Charles Parsons & Co Pty Ltd v Express Publications Pty Ltd; Express Publications Pty Ltd v Charles Parsons & Co Pty Ltd (No 3)

1. [1]

   Prior to July 2012, the plaintiff/cross-defendant, Charles Parsons & Co Pty Ltd, and the first defendant/cross-claimant, Express Publications Pty Ltd, and a related company, 4WD Discounters Pty Ltd, were selling in Australia camping equipment manufactured in China.

2. [2]

   At that stage, the enterprises of Parsons and of Express/4WD Discounters were separate. They sold different products sourced from different manufacturers in China. Parsons sold a product called “Darche”. Express/4WD Discounters sold a product called “Tigerz11”. Express/4WD Discounters also proposed to sell a product called “Roo”.

3. [3]

   Amongst the products sold by Express/4WD Discounters were roof top tents (which the parties called “RTTs”) and swags (a kind of weatherproof sleeping bag).

4. [4]

   Between July 2012 and October 2012 Parsons and Express/4WD Discounters conducted negotiations with a view to forming a business relationship whereby Parsons would manage Express/4WD Discounters’ supply chain concerning, relevantly, RTTs and swags.

5. [5]

   The idea was that Parsons would procure the manufacture in China of RTTs and swags, arrange for them to be shipped to Australia and warehoused in one of its facilities in Australia and, on request, procure their dispatch to Express/4WD Discounters’ customers and dealers in Australia.

6. [6]

   It is common ground that an agreement, called by the parties the “Oral Distribution Agreement”, was reached by 18 October 2012.

7. [7]

   It is also common ground that terms of the Oral Distribution Agreement included that:

8. [8]

   What divides the parties is whether that agreement also included a term that:

9. [9]

   The parties referred to this alleged term as the “Supply Obligation”.

10. [10]

    It is common ground that there was no oral or written communication between the parties between July and October 2012 to the effect of the Supply Obligation. If the Supply Obligation was a term of the Oral Distribution Agreement, it was an implied term.

11. [11]

    In May 2013, in circumstances to which I refer below, the second defendant/cross-claimant, 4WD & Outdoor Supacentre Pty Ltd commenced carrying on the business formerly carried on by 4WD Discounters. Express/4WD Outdoor contend that, at that time, the Oral Distribution Agreement was varied by conduct so as to substitute 4WD Outdoor for 4WD Discounters as a party to the agreement.

12. [12]

    Thus, in the narrative that follows, I must (somewhat confusingly) refer to both 4WD Discounters and 4WD Outdoor, notwithstanding that 4WD Discounters is not a party to the proceedings.

13. [13]

    Mr Charles Parsons, a director of Parsons, described in broad terms the evolution of the business relationship as follows:

14. [14]

    The business arrangement between the parties came to an end in July 2014.

15. [15]

    Parsons brings these proceedings against Express and 4WD Outdoor (not 4WD Discounters) to recover, as a debt, the amount that it contends is due following the termination of the business relationship between the parties.

16. [16]

    By the conclusion of the hearing, the differences between the parties concerning Parsons’ claim were resolved, and agreement reached as to the amount due by Express/4WD Outdoor to it.

17. [17]

    What remained in dispute was Express/4WD Outdoor’s cross-claim seeking damages for the alleged breach by Parsons of the Supply Obligation (which damages Express/4WD Outdoor seeks to set off against the amount otherwise due to Parsons).

18. [18]

    On 21 August 2013, Mr Charles Vella, a director of Express/4WD Outdoor, executed a document in which he guaranteed the obligations of those companies under the Oral Distribution Agreement. It is common ground that the question of Mr Vella’s liability under those guarantees will depend upon the fate of Express/4WD Outdoor’s cross-claim. Mr Vella does not offer any separate defence arising from the circumstances under which he executed the guarantee.

