Consignment Retail Dispute Over Withheld Sale Proceeds: When a retailer nets off commission, can the supplier validly terminate and recover damages in equity with director accessorial liability?

Introduction (Mandatory Fixed Text) Based on the authentic Australian judicial case County Court of Victoria, Commercial Division, Case No CI-23-04366, [2025] VCC 1914, this article disassembles the Court’s judgment process regarding evidence and law. It transforms complex judicial reasoning into clear, understandable key point analyses, helping readers identify the core of the dispute, understand the judgment logic, make more rational litigation choices, and providing case resources for practical research to readers of all backgrounds.

Chapter 1: Case Overview and Core Disputes

Basic Information

Court of Hearing: County Court of Victoria, Commercial Division
Presiding Judge: Her Honour Judge Burchell
Cause of Action: Contract dispute arising out of a consignment-style licensing arrangement; alleged breaches of recordkeeping, remittance of sale proceeds, and return of goods; equitable claims for constructive trust and equitable lien; accessorial liability of a director; defensive contention that the arrangement was a franchise under the Franchising Code and that termination was wrongful
Judgment Date: 19 December 2025
Core Keywords:
Keyword 1: Authentic Judgment Case
Keyword 2: Consignment sale proceeds
Keyword 3: Recordkeeping obligations and software systems
Keyword 4: Constructive trust and equitable lien
Keyword 5: Franchising Code threshold test
Keyword 6: Director accessorial liability and Barnes v Addy

Background

The dispute grew out of a commercial arrangement where the Plaintiff supplied electric bicycles, parts, and accessories to the First Defendant for sale to retail customers under the Plaintiff’s brand and associated systems. The parties’ paperwork used the language of licensing and branding, but the economic reality was a consignment model: stock moved to the retailer, the retailer sold to customers, and the supplier expected the sale proceeds to be remitted in a particular way before commission was calculated and paid.

What turned an ordinary commercial relationship into a lawsuit was not simply a disagreement about margins. It was a breakdown in the machinery of accountability: sales records, the pathway of payments, and the handling of stock once the relationship soured. The Plaintiff alleged that the First Defendant ceased using the agreed software system to record sales, stopped remitting sale proceeds through the agreed payment route, and failed to return goods upon demand. The Second Defendant, as the controlling mind of the First Defendant, was drawn into the dispute through allegations of knowing involvement in breaches of trust and fiduciary obligations.

This chapter deliberately does not reveal the outcome, so the reader can follow the litigation logic the way the Court had to: by reconstructing the agreement, the evidence, and the legal consequences of commercial self-help.

Core Disputes and Claims

The Court was required to determine, in substance, five connected questions:

1. Whether the First Defendant breached contractual obligations to record sales in the Plaintiff’s software system and to provide specific fields of sales data, and if so, what that meant for credibility and quantification of loss.
2. Whether the First Defendant breached contractual obligations to ensure the entire proceeds of sale were paid into the Plaintiff’s bank account or payment systems, and whether the First Defendant could justify “netting” sale proceeds against asserted commission entitlements.
3. Whether the First Defendant breached contractual obligations to return unsold goods upon demand, and whether retention of goods and proceeds after a commercial dispute crossed from breach of contract into equitable wrongdoing.
4. Whether the arrangement was a franchise agreement attracting the Franchising Code of Conduct, and if not, whether the Plaintiff’s conduct still fell to be judged by contractual good faith and the termination machinery of the contract.
5. Whether equitable relief was available, including constructive trust and equitable lien over traceable proceeds, and whether the Second Defendant was personally liable as an accessory to breach of trust or fiduciary duty.

Relief sought by the Plaintiff included damages, interest, declarations, and alternative equitable remedies including equitable compensation and proprietary relief. The Defendants resisted liability and advanced a narrative of unfairness, power imbalance, and justified self-protective conduct, including a contention that the supplier’s conduct amounted to repudiation and that the Defendants’ payment method was a necessary response to survive.

Chapter 2: Origin of the Case

The Relationship Formation and Commercial Expectation

The relationship began in the ordinary way commercial relationships often begin: with earlier supply arrangements and then negotiations about a bigger, more integrated brand-aligned model. In practice, the First Defendant’s stores would stock and sell the Plaintiff’s electric bicycles and related products. The appeal for the First Defendant was clear: access to branded goods without paying upfront purchase prices and without bearing some traditional supply chain costs; the upside was commission on sales and the ability to trade with a recognised brand. The appeal for the Plaintiff was also clear: rapid expansion of brand footprint and sales volume through multiple retail sites without building a wholly owned retail network.

