Australian Communications Corporation v Coles Group Ltd

[2011] VSC 490

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 5434 of 2000

BETWEEN

AUSTRALIAN COMMUNICATIONS CORPORATION PTY LTD (ACN 072 205 059)	First Plaintiff
OVID PROSILIS	Second Plaintiff
and
COLES GROUP LTD (FORMERLY COLES MYER LTD) (ACN 004 089 936)	Defendant

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JUDGE:	CAVANOUGH J
WHERE HELD:	Melbourne
DATE OF HEARING:	10-14, 17-20, 24-28, & 31 May; 3, 4,  8-11, & 15 June 2010
DATE OF JUDGMENT:	28 September 2011
CASE MAY BE CITED AS:	Australian Communications Corporation & Anor v Coles Group Ltd
MEDIUM NEUTRAL CITATION:	[2011] VSC 490

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CONTRACT – Formation – Whether contracts formed in fact – Plaintiffs allege oral or principally oral contract on particular terms to audit the production and distribution of defendant’s subsidiaries’ advertising catalogues and to implement changes – Extensive conflicting evidence – Formation of alleged contract not established – Plaintiffs also allege separate oral contract to distribute fifty percent of all defendant’s subsidiaries’ catalogues – Extensive conflicting evidence – Formation of alleged separate contract not established – Preliminary questions answered accordingly

CONTRACT – Interpretation – Plaintiffs allege contractual assignment of estoppel and quantum meruit claims – Contract of assignment not shown to cover those claims – Preliminary questions answered accordingly

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M Heaton QC with Ms M Wilkening-Le Brun	Giampiccolo & Co.
For the Defendant	Mr P Almond QC with Mr S Parmenter	Mallesons Stephen Jaques

HIS HONOUR:

Introduction and overview

1. In late 1992 the second plaintiff (‘Prosilis’) was an ambitious 28 year old marketing man based in Sydney.  For the previous five years he had been employed by Woolworths in positions relating to its national advertising and marketing activities.  He had gained considerable experience in connection with the production and distribution of advertising catalogues.  He wanted to turn this to his own account, in a very large way. 

1. Prosilis set up a private company, Australian Catalogue Corporation Pty Ltd (‘ACC’), to provide services to clients in this field.  Prosilis and his then wife were the sole shareholders and directors of ACC.  At the same time ACC was quietly taking steps with a view to acquiring a substantial interest in, or assuming control of, a certain network of State based letter box distribution companies called ADN.

1. In about March 1993 ACC set its sights on the defendant, then called Coles Myer Ltd (‘CML’), as a potential major client.  CML was a large public company with several well known retail subsidiaries, including Myer Stores Limited (also known as Myer Grace Brothers (‘MGB’)), Coles Supermarkets Australia Pty Ltd, Kmart Australia Ltd and Target Australia Pty Ltd, among others.  At that time the companies in the CML group were commissioning, between them, approximately 650,000,000 catalogues per year.  This was more than any other organisation in Australia.  Over several months ACC sought to persuade CML and its subsidiaries that they could save many millions of dollars on catalogues by using the services of ACC. 

1. Indeed, the plaintiffs claim that on 12 November 1993 ACC entered into a binding agreement (now called by the plaintiffs ‘the audit and implementation agreement’) with CML under which ACC was to audit the production and distribution of catalogues by certain of CML’s subsidiaries so as to identify savings in relation thereto and then to implement savings; and that CML was to pay fees to ACC calculated as 12.5% of savings identified by ACC and implemented by CML or 7% of savings identified by ACC but not implemented by CML.  The plaintiffs further claim that pursuant to the agreement ACC identified numerous savings; that many of these were actually implemented; that CML wrongly refused to pay fees to ACC on the percentage basis and wrongly repudiated the agreement; that by a deed of assignment executed in December 1995 ACC assigned its rights and interests under the agreement to the first plaintiff (‘ACOM’); and that CML is accordingly liable to pay amounts to ACOM by way of unpaid fees together with damages for breach of the so-called audit and implementation agreement. 

1. Alternatively, the plaintiffs claim that CML is estopped from denying that it entered into the audit and implementation agreement with ACC.  In the further alternative, the plaintiffs claim that ACC was entitled to remuneration on a quantum meruit.  They contend that both the estoppel claim and the quantum meruit claim have been duly assigned by deed to ACOM.

1. The current statement of claim – the Amended Further Amended Statement of Claim dated 4 June 2010 (‘AFASC’) - also includes a section headed ‘Unjust Enrichment’ which incorporates by reference the same allegations as underpin the claim made by ACOM for unpaid remuneration under the audit and implementation agreement.  However it seems that the unjust enrichment claim is no longer pressed.[1]

   [1]See paragraph 221 of CML’s final written submissions dated 9 June 2010, as amended on 15 June 2010, to which the plaintiffs made no response in their closing submissions.

1. Next, the plaintiffs claim that on 6 October 1994 CML entered into a binding agreement with Prosilis to provide to a company to be formed by him (hence not ACC) 50 percent of the letter box distribution work of all of CML’s subsidiaries for a period of five years on certain terms.  Prosilis incorporated ACOM in December 1995.  ACOM claims to be the company entitled to the benefit of the alleged agreement (which the plaintiffs call ‘the letter box distribution agreement’).  ACOM says that CML broke the agreement by refusing to provide it with any catalogue distribution work.  Damages are claimed by ‘Prosilis and/or ACOM’[2] for this alleged breach of the alleged agreement.

   [2]AFASC, [44].

1. Each of the two pleaded agreements is alleged to have been made, at least in large part, orally.

1. The plaintiffs’ particulars of loss and damage[3] quantify the combined claim under the so-called audit and implementation agreement at $6,630,979.  The claim for damages under the so-called letter box distribution agreement is quantified at $24,030,933.  This makes a grand total of some $30 million, not including interest.[4]

   [3]Court Book (‘CB’), 321-324.

   [4]By now the claim for interest alone would presumably exceed the grand total of the principal claims.

1. ACC went into liquidation in mid 1996 at the instigation of creditors. 

1. The plaintiffs issued the writ in this proceeding in 2000.  Almost a year later, in 2001, they served it on CML.  CML vigorously denies all liability.  It also disputes all or most elements of the claimed quantum.

1. This proceeding was not entered in a judge-managed list.  I had no involvement in the interlocutory stages.  The proceeding was set down for trial on an estimate that it would occupy six weeks of hearing time.  At the outset the plaintiffs’ senior counsel handed up a document entitled ‘Notes of Opening’.  It was 100 pages long, closely typed, with 529 paragraphs and hundreds of cross-references to documents.  As senior counsel’s opening progressed from day to day, it became apparent that a full hearing of all of the issues, including quantum, would take very much longer than six weeks, notwithstanding that witness statements of the proposed witnesses had been ordered and filed.  On the fifth day of the opening the defendant’s senior counsel submitted that the court should hear and determine certain preliminary questions. As later refined, the proposed questions were, in substance, whether either of the alleged binding agreements had ever been entered into at all, whether any estoppel had arisen in favour of ACC and whether the relevant deed of assignment covered either the estoppel claim or the quantum meruit claim. It became virtually common ground that preliminary questions along these lines should be isolated and determined in advance. In due course I made an order accordingly under Rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2005.[5]

   [5]See further below.

1. The trial of the preliminary questions has itself been challenging for all concerned.  The events in question happened some 6 or 7 years before the proceeding was commenced.  The plaintiffs then took a further 10 years to bring the proceeding on for trial, a total of 16 or 17 years after the events complained of.  (They claim that the defendant was difficult in relation to particulars and discovery).  The plaintiffs have been obsessive about detail.  They rely, albeit for limited purposes[6], on the alleged conduct of the parties (including numerous alleged conversations) over a lengthy period, and on statements in, and inferences from, numerous documents.  Their senior counsel said during final submissions that Prosilis had ‘lived and breathed this case for approximately 16 years’.[7]  Prosilis himself said in evidence that he had worked on his first witness statement constantly for about seven months or more.[8]  He said that at one stage the draft reached 1,000 pages.[9]  Ultimately it was ‘reduced’ to 271 pages and 589 paragraphs, not including the various schedules thereto.  Nearly every paragraph contains a cross-reference to a document or multiple cross-references to documents.  The schedules are also very extensive.  Schedules 1-9 comprise a series of indexes to other documents.  These particular indexes, alone, are 253 pages long.  The first of them – Schedule 1 – is a 43 page index of the invoices and other commercial records of MGB which Prosilis allegedly analysed in the course of auditing MGB’s catalogue expenditure.  The remaining schedules relate wholly or mostly to quantum:  schedules 2-9 are indexes to the (further) primary or source documents (mainly discovered by the defendant) on which the plaintiffs would now rely to prove their case on quantum; schedules Q1-Q13 are mainly spreadsheets and tables created by the plaintiffs relating to the quantification of their claims for remuneration and damages; and schedules P1, PA and P2-P13 are principally additional tables and spreadsheets of a similar kind. 

   [6]See below under the heading Formation of the alleged contracts:  the case actually put by the plaintiffs and the relevant legal principles.

   [7]Transcript, 1862.

   [8]Transcript, 735.

   [9]Transcript, 790 and 858.

1. Mercifully, it has not so far been necessary to read Prosilis’ lengthy second witness statement, which relates only to questions of quantum.  However, his third witness statement, which was filed in reply to the defendant’s witness statements, is itself 37 pages long and, like his first witness statement, it contains a multiplicity of cross-references to documents. 

1. The state of the court book has produced further difficulties.  It is about 10,000 pages long, not counting index volumes.  (This is in addition to the witness statements.)  It is in 3 sections.  Section 1 comprises current pleadings, and is contained in a single volume – a mere 324 pages.  Section 2 comprises documents all of which relate to liability.  It consists of an index volume and a further 9 thick, untabbed volumes containing 3969 pages.  Section 2 is not in consistent chronological order or in any other sensible order.  The index volume is of little or no help.  Section 3 relates mainly but not exclusively to questions of quantum.  Altogether section 3 consists of 17 volumes.  The first is a large index volume which, again, is virtually useless for present purposes.  The next 3 volumes of section 3 contain documents relevant to liability, being copies of the invoices and other commercial records of MGB referred to in the above mentioned index comprising schedule 1 to Prosilis’ first witness statement.  These records run to 1045 pages.  Like the documents in section 2, they are not in consistent chronological order or in any other sensible order.  There is also a supplementary court book containing about 140 pages of additional liability-related material.  So the total number of liability-related pages in the court book is 5,154.  By consent, all of those pages (plus the associated indexes) were in evidence, for all purposes.[10] 

   [10]Transcript, 1182­–1185.  Volumes 4-16 of Section 3 of the Court Book were not tendered on this part of the case because they were said to relate exclusively to quantum.

1. Because the documents in the relevant parts of the court book are in no useful kind of order at all, it is necessary in reading a witness statement to go back and forth between the various folders at every turn. 

1. Altogether, six witnesses were called on the trial of the preliminary questions – three by the plaintiffs and three by the defendant.  Apart from Prosilis, the plaintiffs called a former employee of ACC, Christopher Poulos, and a former financial adviser to Prosilis/ACC, Patrick McMenamin.  The defendant called three former executives of CML or MGB, Neil Osborne, Jon Wood and Robert Hampson.  By way of evidence-in-chief each witness did little more than adopt his witness statement or statements.  Each was then extensively cross-examined.  Subject to certain objections by the defendant to which I will come, the witness statements of all six witnesses went into evidence by consent.  The plaintiffs also tendered, and I admitted into evidence, a small part of a witness statement filed by the defendant with respect to a proposed witness (Mr Michael Wall) who was ultimately not called on this part of the case.  That completed the evidence. The matter as a whole has so far occupied 19 hearing days.  The transcript runs to 1,904 pages.  At the end of the hearing I expressed concern about the time that would necessarily be involved in producing a detailed judgment, given my other commitments at that time.  I offered to provide answers to the preliminary questions together with short reasons at a relatively early date, with a view to then going on to deal with any residual issues.  However both sides urged me to take whatever time was necessary to produce full reasons.[11]  Indeed counsel for the plaintiffs, in particular, had already submitted that the transcript ‘requires a careful and considered reading’.[12]  Conscious of the vast efforts put into this case by the parties, I have endeavoured to comply with their requests.  I have read, re-read, compared and considered the relevant witness statements, the multitude of evidentiary documents, the transcript, the plaintiffs’ detailed chronology, the lengthy written submissions, the authorities cited and the various schedules, aides memoire and other documents handed up by the parties.

