I & L Securities Pty Limited v HTW Valuers

Factual background 7Since about 1 July 2000, Mr Barodawala has been conducting a business predominantly concerned with the export of hot rolled and cold rolled steels and tin plates. At the relevant time, the business was conducted under the name of "H Metals", although it is now known as Patel & Co Haidery Metals. One of H Metals' customers is DSS Global Trading Sdn Bhd, a company based in Malaysia, which primarily trades in stainless steel materials. 8On 6 February 2008, a director of DSS Global, Mr Devendran s/o Sivensayal, made an enquiry of Mr Barodawala to see whether he had any stainless steel materials available. Following that enquiry, on 9 February 2008, Mr Barodawala sent an email to Ms Perinparajah asking whether she had any stainless steel material in stock. Ms Perinparajah replied on the same day that she had "... 150 tonnes of Stainless Steel scrap Grade 316 Ready for immediate shipment upon payment CNF USD300/ton". There was then further correspondence between the parties in relation to that batch of stainless steel. It is apparent from the correspondence that the stainless steel that Ms Perinparajah said Sterco had available was from an abattoir in Castlemaine, Victoria. Mr Barodawala arranged to attend that site to inspect the materials. During the course of the inspection, Ms Perinparajah said: The material I have to offer is 316 grade and I will be able to sell it to you at a very good price. There is also copper and aluminium which I can sell to you at a very good price if you buy the 316 stainless steel scrap. You arrange the containers and I will start loading the materials as it has to move fast. In total, I have approximately 300 tonnes of stainless steel material available. I have to move it quickly because my supplier wants to get it off this site. 9Mr Barodawala attended the Castlemaine site again on 13 February 2008 with Mr Devendran. By that time, Mr Barodawala had arranged for two containers to be delivered to the site to be loaded with stainless steel. During the course of the inspection, Mr Devendran tested some samples and determined that the grade of stainless steel was grade 304, a substantially inferior grade. 10Following that testing, Mr Barodawala told Ms Perinparajah that the most he was willing to pay for the stainless steel was US$1,900 per tonne. He also said that, after separating the non-stainless steel items, it would be possible to load 24 tonnes of stainless steel material into each of three 40 foot containers. Ms Perinparajah said in response: OK. If you supply me with three containers I will ensure that you are supplied with 72 tonnes of stainless steel materials. 11The containers that Mr Barodawala had arranged to be delivered to the site were gradually loaded with material. Mr Barodawala inspected the loading process on 14 February 2008 and complained to Ms Perinparajah that non-stainless steel material was being loaded into the containers. Ms Perinparajah agreed that that is not what had been arranged and instructed one of the workmen that that was not to happen again. 12While there, Mr Barodawala also spoke to Mr Nasa who was responsible for loading the containers. During the course of that conversation, Mr Barodawala said that Mr Nasa was loading too much non-stainless materials and rubbish into the containers. Mr Nasa replied: I can't do anything about it. It's not part of my job. It's going to be too expensive for me to separate the materials. I was not asked to separate any of the materials. During the course of this conversation, Mr Nasa says that Ms Perinparajah was standing behind Mr Barodawala waving her hands and placing her hand on her mouth. I think it can be inferred from this conduct that Ms Perinparajah was concerned about the conversation that Mr Nasa was having with Mr Barodawala. 13There is also evidence that suggests that Ms Perinparajah instructed Mr Nasa to load the good materials at the front of the containers. 14On 13 and 15 February 2008, Mr Barodawala paid amounts by way of deposit totalling $20,000 to Sterco. 15On 15 February 2008, Mr Barodawala again returned to the Castlemaine site. At that time, he spoke to Ms Perinparajah's husband and again complained that some non-stainless steel materials were being loaded into the containers and he asked for that material to be removed. 16At approximately 5.30 pm on 15 February 2008, Mr Barodawala had a conversation with a representative of the transport company who said that the side loader had arrived at the Castlemaine site to collect the containers. However, the persons responsible for loading the containers were not prepared to release them because they had not been paid. Eventually, the transport company left without the containers and charged Mr Barodawala $2,442 for the abortive trip. 17On 16 and 17 February 2008, the parties renegotiated the terms of the proposed contract. In relation to the question of what would happen if there were an under supply of stainless steel, Ms Perinparajah sent a text message to Mr Barodawala in which she said: Don't worry u will not loose [sic] any money we will refund. 18The parties signed a sale and purchase contract on 18 February 2008, although the contract was dated 11 February 2008. The quantity was described as 72 tonnes and the unit price as "USD1900/ton", making a total price of US$136,000. The contract contained various terms relating to quality. Opposite the heading "Payment" was the following: 100% at the time of loading. (Any excess load will be paid prior to the shipment. short falls will be settled upon receiving 3 weight documents) 19Mr Barodawala paid the balance of the purchase price on 18 February 2008 in Australian dollars which came to $128,764.73, making a total price of $148,764.73. 20On 19 February 2008, Mr Barodawala arranged for the third container to be delivered to the Castlemaine site. 21Mr Barodawala had agreed to sell that stainless steel to DSS Global at a price of US$2,280 per tonne. 22Loading of the containers was completed and, on 25 February 2008, Mr Barodawala received the final weight docket in relation to the third container. The weight dockets showed that Sterco had supplied a total of 34.84 metric tonnes of stainless steel scrap and not 72 metric tonnes in accordance with the agreement. Following receipt of that docket, Mr Barodawala demanded that he be reimbursed the sum of US$70,604. Despite repeated requests, that refund was never paid and, on 27 March 2008, Mr Barodawala commenced proceedings in the District Court against Sterco. 23Of the 34.84 metric tonnes supplied, 9.67 tonnes comprised non-stainless steel material. A substantial proportion of that material was contained in the third container. DSS Global was able to sell 7.252 tonnes of that material at a price of US$400 per tonne. DSS Global had paid for the stainless steel at a rate of US$2,280 per tonne. As a result, it demanded a refund of US$19,146 in relation to the 9.67 tonnes of non-stainless steel material less the amount for which it was able to sell part of that material. 24The proceedings in the District Court were stayed on the basis that they ought to have been brought in Victoria. Mr Barodawala then commenced proceedings in the County Court of Victoria on 13 November 2008. Mr Barodawala obtained an interlocutory judgment as a result of Sterco's failure to appear on 30 December 2008. 25On or about 4 February 2009, Sterco was wound up. Mr Barodawala has lodged a proof of debt with the liquidator, but has received no payments. 26Mr Barodawala filed an expert report from Mr Higgins. Mr Higgins expresses the opinion that Sterco was insolvent on 18 February 2008. He summarises the reasons for that opinion in the following terms: i. The financial analysis of the company's profit and loss and balance sheet figures for the period leading up to and including the period between 11 February 2008 and 18 February 2008 indicate considerable stress on the company's cash flow. ii. The cash position of the company had been deteriorating in the six (6) months prior to the 11 February 2008 with a reported total overall cash shortfall of $23,601.77. iii. The director thus voluntarily paid overdue creditor invoices personally with corresponding increases in her loan account with the company ... iv. The director failed to pay an overdue amount to the outstanding creditor, Cameron Interstate Pty Limited, relating to debts due and payable as far back as 30 June 2007. v. The director failed to recognise and account for the taxes, penalties and interest associated with the non-lodgement of the company's fringe benefit tax returns for the years ending 30 June 2007 and 30 June 2008. vi. The director failed to recognise and account for the probable penalties associated with non lodgement of the company's income tax returns for the years ending 30 June 2007 and 30 June 2008. vii. After prepayment by Barodawala of the total invoiced amount of stainless steel scrap on 18 February 2008, the company had insufficient funds to fully reimburse Barodawala for the full extent of his nominated shortfall amount of $73,624.40 since the existing commitments to Excel Machinery Pty Limited only enabled a maximum cash profit of $18,764.73 before making any shortfall payments to Barodawala.

