Nationwide Produce Holdings Pty Ltd (In Liquidation) v Linknarf Limited (In Liquidation) [2005] FCA 10 (14 January 2005)

Last Updated: 24 January 2005

FEDERAL COURT OF AUSTRALIA

NATIONWIDE PRODUCE HOLDINGS PTY LTD (IN LIQUIDATION) v LINKNARF LIMITED (IN LIQUIDATION) [2005] FCA 10

NATIONWIDE PRODUCE HOLDINGS PTY LTD (IN LIQUIDATION) v
LINKNARF LIMITED (IN LIQUIDATION)

NSD 849 of 2001
















WHITLAM J
14 JANUARY 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 849 of 2001

BETWEEN:	NATIONWIDE PRODUCE HOLDINGS PTY LTD (IN LIQUIDATION) APPLICANT
AND:	LINKNARF LIMITED (IN LIQUIDATION) RESPONDENT
JUDGE:	WHITLAM J
DATE OF ORDER:	14 JANUARY 2005
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The proceeding is dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 849 of 2001

BETWEEN:	NATIONWIDE PRODUCE HOLDINGS PTY LTD (IN LIQUIDATION) APPLICANT
AND:	LINKNARF LIMITED (IN LIQUIDATION) RESPONDENT

JUDGE:	WHITLAM J
DATE:	14 JANUARY 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 This case concerns the relationship between two wholesalers and a retailer. The wholesalers were a company called Nationwide Produce (Australia) Pty Limited, to which I shall refer as Nationwide, and the applicant, to which I shall refer as Holdings. The retailer was the respondent. Its name during the period with which this case is concerned was Franklins Limited, and I shall refer to it as Franklins.

2 Franklins operated a string of supermarket stores. Between 1994 and the end of 1998 it purchased supplies of fresh fruit and vegetables from, first, Nationwide and, later, Holdings. Both Nationwide and Holdings were run by a man called Joe Prestia who had extensive experience in the fruit and vegetable industry. Purchases on behalf of Franklins were arranged by a business unit maintained by it at Flemington Markets called Group Produce Supplies. This unit was run by a man called Tony Cassone.

3 There is a conflict in the testimony of Mr Prestia and Mr Cassone as to what was said in various conversations between them and, even, as to whether certain discussions ever took place. The cross-examination of both men was conducted on the basis that the resolution of this conflict was critical to the way in which Holdings had pleaded several causes of action. Because Mr Prestia was a spectacularly poor historian and all the evidence-in-chief was given by affidavit, the oral testimony about relevant developments is often confusing to follow. However, there has been received in evidence a mass of documents (including some created at relevant times by disinterested parties such as banks), from which it is possible, with some effort, to unravel uncontroversially key events in a chronological fashion.

4 Nationwide was incorporated on 10 September 1993. It purchased two trading stands at Flemington Markets, from which it carried on business as a wholesale merchant of fruit and vegetables. Nationwide’s trading was facilitated by an overdraft at the State Bank of New South Wales secured by third party mortgages over Mr Prestia’s residence and a shopping centre that he owned with his sister.

5 In 1994 Nationwide began to supply produce to Franklins. It rented warehouse space at Lidcombe where it packed those orders. (A lease of these premises was signed on 7 April 1994 for a term expiring on 31 January 1999.) Produce was delivered by Nationwide to Franklins’s distribution centre at Flemington Markets.

6 Franklins required certain produce to be packed in ice and delivered in plastic tubs. In order to fill those orders Nationwide installed coolrooms and related equipment at its Lidcombe warehouse. This equipment was supplied by a company in Melbourne called Co-Ordinated Thermal Systems Pty Ltd (‘CTS’), which raised an invoice for this equipment to Nationwide dated 31 March 1995 in the sum of $224,157.

7 Around this time Mr Prestia asked Mr Cassone for a letter that he could use in support of a request for an extension of Nationwide’s overdraft facility. Mr Cassone gave Mr Prestia a letter signed by him on office letterhead dated 31 March 1995. It was addressed to a manager at the State Bank and stated:

‘Nationwide Produce has been dealing with Franklins Group Produce Supplies since the conception of their business.
We have worked very close [sic] with Joseph Prestia on major edges in our business as we seek to build long term benefits and relationships for both companies.’

