Calvista Australia Pty Ltd v Teo Tran t/as Canberra Direct and as Canberra Mailing and Tom Royston
[2008] ACTSC 16
•7 March 2008
CALVISTA AUSTRALIA PTY LTD v TEO TRAN t/as CANBERRA DIRECT and as CANBERRA MAILING and TOM ROYSTON
[2008] ACTSC 16 (7 March 2008)
CONTRACT – authority of agent – whether purported termination effective – repudiation without cause – damages for breach – no issue of principle
No. SC 944 of 2005
Judge: Master Harper
Supreme Court of the ACT
Date: 7 March 2008
IN THE SUPREME COURT OF THE )
) No. SC 944 of 2005
AUSTRALIAN CAPITAL TERRITORY )
BETWEEN:CALVISTA AUSTRALIA PTY LTD
Plaintiff
AND:TEO TRAN t/as CANBERRA DIRECT and as CANBERRA MAILING
First Defendant
AND:TOM ROYSTON
Second Defendant
ORDER
Judge: Master Harper
Date: 7 March 2008
Place: Canberra
THE COURT ORDERS THAT:
Judgment be entered for the plaintiff against the first defendant in the sum of $736,951.29.
Judgment be entered for the second defendant.
The counterclaim by the first defendant be dismissed.
This is an action for damages for breach of contract. The plaintiff company is an importer and wholesale and retail distributor of adult films and other adult products. The expression “adult products” is used in the industry to refer to films and other items whose sale to minors is unlawful. As is the case with films generally, until a few years ago most were sold in VHS videotape format but are now marketed and sold as digital video discs (DVDs).
The first defendant, Ms Tran, is the proprietor of a number of businesses, including one which trades as Canberra Direct. She is the registered proprietor of that business name. Canberra Direct is engaged in three separate areas of business activity. One of these is a wholesale and retail adult products business.
The evidence of the first defendant is that the second defendant, Mr Royston, was effectively the manager of the adult products business of Canberra Direct. She took personal responsibility only for bookkeeping and accounting. The evidence is that it was Mr Royston who dealt generally with the plaintiff in relation to adult products.
Oral evidence was given at the hearing by both defendants, and by three employees of the plaintiff: Mr David Newnham, general manager; Mr John Stefanou, national business development manager; and Mr Robert Barnes, ACT branch manager. In addition to the oral evidence I have had the benefit of a considerable volume of contemporaneous documentation.
The pleadings
The plaintiff’s case as pleaded is that on 25 November 2004 it entered an agreement with the second defendant as agent for the first defendant whereby the first defendant was to purchase 167,775 Private brand video remainders for $6.00 each, a total price of $1,006,650.00. It was a term of the agreement that the first defendant was to take delivery of half of the total stock within six months and of the balance within twelve months. The first defendant, through the second defendant as her agent, bought some stock in the first month after the agreement but did not make further purchases from about January 2005, and hence did not purchase half the total stock within six months or all of the stock within twelve months. In May 2005, shortly before the six-month deadline, the first defendant wrote a letter which the plaintiff took to be a repudiation of the agreement. The plaintiff claims the agreed amount for the balance of the stock, loss of profits, and an amount paid to the Swedish company which had owned the intellectual property in the products.
The defendants, who were jointly represented throughout, admitted on the pleadings that the first defendant was the proprietor of Canberra Direct and that the second defendant was the manager of Canberra Direct on 25 November 2004. They denied that there was any agreement made on that date, but said that if there was, its terms were significantly different. The differences were that the $6.00 cost per videotape was to be reduced by 17.5%, an agreed discount which applied to all dealings between the plaintiff and the defendants; and that the first defendant could purchase videotapes up to the stock figure claimed by the plaintiff but was not obliged to purchase any minimum number. The defendants said that if there was an agreement it included further terms: any videotapes ordered were to be supplied within three days; the plaintiff was to assign to the first defendant its distribution rights for Private brand VHS videotapes for Australia and New Zealand; the plaintiff was to notify its wholesale customers that the first defendant now held those distribution rights; the plaintiff was to direct all telephone enquiries as to wholesaling of those videotapes to the first defendant; the plaintiff was to ensure that each videotape met industry standards; the plaintiff was to maintain the wholesale price of Private brand DVDs until 25 November 2006; and the plaintiff was to maintain the first defendant’s trading terms until 25 November 2005. Any such agreement also included a representation that the plaintiff owned the exclusive rights to distribution within Australia and New Zealand of Private brand VHS videotapes.