Is Mr Barodawala entitled to succeed against Ms Perinparajah? 27Mr Barodawala puts his case in two ways. First, he says that by reason of the matters that I have described, Ms Perinparajah contravened s 52 of the TPA and s 42 of the FTA. Second, Mr Barodawala pleads that on 18 February 2008, and at all material times thereafter, Sterco was insolvent or that there were reasonable grounds for suspecting that it was insolvent or would become insolvent on entering into the contract, that Ms Perinparajah knew that there were grounds for suspecting that the company was insolvent or would become insolvent and in those circumstances, Ms Perinparajah was liable to pay compensation under s 588M of the Corporations Act . 28I am satisfied that Sterco engaged in misleading and deceptive conduct and that Ms Perinparajah was involved in that conduct since she was the sole director and shareholder of Sterco who engaged in the acts which constituted that conduct. 29In my opinion, the evidence establishes that Ms Perinparajah represented prior to entry into the agreement that Sterco had the capacity and the intention to deliver 72 tonnes of scrap stainless steel in circumstances where it never had that capacity or intention. 30The representation that Sterco had the capacity and intention to deliver 72 tonnes of scrap stainless steel can be inferred from the negotiations leading up to the contract by which Sterco agreed to supply that quantity of stainless steel scrap. 31The fact that Sterco and, in particular, Ms Perinparajah never had the intention of delivering that quantity of stainless steel can be inferred from a number of matters. The evidence suggests that Ms Perinparajah was prepared to say whatever was necessary in order to obtain a contract and, in particular, to be paid. Whether or not Sterco was insolvent in February 2008, its financial position was very serious and it can be inferred that that fact drove Ms Perinparajah's conduct. Originally, Ms Perinparajah represented that Sterco had approximately 300 tonnes of stainless steel to sell and that it was of grade 316. It seems clear, however, that those representations were false. Ms Perinparajah continued to negotiate the agreement for the sale of 72 tonnes when she must have known that the containers were being loaded with material that meant that it would not be possible to deliver 72 tonnes of stainless steel. When the issue was raised with her, she gave instructions to ensure that the containers were properly loaded. However, given what happened, it seems clear that she never intended those instructions to be complied with. The evidence given by Mr Nasa concerning his conversation with Mr Barodawala and Ms Perinparajah's reaction to it suggests that she was seeking to conceal from Mr Barodawala her true intentions. The actual material delivered fell so far short of the contractual obligation and the amount for which Mr Barodawala had paid, that I think it can be inferred that Ms Perinparajah did not intend Sterco to deliver 72 tonnes of stainless steel material. The conclusions I have reached are reinforced by the fact that Ms Perinparajah did not appear at the hearing or seek to offer any explanation for her non-attendance and by the fact that it appears that she sought to avoid Mr Husseini's telephone call to the work number he had for her. 32There is a question of why Mr Barodawala continued to rely on what Ms Perinparajah said to him having regard to his own observations. However, Mr Barodawala was not in a position to know the quantity of material that would be loaded into the containers and the bulk of the non-stainless steel material was loaded into the third container. There is no evidence to suggest that Mr Barodawala inspected the loading of that container. As a result, I do not think that Mr Barodawala knew before paying the purchase price that the load would not meet or come close to meeting the contractual requirements. Moreover, there can be little doubt that Mr Barodawala did rely on what Ms Perinparajah said to him. It is inconceivable that he would have paid Sterco the full purchase price due under the contract if he had realised that Ms Perinparajah did not have any intention of delivering the 72 tonnes of stainless steel. Although Mr Barodawala may have been content to rely on the price adjustment clause in the contract for small discrepancies, I think he still must have relied on the representation that Sterco had the capacity and intention to deliver 72 tonnes and he would not have proceeded with the contract if he had known that that was false. 33It follows from what I have said that Mr Barodawala is entitled to damages under s 82 of the TPA and it is not necessary to consider his alternative claim.

