Skandaguru Company Pty Ltd v Core Supply Australia Pty Ltd

Background

1. Skandaguru carries on business as an incorporated medical practice. Its directors are Dr Murugabalaji Kandasamy Mohan (Dr Balaji) and his wife.
2. In early January 2022, Dr Balaji had a discussion with an acquaintance, Mr Panjan Navaratnam, who had previously arranged to supply face masks for Skandaguru's medical practice. Mr Navaratnam asked Dr Balaji whether he was interested in acquiring RAT Kits. After making enquiries of pharmacists he knew, Dr Balaji told Mr Navaratnam that he was. Mr Navaratnam said that he was dealing with a company called Repusource Pty Ltd which was working with a company called "Core Supply", who were involved in the supply of personal protective equipment and were importing RAT Kits and looking for customers. In a subsequent conversation, Dr Balaji told Mr Navaratnam that he would like to acquire 100,000 kits.
3. The precise relationship between CSA and CSM is not clear from the evidence. They are part of the same group of companies. They shared the same chief executive officer, Mr John Driscoll, who swore an affidavit in the proceedings. According to Mr Driscoll, CSM is an Australian based company involved in the procurement of medical products from compliant manufacturers from around the globe.
4. It appears that following the conversation in which Dr Balaji told Mr Navaratnam that he was interested in acquiring RAT Kits, Mr Navaratnam spoke to a representative of Repusource who in turn approached a representative of CSM. On 7 January 2022, CSM confirmed that it would be able to source "AllTest" RAT Kits and that the supplier of those kits would require a 50 percent deposit.
5. That information was apparently relayed to Mr Navaratnam who, on 7 January 2022, spoke to Dr Balaji and said words to the effect of: Core Supply will supply Skandaguru with 100,000 AllTest rapid antigen test kits … at a cost of $7.00 plus GST per unit. Core Supply require a 50% deposit when the order was placed, with the balance to be paid once the AllTest Rat Kits were delivered. The AllTest RAT Kits are awaiting approval from the Federal Department of Agriculture and that if this approval is not received Skandaguru would get its money back.
6. Following that conversation, Mr Navaratnam sent Dr Balaji an email attaching an invoice from CSM addressed to Skandaguru. The invoice was for 100,000 RAT Kits with a unit cost of $7.00 plus GST. Under the heading "Description of Goods / Service", the invoice stated: All Test Rapid Antigen Covid 19 Test Kits (nasal) Terms: 1) Subject to Approval by Dept of Agriculture - Australia 2) 50% deposit on order & 50% balance on delivery
7. Skandaguru paid the deposit in three instalments totalling $385,000 to an account in the name of "Core Medical Supply". The agreement to buy the 100,000 RAT Kits is referred to in the Amended Commercial List Statement as the "First Agreement".
8. On 8 January 2022, Dr Balaji called Mr Navaratnam and asked if he could see whether Core Supply could deliver an additional 100,000 RAT Kits at $7.00 per kit to be delivered by 12 August 2022.
9. On the same day, Mr Navaratnam sent an email to Dr Balaji attaching a template for a purchase order to be submitted to CSM. It appears that Skandaguru submitted a purchase order in that form to CSM and on 10 January 2022, CSM issued a tax invoice for a further 100,000 AllTest RAT Kits. Skandaguru paid a further deposit of $385,000 to an account in the name of "Core Medical Supply" in respect of that tax invoice. The agreement to purchase those RAT Kits is referred to as the "Second Agreement" in the List Statement.
10. CSM was unable to obtain any AllTest RAT Kits. Mr Driscoll explains in unchallenged affidavit evidence that all supplies of those kits had been prioritised to meet the needs of Federal Government buyers.
11. On 14 January 2022, Mr Luke Tobin of Repusource sent an email to "Rob" at "Core Supply" (which appears to be a reference to Mr Rob Holden, the Commercial Manager of CSM) in relation to the delay in supplying AllTest RAT Kits. Mr Alex Pagonis, who described himself as "Managing Director CSM Group", replied to that email the same day saying: Whether any of us like it or not , the conditions of the current supply chain in this category are extremely pressurised and information flow is not precise. Far from it . The Fed Gov intervention has changed the landscape in respect of timing & availability etc - no one's fault , but it has had significant effect as we can all observe. Everyone is looking at ways of securing reliable flow of inventory in a pandemic supply chain , the likes of which has never been experienced before. Suppliers have provided timing & undertaken to deliver and then for reasons outside everyones [sic] control , these thing change ( e g Govt intervention) . We have seen similar issues in the PPE markets prior to this. It is not how we all want to do business - however it is what is being forced on us all. Its [sic] a pandemic and things are not operating as they usually do. I am meeting with Rob and our team this morning . I will discuss your email at that meet & Rob or our CEO John Driscoll will respond with update info.
