Other offsetting claims
53The existence of various other offsetting claims on which Montage relies is not conceded by Creative Blinds, which points to a lack of evidence for such claims - for example, documentation of customer complaints or complaints by Montage to Creative Blinds, evidence of credits given by Montage to customers, or evidence demonstrating dumping of the products - and contends that Montage has not discharged its burden of demonstrating that these are genuine offsetting claims. Montage claims losses in respect of matters such as credit provided to customers; losses from dumping of stock; loss of profit from sale of goods; and loss of repeat custom. Creative Blinds points out that the damages claimed under some of these heads exceed the value of the goods supplied by a large margin. I deal with these other offsetting claims more briefly since they are not necessary to the decision which I have reached.
54Montage advances a claim in respect of 50mm end brackets (Jolly 1 [7(a)]) which is quantified on a lost profits basis as US$70,800 and on an out of pocket basis as US$69,200. Mr Jolly gives evidence of an initial oral complaint by a customer, his identification of defects, an explanation of those defects given by Mr Wong and complaints by other unidentified customers (Jolly 2 [42][44]). Mr Wong's evidence is that, although an initial batch of the brackets was defective, they were not supplied to Montage, the brackets which were supplied were not defective, and Montage continued to order brackets between 2007 and 2008 (Wong [72][80]).
55Mr Jolly's evidence as to the defective brackets was that:
"Montage was unable to sell the defective brackets and, accordingly, Montage dumped that stock which was about 15,000 pairs of brackets. Montage had paid for that stock at a cost per bracket of AUD$1.10 per pair, totalling AUD$16,500 excluding GST. That stock at a sale value of approximately AUD$35,000 of which AUD$18,500 represented net profit to Montage. Creative Blinds did not issue a credit to Montage for this defective stock. Montage has also re-ordered new stock from Creative Blinds, which has been received and paid for." (Jolly 2 [45])
Montage also sought to establish an offsetting claim in respect of lost sales to Dial a Blind which, Mr Jolly gave evidence, had not continued ordering blinds from Montage (Jolly 2 [46]).
56There is a dispute as to the price payable in respect of the brackets and Creative Blinds points to evidence suggesting that the price paid for the product was a lesser amount than that adopted by Montage in its quantification (Ex FW1 176178). Creative Blinds also points out that Montage has led no evidence as to the price at which goods were sold to customers; or that there was an available market for the goods; or that the supply of defective end brackets in fact led to a loss of repeat custom with respect to all goods supplied by Montage. Creative Blinds points out, with considerable force, that it is inherently unlikely that one shipment of defective goods worth $585 would lead a customer to cease to order any products from Montage resulting in lost profits of $70,000, although I again do not consider this point would support summary judgment in favour of Creative Blinds in a contested claim as to this issue.
57Creative Blinds also submits that any cause of action in respect of the defective supply of end brackets would have accrued at the time of delivery of the goods in 2004 (Wong [73]) and is therefore statute-barred. The evidence before me does not establish when loss was suffered by Montage arising from credit provided to customers, dumping of stocks or loss of subsequent customer orders and it may be that Creative Blinds could establish that the claim is statute-barred in a contested hearing. However, I do not accept that the limitation issue is such that Montage's claim does not warrant further investigation or is spurious or misconceived. In my view, the position in this regard does not have the clarity of the facts considered in Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284 on which Creative Blinds relies.
58In my opinion, Montage has established an offsetting claim for US$13,200 for the wasted costs of this product and lost custom of US$56,000 in respect of an identified customer on the relatively undemanding threshold required by this application.
59Montage relies on a claim in respect of cord locks (Jolly 1 [7(c)]) but ultimately did not seek to establish its quantum. Accordingly, no offsetting claim is established under this head.
60Montage relies on a claim in respect of string ladder tape products (Jolly 1 [7(e)]) which it quantifies as US$109,600 on a lost profits basis and US$102,400 on an out of pocket basis. Mr Jolly gives evidence of defects in the products, customer complaints and the return of the product by customers (Jolly 2 [65]-[66]). Mr Jolly's evidence was that Montage scrapped 400 cartons of ladder tape which had a cost to Montage of US$12,000 and had not been provided with a credit for that defective stock; that it lost profit on sales of that stock; that duty and freight paid for the stock was US$1,100 excluding GST. In my opinion, Creative Blinds has established an offsetting claim of US$13,100 referable to the cost of ladder tape which, on Mr Jolly's evidence, was scrapped and associated duty and freight.
61Montage also relies on claims for loss of profits in respect of string ladder tape and gives evidence that three identified customers had ceased making substantial orders of product from Montage after this matter (Jolly 2 [69]). Creative Blinds points to the absence of documentary evidence to demonstrate the price at which goods were sold to customers and the absence of evidence that there was an available market for those goods; challenges Montage's quantification of the amount of lost profit; and points to several difficulties with the claim for loss of profit from the particular customers to which Mr Wong refers. In my opinion, Montage has not established that the issue as to the string ladder tape led to the loss of profits claimed or caused the customers referred to by Mr Jolly to cease to make substantial orders of product to Montage even to the relatively undemanding threshold required on this application.