The defence went on to assert that the plaintiff had supplied goods which were not of merchantable quality or fit for their purpose, by reason of which breaches the agreement was terminated. The defence also asserted that, to the plaintiff’s knowledge, the second defendant was at all relevant times agent for the first defendant and was neither a principal nor an agent for an undisclosed principal.
The first defendant made a counterclaim for damages for wrongful termination of two earlier agreements as to trading and credit facilities. A claim was also made for breach of a warranty that the plaintiff owned the exclusive rights to the Private brand VHS videotapes.
The earlier agreements referred to in the defence were said to be an agreement of 13 December 2001 between the first defendant and AdultShop.com Limited, and an agreement of 20 September 2002 between the first defendant and the plaintiff. The evidence is that AdultShop.com Limited is the parent company of the plaintiff, but it is a separate legal entity and it does not seem to me that any agreement made between the first defendant and AdultShop.com Limited is relevant to the present proceedings. To the extent that it might have had any relevance, its terms were overtaken by the agreement of 20 September 2002, a standard form agreement which the plaintiff required customers to sign in order to open a credit account. A copy of that agreement was in evidence: it was signed by the first defendant and witnessed by the second defendant, and returned by fax to the plaintiff on 20 September 2002. At the request of the second defendant, a clause relating to the Privacy Act 1988 and a Romalpa clause were deleted, suggestive to my mind of a reasonable degree of business sophistication on the part of the second defendant. At Mr Royston’s request, a clause making the agreement subject to the laws of Victoria was altered to apply the laws of the jurisdiction in which the transaction was conducted. The agreement did not impose on the plaintiff any obligation to fulfil orders within a set period. It was agreed that claims for defective or damaged goods had to be notified to the plaintiff within 30 days of delivery, and goods returned to the plaintiff within that period.
The plaintiff’s case
Mr David Newnham, the general manager of the plaintiff company, has worked for Calvista or related companies for nineteen years and has been in his present position for eight years. The company has its head office in Melbourne with offices in Sydney and Canberra, and employs some 73 people. He explained that typically the company would enter an exclusive distribution agreement with a producer of films in Europe or the United States. Sometimes the producer would provide bulk shipments of films in VHS or DVD format and slicks (artwork placed behind transparent plastic on a case) with a licence to distribute and sell these in an identified territory. Sometimes the producer would provide film masters and master copies of the artwork, with the right to manufacture as well as distribute the finished product in the specified territory. Most of Calvista’s exclusive distribution arrangements were of the second type. Calvista has been the exclusive distributor of films produced by Private in Australia, pursuant to a distribution agreement with a Swedish company, Peach Entertainment AB.
Mr Newnham met both of the defendants for the first time through commercial dealings in about April 2001. Prior to the agreement of 20 September 2002 Calvista had had a business relationship with the defendants through a company. In September 2002, the first defendant wished to trade in her own name as proprietor of Canberra Direct, and for this reason Mr Newnham required her to enter a new trading terms agreement. He was present when the agreement was executed in Canberra, and agreed to the amendments requested by Mr Royston. The first order placed by the first defendant with Calvista after this was in about October 2002. From then until May 2005, Mr Stefanou dealt with the defendants under Mr Newnham’s supervision.
In late October or early November 2004 Mr Newnham decided to discontinue the release of Private films in VHS videotape format, and to dispose of existing stock. He was told by Mr Stefanou that the second defendant was interested in buying the entire stock if a price could be agreed on. After some consideration Mr Newnham authorised Mr Stefanou to sell the entire stock for $6.00 per tape. Mr Stefanou flew to Canberra to negotiate the agreement. He telephoned Mr Newnham from Canberra to convey a condition requested by the second defendant that Calvista agree to remove all Private VHS tapes from the market immediately. Mr Newnham instructed Mr Stefanou to agree to this provided that the defendants completed the purchase of the old stock within a year, taking at least half of the stock within six months. This was to be an essential term of the agreement, recorded in writing and confirmed by the signature of the second defendant. Mr Newnham then calculated from Calvista’s computer system the number of tapes and box covers with slicks in stock. Calvista was in a position to duplicate an unlimited number of tapes, and the quantity for sale was limited only by the number of box covers in stock. Mr Newnham realised that Calvista would have to come to an arrangement with Peach Entertainment AB about the royalties which would otherwise be payable on each unit sold. Under its agreement with Peach, the royalties were in some cases as much as $4.80 per copy. The average cost of the components to Calvista was $4.34. Mr Newnham was able to reach an agreement to buy out Calvista’s obligations in relation to royalties by paying Peach $112,500.00, and this amount was paid. Mr Newnham then instructed Mr Stefanou to proceed with the agreement with Mr Royston. A day or so later Mr Stefanou returned to Melbourne and showed Mr Newnham the signed purchase order. Mr Newnham gave verbal instructions to Mr Barnes in Canberra to remove Private VHS tapes from the market.