The cross-claim

1. [19]

   Express/4WD Outdoor’s cross-claim, as developed in the final submissions of Mr Katekar, who appeared with Ms Tringali for Express/4WD Outdoor, was that:

   1. (1)

      between May 2013 and June 2014, 4WD Outdoor ordered 5,890 RTTs but Parsons supplied only 3,248 RTTs;

   2. (2)

      between May 2013 and June 2014, 4WD Outdoor ordered 6,000 swags but Parsons supplied only 3,284 swags;

   3. (3)

      Parsons was thereby in breach of the Supply Obligation; and

   4. (4)

      4WD Outdoor lost the opportunity to earn profits on the resale of the shortfall (2,642 RTTs and 2,716 swags) and has thereby suffered loss and damage.

2. [20]

   Mr Lee Spouse, a business manager employed by Parsons, gave evidence that Parsons supplied 3,471 (not 3,248) RTTs and 3,767 (not 3,284) swags.

3. [21]

   In closing oral submissions, Mr Katekar accepted that these figures should be preferred to the slightly lower figures that I have set out at [19] above (which were the subject of the evidence of Express/4WD Outdoor’s COO, Ms Diana Screpis).

4. [22]

   Express/4WD Outdoor’s case is that the number of RTTs and swags delivered by Parsons was less than Express/4WD Outdoor ordered.

5. [23]

   My conclusion is that Express/4WD Outdoor has not established this critical matter.

6. [24]

   Thus, even if it were a term of the Oral Distribution Agreement that Parsons had the Supply Obligation, Express/4WD Outdoor has not proved a breach of it. Its case must fail for this reason alone.

7. [25]

   Accordingly, I shall first turn to that matter.

What stock was ordered?

1. [26]

   As developed in Mr Katekar’s final submissions, Express/4WD Outdoor’s case was that between May 2013 and June 2014 4WD Outdoor ordered from Parsons 5,890 RTTs and 6,000 swags as follows:

2. [27]

   In the dealings between the parties, Express/4WD Discounters, and then Express/4WD Outdoor, placed two types of “orders” on Parsons.

3. [28]

   The first was what the parties referred to as a “Type 1 Order”. This was an order whereby Express/4WD Outdoor placed an order on Parsons with the object of causing Parsons to procure the manufacture in China of the subject of the order.

4. [29]

   In this regard, it is common ground that the time from which the placing by Parsons of an order for production of the product in China to its delivery at Parsons’ warehouse, was approximately 90 days.

5. [30]

   Mr Daniel Glynn, the employee of Express/4WD Outdoor responsible for ordering stock, said in an affidavit that in 2013 his “normal procedure” for ordering stock from Parsons was that he “generated an order document that did not include a price, but specified products and quantities and usually indicated the time when we needed the stock to be available”.

6. [31]

   The “order documents” to which Mr Glynn referred were documents called “Purchase Order”. There are only seven such documents in evidence; three from 4WD Discounters in September 2012, and four from 4WD Outdoor in the period June 2013 to May 2014. The orders from June 2013 to May 2014 represented 452 RTTs and 1,200 swags.

7. [32]

   It is common ground that Express/4WD Outdoor did not deliver Purchase Order Documents such as these in respect of all of the Type 1 Orders it made. Ms Screpis said that some Type 1 Orders were made verbally by Mr Vella (although Mr Vella gave no such evidence; he did not depose to the making of any orders).

8. [33]

   The second type of order, which the parties referred to as a “Type 2 Order”, was an order placed by Express/4WD Outdoor on Parsons’ “Movex” system, requiring that Parsons deliver RTTs and swags from stock in its warehouse to Express/4WD Outdoor’s customers or dealers. From July 2013 Parsons sent Express/4WD Outdoor daily reports stating what stock was in its warehouse and what stock it expected to receive into its warehouse. Type 2 Orders, placed through the Movex system, were directed to stock that Express/4WD Outdoor thereby knew was actually in, or expected to be in, Parsons’ warehouse.

9. [34]

   The “Orders” the subject of the alleged Supply Obligation are Type 1 Orders.

10. [35]

    Initially, Express/4WD Outdoor sought to prove the number of Type 1 Orders it placed on Parsons for RTTs and swags by a spreadsheet which Ms Screpis said she “derived from the records of Charles Parsons provided to us”.