The documents the parties executed were significant, but so were the lived mechanics: who controlled pricing, who controlled customer-facing branding, how sales were processed, and how money moved. This case turned on the uncomfortable truth that commercial trust is often implemented through mundane systems: a payment terminal, a sales database, an inventory spreadsheet, and the discipline of entering serial numbers and customer details.

Financial Interweaving and the Seeds of Conflict

In the early phase, the relationship functioned. The First Defendant sold goods; payments flowed through the agreed path; commission was calculated and paid according to the contractual structure. The parties’ communications later showed the usual friction of a long-term arrangement: stock levels, marketing approvals, the shape of online sales, and the commercial tension between supplier control and retailer autonomy.

The conflict accelerated when, in early 2023, the parties were in dispute about changes to terms and operational controls. The Defendants’ narrative framed the Plaintiff as trying to impose new terms and restrain the retailer’s online presence. In response, the First Defendant changed its method of payment processing and began netting off sale proceeds against what it said was owed to it in commission. The Defendants openly accepted that this payment method was not what the contract required, but contended it was forced upon them by the commercial pressure of unpaid commissions and reduced supply.

In other words, the decisive moment was not a single email. It was a pivot in behaviour: a shift from a structure where customer payments were directed to the supplier and later reconciled with commission, to a structure where the retailer captured proceeds and decided what to remit.

Conflict Foreshadowing: The Breakdown of Accountability

Once a consignment relationship breaks down, two things become existential: inventory reconciliation and cash reconciliation. The Court ultimately had to examine whether the Defendants’ recordkeeping was reliable, whether sales were properly recorded, and whether stock could be accounted for through credible evidence rather than after-the-fact reconstruction.

This is where the litigation story becomes familiar to any commercial practitioner: the party with poor records is vulnerable, not because the Court punishes them for being disorganised, but because the Court cannot safely accept unverified reconstructions when the contract itself required an auditable system.

Chapter 3: Key Evidence and Core Disputes

Applicant’s Main Evidence and Arguments

The Plaintiff’s case was built on four pillars.

1. The Contractual Text and Its Operational Logic
   The Plaintiff relied on express obligations requiring sales to be recorded in the Plaintiff’s software, including customer identity and serial numbers. The Court set out clause 10.2 and accepted that it required recording sales in the Plaintiff’s software and not merely in private spreadsheets:

“10.2 All sales that the Licensee makes through the Franchise Premises must be recorded in the Company’s Software, recording the customer name, address, contact details, SKU of Goods sold, and serial numbers of all Branded Supplies sold.”

The Court held that from 23 February 2023 the First Defendant ceased recording sales in the required software and therefore breached clause 10.2, emphasising the protective function of the clause and rejecting the argument that private Excel records were equivalent because they omitted required information.

1. The Payment Pathway as a Core Performance Obligation
   The Plaintiff relied on the clause requiring the entire proceeds of sale to be paid into the Plaintiff’s account or payment systems:

“20.6 Until property in the Goods passes from the Company the entire proceeds of sale of the Goods shall be the property of the Company and shall be paid into the Company’s bank account, EFTPOS, or other payment systems …”

The Plaintiff’s argument was that this was the central commercial bargain: no upfront payment for goods and delivery, in exchange for strict remittance and reporting. Under that bargain, the First Defendant had no contractual entitlement to set off proceeds against commission.

1. Contemporaneous System Records Versus After-the-Fact Reconstructions
   The Plaintiff deployed business records, including payment terminal and software data, to show discrepancies and gaps, including evidence of unrecorded cash payments and sales inconsistencies relevant to commission disputes. The Court accepted evidence that the First Defendant accepted unrecorded cash payments as early as 19 January 2023, undermining the Defendants’ narrative about non-payment of commission and supporting the Plaintiff’s explanation for withholding commission payments.

2. Quantification Through Structured Methodologies
   The Plaintiff advanced multiple calculation methods supported by spreadsheet workbooks. Method 2 used the Defendants’ discovered sales records to allow commission on recorded sales while charging full retail value for unaccounted bicycles; Method 3 discounted unproven sales and only allowed commission on sales supported by documentation. The Court ultimately made findings that produced a damages figure grounded in unaccounted bicycle sales across two time windows and unaccounted parts.

Respondent’s Main Evidence and Arguments

The Defendants’ case had an emotional narrative and a legal narrative.

1. The Moral Narrative: Small Business Under Pressure
   The Defendants portrayed themselves as a small, family-run business pushed toward insolvency by the supplier’s withholding of commissions and changes to supply and terms. Their argument was that netting off proceeds was the only practical survival mechanism.

2. The Legal Re-characterisation: Franchise Not Licence
   The Defendants contended that the agreement should be treated as a franchise agreement under the Franchising Code, implying the Plaintiff’s conduct should be scrutinised under Code obligations and that termination should be restricted.