12. That email was copied to Mr Arj Senthilkumaran at Repusource who forwarded it to Mr Navaratnam who in turned forwarded it to Dr Balaji.
13. Following that email, on 15 January 2022, Dr Balaji sent an email addressed to Mr Holden in which he relevantly said: We understand the difficulty in logistics and difficult time period for everyone to source the products from overseas We are disappointed that CORE Supply has failed to deliver the products on 12/01/2022, as ordered for 2 x 100,000 units of AllTest Covid RATs kits. Subsequently, we were promised delivery today @ 3pm and again that was not honoured by CORE Supply Appreciate if you could please organise the refund of the deposit of $770,000.00 made towards two invoices which were issued on 07/01/2022 and 10/01/2022 We know that you are sourcing other products to be delivered next week and will be in touch after exploring the details of the new product
14. On 18 January 2022, Dr Balaji exchanged a series of emails with Mr Tobin about alternative supplies of RAT Kits. In that context, Mr Holden sent Mr Tobin a letter in the following terms: We have the opportunity to now purchase 400,000 TGA approved rapid tests from Medomics. Medomics requires that we remit a deposit payment of 50% and the balance is to be paid on the presentation of the airway bill. This confirmation represents clear advice to yourself of the above and reiterates the change of brand from Alltest to Medomics. Medomics is approved with TGA under ARTG. Accordingly, please acknowledge your understanding and agreement with same by way of signature below. This includes your express permission for CSM to apply the funds currently held by CSM, in remitting the deposit required by Medomics (referred to above) on Invoice number 210022, which you have been provided with.
15. A copy of that letter was sent to Dr Balaji.
16. Mr Tobin also sent Dr Balaji an email at 2.17pm on 18 January 2022 saying: Confirmed we are able to do the Medomics Kits in place of the ALLTEST. Pricing is $6.85 + GST per kit this order of 400K Tests - I will send invoice shortly. Moving contract to 500K order next week to $6.50 + GST.
17. Dr Balaji replied to that email in the following terms: Thanks Luke Confirming the 400k for $6.85.00 delivery this Friday. Please send me the amended invoice Upon delivery I will confirm the next 500k order on Friday The agreement arising from that exchange of emails is referred to as the "Third Agreement" in the List Statement.
18. The Medomics RAT Kits were not delivered. On 2 February 2022, Thomson Geer, the solicitors for Skandaguru, sent a letter by email addressed to "The Directors Core Supply Australia Pty Ltd" which relevantly stated: We act for Skandaguru Company Pty Ltd (SC). We are instructed to write to you as follows. On 7 and 10 January 2022, through its agent Repusource Pty Ltd (Repusource) SC placed with Core Supply Australia Pty Ltd (Core Supply) orders no. 210012 and 210016. Each of the orders was for 100,000 All Test Rapid Antigen Covid-19 Test Kits (All Test Kits) valued at $770,000. Both orders were secured with a 50% deposit. On 7 January 2022, SC transferred to Core Supply a total of $385,000. The payment was made in three tranches. We enclose Payment Receipts no.1920825271, 1920846330 and 1920853256 in the amount of $125,000, $125,000 and $135,000, respectively. On 10 January 2022, SC transferred to Core Supply a further amount of $385,000. We enclose Payment Receipt no.1921417722 in the amount of $385,000. At the time of placing the above orders, SC was informed that a quantity of 10,000 All Test Kits would be delivered to it on 12 January 2022, with the balance to follow on 14 January 2022. On about 15 January 2022, Core Supply informed Repusource that it would not be able to fulfil the orders placed by SC as the relevant products had been requisitioned by the Australian Federal Government. On the same day, SC requested a refund and cancellation of both orders. At the time of writing, SC has not received any funds from Core Supply despite Core Supply's multiple representations that a refund process had been completed, including as early as 20 January 2022. There exists no entitlement for Core Supply to retain the funds or otherwise delay their prompt return to SC. Core Supply has failed to deliver the products for which SC has paid its deposit. We are instructed to demand that Core Supply immediately transfer the amount of $770,000 to the following account held by SC …
19. Mr Pagonis replied to that letter by email dated 4 February 2022. The reply relevantly said: The funds remitted to Core Supply Australia were, as advised to your client, held in a lawyer's trust account, pending confirmation of stock availability. The importer confirms that he has provided instructions to his lawyer to release the funds back to Core Supply Australia. We are advised this morning that this will occur without unnecessary delay. There are some costs that we will seek reimbursement for from your client, as these were incurred as a result of the change of instruction (in writing) from your client. These costs will be articulated to your client upon receipt of the funds from the importer's lawyer trust account. They are not significant however are nevertheless due & payable.
