Federal Court of Australia

Nick Scali Ltd v Lion Global Forwarding Pty Ltd [2024] FCA 1247

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s interlocutory application accepted for filing on 24 October 2024 be dismissed.

2.    Costs be reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(Delivered ex tempore)

STEWART J:

1    The applicant, Nick Scali Ltd, is an ASX listed company conducting a retail furniture business.

2    The first respondent, Lion Global Forwarding Pty Ltd, is a freight forwarder which has purported to exercise a contractual possessory lien over about 240 shipping containers of furniture imported by Nick Scali from China and Vietnam to Australia. Nick Scali says there are 243 containers whereas Lion says there are 232, but the difference does not matter for present purposes. The contents of the containers are worth about $18.6m. Most of it is pre-ordered household furniture for customers who are getting increasingly agitated by the delay in the delivery of their orders.

3    By interlocutory application, Nick Scali urgently seeks orders that it pay what Lion claims from it into court against which Lion be compelled to release the containers to it. That relief was initially sought on the basis that the amounts claimed by Lion are in dispute, but in oral argument Mr Street, who appears for Nick Scali, seeks also to rely on Nick Scali having a claim for damages against Lion which, he submits, will or may exceed the amount claimed by Lion. The originating application seeks a declaration that Nick Scali is not liable to Lion, ie a negative declaration, and unspecified damages or compensation in the alternative.

Background

4    On 8 August 2020, Nick Scali signed a credit application form to do business with Lion. The form expressly incorporates Lion’s standard trading terms and conditions (STCs). Mr Emmett SC, who appears with Mr Khadra for Lion, submits that that is the basis of the parties’ contractual relationship, but Mr Street says that that is contested. However, there is no evidence from Nick Scali as to what the basis for the contractual relationship is, or even reference to any of its terms – it is not even said what Lion was contracted to do – and in its reply evidence it does not contest Lion’s evidence of the contract. Moreover, the examples of Lion’s invoices to Nick Scali that are in evidence all purport to incorporate the STCs.

5    On the evidence before me on the interlocutory application, there is no basis on which to contend that the STCs were not incorporated and did not govern the contractual relationship – there is no alternative version. That is to say, it cannot be said that there is a prima facie case to the contrary, or that there is a serious issue to be tried on the point. I therefore proceed on the basis that the STCs were incorporated.

6    The STCs state that the services to be provided by Lion are “Carriage of the Goods”. That is to say, Lion contracted as an NVOCC (non-vessel operating common carrier) to carry the goods from their port of loading to their destination. The evidence reveals that that includes contracting for the ocean carriage of the goods, receiving them at the port of discharge from the ocean carrier, arranging customs clearance and delivering them to Nick Scali. The shipments come to a variety of Australian ports. The ocean freight is charged in United States dollars (USD) and the local services are charged in Australian dollars (AUD).

7    As an NVOCC, Lion does not itself carry the goods; it contracts with ocean carriers to perform that service. The sample shipping documents in evidence show that Nick Scali buys from its suppliers on FOB terms, meaning that it takes ownership on loading and has the responsibility to arrange carriage.

8    It is on the basis of the contract between the parties as identified above that I am satisfied that Nick Scali’s claim is a general maritime claim under s 4(3)(f) of the Admiralty Act 1988 (Cth), ie “a claim arising out of an agreement that relates to the carriage of goods or persons by a ship.” On that basis, the matter is within federal jurisdiction.

9    Clause 12 of the STCs give Lion a general and particular possessory lien over Nick Scali’s goods until all outstanding amounts are paid in full. Clause 17.1 provides that Lion can suspend or withdraw for its convenience without prior notice any credit facility that has otherwise applied.

10    Although the credit application provided for credit terms of “30 days EOM”, ie thirty days from the end of the month in which the invoice is raised, at the time of the events relevant to the present dispute the applicable term was “45 days EOM”.

11    In May this year, Lion engaged a Chinese corporation, Shenzhen HJT Supply Chain Management Ltd, for shipments out of China with effect from 1 June. In effect, Lion appears to have subcontracted its responsibilities to Nick Scali to HJT in respect of shipments from China, at least insofar as any services in China and ocean carriage are concerned. HJT issued house bills of lading curiously reflecting Nick Scali as consignee. There are no ocean bills of lading in evidence, but presumably they reflect either Lion or Nick Scali as consignee to enable Lion (for itself or as agent for Nick Scali) to take delivery of the goods from the ocean carrier and assert any lien if required.