Assessment of damages 34Section 82 of the TPA permits Mr Barodawala to recover the loss and damage he has suffered "by conduct of" Ms Perinparajah: see, for example, Marks v GIO Australia Holdings Ltd [1998] HCA 69; 196 CLR 494; I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited [2002] HCA 41; 210 CLR 109. In this case, that amount is the amount that would put Mr Barodawala in the position he would have been in if he had not entered into the agreement to buy stainless steel scrap from Sterco. 35That amount should be calculated by taking the amount that Mr Barodawala paid for the stainless steel and deducting from that amount the net amount he received for it. The net amount he received for it is the amount he received from DSS Global less the amount that DSS Global is entitled to recover because 9.67 tonnes of non-stainless steel material was delivered to it. In addition, I accept that Mr Barodawala is entitled to recover the amount of $2,442 that he paid to the transport company. He would not have incurred that amount if he had not been induced by Ms Perinparajah's representation that Sterco had the capacity and intention to supply 72 tonnes of stainless steel to proceed with the contract. Mr Barodawala also incurred $10,714.44 in having the containers transported to Malaysia. Again, he would not have incurred those costs if he had not been induced to enter into the contract. Consequently, he is entitled to recover that amount. 36The amounts payable under the relevant contracts were expressed in US dollars. However, the amount paid by Mr Barodawala to Sterco was paid in Australian dollars. In those circumstances, I accept Mr Bolger's submission that judgment should be given of Australian dollars at the rate applicable at the contract date. That rate was AU$1.088 to each US$1. 37On that basis, Mr Barodawala is entitled to $95,529.79 damages, calculated as follows: Amount paid under contract US$136,000.00 Less US$79,435.20 received from DSS Global US$56,564.80 (US$2,280 per tonne for 34.84 tonnes) Plus US$19,146.00 to be refunded to DSS Global US$75,710.80 Net amount in Australian dollars AU$82,373.35 Plus $2,442 AU$84,815.35 Plus $10,714.44 AU$95,529.79

38In addition, Mr Barodawala is entitled to interest from the date the money was paid to the date of judgment (16 December 2011). The purchase price was paid on or about 19 February 2008, although a deposit was paid several days before then. It is not clear when the amount of $2,442 was paid, although it can be inferred that it was paid at around the same time. Consequently, I think it is appropriate to allow interest on the total purchase price and the $2,442 from 19 February 2008. It is not clear when the $10,714.44 was paid, but it was some time after 23 February 2008. It is reasonable to assume that it was paid within a month. Consequently, interest should run on that amount from 23 March 2008. It follows that Mr Barodawala is entitled to interest totalling $32,062.11.

Orders 39The orders of the court are: (1)Judgment for the plaintiff in the sum of $127,591.90. (2)The defendant pay the plaintiff's costs of the proceedings.

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: 16 December 2011