62Montage relies on a claim in respect of aluminium fabrication (Jolly 1 [7[g)]) which is quantified as US$189,721.94 on either a loss of profits or out of pocket basis. Mr Jolly gives evidence of an end user's claim dated 28 November 2007 on Montage's customers and of a credit given by Montage for re-powdercoating costs of $9,790 (Jolly 2 [80]) and a representative of the customer gives similar evidence. Mr Wong accepts that he was advised of the complaint (Wong [126]). In my opinion, Montage has established an offsetting claim in the amount of US$7,120 being the amount of the credit provided to the customer.
63Montage also contends that it suffered loss in respect of this matter by being required to continue to use its Adelaide factory and incur associated wages for a welder to fabricate aluminium brackets because of Creative Blinds' inability to manufacture those products after having offered to do so. Creative Blinds contends that, so far as this claim relates to an inability by Creative Blinds to supply a welder who could fabricate brackets, it was not identified in Mr Jolly's affidavit dated 15 December 2010 and Montage is not permitted to advance it having regard to the principles in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. In my opinion, Mr Jolly's first affidavit sufficiently identified a claim arising from issues as to the fabrication of the relevant brackets to allow reliance on this matter.
64However, I accept Creative Blinds' submission that Mr Jolly's evidence as to this matter does not establish an arguable basis for a cause of action against Creative Blinds which could give rise to substantive damages arising from Creative Blinds' inability to supply such brackets, as distinct from a claim arising from the defective brackets which were supplied. In my opinion, Montage has not established an offsetting claim in respect of its additional claims as to machinery provided to Creative Blinds in the absence of any evidence of Creative Blinds having refused to return that machinery or an offer by Montage to pay the costs of doing so. In my opinion, Montage has also not established an offsetting claim for rental of its Adelaide factory or associated wage costs.
65Montage relies on a claim in respect of Vollay V5000 shutters supplied to Maxim Louvres (Jolly 1 [7(i)]) which is quantified on a lost profits basis as US$24,028.80 or an out of pocket basis as US$33,746.24. Montage relies on defects in V5000 shutter panels supplied to Maxim Louvres in late 2008, and Mr Jolly's evidence is that Montage provided a credit to Maxim Louvres, arranged for the local manufacture of replacement shutters and incurred other costs for a total loss of US$34,911 (Jolly 2 [28]). Although a representative of the customer denied that one order was affected by the defects to which Mr Jolly refers, Mr Jolly gives evidence of another order and the customer's complaint about the defects in that order (Jolly 3 Annexure "C"). (I note that there is a difficulty with quantification of this claim, since the elements of it in Jolly 2 [28] do not seem to add to the total provided in the paragraph which in turn does not seem to correspond to the amounts relied on in Counsel's submissions. I adopt the total figure given in Jolly 2 [28] for present purposes and will hear the parties further if it is necessary to do so.)
66Creative Blinds contends that, if there were defects in the Montage V5000 shutters, then the third party responsible for manufacturing and powdercoating the relevant aluminium extrusion products would have been responsible for it and relies on the absence of documentation recording any contemporaneous notification of the defects to Creative Blinds or that third party. Creative Blinds argues that I also should find that no genuine offsetting claim is established in this respect. In my opinion, Montage has established that this claim requires further investigation, is advanced in good faith, and is not frivolous or vexatious, at least to the undemanding standard required on an application of this kind.
67Montage also relies on a claim in respect of Vollay V5000 shutters supplied to Colt Tollfab (Jolly 1 [7(i)]) which it quantifies on a lost profits basis as US$160,336.69 and on an out of pocket basis as US$173,075.03. In August 2009, Montage placed an order with Creative Blinds for delivery of V5000 shutters reflecting an order placed by Colt Tollfab for a project at Newcastle, New South Wales (Jolly 2 [29]; Wong [53]; Ex FW1 145-151). Mr Jolly gives evidence that he was advised of defects with this product by Mr Wong and was advised by Colt Tollfab that a sample made by Creative Blinds was not acceptable (Jolly 2 [30]-[31], [36]). Evidence of a representative of the customer also refers to delays and associated costs (affidavit of G. McGowan dated 27 May 2011, [3(d)]). An email dated 18 February 2010 refers to "drama" with the order placed by Colt Tollfab and to ensuring that further orders are powdercoated in Australia (Jolly 3 Annexure "F"). Mr Wong accepts there were defects with the product (Wong [54]).