3. The Termination and Repudiation Defence
   The Defendants alleged that the Plaintiff committed prior breaches, including withholding commissions, failing to supply stock, and revoking access to the sales system, and that the Plaintiff’s termination was wrongful or amounted to repudiation.

4. The Accounting Position: Concessions With Unstable Numbers
   In oral submissions, the Defendants offered changing numbers about the quantity sold, the quantity returned, and the average wholesale value, which the Court treated as a credibility problem. The Court noted shifting figures and the practical reality that the Defendants lacked stable business records, making them reliant on the Plaintiff’s evidence.

Core Dispute Points

1. Recordkeeping: whether sales were recorded in the contractually required software and with required data fields, and what inference should be drawn from omissions.
2. Proceeds: whether the First Defendant was required to remit entire proceeds through the agreed pathway and whether it could lawfully net commissions.
3. Stock return: whether goods were returned on demand and what remedies flowed from retention of stock and proceeds.
4. Characterisation: whether the Franchising Code applied, particularly whether the Code’s threshold elements were met.
5. Equity: whether fiduciary obligations existed and were breached, whether a constructive trust or equitable lien arose, and whether the director was an accessory.

Chapter 4: Statements in Affidavits

How Affidavits Tried to Turn Commerce Into Proof

This case illustrates an affidavit truth: affidavits do not merely tell facts; they organise a theory of the case. The Plaintiff’s affidavits and witness statements sought to show an orderly commercial system: goods delivered, sales supposed to be recorded, proceeds supposed to be remitted, commission calculated after verification, and termination triggered by specific defaults.

The Defendants’ affidavits attempted to do something harder: justify a departure from the contract by reframing the contract as a franchise, reframing non-payment of commission as a prior breach, and reframing netting as a necessity. In commercial litigation, necessity is not a legal defence to contractual breach unless the contract itself creates a discretion or unless equitable doctrines can be engaged. The evidentiary burden therefore becomes steep: necessity must be supported by reliable contemporaneous data, not only assertion.

Comparing Expressions of the Same Fact

A key example is the fact of payment processing after 23 February 2023. The Plaintiff framed it as a deliberate cessation of compliance: sales proceeds that should have been remitted were instead retained, and the retailer substituted its own payment systems. The Defendants framed it as a change of processing method while attempting to ensure the supplier received netted amounts and to avoid immediate insolvency.

The Court’s approach shows how judges resolve affidavit conflict in commercial cases: by turning to objective anchors, such as the contractual text, payment system data, software records, and the stability of numerical assertions under cross-examination.

Strategic Intent Behind Procedural Directions

The case also shows the discipline courts impose when corporations appear unrepresented. The First Defendant’s counterclaim was stayed because it did not comply with procedural rules governing representation of corporations and the required application for leave for non-lawyer representation. That procedural setting mattered: it narrowed the effective battlefield to liability and quantum in the Plaintiff’s claim and limited the Defendants’ ability to litigate an affirmative commercial counter-narrative through a pleaded counterclaim.

Chapter 5: Court Orders

Pre-hearing Procedural Architecture

Before final judgment, the Court’s procedural directions did several practical things:

1. Managed representation issues for a corporate party, including compliance with rules about non-solicitor representation.
2. Stayed the First Defendant’s counterclaim due to procedural non-compliance, effectively confining the dispute to the Plaintiff’s claim and defences.
3. Required the parties to file a statement of issues for determination, sharpening the trial to discrete questions including breach, termination, the Franchising Code threshold, and equitable remedies.
4. Managed evidentiary issues, including reliance on spreadsheet workbooks, sales records, and payment system data, and the consequences of incomplete records.

In commercial litigation, these procedural steps are not mere housekeeping; they shape the evidentiary contest and often determine which party bears practical risk in proof.

Chapter 6: Hearing Scene: Ultimate Showdown of Evidence and Logic

Process Reconstruction: Live Restoration

Commercial trials rarely look like courtroom drama. They look like spreadsheets, admissions, and sustained probing of credibility. Yet this case had a clear “hearing scene” because the dispute depended on whether the Court could rely on the Defendants’ narrative and numbers.

The Plaintiff’s approach was to lock the Defendants into the contract’s operational obligations and then confront deviations: stopping use of the required software system, changing payment pathways, and failing to return goods upon demand. The Defendants’ approach was to justify deviations through alleged prior breaches and commercial pressure.

