Flamingo Park Pty Ltd v Dolly Dolly Creations Pty Ltd

Background 10CES on 3 August 2006 entered into a contract with GO Electrical by which CES would be able to purchase electrical equipment on credit terms: see pp 333 - 336 of the Court Book (marked Exhibit A). Clauses 11 and 13 of the standard terms are in the following terms: 11. LIMITATION Of LIABILITY 11.1 These conditions do not, and no provision o( these conditions will or purports to exclude, restrict or modify or have the effect of restricting, excluding or modifying: (i) the application in relation to the supply of goods and/or services under the Trade Practices Act 1974 f TPA'); (ii) the exercise of any right conferred by any such provision:or (ii) any liability of us for breach of conditions or warranty implied by any such provision. 11.2 To the extent permitted by law, all express or implied conditions, warranties, representations or remedies relating to the provision of goods or services pursuant to these conditions are excluded. 11.3 If a law implies or imposes a condition or warranty which cannot be excluded but in respect of which liability can be limited, our liability to you for breach of that condition or warranty is limited to, at our option: (a) in the case of goods: (i) replacing the goods or supplying equivalent goods; (ii) repairing the goods; (iii) paying for the cost of replacing the goods or buying equivalent goods; or (iv) paying for the cost or repairing the goods, and (b) in the case of services; (i) supplying the services again; (ii) paying for the cost of supplying the services again. 13. GOODS RETURNED FOB CREDIT 13.1 We will net consider a claim in relation to damaged goods or shortage of length, quantity or weight unless notified in writing within three days of delivery.13.2 We may allow credit at our sole discretion, but in any event we will not accept goods for credit after 30 days from the date of original invoice for Account Customers and cash customers 14 days.13.3 "Special buy-ins" wilt be subject to the Manufactures and or Suppliers conditions and fee structure. 13.4 We reserve the right to charge a restocking fee on goods accepted for credit. 13.5 In all cases, you must quote the original invoice or delivery docket and you must prepay return freight. 13.6 Goods retumed for credit must be accompanied by the original invoice or delivery docket and must be in the original pack and in a completely resaleable condition. 11Between 11 June 2011 and 15 March 2012, CES placed orders for equipment to a total value of $2, 039, 540.51 (see Exhibit A, p 330). GO Electrical issued invoices for a total amount of $2, 090, 483.20 (see summary of invoice at Exhibit A pp 360-363). GO Electrical claims that all of the goods ordered and invoiced were delivered. In Mr Alati's first affidavit he asserted that an amount of at least $50K worth of goods had not been delivered. In none of the correspondence before the issue of the Statutory Demand had CES ever asserted that GO Electrical had not delivered goods that were ordered and invoiced, other than Famco emergency packs discussed below. 12CES ordered the equipment from GO Electrical for installation in a $70M hospital project for which Cockram was the builder and it, CES, was the electrical subcontractor. When CES ordered the goods it indicated the delivery time it required and GO Electrical prepared a schedule which it provided to its suppliers (principally Versalux and Austube). Ms Bryceland of GO Electrical did warn CES that: [t]he Laser Lighting Product comes from Europe and they have their Summer Holidays coming up which may present a problem for this order however as soon as I receive confirmation I will let you know. (see Exhibit A, p 16) 13Mr Abbott of CES sent a revised delivery schedule in November 2011 (see Exhibit A p 34) indicating also that someone from CES had spoken to Austube. By March 2012, it was clear that there were problems with delivery: see Exhibit A, pp 44-46, 49. 14In an email of 30 March 2012, Mr Alati warned GO Electrical in respect of the delays of Versalux: Unfortunately this has left us in a very bad position in relation to not only finishing the project but also our professional reputation. I must therefore put you on notice that we will be forced to pursue damages against Go Electrical for failure to meet our delivery schedules. These damages will not only include the costs for our time to install temporary fittings and remove them when the specified fittings arrive as well as the cost of the temporary fittings themselves along with any restocking fees but also any liquidated damages levied against us and the potential loss of earnings due to the damage to our reputation and the subsequent loss of future work. (Exhibit A, p 49) 15The correspondence at Exhibit A, pp 56-68 demonstrates that Versalux was late with deliveries but not through any fault of GO Electrical or CES. The impact on the hospital project is noted by Mr Tom List of GO Electrical at Exhibit A, p 71 in an email to Versalux and Versalux replied at Exhibit A, p 72. 