8 Mr Prestia later asked Mr Cassone for ‘something in writing that confirms our long term arrangement’. Mr Cassone gave him a letter signed by him on office letterhead dated 6 July 1995 in the following terms:

‘TO WHOM IT MAY CONCERN

The Franklins Supermarket Group have been involved with Nationwide Produce since the conception of our push into Fresh Fruit and Vegetable.
We have worked very close [sic] with Joseph Prestia and have built a strong strategic alliance with his company.
We have a large expansion programme through till the end of 1995 with 10 new Supermarkets in N.S.W.
Nationwide Produce will be a large supplier to our business and will see there [sic] turnover more than double with us over this period.
We have no reason to change our strategic alliance with Nationwide Produce and look forward to a continued long term working relationship.’

9 In October 1995 Mr Cassone wrote to all suppliers of fruit and vegetables to Franklins, informing them of a timetable for the introduction of mandatory temperature criteria. Mr Cassone asked that suppliers ‘advise us of your present capacities and on your intentions to upgrade to ensure your position in this advancement of our standards.’ Mr Prestia replied to Mr Cassone on 2 November 1995. He said:

‘As you know over the last 18 months my company has become a significant supplier of fresh produce to Franklins Fresh and Big Fresh Stores in NSW. As you have opened new centres we have been pleased to work with you and your senior staff in planning the supply of an increasing range of high quality produce and in particular to arrange from growers a regular bulk supply to grade and pack to your specifications in our facilities at Lidcombe.
We have had significant discussions with you on the projection of your business for the next 3 years. In particular we have been briefed on the number of shops to be opened in NSW and the best estimates of volume and range of produce we might supply, and your special requirements in regard to packing and delivery within your Cold Chain and Q.A programs.
The supply of this produce to specified quality standards year round requires substantial planning and contractual undertaking well in advance with top quality growers in most recognised horticultural centres of Australia. Clearly other food groups are identifying these same people and growing areas and forward commitments will be essential to guarantee top quality and consistent supply to Franklins.
We have established a research division that is preparing a program that defines the specifications, varieties and growing conditions required for year round supply of each item of produce, the growing areas, superior experienced growers with established farms and business stability, to become contracted suppliers. We have advanced this to the point of now proposing to you to enter a formal agreement to become your preferred supplier for NSW for a defined range of fresh produce.
We would want as soon as possible to firm up arrangements and enter supply arrangements for the years ahead. We believe this is vital to secure your supply.’

After referring to supply considerations and to Nationwide’s capital investment, Mr Prestia concluded:

‘All this, together with the very large increase in payments to growers will mean a substantial increase in demand for our working capital. We are ourselves able and willing to fully finance this project. However we seek the security of a formal supply agreement with your company to cover (say) three years and a further three year option. We wish to make a commitment to the growth of your fresh food business and so now ask for your commitment to us as a preferred/exclusive contracted supplier.
This letter is to ask for your agreement in principle for us to proceed with you to draw up an agreement. Clearly this would include a definition of the responsibilities we would undertake and all terms of trade such as mechanism for establishing forecasts, specifications of quality and payment. We would also seek to define criteria for monitoring our performance to ensure that at all times we provided the quality of produce and responsive service your company requires.’

10 The parlous state of Nationwide’s business at the beginning of 1996 is revealed in a review of the State Bank’s loan exposure prepared by its Asset Management Group. In January 1996 the State Bank notified Mr Prestia of its intention to appoint a receiver. It delayed taking such action in order to see if Nationwide could refinance its debts. Against that background Mr Prestia obtained from Mr Cassone a letter dated 21 February 1996, addressed ‘To Whom It May Concern’, which stated:

‘Nationwide Produce has been supplying Franklins Fresh Produce Division in N.S.W and QLD since the conception of their business.
We have worked on major edges within our business with Nationwide Produce and will continue to work and develop long term benefits for both companies.
Please don’t hesitate to call as I would be happy to sit down and discuss our future vision for both parties.’