A key turning point in the hearing dynamic was how the Court treated unsatisfactory witness evidence. The Court relied on the hallmarks of unsatisfactory evidence articulated in authority and found that the Second Defendant’s evidence displayed those features during examination-in-chief and cross-examination:

“This list included the following: (1) evasive and argumentative answers; (2) tangential speeches avoiding the questions; (3) blaming legal advisers for documentation; (4) discovery and evidence shortcomings; (5) self-contradiction; (6) internal inconsistency; (7) shifting case; and (8) selective disclosure of documents or information.”

In plain terms, the hearing revealed a structural imbalance: the Plaintiff had a system narrative supported by records; the Defendants had a necessity narrative not anchored by stable business records.

Core Evidence Confrontation: The Spreadsheet War and the Missing Bikes

The decisive confrontation concerned stock reconciliation after the payment pathway changed. The Court examined the Plaintiff’s workbook methodologies and the Defendants’ concessions about sold and returned units. The Defendants’ numbers shifted, and the Court was persuaded that the Defendants were relying on the Plaintiff’s records rather than their own.

The Court recorded the Plaintiff’s counsel’s position in oral submissions, which captured the evidentiary principle underpinning the Plaintiff’s case: once the Plaintiff had produced structured calculations and the Defendants had long had access to them, the burden shifted in practical terms to the Defendants to identify credible flaws:

“… these spreadsheets were provided … prior to trial, and … Mr Raad had the chance in both his submissions and in his evidence and cross-examination, to pick out any flaws … and so, it’s now on [the defendants] to convince you that this spreadsheet might be wrong in a certain way. It’s not on me to justify …”

The Court also observed numerical instability in the Defendants’ oral submissions about bikes sold and bikes returned, noting that the changing numbers were more consistent with the Plaintiff’s argument that the Defendants lacked their own reliable records.

Judicial Reasoning: How Facts Drove the Result

The judicial logic in this hearing can be summarised as a chain:

1. The contract required auditable recording of sales in the Plaintiff’s software with specified fields and serial numbers.
2. The Defendants admitted they stopped doing this from 23 February 2023 onwards and substituted incomplete spreadsheets.
3. The contract required sale proceeds to be paid into the Plaintiff’s account or systems.
4. The Defendants admitted they changed the method of payment, and the Court rejected any unilateral entitlement to net proceeds against commission in a way inconsistent with the contract’s structure.
5. Once recordkeeping and payment compliance failed, the Defendants’ later reconstruction of sales and stock lacked the reliability needed to defeat the Plaintiff’s structured quantification.
6. The Defendants’ retention of goods and proceeds as leverage crossed into breach of fiduciary obligation, justifying equitable responses.

This was not a case decided by rhetorical dominance. It was decided by whether the Court could be reasonably satisfied, on the evidence, that the Defendants’ figures were reliable. The Court’s reasoning repeatedly returned to the central commercial reality: a party cannot deliberately substitute its own accounting system when the bargain required a controlled and auditable system, and then ask the Court to treat that substitution as harmless.

Chapter 7: Final Judgment of the Court

Orders and Result

The Court entered judgment for the Plaintiff and made both monetary and declaratory orders.

1. Monetary Relief
   The Court awarded damages calculated in respect of unaccounted bicycle sales and unaccounted parts, totalling $752,770.66, less set-off for Netted Payments of $111,225.00, resulting in $641,545.66. The Court also ordered payment of an admitted debt amount and interest pursuant to statute.

2. Equitable Relief in the Alternative
   The Court recognised equitable compensation as an alternative to damages and also addressed proprietary relief through constructive trust and equitable lien analysis.

3. Declarations and Director Liability
   The Court was prepared to make declarations that the First Defendant breached the agreement, breached trust duties owed in respect of proceeds, and that the Second Defendant procured or was knowingly involved in breach of trust. The Court also made a declaration recognising an equitable lien over remaining goods and traceable proceeds, for utility in enforcement if the First Defendant could not satisfy the monetary judgment.

4. Procedural Directions
   The Court invited draft orders giving effect to the reasons and indicated costs would be dealt with on the papers if not agreed.

Chapter 8: In-depth Analysis of the Judgment: How Law and Evidence Lay the Foundation for Victory

Special Analysis

This judgment has jurisprudential value because it cleanly separates three ideas that are often blurred in franchise-adjacent commercial disputes:

1. Naming Does Not Control Legal Characterisation
   The Defendants attempted to re-characterise the agreement as a franchise so the Franchising Code would apply. The Court approached this as a threshold test and found that the Code did not apply because the agreement did not satisfy the Code’s requirements concerning payments and substantial control of a marketing plan.

2. Contractual Self-Help Is Not a Licence to Breach
   The Defendants’ “netting off” approach is commercially intuitive to some retailers, but the judgment demonstrates that where the contract sets a strict remittance pathway and a separate commission calculation process, unilateral set-off through withholding proceeds tends to be treated as a fundamental departure.

