POBJIE AGENCIES v VINIDEX TUBEMAKERS

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40730/98

MASON P MEAGHER JA HANDLEY JA

POBJIE AGENCIES PTY LIMITED & ANOR v VINIDEX TUBEMAKERS PTY LIMITED JUDGMENT 1 MASON P: The first ground in this appeal turns on the legal interpretation to be placed upon a course of dealings between business entities. The primary facts are no longer in dispute, if they ever were. 2 The respondent, Vinidex Tubemakers Pty Limited ("VT"), manufactures and supplies a product called a vinyl profile (the product) which is used for cladding houses. 3 The appellant, Pobjie Agencies Pty Limited ("PA") and VT entered into a written contract on 14 August 1991 ("the PA Agreement"). That Agreement set the framework for subsequent individual contracts for the manufacture and supply of the product by VT to PA. Thus, it set out procedures for orders, acceptance of orders, variation of specifications, warranties, etcetera. VT reserved the right to review prices at any time, although some procedures were stipulated. PA committed itself to order at least 35 tonnes of the product each month and for certain breaches of that obligation liquidated damages were payable, calculated according to a formula. The Agreement included a document called Terms and Conditions of Sale, addressing in greater detail the conditions to be included in any particular contract for sale of goods formed upon the acceptance of a particular order. That document stipulated that all payments should be made within 30 days after invoice, while reserving VT's right to require payment earlier. VT was entitled to vary these terms and conditions at its absolute discretion. 4 Thereafter individual batches of particular types of the product were ordered on behalf of PA and supplied by VT. There was a delivery docket followed by an invoice. Details of debits and credits were entered up in monthly statements and in a running account. On occasions, warranty claims were made by PA upon VT and resulted in credits, if they were accepted. PA used the product (a) in the course of its own business as an installation contractor of cladding for houses, and (b) as a manufacturer of cladding which it on-sold. 5 The managing director of PA was Mr T W Pobjie. One of the employees of PA, Mr Wicks, dealt with VT on a day to day basis, placing orders for the product or instructing persons to do so. Usually orders were in writing although sometimes the written order confirmed an oral order. 6 On 21 November 1991, PA made a formal application for credit facilities, using VT's application form. Details of fixed property owned by PA were supplied along with trade references. Only after approval was given were any goods supplied on credit. In the five years of trading that followed, transactions totalled millions of dollars. Initially $100,000 credit was made available. In early 1992 this was increased to $500,000. 7 In 1992 those controlling PA set up another company to be the wholesale arm of the business. It was Insulboard Distributors and Wholesalers Pty Limited ("Insulboard"). There were common shareholders and directors, both companies being family companies of Mr Pobjie, who became the managing director of Insulboard, as well as PA. Insulboard commenced business on 1 July 1992. Apparently PA supplied cladding to Insulboard and Insulboard manufactured the insulation backing and did other work on the cladding. Insulboard then sold this manufactured cladding by wholesale. 8 After Insulboard came on the scene in July 1992, Mr Wicks, who became the general manager of that company, continued to be responsible for placing orders with VT. He mostly used the Insulboard letterhead. Sometimes the PA letterhead was used. VT continued to raise its delivery dockets, invoices and statements against PA, although deliveries were made to Insulboard's premises when they became separate premises (if they were not made directly to the ultimate purchaser). The running account continued as before, although Insulboard cheques were used to reduce the debt from 1992 onwards. 9 On 22 June 1994 a new Agreement was signed, this time between VT and Insulboard. The earlier Agreement was the obvious template. Many of the clauses are identical. Some, however, were different, including those relating to the term (duration), territorial scope, subcontracting and exclusive dealing. The new Agreement ("the Insulboard Agreement") contained no provision for minimum orders and no provision for payment of liquidated damages by the purchaser. Like its predecessor, the Insulboard Agreement expressed itself as the whole agreement between its two parties. However, like its predecessor, it was in the nature of a framework for individual dealings in the sense that I have already used the term. The schedules to the Insulboard Agreement were left blank, which meant that there was no pricing formula. The executed Agreement did not have annexed to it VT's Standard Terms and Conditions despite a recital contemplating that this would occur. 