11. [36]

    Mr Katekar sought to have that schedule admitted to evidence as a summary under s 50 of the Evidence Act 1995 (NSW). For the reasons I gave in my judgment of 3 August 2017 (Charles Parsons & Co Pty Ltd v Express Publications Pty Ltd; Express Publications Pty Ltd v Charles Parsons & Co Pty Ltd [2017] NSWSC 1031) I rejected that tender.

12. [37]

    After I rejected Ms Screpis’s spreadsheets, Mr Katekar sought and was granted leave to adduce further evidence from Ms Screpis based on her analysis of Parsons’ records. However, that evidence was directed only to the number of RTTs and swags delivered by Parsons to Express/4WD Outdoor, and not to the orders placed by Express/4WD Outdoor on Parsons.

13. [38]

    In any event, as I have said, Mr Katekar now accepts that Mr Spouse’s evidence in relation to that matter should be preferred to that of Ms Screpis (which was, in any event, only her summary of what Parsons’ records – not Express/4WD Outdoor’s records – showed).

14. [39]

    Perhaps as a consequence of this, the evidence Mr Katekar sought to rely on in order to prove the number of Type 1 Orders placed by Express/4WD Outdoor on Parsons for RTTs and swags was somewhat indirect.

15. [40]

    It was, of course, for Express/4WD Outdoor to prove what orders it had placed on Parsons. To the extent that there is doubt as to whether, on the probabilities, Express/4WD Outdoor placed orders on Parsons, in the numbers for which Express/4WD Outdoor contends, that doubt must be resolved in favour of Parsons.

16. [41]

    I turn now to the evidence said to prove the Type 1 Orders for RTTs and swags, as set out in Mr Katekar’s schedule.

17. [42]

    The evidence said to support the orders for May and June 2013 (602 and 224, respectively) is an email dated 18 April 2013 from the then procurement officer at Parsons, Mr Daniel Lee, to Mr Glynn, attaching an “updated production schedule”. That document suggests that, as at 18 April 2013, Parsons expected to receive “in warehouse” 602 RTTs in May 2013 and 224 RTTs in June 2013.

18. [43]

    Mr Katekar invited me to infer that Express/4WD Outdoor had placed Type 1 Orders on Parsons in these amounts in May and June 2013.

19. [44]

    I am not prepared to draw that inference.

20. [45]

    The fact that Parsons’ “production schedule” forecast that this number of RTTs arrived in its warehouse in May and June 2013 suggests that Parsons had received some Type 1 Orders prior to May and June 2013.

21. [46]

    But it does not prove what number of orders were placed in May or June 2013. Express/4WD Outdoor knew that there was lead time of approximately 90 days between the placement by Parsons of an order on the Chinese manufacturers and arrival of the product at Parsons’ warehouse.

22. [47]

    If anything, the production schedule suggests that Express/4WD Outdoor had placed orders for some RTTs three months or so before May or June 2013.

23. [48]

    Further, Mr Spouse gave evidence in an affidavit that:

24. [49]

    Mr Spouse did not specify during what period Parsons “independently ordered” additional RTTs, and the matter was not taken up with Mr Spouse in cross-examination.

25. [50]

    That evidence suggests that some, perhaps all, of the RTTs that the 18 April 2013 production schedule predicted would be received into Parsons’ warehouse in May and June 2013 had been the result of such independent orders.

26. [51]

    However, so far as concerns June 2013, there is in existence a Type 1 Order comprising a “Purchase Order” of the kind referred to at [31] above dated 14 June 2013 for 228 RTTs; showing that in June 2013 Express/4WD Outdoor placed an order for at least that number of RTTs. But I am not prepared to infer that in June 2013 it placed an order for any more than this number.

27. [52]

    In these circumstances, apart from the 228 RTTs in the 14 June 2013 Purchase Order, I am not able to come to any conclusion as to what number of orders Express/4WD Outdoor placed in May or June 2013.

28. [53]

    The evidence said to support the order numbers for RTTs in July, August and September 2013 (224, 336 and 376 respectively) is an email dated 18 June 2013 that Parsons’ Product Manager, Mr Salvatore Rizza, sent Ms Screpis, in which he attached what he described as being “the best shipping schedule we can achieve at this stage”.

