plaintiff.

27 As to the balance owing, namely, $68,394.60, counsel for the defendant submitted that an action for the balance of the purchase price was not maintainable by the plaintiff against the Debtor (and therefore Goldberg) because the balance purchase price did not represent a debt owed by the Debtor to the plaintiff because the property in the goods had not passed to the Debtor: see s 51 (1) of the Act. Counsel for Goldberg relied on the Romalpa clause contained in the plaintiff's terms and conditions at A 17. Clause 8 (A) provided: "Until the customer has paid all monies due to the company for the supply of goods, the ownership of all goods supplied shall remain with the company and:-

(i) the customer shall hold such goods in its possession as bailee of the company;

(ii) Upon default in payment by the customer of any amount due to the company, the customer irrevocably authorises the company, its servants or agents, to enter upon the premises where the goods are stored for the purpose of taking possession of the goods and also to use all reasonable force to obtain such possession.

(iii) Notwithstanding anything in this clause, risk in the goods passes to the customer on delivery."

28 Although counsel for the plaintiff submitted that the terms and conditions did not apply to the contract for sale of the goods the subject of the invoice, I reject the submission because, when looked at objectively, the course of dealings between the parties leads to the overwhelming conclusion that such terms and conditions applied - see for example the plaintiff's letter to the defendant of 20 February 2004 confirming a particular order and referring to the plaintiff's Standard Terms and Conditions at A 76; likewise, the letter of 6 July 2004 confirming the contractual arrangements in relation to the goods the subject of invoice 132111.

29 I reject the submission made by counsel for the defendant that the balance of the purchase price was not a debt owed to the plaintiff by the Debtor. The plaintiff's entitlement to sue the Debtor (and, indirectly, therefore, Goldberg) is governed by the provisions of s 51 (2) of the Act as follows: "Where under a contract of sale the price is payable on a day certain irrespective of delivery, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed and the goods have not been appropriated to the contract."

30 In Minister for Supply and Development v Servicemens' Cooperative Joinery Manufacturers Limited (1951) 82 CLR 621 at 642 the High Court rejected a submission along the lines made to this Court by Goldberg's counsel, namely, that until property had passed to a buyer the seller could not sue for the purchase money and only had a remedy for damages for breach of contract. As the High Court noted and as s 51 (2) of the Act provides, the parties to a sale of goods contract can make any contract they please with respect to the payment of the purchase price of the goods. If the parties provide that the price is to be paid before property passes the seller can sue for the price as soon as it becomes payable because the payment of the price is a condition precedent of the passing of property in the goods to the purchaser.

31 In the present circumstances, payment was fixed under the plaintiff's terms and conditions. Clause 3 headed "Terms of Payment" provided in (D) as follows: " … … note payment terms: Settlement strictly 30 days after month of purchase. If your account exceeds our terms, your orders will be held pending payment."

32 It follows from the above that in respect of invoice 132111 dated 18 June 2004 that payment was due by the Debtor to the plaintiff on 30 July 2004. The plaintiff could therefore have sued the Debtor for the amount owing to it under the invoice after that date, even though property in the goods had not passed to the Debtor.

33 Accordingly, the plaintiff is entitled to recover from Goldberg the amount of $68,394.60 in respect of this item.

34 This invoice relates to the sale of five conveyers by the plaintiff to the Debtor, three of which were delivered to the defendant with an invoice value of $14,190. The Debtor paid the plaintiff $9,300 in respect of those conveyers, leaving a balance owing in respect of them of $4,890. For the same reasons as given above, the plaintiff was entitled to recover this amount from the Debtor and so Goldberg is liable for this amount under the guarantee.

35 The balance owing under invoice 132242 in the amount of $15,774.50 relates to the two conveyers which the Debtor did not take delivery of (measuring 1 x 4.2 metres and 1 x 5.4 metres respectively). McMaster's evidence about these conveyers was that they had been dismantled by two of the plaintiff's fitters. Some of the parts had been used by the plaintiff and sold to third parties. The parts included electric motors, gearboxes, conveyer belts and some of the sections of each conveyer. McMaster said that there were some parts left over which the plaintiff had not sold relating to centre panels and the tail of the system. However, as there was no evidence as to the value of these items or the value from the plaintiff's point of view of those parts of the conveyers which had been sold to third parties, the plaintiff has not discharged the onus in terms of establishing the measure of its damages in accordance with s 52 (2) of the Act and therefore no further amount will be awarded in respect of this item.

36 This invoice relates to two Bisalloy screens manufactured by the plaintiff for the Debtor. One screen was delivered. The Debtor refused to take delivery of the remaining screen. The debtor paid the plaintiff $3,898.26 in relation to the invoice. In the absence of evidence to the contrary, and having regard to the Debtor's failure to pay for other items in respect of which it did not accept delivery, the inference the Court draws is that the amount of $3,898.26 is payment for the screen which was delivered by the plaintiff to the Debtor.

37 In relation to the balance owing by the Debtor to the plaintiff under this invoice in the amount of $2,153.48, McMaster's evidence was that this screen could not be sold to anyone else because it was tailor made for the Debtor and there was otherwise no available market. Accordingly, the plaintiff's loss as a consequence of the Debtor's refusal to accept and pay for this screen is $2,153.48. In turn, Goldberg is liable to the plaintiff in this amount.

38 It follows that the plaintiff is entitled to recover from Goldberg the amount of $80,438.08.

39 The plaintiff claims interest pursuant to s 100 of the Civil Procedure Act 2005 from 1 January 2005. The date chosen is purely arbitrary. In this respect, the plaintiff did not make a demand on Goldberg until 2 November 2005 (exhibit C, tab 39). It seems to me that this is the date from which interest should be awarded in exercise of the Court's discretion under s 100 of the Civil Procedure Act 2005. I therefore award the plaintiff interest in the amount of $19,715.05.

40 In the result the Court makes the following orders: 1. Verdict and Judgment for the Plaintiff against the Second Defendant in the sum of $100,153.13.

41 Costs on the ordinary basis should follow the event but I will hear argument if either of the parties wishes to submit otherwise.

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