10 After the execution of the Insulboard Agreement, dealings continued as before. In Hunter J's words: After the execution of Insulboard Agreement the performance of the Agreement was indistinguishable in practice from the circumstances of supply under the Pobjie Agencies' Agreement after 1 July 1992, namely orders continued to be placed by Wicks or at his direction on the letterhead of Insulboard except, as I have mentioned, for the few instances where the order was placed on Pobjie Agencies' letterhead. The credit account of Pobjie Agencies has remained operative. Invoices continued to be rendered by Vinidex on Pobjie Agencies in respect of all cladding supplied on credit. Monthly statements, delivery dockets in respect of that cladding were also submitted by Vinidex to Pobjie Agencies. The payments continued to be made by cheques of Insulboard. No credit account was ever opened or operated upon by Insulboard with Vinidex. I think with respect to the findings of the referee, which in my view defied challenge, it is clear that Pobjie Agencies, Pobjie and Insulboard were aware that the cladding was being supplied on the credit account of Pobjie Agencies and that the supply of the cladding on credit would only be countenanced by Vinidex upon the basis of Pobjie Agencies' liability for payment of the cladding so supplied under its credit account with Vinidex. I think it is clear from the findings of the referee that Pobjie Agencies knew that was the only basis upon which Vinidex would supply its cladding on credit. 11 On 6 August 1996 VT served on PA a notice of demand pursuant to the Corporations Law, claiming the outstanding balance of the account which then stood at $549,409.48. The debt was disputed and this led to the commencement of the present proceedings. VT filed a summons in the Commercial Division. Various cross-claims ensued. The matter was sent to a referee in May 1997. As matters stood at the time of the reference, VT had sued PA, Insulboard, Mr Pobjie and Mr Wicks. VT claimed against PA for goods sold and delivered. There was a plethora of additional and alternative claims against the two companies and the two individuals invoking contract, the Trade Practices Act, the Fair Trading Act, estoppel, unjust enrichment, fraudulent misrepresentation, passing off and infringement of trade marks. 12 This appeal is only concerned with the claims against PA based on contract and estoppel that were ultimately upheld by Hunter J, and the claim against Mr Pobjie based ultimately on the Trade Practices Act that was upheld by his Honour. 13 After a six-day hearing the referee provided his report on 17 February 1998. There were contested proceedings for the adoption of the report. During those proceedings, VT sought and was granted leave to amend its summons by adding a new contractual basis for recovery against PA. A new paragraph was added to the summons in the following terms: 16A: Further and in the alternative it was agreed between the plaintiff and the first and second defendants that in consideration of the plaintiffs supplying profile to the second defendant on credit, the first defendant would be liable for payment until such time as a credit application by the second defendant was submitted to and approved by the plaintiff. 14 The particulars to that amended pleading made it plain that VT was relying upon an implied contract, and set out a number of factual bases said to support the implied contract. 15 In seeking that amendment, VT was relying on the facts already found by the referee. However the matter was sent back for a further hearing to enable the parties to adduce fresh evidence if they desired, and that further hearing resulted in a supplementary report from the referee. 16 When the proceedings returned to the Supreme Court, Hunter J found that goods were sold and delivered to Insulboard during the currency of the Insulboard Agreement, and judgment was entered accordingly against that company in the sum of $676,060.08. No party to the appeal challenges this order. 17 Hunter J also found that PA was liable under a primary liability in the nature of an indemnity as pleaded in para 16A. Alternative findings to similar effect were made in reliance upon the principle of conventional estoppel. Judgment was entered against PA in the sum of $985,553.41. 18 The difference in the judgments awarded against the two companies stems from the fact that PA was found liable to pay additional amounts based on the reversal of wrongly-claimed credits and on liabilities arising under the Trade Practices Act, and because statutory interest was awarded only against PA. In the appeal the appellants do not seek to overturn the findings against PA relating to the wrongly-claimed credits or the Trade Practices Act claim against PA. The only matter put in issue by PA is PA's liability under the implied indemnity, alternatively estoppel, in the sum equivalent to Insulboard's indebtedness for goods sold and delivered to it, although invoiced to PA. 19 Hunter J awarded judgement against PA based on the findings of the referee as to the primary facts, albeit that the referee stopped short in his supplementary report of finding an agreement in the terms of para 16A of the summons. The referee recorded his view that the facts were not inconsistent with the existence of such an Agreement, although he appeared to be troubled by the absence of oral evidence explicitly supporting such agreement. His final word was that it may be inferred that such an agreement existed, but that that consideration was more appropriately a matter for the Court. 20 It is submitted that Hunter J erred in finding an implied contract to the effect that PA agreed to be responsible for the payment of cladding supplied on credit by VT to Insulboard after 22 June 1994. The appellants contend that there is insufficient evidence of a tacit understanding with contractual intent. 21 In my view there was ample evidence of a tacit agreement and Hunter J was correct to find that such agreement existed. I agree generally with his reasons. I refer in particular to the following: (a) Not all post-June 1994 orders were on Insulboard forms. But, whichever entity ordered from VT, VT continued after June 1994 its earlier practice of addressing delivery dockets, invoices and monthly statements to PA and debiting PA's credit account accordingly.