A copy of the signed purchase order was in evidence. It was mostly in typeface, on a printed Canberra Direct purchase order form addressed to Calvista, and recorded an order for 167,775 units, described as Private video remainders, at $6.00 each, a cost of $1,006,650.00 plus GST of $100,665.00, a grand total of $1,107,315.00. It was endorsed with the following in handwriting:
I Tom Roysten [sic]
agree to take delivery of half of the total stock holding of Private videos within 6 months of this purchase order. The remainder of which I will take delivery of before 25th November 2005.
Signed: Tom Roysten [sic] John Stefanou
The document bore what were apparently signatures over the names, and a further signature, apparently that of Mr Royston, at the foot of the page level with the total dollar amounts.
On 2 December 2004 Calvista received an order from Canberra Direct for about 7,000 tapes. Nearly 5,000 of these tapes were delivered in six shipments between 3 December and 8 December 2004. Further orders were received, and shipments sent, between 13 December and 24 December. Calvista did not receive any further orders from Canberra Direct after that date.
Mr Newnham went overseas in January 2005. On his return he learned that there had been no further orders. He contacted Mr Stefanou and pointed out that the defendants were going to need to order some 18,500 units per month on average to comply with the agreement. He directed Mr Stefanou to pursue Mr Royston about this.
On 2 May 2005 Mr Newnham attended a meeting with Mr Royston in Canberra. Also in attendance were Mr Stefanou, Mr Barnes, and Mr Garth Anderson, Mr Royston’s warehouse manager. The meeting lasted for more than three hours. Mr Royston, who had mentioned the issue in a non‑specific fashion in an email in late March 2005, expressed dissatisfaction with the quality of the Private videotapes. He had brought some tapes with him. Two were played on a television screen during the meeting. Mr Newnham could not distinguish any defects. Nevertheless Mr Royston asserted that the videotapes were not of acceptable quality, and said that he refused to buy any more tapes.
Mr Royston also produced two tapes which were completely blank. Mr Newnham accepted that these were defective. He offered to replace them, and to pay the cost of having one of Mr Royston’s employees attend the plaintiff’s premises during duplication of tapes. Towards the end of the meeting Mr Royston said that he would write to Mr Newnham by the end of the week, setting out the terms on which he was prepared to accept the balance of the tapes.
No letter arrived, despite prompts by email by Mr Newnham. On 23 May 2005 Mr Newnham sent an email to Mr Royston in the following terms:
Dear Tom
I refer to our meeting in Canberra on May 2 2005.
At the conclusion of that meeting you said that you would write to me with details of the additional terms you wished to add to our agreement for you to purchase the entirety of our Private VHS stock. You said I should expect that correspondence within a week. I note that since then you have not provided us any further details or information notwithstanding the fact that you have again promised to do so several times.
Calvista’s difficulty with all of this is that you made an agreement to purchase $1,000,000.00 worth of product from us on the condition that we immediately withdrew the entirety of our Private VHS stock from sale. We completely honoured that commitment in the expectation you would buy all that stock we agreed not to sell to others.
However, it now seems that you are either unable or unwilling to honour that agreement, leaving us with a large amount of stock that has considerably devalued during the intervening time, both as a result of the decline in the popularity of movies in VHS format and as a direct result of us doing as agreed with you and withdrawing them from sale.
Faced with the facts that you have told me that you do not intend to meet your obligations under our agreement, that you have not availed yourself of the opportunities we have provided for you to at least tell us what you are willing to do, and the continuing rapid decline in the value of the product, I believe it is best that we accept our agreement is at an end and place the product back on the market.
I do so before the deadline for you to complete 50% of your agreement with us so as to minimise the loss that we will suffer in our attempt to resell the product, but without accepting that you are entitled not to complete our agreement and while reserving all the rights we may have with respect to that loss.
Tom, you are a customer and I know it is not in my interests to fight with a customer, but you may leave me little choice if I do, as I fear, end up with a large amount out of pocket. If there is anything you can do that will minimise the amount we are out of pocket by, I believe that will ultimately be in both our interests.
If I do not hear anything to the contrary I will take these steps as of 4 pm Tuesday May 24 2005.
This email was timed at 9.14 am. At 10.25 am, Mr Stefanou received a letter from the first defendant, Ms Tran, by fax. The letter was dated 21 May 2005, but I am satisfied that it was not transmitted until more than an hour after Mr Royston received the email I have set out. The letter was in the following terms:
Dear John,
I understand that you are expecting myself to purchase additional private VHS titles above those already delivered.