11 The State Bank’s review was prepared on 29 March 1996. It noted that Nationwide’s debts had been placed in a holding pattern since July 1995 and that the account had been transferred to the Asset Management Group in order to monitor financial performance and the ability of Nationwide to trade out of its financial problems. The review concluded that Nationwide had been trading at a loss over the past nine months and could not survive under its ‘current factoring arrangement’. The author remarked that Nationwide had only survived the last nine months by private loans, by the ‘injection’ of rent from the shopping centre part-owned by Mr Prestia and by ‘questionable practices regarding the presentation of cheques’. The report recommended that the State Bank accept an offer from the St George Bank to refinance most of its debt and write off the rest.

12 On 10 April 1996 Holdings was incorporated. Mr Prestia was appointed its sole director. However, he was made bankrupt on 18 June 1996 and resigned as a director of Holdings on 24 June 1996. (Although his bankruptcy was annulled on 20 November 1996, Mr Prestia was, according to ASIC’s records, not re-appointed as a director of Holdings until 6 October 1998. In the meantime, his son Roy was the sole director of Holdings.)

13 Nationwide switched its banking facilities to St George Bank. On 27 June 1996 Mr Prestia wrote to Mr Peter Gray, the bank’s area manager at Liverpool, outlining Nationwide’s funding requirements for the 12 months to 30 June 1997. Mr Prestia attached sales projections based on sales to new Franklins stores and on large sales of mangoes in November, December and January. He pointed out that Nationwide factored its Franklins invoices and that the cost of such funding meant that it should be replaced by ‘traditional bank finance’. Mr Prestia calculated the initial cost to ‘take out’ Nationwide’s then current factoring facility at $345,000. However, he said that Nationwide would still have difficulty in funding its projected purchase of mangoes over Christmas. Mr Prestia also claimed that in the period from 1 July 1995 to 31 May 1996 Nationwide had funded from its working capital the purchase of items costing $82,000 and that this figure included plastic tubs to the value of $60,000. After referring to the debtors’ and creditors’ position as at 21 June 1996, Mr Prestia concluded in summary:

‘From the forgoing [sic] a number of factors become clear.
Nationwide’s present overdraft is in fact "core debt" rather than working capital.
Additional funds are required to allow an immediate reduction in creditors to ensure Nationwide’s reputation as a buyer is second to none in the market place. This will ensure the requirements for growth in sales (particularly to Franklins) can be met.
There is substantial funding required to remove factoring from the equation prior to completion of the mango season. Obviously Bank funding for this period is preferred (by Nationwide for the fee savings and for the Bank for interest earnings) but any facility would need to be related to sales turnover.
With the correct financial assistance during the coming growth period Nationwide should be able to establish a firm financial structure for the future.’

14 On 25 September 1996 Mr Prestia placed an order on behalf of Nationwide for two Volvo trucks and two Tautliner trailers at a total price of just over $240,000. On 30 September 1996 Steve Houlahan, Nationwide’s Financial Controller, sent a fax to Paul Dwyer, manager of St George Bank at Liverpool, about overdraft arrangements, in which he said:

‘I would also appreciate your thoughts on the following:
Nationwide has had an offer to purchase the stands at Flemington for $500,000. As it is our opinion that the company’s profits are made at Lidcombe with the stands running at a loss (I am trying to confirm this now) we would like to take the offer for the stands. Further, we would like to retain the funds from this sale and use it as working capital rather than borrow the $500,000 previously discussed. We think the sale could be confirmed this week, subject to your approval.’

On 18 October 1996 Mr Houlahan wrote to Joe Buono, a buyer at Franklins, informing him that payments for mangoes supplied to Franklins by Nationwide were to be made to a bank account opened by the growers, and not to Nationwide itself.

15 Around this time Franklins set up a project team to review its supply chain from point of purchase to delivery of product to its customers. The project was coordinated by information technology consultants from the United Kingdom who employed a methodology referred to as the value stream approach. The project was named SCVS (supply chain value stream). Mr Prestia was one of the supplier representatives who assisted the project team in conducting focus groups with suppliers during October and November 1996.

16 On 28 October 1996 an order to wind up Nationwide on the ground of insolvency was made upon the application of its workers compensation insurer. On 30 October 1996 St George Bank advanced an additional sum of $48,495.90 to Nationwide enabling an order to be obtained later that day terminating the winding up.