(b) Extended credit continued to be granted after June 1994 in circumstances where all parties must have recognised that VT was continuing to look to PA, the only company to have sought and been granted extended credit terms. The referee found that Mr Wicks, and through him Mr Pobjie, were aware that VT was not prepared to provide Insulboard with goods on credit until that company had received approval for a completed credit application. That was certainly VT's position, evidenced by its conduct.

(c) Warranty claims continued to be made by PA after June 1994 as well as requests for various other credits. When credits were granted by VT, PA's running account was credited accordingly.

(d) No credit application was ever lodged by Insulboard. In October or November 1994 Mr Wicks telephoned Mr McGuire of VT. He drew his attention to the new Agreement signed in the name of Insulboard and asked that all further invoices be sent to Insulboard. Mr McGuire replied: I have not seen the new agreement but I will look into it. If the name on the agreement has changed we would need to have a credit application completed by Insulboard."

A credit application form was sent but it was never completed and returned. Accordingly, VT continued to respond to Insulboard and PA orders by invoicing PA exclusively. There were three further exchanges along similar lines between Wicks and McGuire, between late 1994 and May 1996, both written and oral. VT continued to send credit application forms, Insulboard continued to decline to make a credit application and VT continued to invoice and debit PA. It is significant that the operation of the rule in Devaynes v Noble; Clayton's Case (1816) 35 ER 781 means that the judgment debt relates to invoices sent after the October/November 1994 exchange.

(e) On 25 June 1996 Mr Pobjie wrote to Mr Facey, the general manager of VT. He used a PA letterhead and signed as managing director. The letter contained the following: John, on your acknowledgment of debt shows (sic) some $292,272.13. Our records show purchases of $232.813.28. Have all credit and adjustments been taken up?

The debt of $232,813.28 will take between six to nine months to clear up, hopefully sooner. I am selling properties owned by this company and I am very saddened by the necessity to do so, created by circumstances beyond our control.

This balance in the PA account included invoices which the appellants submit should have been addressed solely to Insulboard. There had been an oral admission to similar effect earlier that month (Blue 174). These admissions by PA's managing director recognised the continuity of the running account standing in PA's name and its currency as at May 1996.

(f) It is true that Insulboard took over paying off the PA account, but this practice had commenced in July 1992, ie two years before the Insulboard Agreement. The source of the money was therefore of little weight in determining what, if any, contractual arrangement continued to exist between VT and PA after the commencement of the Insulboard Agreement in June 1994. 22 Each party invokes portions of the judgments of McHugh JA in Integrated Computer Services Pty Limited and Digital Equipment Corp (Aust) Pty Limited 1988 5 BPR 11,110 at pp 11,117-8. In a lengthy passage in a judgment agreed with by Hope JA and Mahoney JA, his Honour recognised the difficulty of fitting a commercial arrangement into the common lawyers' analysis of a contractual arrangement. He said that: …it is an error "to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed". Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract. (citations omitted) 23 As Bingham J said in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds' Rep 601 at 611 (a decision affirmed on appeal at 615): The parties are to be regarded as masters of their contractual fate. It is their intentions which matter and to which the Court must strive to give effect. In this endeavour, help is to be gained from the observation of Lord Denning MR in Port Sudan Cotton Co v Chettiar [1977] 2 Lloyd's Rep 5 (at p10: In considering this question I do not much like the analysis in the textbooks of enquiring whether there was an offer and acceptance or a counter-offer and so forth. I prefer to examine the whole of the documents in the case and to decide from them whether the parties did reach an agreement upon all material terms in such circumstances that the proper inference is that they agreed to be bound by those terms form that time onwards.