3. Equity Responds to Leverage-Based Retention of Another’s Property
   The Court treated retention of goods and diversion/withholding of proceeds as inconsistent with fiduciary duties arising in a bailment-consignment context, justifying constructive trust and equitable lien analysis. This shows the Court’s willingness to treat certain commercial conduct as more than a mere failure to pay: it becomes an unauthorised appropriation of property held for another’s benefit.

Judgment Points

1. The Franchising Code Threshold Was Not Met
   The Court accepted that the Code did not apply because the relevant requirements were not satisfied. In relation to clause 5(1)(b), the Court acknowledged some supplier control for brand protection, but held the clauses did not amount to a marketing plan substantially determined, controlled, or suggested by the supplier, because the retailer retained broad scope for local advertising and the supplier’s obligations were limited and discretionary.

2. Recordkeeping Was Not a Technicality, It Was the Proof Engine
   The Court treated clause 10.2 as serving a protective function: it enabled verification, internal bookkeeping, and accuracy checking before commission was remitted. The Court rejected the argument that it was enough for the retailer to keep its own records, partly because the contract specified the software and partly because the retailer’s spreadsheets omitted required information.

3. Commission Disputes Did Not Justify Abandoning the Payment Pathway
   The Court accepted that commission invoices were not paid in early 2023, but found reliable evidence that the retailer accepted unrecorded cash payments earlier than alleged and breached recording obligations. The practical effect was that the Court accepted the supplier’s explanation that commission was withheld because the retailer had not complied with the verification and recording structure.

4. Quantification Favoured the Party Who Preserved Auditability
   The Court analysed multiple workbook methodologies and recognised inconsistencies, yet treated the supplier’s calculation approach as more reliable because it was built against the background of unreliable recordkeeping by the retailer. The Court’s final damages figure was not a rubber stamp of a claimed headline number; it was a judicially constructed figure grounded in identified unaccounted sales and parts.

5. No Express Trust, But Equity Still Intervened
   The Court rejected an express trust over proceeds because clause 20.6 did not objectively impute an intention that proceeds be kept separate, relying on authority that a trust is not inferred where proceeds are not required to be segregated. Yet the Court found fiduciary obligations and constructive trust based on breach of those obligations and, alternatively, misappropriation principles.

6. Constructive Trust and Equitable Lien as Enforcement Tools
   The Court accepted the utility of declarations recognising proprietary entitlement to traceable proceeds if the debtor could not satisfy judgment. This is a practitioner’s lesson: proprietary remedies may matter most when solvency risk is real.

7. Director Liability Was Not Avoided by Corporate Form
   The Court treated the Second Defendant, as sole director and shareholder, as the directing mind and accepted accessorial liability principles, including the second limb of Barnes v Addy and procuring/inducing breach of fiduciary duty, and found the director’s participation was essential to the conduct.

8. Liability Caps Must Be Read in Context
   The Court interpreted a $500,000 cap clause as applying to indemnity obligations, not as a cap on the separate obligation to pay damages for breach, rejecting the attempt to invoke it as a universal shield.

Legal Basis

Key statutory and doctrinal foundations referenced or engaged in the Court’s reasoning included:

1. Franchising Code Threshold Definition
   Competition and Consumer (Industry Codes – Franchising) Regulations 2014 (Cth) sch 1, cl 5(1)(b) and cl 5(1)(d). The Court applied these as threshold tests and found the Code did not apply.

2. Standard of Proof for Serious Allegations
   Evidence Act 2008 (Vic) s 140 and the Briginshaw principle were referenced in relation to serious allegations (such as accusations of improper commissions or coercion) and the need for cogent evidence.

3. Equity and Fiduciary Doctrine
   Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 was relied upon for the conceptual foundation that contractual and fiduciary relationships may co-exist and that fiduciary obligations must conform to the contract’s structure.

4. Constructive Trust Framework
   Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc [2018] VSC 413 was used to articulate that constructive trusts are serious measures grounded in established equitable principle and not vague fairness.

5. Equitable Lien Preconditions
   Hewitt v Court (1983) 149 CLR 639 was used to articulate indicative preconditions for an equitable lien in a contractual relationship.

6. Accessorial Liability
   Barnes v Addy (1874) LR 9 Ch App 244, and subsequent authority discussing dishonest and fraudulent design, assistance, and knowledge were applied to director participation.

Evidence Chain

This judgment is a textbook demonstration of the five-link structure: Statutory Provisions and Contractual Terms → Evidence Chain → Judicial Original Quotation → Losing Party’s Reasons for Failure → Remedy.