16In August 2011 a problem surfaced with lights because the lights seemed to have the "wrong Famco emergency pack" (see Exhibit A, pp 74 and 86). Austube was contacted and various proposals were discussed. It seems that Austube would not accept that there had been any error on its part (see Exhibit A, p 90). GO Electrical clearly believed that the error lay with Austube (Exhibit A, p 97) as did CES (Exhibit A, pp 100-101). 17By letter of 30 May 2012 CES wrote to GO Electrical with a proposed payment plan. I set out the text of the letter (see Exhibit A, p 103): "Dear Tom Re: OUTSTANDING DEBT As you are aware, we are experiencing difficulties in finalising the HMRI project at Newcastle which has been brought about by the direct result of your supplies inability to meet the various delivery schedules. We can confirm that we are expecting to complete the project subject to the delivery of some outstanding Versalux fittings within the next three weeks. At this time I will in a position to confirm the extent of the financial damage created by the above issues. In the meantime I would like to propose the following payment schedule which, we will adhere to until such time as we have agreement on the amount of compensation due to Class Electrical Services from GO Electrical and/or their suppliers. On or before 18 July 2012 $200,000.00 On or before 18 August 2012 $200,000.00 On or before 18 September 2012 $500,000.00 On or before 18 October 2012 $400,000.00 On or before 18 November 2012 Balance less agreed compensation. Given the magnitude of the situation, I believe the above proposal is more than fair and I would appreciate your acceptance as soon as possible. Yours sincerely Class Electrical Services Pty Ltd Mark Alati Managing Director" 18There is no response to that letter before the Court but there is evidence that GO Electrical did continue to supply equipment until November 2012 and correspondence later in the piece rather suggests that GO Electrical did accept the proposal. There was a similar proposal from CES by letter of 30 August 2012 (Exhibit A, p 104). 19By letter of 25 September 2012, headed "HMRI Versalux Fittings: Statement of Claim" CES set out the amount of $161, 190 as the summary of costs in relation to Versalux. The letter (Exhibit A, 105-106) also stated: There is a substantial amount of money being held from us by the client while delay costs and liquidated damages are assessed. I have consulted my lawyers and they have instructed me that should a settlement not be agreed upon, then Class Electrical Services has no option than to hold all outstanding payments to Go Electrical until such time as a determination can be given by the courts. The remuneration of these costs will not make up for the embarrassment we have suffered and the damage it has caused to Class Electricals long standing reputation in the industry. 20There was a similar letter claiming the amount of $72, 900 in relation to Austube: see Exhibit A pp 107-108. 21On 10 October 2012 Cockram wrote to CES: Further to our telephone conversation in regards to future tendering opportunities and why you have been unsuccessful in winning work with Cockram we confirm our discussion as follows... The letter then set out matters relevant to the failure to meet delivery dates and the need for rectification work. The letter continued: While we acknowledge that the relationship between Class Electrical and Cockram has been extremely strong over the last four years this last project has soured that. If our Project Manager's do not want to use Class due to performance concerns, I will fully back them in their decision. The letter acknowledged that the issue was a supply issue: ...and to a certain extent this is beyond your control... But that: It is your responsibility to meet the contract programme and to ensure that your subcontractors and suppliers also meet that programme. (see Exhibit A, p113). 22By letter of 11 December 2012 Cockram advised CES of problems with faulty and non functioning light fittings and problems with incorrect battery packs. The letter advised that "a complete audit of the lighting is now being carried out" and that Cockram believed that CES Suppliers "may have provided you with fittings that were not fit for purpose": see Exhibit A, p 114. The letter refers to the fact that: As you are aware Cockram Construction are withholding a substantial amount of money from Class Electrical Services on the project and the cost of the audit and replacement of the faulty fittings will be withheld from your outstanding monies. Should there be insufficient funds held against you on this project, Cockram will enact offset provisions in the contract to access other retention monies currently being held by Cockram from other projects Class Electrical Services have completed. (see Exhibit A, p 114) 23On 1 February 2013, Cockram wrote to CES advising that the audit previously foreshadowed had taken place and many defects found. The letter advised that Cockram had decided to engage others to complete the contractual works and that the costs of the work would be deducted from monies due to CES under the contract (Exhibit A, p 301). At pp 302 - 308 of Exhibit A are details of the work assessed by SMH Electrical and at pp 307-308 is a quotation for the rectification work of $1.637M. 24By letter of 25 October 2012 Class Electrical wrote to GO Electrical "withdraw[ing]" previous payment plans and asserting that no further work was being awarded to CES from Cockram: see Exhibit A, pp 109-110. 