Charles Parsons & Co Pty Ltd v Express Publications Pty Ltd; Express Publications Pty Ltd v Charles Parsons & Co Pty Ltd

The cross-claim

1. Express/4WD Outdoor's cross-claim, as developed in the final submissions of Mr Katekar, who appeared with Ms Tringali for Express/4WD Outdoor, was that: 1. between May 2013 and June 2014, 4WD Outdoor ordered 5,890 RTTs but Parsons supplied only 3,248 RTTs; 2. between May 2013 and June 2014, 4WD Outdoor ordered 6,000 swags but Parsons supplied only 3,284 swags; 3. Parsons was thereby in breach of the Supply Obligation; and 4. 4WD Outdoor lost the opportunity to earn profits on the resale of the shortfall (2,642 RTTs and 2,716 swags) and has thereby suffered loss and damage.
2. Mr Lee Spouse, a business manager employed by Parsons, gave evidence that Parsons supplied 3,471 (not 3,248) RTTs and 3,767 (not 3,284) swags.
3. In closing oral submissions, Mr Katekar accepted that these figures should be preferred to the slightly lower figures that I have set out at [19] above (which were the subject of the evidence of Express/4WD Outdoor's COO, Ms Diana Screpis).
4. Express/4WD Outdoor's case is that the number of RTTs and swags delivered by Parsons was less than Express/4WD Outdoor ordered.
5. My conclusion is that Express/4WD Outdoor has not established this critical matter.
6. Thus, even if it were a term of the Oral Distribution Agreement that Parsons had the Supply Obligation, Express/4WD Outdoor has not proved a breach of it. Its case must fail for this reason alone.
7. Accordingly, I shall first turn to that matter.

What stock was ordered?

1. As developed in Mr Katekar's final submissions, Express/4WD Outdoor's case was that between May 2013 and June 2014 4WD Outdoor ordered from Parsons 5,890 RTTs and 6,000 swags as follows: Month RTTs Swags May 2013 602 0 June 2013 224 300 July 2013 224 300 August 2013 336 0 September 2013 376 0 October 2013 448 600 November 2013 448 600 December 2013 448 600 January 2014 224 600 February 2014 512 600 March 2014 512 600 April 2014 512 600 May 2014 512 600 June 2014 512 600 TOTAL 5,890 6,000

1. In the dealings between the parties, Express/4WD Discounters, and then Express/4WD Outdoor, placed two types of "orders" on Parsons.
2. The first was what the parties referred to as a "Type 1 Order". This was an order whereby Express/4WD Outdoor placed an order on Parsons with the object of causing Parsons to procure the manufacture in China of the subject of the order.
3. In this regard, it is common ground that the time from which the placing by Parsons of an order for production of the product in China to its delivery at Parsons' warehouse, was approximately 90 days.
4. Mr Daniel Glynn, the employee of Express/4WD Outdoor responsible for ordering stock, said in an affidavit that in 2013 his "normal procedure" for ordering stock from Parsons was that he "generated an order document that did not include a price, but specified products and quantities and usually indicated the time when we needed the stock to be available".
5. The "order documents" to which Mr Glynn referred were documents called "Purchase Order". There are only seven such documents in evidence; three from 4WD Discounters in September 2012, and four from 4WD Outdoor in the period June 2013 to May 2014. The orders from June 2013 to May 2014 represented 452 RTTs and 1,200 swags.
6. It is common ground that Express/4WD Outdoor did not deliver Purchase Order Documents such as these in respect of all of the Type 1 Orders it made. Ms Screpis said that some Type 1 Orders were made verbally by Mr Vella (although Mr Vella gave no such evidence; he did not depose to the making of any orders).
7. The second type of order, which the parties referred to as a "Type 2 Order", was an order placed by Express/4WD Outdoor on Parsons' "Movex" system, requiring that Parsons deliver RTTs and swags from stock in its warehouse to Express/4WD Outdoor's customers or dealers. From July 2013 Parsons sent Express/4WD Outdoor daily reports stating what stock was in its warehouse and what stock it expected to receive into its warehouse. Type 2 Orders, placed through the Movex system, were directed to stock that Express/4WD Outdoor thereby knew was actually in, or expected to be in, Parsons' warehouse.
8. The "Orders" the subject of the alleged Supply Obligation are Type 1 Orders.
9. Initially, Express/4WD Outdoor sought to prove the number of Type 1 Orders it placed on Parsons for RTTs and swags by a spreadsheet which Ms Screpis said she "derived from the records of Charles Parsons provided to us".
10. Mr Katekar sought to have that schedule admitted to evidence as a summary under s 50 of the Evidence Act 1995 (NSW). For the reasons I gave in my judgment of 3 August 2017 (Charles Parsons & Co Pty Ltd v Express Publications Pty Ltd; Express Publications Pty Ltd v Charles Parsons & Co Pty Ltd [2017] NSWSC 1031) I rejected that tender.
11. After I rejected Ms Screpis's spreadsheets, Mr Katekar sought and was granted leave to adduce further evidence from Ms Screpis based on her analysis of Parsons' records. However, that evidence was directed only to the number of RTTs and swags delivered by Parsons to Express/4WD Outdoor, and not to the orders placed by Express/4WD Outdoor on Parsons.
12. In any event, as I have said, Mr Katekar now accepts that Mr Spouse's evidence in relation to that matter should be preferred to that of Ms Screpis (which was, in any event, only her summary of what Parsons' records - not Express/4WD Outdoor's records - showed).
13. Perhaps as a consequence of this, the evidence Mr Katekar sought to rely on in order to prove the number of Type 1 Orders placed by Express/4WD Outdoor on Parsons for RTTs and swags was somewhat indirect.
14. It was, of course, for Express/4WD Outdoor to prove what orders it had placed on Parsons. To the extent that there is doubt as to whether, on the probabilities, Express/4WD Outdoor placed orders on Parsons, in the numbers for which Express/4WD Outdoor contends, that doubt must be resolved in favour of Parsons.
15. I turn now to the evidence said to prove the Type 1 Orders for RTTs and swags, as set out in Mr Katekar's schedule.

