Grand Metal Pty Ltd v Nashco Pty Ltd

1. [1]

   The plaintiff, Grand Metal Pty Ltd, is a distributor of metal building materials (“the Goods”).

2. [2]

   The defendant, Nashco Pty Ltd, is a fabricator of such Goods and, between July 2018 and October 2019, supplied the Goods to Grand Metal pursuant to the arrangements to which I refer below.

3. [3]

   Grand Metal claims damages from Nashco arising out of Nashco’s alleged failure to allow it “to purchase goods on credit up to $1,400,000”.

4. [4]

   Grand Metal claims that Nashco’s refusal to supply further Goods on such credit terms was a breach of an implied term of the contract pursuant to which Nashco supplied the Goods to Grand Metal or was “alternatively subject to an estoppel preventing [Nashco] from refusing that supply or withholding credit”.

5. [5]

   By Cross-Summons, Nashco seeks to recover from Grand Metal and also from four individuals (“the Guarantors”) the balance it contends is owing to it by Grand Metal, being $943,694.25 together with interest from 27 February 2020.

Decision

1. [6]

   Grand Metal’s claim against Nashco fails and must be dismissed.

2. [7]

   On the Cross-Summons, Nashco is entitled to judgment against Grand Metal. Its claim against the Guarantors fails and must be dismissed.

The events leading to these proceedings

1. [8]

   The sole shareholder of Nashco is A K B Investments Pty Ltd, a family company associated with Mr Adrian and Mrs Kristina Brewer and their son, Mr Brenton Brewer.

2. [9]

   Prior to July 2018, the business now operated by Nashco was operated by Mr and Mrs Brewer, as partners, trading under the name “Nashco”.

3. [10]

   On 29 June 2016, Mr and Mrs Brewer entered into a Supply Agreement with Grand Metal (“the 2016 Supply Agreement”).

4. [11]

   There were terms of the 2016 Supply Agreement that:

5. [12]

   On 1 July 2016, Grand Metal executed a “Credit Account Application” in the form attached to the Supply Agreement. The application sought an “Approved Credit Limit” of $750,000 and specified that the “Approved Payment Terms” were “60 Days from the last calendar date of the month in which the goods were received”.

6. [13]

   There were attached to the Credit Account Application as executed by Grand Metal “Terms and Conditions of Trade”.

7. [14]

   Those Terms and Conditions included terms that:

8. [15]

   Also attached to the 2016 Supply Agreement was a form of “Personal/Director Guarantee and Indemnity” (“the Guarantee”).

9. [16]

   On 1 July 2016, the Guarantors executed the Guarantee. I will return to its terms when considering Nashco’s Cross-Summons against the Guarantors.

10. [17]

    From July 2016, Grand Metal submitted “Purchase Orders” for Goods to “Nashco”.

11. [18]

    Mr and Mrs Brewer, trading as “Nashco,” provided Goods to Grand Metal on the terms of the Supply Agreement.

12. [19]

    Nashco was incorporated on 1 June 2018.

13. [20]

    Without formal announcement, Nashco began fulfilling Purchase Orders addressed by Grand Metal to “Nashco”.

14. [21]

    Nashco did not seek to have Grand Metal execute a fresh Supply Agreement or Credit Account Application and did not seek to have the Guarantors execute a further guarantee.

15. [22]

    Evidently, both Grand Metal and Nashco were content to proceed on the basis that their contractual arrangements were on the same terms as those hitherto governing the arrangements between Grand Metal and Mr and Mrs Brewer.

16. [23]

    Thus, in closing submissions, Dr Greinke, who appeared for Grand Metal, submitted that the “better inference is that the parties implicitly by conduct adopted the previous relationship that has existed between [Grand Metal] and the previous partnership through its supply agreement”. [11]

17. [24]

    That submission, which I accept, reflects the manner in which the parties conducted themselves from July 2018.

18. [25]

    I return below to the position of the Guarantors.

19. [26]

    From July 2018, Grand Metal continued to place orders on “Nashco” for Goods. Nashco delivered and invoiced Grand Metal for those Goods. Grand Metal paid Nashco for the Goods, albeit not timeously.

20. [27]

    Throughout the period from June 2017 to October 2019, Grand Metal regularly failed to pay the amounts due to Mr and Mrs Brewer, and then Nashco, within the “Approved Payment Terms” specified in the 1 July 2016 Credit Account Application: 60 days from the end of month of delivery of the Goods.