25It appears that CES did pay the amount of $200K on 12 September (see Exhibit A, p 363) but it did not pay any other amount in accordance with any payment plans and that one payment of $200K is the only amount out of the $2M order that it has ever paid. On 22 November 2012, Mr Alati, the managing director of CES, wrote to Mr List in the following terms: Unfortunately once again my friends from Ikea have not paid however in order to negate any legal disputes I am prepared to offer the following payment structure, 150k can be picked up today and banked by the end of the month of November 2012 100k by the end of December 2012 50k by the end of January 2013.. 150k by the end of February 2013 350k by the end of March 2013 Balance less agreed compensation by end of April 2013 This offer is made on the basis that Go Electrical will not initiate any legal proceedings for any reason against either myself personally or Class Electrical Services Pty Ltd. Please indicate that this is acceptable and that Go Electrical agree to these terms. (See Exhibit A, p 383) 26It will be observed that Mr Alati was offering to pay $800K and leave the remaining $1.3M unpaid and subject to the issue of "compensation". That compares with the offer made in May (Exhibit A, p 103) to pay $1.5M and with the balance unpaid subject to the issue of compensation.

The Statutory Demand 27When GO Electrical issued its Statutory Demand on 23 November 2012, by the affidavit of Mr Coleman in support of the Statutory Demand, Exhibit A, pp 331-332, it acknowledged that there was an issue about losses claimed by CES totalling $234K (i.e. approximately the addition of the two figures I have mentioned in [19] and [20] above) and it deducted that amount from the statutory demand to arrive at a figure of $1, 656, 393.27 to which interest of $168, 158.61 was added making a total of $1, 824, 551.88 (see Exhibit A, 326-327). 28The basis on which CES disputes the debt is a claim that it did not receive all of the goods which are the subject of the GO Electrical invoices. I have referred earlier to the estimate of $50K. In his affidavit of 19 September, Mr Abbott describes a task which he was asked to undertake and is relied on by CES to establish that $950K worth of goods were not delivered. Mr Abbott's evidence was not served within the 21 day period and on that basis its receipt is objected to by Go Electrical. Paragraph 7 is also objected to on the grounds of form. Mr Pritchard submitted that the swelling of a claim that approximately $50K worth of goods were not delivered to one that $950K worth of goods were not delivered cannot be accepted as an amplification or legitimate clarification within the Graywinter principle. I accept that submission but, in any event, I think that Mr Abbott's evidence does not establish that CES did not receive the goods which were ordered by it, rather it describes some other reconciliation of paperwork in which he has engaged. If CES genuinely believed that goods to half the value of the orders placed had not been supplied one would expect that letters or emails would have been sent well before February 2013, and that an employee of CES could attest to not having received goods ordered as opposed to embarking on the arcane exercise which Mr Abbott was asked to perform.

The offset or cross claim 29CES also claims that it is entitled to an offset by reason of: (1)Delays in the delivery of equipment, (2)Defects in the equipment supplied, and their consequential effect. 30CES puts its claims on two bases. One is that it has contractual rights based on breach of terms express or implied by virtue of the Sale of Goods Act 1923 (NSW) for delivery within the specified time, or within a reasonable time. The second is that CES has a claim under s 18 of the Australian Consumer Law Act (Cth), Schedule 2 of the Competition and Consumer Act 2010 (Cth) for misleading and deceptive conduct. 31CES points out that a party to a sale of goods contract which has been breached by the vendor is entitled to loss to his reputation and can claim economic loss resulting there from: see Liftronic Pty Ltd v Hyuandai Elevator Co Ltd (BC9303629, unreported New South Wales Supreme Court, 1 September 1993, Giles J (as his Honour then was)) and Flamingo Park Pty Ltd v Dolly Dolly Creations Pty Ltd (1986) 65 ALR 500, at 522 per Wilcox J. 32Mr Assaf also relies on Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95 Palmer J and in particular [20] - [22] which case he submits is very similar to the present case. 33Mr Pritchard challenges the bona fides of CES and its claimed dispute on the following bases: (1)GO Electrical has already deducted $234K the total of the claimed losses referred to in CES letters of September 2012. (2)Up until 7 May at least (the date of Mr Assaf's written submissions) CES was claiming that it was entitled to between $16M to $30M from GO Electrical for loss of income plus $939K for goods claimed not delivered, $1.6M for defective works and $230K for rectification costs. (3)CES has not led evidence to the effect that it has not been paid its entitlement under its contract