RTTs

1. The evidence said to support the orders for May and June 2013 (602 and 224, respectively) is an email dated 18 April 2013 from the then procurement officer at Parsons, Mr Daniel Lee, to Mr Glynn, attaching an "updated production schedule". That document suggests that, as at 18 April 2013, Parsons expected to receive "in warehouse" 602 RTTs in May 2013 and 224 RTTs in June 2013.
2. Mr Katekar invited me to infer that Express/4WD Outdoor had placed Type 1 Orders on Parsons in these amounts in May and June 2013.
3. I am not prepared to draw that inference.
4. The fact that Parsons' "production schedule" forecast that this number of RTTs arrived in its warehouse in May and June 2013 suggests that Parsons had received some Type 1 Orders prior to May and June 2013.
5. But it does not prove what number of orders were placed in May or June 2013. Express/4WD Outdoor knew that there was lead time of approximately 90 days between the placement by Parsons of an order on the Chinese manufacturers and arrival of the product at Parsons' warehouse.
6. If anything, the production schedule suggests that Express/4WD Outdoor had placed orders for some RTTs three months or so before May or June 2013.
7. Further, Mr Spouse gave evidence in an affidavit that: "Daniel Glynn did not generate any further orders for stock of Roo roof top tents or Tigerz11 roof top tents. Charles Parsons independently ordered additional roof top tents from its supplier."
8. Mr Spouse did not specify during what period Parsons "independently ordered" additional RTTs, and the matter was not taken up with Mr Spouse in cross-examination.
9. That evidence suggests that some, perhaps all, of the RTTs that the 18 April 2013 production schedule predicted would be received into Parsons' warehouse in May and June 2013 had been the result of such independent orders.
10. However, so far as concerns June 2013, there is in existence a Type 1 Order comprising a "Purchase Order" of the kind referred to at [31] above dated 14 June 2013 for 228 RTTs; showing that in June 2013 Express/4WD Outdoor placed an order for at least that number of RTTs. But I am not prepared to infer that in June 2013 it placed an order for any more than this number.
11. In these circumstances, apart from the 228 RTTs in the 14 June 2013 Purchase Order, I am not able to come to any conclusion as to what number of orders Express/4WD Outdoor placed in May or June 2013.
12. The evidence said to support the order numbers for RTTs in July, August and September 2013 (224, 336 and 376 respectively) is an email dated 18 June 2013 that Parsons' Product Manager, Mr Salvatore Rizza, sent Ms Screpis, in which he attached what he described as being "the best shipping schedule we can achieve at this stage".
13. That shipping schedule forecast that 409 (not 224 as set out in Mr Katekar's schedule) RTTs would arrive at Parsons' warehouse in July 2013, 336 in August 2013 and 376 in September 2013.
14. For the same reasons that I am not prepared to draw the inference sought by Mr Katekar in respect of the May and June 2013 orders, I am not prepared to infer that Express/4WD Outdoor placed orders in July, August and September in the numbers in Mr Katekar's schedule.
15. The evidence said to support the orders for October, November and December 2013, and January 2014 is Ms Screpis's reply of 18 June 2013 to Mr Rizza's email of that date referred to above.
16. In that email, Ms Screpis stated that "our Oct 13 to Jan 14 order requirements" were for 448 RTTs for each of October, November and December 2013 and 224 RTTs for January 2014.
17. Ms Screpis's email does appear capable of being a Type 1 Order for that number of RTTs.
18. The evidence said to establish RTT orders for February to June 2014 (512 for each month) is a document that Mr Glynn emailed Mr Spouse and Mr Rizza on 12 September 2013 under the heading "Monthly Average Stock".
19. That document arose as a result of a meeting that took place on 3 September 2013.
20. Parsons' Group Planning and Procurement Manager, Mr Kevin Tomaino said that he initiated this meeting: "…so that we could discuss how to improve detailed planning between Charles Parsons and 4WD Supacentre and Express Publications. Charles Parsons needed to take control of the detailed planning at an item level and to do this we needed to agree on a rate of sale and a seasonality profile for each product. My aim was that through this planning Charles Parsons would get a longer term forecast on products and enable us to in turn plan an agreed stock pipeline."
21. Mr Tomaino said: "At the meeting on 3 September 2013 I had with me a copy of the [Express/4WD Outdoor] forecasting sheets that I had prepared. At the meeting we worked through these sheets that I had prepared. At the meeting we worked through these sheets to calculate monthly average sale quantities for each product. We did not complete the forecasting exercise for each product at the meeting and it was agreed that Diana Screpis and Daniel Glynn would review further information and provide Lee Spouse with the completed sheets shortly after the meeting."
22. Mr Spouse gave this evidence concerning the meeting: "Q. The purpose of that meeting was to arrive at forecasts for stock requirements for [Express/4WD Outdoor] going forward, correct? A. Correct, because again we were never getting any forward view of their business. Q. The purpose of that meeting was to resolve that? A. Yes, it was - we were getting frustrated. And getting Kevin involved where this is his background was (1) to help educate them, but (2) also again give us that visibility around their business and where they saw their business going. Q. You sat down together and discussed what were the stock levels that Parsons should have going forward? A. By product line. Q. Yes, correct? A. Correct, yeah, based on a forecast, yes."
23. Following the meeting, Mr Tomaino sent an email dated 4 September 2013 to Ms Screpis and Mr Glynn stating: "…it was good to see us starting this forecast collaboration process that I confidently predict will help improve stock availability and maximise sales as we go forward. This approach is typical of many stock service businesses today who have to deal with the long lead times we currently experience. If we are not planning our sales at least 6 months in advance with these lead times then we will potentially risk not having the desired stock ahead of monthly sales periods and/or events plus risk stock outs. The forecast will also have many other business planning benefits as we fine tune moving forward."
24. Attached to that email were three sheets (which were not in evidence) which, according to the email, summarised average monthly sales of the various products (including RTTs and swags) that Parsons was procuring on behalf of Express/4WD Outdoor.
25. That led to Mr Glynn's email to Mr Spouse attaching "a summary of the items that we nominated monthly averages for" at the 3 September 2013 meeting.
26. In his affidavit, Mr Glynn described the attachment to his email as "forecasts for stock based on monthly averages".
27. On this subject, Mr Spouse gave this evidence in cross-examination: "Q. You were talking to Daniel Glynn about the future forecasts? A. Yeah, we were all there, we all wanted. Q. All the time? A. Well, it was a regular frustration. We were getting purchase orders from all of their range except for these two items. Q. You were engaging in discussions with them all the time about what amount of stock was required? A. We needed some visibility around so that we could ensure the supply chain was in line with their expectations. Q. That's why you -- A. And I couldn't understand why they could not give us purchase orders like they did with the rest of their range for these two items. Q. When you met in September 2013, it was for the purposes of getting clarity on that issue? A. Correct."
28. In Mr Glynn's schedule under the headings "CP Monthly Avg. Stock" and "Agreed Avg. Stock" the number 512 is recorded for RTTs. This is the figure in Mr Katekar's schedule as being the number of RTTs ordered for each of the months February to June 2014.
29. But that figure was not included in the schedule as an order by Express/4WD Outdoor on Parsons or, as the heading to the columns taken alone might suggest, as an agreement by Parsons to keep in stock 512 RTTs.
30. Rather it was, as Mr Glynn said, a forecast.
31. In cross-examination Mr Spouse said that this figure was a "planning estimate" of what Express/4WD Outdoor "anticipated they'd be selling".
32. I am not prepared to conclude from this evidence that Express/4WD Outdoor placed orders for this number of RTTs in or for any of the months from February to June 2014.
33. So far as concerns May 2014, there are in evidence two "Purchase Orders" (in the same format as those referred to above) dated 13 and 28 May 2014 for a total of 224 RTTs.
34. In these circumstances, apart from the months October 2013 to January 2014 (see [56] to [59] above; (3 x 448) + 224 = 1,568 RTTs), and the Purchase Orders of June 2013 (see [55] above; 228 RTTs) and May 2014 (see [74] above; 224 RTTs), I do not see that the evidence justifies a conclusion that Express/4WD Outdoor placed orders for RTTs in the numbers set forth in Mr Katekar's schedule.
35. In the result, I am able to conclude that Express/4WD Outdoor placed a total of 2,020 Type 1 Orders for RTTs between May 2013 and June 2014.
36. I am not able to come to any other conclusion as to how many Type 1 Orders were placed by Express/4WD Outdoor on Parsons for RTTs during that period.