17 On 30 October 1996 Mr Cassone wrote to Mr Prestia in the following terms:

‘Dear Joe,
Following our discussion, I requested Nationwide Produce to investigate the ability to supply bunched Asian and Herb Vegetables to Franklins NSW, pre-washed and trimmed.
We also discussed the current supplier to Franklins (Tony Choi) would need to be considered as a supply source to your business.
Once you have investigated the ability to supply and your capital investment required and in a position to conform to our required specifications, we would then meet and discuss a long term supply agreement. It is also noted that Franklins will need to review our cost benefits in order to make changes from our current supply.’

18 St George Bank commissioned Arthur Andersen to review Nationwide’s financial position and short term viability. Arthur Andersen prepared a draft report on 20 November 1996. (The report noted that Holdings was dormant.) They concluded that Nationwide had traded at a loss since its inception and that the appointment of a liquidator in the short term was ‘not an unlikely event’. Arthur Andersen noted that Nationwide had exchanged contracts to sell its stands at Flemington Markets and that following that sale it would operate solely from its warehouse facility at Lidcombe. They said that this would make Nationwide ‘heavily reliant on Franklins’. Arthur Andersen observed that ‘no formal agreements have ever been entered into with Franklins’ and that the ‘absence of written contracts’ for the supply by Nationwide of the produce to new Franklins stores (upon which all its plans depended) was ‘of concern’. They also remarked on the threat to Nationwide’s business posed by ‘an increased tendency for large retailers to obtain their fruit and vegetables by negotiating directly with growers’.

19 The draft report was given to Mr Houlahan for his comments, which he faxed to Arthur Andersen on 22 November 1996. His response included the following statements:

‘Supplies to new Franklins stores

I am at a loss to understand why a doubt would exist concerning supply of produce to new Franklins stores when we have supplied every store opened over a two year period.
Franklins Contract
Efforts are being made to obtain written confirmation from Franklins detailing their intended future contractual involvement with Nationwide.
Franklins direct negotiations with growers
Franklins have considered the benefits of direct negotiations with growers and have formed the opinion that it is more efficient to do this though a single "Broker" acting on their behalf for particular product lines. Nationwide has been chosen as that broker and is therefore more than simply a supplier.’

Mr Houlahan also said that his forecast of cashflows for the period from November 1996 to October 1997 was ‘at least $500,000 greater’ than Arthur Andersen’s adjusted figure of $301,912.

20 Following a meeting with Mr Prestia, Arthur Andersen furnished its completed report to St George Bank on 27 November 1996. In that report, they now expressed the conclusion that the appointment of a liquidator in the short term was ‘a likely event.’

21 On 17 December 1996 Mr Cassone wrote to Mr Dwyer at St George Bank in the following terms:

‘I am writing to give your bank an update of Nationwide Produce and Franklins Supermarkets’ current situation and relationship.
In 1993, we started a strategic alliance in business with the following three products, broccoli, capsicums (red and green) and mangoes. Since then we have progressed even further with more products: cabbage, silverbeet, lettuce and cauliflowers.
It is important to know that Nationwide Produce now supplies 80% of all these products in a growing business that will increase in 1997 at a rapid rate.
I have now asked Nationwide Produce if they would be in a position to supply our full requirements of Asian Vegetables and Bunched Herbs (approximately 50 products). These products would need to be processed in the following manner: washed in chilled water, bunched, refrigerated in temperature controlled coolrooms and delivered to our produce warehouse maintaining the right temperature.
If Nationwide Produce is able to fund this project then I would be in a position to give Nationwide Produce a written contract for a period of time for 100% supply.
I hope this gives you an insight to what we are working on as a strategic alliance. If you need more information please do not hesitate to contact me (02: 9325 6800 or 018274699).’

22 In August 1997 the managing director of Franklins sent a brochure to suppliers informing them that, as a result of the SCVS project, Franklins had decided to implement a so-called category management strategy. This document covered, amongst other things, changes to be made in the way Franklins purchased supplies.

23 By January 1998 Nationwide had ceased to trade. Mr Dwyer at St George Bank noted in a report he subsequently prepared that Mr Prestia was understood to have commenced operations through a different trading entity.

24 Holdings began to acquire assets. Matthew Gwynne, an accountant who was called by Holdings to give expert evidence, reported on his inspection of its assets register. His report showed office furniture, plant and equipment as being acquired on 8 December 1997. On 27 February 1998 Holdings arranged the hire purchase from CTS for a price of $150,000 of the coolrooms and related equipment installed at the Lidcombe warehouse years beforehand. These items were shown in the assets register as acquired by Holdings on 22 May 1998. (On 31 July 1998 Holdings gave a fixed and floating charge over its assets to the ANZ Bank.)