29. [54]

    That shipping schedule forecast that 409 (not 224 as set out in Mr Katekar’s schedule) RTTs would arrive at Parsons’ warehouse in July 2013, 336 in August 2013 and 376 in September 2013.

30. [55]

    For the same reasons that I am not prepared to draw the inference sought by Mr Katekar in respect of the May and June 2013 orders, I am not prepared to infer that Express/4WD Outdoor placed orders in July, August and September in the numbers in Mr Katekar’s schedule.

31. [56]

    The evidence said to support the orders for October, November and December 2013, and January 2014 is Ms Screpis’s reply of 18 June 2013 to Mr Rizza’s email of that date referred to above.

32. [57]

    In that email, Ms Screpis stated that “our Oct 13 to Jan 14 order requirements” were for 448 RTTs for each of October, November and December 2013 and 224 RTTs for January 2014.

33. [58]

    Ms Screpis’s email does appear capable of being a Type 1 Order for that number of RTTs.

34. [59]

    The evidence said to establish RTT orders for February to June 2014 (512 for each month) is a document that Mr Glynn emailed Mr Spouse and Mr Rizza on 12 September 2013 under the heading “Monthly Average Stock”.

35. [60]

    That document arose as a result of a meeting that took place on 3 September 2013.

36. [61]

    Parsons’ Group Planning and Procurement Manager, Mr Kevin Tomaino said that he initiated this meeting:

37. [62]

    Mr Tomaino said:

38. [63]

    Mr Spouse gave this evidence concerning the meeting:

39. [64]

    Following the meeting, Mr Tomaino sent an email dated 4 September 2013 to Ms Screpis and Mr Glynn stating:

40. [65]

    Attached to that email were three sheets (which were not in evidence) which, according to the email, summarised average monthly sales of the various products (including RTTs and swags) that Parsons was procuring on behalf of Express/4WD Outdoor.

41. [66]

    That led to Mr Glynn’s email to Mr Spouse attaching “a summary of the items that we nominated monthly averages for” at the 3 September 2013 meeting.

42. [67]

    In his affidavit, Mr Glynn described the attachment to his email as “forecasts for stock based on monthly averages”.

43. [68]

    On this subject, Mr Spouse gave this evidence in cross-examination:

44. [69]

    In Mr Glynn’s schedule under the headings “CP Monthly Avg. Stock” and “Agreed Avg. Stock” the number 512 is recorded for RTTs. This is the figure in Mr Katekar’s schedule as being the number of RTTs ordered for each of the months February to June 2014.

45. [70]

    But that figure was not included in the schedule as an order by Express/4WD Outdoor on Parsons or, as the heading to the columns taken alone might suggest, as an agreement by Parsons to keep in stock 512 RTTs.

46. [71]

    Rather it was, as Mr Glynn said, a forecast.

47. [72]

    In cross-examination Mr Spouse said that this figure was a “planning estimate” of what Express/4WD Outdoor “anticipated they’d be selling”.

48. [73]

    I am not prepared to conclude from this evidence that Express/4WD Outdoor placed orders for this number of RTTs in or for any of the months from February to June 2014.

49. [74]

    So far as concerns May 2014, there are in evidence two “Purchase Orders” (in the same format as those referred to above) dated 13 and 28 May 2014 for a total of 224 RTTs.

50. [75]

    In these circumstances, apart from the months October 2013 to January 2014 (see [56] to [59] above; (3 x 448) + 224 = 1,568 RTTs), and the Purchase Orders of June 2013 (see [55] above; 228 RTTs) and May 2014 (see [74] above; 224 RTTs), I do not see that the evidence justifies a conclusion that Express/4WD Outdoor placed orders for RTTs in the numbers set forth in Mr Katekar’s schedule.

51. [76]

    In the result, I am able to conclude that Express/4WD Outdoor placed a total of 2,020 Type 1 Orders for RTTs between May 2013 and June 2014.

52. [77]

    I am not able to come to any other conclusion as to how many Type 1 Orders were placed by Express/4WD Outdoor on Parsons for RTTs during that period.

53. [78]

    The evidence said to support the contention that Express/4WD Outdoor ordered 300 swags in each of June and July 2015 comprised purchase orders sent by Parsons to the Chinese manufacturer, CN Trail Camp & Outdoor Products Co Ltd.