   [11]Transcript, 1904.

   [12]Outline of closing submissions, 37.

1. It is not necessary for me to make rulings on the objections made by the defendant to parts of the plaintiffs’ witness statements.  The objections are contained in schedules that were handed up, by consent, for consideration after the trial.  The objections are largely to the effect that the parts in question constituted hearsay, an opinion or a conclusion.  The plaintiffs have conceded some of the objections.  On the other hand the defendant has acknowledged that many others have lost significance.  I have assumed in the plaintiffs’ favour (without deciding) that each still contentious part of the plaintiffs’ witness statements is admissible.  On the other hand I have borne in mind the defendant’s objections when considering the weight to be given to the witness statements.

1. In the end I have concluded, in substance, that the preliminary questions should all be answered in favour of the defendant.  The plaintiffs’ case relies heavily on witnesses’ accounts of oral conversations held long ago, largely unsupported by contemporaneous notes or records.  Basic features of the plaintiffs’ case are out of line with commercial reality and normal expectations.  Particular parts are inherently unlikely; or self-contradictory; or inconsistent with the documentary picture.  In some respects the plaintiffs’ case is inconsistent with oral evidence given by the plaintiffs’ own witnesses, to say nothing of the evidence given by the defendant’s witnesses.  As will be seen, I simply do not accept the evidence of the plaintiffs’ witnesses on numerous important matters.  They were not impressive witnesses.  They lacked credibility.  In particular, I regard the evidence on controversial matters of the plaintiffs’ main witness, Prosilis, as very unreliable, notwithstanding that occasionally it received a small degree of support from parts of the evidence given by the defendant’s witnesses.  The plaintiffs’ failure to call the solicitor who was acting for ACC at relevant times, Mr Werry, is also telling.  By contrast, the defendant’s witnesses were highly impressive.  All three of them had left the service of CML or MGB many years before.  They had nothing to gain or lose financially from the outcome of the case.  Generally speaking, and taking into account the difficulties under which they were labouring due to the passage of time since the events in question, I accept their evidence.  In relation to the facts the burden of proof lay, of course, on the plaintiffs.  Because the relevant events occurred so long ago, that burden was more difficult to discharge than otherwise.  The plaintiffs have conspicuously failed to discharge it.

1. I am not satisfied that either of the agreements alleged by the plaintiffs was entered into.  Nor am I satisfied that the estoppel claim or the quantum meruit claim was assigned to ACOM by the deed of assignment.  The estoppel claim therefore falls away.  If I had been required to decide the estoppel claim, I would have rejected it.

The issues at this stage – major and minor

1. The major issue between the parties at this stage is whether an enforceable agreement in the form of the alleged ‘audit and implementation agreement’ was made.  The parties spent considerably more time and effort on this issue than on the question whether the alleged ‘letter box distribution agreement’ was made, notwithstanding that the nominal quantum of the claim under the latter was almost four times greater (about $24,000,000 compared with about $6,600,000).  This is understandable. While, on close examination, the (elaborate) case for the existence of the audit and implementation agreement was far from strong and has clearly failed, the (simpler) case for the existence of the letter box distribution agreement was, on close examination, preposterous.

1. As to the estoppel issue and the two assignment issues, the parties gave them far less attention again.  At the commencement of the hearing the plaintiffs had not even pleaded (in any clear fashion) that ACC’s alleged estoppel and quantum meruit entitlements had been assigned to ACOM.  There was not a single reference to assignment of the alleged estoppel and quantum meruit entitlements in the plaintiffs’ 100 page ‘notes of opening’.  Indeed, there was no reference to estoppel or quantum meruit at all.  Leave to amend the statement of claim so as to allege the assignment of the alleged estoppel and quantum meruit entitlements was only sought after the hearing had progressed for some days.  Leave was granted, principally because it was not suggested or anticipated that the grant of leave would lead to an expansion of the evidence on either side.[13]  Nor did it.  In final submissions, the parties confined themselves to relatively brief legal submissions on these three issues.

   [13]A new paragraph, [32A], was inserted in the statement of claim pursuant to this grant of leave.  See below.

The preliminary questions

1. The preliminary questions are expressed as follows:

(1)       Was there an agreement to the effect alleged:

(a)in paragraphs 3 and 4 of the further amended statement of claim filed 20 October 2005 (the “Statement of Claim”);

(b)in paragraph 3F of the defence to the further amended statement of claim filed 11 November 2005 (the “Defence”);

(c)in paragraph 3G of the defence?

(2)Is the first plaintiff (“ACOM”) entitled to bring the estoppel claim referred to in paragraphs 27 to 31 of the statement of claim, having regard to the terms of the assignment between ACC as assignor and ACOM as assignee dated 20 December 1995 and appearing at pages 2593 to 2628 of the Court Book (the “assignment”)?

(3)If the answer to question (2) is yes, is the defendant estopped from denying the existence of the audit and implementation agreement (as referred to in paragraph 3 of the statement of claim), as alleged in paragraph 31 of the statement of claim, by reason of the matters alleged in paragraphs 27 to 30 of the statement of claim?

(4)Is ACOM entitled to bring the quantum meruit claim referred to in paragraph 32 of the statement of claim, having regard to the terms of [the] assignment?

(5)Was there an agreement to the effect alleged in paragraphs 33 and 34 of the statement of claim?

1. By way of explanation, preliminary question (1)(a) deals with the major issue to which I have referred, being the question whether the ‘audit and implementation agreement’ was made.  The defendant denies that the parties made an agreement in the terms alleged by the plaintiffs or any agreement at all.  Alternatively the defendant says that any agreement made was too uncertain to be enforceable.  Questions 1(b) and 1(c) reflect the fact that the defendant says, in the further alternative, that any agreement made was of a far more limited kind, either an agreement as pleaded in paragraph 3F of its defence (the ‘interim test audit agreement’) or an agreement as pleaded in paragraph 3G of its defence (the ‘remuneration agreement’).  It will be seen in due course that the answers to questions 1(b) and (c) are of little or no significance.  Question (2) deals with the alleged assignment of the estoppel claim.  Question (3) deals with the alleged existence of the estoppel claim.  Question (4) deals with the alleged assignment of the quantum meruit claim.  Question (5) deals with the alleged making of the so-called letter box distribution agreement.

1. It will be noted that preliminary question 1(a) refers to paragraphs 3 and 4 of the further amended statement of claim filed 20 October 2005.  Those paragraphs remain unaltered in the current version of the statement of claim.[14]  It is desirable to set out paragraphs 3 and 4 of the statement of claim in full:

   [14]The AFASC.

(3)In 1993 Australian Catalogue Corporation Pty Ltd (‘ACC’) negotiated with the defendant and in November 1993 agreed with the defendant to audit production and distribution of direct marketing catalogues to identify savings in relation thereto, and then implement savings by changes to the catalogue production, including creative, pre-press, printing and film imposition and catalogue distribution, including line freight and letter box distribution of subsidiaries of the Defendant (“the audit and implementation agreement”).

PARTICULARS

The audit and implementation agreement was partly in writing, partly oral and partly implied. 

In so far as it was in writing, it was constituted by:

(a)a 21-point summary and action plan sent to the Defendant by ACC under cover of a letter dated 11 June 1993;

(b)a preliminary audit comprising a letter dated 10 September 1993 together with attached executive overview of savings for Myer Grace Bros. catalogue program and presentation by overhead projection presented to the Defendant by the second Plaintiff, Ovid Prosilis (“Prosilis”) on 10 September 1993;

(c)a confidentiality deed executed by the Defendant on or about 8 November 1993;

(d)a letter from Peter Wilkinson, Chief Operating Officer, Retail for the Defendant (“Wilkinson”), entitled “To Whom It May Concern” dated 4 November 1993;

(e)a letter from Prosilis to Neil McKay (“McKay”), Acting Group General Manager – Marketing of Myer Stores Ltd (“MGB”), dated 4 November 1993;

In so far as the audit and implementation agreement was oral, it was constituted by:

(a)conversation between Prosilis and Osborne, Group General Manager – Retail Services, Coles Myer (“Osborne”), McKay, Michael Wall, National Advertising Manager – MGB (“Wall”), Peter Waterman, Media and Traffic Manager – MGB (“Waterman”) and Pat Sufra, Head Finance Executive – MGB (“Sufra”) at MGB’s premises in Bourke Street, Melbourne on or about 29 October 1999; the relevant substance of the conversation was that those present agreed financial benchmarks for the ACC audit and that ACC would be given the entire MGB 1993 winter and summer catalogue sales plan for full audit;

(b)conversation between Prosilis and Osborne at the Executive Offices of MGB in Bourke Street, Melbourne on 22 November 1993; the relevant substance of the conversation was to the effect that it was agreed between Prosilis and Osborne that:

(i)the parties to the audit and implementation agreement were ACC and the Defendant;

(ii)MGB would be the initial business to be audited;

(iii)ACC would audit MGB and three other major subsidiaries of the Defendant, namely Kmart, Target and Coles Supermarkets instead of the six previously proposed;

(iv)at least $4 million savings must be identified in the initial business, namely MGB, before the other three businesses were subject to audit;

(v)ACC would report monthly or as soon as practicable regarding progress of audits, implementation of recommendations and negotiation with service providers in the course of implementation;

(vi)the remuneration to ACC would be:

(x)12.5% monthly in arrears for twelve months of implemented savings (difference between benchmark and actual cost) from the time of implementation, whether implemented by ACC or otherwise and even if such implementation be discontinued; and

(y)7% monthly in arrears for twelve months of savings identified by ACC but not implemented by the Defendant (difference between benchmark and ACC estimated cost);

(z)12.5% for twelve months of implemented savings introduced by the Defendant subsequent to the twelve months referred to in (x) and (y) above.

(vii)ACC would receive $10,000.00 a month advance on forthcoming remuneration for six months.

In so far as the audit and implementation agreement was to be implied, it was to be implied from:

(a)the fact that Prosilis and Osborne shook hands on the deal at the end of the conversation on 22 November 1993 and that that evening or shortly thereafter Osborne and his wife, Brenda McGahan (“McGahan”), took Prosilis to dinner at the Latin Restaurant in Lonsdale Street, Melbourne to celebrate the conclusion of the agreement;

(b)the fact that from about November 1993 onwards ACC performed the audit in respect of the 1993 catalogues sales program of MGB in accordance with the methodology in the 21-point summary and action plan presented to the Defendant in June 1993;

(c)the fact that ACC provided an executive summary to Robert Hampson, Group General Manager, Merchandise – MGB (“Hampson”) by fax dated 22 December 1993 of the audit findings (“the executive summary”);

(d)discussions between Prosilis, Chris Poulos (“Poulos”) of ACC, Osborne and Hampson at the MGB office in Bourke Street, Melbourne on 14 January 1994, the relevant substance of which conversation was to the effect that:

(i)Prosilis presented the audit consisting of a summary in the form of a spreadsheet, overheads and three lever arch folders of source materials for the summary and the executive summary identifying approximately $11.65 million as savable within MGB;

(ii)Hampson accepted the summary on behalf of the Defendant and entered into discussion about the implementation of the savings proposed;

(iii)it was agreed between Hampson, Osborne and Prosilis that ACC would commence implementation with the letterbox component of distribution;

(iv)it was agreed that Wall would introduce ACC to Centar Demographic Marketing (“Centar”) in respect of (iii).

(e)a letter from Prosilis to Hampson on 18 January 1994 confirming the matters agreed on 14 January 1994;

(f)a meeting between Prosilis and Hampson, Osborne, McKay and Wall at the MGB head office in Bourke Street, Melbourne on 19 January 1994 at which Prosilis re-presented the audit presented on 14 January 1994 and Hampson confirmed the matters agreed on 14 January 1994;

(g)a letter dated 19 January 1994 from Prosilis to Wall seeking information to enable ACC to implement the audit;

(h)letters from Hampson dated 1 February 1994 to letterbox distributors Progress Press, Salmat Group (“Salmat”) and Australian Distribution Network (“ADN”);

(i)the payment by the Defendant to ACC in February 1994 of $30,000.00, being three months’ payment at $10,000.00 per month from November 1993 onwards, and a further payment to ACC of $30,000.00 in May 1994;

(j)the provision by ACC on 10 March 1994 to the Defendant of the implementation report referred to in paragraphs 8, 9 and 10;

(k)an unsigned remuneration agreement prepared in or about April 1994;

(l)the above;

(m)by law.