25 On 16 June 1998 an order was made for the winding up of Nationwide on the application of the Commissioner of Taxation. The report as to affairs submitted to Nationwide’s liquidator on 17 July 1998 showed an amount of $3,600,000 as owing to St George Bank.

26 Following the implementation by Franklins of its category management strategy, Mr Cassone had fewer dealings with Mr Prestia. He was now designated national business manger for produce. Marcus Griffin and Steve Russo were the new national category managers for fresh produce. They took over Mr Cassone’s former responsibilities and dealt with suppliers to Franklins on a day-to-day basis. However, in July 1998, Mr Cassone was approached by a number of growers who complained that they had not been paid by Mr Prestia for produce he supplied to Franklins. Mr Cassone reported these complaints to John Hallam, Franklins’s director of legal services.

27 Mr Hallam found out about Nationwide’s winding-up and became concerned about the position shown in a circular by the liquidator to creditors dated 13 August 1998. He sought external advice from the law firm of Gilbert & Tobin. Mr Hallam then arranged for Mr Cassone to inform Mr Prestia that Franklins would forthwith reduce the percentage of its requirements purchased from Holdings with a view to terminating all supplies at the end of the year.

28 Franklins also altered the quality control team at its Flemington Markets distribution centre. Clare Hamilton-Bate took up duties there at the end of July 1998 as the national quality assurance manager for fresh produce. Gilbert & Tobin recommended that a rigorous and transparent system of quality control be implemented. On 7 September 1998 Mr Hallam arranged for Ms Hamilton-Bate’s team to provide him with a copy of an audit report on produce supplied by Holdings. He also sought from her a copy of Franklins’s current product specifications.

29 Mr Hallam drafted a letter addressed to Mr Prestia for Mr Cassone to sign attaching those specifications. (In the meantime the quality control team had begun to reject produce supplied by Holdings. Mr Prestia telephoned Mr Hallam on 30 September 1998, complaining that he was being victimised by Franklins’s quality controllers.) The letter signed by Mr Cassone was dated 6 October 1998. I shall set out its terms in full:

‘Dear Joe
CONTRACT WITH FRANKLINS TO SUPPLY FRESH PRODUCE
I refer to our various meetings to discuss Nationwide’s terms of supply to Franklins. I confirm that Franklins will continue its relationship with Nationwide Produce on the following terms and conditions.

1. The contract is weekly, commencing immediately and expiring on 31 December 1998, unless terminated in accordance with this agreement.
2. During the term of this agreement, Nationwide will supply the following produce to Franklins:

(a) 50% of Franklins’ broccoli requirements for NSW;
(b) 30% of Franklins’ pre packed oranges for NSW;
(c) 50% of Franklins’ lettuce for NSW;
(d) 50% of Franklins’ cauliflower for NSW;
(e) 50% of Franklins’ capsicum for NSW;
(f) Franklins’ leaf products for NSW, as required.

3. Franklins may terminate the agreement on 2 days written Notice if:

(a) the supply of any of the produce listed in clause 2 fails to meet Franklins’ (attached) specifications;
(b) if in the reasonable opinion of Franklins, any of the produce in clause 2 does not meet Franklins’ quality standards;
(c) if Nationwide commits any act of bankruptcy, or enters into any scheme of arrangement with its creditors or is subject to any external administration (as defined in the Corporations Law);
(d) Franklins receives any formal complaint from any of Nationwide’s growers that Nationwide has not paid its debts as they fall due.

4. At the end of each week Nationwide will submit an invoice to Franklins sorting out:

(a) the Produce provided to Franklins including an itemised description of their nature, quantity, volume and unit price;
(b) the period during which the produce was supplied;
(c) the address to which the produce was delivered and the date of delivery;
(d) the total amount due and payable for the produce; and
(e) such other information as Franklins may require from time to time.