The core evidence chain ran as follows:

1. Contract required sales recording in the supplier’s software with specified fields and serial numbers.
2. Admission and objective evidence showed the retailer ceased using that software from 23 February 2023 and substituted incomplete spreadsheets.
3. Contract required proceeds to be paid into the supplier’s payment systems.
4. Admission showed the retailer changed payment processing and retained proceeds while netting amounts.
5. Stock and sales numbers became unstable because recordkeeping was unreliable.
6. The supplier’s structured workbook methods were preferred because they used shipped, sold, returned, and recorded sales data and exposed unaccounted units.
7. Retention of goods and diversion/withholding of proceeds after dispute and demand for return was treated as leverage conduct inconsistent with holding property for another’s benefit.

Judicial Original Quotation

Two extracts capture why the Court’s reasoning was determinative.

First, on why recordkeeping was not satisfied by private spreadsheets:

“Clause 10.2 served a protective function: it enabled [the supplier] to verify sales, undertake internal bookkeeping, and confirm the accuracy of sales data before remitting commission … In addition, the Excel workbooks … did not comply … as they variously omitted customer names, addresses, contact details, SKUs … and serial numbers …”

This statement mattered because it converted a technical breach into a credibility and quantification consequence: without the required fields and system, the Defendants could not safely ask the Court to accept their reconstructions.

Second, on the fiduciary character of leverage conduct and why equity intervened:

“Hi5 Scooters deliberately used the [supplier]’s Goods and their proceeds as leverage to advance its own commercial interests, rather than dealing with them for the [supplier]’s benefit. That conduct was inconsistent with the duty of loyalty … and amounted to an unauthorised appropriation of [the supplier]’s property.”

This statement mattered because it moved the case beyond a simple unpaid invoice dispute. It justified constructive trust and equitable lien analysis and supported personal liability findings against the director as the controlling mind.

Analysis of the Losing Party’s Failure

The Defendants’ failure was not merely that they breached. It was that they breached in a way that destroyed the evidentiary foundation needed to defend quantum and to justify conduct.

1. The Defendants conceded the payment method was contrary to the contract, yet relied on necessity rather than contractual or equitable entitlement. Necessity without reliable financial evidence rarely defeats clear contractual structure.
2. The Defendants substituted private spreadsheets for a contractually specified system and omitted key fields that were designed to enable verification.
3. The Defendants’ oral numbers shifted on critical facts: units sold, units returned, and the basis for average pricing, which undermined credibility.
4. The Defendants attempted to invoke franchising regulation, but the Code threshold elements were not proven.
5. The Defendants framed the supplier’s conduct as repudiation, but the Court accepted evidence that the retailer’s own breaches, including unrecorded payments and recordkeeping failures, explained commission non-payment disputes, and the Court did not accept that repudiation justified withholding proceeds and retaining stock.
6. By using goods and proceeds as leverage, the Defendants opened the door to equity: once conduct is characterised as an unauthorised appropriation of another’s property held for their benefit, equitable proprietary remedies and accessory liability become realistic outcomes.

Key to Victory

The successful party’s most decisive assets were not only its contractual clauses, but its auditability story.

1. Clear drafting of recordkeeping obligations specifying the system and required data fields.
2. A payment pathway clause that left little ambiguity: proceeds belonged to the supplier until title passed and were to be paid to the supplier’s account or systems.
3. Contemporaneous system records, including payment and software data, used to challenge the Defendants’ narrative about commissions and timing.
4. Structured quantification workbooks that allowed the Court to see how shipped stock, recorded sales, and returns were reconciled, making missing units visible.
5. A disciplined litigation posture: presenting alternative calculation methods, allowing the Court to choose a figure grounded in the evidence and the reliability of proof.

Reference to Comparable Authorities

1. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
   Ratio: Contractual relationships may coexist with fiduciary obligations where one party undertakes to act for or in the interests of another in the exercise of a power or discretion affecting that other party, but any fiduciary obligation must conform to the contract’s terms.

2. Barnes v Addy (1874) LR 9 Ch App 244
   Ratio: A third party may be liable in equity for knowing assistance in a dishonest and fraudulent design by a fiduciary, with liability depending on assistance and requisite knowledge of circumstances constituting the breach.

3. Hewitt v Court (1983) 149 CLR 639
   Ratio: An equitable lien may arise, independently of agreement, where there is a contractual relationship, an actual or potential indebtedness connected to identifiable property, and unconscientiousness in allowing the owner to dispose of the property free of the other party’s claim.