24 In Meates v Attorney General [1983] NZLR 308 at 377, Cooke J said: I would not treat difficulties in analysing dealings into a strict classification of offer and acceptance as necessarily decisive in this field. The acid test… is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain. 25 The appellants submit that there is insufficient evidence of any contractual intent on the part of either PA or VT to enter into some form of tri-partite agreement. They emphasise that the critical time must be 22 June 1994, when the Insulboard Agreement commenced. The respondent's delay in pleading the implied contract and the absence of oral evidence directly in support of it, are also relied upon. 26 This is not a case where there was proof that all parties intended subjectively not to enter into an immediately binding contract to the effect of that relied upon (cf Air Great Lakes Pty Limited v KS Easter Pty Limited (1985) 2 NSWLR 309). It is therefore a question of looking to the objective evidence. In my view that evidence points firmly to the conclusion that PA did not drop entirely out of the contractual picture at the inception of the Insulboard Agreement. The PA Agreement was not expressly terminated. All parties continued after June 1994 essentially as they had earlier. Thus there were the occasional orders on PA letterhead; delivery dockets, invoices and statements were rendered by VT to PA; and PA's credit account was debited with invoices, credited with accepted warranty claims and credited with payments received from the sister company, Insulboard. 27 The appellants' case places undue importance on the Insulboard Agreement. As I have indicated, it was at its highest a framework for later dealings. And it was a rather inadequate framework, having regard to the absence of pricing schedules and the Terms and Conditions annexure. After 1994, as before, the credit arrangements were based firmly on the special arrangements made in consequence of a credit application duly made and independently accepted by VT some time after the inception of the PA Agreement. All parties knew that credit trading had only commenced after PA's application had been accepted. They also knew that VT was unwilling to look to Insulboard as the primary source for payment, unless and until Insulboard made an acceptable application for credit terms, and that Insulboard consistently refused to do. 28 The Insulboard Agreement did not provide for the opening of a credit account. But neither did the PA Agreement. What prompted that arrangement was VT's right against any purchaser to insist upon cash on delivery or alternatively to enforce the thirty-day trading terms contemplated in cl 5 of the Terms and Conditions annexed to the PA Agreement. The referee found that Mr Wicks, and through him Mr Pobjie, were aware that VT was not prepared to provide Insulboard with goods on credit until the company had received approval for a completed credit application. This right to insist upon Insulboard opening a credit account in the proper way before credit trading does not in itself establish the implied contract between VT and PA, but it is a relevant matter because it was part of the matrix of dealing between the three parties. 29 The appellants' reliance upon the "entire agreement" clause in the Insulboard Agreement is misplaced. At its highest, it reflected the contractual arrangements between Insulboard and VT. In any event, the scope of both of the "manufacturing agreements" lay outside the credit trading arrangements independently negotiated between the manufacturer and its customer. 30 The appellants point to correspondence in August and September 1994 (Blue 69, 71), in which VT adverts to cl 2.3(d) of the Insulboard Agreement, as applicable to an aspect of the contractual arrangements at the time. This is consistent with the Insulboard Agreement being operative. It may even support the conclusion that the individual contracts of sale after June 1994 were between VT and Insulboard. The judgment against Insulboard proceeds on this basis, and no party to this appeal challenges that judgment. This, however, does not exclude the implied contract of indemnity sued upon in para 16A of the amended summons. Indeed, it is Insulboard's role as purchaser that triggered the need for an indemnity, and when all of the facts are considered, made it proper to infer an indemnity contract did exist. 31 It is interesting that, when the chips were down, Mr Pobjie was invoking the PA Agreement in June 1996 (Blue 176K). 32 In my view there was sufficient material supporting the implied indemnity contract between PA and VT. That evidence sufficed to infer intention to contract in accordance with the authorities to which I have referred. This was not a matter requiring an express written or oral invocation to that effect. These were business entities, fully aware of the importance of credit trading being secured at least to the degree of keeping PA on the hook until a mutually satisfactory alternative was agreed between the parties. It was in the interests of PA and Insulboard to continue trading on credit terms. 33 It is unnecessary to go this far, but I record that I am not persuaded that the relevant contract had to exist at the moment of the inception of the Insulboard Agreement. After all, VT is seeking to recover the balance of a running account. It was open to the parties to change or clarify their contractual arrangements during the currency of such an account. 34 The conduct of the parties from 1992 onwards and the admissions made by Mr Pobjie, show that there was a common understanding that PA would continue to remain the party primarily liable to VT for goods sold and delivered after Insulboard came on the scene. Whether or not that primary liability was to the exclusion of Insulboard is a matter which it is unnecessary to determine, because no party advances such a proposition on appeal. 