Swags

1. The evidence said to support the contention that Express/4WD Outdoor ordered 300 swags in each of June and July 2015 comprised purchase orders sent by Parsons to the Chinese manufacturer, CN Trail Camp & Outdoor Products Co Ltd.
2. In the light of Mr Spouse's evidence that Parsons on occasions placed orders with its suppliers in anticipation of receiving orders from Express/4WD Outdoor, I do not find the fact that Parsons had placed orders for 300 swags in June and July 2013 necessarily to indicate that it had received corresponding orders from Express/4WD Outdoor.
3. According to Mr Katekar's schedule, Express/4WD Outdoor ordered no swags in August or September 2013.
4. But there is in evidence a Purchase Order in the form to which I have previously referred placed by 4WD Outdoor on Parsons dated 21 August 2013 for 1,200 swags.
5. The evidence said to support the proposition that 600 swags were ordered in each of the months from October 2013 to June 2014 is Mr Glynn's 12 September 2013 forecast document.
6. For the reasons I have set out in relation to RTTs, I do not accept that this document constitutes evidence of orders placed by Express/4WD Outdoor.
7. Accordingly, apart from the 1,200 swags referred to in the August 2013 Purchase Order referred to at [81], I am not able to reach any conclusion as to the number of Type 1 Orders Express/4WD Outdoor placed on Parsons between May 2013 and June 2014.

Mr Spouse's evidence

1. In his written submissions, Mr Katekar submitted that "even on Parsons' own case it undersupplied" Express/4WD Outdoor.
2. Mr Katekar was referring to the evidence given by Mr Spouse that Express/4WD Outdoor had ordered 3,831 RTTs and 3,991 swags on Parsons' Movex system, and that Parsons had supplied the figures to which I have referred at [21] above, namely 3,471 RTTs and 3,767 swags.
3. However, as Ms Glover, who appeared for Parsons, pointed out, Mr Spouse was referring to Type 2 Orders (that is, those placed by Express/4WD Outdoor on Parsons' Movex system in respect of stock which was then in Parsons' warehouse), whereas Express/4WD Outdoor's case was very clearly based on its contentions as to the number of Type 1 Orders placed on Parsons. The figures in Mr Katekar's schedule did not purport to be for Type 2 Orders; they were said to represent Type 1 Orders.