Implications

1. If you are in a consignment or brand-linked retail relationship, treat recordkeeping clauses as the Court treats them: as the proof engine. If you stop using the required system, you are not merely breaching; you may be sabotaging your future ability to defend yourself.
2. Commercial pressure is real, but courts expect contractual discipline. If commission disputes arise, the safer path tends to be formal dispute resolution, injunctive relief, or debt recovery, not unilateral capture of proceeds and self-calculated set-off.
3. Numbers that shift under pressure damage credibility. If you anticipate litigation, stabilise your accounting position early, preserve raw data, and avoid “average price” shortcuts unless you can justify them with primary records.
4. When you hold another party’s property or its proceeds for their benefit, using that property as leverage can attract equity. The legal consequences can move from damages to proprietary remedies, changing the enforcement landscape.
5. Directors should not assume the corporate veil is a universal shield. Where the company’s conduct is directed by a sole controller and equity is engaged, accessorial liability can become a serious personal risk.

Q&A Session

Q1: Why did the Court treat private spreadsheets as insufficient if they still showed sales?

Because the contract required sales to be recorded in the supplier’s software with specified fields, including customer identifiers and serial numbers. The Court treated that system requirement as a protective mechanism enabling verification before commission was calculated, and found that the private spreadsheets omitted required information and were not equivalent.

Q2: If commissions were unpaid, why could the retailer not just net them off against sale proceeds?

Because the contract’s structure made commission a post-verification consequence of remitting the entire proceeds through the supplier’s payment systems. Netting off changes the bargain by allowing the retailer to capture and control proceeds first. Courts tend to treat that as unilateral self-help inconsistent with the contract unless the contract expressly allows set-off or the law supplies a right in the circumstances.

Q3: How can equity apply in a commercial supply dispute—wasn’t this just a contract case?

Equity can apply where one party holds property or proceeds for another’s benefit and uses control over that property in a way inconsistent with duties of loyalty and accounting. The Court treated leverage-based withholding of goods and proceeds as inconsistent with holding property for the supplier’s benefit, supporting constructive trust and equitable lien analysis, and then analysed director liability under accessorial principles.

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Appendix: Reference for Comparable Case Judgments and Practical Guidelines

1. Practical Positioning of This Case

Case Subtype: Commercial Consignment Supply and Licensing Dispute with Franchise Characterisation Defence and Equitable Proprietary Relief
Judgment Nature Definition: Final Judgment

2. Self-examination of Core Statutory Elements

Core Test 1: Contract Formation

Step 1: Offer
Identify whether one party made a clear promise to supply goods on defined terms, including pricing control, branding use, and the method by which sales would be processed.

Step 2: Acceptance
Identify whether the counterparty accepted those terms objectively, including by signing the agreement and acting in reliance on it through taking stock, operating stores, and processing sales.

Step 3: Consideration
In consignment-style structures, consideration often includes mutual promises: supply without upfront purchase and the retailer’s promise to remit proceeds and comply with system and branding obligations.

Step 4: Intention to Create Legal Relations
Commercial dealings tend to satisfy this element, but practitioners should still verify whether the agreement is framed as binding and whether conduct supports binding intent.

Risk Warning
If the parties used templates or ambiguous labels, there is a relatively high risk that disputes will arise about characterisation. The safer course tends to be to identify the actual economic structure and write clauses that match it.

Core Test 2: Section 18 of the Australian Consumer Law

Step 1: Conduct in Trade or Commerce
Identify the relevant conduct, such as representations about supply, commission, marketing approvals, or rights to use branding.

Step 2: Misleading or Deceptive Conduct
Assess whether representations were objectively misleading or likely to mislead a reasonable target audience in context.

Step 3: Materiality
Assess whether the conduct was material to the decision to enter, continue, or terminate the relationship.

Step 4: Reliance and Loss
If alleging loss, show a causal chain between misleading conduct and measurable loss, noting courts often require more than general grievance.

Risk Warning
In many commercial disputes, s 18 claims tend to be determined by the availability of contemporaneous documents. If representations were largely verbal and undocumented, the risk of failure is relatively high.

Core Test 3: Unconscionable Conduct

Step 1: Special Disadvantage
Identify whether a party suffered a special disadvantage, such as inability to understand documents, severe vulnerability, or exploitation of urgent necessity.

Step 2: Taking Advantage
Assess whether the counterparty took advantage in a way against conscience, not merely driving a hard bargain.

Step 3: Systemic Context
Consider bargaining power and sophistication. In business-to-business disputes between experienced operators, unconscionability is often harder to establish absent clear exploitation.

Risk Warning
Allegations of unconscionability tend to require strong evidence. Courts are reluctant to convert commercial unfairness into unconscionability without clear special disadvantage and exploitation.