21. [28]

    In 20 of those 28 months, Grand Metal exceeded the credit limit of $750,000 specified in the 2016 Credit Account Applications.

22. [29]

    The monthly Statements sent by Mr and Mrs Brewer to Grand Metal between July 2017 and June 2018, and by Nashco to Grand Metal from July 2018 to October 2019 showed that the “Total Balance” and “Overdue Balance” owing by Grand Metal were as set out in the following table:

23. [30]

    During this period, there were many communications between Mr Adrian or Mr Brenton Brewer on the one hand, and directors of Grand Metal on the other, concerning Grand Metal’s continual failure to pay for the Goods delivered within the Approved Payment Terms. Grand Metal pointed to cash flow difficulties it had arising from the failure of its customers to make timeous payments and, the evidence suggests, did its best to remedy its failure to adhere to the Approved Payment Terms. Nonetheless, it was very regularly in breach of those terms.

24. [31]

    In March 2019, and in the context of notifying a price increase, [12] Nashco notified Grand Metal that the Approved Payment Terms would be reduced from 60 days from the end of the month of delivery to 45 days from end of month, and then 30 days from end of month.

25. [32]

    At the hearing, much time was devoted to this decision and to the question of whether or not Grand Metal agreed with it or acquiesced in it. But it was not suggested on behalf of Grand Metal that Nashco was not, in the circumstances, entitled to take this course. In my opinion, Nashco was entitled by cl 2(d) of the Supply Agreement to alter the Approved Payment Terms. [13]

26. [33]

    Ultimately, in September 2019, Nashco refused to supply Goods to Grand Metal other than on a “cash on delivery” basis and in October 2019 ceased all supply.

27. [34]

    By this time, as I have said, Grand Metal had regularly been in default of the Approved Payment Terms. Nashco was thus entitled to terminate the Supply Agreement “immediately”. [14]

28. [35]

    Grand Metal makes no complaint about these matters in the proceedings.

29. [36]

    Rather, Grand Metal’s complaint relates to Nashco’s provision of credit to it beyond the Approved Credit Limit of $750,000. Throughout this period there were also regular communications between the parties about that matter. I will return to the detail of these communications below when considering Grand Metal’s estoppel claim.

Grand Metal’s case

1. [37]

   Grand Metal’s case as articulated in its List Statement is that because Nashco permitted the balance of Grand Metal’s account to exceed $750,000 to the extent revealed in the table at [29]:

2. [38]

   Grand Metal alleges in its List Statement [17] that from May 2019, and in breach of that implied term and contrary to a representation that appears to be implicit in Grand Metal’s estoppel claim, Nashco informed Grand Metal that:

3. [39]

   Grand Metal contends that Nashco was not entitled to “unilaterally [reduce] the credit terms” nor demand “payment of the excess” without giving Grand Metal “at least 12 months’ prior notice” so as to allow Grand Metal time “to arrange its affairs to avoid any consequential detriment”.

4. [40]

   Grand Metal claims it has thereby suffered damage because:

Grand Metal’s case in contract

1. [41]

   The first point to make about Grand Metal’s contract claim is that, contrary to the allegation in its List Statement [19] , Nashco did not, in May 2019, nor at all, inform Grand Metal that the Approved Credit Limit “was reduced immediately to $750,000”. The Approved Credit Limit was at all times $750,000. The misconception behind this allegation appears to derive from Grand Metal’s directors’ apprehension that the fact that Nashco from time to time permitted Grand Metal credit beyond $750,000 somehow had the effect of increasing the Approved Credit Limit beyond that figure. [20]

2. [42]

   It was an express term of both the Supply Agreement and of the Credit Account Application that the terms of the Credit Account Application, including as to the Approved Credit Limit, could only be varied with Nashco’s written consent. [21]

3. [43]

   There is no suggestion in the evidence that Nashco consented, let alone in writing, to a variation of the Approved Credit Limit by increasing it from the $750,000 to $1,400,000.

4. [44]

   Indeed, as I set out below when dealing with Grand Metal’s estoppel claim, Nashco regularly drew Grand Metal’s attention to the fact that its drawings under its account with Nashco over and above the $750,000 Credit Limit were unacceptable to Nashco.