(4)There were terms of the audit and implementation agreement that, inter alia:

(a)ACC would conduct audits of the production and distribution of direct marketing catalogues (including creative, pre-press, printing, film imposition, line freight and letterbox distribution) conducted by subsidiaries of the Defendant to identify savings in relation thereto and to then implement savings by changes to the catalogue production and distribution of the said subsidiaries.

(b)the audit and implementation agreement would apply to four major subsidiary companies of the Coles Myer Group, namely MGB, Kmart, Target and Coles Supermarkets;

(c)MGB would be the initial business to be audited;

(d)at least $4 million worth of savings must be identified in the initial business before the other businesses were the subject of further audit;

(e)the remuneration to ACC would be:

(i)12.5% monthly in arrears for twelve months of implemented savings (difference between benchmark and actual cost) from the time of implementation, whether implemented by ACC or otherwise and even if such implementation be discontinued; and

(ii)7% monthly in arrears for twelve months of savings identified by ACC but not implemented by the Defendant (difference between benchmark and ACC estimated cost);

(iii)12.5% for twelve months of implemented savings introduced by the Defendant subsequent to the twelve months referred to in (i) and (ii) above;

(f)ACC would receive $10,000.00 a month advance on forthcoming remuneration for six months.

PARTICULARS

The Plaintiffs refer to and repeat the particulars to paragraph 3.

1. It is not necessary to set out paragraph 3F or paragraph 3G of the defendant’s defence in terms.  In substance, paragraph 3F alleges that if any enforceable agreement relating to remuneration was entered into between ACC and CML in about November 1993, there were terms of that agreement (the ‘interim test audit agreement’), amongst others, that, pending conclusion of negotiations for a detailed, written remuneration agreement, CML granted ACC limited authority to conduct a test audit of MGB; and that CML would pay ACC $10,000 per month for expenses, provided that such amounts would reduce any amounts that might become payable under the proposed agreement if the parties entered into such an agreement.  In substance, paragraph 3G alleges, in the further alternative, that if any agreement was made, it was made in accordance with the terms of an unsigned draft document entitled ‘Remuneration agreement’ that was delivered by CML to ACC for consideration in April 1994.[15]

   [15]This unsigned draft agreement is the document referred to above in para (k) of the particulars of implication under para (3) of the plaintiffs’ statement of claim. 

1. On the other hand, for the sake of further explaining preliminary questions (2), (3) and (4), it is desirable to set out in full the particular paragraphs of the statement of claim that are referred to in those questions, namely paragraphs 27-32 thereof, and I will also set out paragraph 32A which was inserted in the statement of claim by amendment pursuant to the abovementioned grant of leave: 

27.Further and alternatively, by the conduct referred to in paragraph 3 the Defendant:

(a)represented to ACC;

(b)further or alternatively, caused ACC to assume and believe –

(i)that ACC and the Defendant had entered into the audit and implementation agreement;

(ii)that the Defendant was obliged to carry out the audit and implementation agreement;

(iii)that the Defendant was obliged to remunerate ACC in accordance with the audit and implementation agreement.

28.ACC:

(a)relied and acted to its detriment upon the representation;

(b)further or alternatively, acted to its detriment on the assumption and in the belief –

and further and alternatively to the knowledge of the Defendant or further or alternatively without correction by it.

PARTICULARS

ACC continued to conduct the audit and ancillary work associated with the audit for the Defendant between about November 1993 and February 1996.

29.Further or alternatively, ACC and/or ACOM would suffer detriment if the Defendant was permitted to depart from the representation and the assumption and belief.

30.It would be unfair and unjust for the Defendant to depart from the representation and the assumption and belief.

31.In the premises, the Defendant is estopped from denying the existence of the audit and implementation agreement, its obligation to carry out the audit and implementation agreement, its liability to remunerate ACC and the Plaintiff in accordance therewith and to pay damages to the Plaintiff for breach thereof.

32.Further and alternatively, ACOM claims the remuneration to which ACC was entitled on a quantum meruit.

32A.On or about 20 December 1995 ACC assigned it’s right title and interest:

(a)described in paragraphs 27-31;

(b)described in paragraph 32;

to ACOM and Notice of the Assignment was given to the Defendant by letter dated 1 April 1996.

1. Preliminary question (5) refers to paragraphs 33 and 34 of the statement of claim.  They are set out in full below.  However I should first identify certain of the persons and things referred to in paragraphs 33 and 34.  The reference in paragraph 33 to Patrick McMenamin is a reference to a person who acted as a financial advisor to Prosilis in 1994.  The plaintiffs called him as one of their three witnesses.  The person referred to as ‘Wood’ in the same paragraph is Jonathon Wood, a former senior employee of CML.  He was one of the defendant’s three witnesses.  The expression ‘CCD Analysis’ in paragraphs 33 and 34 is shorthand for ‘Census Collector District Analysis’ and means the mapping or counting of dwellings or letter box delivery points by reference to census details.  The reference to ‘Centar’ is a reference to a firm called Centar Demographic Marketing which was in the business of providing demographic and other consulting services in relation to letter box delivery at the time in question.  The expression ‘overs’ contained in both paragraphs refers to an alleged practice of letter box distributors that was much discussed during the hearing, namely systematically overstating the number of letter boxes to which deliveries could be made in a particular area whereby, allegedly, clients were substantially overcharged.  Paragraphs 33 and 34 of the statement of claim read:

33.Further, in October 1994 Prosilis and the Defendant negotiated and entered into an agreement in relation to letterbox distribution (“the second agreement”).

PARTICULARS

The second agreement was partly oral and partly to be implied.

In so far as it was oral, it consisted of:

(a)a conversation between Prosilis, Patrick McMenamin (“McMenamin”) and Wood on 6 October 1994 at the Defendant’s offices at Tooronga; the substance of the conversation was to the effect that:

(i)the Defendant agreed to provide 50% of its catalogue business to a company to be incorporated by Prosilis;

(ii)the said business would be provided to the said company on terms similar to the tender process then in place;

(iii)the letterbox distribution would be based on CCD analysis;

(iv)the second agreement would be for a five year period;

(v)the second agreement was subject to an audit by Price Waterhouse, the Defendant’s auditors, engaged by the Defendant, to be conducted with the assistance and involvement of Centar, of the audit conducted by Centar in June to September 1994 on the subject of overs proving that there were indeed substantial overs; and

(vi)the Price Waterhouse audit would be available by May 1995.

In so far as the second agreement was to be implied, it was to be implied from:

(a)a letter dated 29 September 1994 from ACC to Wood together with attachment headed “Coles Myer Group Catalogue Expenditure”;

(b)the above;

(c)the matters referred to in paragraphs 35, 41 and 42 hereof;

(d)the law.

34.There were terms of the second agreement, inter alia, that:

(a)the Defendant agreed to provide 50% of its catalogue business to a company to be incorporated by Prosilis;

(b)the letterbox distribution would be based on CCD analysis;

(c)the said business would be provided to the said company on terms similar to the tender process then in place;

(d)the second agreement would be for a five year period;

(e)the second agreement was subject to an audit by Price Waterhouse, the Defendant’s auditors, engaged by the Defendant, to be conducted with the assistance and involvement of Centar, of the audit conducted by Centar in June to September 1994 on the subject of overs proving that there were indeed substantial overs; and

(f)the Price Waterhouse audit would be available by May 1995.

1. As can be seen above, the particulars to paragraph 33 of the statement of claim assert that the letter box distribution agreement was partly oral and partly implied.  They assert that the matters from which the agreement is allegedly able to be implied include those referred to in paragraphs 35, 41 and 42 of the statement of claim.[16]  Paragraph 35 of the statement of claim alleges that the ‘Price Waterhouse purported audit’ was prepared on or about 8 June 1995 but was not made available to Prosilis or ACC until about 30 October 1995.  Paragraph 41 alleges that Prosilis incorporated ACOM in or about December 1995 to carry out the letter box distribution agreement.  Paragraph 42 alleges that in or about January 1996 ACOM contacted all retail subsidiaries and/or divisions of the defendant except MGB, including World 4 Kids, to present a proposal for letter box distribution services by ACOM and presented a proposal to World 4 Kids.

Formation of the alleged contracts:  the case actually put by the plaintiffs and the relevant legal principles

[16]See para (c) of the particulars of implication.

1. As indicated above, it is alleged in the particulars under paragraph 3 of the statement of claim that the so-called audit and implementation agreement was partly in writing, partly oral and partly implied.  The five documents alleged to constitute the written part of the agreement are dated between 11 June 1993 and 4 November 1993.  The two conversations alleged to constitute the oral part are stated to have taken place at meetings on 29 October 1993 and 22 November 1993 respectively.  However it is now common ground that the reference to 22 November 1993 was an error and that the meeting in question occurred on 12 November 1993.  The 13 paragraphs stating matters from which the agreement is to be implied include allegations of matters occurring from ‘November 1993’ (para (b)) until ‘in or about April 1994’ (para (k)).

1. These particulars might have suggested that the plaintiffs’ case would be that the ‘audit and implementation agreement’ was really an implied agreement that developed over time up until about April 1994, and that the making of it was to be implied from the whole of the events and circumstances occurring between June 1993 and April 1994, rather than from the application of the conventional principles of offer and acceptance to particular written or oral communications.  However, as the defendant points out in its written final submissions,[17] the plaintiffs did not actually assert such a case.  Indeed in the body of the statement of claim it is alleged (in paragraph 3) that ‘[i]n 1993’ the parties ‘negotiated’ and that ‘in November 1993’ they ‘agreed’.  In their outline of final submissions the plaintiffs did not seek to locate any part of the alleged agreement itself in any document at all[18] or in any source of implication.  Rather they located it exclusively in the conversation which allegedly took place at the meeting on 12 November 1993.  That was a meeting at which only two persons were present – Prosilis and, representing CML, Neil Osborne.[19]  The forensic focus on this meeting was reinforced by the plaintiffs’ senior counsel during his final address when he said that the plaintiffs’ case was that the parties ‘agreed on 12 November 1993’.[20]  This was no doubt quite deliberate.  The evidence allowed no scope for arguing that the terms of remuneration had been agreed before 12 November 1993.  And there were real problems for the plaintiffs in the material relating to the post-November 1993 period.  For example, at least some drafts of the written ‘remuneration agreement’ that were circulated between ACC and CML after 12 November 1993, and in particular the April 1994 draft, contained terms that, if they were in truth terms of the agreement, were clearly not complied with.  Among other things, the April draft made the right to remuneration dependent on written acknowledgment by CML that savings had been duly identified by ACC.  There was never any such written acknowledgement.  Hence, if this was truly a term, then the plaintiffs’ claims under this head would almost certainly have been defeated in any event.  Although it seems that for most of the interlocutory stages of this case the plaintiffs did not appreciate this particular problem,[21] once they did they had little option but to focus squarely on the meeting of 12 November 1993 and to try to distance themselves from the written drafts that had been circulated in the period after the meeting.

   [17]Defendant’s final written submissions, [223].  The defendant refers to Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32, 80 (Ormiston J) and Ambridge Investments Pty Ltd (in liq) (receiver appointed) v Baker [2010] VSC 59 (‘Ambridge’), [184]–[203] (Vickery J).  See also Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (2009) 25 VR 411, esp 419–423; Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (LexisNexis Butterworths, 9^th Australian edition, 2008) [3.9].

   [18]With the possible exception of the letter dated 4 November 1993 signed by one Wilkinson, referred to in para (c) of the particulars under paragraph 3 of the statement of claim.  See plaintiffs’ outline of final submissions, 1 (but compare 2–10).

   [19]There is a dispute about the authority of Osborne as at 12 November 1993, to which I will return.

   [20]Transcript, 1768.

   [21]For example, there is a significant contrast between Prosilis’ first witness statement and his third witness statement in this respect.  See further below.