5. Within 14 days of receipt of the Invoice, Franklins will review the Invoice, and if approved, pay to Nationwide the approved amount set out in the Invoice.
6. Notwithstanding clause 3, Franklins may at any time reject any of the produce in clause 2 without payment if in its absolute discretion it considers the quality of that produce is unacceptable.
7. The parties agree they have not signed this contract in reliance or as a result of any representation, promise, statement, conduct or inducement on or behalf of anything otherwise than that which has been set out in this contract.
8. The parties agree this is a binding contract which takes effect on execution and is subject to and construed in accordance with the laws of New South Wales.
9. If for any reason this agreement is not signed by 12 October 1998, the parties agree the offer contained in this agreement lapses and Franklins may terminate supply from Nationwide without liability from 13 October 1998.
10. Each party warrants and represents to the other party that:

(a) the execution and delivery of this agreement has been properly authorised by all necessary corporate action taken by it; and
(b) it has full power and lawful authority to execute and deliver this agreement and perform its obligations under this agreement.’

Mr Cassone handed this letter to Mr Prestia on 9 October 1998. Mr Prestia signed the letter on behalf of Holdings and delivered it to Franklins’s office at Flemington Markets on 12 October 1998.

30 Shortly afterwards, Mr Prestia telephoned Mr Hallam to complain that ‘the letter I believe you wrote puts me out of business at the end of this year.’ Mr Hallam suggested to Mr Prestia that, if he wanted to take the matter further, he should write to Greg Foran, the marketing director of Franklins. On 15 November 1998 Mr Prestia wrote a letter to Mr Foran, in which he ‘summarised the history of the relationship between my company, Nationwide and Franklins’. Mr Prestia complained that nothing had ‘eventuated’ from his planning for the supply of ‘Asian bunched lines’ and of ‘how little I was to be allowed in the supply of produce to Franklins’. He concluded:

‘All of my futuristic plans for Nationwide have been formulated with the established growth policy of Franklins in mind, and the role I was led to believe that I would fill by my supplying a range of fresh produce to them. My willing participation in the development of their quality standard programmes has been at a considerable cost to me. Whilst I have had many difficulties to overcome, I believed Franklins’ objectives warranted such a personal and financial outlay by me. I believe my actions and commitment have earned your consideration of Nationwide as a preferred supplier of a defined range of fresh produce. I would therefore seek some form of agreement for an ongoing arrangement that would justify what I believe to be a considerable contribution towards Franklin’s [sic] growth.’

31 On 26 November 1998 Mr Prestia met Mr Hallam, Mr Griffin and Ms Hamilton-Bate to discuss the rejection of produce supplied by Holdings. This was followed the next day by a meeting at Franklins’s head office. On 23 December 1998 Mr Hallam faxed Mr Prestia as follows:

‘I refer to the various meetings you have had with Franklins during the last few weeks and confirm the following:

1. On 26 November 1998 you met with Marcus Griffin, Clare Hamilton-Bate and myself at the Flemington Warehouse. Franklins advised you that in accordance with clause 3 of Franklins letter to you of 6 October 1998, a copy of which you signed and returned, (the "Agreement") Franklins was terminating the Agreement, effective as at 5.00 pm 29 November 1998. The grounds for termination were explained and were that the supply of the produce had failed to meet Franklins written specifications and quality standards on numerous occasions, all of which had previously been advised and explained to you.
2. On 27 November 1998 you met with Greg Foran, Robert Vogel and myself. During this meeting the overall relationship between Franklins and Nationwide was discussed. Franklins has continually experienced problems in the relationship and in mid September 1998 you had a discussion with Tony Cassone where it was agreed that the current lines you supplied to Franklins would be immediately reduced by 50% and that this arrangement would in any event cease as at 31 December 1998. The terms of the agreement were set out in the Agreement.
3. Although Franklins had given notice of its intention to terminate the Agreement on 26 November 1998 Franklins allowed the Agreement to continue until the previously agreed expiry date of 31 December 1998. Naturally, Franklins reserves all other rights arising from Nationwide’s continual breaches of the Agreement.
4. It was agreed at the 27 November 1998 meeting that Franklins would consider a submission by Nationwide in relation to allowing a further period of time beyond 31 December 1998. In the absence of any express new agreement to extend the relationship, it was made clear that 31 December 1998 would mark the end of Nationwide’s relationship with Franklins. Any submission was to be made to Franklins by 15 December 1998. Franklins has received no such submission and accordingly any possibility of an extension of Franklins’ relationship with Nationwide beyond 31 December 1998 is now extinguished.