5. [45]

   In closing submissions, Dr Greinke in effect accepted that this was so, and that this was fatal to Grand Metal’s contract case. [22]

6. [46]

   Leaving aside the contractual provisions concerning a variation of contract, I see no basis upon which I could conclude that there was any conduct of the parties from which it could be implied that there was an agreement binding on Nashco to permit Grand Metal a Credit Limit of $1,400,000.

7. [47]

   Grand Metal’s contract case fails.

Grand Metal’s estoppel case

1. [48]

   As developed in closing submissions, Dr Greinke put Grand Metal’s estoppel case as being one of “estoppel by acquiescence”.

2. [49]

   In his written submissions, Dr Greinke pointed to the “actual conduct of the trading” between Mr and Mrs Brewer, and then Nashco and Grand Metal and to the fact that there were “credit amounts consistently in excess of $750,000 and in excess of some $1,400,000” as set out in the table at [29] above.

3. [50]

   Dr Greinke submitted in writing that “Nashco (whether as the partnership or the company) did not complain about Grand Metal regularly exceeding the $750,000 ‘credit limit’” and submitted orally that:

4. [51]

   But both Mr and Mrs Brewer, and then Nashco, did “complain” about Grand Metal exceeding the Approved Credit Limit; and Grand Metal in terms acknowledged the Approved Credit Limit.

5. [52]

   Thus:

6. [53]

   Thus, throughout the period from, at least, March 2018 to very shortly before Nashco ceased supply to Grand Metal, Mr and Mrs Brewer, and then Nashco made clear, time and time again, that they expected Grand Metal would operate within the credit limit of $750,000. And, Grand Metal regularly acknowledged the credit limit and did not once suggest that it understood the limit had been increased beyond the Approved Credit Limit of $750,000.

7. [54]

   In relation to the credit limit, Mr Yang gave this evidence in one of his affidavits:

8. [55]

   As the table at [29] reveals, it is true, as Mr Yang deposed, that the amount of credit afforded by Mr and Mrs Brewer, and then Nashco to Grand Metal, exceeded $750,000 and, on one occasion [24] exceeded $1,400,000.

9. [56]

   But the communications that I have set out at [52] above show that Mr and Mrs Brewer, and then Nashco, did not acquiesce in that arrangement and regularly reminded Grand Metal of its contractual obligation to observe the Approved Credit Limit. Not only that, but Grand Metal, in writing, acknowledged the limit and did not ever suggest it had the understanding or made the assumption to which Mr Yang deposed.

10. [57]

    Dr Greinke relied upon a promissory estoppel of the kind referred to in the High Court of Australia in Waltons Stores (Interstate) Ltd v Maher. [25]

11. [58]

    But an essential element of the extended promissory estoppel established in that case is that the plaintiff assumed that a particular legal relationship existed and that “the defendant has induced the plaintiff to adopt that assumption or expectation”. [26]

12. [59]

    That has not been established here. Nashco did not induce Grand Metal to assume that the Approved Credit Limit had been increased from $750,000 to $1,400,000. To the contrary, Nashco regularly reminded Grand Metal that it had not.

13. [60]

    Grand Metal’s estoppel claim fails.

Damages

1. [61]

   In those circumstances, it is not necessary to deal with Grand Metal’s claim for damages.

2. [62]

   However, I will do so briefly.

3. [63]

   Grand Metal adduced evidence from an expert forensic account, Mr Paul Croft from BRI Ferrier.

4. [64]

   Mr Croft expressed an opinion as to Grand Metal’s loss based on assumptions he made, which were very largely based on the evidence of Mr Yang.

5. [65]

   Mr Croft expressed his opinions based on two scenarios. Dr Greinke accepted that, in the events that have happened, only “Scenario Two” was relevant, namely that:

6. [66]

   Mr Croft expressed the opinion that Grand Metal’s loss on that scenario was $191,897.

7. [67]

   Mr Croft assumed, for the purpose of his report, that “as a result of [Nashco’s] actions” Grand Metal had “suffered a loss of sales” because Grand Metal could not “provide its customers” with Goods of the nature and quality supplied by Nashco and because Grand Metal’s customers preferred to acquire Goods “from a single supplier”.

8. [68]

   The evidence that Grand Metal sought to adduce to establish that it had suffered loss as a result of Nashco’s alleged conduct was in an affidavit made by Mr Yang.