20. There was then further correspondence between the parties. It emerged from that correspondence that the "importer" was a company known as Betamedical Pty Ltd and that Addisons acted for them.
21. On 15 February 2022, Thomson Geer wrote to Addisons saying relevantly: We act for the Skandaguru Company Pty Ltd. We have tried to call you on Friday 11 February 2022 and Monday 14 February 2022, but were unable to reach you. We understand that you act for Betamedical whose director, Mr Ian Zhang, instructed your firm on 11 February 2022 to transfer an amount of $1,500,000 to Core Supply Pty Ltd. Please urgently confirm that the transfer of funds to Core Supply Pty Ltd has been effected and provide proof of the same. We put you on notice that our client has an interest in the funds and the ongoing delay in the transfer to Core Supply is exposing our client to loss and damage by way of third party claims. Our client's rights in this regard are strictly reserved. …
22. On 21 February 2022, Taylor David Lawyers, acting for CSA, sent a letter of demand addressed to "Betamedical Pty Ltd t/o Addisons" which relevantly stated: We act for Core Supply Australia Pty Ltd … 1. Background 1.1 On 18 January 2022, Core Supply entered into a Sales and Purchase Agreement (Agreement) with Betamedical Pty Ltd ACN 656 314 199 (Betamedical), for the same of 600,000 Medomics SARS-CoV-2 Antigen Test Kits (Commodity) to Core Supply. 1.2. On 20 January 2022, and pursuant to clause 7.1.1 of the Agreement, Core Supply made payment of $1,500,000.00 (Deposit), in clear funds, to Addisons' Trust Account. 1.3. Pursuant to clauses 3 and 6 of the Agreement, Betamedical was required to deliver the Commodity to Core Supply by no later than 25 January 2022, being five (5) business days from the payment of the Deposit. 1.4. As at the date of this letter, Betamedical has failed to deliver the Commodity to Core Supply in compliance with the Agreement. 1.5. Consequently, on 4 February 2022, Core Supply: 1.5.1. informed Betamedical that it no longer wished to proceed with the sale under the Agreement; and 1.5.2. Requested, pursuant to clause 7.1.3. of the Agreement, that Betamedical refund the Deposit to Core Supply. 1.6. On 11 February 2022, Ian Zhang of Betamedical informed Core Supply that he had instructed Addisons to refund the Deposit to Core Supply. 1.7. Notwithstanding the matters set out above, as at the date of this correspondence both Betamedical and Addisons have refused, failed and/or neglected to refund Core Supply's Deposit as contemplated by the Agreement. The letter went on to demand the payment of $1,500,000.
23. On 24 February 2022, Thomson Geer sent a further demand addressed to "The Directors Core Supply Australia Pty Ltd". In response to that letter, Mr Pagonis sent a text message to Mr Navaratnam stating that they had commenced legal action against Betamedical by serving a statutory demand.
24. There was further correspondence between the parties. On 1 March 2022, Taylor David Lawyers sent an email to Addisons confirming receipt of "the first instalment at $300,000.00" into its trust account. However, it appears that no further payments were made and on 13 April 2022 CSM commenced winding-up proceedings in the Supreme Court of Queensland against Betamedical Pty Ltd claiming a debt of $1,200,000.
25. No amount has been paid to Skandaguru. On 1 April 2022 it commenced these proceedings against CSA. It amended the proceedings on 29 April 2022 to join CSM.