12    The agreement between Lion and HJT provides for credit terms of “60 days from EOM”.

13    Typically, the invoice is raised when the goods are loaded on board at the port of loading. The result is that Nick Scali has 45 days from the end of the month in which the invoice is raised to pay Lion, and in respect of goods from China Lion has a further 15 days to pay HJT. Provided Nick Scali pays Lion on time, Lion can pay HJT on time and there would be no problem. Unfortunately, things did not go so smoothly.

14    On 1 October 2024, Lion advised Nick Scali that with immediate effect and until after “CNY” (ie Chinese New Year, presumably a reference to the Chinese holiday period in late January and early February 2025), “due to recent changes with shipping line carriers, we are required to reduce NS credit terms for USD freight invoices to 30 days EOM” but that “local invoices for clearance, delivery, GST will continue to be at 45 days EOM.” Prima facie, Lion was entitled to make that change under cl 17.1 of the STCs. Although Nick Scali has sought to make something of Lion not having provided details of the “recent changes with shipping line carriers”, there is nothing in the evidence on which a prima facie case against Lion’s entitlement to make that change might be based; there is no serious issue to be tried on that question.

15    In any event, as will become apparent, the contractual lawfulness or otherwise of that change is ultimately of no moment.

16    Nick Scali pushed back against Lion’s change to the credit terms, saying that that should only be for new shipments and not existing shipments. Lion responded by apparently accepting that, but “politely ask[ed] [Nick Scali] to at least pay 50% of the USD 1.5m approx to be paid by this Friday” (ie 4 October 2024). Negotiations ensued which resulted in Nick Scali paying Lion US$249,982.88 on 4 October and a further US$537,983.00 on 10 October. From that episode, and from Lion’s statements of account of 17 October 2024 that I will come to, it is clear enough that Lion did not follow through with its imposition of a 30 days EOM credit term on all freight invoices, but only on invoices dated 14 October 2024 and thereafter. In other words, Lion appears to have accepted that the reduction in credit terms would apply only to future shipments and not existing shipments. It does not appear to be reasonably arguable to the contrary – there is no serious issue to be tried on that question.

17    On 10 October 2024, Nick Scali learnt from one of its suppliers in China that Lion was behind in making payments to HJT in respect of Nick Scali’s shipments. HJT was apparently not releasing empty containers to the supplier to load goods. Nick Scali took that issue up directly with Lion. Naturally, Nick Scali was very concerned about its imports being delayed.

18    On 12 October 2024, HJT complained to Lion that Lion had not paid amounts owing by it to HJT on time (not only in respect of Nick Scali shipments but also other customers of Lion). As a result, HJT cancelled the 60 days EOM credit terms enjoyed by Lion and demanded payment of August invoices by 16 October and September invoices by 20 October.

19    On 15 October 2024, Lion advised Nick Scali that it had not been able to resolve its differences with HJT and that HJT had started taking steps to stop goods being delivered to Lion. Lion requested Nick Scali to pay US$1.3m by the following day to avoid any further delays on deliveries. As I will come to, that was more than what was at that time due and payable by Nick Scali to Lion on the 45 days EOM terms. It is not clear whether on 30 days EOM credit terms that amount would have been due and payable.

20    At that time, Nick Scali was naturally concerned that if it paid Lion the payment might not be paid to HJT in respect of Nick Scali’s shipments, as opposed to other customers of Lion, or it might not be paid to HJT at all. Nick Scali was concerned that if it paid Lion, it might end up having to still pay HJT in order to get delivery of its goods, and thereby pay twice. As a result, Nick Scali was in direct communication with HJT. It also asked Lion to give a breakdown of the requested amount of US$1.3m, including copies of HJT’s invoices to Lion correlated to Lion’s invoices to Nick Scali. Unsurprisingly, Lion was not prepared to do that. HJT was also not prepared to give Nick Scali copies of its invoices to Lion.

21    What followed from Nick Scali’s request for a breakdown of the US$1.3m and the invoices was an email from Lion’s Financial Controller to Nick Scali saying that on the instructions of the new CEO, Lion was terminating Nick Scali’s account with it with the result that the full amount owing was payable immediately.