Conclusion as to Type 1 Orders

1. For those reasons, my conclusion is that Express/4WD Outdoor has not proved that between May 2013 and June 2014 Parsons supplied less RTTs and swags than Express/4WD Outdoor ordered.
2. For that reason alone, the cross-claim must fail.

Was it a term of the Oral Distribution Agreement that Parsons owed Express/4WD Outdoor the Supply Obligation?

1. In light of my conclusion concerning the orders placed on Parsons by Express/4WD Outdoor, it is not necessary for me to consider whether Parsons owed the Supply Obligation.
2. However, as the parties addressed detailed submissions to me on that question, I shall deal with it, as well as a number of other issues which are now also moot.

Was the Oral Distribution Agreement varied to substitute 4WD Outdoor as a party?

1. Express/4WD Outdoor contended that, in May 2013, the Oral Distribution Agreement was varied to substitute it for 4WD Discounters as a party.
2. 4WD Outdoor was incorporated in April 2013. As Mr Katekar submitted "there seems to be little quarrel with the fact that 4WD [Outdoor] took up where 4WD Discounters left off".
3. Mr Vella gave unchallenged evidence that, in May 2013, 4WD Outdoor took over the business formerly conducted by 4WD Discounters.
4. On 23 May 2013, Parsons opened an account with 4WD Outdoor and, in July 2013, Parsons entered into a written Distribution Agreement with 4WD Outdoor, to which I will return.
5. Ms Screpis said that she did not recall any discussions in which Parsons was told about the change from 4WD Discounters to 4WD Outdoor.
6. Mr Rizza said he recalled being told that 4WD Outdoor was to play the role that 4WD Discounters had formerly played but could not recall how this information was imparted to him.
7. He later gave this evidence in answer to questions from me: "Q. Were the people you were dealing with concerning the supply of rooftop tents and swags the same in March 2013 as they were months later? Same in months after March 2013? A. Yes, your Honour, they would have been, yeah. It'd have been Daniel Glynn and ‑ Daniel Glynn and probably Diana Screpis."
8. Mr Spouse also agreed that Parsons was dealing with "the same people within the group" before and after Parsons opened up an account with 4WD Outdoor.
9. It is true that 4WD Outdoor had a different business model to 4WD Discounters, in that it had more retail outlets and also a dealer network.
10. But the substance of the matter is that the commercial relationship between the parties, and their business dealings, did not change from May 2013.
11. In those circumstances, had it been necessary for me to express a view about the correct characterisation of what occurred, I would have concluded that in May 2013 there was a novation of the Oral Distribution Agreement (rather than a variation of it) whereby 4WD Outdoor was substituted for 4WD Discounters as one of the counterparties to Parsons (see for example, the observations of Young JA in Hearse v Staunton [2011] NSWCA 139 (at [4]))
12. Either way, had it been necessary for me to express a view about this, and had I found that the Oral Distribution Agreement included the Supply Obligation, I would have concluded that, one way or the other, that obligation survived the circumstances of May 2013.

The written Distribution Agreement of 4 July 2013

1. On 4 July 2013, Parsons and Express/4WD Outdoor entered into a (written) Distribution Agreement which recited that Parsons had agreed to "assist" Express/4WD Outdoor "per the terms and conditions set out in this Agreement".
2. That agreement did not include the Supply Obligation.
3. Nor did it purport to be an exhaustive statement of the arrangements between the parties. Indeed, Parsons' own claim is that the agreement between Parsons and Express/4WD Outdoor is partly written and partly oral. Thus, there is no dispute that the 4 July 2013 document did not reflect the entirety of the contractual relations between the parties.
4. Further, the context in which the document was prepared and executed was to provide protection for Parsons in respect of an increased credit limit that Mr Vella had requested.
5. Accordingly, I do not see the document as casting any light on the question of whether Parsons owed the Supply Obligation.

Should the Supply Obligation be implied?

1. The conclusion to which I have come is that, had it been necessary for me to decide the question, I would not have been satisfied that Parsons had the Supply Obligation.
2. The effect of the Supply Obligation, assuming it was an implied term of the Oral Distribution Agreement, would have been that Parsons, in effect, guaranteed that it would procure the supply of sufficient RTTs and swags to meet Express/4WD Outdoor's requirements no matter: 1. whether the Chinese manufacturer selected by Parsons failed to deliver product to Parsons in a timely manner; or 2. what quantity of product Express/4WD Outdoor ordered.
3. Thus, I had this exchange with Mr Katekar in final submissions: "HIS HONOUR: … Is it amounting to a warranty by Parsons that no matter what happened in China in this manufacturer's establishment it would warrant the performance of the supplier. KATEKAR: Not the warrant of the performance of the supplier, it would warrant the supply. It agreed to take on the manufacture -- HIS HONOUR: No matter what? KATEKAR: It was the expert in sourcing goods from China, it had gone over, it had five factories that it had considered. They ended up with two for swags, two for awnings and they had developed a system to ensure supply and [Express/4WD Outdoor] put its fate in their hands. You come to us, we'll deliver. That was the deal. HIS HONOUR: No matter what. KATEKAR: No matter what. It's our responsibility -- HIS HONOUR: We'll guarantee - or the implication of the implied term is because it's 'ensure' we'll guarantee that this Chinese supplier over which we have no direct control although it's one we've chosen and recommended, will supply whatever you need no matter what. KATEKAR: Yes."