26. Paragraph 9 of the Amended Commercial List Statement alleges: On or around 7 January 2022, Skandaguru entered into an agreement (First Agreement) with Core Supply Australia and Core Supply Medical (together, Core Supply) to purchase 100,000 COVID 19 AllTest rapid antigen test kits (AllTest RAT Kits) from Core Supply (First Order).
27. In response to that paragraph, para 5 of the List Response pleads: Subject to further particulars of the alleged conversations, the Defendants admit the allegations contained in paragraph 9 of the Commercial List Statement and say further that the First Agreement was also comprised of various written correspondences between the Defendants, Repusource and the Plaintiff.
28. Similar allegations are made and admitted in relation to the Second Agreement and Third Agreement.

The amendment application

1. The principles relating to amendment were set out by the High Court in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 (Aon). They have been repeated and summarised in countless cases since. It is unnecessary to repeat them here. Rather, applying those principles I propose to state why in this case I refused CSA's application to amend its List Response and to withdraw the admissions it had made in that response.
2. Up until the time the notice of motion was filed, the proceedings had been conducted on the basis that both defendants were parties to the agreements. The issue was the subject of a specific amendment by Skandaguru and Skandaguru was entitled to and has proceeded on the basis that it was common ground that both defendants were parties to the agreements. Skandaguru prepared its evidence on that basis. A mediation was conducted on that basis and Skandaguru prepared for trial on that basis. To allow the amendment to be made and the admissions to be withdrawn would have resulted in a fundamental change in the nature of the case at a very late stage in the proceedings. As Mr Helvadjian, who appeared for CSA, properly conceded, that would have necessitated an adjournment causing CSA substantial prejudice. Some of that prejudice could have been overcome by appropriate costs orders. However, as the majority recognised in Aon at [99]-[101], an appropriate costs order does not provide a complete cure. Skandaguru is a corporate vehicle through which Dr Balaji carries on a medical practice. The loss of the deposit is likely to have placed significant financial strain on the company and emotional strain on Dr Balaji and his wife. They are entitled to know the outcome of their claim promptly.
3. In addition, if an adjournment had been granted, costs would be wasted and further costs would be incurred. Having regard to the size of the claim, there was a real risk that if an adjournment was granted the costs of the proceedings would become disproportionate to the amount in dispute.
4. It is not entirely clear why the amendment was not sought to be made earlier than it was. The position appears to be that before CSM went into liquidation it was irrelevant to the defendants which of the two companies was the contracting party, since both were members of the same group and any liability would be borne by the group. That is consistent with the fact that a clear distinction was not always drawn between the two companies, as some of the correspondence referred to above illustrates. The distinction only became important following CSM's liquidation, and it appears that that only became apparent when counsel was briefed to prepare for the hearing. The solicitor for CSA, who prior to the liquidation of CSM acted for both defendants, candidly admitted that he failed to turn his mind to the question whether the admission should be made in relation to both defendants. Although that might be described as an oversight, it is not one where, had the issue come to the solicitor's attention earlier, it is obvious what would have been done. Rather, the position before CSM's liquidation was that it was unnecessary to address the issue. As a consequence of not addressing the issue, the defendants were spared the expense and inconvenience of an investigation into the question whether it could be said that CSM was a party to the contracts to the exclusion of CSA. Having taken that benefit, CSA sought to alter its position because of a change in circumstances. In my opinion, it was unreasonable to permit it to do so.
5. CSA's principal argument was that the amendments should be allowed because otherwise the Court would be deciding the case on a basis which it now knows is contrary to the facts. I did not accept that submission. It is true that the evidence before the Court suggested that CSM was the contracting party. But the evidence was not unequivocal. In particular, some of the correspondence suggests that CSA was the contracting party. Because of the way the case had been conducted, there had been no investigation into the relationship between CSA and CSM and, in particular, whether it could be said that one was acting as the agent for the other. Consequently, it was not possible to say whether the Court would be proceeding on a false basis or not. What could be said was that the parties had proceeded on the basis that both companies were parties to the agreements and it would be unjust to permit one party to resile from that position at such a late stage in the proceedings because, as a consequence of a change in position, it obtained an advantage in doing so.