1. Given the way in which the plaintiffs actually put their case,[22] the principal task of the Court on this part of the case is to determine, to the extent possible and proper in the light of the evidence, and subject to the fact that the burden of proof rested throughout on the plaintiffs,[23] what was actually said and done by Prosilis and Osborne in the course of the conversation at the meeting of 12 November 1993 and then, if it be possible and proper in the light of that determination, to consider whether or not the conversation gave rise to a legally binding agreement between ACC and CML in the terms alleged by the plaintiffs, applying the standard objective test[24] and other relevant principles of contract law including, in particular, the principles relating to completeness and certainty.[25]  The plaintiffs have not contended that any of the alleged terms was inessential.  In that regard, apart from the estoppel and quantum meruit claims, the plaintiffs have not put forward any half-way house or fall-back position.  So, contractually, they stand or fall on the proposition that all of the alleged terms were agreed.[26]

   [22]See and compare Mildura Office Equipment and Supplies Pty Ltd v Finance Australia Ltd [2007] VSCA 112.

   [23]Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 (‘Toyota’), 150 (Brooking J) and 176-177 (Tadgell J); PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd (2007) 20 VR 487, 505 (Ashley JA, with whom Maxwell P and Nettle JA agreed).

   [24]See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [38] and [40]–[41]; Byrnes v Kendle (2011) 279 ALR 212, 229 [59] and 236-238 [98]–[104]; Austin Bloodstock Pty Ltd v Massey [2011] VSC 421 (Pagone J), [1]–[2].

   [25]See eg Toyota [1994] 2 VR 106, 199-205 (Phillips J); Seddon and Ellinghaus, above n 17, [6.1]-[6.7].

   [26]See Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 (FC); Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 C-F (Gleeson CJ with whom Hope and Mahoney JJA agreed); Toyota [1994] 2 VR 106, 130 (Brooking J) and 204–205 (Phillips J).

1. Nevertheless I should mention that during his opening the plaintiffs’ senior counsel did briefly flirt with two possible modifications of the allegations relating to the terms.  First, he suggested[27] that the alleged term that ACC was entitled to 7% of savings identified by ACC (but not implemented) might, in the alternative, be limited to savings reasonably identified by ACC.  However, as will become apparent, that suggestion was not in harmony with the evidence later given by Prosilis, nor with the thrust of the plaintiffs’ case generally.  Moreover, as the defendant’s counsel submitted,[28] an amendment to the statement of claim would have been necessary to authorise the advancement of an alternative claim on the suggested basis.  None was ever sought.  Second, the plaintiffs’ senior counsel said at another point[29] that if the Court found that the April draft represented the agreement between the parties, the plaintiffs might still be able to maintain their claims for unpaid remuneration and damages for breach.  However, that suggestion, also, was contrary to the way in which the plaintiffs’ case was otherwise put.  Indeed Prosilis himself later said during his evidence that he would never consciously have agreed to the terms set out in the April draft.[30] As he apparently had realised by the time of filing his third witness statement,[31] and as I have already mentioned, if those terms were truly part of any agreement, then the plaintiffs’ claims under this head would almost certainly have failed in any event. Further, once again, an amendment to the statement of claim would have been necessary had the plaintiffs wished to pursue this suggested alternative, and no such amendment was ever sought.

   [27]Transcript, 14–15.

   [28]Transcript, 543.

   [29]Transcript, 412.

   [30]Transcript, 876.

   [31]See further below.

1. The defendant does not accept that all of the terms now alleged were even discussed, let alone agreed, at the meeting on 12 November 1993.  Moreover, the defendant says that the need for savings to be agreed by CML in writing was discussed many times and was an underpinning principle.  Further, the defendant contends that Osborne was acting in an advisory role, rather than a negotiating role, in November 1993; that Osborne had indicated to Prosilis that he did not have authority to commit CML to an agreement at the meeting of 12 November 1993;[32] and that Osborne said words to the effect that any agreement would be subject to a formal contract.  The plaintiffs dispute all this.  They say that while the parties intended to have the alleged agreement formalised by their respective solicitors, they should nevertheless be taken to have intended to become legally bound immediately.  In other words, the plaintiffs contend that this is a Masters v Cameron[33] situation, and in the first category of case referred to therein.[34]

   [32]However the defendant does not contend that actual authority on the part of Osborne was essential.  It implicitly concedes that ostensible authority on his part would have been sufficient if it had existed.

   [33](1954) 91 CLR 353.

   [34]Plaintiffs’ outline of final submissions, 20.  See Geebung Investments Pty Ltd v Vargo Group Investments (No 8) Pty Ltd  (1995) 7 BPR 14,551 (‘Geebung’), 14,569-70; PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd (2007) 20 VR 487, 504-505 (Ashley JA with whom Maxwell P and Nettle JA agreed).

1. For the purpose of demonstrating that the alleged oral agreement of 12 November 1993 was in fact made, rather than to demonstrate an implied agreement, the plaintiffs do continue to rely on all or most of the matters listed in their particulars under paragraph 3, and on other matters as well.[35]  These various matters relate both to the period before 12 November 1993 and to the period after it.  The plaintiffs submit that these matters are ‘indicia’ of the alleged agreement.  For example, one such matter on which they rely is the work which they claim ACC did for CML and/or MGB, especially after 12 November 1993, being work which they characterise as auditing and implementation pursuant to the alleged agreement.  The defendant does not accept, even, that the claimed work (or much of it) was done, much less that it was done pursuant to the alleged agreement.  However the defendant does not contend that evidence of this kind cannot be relied upon for the purpose of seeking to demonstrate that an alleged agreement was made.  Indeed, the defendant itself relies in part on events that allegedly occurred, or did not occur, after 12 November 1993 as indicating that the plaintiffs’ allegations as to what had been said and done on 12 November 1993 were false in relevant respects.  The parties were entitled to proceed in this way.  It involved no contravention of the principle that post-contractual conduct cannot be used to determine the meaning of a contract.[36]  Post-contractual conduct is admissible on the question whether a contract was formed.[37]  Further, in a case where it is acknowledged or found that an agreement of some kind was made but the terms are in dispute, post-contractual conduct is admissible on the question of what terms were agreed, though not on the question of what the agreed terms mean.[38]  Similarly, pre-contractual conduct may supply background and may also bear on the probabilities as to what took place on the occasion in question.

   [35]See plaintiffs’ outline of closing submissions, 4–10.

   [36]Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 163-165 (Heydon JA); Ambridge [2010] VSC 59, [200].

   [37]Ibid. See also Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695, 700 (Kaye J with whom Marks and Teague JJ concurred).

   [38]Sudojo Consulting Pty Ltd v Africa Pacific Capital [2008] NSWSC 353, [20] (Einstein J).

1. As to the so-called letter box distribution agreement, much the same applies.  The plaintiffs did not press the proposition that that alleged agreement could be implied from any of the matters particularised under paragraph 33 of the statement of claim.  Rather, as before,  they submitted that those matters and other matters were merely ‘indicia’ of the formation of the alleged oral agreement.

1. As the defendant submitted[39], in determining whether, objectively, a concluded agreement was made, the court may have regard to factors such as the customary method of concluding a contract, or whether an informal exchange or arrangement that is alleged to have formed a contract would accord with the expectations of the parties in a contract of the kind that is in dispute.  And, as the defendant further submitted,[40] the greater the magnitude of the transaction, the less likely that the Court will conclude that an informal arrangement amounts to a contract.  And I would add:

The mere fact that the parties have committed substantial resources does not necessarily mean that they have made a contract.  Tamberlin J in Seven Cable Television Pty Ltd v Telstra Corp Ltd[41] made the point that the parties may well have made a commercial commitment (involving many millions of dollars in that case), without necessarily having made a legal commitment.[42]

[39]Defendant’s final written submissions, [227] citing Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia (1976) 50 ALR 363. And see esp 372-373 (Moffitt P). See also Clifton v Palumbo [1944] 2 All ER 497, 499; Toyota [1994] 2 VR 106, 130-133 (Brooking J).

[40]Defendant’s final written submissions, [228] citing, among other cases, Toyota [1994] 2 VR 106, 131 (Brooking J) and Player v Isenberg [2002] NSWCA 186, [50] which contains a relevant extract from the judgment of Kirby P in Geebung (1995) 7 BPR 14,551, 14,569. See also Player v Isenberg [2002] NSWCA 186, [49], [51] and [52] and the cases cited in those paragraphs.

[41](2001) 171 ALR 89 at 121. Appeal dismissed: (2000) 175 ALR 433.

[42]Seddon and Ellinghaus, above n 17, [3.9].  See also Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, 20 (Kirby P).

Structure of findings of fact:  key factual contests:  matters of credit

1. Generally speaking, I will make findings of fact in chronological order, by reference to the main parts of Prosilis’ story from its beginning to its end.  The findings will therefore deal with facts relevant to all five of the preliminary questions.  One reason for taking this approach is that the plaintiffs’ senior counsel submitted that there was a ‘thread’ that bound the entire case together, being the alleged phenomenon of ‘overs’.[43]

   [43]Transcript, 262 and 361.

1. So far as the period before 12 November 1993 is concerned, the facts and circumstances of most significance are those which would make it more likely or less likely that Osborne had become ready, willing and able, by the time of the meeting on 12 November 1993, to commit CML to an enforceable agreement with ACC on the terms now alleged by the plaintiffs.  In this respect, apart from the direct controversy between Prosilis and Osborne as to what was actually said and done at the meeting, key issues are whether Osborne was, or appeared to be, authorised by CML finally to conclude a remuneration agreement at the meeting; and whether CML was likely to have been prepared to agree to pay fees to ACC for savings that were merely proposed or identified by ACC but neither verified nor acknowledged by CML, either in writing or at all.  So far as the period after the meeting of 12 November 1993 is concerned, the facts and circumstances of most significance are, first, those which logically bear on the likelihood that Prosilis and Osborne had  actually made the alleged agreement at the meeting; second (for the purposes of the estoppel claim), those facts which might indicate reasonable reliance by ACC on an express or implied representation by CML that it had agreed[44] to the terms now alleged by the plaintiffs, and consequent detriment to ACC; and, third, those facts which, in addition to the direct evidence about the relevant conversation, logically bear on the likelihood that Wood (on behalf of CML) made a contractual promise at the meeting of 6 October 1994 to provide 50 percent of CML’s catalogue business for five years to a company to be formed by Prosilis on the terms now alleged by the plaintiffs.  As to this third aspect, the plaintiffs contend that a key factual indicator is the extent to which CML was impressed by the credentials of Prosilis and ADN in the context of the controversy about ‘overs’ and the alleged potential for substantial savings.

   [44]The statement of claim refers only to a representation of past agreement.  It was neither pleaded nor otherwise suggested by the plaintiffs that CML had represented that it would agree to the alleged terms.

1. Issues of credit loom large.  In particular, a major attack was made on Prosilis’ credit.  Some of the matters put against Prosilis’ credit related directly to the facts of this case.  Others were collateral.  For the most part I will deal with the collateral matters after setting out my findings on the directly relevant events.

Prosilis’ background and expertise

1. The plaintiffs led a considerable amount of evidence about Prosilis’ background and about his work in the period between 1986 and 1992.  Most of it came from Prosilis himself.  It related mainly to his familiarity at that time with emerging methods of catalogue production and distribution and his and ACC’s alleged success in saving money for Woolworths and others in relation to those processes.  The evidence was designed, I gather, to persuade the Court that, by virtue of his experience, attributes and knowledge, Prosilis was ‘in a unique position and presented a unique opportunity to Coles Myer’.[45]  The plaintiffs also adduced evidence from Prosilis to the effect that a senior officer of CML (Wilkinson) had said to him in June 1993 that ‘Coles Myer and especially MGB were under trading and profit pressure’[46] and that he (Wilkinson) wanted to realise the prospective savings which Prosilis had by then outlined to CML, if they existed, quickly – preferably by January 1994.[47]  Presumably it was thought that the combination of those propositions, if accepted, might lead the Court to accept also that CML became very anxious to engage ACC and became prepared to do so precipitately and on terms that might otherwise seem uncommercial or unduly favourable to ACC.[48]

   [45]Final address of senior counsel for the plaintiffs: transcript, 1762.

   [46]First witness statement of Prosilis (PWS 1), [52].

   [47]Ibid.