35 It is unnecessary to consider whether the judgment can also be sustained on the alternative conventional estoppel basis. 36 The second ground of appeal is advanced by Mr Pobjie, and it challenges the personal judgment entered against Mr Pobjie in the sum of $110,764.67, based upon a finding that Mr Pobjie aided, abetted, counselled or procured misleading and deceptive conduct by PA in breach of s52 of the Trade Practices Act 1975. The basis of that personal liability is the Trade Practices Act s75B and s82. 37 Eleven of the claims for credit made by PA/Insulboard and accepted by VT were found by the referee to have been made dishonestly, dishonesty being sheeted to both Mr Wicks and Mr Pobjie. These claims resulted in credits to the running account totalling $82,543.73 which credits were reversed and form part of the total judgment entered against PA. These and other credits were found to be unjustified and, as I have said, have been reversed in the calculation of the debts established against the two companies. But these eleven credits also led to personal judgments against Messrs Pobjie and Wicks, each in the sum of $110,764.67. This sum was made up by $82,543.73 plus statutory interest. 38 Hunter J rejected the finding of fraud made by the referee because it had been conceded that fraud had not squarely been put to the two men when they gave evidence before the referee. However his Honour concluded that the primary facts as found by the referee supported a judgment of personal liability based on the sections of the Trade Practices Act to which I have made reference. 39 It is not in issue that objectively false claims for credit were made by PA. The types of falsity were various and are pleaded in para 18 and following of the amended summons. In some cases there had been no complaint from PA/Insulboard's customers. In other cases the subject matter of the complaint was product coming not from VT but from one of VT's competitors. The claims for credit were found to be misleading, but to support the judgment of personal liability it was necessary to show that each man said to have been involved in the misleading conduct was himself a knowing participant in that conduct (see Yorke v Lucas (1985) 158 CLR 661). It is the conclusion against Mr Pobjie that is challenged on the appeal. There is no challenge in relation to the finding made referable to Mr Wicks. 40 In his original report the referee made detailed findings as to the basis upon which each of the eleven credit claims were made in circumstances involving misleading and deceptive conduct by PA. It is clear that Mr Pobjie was involved as a personal claimant and advocate for those credits to be made. But this in itself would not be enough to justify a conclusion that he was knowingly involved in the s52 contravention by his company. 41 In the context of making findings based on fraud, the referee explained why Mr Wicks's conduct in checking or not checking the basis of the claim or being personally privy to the falseness of the claim justified an order being made against him. As regards Mr Pobjie, the bases for the personal order explained by the referee were that it was Mr Pobjie as managing director of PA who was the officer to whom Mr Wicks reported. The referee concluded that he did not believe that Wicks would have embarked upon such a systematic course of lodging false claims without the knowledge and authority of Mr Pobjie. Not all of the material upon which this conclusion was based has been put before the Court. The appellants assumed the difficult task of dislodging a conclusion in this form, based as it was upon the referee's ability to have seen the two witnesses give their evidence and be challenged, and challenged directly, on the matter now in issue. 42 At the end of the day I think that the attack on the adoption by Hunter J of this finding, albeit transmogrified from a fraud basis to the basis of a claim under the Trade Practices Act fails. The attack was that it was not open to his Honour to make such a finding because the referee's findings were not open to the referee, because there was no evidence capable of supporting a conclusion that Mr Pobjie was knowingly privy to the conduct of Mr Wicks that made the claims on behalf of the company false. 43 In my view there was evidence capable of sustaining that conclusion. Mr Pobjie was the officer to whom Mr Wicks reported. Mr Pobjie was a hands-on managing director of a family company that he and his wife owned. It was a company whose account was operating in debit at the relevant time. Mr Pobjie had participated personally in the making of the claims and their oral and written advocacy to VT. There were fifteen claims which reveal a variety of bases of falsity but which do, in my view, merit the referee's description of a "systematic course of lodging false claims". It is also relevant that Mr Pobjie admitted in cross-examination that he knew that Mr Wicks had not personally or by any other means verified some of the claims, in that all that had happened was that Mr Wicks had driven by the houses concerned. 44 Bearing in mind that the critical issue is whether it was open to Hunter J to be satisfied that it was properly open to the referee to be satisfied that Mr Pobjie was a knowing participant in the making of the claims by PA in breach of s 52, I have concluded, for the reasons I have indicated, that it was open and that the judgment cannot be impugned on this alternative basis. I would dismiss the appeal with costs. 45 MEAGHER JA: I agree. 46 HANDLEY JA: I also agree. 47 MASON P: The appeal is dismissed with costs.

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