The dealings between the parties between July and October 2012

1. In June 2012, Mr Vella (together with two employees of Express, Mr Adam Cheers and Mr Glenn Wright) had a meeting with Mr Spouse and Mr Rizza.
2. Mr Vella gave unchallenged evidence of the following conversation: "[Mr Rizza]: Charles Parsons would like to make a proposal to take care of the manufacture of your camping products. As you know, we are a family business and have been around for 100 years. We are experts in fabric. We control the manufacturing process in China. [Mr Vella]: Yes, we would be interested in hearing about how you can assist. [Mr Rizza]: Our expertise is in the materials. We provide all the canvas, zippers and yarn to our manufacturers in China. Effectively the manufacturers are only providing the factory, machinery and labour. All raw materials are provided by us so that we can be sure that there is no substitution of materials. This ensures consistent quality. We have many manufacturers in China. We also have 30 people on the ground in China that do the inspections and ensure that they conduct quality control. We are also an extremely large customer of Toll and as a result we get some hugely advantageous freight rates which we can pass on to you. [Mr Vella]: What products can you manufacture for us? [Mr Rizza]: We can make anything for you we already have in the Darche range and produce a version for your Tigerz and Roo brands. [Mr Spouse]: In addition to providing the manufacturing for you, we can warehouse the products at out Thomastown warehouse once they are shipped into Australia. We can then organise a pick and pack service so that orders are sent to your stores, dealers and online customers directly. We can also offer finance. [Mr Vella]: Please send us some quotes and pricing so that we can consider your proposal further." [Emphasis added]
3. Mr Spouse said of this meeting that "we proposed to take on the manufacture and distribution of their swags…and roof top tents".
4. On 3 July 2012 Mr Rizza sent an email to Mr Cheers in relation to a proposed "meeting next week".
5. Mr Rizza said: "Can you please confirm [by] email again quantities and FOB prices paid by Tigerz11 on the [RTTs]…plus swags. I will try and have preliminary work done for our meeting if I can get info we need to pay including volumes to mills."
6. Mr Cheers replied the same day: "Details as follows: Item QTY Price Rooftop-Tents 1,500 440 Single Swags 1,000 75 Double Swags 500 85"