54. [79]

    In the light of Mr Spouse’s evidence that Parsons on occasions placed orders with its suppliers in anticipation of receiving orders from Express/4WD Outdoor, I do not find the fact that Parsons had placed orders for 300 swags in June and July 2013 necessarily to indicate that it had received corresponding orders from Express/4WD Outdoor.

55. [80]

    According to Mr Katekar’s schedule, Express/4WD Outdoor ordered no swags in August or September 2013.

56. [81]

    But there is in evidence a Purchase Order in the form to which I have previously referred placed by 4WD Outdoor on Parsons dated 21 August 2013 for 1,200 swags.

57. [82]

    The evidence said to support the proposition that 600 swags were ordered in each of the months from October 2013 to June 2014 is Mr Glynn’s 12 September 2013 forecast document.

58. [83]

    For the reasons I have set out in relation to RTTs, I do not accept that this document constitutes evidence of orders placed by Express/4WD Outdoor.

59. [84]

    Accordingly, apart from the 1,200 swags referred to in the August 2013 Purchase Order referred to at [81], I am not able to reach any conclusion as to the number of Type 1 Orders Express/4WD Outdoor placed on Parsons between May 2013 and June 2014.

60. [85]

    In his written submissions, Mr Katekar submitted that “even on Parsons’ own case it undersupplied” Express/4WD Outdoor.

61. [86]

    Mr Katekar was referring to the evidence given by Mr Spouse that Express/4WD Outdoor had ordered 3,831 RTTs and 3,991 swags on Parsons’ Movex system, and that Parsons had supplied the figures to which I have referred at [21] above, namely 3,471 RTTs and 3,767 swags.

62. [87]

    However, as Ms Glover, who appeared for Parsons, pointed out, Mr Spouse was referring to Type 2 Orders (that is, those placed by Express/4WD Outdoor on Parsons’ Movex system in respect of stock which was then in Parsons’ warehouse), whereas Express/4WD Outdoor’s case was very clearly based on its contentions as to the number of Type 1 Orders placed on Parsons. The figures in Mr Katekar’s schedule did not purport to be for Type 2 Orders; they were said to represent Type 1 Orders.

63. [88]

    For those reasons, my conclusion is that Express/4WD Outdoor has not proved that between May 2013 and June 2014 Parsons supplied less RTTs and swags than Express/4WD Outdoor ordered.

64. [89]

    For that reason alone, the cross-claim must fail.

Was it a term of the Oral Distribution Agreement that Parsons owed Express/4WD Outdoor the Supply Obligation?

1. [90]

   In light of my conclusion concerning the orders placed on Parsons by Express/4WD Outdoor, it is not necessary for me to consider whether Parsons owed the Supply Obligation.

2. [91]

   However, as the parties addressed detailed submissions to me on that question, I shall deal with it, as well as a number of other issues which are now also moot.

3. [92]

   Express/4WD Outdoor contended that, in May 2013, the Oral Distribution Agreement was varied to substitute it for 4WD Discounters as a party.

4. [93]

   4WD Outdoor was incorporated in April 2013. As Mr Katekar submitted “there seems to be little quarrel with the fact that 4WD [Outdoor] took up where 4WD Discounters left off”.

5. [94]

   Mr Vella gave unchallenged evidence that, in May 2013, 4WD Outdoor took over the business formerly conducted by 4WD Discounters.

6. [95]

   On 23 May 2013, Parsons opened an account with 4WD Outdoor and, in July 2013, Parsons entered into a written Distribution Agreement with 4WD Outdoor, to which I will return.

7. [96]

   Ms Screpis said that she did not recall any discussions in which Parsons was told about the change from 4WD Discounters to 4WD Outdoor.

8. [97]

   Mr Rizza said he recalled being told that 4WD Outdoor was to play the role that 4WD Discounters had formerly played but could not recall how this information was imparted to him.

9. [98]

   He later gave this evidence in answer to questions from me:

10. [99]

    Mr Spouse also agreed that Parsons was dealing with “the same people within the group” before and after Parsons opened up an account with 4WD Outdoor.