   [48]Perhaps it was also thought that the material about Prosilis’ background and expertise might help to persuade the Court that, later, CML actually made savings based on ACC’s work.

1. It was not in dispute, and I accept, that Prosilis graduated in 1986 with a Bachelor of Commerce majoring in Marketing.  I accept also that Prosilis was employed as a business development executive with Stratagem Pty Ltd, a creative design and print production management company, between December 1986 and October 1987; that he gained experience there in desktop publishing using the Apple Macintosh system; that he formed the view that this and other new technologies would cause changes in the catalogue industry; that he moved to Woolworths in 1987; and that the technologies in question were thereafter used at Woolworths.  However, on Prosilis’ own evidence, the new technologies had become known and used in the industry, at least to a significant extent, by 1992.  Indeed Prosilis’ use of them at Woolworths was the subject of two trade press articles that had been published by 1992, copies of which Prosilis provided to CML at an early stage.[49]

   [49]CB, 341–342; PWS 1 [29], [33].

1. I accept that from about 1987 until late 1992 Prosilis was employed by Woolworths under the supervision of Mr Denzil Campbell, the National Marketing Manager of Woolworths.  I accept that Prosilis was the National Advertising Manager of the General Merchandise Division of Woolworths and that in 1992 he became chairperson of an internal Woolworths committee that dealt with issues and negotiations relating to the distribution of retail catalogues on behalf of all of the retail divisions of Woolworths.  Prosilis claims that he personally was responsible for introducing substantial changes and efficiencies at Woolworths.  For example, he claims that by introducing Apple Macintosh technology he achieved savings of 20% of catalogue production costs; that he dispensed with the services of the incumbent advertising agency; and that he took over the role of ‘in house agent’ personally.  In addition, he claims that by introducing ADN as a new distributor for some Woolworths catalogues, he was able to negotiate rate reductions with the other major national distributors, Salmat and Progress Press, and as a result achieved a saving for Woolworths on distribution of $700,000 per annum.  It is common ground that, even after Prosilis resigned from Woolworths in late 1992, Woolworths retained his new company, ACC, as a consultant.  The plaintiffs claim that ACC then achieved further savings for Woolworths; and that ACC was also involved in catalogue production work and presentations for other clients such as Dominos Pizza, Silvio’s Pizza, Lowes Manhattan, Jack’s Tyres and Granny Mays, among others. 

1. Prosilis himself was, of course, the plaintiffs’ main witness on these matters, although some corroborative general evidence about ACC’s business was given by ACC’s then Director of Marketing and Sales, Mr Christopher Poulos.  The defendant did not cross-examine the plaintiffs’ witnesses on these matters to any great extent nor did it call any evidence to the contrary.  On the other hand, Prosilis had a tendency towards self-aggrandisement – sometimes approaching grandiosity and even, I think, fantasy – both in the course of his marketing activities during the period in question and while giving evidence in this Court.  I note that Osborne said in evidence that, shortly after Prosilis first approached CML, Osborne had caused some investigations to be made about the work of Prosilis at Woolworths.  Osborne was cross-examined about this briefly.  He said, and I accept, that the security department of CML had done the inquiries and had reported back that Prosilis had actually worked at Woolworths and that ‘his boss [presumably Mr Denzil Campbell] said that he did a reasonable job’.[50]  On the other hand, it is tolerably clear that, for a time, Osborne was impressed by Prosilis to a certain extent.  He acknowledged in his evidence that it would not ordinarily be the case that a person could get access to the Chief Operating Officer of a public company (here, Wilkinson)[51] as quickly as Prosilis did.[52]  When it was put to Osborne that Prosilis was in a special position because he was supplying services to CML’s chief competitor, Woolworths, and to others and that he had had an intimate knowledge of industry rates and charges, Osborne replied: ‘Yes but you can buy that from other people as well’.[53]  On the other hand, Osborne acknowledged that if he had not thought that Prosilis could have brought in some extra skills he would not have had him there in the first place.[54]  Osborne did go on to support Prosilis within CML and MGB (particularly with respect to ‘overs’) for a considerable time, notwithstanding internal resentment.[55]  On the other hand, Osborne said in his evidence, and I fully accept, that Prosilis was always prone to ‘big statements’.[56]

   [50]Transcript, 1263-1264.  See also Osborne’s witness statement, [9].

   [51]See below.

   [52]Transcript, 1283.

   [53]Transcript, 1292–1293.

   [54]Transcript, 1332.

   [55]Transcript, 1290, 1435.

   [56]Transcript, 1283–1284.

1. On the available evidence I cannot make satisfactory findings about the extent, if any, of the savings which Prosilis (on his own or otherwise) achieved for Woolworths, although I accept that he did develop a close knowledge of the technical and commercial aspects of the production and distribution of retail catalogues and that he was of at least some value to Woolworths in this regard. I do not consider it is necessary to go any further because, even if Prosilis had been as successful for Woolworths as he claims, I would still not be satisfied, having regard to all of the evidence in the case, that the relevant personnel at CML and MGB were so impressed with Prosilis and his proposals that they were moved to abandon ordinary caution in dealing with him. On Prosilis’ own evidence, some eight months passed between the time of his first approach to CML and the critical meeting of 12 November 1993. In the meantime, there were several meetings between the parties and a good deal of correspondence passed between them, as I will indicate in due course. Lawyers became involved on both sides. Osborne repeatedly said in evidence, and I accept, that he (Osborne) had had no great personal interest in or knowledge of the technical side of catalogue production, and that his main interest in Prosilis had arisen from Prosilis’ contention that the letter box distributors were engaging in the practice of ‘overs’ and from the prospect that Prosilis might be able to help to reduce or eliminate that problem. Osborne also said, and I accept, that there were a lot of people trying to sell things to him at the time and that he was very busy,[57] and that everyone he dealt with claimed that they could generate savings for CML of 10 to 20 percent (as Prosilis did in a letter dated 11 June 1993: see below).[58]  Similarly, Wood said, when cross-examined about a (later) claim made by Prosilis to CML that there were potential savings of 15 to 20 million dollars, that many people came to CML claiming that they could save the company a lot of money and that most claims led to nothing.[59]  So far as trading and profit pressure is concerned, I note that Wilkinson was not called by either party.  He left the CML Group in about 1996.  Neither side has submitted that a Jones v Dunkel inference should be drawn from the failure of the other side to call him.  In any event, even as quoted by Prosilis, Wilkinson was emphasising the position of MGB rather than that of CML.  Further, when Osborne was first cross-examined about CML’s financial position at the relevant time, he denied that CML itself was under pressure.  He said:  ‘Coles Myer wasn’t, Myer was’.[60]  Later he was asked whether he recalled Wilkinson saying that ‘Coles Myer and especially MGB were under trading and profit pressure and wanted to see if savings, if they existed, could be quickly realised’ and he answered:  ‘I’m not sure of the exact words but that was the situation’.[61]  I did not understand Osborne to be resiling here from what he had said previously.  Osborne did go on to say that it would ‘always’ have been ‘our’ (meaning, I think, CML’s) aspiration to see savings demonstrated quickly.[62]  However, in later cross-examination it was put to Osborne that there was some urgency with the project.  He responded that that was not so from his point of view, because he knew it was going to take a long time; and that although ‘we’ wanted savings as quickly as possible, ‘this was transformational’.[63]  Later again, Osborne denied that he had brought in Prosilis because of a time problem or issue.[64]  I accept Osborne’s evidence in these respects.  Another witness called by the defendant, Mr Hampson, when he was asked about this topic, said that it was MGB that had been performing badly, although he did acknowledge that these problems were publicly known and had been reported to the Stock Exchange.[65]  Mr Hampson had been employed at all relevant times by MGB, not CML.

   [57]Transcript, 1277.

   [58]Transcript, 1279–1280; CB 386.

   [59]Transcript, 1475.

   [60]Transcript, 1267.

   [61]Transcript, 1267.

   [62]Transcript, 1279.

   [63]Transcript, 1320.

   [64]Transcript, 1332.

   [65]Transcript, 1552.

1. I accept that Prosilis had some relevant skills and knowledge, and was articulate and forceful, and that MGB, and indirectly CML, wished to achieve savings at this time if possible, but Prosilis was dealing with a large public company with numerous subsidiaries and an elaborate management structure, and I do not accept that he was ‘unique’ or that he represented, or was seen to represent, a ‘unique opportunity’ for CML or MGB, or that in the circumstances I should be ready to believe that CML was prepared to take what would otherwise be startling risks in dealing with him.

ACC’s early approaches to CML

1. During the period in question Prosilis was no shrinking violet.  In his first move, he went right to the top of CML.  In about March or April 1993, having discussed his strategy with Poulos, Prosilis sent a facsimile to Mr Solomon Lew, the then Chairman of CML.  It read:

Dear Sir,

I believe I can save you many millions of dollars.

If you are interested, please contact me.[66]

Prosilis sent a Woolworths business card with the facsimile.  The card stated his title as National Advertising Manager, General Merchandise, Variety and Supermarkets, Woolworths.  Of course by this stage Prosilis had ceased for some months to be directly employed by Woolworths and no longer held the title referred to.

[66]CB, 338.

1. In April 1993 Prosilis received a reply from Wilkinson whose position then was Chief Operating Officer, Retail, of CML.  Prosilis responded to Wilkinson and this led to a face to face meeting between Prosilis and Osborne on or about 28 May 1993.  Osborne had commenced working with Myer in Queensland in 1978.  From then on he had held various positions of increasing importance until eventually being appointed Group General Manager – Retail Services of CML in mid 1992.  He reported directly to Wilkinson.

1. The May meeting took place in a boardroom at CML headquarters in Tooronga.  Both Prosilis and Poulos attended on behalf of ACC.  Prosilis made some brief notes during the meeting.[67]  Wilkinson was originally to attend the meeting on behalf of CML and Osborne apologised for the absence of Wilkinson.[68]  I note that Osborne continued to report to Wilkinson right up until Osborne was transferred to MGB in or about early November 1993. 

   [67]CB 331.

   [68]PWS 1, [37]; Poulos’ witness statement, [15]; transcript, 1265 (Osborne).

1. At the May meeting Prosilis and Poulos made a presentation using slides and an art folder.  Prosilis said he believed that CML could save money (between 10 and 20 percent of current expenditure) using new technology in catalogue production.  In Poulos’ witness statement, as elaborated upon in his oral evidence,[69] Poulos effectively says that this was, for the most part, a standard ACC pitch rather than something specific to CML.  Prosilis says that the slides were regularly carried around in a black carousel; and that the art folder contained images describing how ACC produced catalogues.  He says that ACC did the presentation for different potential clients on approximately a weekly basis during 1993, amounting to some 30-50 presentations that year.[70]  In addition, Poulos says that he and Prosilis had prepared in advance a mock up of an ACC-style version of MGB’s Father’s Day catalogue, and that they showed this to Osborne.  As mentioned above, I accept Osborne’s evidence that he personally had little interest in such matters.  However it is common ground that Osborne was interested by a slide that showed quantities of catalogues being discarded; and that there was some discussion of ‘overs’  Osborne acknowledges that he told Prosilis at this meeting that CML would be interested if Prosilis could find savings resulting from ‘overs’.

   [69]Poulos’ witness statement, [19]; transcript 1196–1197.

   [70]Poulos’ witness statement, [19]; Transcript 1196-1197.

1. On the other hand, contrary to Poulos’ claim, I accept Osborne’s evidence that he did not say to Prosilis during the meeting that he (Osborne) ‘had full authority to act on behalf of Coles Myer’.  I accept Osborne’s evidence that he did not make any statement of the kind alleged and that he could not truthfully have done so because, in fact, he did not have the suggested authority.  Prosilis himself says that Osborne said that he would discuss the proposal with Wilkinson and would contact Prosilis if ‘we’ wanted to take the matter further.[71] Similarly, Osborne says that he told Prosilis that before taking any further action he would have to discuss the proposal with Wilkinson.[72]

   [71]PWS 1, [49].

   [72]Osborne’s witness statement, [15].

1. Further, I accept Osborne’s denial that during the meeting he said words to the effect of ‘Ovid, to get this started what do we have to do?  What do you need from me?’  I accept Osborne’s evidence that he did not make any statement to that effect, as the meeting was an exploratory meeting, and such questions would have been far too prescriptive and detailed for such a preliminary meeting.[73]

   [73]See also Osborne’s witness statement, [16].