3. Equitable Remedies and Alternative Claims

Promissory or Proprietary Estoppel

Step 1: Clear Promise or Representation
Identify a clear promise such as guaranteed supply levels, guaranteed commission structures, or guaranteed marketing support.

Step 2: Detrimental Reliance
Identify conduct undertaken in reliance, such as store fit-outs, staff hiring, marketing expenditure, or exclusive dealing commitments.

Step 3: Unconscionability of Resiling
Assess whether it would be against conscience for the promisor to withdraw, especially where reliance was encouraged.

Result Reference
Even without a written variation clause being satisfied, equity may in some circumstances constrain withdrawal from a clear assurance. However, where the contract has strong variation formalities, the risk of estoppel failing is relatively high unless the promise is unequivocal and reliance is substantial.

Unjust Enrichment or Constructive Trust

Step 1: Benefit Received
Identify whether one party received money or other benefits at the other’s expense, such as proceeds from consigned goods.

Step 2: At the Expense of the Other
Show the direct connection between the benefit and the other party’s property or entitlement.

Step 3: Against Conscience to Retain
Assess whether retention is against conscience, particularly if the party held the benefit for another’s purposes.

Result Reference
Where proceeds of another’s goods are withheld and used as leverage, courts may be willing to impose equitable remedies, including constructive trust or equitable lien, especially if traceability exists.

Procedural Fairness as a Counter-attack Path

Where a party alleges termination was harsh or unjust, procedural fairness arguments can be reframed as contract compliance arguments:

Step 1: Notice Machinery
Check whether the contract required notice of default and an opportunity to remedy.

Step 2: Remedy Window
Assess whether the remedy period was reasonable and whether the breach was capable of remedy.

Step 3: Good Faith Performance
Where a good faith clause exists, assess whether termination was exercised honestly and with fidelity to the bargain.

Risk Warning
Good faith does not usually require a party to subordinate its legitimate commercial interests. Arguments that a party should have absorbed losses to keep the relationship alive tend to be relatively high risk without contractual support.

4. Access Thresholds and Exceptional Circumstances

Regular Thresholds in Comparable Commercial Disputes:

1. Contractual limitation periods and statutory limitation periods for debt and contract claims.
2. Notice and cure periods in default and termination clauses.
3. Variation clauses requiring written agreement to alter commission or supply obligations.
4. Recordkeeping obligations specifying systems and data fields.

Exceptional Channels:

1. If strict notice requirements were not followed, relief may still be available where termination is otherwise justified by repudiation, but the evidentiary and legal risk tends to be high.
2. If a party is locked out of a required system by the counterparty, the locked-out party may have a stronger argument for non-compliance during the lockout period, but it may not cure earlier non-compliance.

Suggestion
Do not abandon a potential claim simply because you missed a procedural step. Carefully compare your conduct against contractual exceptions and common law doctrines such as waiver, election, and affirmation, because these often determine whether termination rights remain available.

5. Guidelines for Judicial and Legal Citation

Citation Angle
It is recommended to cite this case in submissions involving consignment arrangements, retailer diversion of proceeds, recordkeeping clauses as protective audit mechanisms, equitable proprietary relief for withheld proceeds, and director accessorial liability.

Citation Method
As Positive Support: When your matter involves a retailer withholding proceeds and substituting private recordkeeping contrary to contract, citing this authority can strengthen the argument that such conduct undermines auditability and supports a structured quantification approach.
As a Distinguishing Reference: If the opposing party cites this case, emphasise uniqueness such as explicit contractual set-off rights, robust contemporaneous retailer records, or evidence that proceeds were segregated and remitted consistently, to argue that equitable proprietary relief is not warranted.

Anonymisation Rule
In public-facing commentary, use procedural titles such as Plaintiff, First Defendant, and Second Defendant rather than party names.

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Conclusion

This judgment demonstrates a simple legal truth with commercial force: when a contract builds accountability into systems, a party that dismantles those systems bears the risk of uncertainty. The Court’s reasoning shows that reliable proof, not rhetorical necessity, decides disputes about money and stock.

Golden Sentence
Everyone needs to understand the law and see the world through the lens of law: in commerce, true self-protection stems from early understanding and mastery of the rules that turn trust into proof.

Disclaimer

This article is based on the study and analysis of the public judgment of the County Court of Victoria (Commercial Division), [2025] VCC 1914, aimed at promoting legal research and public understanding. The citation of relevant judgment content is limited to the scope of fair dealing for the purposes of legal research, comment, and information sharing.

The analysis, structural arrangement, and expression of views contained in this article are the original content of the author, and the copyright belongs to the author and this platform. This article does not constitute legal advice, nor should it be regarded as legal advice for any specific situation.

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