11. [100]

    It is true that 4WD Outdoor had a different business model to 4WD Discounters, in that it had more retail outlets and also a dealer network.

12. [101]

    But the substance of the matter is that the commercial relationship between the parties, and their business dealings, did not change from May 2013.

13. [102]

    In those circumstances, had it been necessary for me to express a view about the correct characterisation of what occurred, I would have concluded that in May 2013 there was a novation of the Oral Distribution Agreement (rather than a variation of it) whereby 4WD Outdoor was substituted for 4WD Discounters as one of the counterparties to Parsons (see for example, the observations of Young JA in Hearse v Staunton [2011] NSWCA 139 (at [4]))

14. [103]

    Either way, had it been necessary for me to express a view about this, and had I found that the Oral Distribution Agreement included the Supply Obligation, I would have concluded that, one way or the other, that obligation survived the circumstances of May 2013.

15. [104]

    On 4 July 2013, Parsons and Express/4WD Outdoor entered into a (written) Distribution Agreement which recited that Parsons had agreed to “assist” Express/4WD Outdoor “per the terms and conditions set out in this Agreement”.

16. [105]

    That agreement did not include the Supply Obligation.

17. [106]

    Nor did it purport to be an exhaustive statement of the arrangements between the parties. Indeed, Parsons’ own claim is that the agreement between Parsons and Express/4WD Outdoor is partly written and partly oral. Thus, there is no dispute that the 4 July 2013 document did not reflect the entirety of the contractual relations between the parties.

18. [107]

    Further, the context in which the document was prepared and executed was to provide protection for Parsons in respect of an increased credit limit that Mr Vella had requested.

19. [108]

    Accordingly, I do not see the document as casting any light on the question of whether Parsons owed the Supply Obligation.

20. [109]

    The conclusion to which I have come is that, had it been necessary for me to decide the question, I would not have been satisfied that Parsons had the Supply Obligation.

21. [110]

    The effect of the Supply Obligation, assuming it was an implied term of the Oral Distribution Agreement, would have been that Parsons, in effect, guaranteed that it would procure the supply of sufficient RTTs and swags to meet Express/4WD Outdoor’s requirements no matter:

    1. (1)

       whether the Chinese manufacturer selected by Parsons failed to deliver product to Parsons in a timely manner; or

    2. (2)

       what quantity of product Express/4WD Outdoor ordered.

22. [111]

    Thus, I had this exchange with Mr Katekar in final submissions:

The dealings between the parties between July and October 2012

1. [112]

   In June 2012, Mr Vella (together with two employees of Express, Mr Adam Cheers and Mr Glenn Wright) had a meeting with Mr Spouse and Mr Rizza.

2. [113]

   Mr Vella gave unchallenged evidence of the following conversation:

3. [114]

   Mr Spouse said of this meeting that “we proposed to take on the manufacture and distribution of their swags…and roof top tents”.

4. [115]

   On 3 July 2012 Mr Rizza sent an email to Mr Cheers in relation to a proposed “meeting next week”.

5. [116]

   Mr Rizza said:

6. [117]

   Mr Cheers replied the same day:

7. [118]

   Although Mr Cheers did not make this clear in his email, the case before me proceeded upon the basis that he was, by this email, stating that Express/4WD Discounters anticipated it would need 1,500 each of RTTs and swags per year (that is 125 each per month).

8. [119]

   On 30 July 2012, Mr Vella and Ms Screpis had a meeting with Mr Spouse and Mr Rizza.

9. [120]

   At the meeting there was discussion about a possible business arrangement between Parsons and Express/4WD Discounters.

10. [121]

    Ms Screpis gave unchallenged evidence that at this meeting Mr Spouse or Mr Rizza said:

11. [122]

    Following the meeting, Mr Vella sent an email in which he stated:

12. [123]

    Mr Vella’s email suggests that, at the meeting of 30 July 2012, there was a detailed discussion of the proposed business relationship.

13. [124]

    In relation to the statement in the email that Express/4WD Discounters undertook to provide Parsons with “sales information” Mr Rizza gave this evidence:

14. [125]

    In his affidavit, Mr Vella said:

15. [126]

    As I have said, that evidence was not challenged by Ms Glover in cross-examination. Although Mr Spouse denied this was said in his affidavit, I am not prepared to reject Mr Vella’s unchallenged evidence.