The pleaded case

1. Skandaguru sues on the Third Agreement, which relevantly is said to be an agreement by which (1) CSA and CSM agreed to supply Skandaguru 400,000 Medomics RAT Kits on or before 21 January 2022 for a price of $6.85 per kit in place of Skandaguru's previous orders and (2) CSA and CSM would retain the deposits previously paid by Skandaguru as a deposit for that order. It claims damages for non-delivery under s 53 of the Sale of Goods Act 1923 (NSW) (the SGA), which provides: 53 Damages for non-delivery (1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery. (2) The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the seller's breach of contract. (3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or if no time was fixed, then at the time of the refusal to deliver.
2. Skandaguru claims as damages the amount of deposit it paid. In the alternative, Skandaguru contends that there has been a total failure of consideration and that it is entitled to recover the deposits it has paid as money had and received.
3. It was not suggested that s 53(3) of the SGA has any application in this case. It appears to be common ground that the Medomics RAT Kits were not available from another source at the time.
4. Normally, damages for breach of contract are assessed as the amount which, so far as money can do it, would place the innocent party in the position it would have been if the contract had been performed: see Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365 per Parke B. However, it is accepted that, in the alternative, the plaintiff may recover amounts paid in reliance on the defendant's promise of performance, at least in the absence of proof that the plaintiff would have made a loss on the contract: see Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 at 81 per Mason CJ and Dawson J. See also CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ATPR ¶42-042; [2004] VSCA 232 at [9]-[11] per Nettle JA, where the principle was applied to the recovery of a deposit.
5. CSA seeks to defend Skandaguru's primary claim on two bases. First, it submits that it was an implied term of the Third Agreement that the defendants' obligations under the agreement were contingent on them obtaining supply of the products to be delivered. Second, CSA submits that, on its correct construction, s 53 of the SGA has no application on the facts of this case. Both submissions must be rejected.
6. It is apparent that the contract on which Skandaguru sues is an informal one consisting of nothing more than an exchange of emails. In those circumstances, it is doubtful that it is necessary for a term to be implied that it meets the five criteria set out by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; [1977] UKPCHCA 1 at 283. Rather, the question is whether "the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case": see Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24 at 442 per McHugh and Gummow JJ.
7. CSA submits that the implied term for which it contends is necessary because to the clear knowledge of all the parties the defendants were having to source the RAT Kits in order to be able to deliver them to Skandaguru. There are, however, two difficulties with that submission. First, although it can be accepted that Skandaguru was aware that the defendants had to source RAT Kits from a supplier, there was nothing unreasonable in an arrangement where the defendants took the risk that the product they had sourced was not delivered. On the contrary, the defendants were in a much better position than Skandaguru to assess the certainty of supply and to decide whether to enter into an agreement to resupply that product before delivery to them. Second, it appears to be most unreasonable to imply the term for which the defendants contend without implying a term that they would return the deposit if the RAT Kits could not be sourced. On CSA's case, the defendants had no apparent obligations to do anything, but were entitled to keep the deposit if they did not obtain the RAT Kits to fulfil Skandaguru's order. There is no basis for implying a term that had that consequence.
8. As finally put, CSA's argument in relation to s 53 of the SGA was that Skandaguru had not proved that the defendants had "wrongfully" refused to deliver the RAT Kits. They had simply failed to deliver them because Betamedical had failed to deliver the kits to them. However, it is plain that "wrongfully" in this context simply means in breach of contract. Once it is accepted that the defendants were in breach of contract the requirements of s 53 were met.
9. Having regard to the conclusions I have reached, it is unnecessary to consider Skandaguru's alternative claim. It is also unnecessary to consider a further issue raised by CSA in relation to the operation of the Frustrated Contracts Act 1978 (NSW). Skandaguru does not allege that the contract to acquire the RAT Kits was frustrated. As I have said, this is a case where the defendants took the risk of non-delivery of the RAT Kits to them: cf McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79. No question of frustration arises and consequently no issue arises of what the position would be if it had.

Conclusion and orders

1. Obviously enough, the proceedings against CSM have been stayed as a consequence of its liquidation. There should be judgment against CSA in the sum of $770,000. Skandaguru claims interest in its Amended Summons. There is no reason why interest should not be awarded at court rates from the date the proceedings were commenced - that is, 1 April 2022 - to the date of judgment. That amount is $23,729.71, making a total of $793,729.71. Similarly, there is no reason why CSA could not pay Skandaguru's costs of the proceedings.
2. Accordingly, the orders of the Court are: 1. Judgment for the plaintiff against the first defendant in the sum of $793,729.71; 2. The first 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: 02 December 2022