with Cockram, and it has not established that it has ceased to receive work from Cockram. It has not led evidence of contracts that it has bid for and not obtained from Cockram. (4)The $939K claim is itself is bogus and to be contrasted with the $50K estimate which Mr Alati gave in his first affidavit. (5)There is evidence which points to CES being insolvent: (a)The profit and loss statement to 30 June 2012 shows a loss for the financial year of 3.1M (see Exhibit A, p 194). (b)There is no balance sheet for June 2012. None had been prepared as at December and none has been prepared even by the date of the hearing. The balance sheet for June 2011 coupled with the June profit and loss statement for June 2012 point to financial difficulties since the total equity as at 30 June 2011 was $2.8M sustained by $10.2M of "trade and other receivables" less current liabilities of $7.5M and no significant other assets. (c)When Mr Alati proposed his repayment plan on 22 November he stated that he had not been paid by Ikea, apparently as an explanation of why he had paid only $200K of the total debt. (d)From all the plans for repayment, and before Cockram's letter of October 2012, only $200K was ever paid. (e)The offer in the letter of 22 November 2012 was made after the October letters from Cockram had been received. (f)CES has brought no proceedings against GO Electrical for its $16M or $30M claim or indeed any part of it. 34Mr Pritchard submits that the Court can have no confidence in Mr Alati and CES claims and he contends that there is no material to support the claimed loss of income. 35It was agreed that solvency is relevant only in the sense that establishing solvency (or insolvency) is capable of contributing to an assessment of the genuineness of the dispute and whether or not the claimed dispute is contrived: Reavill Farm Management Ltd v Ashford Properties Pty Ltd [2010] NSWSC 1128, [28] per Barrett J. 36Mr Pritchard also raises the question of what is supposed to be the misleading and deceptive conduct in which GO Electrical is said to have engaged. 37Mr Assaf submits that the threshold is a low one and this Court should not examine closely whether the assertions made by the plaintiff are made out only whether the plaintiff has established that there is a serious question to be tried. 38In relation to the misleading and deceptive conduct claim, Mr Assaf referred to s 4 of Australian Consumer Law and said that GO Electrical's promise to deliver the goods within the specified period of time was a representation that it could do so, and that GO Electrical has the burden of establishing that it had a reasonable basis for making the representation. 39In Fuliban Catering Services Ltd (inc in PNG) v Compass Group (Australia) Pty Ltd [2008] FCAFC 53, Heerey, Sackville and McKerracher JJ said at [91]: It is clear that to make a promise which is not performed or a prediction which is not fulfilled is not, without more, misleading or deceptive: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82, at 88, per curiam; Bill Acceptance Corporation Pty Ltd v GWA Ltd (1983) 50 ALR 242. It is only where the making of a promise or prediction contains an implied representation of present fact, such as a representation that the promisor is capable of performing the promise, that the promise or prediction can be misleading or deceptive. Alternatively, if the promise can be construed as a representation with respect to a future matter, and the promisor does not have reasonable grounds for making the representation, it is taken to be misleading: TP Act, s 51A(1). In this case, the promisor, unless it adduces evidence to the contrary, is deemed not to have had reasonable grounds for making the representation: s 51A(2). In Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217, a case relief on by Mr Assaf, Ormiston J said at p 239: It would seem on the authorities that, at the least, a contractual promise would amount to an implied representation that the promisor then had an intention to carry out that promise. If it can be shown that he had no such intention he would be guilty of misleading or deceptive conduct. Likewise it would seem that such a representation connotes a present ability to fulfil that promise which, if shown to be untrue at the time of making, would likewise characterise the implied representation as misleading or deceptive. Futuretonics does not assist CES and Fuliban seems to be dealing with a different situation to that under consideration here. 40I do not need to dwell on the misleading and deceptive claim however because the sale of goods claim is a different category. The material presented, in my view, demonstrates that CES has grounds for a claim against GO Electrical based on GO Electrical's failure to deliver goods in a timely fashion, and notwithstanding the fact that on what has been presented GO Electrical has not itself been responsible for the delay by its suppliers of electrical equipment. I am also satisfied that CES has a claim that Famco energy packs which, it appears, should have been and were not supplied, again notwithstanding GO Electrical itself, on the evidence before me, having done nothing to cause that departure from what was ordered. There appears to be a real question about the quality of some of the other items that were supplied by GO Electrical to CES. 41There is an issue in relation to the contractual claim as to whether the terms precluded any claim for damage of the kind asserted here. Mr Assaf points to the fact that CES disputes that the purchase orders are governed by the trading terms since incorporation is an issue. In view of the authorities in this area, I think I am precluded from delving into the merits of these arguments, and I proceed on the basis there is a serious question to be tried as to whether GO Electrical is liable to CES for failing to deliver on time and for defective goods and that is sufficient I think to establish that it is has a genuine claim. 