1. Although Mr Cheers did not make this clear in his email, the case before me proceeded upon the basis that he was, by this email, stating that Express/4WD Discounters anticipated it would need 1,500 each of RTTs and swags per year (that is 125 each per month).
2. On 30 July 2012, Mr Vella and Ms Screpis had a meeting with Mr Spouse and Mr Rizza.
3. At the meeting there was discussion about a possible business arrangement between Parsons and Express/4WD Discounters.
4. Ms Screpis gave unchallenged evidence that at this meeting Mr Spouse or Mr Rizza said: "We have the expertise to supply camping products from our manufacturers in China as we currently produce our own camping range". [Emphasis added]
5. Following the meeting, Mr Vella sent an email in which he stated: "Thank you and your colleagues [Mr Rizza] and [Malea Fordyce] for meeting our team in Sydney yesterday. We are all very excited about the many opportunities our partnership is able to deliver. … Listed below are some points on which we reached agreement yesterday; 1. We accept your schedule of prices for 4WD and Camping products… … 3. Our payment terms to Charles Parsons are 60 days. … 6. Products currently on order for Roo, Tigerz…which can be re-directed to Charles Parsons are to be logged in at the schedule landed cost. … … Listed below are [Express/4WD Discounters] undertakings to Charles Parsons: 1. To supply sales information to Charles Parsons of [Express/4WD Discounters] and Tigerz products. … 6. To keep stock turns to a maximum of 90 days. … We await the following from Charles Parsons … 3. A separate price schedule for delivery of stock from [Parsons' warehouse at] Thomastown to [Express/4WD Discounters' outlets in:] a) Lilydale b) Brisbane c) Sydney … 4. The expected average delivery times Toll [Parsons' freight forwarder] provides for major capital cities and QLD, WA, regional centres…".
6. Mr Vella's email suggests that, at the meeting of 30 July 2012, there was a detailed discussion of the proposed business relationship.
7. In relation to the statement in the email that Express/4WD Discounters undertook to provide Parsons with "sales information" Mr Rizza gave this evidence: "Q. The purpose of that was so that Parsons could understand what the sales history have been, do you agree? A. Correct, yeah. Q. The purpose of that was so that Parsons could make an estimate of how much product would be needed in the future? A. True in some sense but also it gave us a better idea on what kind of supply chain we needed to engage in when we're speaking to him." And: "Q. For that purpose you needed to engage in cooperation? A. Well, we needed their data. We needed to know what their sales rate was going to be, what their model was going to be, absolutely. Q. Exactly, so you could meet it? A. We can move forward."
8. In his affidavit, Mr Vella said: "At this meeting, [Mr Spouse] said to me words to the effect 'Two months' worth of all product lines will be kept on hand at all times to meet orders' to which I agreed - although it is possible that it was the other way around, such that I made a request to this effect and Mr Spouse agreed to it." [Emphasis added]
9. As I have said, that evidence was not challenged by Ms Glover in cross-examination. Although Mr Spouse denied this was said in his affidavit, I am not prepared to reject Mr Vella's unchallenged evidence.
10. On 31 July 2012, the day after the 30 July meeting, Mr Rizza sent an email to Mr Vella stating that he and Mr Spouse were "extremely excited in relation to this mutual partnership" and that he, Mr Spouse, Mr Tomaino and others "will be involved in creating functional, smooth processes and procedures in order to deliver and service" Express/4WD Discounters and the Tigerz11 and Roo products.
11. In early August Mr Rizza and Mr Spouse went to China.
12. In relation to that trip Mr Rizza said: "Prior to my trip I gave Pierre Pinel, Charles Parson' quality control ('QC') person based in China a copy of the prices and quantities of the Tigerz11 roof top tents, swags and awnings detailed in the email from Adam Cheers dated 3 July 2012. Pierre Pinel informed me at the time that he used those prices and quantities in discussions with various factories in China. When Lee [Spouse] and I arrived in China, we visited those factories that Pierre Pinel had identified as being capable of producing the Tigerz11 roof top tent and swag in the required production quantities."
13. On 14 August 2012, upon their return from China, Mr Spouse wrote to Mr Vella: "I just wanted to touch base and let you know we had a successful trip to China and found some great product and potential alternate mills for the Tigerz11 product mix. I will be in touch later in the week to discuss further and then hopefully we are a step closer in what I hope will be a long and successful business partnership."
14. Mr Vella replied on 15 August 2012 suggesting that the proposed arrangements between Express/4WD Discounters and Parsons be confined.
15. He said: "[Express/4WD Discounters] has formed a view that it wishes to continue sourcing directly those products it currently sources, and to look to Charles Parsons as a source of camping and outdoor furniture products. … Overall, we remain positive, and like your Board, we too would prefer an orderly and staggered shift to your system. We too look forward to progressing our negotiations and to a successful business partnership."
16. Mr Spouse replied on the same day: "Thanks for your email. To be honest that was going to be my suggestion later this week. My concern all along was that we were going from nothing to the majority of Tigerz product without fully understanding the logistics and requirements of it all. And the last thing that I want to do is to ultimately let [Express/4WD Discounters] and your customers down. I fully believe that starting out this way [Express/4WD Discounters] will see the value that Charles Parsons can offer from a product development and sourcing aspect (of which with our recent China trip we believe we have found a competitive source of supply with clear points of different [sic] in relation to Tigerz and Roo products) along with our full logistic capabilities. Then as you suggest we can transition into the other product mix at a time suitable for both parties."
17. On 28 August 2012 Mr Spouse wrote to Mr Vella: "Thank you for your call earlier and I apologise for the lack of correspondence from our end. As mentioned [Mr Rizza] and I have been working on securing [Express/4WD Discounters] a quality supply chain along with suitable pricing to give your product categories 'clear points of different' in your market that we believe you will be extremely happy with. It has taken a considerable amount of time making these changes as we want to value add to most products and increase your overall quality for Tigerz11 and Roo systems." [Emphasis added]
18. On 30 August 2012 Mr Rizza sent a further email to Mr Vella: "Attached please find product specification in relation to core products [RTTs and swags] for Tigerz11 and Roo Systems. Our aim was to establish a better value added product whilst securing [a] reputable [sic] supply chain. Preliminary work was conducted with a small team visiting all potential suppliers prior to our trip. The purpose of this exercise was to establish a reputable potential supply chain. … We untimely [sic] narrowed down to five, which were visited by Lee [Spouse] and myself recently. … Supply chain will consist of five factories. Inspection of product will also be implement prior to shipping. We have engaged the services of a team based in Shanghai that will oversee the supply management of this program, 2 x roof top tents 1 x awning 2 x swag … We hope you find value in what we have been able to achieve". [Emphasis added]