I re-affirm Franklins’ position that the Agreement will expire on 31 December 1998 and that there will be no extension of any period of time.’

32 On 29 December 1998 Mr Russo faxed Mr Prestia informing him that ‘as of Thursday, December 31, 1998, Franklins will cease all trading with Nationwide.’ No further orders were placed with Holdings.

33 I turn now to the disputed conversations between Mr Prestia and Mr Cassone. These conversations occurred, according to Mr Prestia, in March 1995, July 1995, September 1996 and on several occasions in the first half of 1997. In essence, he says that Mr Cassone constantly assured him that the supply arrangements with his company were ‘long term’ and that he would get an agreement to that effect. Mr Cassone, on the other hand, denies ever giving an assurance that he would organize such an agreement. There is no point in setting out the alleged terms of these conversations deposed to in affidavits settled and in oral evidence given years after the events in question. In the end, counsel for Holdings accepted that Mr Prestia’s overtures for a long term contract were rejected. That is, of course, the inescapable inference to be drawn from the terms of correspondence that I have set out in extenso above. However, I should state that, with one possible exception, wherever there is a conflict between the evidence of these two witnesses, I accept the evidence of Mr Cassone. He gave carefully considered answers to all questions in his cross-examination and exhibited not the slightest partisanship towards his former employer. The one exception is an alleged conversation with Mr Prestia on 14 August 1998 when he claims that he told Mr Prestia of Franklins’s decision to terminate supplies from his company at the end of the year. I attach little significance to the fact that Mr Prestia claims not to recall such a conversation. I have no doubt that Mr Cassone and Mr Prestia had a number of strained conversations about this time. I am also satisfied that he spoke to Mr Prestia on 14 August 1998 in the company of one of Franklins’s buyers, Fred Palazzolo. However, his subsequent note to Mr Hallam about this conversation is expressed in strangely convoluted language. I am not prepared to find that on 14 August 1998 he informed Mr Prestia in no uncertain terms that all purchase orders from Franklins would cease after the end of the year. In any event, nothing turns on this conversation because the topic was subsequently dealt with in the letter dated 6 October 1998 drafted by Mr Hallam.

34 In its further amended statement of claim Holdings pleads causes of action for contraventions of s 52, s 51AC and s 51AA of the Trade Practices Act 1974, for economic duress and for breach of contract. The statutory counts were never formally abandoned, but they were not addressed in the final submissions on behalf of Holdings. This is hardly surprising. The s 52 claim depended on an allegation that Holdings was led to believe that it would supply Franklins with fruit and vegetable produce ‘up to at least 2001’. There was not the slightest evidence of any representation by anyone at Franklins to that effect.

35 By itself, my acceptance of Mr Cassone’s version of what was said in his discussions with Mr Prestia admits of the possibility of honest mistakes in the latter’s recollection (although it is striking that, in the affidavit Mr Prestia made on 24 June 1996 in support of his application to annul his bankruptcy, Mr Prestia was content to rely simply on the letters from Mr Cassone reproduced at [7] and [10] above and to make no mention of any oral assurances.) However, in giving his evidence on other topics, Mr Prestia was deliberately untruthful. He said that after April 1996 Holdings carried on the business of supplying fruit and vegetables to Franklins and that Nationwide was only involved with the stands at Flemington Markets. He also said that in April 1996 the ANZ Bank extended an overdraft facility to Holdings. Mr Prestia must have known that this evidence was false as the events I have outlined at [12]-[24] above demonstrate. (There is no evidence from ASIC’s national database of the period during which Mr Prestia was a director of Nationwide, but I am satisfied that all times prior to 16 June 1998 Nationwide was under his effective control.) The evidence establishes that Holdings did not begin to supply Franklins until the very end of 1997 or the beginning of 1998. It is not clear how Holdings funded its purchases from growers in the first half of 1998, although Mr Prestia had sought financing from the Bank of New Zealand. (The documents used during the second half of 1997 to seek such financing were prepared by Mr Houlahan. They incorporated sales projections for Nationwide based on planned store openings by Franklins. Mr Prestia insisted, quite absurdly, in his evidence that some of these documents emanated from Franklins and were given to him by Mr Cassone. This claim was denied by Mr Cassone and, unsurprisingly, that denial was not challenged in cross-examination.) The true position during 1997 was acknowledged towards the end of any relationship with Franklins at a time when Mr Prestia was in high dudgeon about the rejection of produce supplied by Holdings. On 7 October 1998 Mr Houlahan wrote as a director of Multifacet Accounting, informing Franklins that his firm had been retained to review its claim for underpayment of rebates by Nationwide ‘for the year ended 31 December 1997’. By the time Holdings began to trade, Mr Prestia had been thoroughly disabused of any hope or expectation that Franklins would enter into a supply contract for a fixed term. Any reliance case under s 82 of the Trade Practices Act was plainly hopeless.