1. I note that Prosilis says in his first witness statement that he told Osborne that he estimated at that time that he could save $5-$15 million for CML (as a whole).[74]  It is not clear from the witness statement whether this was meant to include savings on ‘overs’.

   [74]PWS 1[49].

Further contact between June and August 1993

1. As a follow up to the May meeting, ACC sent a letter dated 11 June 1993 to Osborne summarising what Prosilis describes as the main points raised during the meeting.[75]  It enclosed a proposed confidentiality agreement drafted by Werry Altobelli, ACC’s solicitors, together with the documents which Prosilis refers to as a ‘21 Point Plan’ and an ‘Action Plan’.[76]  The draft confidentiality agreement recites, among other things, that ‘[t]he Customer[77] has requested ACC to provide an advertising/production audit (hereinafter called ‘the Audit’) in respect of the Customer’s product’.  In the letter of 11 June 1993 Prosilis stated:  ‘I believe that as a general principle, there is 10-20% inefficiency in the system.  This equates to something in the range of 5-15 million dollars in savings for Coles Myer Ltd’.  Prosilis says that these were prepared ‘for Mr Osborne and Mr Wilkinson to consider my proposal for a preliminary audit of CML’.[78]  None of the documents made any reference to ‘overs’.  Osborne did not reply to the letter of 11 June.  As mentioned above, I accept that there were many people trying to sell him things and that he was very busy.  Osborne said, and I accept, that he did not always write back to such people.  Indeed, it transpires that he did not write a single letter to Prosilis or ACC or ACOM during the whole of the period in question.  By contrast, Prosilis (through ACC) was generally very quick to write self-serving letters. 

   [75]PWS 1, [50].

   [76]Ibid.  Compare statement of claim, [3], particulars para (a).  Compare also the documents themselves: CB 386-394.

   [77]Defined as CML.

   [78]PWS 1, [50].

1. There was a further meeting at CML headquarters in Tooronga on or about 25 June 1993.[79]  Prosilis and Poulos attended on behalf of ACC and Osborne and Wilkinson of CML were present.  Prosilis essentially repeated his presentation from the May meeting and spoke to the ‘21 Point Plan’ and the ‘Action Plan’.  Wilkinson queried Prosilis as to why he had chosen to approach the corporate office rather than the individual businesses in the CML group.  Prosilis replied with words to the effect that the proposed changes needed to be driven from the top and managed centrally.  He used an analogy of the Roman Senate providing a member of the Senatorial staff to one of its generals in order to enhance that general’s authority with other officers.  Prosilis also predicted resistance from entrenched management.  Indeed in his witness statement Prosilis says that he remarked:

My personal view is that some of these managers currently negotiating for your businesses are like corporate zombies in that once you discover how inept they are, they are literally going to be fired.[80]

It is common ground that Prosilis expressed himself this dismissive kind of way not only on this occasion but frequently. 

[79]PWS 1, [51].

[80]OPS1 [52].

1. I accept that at this meeting Prosilis offered to perform what he now describes as a ‘preliminary audit’ of one of the businesses of Coles Myer with a view to preparing findings and a report.  Prosilis claims that he said words to the effect:  ‘If you accept my findings, then I will conduct a full and comprehensive audit of the entire catalogue program for the 1993 year using every invoice and cost in your records and comparing that to what I could produce a catalogue for and what competitors are paying in the market’.[81]  Again, I accept that something like this was said, although, having regard to certain evidence of Osborne referred to below, I am not convinced that the word ‘audit’ was used by Prosilis at this meeting.  I do accept Prosilis’ evidence that he said he would need about two weeks to prepare a ‘preliminary report’.[82]  Subject to replacing the expression ‘preliminary audit’ with ‘preliminary report’, I accept also Prosilis’ evidence that, when asked what this would cost Coles Myer, he said words to the effect:

The preliminary [audit] will be for free.  Both parties will share the risk in order to establish any potential.  If I save you nothing, you pay me nothing.  If I save you a king’s ransom, you’ll pay me a king’s ransom.  If however you accept the preliminary [audit] and instruct me to conduct a full audit and realise the potential savings an agreement will be prepared between us.[83]

Further, I accept that Wilkinson responded that ACC should start at MGB.

[81]OPS1, [53].

[82]Ibid.

[83]Ibid.

1. Prosilis and Poulos claim that Prosilis told Wilkinson and Osborne at this meeting that ACC would be risking its future relationship with Woolworths and others if it began to work for CML, and so ACC needed to be guaranteed access to at least six CML businesses to make it worthwhile.  While I accept that Prosilis did say something along these lines at a later stage, it is unlikely that he said it at this particular, early meeting.[84]

   [84]See evidence of Osborne at transcript, 1284–1285.

1. Osborne does not dispute, and I accept, that it was mentioned at this June meeting that benchmarks of current costs would need to be clearly set before ACC proceeded with a full examination, so that there could not be any dispute or confusion in the future.  Indeed, Osborne says that the necessity for this was self-evident.[85]

   [85]Transcript, 1285.

1. On the other hand, I do not accept the evidence of Prosilis and Poulos that Wilkinson said words to the effect:  ‘If you succeed with the preliminary audit I will give you the businesses you need for Coles Myer to bring about the changes’.  Such an unguarded statement is unlikely to have been made.  I accept that Wilkinson said that he agreed in principle with the idea of a confidentiality deed, but required the final terms to be further considered.

1. I accept also that an arrangement was made for Osborne to introduce Prosilis to the relevant staff at MGB for the purposes of the proposed preliminary work.  However I do not accept the statement made by Poulos[86] (but not by Prosilis himself) that Wilkinson added that he would provide to Prosilis an authority on CML letterhead which would include a requirement ‘that no contract can be renegotiated without you being a joint signatory and approving these changes’.  Nor do I accept that Wilkinson added:  ‘You will become our agent and act on our behalf’.  I do not believe that Wilkinson would have said this at such an early stage.  The so-called ‘preliminary audit’ had not even begun.  As will be seen, Prosilis later tried to get an authority of the kind suggested by Poulos, but only received something significantly less.[87]

   [86]Poulos’ witness statement, [41].

   [87]Letter signed by Wilkinson dated 4 November 1993:  CB 632.

1. I accept that on or about 6 August 1993 Prosilis and Poulos attended a meeting at the offices of MGB in Bourke Street, Melbourne and were introduced by Osborne to Mr Neil McKay, the Acting Group General Manager – Marketing of MGB, Mr Michael Wall, the National Advertising Manager of MGB and Mr Peter Waterman, the Media and Traffic Manager of MGB.  I accept that it was arranged that information and relevant documents would be provided to ACC together with space at MGB’s offices for an anticipated period of about two weeks commencing on or about 24 August 1993.

1. I accept that on or about 24 August 1993 Prosilis attended at the offices of MGB to commence the work which he now calls the ‘preliminary audit’.  I accept that he was taken to an office and provided with a bundle of documents by Mr Wall and Mr Waterman.

1. Prosilis says that on 30 August 1993 (during the so-called preliminary audit), he telephoned Osborne to complain that Wall and Waterman were being obstructive by not providing a complete set of invoices for the 1993 catalogue program and in other ways.[88]  Prosilis says that this led to Waterman dropping a large bundle of additional documents in the office while appearing to be agitated, angry and aggressive. 

   [88]Osborne did not recall this telephone call: Osborne’s witness statement, [22].  However the tenor of Osborne’s evidence about Prosilis’ general attitude towards and interactions with MGB staff was consistent with it.

[372]Final submissions, [103].

[373]Transcript, 1068.

[374]Ibid.

[375]CB 2944.

[376]Transcript, 1074.

[377]CB 3208-3211.

[378]Transcript, 1075.

[379]CB 3038.

1. As mentioned above, McMenamin’s account of the terms of the letter box distribution agreement is inconsistent with Prosilis’ account, in that McMenamin asserted that the letter box distribution agreement was not subject to any conditions nor limited by any other arrangement except a timing issue.[380]

   [380]Transcript 1117.

1. Even on the plaintiffs’ own case, the claim for the letter box distribution agreement is internally inconsistent and utterly implausible.  Why would the company which was to be the beneficiary of the contract be required to tender for the work with the subsidiaries of CML if it had been guaranteed 50% of that work by CML already?  Asked this question in the witness box, Prosilis gave an explanation not previously suggested.  He said that the agreement was ‘hush hush’.[381]  Prosilis was not clear as to the persons from whom knowledge of the existence of the agreement was to be kept.  But, initially at least, he indicated that those persons were to include the relevant personnel at the subsidiaries.  In effect, then, he was positing that Wood (of his own initiative) had decided to engineer a farcical process which would involve, among other things, a high risk of embarrassment of the decision making personnel at the subsidiaries should they make and communicate a decision on an application by Prosilis for distribution work that was inconsistent with the pre-ordained 50% arrangement.  When this was pointed out to Prosilis, he could offer no sensible rationale or explanation.[382]

   [381]Transcript 1070-1073.

   [382]Transcript, 1072.

1. Further, in relation to the letter box distribution agreement claim overall, I agree with the following submission of the defendant:[383]

Critically, and stepping back from the evidence of the three relevant witnesses in considering the matter objectively, it is completely implausible that the parties, and in particular Coles Myer, would have intended to make a concluded oral bargain at that meeting in relation to all of the extremely significant matters which are said to be the subject of the letter box distribution agreement, when (among other things):  (1) catalogue distribution was such an important part of MGB’s and the other subsidiaries’ business strategy; (2) the agreement could have committed Coles Myer to potential payments of many hundreds of thousands, or millions, of dollars; (3) one of the parties to the agreement had not yet been incorporated; and (4) the agreement was premised on the use of ADN, which was untested, and was in fact undergoing a trial (in relation to one catalogue only) at about the same time or shortly afterwards.

[383]Final submissions, [297].

1. Thus I agree with the defendant[384] that, as a matter of commercial reality, an agreement of such significance could never have been entered into by CML in the circumstances alleged by the plaintiffs.  The letter box distribution claim is not supported by one contemporaneous document.  Moreover, it was never mentioned before the proceeding was commenced in the year 2000.  The claim is, and always has been, hopeless.  Indeed, it is clear from Wood’s evidence that he considered the claim to be preposterous.  I would accept that characterisation of it.  The very fact that the plaintiffs have been prepared to make and maintain this preposterous claim since the year 2000 suggests in itself that any and every other claim they make in this proceeding should be viewed with great caution. 

   [384]Final submissions, [298] and [299].

Further events in October 1994 including the commencement of the Price Waterhouse review

1. It is common ground that in about October 1994 Price Waterhouse began to conduct an analysis relating to Progress Press and the issue of overs.  There is a contest between the parties as to whether Price Waterhouse was intended to, or did, analyse the past conduct of Progress Press and its historical database of delivery points or whether, on the other hand (whatever it ought to have done) Price Waterhouse did no more than analyse and report upon the current state of the Progress Press distribution database as at the date of the report.  It is not necessary for me to express any view on that debate for the purpose of answering the preliminary questions.

1. Osborne told Prosilis around this time that he was prepared to wait until the end of the Price Waterhouse exercise before he made a final assessment as to the position regarding overs.[385]

   [385]Osborne’s witness statement, [111]; transcript, 1420 (Osborne). 

1. On 17 October 1994 Wood received a letter from the joint managing director of Salmat regarding Prosilis and ADN.[386]

   [386]CB 2308-2317.

1. On 19 October 1994 Salmat sent Wood a letter clarifying certain matters in relation to Salmat’s response to the tender process.[387]

   [387]CB 2949-2952.

1. In about the second half of October 1994 Wood contacted Target, which was the predominant user of Salmat within CML, and organised a meeting between himself, Target, Salmat and Centar to analyse Centar’s figures.  At that meeting Salmat presented its corrected data, and when that data was analysed, Target (and Wood) were satisfied that Salmat’s distribution data was correct.[388]  It is not necessary for me to express a view about whether Target and Wood were justified in being so satisfied. 

   [388]Wood’s witness statement, [57]-[58].

November and December 1994:  trial of ADN

1. There was a limited trial of ADN by MGB in November and December 1994 in relation to a single catalogue.  There is a controversy about the actual and reported outcome of that trial, but it is not necessary for me to make any findings on that controversy in order to answer the preliminary questions.