19. The reference at the bottom of the email to "2 x roof top tents" was intended by Mr Rizza to convey that of the "five factories" referred to, two would be allocated to the production of RTTs, two to swags and one to awnings.
20. Mr Rizza gave this evidence about the email in cross-examination: "Q. What you've said in this email and you've said it twice, you've used the expression, reputable and by reference to reputable you're intending to communicate that it was someone that Parsons could rely on? A. A factory that could - yeah, you could put it that -- but a factory that was capable of meeting the quantity or the volumes that were suggested to us at the time, okay. Q. Yes, that you could rely upon? A. Yep."
21. In cross-examination, Mr Rizza gave this evidence in response to questions from me: "Q. That was the proposal you were making as at 30 August? A. Correct. Q. Based upon your visit to China and Mr Purnell's earlier investigation of these five factories? A. Yes, your Honour. Q. The number of factories that he narrowed down to five? A. Correct. Q. Is that how it worked? A. Yes. Q. You and Mr Spouse saw the five that Mr Purnell said were the best of the lot he said? A. Yeah, best of the lot, yeah."
22. In light of this evidence, it appears likely that when Mr Rizza said in his email that Parsons' aim was to secure a "reputable" supply chain, he intended to say "reliable" supply chain.
23. On 4 September 2012, Mr Vella wrote to Mr Spouse stating that he had reviewed the "latest prices" that Parsons had suggested and said that he suspected "that it's going to be difficult to cut a deal". He said "we remain interested in doing business, but the numbers are not working". Mr Vella said that if Parsons was able to "reduce your quality to our specifications" and meet "target prices" that Mr Vella nominated in the email, the matter could proceed.
24. Mr Spouse responded on 11 September 2012, in effect accepting Mr Vella's price proposals. He said: "Please see attached Charles Parsons quotes for your current Tigerz11 offering that is in line with your request last week. [Mr Rizza] and myself have put a fair amount of time and effort in ensuring that the quality is in line with your expectations and that the supply chain also passes all of our in-house accreditation. We still believe that the [Express/4WD Discounters] / Charles Parsons relationship could be extremely valuable to both parties and look forward to proceeding in working together."
25. The following day, 12 September 2012, Mr Rizza sent Mr Glynn an email headed "forward planning": "Just looking forward and anticipating spring, summer, Xmas rush. Most factories mills [sic] are approaching European and US busy production peak seasons. I understand Tigerz11 awnings and swags are well catered for with current orders you may have with your supply chain, however I believe we need to be proactive and pre-empt any supply issues that may occur heading into peak seasons. It may be worth considering placing orders way out with approx delivery or requirement dates. At the very least we book production space and have some made and ready to be shipping at the drop of a hat. This will avoid frustration, disappointment and loss of potential valuable sales for Tigerz moving forward." [Emphasis added]
26. Later, on 14 September 2012, Mr Rizza sent a further email to Mr Glynn stating: "I have dealt with Asian factories for 15 years or more and know the pitfalls of not securing production space when they [are] heading into peak season. Over and above that there is national holidays coming up in China in two weeks' time, then just as they move out of peak season, Chinese NY hits, so its critical we plan around all of this".
27. In his affidavit, Mr Rizza said that his aim in sending these emails "was at the very least to book production space and have some products ready-made and ready to be shipped when needed".
28. In cross-examination Mr Rizza gave this evidence about that exchange: "Q. The purpose of this email was to ask Mr Glynn for orders to be placed at this time to avoid any supply issues? A. Correct. Q. Come September, to avoid supply issues coming towards the Christmas rush, he needs to place orders, do you agree? A. Absolutely. HIS HONOUR: Hence the heading of your email 'Forward planning'. KATEKAR Q. 'Forward planning', is that right and this was, jumping forward, this was part of your role at Parsons, wasn't it, to undertake forward planning for the acquisition of stock, do you agree? A. No, forward planning - you've got to book in production space. At that stage we had not received a single order for Tigerz11 or Roo tents, okay. Q. That needed to be done in order for Parsons to give supply? A. Book production space and engage with the whole supply chain if you like. Q. For Parsons to be able to do what, supply the product, it needed to place the orders? A. Absolutely. Q. It needed to get the production space? A. Correct."
29. This evidently spurred Mr Glynn into action as, later on 12 September 2012, 4WD Discounters sent Parsons a Purchase Order for 500 RTTs.
30. On 19 September 2012, 4WD Discounters sent two further Purchase Orders to Parsons for a total of 200 RTTs and 700 swags.
31. On 2 October 2012 Mr Vella wrote to Mr Spouse and Mr Rizza stating: "We would like to pick up where we left off in our last telephone discussion. What are you plans to further develop the business together?"
32. Mr Spouse replied on 2 October 2012: "In relation to your email below our first thoughts are this is feasible and would meet with the current criteria. We have seen the packaging at Tigerz11 and believe this is fairly straightforward from a logistics and supply chain perspective. We will need to discuss the pricing model you have in mind as we need to find a middle ground where it is beneficial to both parties. But overall we would be happy to proceed. We can really see the value we can add to [Express/4WD Discounters] from a product, procurement and logistics perspective and believe it can and will be a valuable relationship going forward." [Emphasis added]
33. Mr Katekar asked Mr Spouse about this email in cross-examination: "Q. What you were seeking to offer at that stage to [Express/4WD Discounters] was a product procurement and logistics service to obtain product, agree, procure it, you agree? A. Yes. Q. Then provide logistics service once it had arrived? A. Within their purchase orders, yes. Q. Because at this stage, at this stage in 2012, the process was issue a purchase order, correct? A. Correct."
34. On 15 October 2012 Mr Rizza wrote to Mr Glynn: "Roof top tents Factory Production capacity 900 tenets [sic: Mr Rizza said in cross-examination that it should have read "300 tents"] per month. … Swags Factory Capacity 100 per daily [sic] Tigerz11 roof top tent[s] PP sample will be sent by supplier tomorrow/Wednesday with for [sic] approval and imagery requirements. On approval first shipment approx 300 of Tigerz RTT tents will be dispatched by factory end of October ETA Approx Nov 18. Tigerz11 Quick set up tents available mid next week (263 pieces)."
35. The particulars in Express/4WD Outdoor's cross-claim statement state that the Oral Distribution Agreement was "proposed, and subsequently reached in conversations and emails up to 18 October 2012".
36. Mr Katekar did not point to any communications after that referred to at [141] above that was said to have given rise to the Oral Distribution Agreement or the Supply Obligation.