68There are several complexities in respect of this claim, since (as noted above) components for the relevant products were supplied by a third party, it appears that those components were defective and there would be issues as to whether such a claim is against that third party or Creative Blinds or both. Creative Blinds also contests the merits of the claim, on the basis of an apparent acknowledgment by Mr Jolly that the matter was the third party's fault (Ex FW1 161) and on the basis of instructions given by Montage to Creative Blinds as to how to address the matter. Creative Blinds also argues that there is no evidence to support Montage's assertion that it was unable to seek credit for defective materials supplied by the third party as a result of any conduct by Creative Blinds. Again, these matters do not, in my view, demonstrate that the claim does not require further investigation, is not advanced in good faith or is frivolous or vexatious.
69Mr Jolly's evidence in respect of the loss claimed in respect of the V5000 shutters (Colt Tollfab) (Jolly 2 [34]) was as follows:
"Montage incurred:
(a) AUD$63,876.36 in lost profit due to having to pay Creative Blinds US$25,685.81 (AUD$32,107.26) for the remade order, which Colt Tollfab did not pay for, and being shortpaid AUD$31,769.10 from Colt Tollfab in payment for the order;
(b) [AUD] $21,800 including GST ... in extra freight costs;
(c) US$22,237.20 in extra labour charges levied by Creative Blinds ..."
70In my opinion, Montage has established an offsetting claim in respect of the first stage of this project, adopting its quantification of the costs of reordering the products, extra freight costs and labour costs as US$63,867.55. Montage also sought to advance an offsetting claim for loss of profits of the second and third stages of the project. However, there is evidence that Colt Tollfab in fact did not do further work in respect of that project (McGowan [3(b)-(d)]) and, in my opinion, Montage cannot establish an offsetting claim for loss of profits in that regard.
71Montage also contends that it cancelled an order for V5000 shutters placed for work to be done for Aviance Blinds in March 2010 as a result of difficulties with the Colt Tollfab order (Jolly 2 [38]-[39]). On the other hand, Creative Blinds contends that Mr Wong notified Mr Jolly that the order for the Aviance Blinds job would be ready by 23 March 2010 and the order was completed but not released because Creative Blinds would no longer provide goods to Montage on credit (Wong [65]; Ex FW1 173-174). I am satisfied that Mr Jolly's evidence is sufficient to establish an offsetting claim in wasted costs and liquidated damages payable to Aviance Blinds of US$23,887 to the undemanding threshold required for the purposes of this application, although the evidence advanced by Creative Blinds might well prevail on a contested hearing of the matter. I am not satisfied that Mr Jolly's evidence is sufficient to establish an offsetting claim in respect of lost profits, since that evidence is no more than an assertion of the amount of profits lost.
72Montage also claims the cost of replacing extrusion dies used by a third party to manufacture goods for Montage which it contends resulted from this matter. Mr Jolly's evidence in this regard was not in admissible form and was rejected. I am not satisfied that this matter gives rise to an offsetting claim.
73Montage also relies on a claim in respect of Vollay V1000 flat bar screens which is quantified as US$5,922.17 on either a loss of profits or out of pocket basis. I have dealt with an aspect of this claim, so far as the duplicate supply of such products is alleged to give rise to a genuine dispute as to the Debt, in paragraph 33 above. In my opinion, Montage has established its offsetting claim in respect of this matter for the same reasons.
74Montage relies on a claim in respect of 50mm head rails which is quantified on a lost profits basis as US$33,672 and on an out of pocket basis as US$34,488. Montage relies on a complaint by Cedar Blinds Tasmania about these products and the discovery of defects in those products in late 2004 or early 2005 (Jolly 2 [57]). Mr Jolly gives evidence that Montage scrapped 90 cartons of head rail supplied by Creative Blinds for which it had paid US$10,800 and had not been given a credit for that stock; that Montage also identified a claim for loss of profit in respect of that stock; and that Montage claimed lost sales to Cedar Blinds Tasmania, on the basis that the latter ceased sending Montage orders after this matter and commenced placing orders with one of Montage's competitors (Jolly 2 [58], [63]).
75In my opinion, subject to the limitation issue noted below, Montage has established an offsetting claim for the amount paid to Creative Blinds in respect of this product in the amount of US$10,800. As noted above, Montage alternatively claims loss of profit in respect of the 50mm head rails. Creative Blinds points out that Montage has not led evidence to demonstrate the price at which goods were sold to customers or that there was an available market for the goods and, so far as a loss of profit is claimed as to repeat custom from Cedar Blinds Tasmania, has not led evidence (other than by assertion in Mr Jolly's affidavit) to establish that sales in the claimed amounts were made to it or that any loss of sales resulted from the supply of defective head rails. In my opinion, evidence led by Montage is not sufficient to establish an offsetting claim for lost sales to Creative Blinds Tasmania. I note that there may be a limitation issue in respect of this claim which was not explored in evidence or argument, and which I do not need to address given the findings which I have reached as to the other offsetting claims available to Montage.