1995:  presentation of Price Waterhouse report

1. Price Waterhouse presented its audit report on 8 June 1995.[389]  It was very brief.  Price Waterhouse stated that, based on its review, the procedures performed by Progress Press for the Melbourne, Sydney and Brisbane metropolitan regions during the period from 1 November 1994 to 31 March 1995 were reliable, so as to give an accurate number of deliverable households within a sample deviation range of 1.8% (based on a maximum tolerable deviation rate of 5%). 

   [389]CB 2414; transcript, 1057 (Prosilis).

1. Prosilis endeavoured to suggest that the Price Waterhouse audit report itself constituted evidence of substantial overs,[390] but, as the defendant submits, Prosilis ended up appearing to concede that it did not constitute such evidence.[391]  In this regard, Prosilis conceded that for the purpose of preparing his abovementioned letter of 29 September 1994, Prosilis regarded ‘substantial’ overs as between the range of 9% to 20%, not 1.8%.  However, as I have indicated, the plaintiffs would say that the Progress Press database was recounted or updated in some way.  Osborne rejected the plaintiffs’ suggestion that he had met with Prosilis and Pownall of Centar on 10 November 1995 and 13 December 1995 and had accepted that the Price Waterhouse audit was wrong.[392]  I accept Osborne’s evidence in that regard.  However, as I have already mentioned, it is not necessary for me to make any finding about the nature or validity of the controversial aspects of the Price Waterhouse audit in order to answer the preliminary questions.

   [390]Transcript, 1058-1059.

   [391]Transcript, 1062, 1076.

   [392]Osborne witness statement, [119]; transcript 1420, 1422.

1. The plaintiffs claim that at the alleged meeting of 13 December 1995 Prosilis was told by Ms McGahan (an employee of MGB and the wife of Osborne) that MGB had worked on areas the subject of Prosilis’ alleged audit and had produced a catalogue known as the Christmas 1 Catalogue in-house.  Prosilis claims that he then asked when he would be paid.  He claims that McGahan said to him that he could start preparing invoices for work done to date.  Osborne could not recollect that the Christmas 1 Catalogue had been produced in-house, although it appears to be common ground now that it was.  Osborne emphatically denied that McGahan had said words to the effect that doing it in-house had saved MGB an enormous amount of money and that everything Prosilis had said about doing it in-house was correct.[393]  I prefer Osborne’s evidence to that of Prosilis in this regard.

   [393]Transcript, 1423.

1. Osborne further said that he found it ‘impossible’ that McGahan had requested Prosilis to start preparing invoices for work done to date.  I accept Osborne’s evidence and I do not accept that McGahan or anyone else at the meeting said anything that could reasonably indicate that MGB or CML accepted that it had any liability to Prosilis.  In that regard, I take into account the several responses from MGB/CML to the claims and invoices that were ultimately sent by Prosilis in 1996.[394]   

   [394]See below for examples.

December 1995:  registration of ACOM and assignment

1. ACOM was registered in New South Wales on 18 December 1995.[395]

   [395]Transcript 1078 (Prosilis).

1. By a contract of assignment taking the form of a deed dated 20 December 1995 ACC purported to assign to ACOM its rights against CML under ‘the Contract’ as defined in the deed.  The salient provisions of the deed are set out below. 

1996 to 2001:  concluding events

1. The plaintiffs claim that Wood intervened in February or April 1996 to prevent Shane Lipton of World 4 Kids (another Coles Myer subsidiary) from hearing a presentation by Prosilis.  Wood stated, and I accept, that he would not have directed another business not to deal with a third party if that business wanted to do so.[396]

   [396]Transcript, 1531-1532.

1. On 5 March 1996 McGahan wrote to Prosilis to summarise a meeting she had had with Prosilis on 16 February 1996 concerning, among other things, Prosilis’ claim for remuneration said to be owing.[397]  There is nothing whatsoever in that letter to indicate any acceptance on the part of MGB or CML that anything was owing.  On 3 April 1996 another officer of MGB, Roy Tavenor, wrote to Prosilis, with a copy to Wood, rejecting Prosilis’ claims for remuneration.[398] 

   [397]CB 2957-2962.

   [398]CB 3234-3235.

1. It is common ground that ACC was placed in liquidation on 9 July 1996.  And it was deregistered on 23 December 1998.

1. This proceeding was commenced in the year 2000, but, as Prosilis acknowledged,[399] the writ was not served until one year later.

   [399]Transcript, 1134.

Credibility of the witnesses

1. I have already said a great deal about the relative credibility of the witnesses in this case.  In the course of making the findings of fact set out above I have indicated that there are many strong reasons, quite independent of questions of credibility, for not accepting the plaintiffs’ case as to either of the pleaded agreements.  In those circumstances, I can deal with the additional matters relating to the credibility of the individual witnesses and the matter of relative credibility overall without descending into the minutiae of the matters relied upon by the parties. 

Ovid Prosilis

1. The defendant submits that the court would be quite entitled to conclude that in many respects Prosilis is not a witness of truth, and the defendant submits that the court should reach that conclusion.  However, the defendant acknowledges[400] that, given Prosilis’ apparent obsession with this case, and his relentless pursuit of it over many years, despite its many obvious difficulties, the court might instead conclude that Prosilis has erroneously come to believe that his version of events is correct.  The defendant submits that, either way, Prosilis is not a reliable witness.  I accept that, one way or the other, Prosilis is not a reliable witness.  I do not need to decide, and do not decide, whether or to what extent Prosilis was telling deliberate untruths in his evidence.  However, I do agree with the defendant’s further submission that Prosilis was defensive, frequently intransigent, argumentative and unresponsive, and all the less reliable accordingly.[401]

   [400]Final submissions, [131].

   [401]Final submissions, [132].

1. Of the matters to which I have already referred potentially bearing on Prosilis’ credibility, I take into account, especially, Prosilis’ willingness to change his story or his case when it suits him, such as his recent departure from reliance upon the 27 April 1994 draft agreement; his suggestion that he did not receive or see the 28 February 1994 memorandum from Wood; the extraordinarily detailed nature of his accounts of the various relevant meetings and discussions;[402] and Prosilis’ very strong tendency to blame everyone except himself for anything that did not advance his case (for example, blaming his lawyers for getting the drafts of the first alleged agreement wrong).

   [402]As the defendant submits, these accounts are manifestly reconstructions rather than the product of any real recollection, particularly in regard to the fact that the relevant events occurred 16 to 17 years ago:  final submissions, [129].

1. When Prosilis was asked to explain why he had maintained for some 16 years that the 27 April 1994 draft agreement best reflected the alleged agreement, Prosilis was most unconvincing.  He said that the ‘last version of the drafting which contained the essential terms that most closely approximated the history of the drafting is contained in the 27 April 1994 draft agreement’.  (My emphasis).[403]  This was really no explanation at all.  In his first witness statement Prosilis had stated that ‘the unexecuted final draft of 27 April 1994 is the written embodiment of the agreement I reached with Mr Neil Osborne on 12 November 1993’.[404]  To say that is to say something very different from merely saying that the 27 April draft most closely approximated the history of the drafting.

   [403]Transcript, 873-874.

   [404]Prosilis’ witness statement, [259].

1. Prosilis accepted in the witness box that he never raised his dissatisfaction with the March draft and the April draft with Osborne.[405]  However, he said that he did not complain about the drafts because he was trying to ‘salvage the good will’, and that he and Werry had discussed this matter and decided to ‘keep our powder dry’, as Prosilis believed he was ‘horribly exposed’ to CML.[406]  Prosilis conceded that there was no suggestion in his third witness statement that he and Werry had decided to keep their powder dry.[407]

   [405]Transcript, 965.

   [406]Transcript, 949, 962, 963.

   [407]Transcript, 953.

1. I accept the defendant’s submission that Prosilis’ evidence about the 27 April draft is manifestly implausible.[408]  I accept that the likelihood is that when Prosilis was confronted – 16 years later – with Coles Myer’s witness statements which were served in early February 2010, he realised that the terms of the 27 April 1994 draft did not suit his case after all.  I accept that his attempt to resile from the 27 April draft was an attempt to avoid the inescapable fact that there was no evidence of any written agreement by MGB or CML to the identification of potential savings by ACC for MGB.  I accept that this is the reason why Prosilis now prefers the 21 February 1994 draft.

   [408]Final submissions, [141].

1. Further, I agree with the defendant[409] that the additional evidence Prosilis gave about the inaccuracy of the 27 April draft is entirely inconsistent with his previous position.  It will be recalled that Prosilis went so far in his oral evidence as to say that the 27 April draft contained clauses that were unworkable and that he would not have agreed to the protections they gave CML and, indeed, that there could never have been an agreement reached between ACC and CML if CML had persisted in wanting those terms.[410]

   [409][143].

   [410]Transcript, 876.

1. I accept the defendant’s submission that Prosilis’ credibility is also affected by failures on his part to disclose matters of importance from time to time. 

1. Prosilis applied for admission to practice as a solicitor in New South Wales in October 2002.  Earlier, in 1998, Judge Herron of the District Court had handed down a judgment in which he completely rejected Prosilis’ evidence and came to the conclusion that Prosilis was not being truthful and that he was prepared to tell a fantastic story.[411]  In cross-examination in the present case, Prosilis acknowledged that that was the finding of Judge Herron.[412]  Prosilis further conceded that when he applied for admission to practice as a solicitor in New South Wales he did not disclose Judge Herron’s finding that he had been an untruthful witness.[413]  The plaintiffs’ counsel submit that there is nothing to indicate that Prosilis had been obliged to disclose that finding.  In my view, the obligation must have existed.  I emphasise, however, that the defendant does not ask me to take into account the finding of Judge Herron in its own right as going to Prosilis’ credibility, and I do not do so. 

   [411]CB 3341 at 3345-3346.

   [412]Transcript, 740.

   [413]Transcript, 740.

1. In or about February 1994, when Prosilis was purporting to provide independent assistance to CML with respect to the distribution tender process, he and his company, ACC, had a significantly closer involvement with ADN than he had disclosed to CML or MGB.  In effect, he had options to acquire substantial equity in some of the State based ADN entities.  He needed only to apply the ACC company seal to the relevant contracts in order to exercise these ‘options’.  The plaintiffs can only say in their submissions about this matter that ‘the proposed agreements never took effect’.[414]  In my view, that is hardly an answer.

   [414]Outline of final submissions, 22.

1. Osborne tackled Prosilis about his connections to ADN after Osborne received the abovementioned correspondence relating to ADN.  In response, Prosilis showed Osborne a copy of a letter he had sent to Mr Rechner of ADN (Vic) responding to Rechner’s allegations against Prosilis.  In his letter to Rechner, Prosilis had stated that he had no agreements or management contracts or shareholdings in ADN or in any State ADN business.[415]  However, in fact, this was wrong.  Whatever the status of the ‘options’, Prosilis had a consultancy fee arrangement with ADN.  He was on a monthly retainer to ADN (NSW).[416]  Prosilis said in evidence that he had not thought it relevant to let Osborne know about the retainer with State ADN entities (as distinct from the national organisation).[417]  However, as the defendant submits[418] this demonstrates a remarkable lack of awareness by Prosilis of his ethical obligations. 

   [415]Transcript, 993-994.

   [416]Transcript, 995-996.

   [417]Transcript, 996.

   [418]Final submissions, [149(d)].

1. As the defendant further submits,[419] Prosilis was present in court during the opening of the plaintiffs’ case by their counsel and made no attempt, despite appearing to listen attentively and provide counsel with instructions on other matters from time to time, to correct anything said by counsel about his involvement with ADN.  When referring to the alleged letter box distribution agreement, senior counsel for the plaintiffs submitted that:

…  Prosilis had not contemplated this at the time he conducted the audit for MGB of letter box distribution, or conducted the tender and the previous audit of the MGB production and distribution.

[419]Final submissions, [149(j)].

1. There was then an exchange in which senior counsel confirmed that what Prosilis had not contemplated was the potential of becoming a letter box distributor.  Counsel said that the matter of becoming such a distributor was completely fresh to Prosilis when he approached McMenamin, the financial adviser, about the matter in June or July 1994.  Asked whether Prosilis had had any prior involvement in any way with anyone involved in trying to get the distribution business from CML, senior counsel responded in the negative.  However it was later established that those statements were quite incorrect.  Prosilis ultimately conceded that the unsealed ADN contracts suggest that he intended to form a national letter box distribution network in January 1993.[420]

   [420]Transcript, 1024.