16. [127]

    On 31 July 2012, the day after the 30 July meeting, Mr Rizza sent an email to Mr Vella stating that he and Mr Spouse were “extremely excited in relation to this mutual partnership” and that he, Mr Spouse, Mr Tomaino and others “will be involved in creating functional, smooth processes and procedures in order to deliver and service” Express/4WD Discounters and the Tigerz11 and Roo products.

17. [128]

    In early August Mr Rizza and Mr Spouse went to China.

18. [129]

    In relation to that trip Mr Rizza said:

19. [130]

    On 14 August 2012, upon their return from China, Mr Spouse wrote to Mr Vella:

20. [131]

    Mr Vella replied on 15 August 2012 suggesting that the proposed arrangements between Express/4WD Discounters and Parsons be confined.

21. [132]

    He said:

22. [133]

    Mr Spouse replied on the same day:

23. [134]

    On 28 August 2012 Mr Spouse wrote to Mr Vella:

24. [135]

    On 30 August 2012 Mr Rizza sent a further email to Mr Vella:

25. [136]

    The reference at the bottom of the email to “2 x roof top tents” was intended by Mr Rizza to convey that of the “five factories” referred to, two would be allocated to the production of RTTs, two to swags and one to awnings.

26. [137]

    Mr Rizza gave this evidence about the email in cross-examination:

27. [138]

    In cross-examination, Mr Rizza gave this evidence in response to questions from me:

28. [139]

    In light of this evidence, it appears likely that when Mr Rizza said in his email that Parsons’ aim was to secure a “reputable” supply chain, he intended to say “reliable” supply chain.

29. [140]

    On 4 September 2012, Mr Vella wrote to Mr Spouse stating that he had reviewed the “latest prices” that Parsons had suggested and said that he suspected “that it’s going to be difficult to cut a deal”. He said “we remain interested in doing business, but the numbers are not working”. Mr Vella said that if Parsons was able to “reduce your quality to our specifications” and meet “target prices” that Mr Vella nominated in the email, the matter could proceed.

30. [141]

    Mr Spouse responded on 11 September 2012, in effect accepting Mr Vella’s price proposals. He said:

31. [142]

    The following day, 12 September 2012, Mr Rizza sent Mr Glynn an email headed “forward planning”:

32. [143]

    Later, on 14 September 2012, Mr Rizza sent a further email to Mr Glynn stating:

33. [144]

    In his affidavit, Mr Rizza said that his aim in sending these emails “was at the very least to book production space and have some products ready-made and ready to be shipped when needed”.

34. [145]

    In cross-examination Mr Rizza gave this evidence about that exchange:

35. [146]

    This evidently spurred Mr Glynn into action as, later on 12 September 2012, 4WD Discounters sent Parsons a Purchase Order for 500 RTTs.

36. [147]

    On 19 September 2012, 4WD Discounters sent two further Purchase Orders to Parsons for a total of 200 RTTs and 700 swags.

37. [148]

    On 2 October 2012 Mr Vella wrote to Mr Spouse and Mr Rizza stating:

38. [149]

    Mr Spouse replied on 2 October 2012:

39. [150]

    Mr Katekar asked Mr Spouse about this email in cross-examination:

40. [151]

    On 15 October 2012 Mr Rizza wrote to Mr Glynn:

41. [152]

    The particulars in Express/4WD Outdoor’s cross-claim statement state that the Oral Distribution Agreement was “proposed, and subsequently reached in conversations and emails up to 18 October 2012”.

42. [153]

    Mr Katekar did not point to any communications after that referred to at [141] above that was said to have given rise to the Oral Distribution Agreement or the Supply Obligation.

Was the Supply Obligation a term of the Oral Distribution Agreement?

1. [154]

   In order that a term be implied into a contract the term must:

2. [155]

   In this case, the implication of the Supply Obligation is said to arise from the verbal and written communications between the parties between July and October 2012.