9. [69]

   A difficulty for Grand Metal is that almost all that evidence was in inadmissible form, was objected to and rejected.

10. [70]

    The only evidence that Mr Yang deposed to in his affidavit that survived objection relevant to the question of loss was that “Grand Metal tried to source alternative suppliers”. I gave Dr Greinke leave to adduce evidence from Mr Yang in proper form as evidence in chief.

11. [71]

    Mr Yang gave evidence that, at some time during Grand Metal’s relationship with Nashco, alternative suppliers, being “Rondo Metal” and “Knauf”, approached him as potential suppliers of goods to Grand Metal. Mr Yang said that he told the representatives of each of these entities that he did not wish to “change the supplier” from Nashco.

12. [72]

    Mr Yang did not give evidence as to whether or not, following the cessation of Grand Metal’s relationship with Nashco, he again approached either entity.

13. [73]

    Ultimately, Mr Yang gave this evidence:

14. [74]

    As Dr Greinke accepted in closing submissions:

15. [75]

    The result is that Grand Metal did not prove the critical matters assumed by Mr Croft, thus rendering his report inadmissible. [27]

16. [76]

    In any event, it was an express term of the Supply Agreement that Nashco’s liability for any breach of the Supply Agreement was limited to the “Price” for Goods and did not extend to indirect losses including loss of profit. [28] Dr Greinke referred to cases referring to the need to draw the terms of exemption clauses to the attention of those sought to be bound by them. [29] But those cases are concerned with circumstances where the person sought to be bound did not execute the document containing the exemption clause. That is not this case. Grand Metal executed both the Supply Agreement and the Credit Account Application. It is bound by the terms of those documents, whether or not any of its officers read them. [30]

Conclusion on Grand Metal’s case

1. [77]

   Grand Metal’s case against Nashco fails and must be dismissed.

Nashco’s cross-claim against Grand Metal

1. [78]

   It follows that Nashco’s cross-claim against Grand Metal succeeds. Nashco claims “damages” of $943,694.25 plus interest.

2. [79]

   In fact, Nashco’s claim against Grand Metal is in debt. The parties should confer and agree on the quantum of that debt and of the orders necessary to give effect to these reasons.

Nashco’s cross-claim against the Guarantors

1. [80]

   Nashco’s case against the Guarantors relies upon an assignment by Mr and Mrs Brewer to Nashco of their entitlements under the Guarantee.

2. [81]

   The Guarantee was, relevantly, in the following terms:

3. [82]

   By a “Deed of Assignment of Business” dated 3 July 2018, Mr and Mrs Brewer assigned their right in the Nashco “Business” to Nashco.

4. [83]

   Thus cl 3 of that deed provided:

5. [84]

   Assuming that the benefit of the Guarantee was thereby assigned by Mr and Mrs Brewer to Nashco, and that Nashco was an “assign” of Mr and Mrs Brewer, [31] the question arises as to what benefit under the Guarantee was so assigned.

6. [85]

   Mr and Mrs Brewer could only assign to Nashco the rights they had at the time of the assignment. [32] Those rights were to recover from Grand Metal any monies due to them by Grand Metal. The reference in the opening words of the Guarantee that I have set out at [81] to “assigns” can only be a reference to such entity as Mr and Mrs Brewer have assigned their interest under the Guarantee. If the parties’ intention had been to refer to an entity to which Mr and Mrs Brewer had assigned their interest in the “Nashco” business, much clearer words would have been required. To the extent there is any ambiguity in the words used, it must be resolved in favour of the Guarantors. [33]

7. [86]

   Nashco as assignee of that entitlement, could recover from Grand Metal any amount owing by Grand Metal to Mr and Mrs Brewer.

8. [87]

   But, it is common ground that no such amount is owing. The amounts owing are owing by Grand Metal to Nashco itself.

9. [88]

   Nashco’s cross-claim against the Guarantors proceeds upon the basis that the effect of the Deed of Assignment was somehow to novate the Guarantee in favour of Nashco.

10. [89]

    In my opinion, that was not the effect of the Deed of Assignment.

11. [90]

    Accordingly, Nashco’s cross-claim against the guarantors fails.

Conclusion

1. [91]

   The parties should confer and agree on the orders necessary to give effect to these reasons.