Was the Supply Obligation a term of the Oral Distribution Agreement?

The legal tests

1. In order that a term be implied into a contract the term must: 1. be reasonable and equitable; 2. be necessary to give business efficacy to the contract; 3. be so obvious that it goes without saying; 4. be capable of clear expression; and 5. not contradict any express term of the contract. (For example, Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347 and 404.)
2. In this case, the implication of the Supply Obligation is said to arise from the verbal and written communications between the parties between July and October 2012.
3. The question before me is similar to that referred to by the Court of Appeal in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193. In that case Spigelman CJ said (at [7]): "In the present case, the subject matter and the concomitant terms of the contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?"
4. And at [13]: "[The question is] the identification of what the parties must be regarded, as a matter of necessity, as having agreed, because of what 'the nature of the contract itself implicitly requires' having regard to 'the inherent nature of [the] contract and of the relationship thereby established'." [Quoting from Liverpool City Council v Irwin [1977] AC 239 at 254-255]

The facts

1. The question then is what, as a matter of necessity, must Parsons and Express/4WD Discounters have agreed so far as concerns Parsons' obligations.
2. The essential features of the parties' communications are those that I have emphasised above, namely: 1. Parsons proposed to "take care of the manufacture of" Express/4WD Discounters' camping products (see [113] above); 2. Mr Rizza said that Parsons had "many manufacturers in China" and had "people on the ground" that "do the inspections and ensure that they conduct quality control" (see [113] above); 3. Mr Spouse or Mr Rizza said that Parsons had "the expertise to supply camping products from our manufacturers in China" (see [121] above); 4. on 30 July 2012, Mr Spouse either said or agreed that Parsons would keep "two months' worth of all product lines…on hand" at all times to meet orders (see [125] above); 5. on 28 August 2012, Mr Spouse told Mr Vella that Parsons was working on "securing…a quality supply chain" (see [134] above); 6. on 30 August 2012, Mr Rizza told Mr Vella that Parsons' aim was to secure a reliable (although he said "reputable") supply chain (see [135] and [139] above); and 7. on 2 October 2012, Mr Spouse told Mr Vella that Parsons saw value in providing product, procurement and logistics services (see [149] above).
3. In addition, Mr Spouse and Mr Rizza had told Mr Vella that they had travelled to China and had selected five manufacturers who, in their view, would be suitable to manufacture Express/4WD Discounters' products.
4. On the other hand, there is no suggestion that Mr Vella, or anyone else at Express/4WD Discounters, understood that Parsons owned or had direct control over any manufacturing site in China.
5. Mr Vella must have known that, notwithstanding the recommendations of Mr Spouse and Mr Rizza concerning manufacturers in China, neither they, nor anyone else at Parsons, could guarantee that the Chinese manufacturers nominated by Parsons would deliver products in accordance with instructions placed on them by Parsons.
6. I do regard it as significant that, on 30 July 2012, Mr Spouse said to Mr Vella something to the effect that Parsons would keep two months of stock on hand at all times.
7. The parties must have understood that this was not something that Parsons could actually guarantee would occur (that is, no matter how the Chinese manufacturers perform).
8. As this would be the effect of the Supply Obligation, I am not able to conclude that the parties must, as a matter of necessity, have agreed to it. To put that another way, I am not satisfied that it is so obvious that it goes without saying that the parties agreed that Parsons had the Supply Obligation, nor that imposition of the Supply Obligation on Parsons is necessary to give business efficacy to the Oral Distribution Agreement.
9. I am not able to conclude that the parties, as a matter of necessity, agreed to any more than that: 1. Parsons would take all reasonable steps to identify a reliable manufacturer of RTTs and swags on behalf of Express/4WD Outdoor; 2. Parsons would then (actually) place orders on that supplier or suppliers to match the RTTs and swags that 4WD Outdoor stated it would require; 3. Parsons would then take all reasonable steps to ensure that the supplier met those orders; and 4. Parsons would then take all reasonable steps to change suppliers if one proved to be unsatisfactory.
10. Of course, this is not the case Express/4WD Outdoor sought to establish in the proceedings.
11. And even if it was, it is hard to see how it could be shown that Parsons was in breach of any such obligations.
12. There is no suggestion in the evidence that Parsons did not take all reasonable steps to identify a reliable manufacturer, did not actually place orders on that manufacturer to match Express/4WD Outdoor's requirements, or did not take reasonable steps to ensure that the orders it placed on the Chinese manufacturers were met.
13. As to taking reasonable steps to change suppliers, Mr Katekar pointed to the fact that the last order that Parsons sent to the manufacturer, CN Trail, for RTTs was in October 2013 and for swags was in November 2013, and that Parsons did not place an order with an alternative supplier, Leye, until March 2014 (which was by then too late for the RTTs and swags manufactured by Leye to be delivered to Express/4WD Outdoor because the latter had terminated arrangements in July 2014).
14. From October 2013, Parsons was experiencing difficulties and delays with its chosen manufacturer, CN Trail. CN Trail evidently told Parsons it had moved to a new factory where there would be a dedicated crew to manufacture RTTs.
15. Ms Screpis told Mr Rizza in January 2014 that "you need to set up another factory to supply [RTTs]".
16. However, in cross-examination, Mr Rizza said he discussed the matter further with Ms Screpis and that, because of a bad experience Parsons had had the previous year with a supplier that Express/4WD Outdoor had (briefly) insisted Parsons use, he and Ms Screpis agreed that "if we were to go up another factory [sic] on the run, it would have meant a possible delay of up to 60 days before he [had] a sample" and that, accordingly, "it was agreed for Diana [Screpis] to put the Tigerz11 tents back into CN Trail and that's what we did".
17. There, it seems, the matter rested.
18. In those circumstances, I would not have been persuaded that Parsons was in breach of any of the obligations that I may have implied into the Oral Distribution Agreement.

Conclusion

1. Parsons is entitled to judgment against Express, 4WD Outdoor and Mr Vella in the amounts of its claim.
2. Express/4WD Outdoor's cross-claim must be dismissed.
3. I invite counsel to bring in short minutes to give effect to these reasons.
4. I will hear any argument as to costs.

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. Decision last updated: 17 August 2017