3. [156]

   The question before me is similar to that referred to by the Court of Appeal in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193. In that case Spigelman CJ said (at [7]):

4. [157]

   And at [13]:

5. [158]

   The question then is what, as a matter of necessity, must Parsons and Express/4WD Discounters have agreed so far as concerns Parsons’ obligations.

6. [159]

   The essential features of the parties’ communications are those that I have emphasised above, namely:

7. [160]

   In addition, Mr Spouse and Mr Rizza had told Mr Vella that they had travelled to China and had selected five manufacturers who, in their view, would be suitable to manufacture Express/4WD Discounters’ products.

8. [161]

   On the other hand, there is no suggestion that Mr Vella, or anyone else at Express/4WD Discounters, understood that Parsons owned or had direct control over any manufacturing site in China.

9. [162]

   Mr Vella must have known that, notwithstanding the recommendations of Mr Spouse and Mr Rizza concerning manufacturers in China, neither they, nor anyone else at Parsons, could guarantee that the Chinese manufacturers nominated by Parsons would deliver products in accordance with instructions placed on them by Parsons.

10. [163]

    I do regard it as significant that, on 30 July 2012, Mr Spouse said to Mr Vella something to the effect that Parsons would keep two months of stock on hand at all times.

11. [164]

    The parties must have understood that this was not something that Parsons could actually guarantee would occur (that is, no matter how the Chinese manufacturers perform).

12. [165]

    As this would be the effect of the Supply Obligation, I am not able to conclude that the parties must, as a matter of necessity, have agreed to it. To put that another way, I am not satisfied that it is so obvious that it goes without saying that the parties agreed that Parsons had the Supply Obligation, nor that imposition of the Supply Obligation on Parsons is necessary to give business efficacy to the Oral Distribution Agreement.

13. [166]

    I am not able to conclude that the parties, as a matter of necessity, agreed to any more than that:

14. [167]

    Of course, this is not the case Express/4WD Outdoor sought to establish in the proceedings.

15. [168]

    And even if it was, it is hard to see how it could be shown that Parsons was in breach of any such obligations.

16. [169]

    There is no suggestion in the evidence that Parsons did not take all reasonable steps to identify a reliable manufacturer, did not actually place orders on that manufacturer to match Express/4WD Outdoor’s requirements, or did not take reasonable steps to ensure that the orders it placed on the Chinese manufacturers were met.

17. [170]

    As to taking reasonable steps to change suppliers, Mr Katekar pointed to the fact that the last order that Parsons sent to the manufacturer, CN Trail, for RTTs was in October 2013 and for swags was in November 2013, and that Parsons did not place an order with an alternative supplier, Leye, until March 2014 (which was by then too late for the RTTs and swags manufactured by Leye to be delivered to Express/4WD Outdoor because the latter had terminated arrangements in July 2014).

18. [171]

    From October 2013, Parsons was experiencing difficulties and delays with its chosen manufacturer, CN Trail. CN Trail evidently told Parsons it had moved to a new factory where there would be a dedicated crew to manufacture RTTs.

19. [172]

    Ms Screpis told Mr Rizza in January 2014 that “you need to set up another factory to supply [RTTs]”.

20. [173]

    However, in cross-examination, Mr Rizza said he discussed the matter further with Ms Screpis and that, because of a bad experience Parsons had had the previous year with a supplier that Express/4WD Outdoor had (briefly) insisted Parsons use, he and Ms Screpis agreed that “if we were to go up another factory [sic] on the run, it would have meant a possible delay of up to 60 days before he [had] a sample” and that, accordingly, “it was agreed for Diana [Screpis] to put the Tigerz11 tents back into CN Trail and that’s what we did”.

21. [174]

    There, it seems, the matter rested.

22. [175]

    In those circumstances, I would not have been persuaded that Parsons was in breach of any of the obligations that I may have implied into the Oral Distribution Agreement.

Conclusion

1. [176]

   Parsons is entitled to judgment against Express, 4WD Outdoor and Mr Vella in the amounts of its claim.

2. [177]

   Express/4WD Outdoor’s cross-claim must be dismissed.

3. [178]

   I invite counsel to bring in short minutes to give effect to these reasons.

4. [179]

   I will hear any argument as to costs.