36 Counsel for Holdings focused their submissions on an alleged contract with Franklins for the supply of fruit and vegetables that antedated the letter dated 6 October 1998 signed by Mr Cassone and Mr Prestia on behalf of the parties. This contract was said to contain two important terms: (1) a right of first refusal for Holdings to supply Franklins’s requirements of such produce and (2) a right to terminate the contract on reasonable notice. The first of those terms was said to be partly express and to flow from various assurances that Nationwide was to be the ‘preferred supplier’ of Franklins. The second term was to be implied because the right of first refusal was said to be of indefinite duration, and it was this term that was allegedly breached by Franklins. Counsel for Holdings accepted that, in order to rely on such a term, it would be necessary to impugn the letter of 6 October 1998. The doctrine of economic duress was invoked for that purpose, but I shall leave that issue aside for the moment.

37 There was evidence that from time to time Mr Cassone used the expression ‘preferred supplier’ to describe the position of Mr Prestia’s companies. There was not, however, the slightest evidence that such an expression was a term of art or that it had acquired in the fruit and vegetable trade any particular meaning such as that contended for by Holdings. The types of products and the quantities of any such products purchased by Franklins from Mr Prestia varied all the time. The fact that Mr Prestia was required to quote firm product prices for a week is beside the point. Once an order was placed by Franklins, it had to be filled. There was nothing indefinite about the duration of those contracts. Orders were to be filled the next day. The notion that either party would have the right to terminate such a contract would never have occurred to either party. The suggested right of termination is posited upon an arrangement for a right of first refusal, which simply did not exist. It is instructive that at the time Mr Prestia never claimed that such an arrangement existed and that in his letter of 15 November 1998 he merely sought to be considered ‘as a preferred supplier of a defined range of fresh produce’. There never was a contract such as that alleged by Holdings.

38 In any event, Mr Prestia signed the letter dated 6 October 1998. Unless that letter can be set aside, Holdings accepts that the arrangement between the parties put into place pursuant to that agreement expired on 31 December 1998. The alleged duress relates to terms of Franklins’s offer contained in clause 9 of the letter. Mr Cassone confirms that the letter was presented to Mr Prestia on a ‘take it or leave it’ basis. The law relating to duress was laid down in the dissenting advice of Lord Wilberforce and Lord Simon of Glaisdale in Barton v Armstrong [1976] AC 104 in observations (at 121), which McHugh JA adopted in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 46. Counsel for Franklins prudently adverted also to the question whether Mr Cassone’s ultimatum amounted to unconscionable conduct on the part of Franklins for the purposes of Pt IVA of the Trade Practices Act. In my opinion, there was nothing in the slightest degree improper or unconscionable about the way in which Franklins procured Mr Prestia’s agreement to the terms of its offer. Holdings gained something it did not possess, namely, a firm contract for specified portions of Franklins’s requirements of certain products for a finite period. Once that is appreciated, it can be seen that the acceptance by Mr Prestia represented an obviously self-interested exercise of his business judgment. Franklins did not engage in ‘unconscionable conduct’ for the purposes of Pt IVA, as that expression was explained in Australia Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51. Relationships between vertical participants in the retail grocery industry supply chain do not stand in a different position.

39 The proceeding will be dismissed with costs.

I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam.

Associate:

Dated: 14 January 2005

Counsel for the applicant:	CRC Newlinds SC with Jacob Horowitz
Solicitors for the applicant:	Kemp Strang
Counsel for the respondent:	RJH Darke SC with Jeremy Stoljar
Solicitors for the respondent:	Gilbert & Tobin
Dates of hearing:	8-12 March 2004
Date of judgment:	14 January 2005