1. Prosilis claimed in evidence that the contracts were insignificant because they were not to come into force unless every State agreed.  However, there is nothing in the contracts themselves to indicate that there was any such condition.

1. Further, I accept that Prosilis not only failed to disclose his involvement with ADN to CML, he failed to disclose it to this Court when he should have done so.  As the defendant submits[421] there were numerous opportunities for Prosilis to have made such disclosure which he failed to take up.  He failed to disclose the existence of the unsealed contracts in any of his affidavits of documents in this proceeding, even as documents he once had but no longer has.[422]  In addition, he tried to suggest during cross-examination that the documents were ‘stolen’.[423]  As the defendant points out, if that had been the case, then that was an obvious explanation to include in an affidavit of documents.[424]

   [421][152].

   [422]Transcript, 1028. 

   [423]Transcript, 1028. 

   [424]Final submissions, [153].

1. Prosilis has demonstrated a significant lack of candour on the matter of his involvement with ADN. 

1. In Prosilis’ first witness statement, when discussing the meeting of 28 September 1993, Prosilis said that Osborne told him that Wilkinson and Mattingly were very close friends and were currently on a fishing trip together.  Under cross-examination Prosilis said that Osborne had told him about the fishing trip on the sixth floor outside the elevator as Prosilis was leaving the Coles Myer building, and Prosilis was at pains to bolster this account by giving an explanation about the security requirements at Coles Myer.  When confronted with his witness statement and the fact that, in the statement, the fishing trip story is relayed as having been told part way through the meeting, Prosilis rejected the proposition that the rest of the meeting occurred at the elevator, and he rejected the proposition that the fishing trip story was out of order in his statement.  Instead, he said that Osborne made the comments attributed to him about the fishing trip twice:  once during the middle of the meeting and again at the elevator as Prosilis left.  Prosilis conceded that this was not mentioned in his statement.  Prosilis went on to say that the first draft of his witness statement was 1,000 pages long and that the matter may have been left out in the course of editing.  I do not accept that explanation.

1. I have already referred to the controversy about whether the spreadsheet at CB 846 was really produced in around late 1993 or early 1994 while Prosilis was conducting an audit of MGB.  The spreadsheet is undated.  Prosilis said the spreadsheet was compiled by reference to summaries of MGB and ACC costs which he had created at the time.  However, most of the ACC summary documents are dated 27 February 1996.  Prosilis attempted to explain this in his witness statement.  He said that the original documents were stored on a computer and printed out at the time that invoices were being prepared for sending to CML in the period from February to April 1996, but that the documents were compiled in the November/December 1993 period and the 1996 date was simply the date when the documents were printed.[425]  He said that the details from the ACC summary documents were ‘recorded’ and ‘entered’ on spreadsheet 846 and that he carried out the same exercise for each of the 62 catalogues for the 1993 calendar year.

   [425]Prosilis’ witness statement, [163]-[164].

1. I agree with the defendant’s submission[426] that there is, at the very least, considerable doubt as to whether the ACC summary documents were created in 1993, as opposed to 1996, and that that in turn raises doubt as to whether the spreadsheet was created as claimed by Prosilis.  The defendant lists six good reasons for such doubt based on discrepancies in the contents of the documents alone.[427]  Prosilis’ explanations for those discrepancies were less than compelling.  The hard copies of the ACC summary documents that had been created in 1993/94 are no longer available.  Prosilis claimed that they had been destroyed.  He said that the documents were kept on a balcony at one stage, that he had had an infestation of pigeons which were infested with lice and which destroyed a large volume of documents, and that the documents were also affected by rain, damp and mould.[428]  Prosilis also said that a complete set of photocopies had been stored under a house, but these were destroyed by rats and mould.[429]  It is troubling that Prosilis was able to produce so many thousands of documents for the purposes of this case, but not these particular documents.  In the end, I do not make a positive finding that Prosilis has consciously lied about the spreadsheet.  However, taking into account all the evidence relating to that matter, including my lack of satisfaction that Prosilis actually did any significant auditing at the relevant time, I would simply say that I am not satisfied that the spreadsheet was produced at the time claimed.

   [426]Final submissions, [178].

   [427]Ibid.

   [428]Transcript, 896-897.

   [429]Transcript, 901.

1. To reiterate generally, I do not regard Prosilis as a reliable witness.

McMenamin

1. As to McMenamin, I refer to the observations about him already set out above and I would add that I agree with the defendant’s submission that McMenamin appeared to take a partisan view of the litigation[430]  He gave all of his evidence emphatically, including the parts mentioned above which appear to be plainly incorrect.

   [430]Final submissions, [196(a)].

Poulos

1. I have already made unfavourable observations about the reliability of Poulos’ evidence.  I would add that, as the defendant submits,[431] there were remarkable similarities between Poulos’ witness statement and that of Prosilis in their accounts of the discussions at certain meetings.  However Poulos emphatically denied that they collaborated.  In my view, at the very least, Poulos’ recollections cannot be relied upon.  As the defendant further submitted,[432] Poulos’ powers of recollection, even of recent events, were poor.  While he purported to remember clearly events from 17 years ago because they were ‘memorable’ he was not able to accurately recall events of just over one year ago when he came to Melbourne several times to prepare his witness statement.  He stated several times that this was in mid-2009, and only accepted that it could not have been so when told that his statement was filed at the end of March 2009.

   [431]Final submissions, [197].

   [432]Ibid.

Coles Myer’s witnesses

1. The plaintiffs make no attack at all on the credibility of Hampson.

1. As to Osborne, they merely say ‘he sings the company’s song, no doubt out of loyalty to a former employer’.  Osborne had left the company 14 years before he gave his evidence.  I do not accept that he was merely singing the company’s song.  Like Wood and Hampson, Osborne had some difficulty recalling precise details of the relevant events that had happened 16 or 17 years before, but I accept that he did his best. 

1. Again, the plaintiffs allege that Wood was singing the company’s song.  But he had left the company in the year 2000.  Some other matters said by the plaintiffs to go to Wood’s ‘credibility’ in relation to the letter box distribution agreement claim have already been dealt with above.  There was no merit in them. 

1. I accept the defendant’s submission that Osborne, Wood and Hampson all did their best to recall the relevant events.[433]  I agree that they gave clear and cogent evidence about the matters that they were able to recall having discussed, and about the matters that they were sure were not discussed.  I agree that they were responsive to questioning under cross-examination and showed commendable stoicism despite being placed in the invidious position, not of their own making, of having their memories tested about events which occurred so many years ago.  I agree that they were all demonstrably astute professional business people not likely to have made hasty or ill considered statements or decisions.

   [433]Final submissions, [200].

1. I regard each of them as a wholly credible witness. 

The scope of the deed of assignment

1. Preliminary questions (2) and (4) require the Court to determine whether, as a matter of interpretation only, the abovementioned deed of assignment dated 20 December 1995 covers the ‘estoppel claim’ and/or the ‘the quantum meruit claim’, as respectively defined.

1. The assignment deed purports to record a contract made for consideration.  It relevantly provides:[434]

In consideration of [ACOM] fulfilling contractual obligations for Administration, Production and Distribution operations owed by [ACC] to Woolworths Limited, [ACC] assigns to [ACOM] by way of transfer the whole of [ACC’s] rights, title or interest in the Contract between [ACC] and [CML].

[434]CB 2593

1. The ‘Contract’ is defined as follows:

1.5 “The Contract” means whereupon [ACC] and [CML] did enter into negotiations over the terms of their contract between November 1993 and April 1994 but, by 27^th April 1994 the terms of the contract were agreed and a contractual document containing those terms was prepared by [CML’s] solicitors…and transmitted by them to [CML] and to [ACC], comprising the documents as listed in the schedule attached hereto.

It is not necessary to identify the listed documents.

1. By clause 4 of the deed, ACC purports to assign to ACOM ‘all interest, burdens, and benefits in the Contract’.  By clause 5 ACC ‘warrants’ that the Contract is in effect and is fully assignable.  Clause 8 provides that the deed, including any attachments, ‘is the entire agreement between the parties’.  It is not necessary to mention any other provisions.

1. Neither the estoppel claim nor the quantum meruit claim is expressly referred to in the deed.  Each claim is quite different in law from a contract or debt claim.  Each would require the establishment of different or additional facts.  I note in passing that it is by no means clear that the benefit of a restitutionary claim such as quantum meruit is even capable of assignment as a matter of law.[435]  Neither side made any submissions as to whether the assignment of either claim was legally possible.  In any event, given the absence of express reference to the estoppel and quantum meruit claims in the deed, and given the presence of the ‘entire agreement’ clause, the onus was on the plaintiffs to advance arguments as to why the deed should be read so as to cover the claims in question.  No such arguments were advanced.  The plaintiffs merely asserted that the claims were covered.  That is insufficient.  Questions (2) and (4) should accordingly be answered in the negative. 

   [435]See Dodds-Streeton JA’s extensive discussion of this issue in Equuscorp Pty Ltd v Cunningham’s Warehouse Sales [2010] VSCA 1, [274]­–[310]. That case concerned assignment of a different species of restitutionary right, the right to recover funds advanced under an unenforceable loan contract.

The estoppel claim

1. For the sake of convenience I repeat here the terms of questions (2) and (3):

2.Is ACOM entitled to bring the estoppel claim referred to in paragraphs 27 to 31 of the statement of claim, having regard to the terms of the assignment between ACC as assignor and ACOM as assignee dated 20 December 1995 and appearing at pages 2593 to 2628 of the court book?

3.If the answer to question (2) is yes, is the defendant estopped from denying the existence of the audit and implementation agreement (as referred to in paragraph 3 of the statement of claim), as alleged in paragraph 31 of the statement of claim, by reason of the matters alleged in paragraphs 27 to 30 of the statement of claim?

1. Because, as indicated above, I would give a negative answer to question (2), there is no need to answer question (3).  However, for completeness, I will briefly indicate what my conclusions relating to question (3) would otherwise have been.

1. The plaintiffs rely on the principles of promissory estoppel as enumerated by Brennan J in Waltons Stores (Interstate) Ltd v Maher:[436]

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.

[436](1988) 164 CLR 387, 428-429.

1. There is some uncertainty as to whether promissory estoppel constitutes an independent cause of action, or whether it is a doctrine by which one party is estopped from denying an element of a cause of action relied on by a another.[437]  I would find that the plaintiff has not made out any estoppel on the facts, and I do not express an opinion on the legal issue.

   [437]See discussion in Harrison v Harrison [2011] VSC 459, [363] (Kaye J).

1. The plaintiffs allege that the defendant induced ACC to assume that the defendant and ACC had entered into an enforceable agreement in the terms of the alleged audit and implementation agreement.[438]  As I have previously mentioned, the statement of claim refers only to a representation as to a past agreement.  It was neither pleaded nor otherwise suggested by the plaintiffs that CML had represented that it would agree to the alleged terms.

   [438]AFASC, [27(b)]; Plaintiffs’ outline of submissions, 31.

1. I would not accept that ACC assumed that a binding agreement had been made.  Nor would I accept that the defendant did anything to induce any such assumption.

1. As the plaintiffs put their case, Prosilis could only have adopted any assumption that the parties had a binding agreement as a result of the critical meeting of 12 November 1993. 

1. I have rejected Prosilis’ account of that meeting of 12 November 1993, save to the extent that it is common ground.    

1. Further, the subsequent exchanges of draft remuneration agreements and correspondence between ACC and CML and their solicitors would have confirmed to any reasonable person that no relevant binding agreement had been reached on 12 November 1993 (or thereafter). 

1. I would have been far from satisfied that ACC (or Prosilis) ever actually assumed that the alleged audit and implementation agreement was in place. 

1. The estoppel claim would have failed accordingly. 

Conclusions

1. Having regard to the findings set out above, the preliminary questions should be answered as follows:

Question 1(a): No.

Question 1(b): Unnecessary to answer.

Question 1(c): No.

Question 2: No.

Question 3: Unnecessary to answer.

Question 4: No.

Question 5: No.