42The only remaining question is whether CES has established there is a realistic prospect that its claim is equal to or exceeds $1.83M. 43In Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743 Palmer J had to grapple with a similar problem, of the amount of the plaintiff's alleged offsetting claim, his Honour remarked at [16]: The position is by no means as easy where the claim is a claim for unliquidated damages and the damages are said to be economic loss suffered by the plaintiff. His Honour referred to Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717; (1994) 13 ACSR 787; (1994) 12 ACLC 490 in which the prospect of "ambit" claims were recognised and Palmer J went on to say: In my opinion, a genuine offsetting claim for the purposes of CA s459H(1) and s459H(2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. "Good faith" means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s459H(1) and s459H(2). See also Grass Manufacturers Pty Ltd v Sraennik [2003] NSWSC 95 where Palmer J dealt with a similar position at [19] -[22]. 44In paragraph 27 of his first affidavit, Mr Alati sets out, in effect, the heads of claim. Some of these refer back to other paragraphs and incorporating those references the list can be discerned as: (1)Lost income from Cockram. (2)The withholding of monies from Cockram (as set out in its letters of 10 and 11 December 2011). (3)CES has been excluded from insurance cover of suppliers which has had a substantial adverse effect on CES credit facilities "impacting upon the plaintiff's ability to carry on its business in the normal course of events" (reference made to Exhibit A pp 196- 197). (4)GO Electrical's failure to provide electrical equipment as specified and free of defects. (5)The invoicing of the plaintiff for electrical equipment not supplied. 45I shall deal with these in reverse order. 46In relation to item (5), if this is intended to reflect the $939, 298.91 claim I have already dealt with it. I am not satisfied that there is a serious question to be tried save in relation to the Famco emergency packs which would really seem to be part of (4). In relation to (4) the cost of those items has already been allowed by GO Electrical. 47In relation to (3), the correspondence to which Mr Alati refers does not appear to support his contention that CES has been taken off insurance policies. 48In relation to (2), I think there is sufficient evidence to indicate that Cockram has withheld and is intending to withhold money. The letter of 11 December 2012 states: As you are aware [Cockram] are withholding a substantial amount of money from [CES] on the project and the cost of the audit and replacement of the faulty fittings will be withheld from your outstanding monies. Mr Alati in his third affidavit put a figure of $316, 090 on that. However, the letter of 1 February 2013 and the documents from SMH indicate that Cockram's claim is likely to be much higher than what has been retained - in the order of $1.6M. 49Given that Cockram, by its letters of 11 December 2012 and 1 February 2013, has foreshadowed a claim for rectification costs, has obtained a quote for those costs at $1.637M, has indicated that it has appointed "others" to do the rectification work and threatened to take action to recover all of its losses in respect of the rectification work, it is not difficult to contemplate that CES's claim could well exceed $1.8M in all the circumstances. Also, I find that it is not unrealistic to anticipate that if CES is successful in its claim against GO Electrical it will establish damages to its reputation and good will for which it might recover a significant sum of money. 50In so far as lost income is concerned there is little put forward to support the claim that contracts tendered for have not been granted, but Cockram's letter of 11 October 2012 (see [21] above) gives some support for the claim. If lost income were the only component of CES offset it would be very difficult to estimate what is the realistic figure for it. 51I need be satisfied only that there is a genuine claim to an offsetting amount of at least $1.83M and, on the face of the material presented in relation to Cockram's potential claim against CES as articulated in its letters to CES and the likelihood of a claim for damage to goodwill dealt with in [48] and [49] above, I am so satisfied. 52Accordingly, in my view, the Statutory Demand should be set aside.

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: 21 June 2013