22    With considerable justification, Mr Street submits that that conduct amounted to a repudiation of the contract. On that basis, he submits that Nick Scali has a damages claim against Lion. However, as will be seen, the repudiation was never accepted by Lion and the parties continued on the basis that the contract remained alive. There is nothing to show that Nick Scali suffered any loss as a result of that conduct. The same analysis would apply in respect of any claim based on anticipatory breach of the contract.

23    On 17 October 2024, Lion furnished statements of account to Nick Scali. Insofar as the USD account is concerned, all invoices dated before 14 October 2024 and the first five invoices dated that date are recorded as being on 45 days EOM terms. The remaining invoices dated 14 October 2024 and thereafter are reflected as being on 30 days EOM terms. Given that no payments have subsequently been made by Nick Scali, the statements reveal that:

(1)    On the USD account, US$1,786,430.62 is outstanding of which US$720,012.62 is overdue; and

(2)    On the AUD account, A$678,934.24 is outstanding of which A$69,726.33 is overdue.

24    Mr Emmett seeks to make something of the fact that Nick Scali’s own evidence reveals that about US$1.1m and A$68,893.14 of the amounts invoiced are in respect of containers that have already been received by Nick Scali. But save on the question of balance of convenience, I do not see that as having any particular significance. That is because the payment terms are not dependent on receipt by Nick Scali of the goods; whether or not the goods have been delivered, payments become due and payable according to the applicable credit terms.

25    On 23 October 2024, Lion gave instructions to its local road transporter to cease delivering goods to Nick Scali. That is said to be in the exercise of its contractual general and particular lien. Also on 23 October 2024, Nick Scali withdrew Lion’s authority to act for Nick Scali as customs agent with respect to goods shipped from China.

Prima facie case or serious question to be tried

26    The solicitor’s letter of demand on behalf of Nick Scali that preceded the institution of the proceeding stated that the basis for paying into court and on that basis seeking a mandatory injunction that the containers be released to it was that the amounts claimed by Lion as reflected in the 17 October 2024 statements are disputed. That that is the basis for seeking interlocutory relief is also suggested by the negative declaration sought as prayer 1 in the originating application.

27    The evidence, however, reveals that there is no material dispute about the amounts owing. The initial disputation about Lion shortening the credit terms led to Lion only imposing shorter credit terms on future shipments, which is something that Nick Scali accepted. There is therefore no serious issue to be tried in relation to the amounts owing, or when they fall due for payment.

28    The truth is that Nick Scali is substantially overdue in making payment to Lion (in the amounts identified above) and that Nick Scali has not paid those amounts because it fears, with some justification, that even if it pays those amounts it may not get its goods because of the stand-off between Lion and HJT. That, however, provides no contractual basis to resist payment, and it does not provide an answer to Lion’s assertion of its lien.

29    The alternative basis for a claim in aid of which the interlocutory relief is sought is, as mentioned, that Nick Scali has a damages claim for breach of contract against Lion and that the quantum of damages may exceed the amount of the indebtedness to Lion. There is, however, no serious issue to be tried on the question of whether Lion breached the contract and there is no evidence at all on which the quantum of that claim might be assessed even in the most ball-park way.

30    Mr Street submits that the contract is frustrated on account of the actions of HJT stopping deliveries, but that is not established. It was on 15 October 2024 that HJT said that it would stop deliveries, but that was also the due date for payment by Nick Scali of the amounts that are overdue. If Nick Scali had paid Lion that may have enabled Lion to pay HJT, and Nick Scali may have received its deliveries. Of course, one does not know what would have occurred, and one does not know what will occur if Nick Scali now pays Lion the outstanding indebtedness. But it is Nick Scali’s obligation to pay, and the fear that Lion may not pay HJT in respect of Nick Scali’s shipments, or at all, or that for whatever reason HJT may not release the goods, is no present basis to defeat Lion’s lien. Obviously enough, once Nick Scali pays there will be no basis to continue to exercise the lien and the goods will have to be released by Lion. Time will tell whether Lion is willing or able to do so, noting that the costs of exercising the lien (eg storage costs) are for Lion’s account as lienee: China Pacific SA v Food Corporation of India [1982] AC 939 at 962F-H.

31    In the circumstances, the interlocutory application must be dismissed. In view of the urgency of matters and that things may change, I will for the present reserve the question of the costs of the interlocutory application.

Associate:

Dated:    28 October 2024