This letter is to advise that any prior offer made to you by any representative of the business other than myself is withdraw [sic].
You may send to me in writing any information you wish to advise arising from this decision.
Thank you for your assistance.
Yours faithfully,
Teo Tran
21st May 2005
On 30 May 2005 Mr Newnham responded to Ms Tran by letter, sent by email, fax and post. He said that he took her letter to be a revocation of Mr Royston’s authority to act on her behalf in relation to the business. He noted that she had never previously disputed or sought to place limits on that authority, and that Calvista regarded anything Mr Royston had done prior to her letter as done with her authority and binding on her.
He enclosed a copy of his email to Mr Royston of 23 May, and confirmed that Calvista reserved its rights under the agreement. He concluded that he felt it best to establish a new account and trading terms with her so that both sides could be confident that they reflected her current wishes. He said that consistently with this, her current account was closed. He attached an application for a new account. Once this was established, Calvista would contact her to discuss pricing arrangements and to obtain written authorities as to who might operate on the account on her behalf.
Mr Newnham then instructed Calvista staff to sell as much of the remaining stock of Private videotapes as they could, by all available means. He took steps to acquire the master tapes for the titles which had been classified for the New Zealand market from the then licensee in that country, so that Calvista could make sales through a related New Zealand company. As a result of these efforts, Calvista sold stock by wholesale and retail in Australia and New Zealand, realising some $415,000.00. Calvista did not receive any complaints about the quality of any of the tapes so sold. This left Calvista with about 123,000 videos or box covers of the stock the subject of the agreement of 25 November 2004. Mr Newnham’s evidence was that Calvista could not sell any more because the cost of doing so would exceed any price which might be achievable.
Calvista incurred expenses of about $135,000.00 in freight, duplication and acquisition of the master tapes for New Zealand. As against this, Calvista avoided a cost of some $62,500.00 which would have been incurred in duplicating the balance of the order onto blank videotapes.
Mr Newnham was cross-examined extensively over a period of about one and a half hours. I found him a credible and impressive witness.
Mr John Stefanou has been the business development manager for Calvista for about five years. He is responsible for supervision of the wholesale sales team of the company in Australia and New Zealand. His role includes contact with major wholesale customers. The first defendant was in that category at relevant times.
Mr Stefanou first met both defendants in March 2003 in Canberra, in the course of a promotional tour around Australia. He had managed the Canberra Direct account since September 2002, generally dealing with Mr Royston in relation to placement of orders, queries about defects or about invoices, and customer support generally. The practice was for Mr Royston to place orders by email or by faxed and signed purchase orders.
In November 2004, Mr Stefanou was directed by Mr Newnham to clear Calvista’s remaining stocks of Private videotapes. The December 2004 release was to be the last Australian Private videotape new release, following which attempts would be made to clear the remaining stock at cheaper prices. Mr Stefanou contacted Mr Royston to ask whether he wished to purchase tapes at a reduced price. Mr Royston asked him what the price would be if Canberra Direct took all of the stock. Mr Stefanou told him that he would need to get instructions about this. He rang back the next day to say that the price would be $6.00 excluding GST per unit, provided that Canberra Direct took the whole of the stock. Mr Royston said that the price was accepted.
On 25 November 2004 Mr Stefanou flew to Canberra to finalise the arrangements. Mr Royston asked for a term that Calvista cease selling Private videotapes to existing customers after December 2004. Mr Stefanou agreed to this. During the meeting Mr Stefanou contacted Mr Newnham to obtain instructions about delivery. Mr Newnham instructed him that half of the tapes must be delivered within six months and the balance within twelve months. Mr Stefanou conveyed this to Mr Royston, who agreed to it. The purchase order was then prepared by Mr Royston. Mr Stefanou hand-wrote the wording quoted in paragraph 13 above, and both signed the document.
Canberra Direct ordered a number of videotapes during December, but none during January. Mr Stefanou became concerned that orders were not in sufficient numbers to meet the agreed figure of half the stock by the end of May. He telephoned Mr Royston to ask why more were not being ordered. Mr Royston said that he would ring back to advise. Having heard nothing, Mr Stefanou followed up with an email on 9 February, which also dealt with other matters of detail. On 10 February Mr Royston responded to the email but made no reference to the expressed concern about orders.
On 25 March Mr Royston sent an email to Mr Stefanou dealing with five topics. The last paragraph was as follows:
5) I have commenced some projects to investigate the quality issues we have in Private video. I am expecting to return a large amount of it to you after we have completed this as early signs are suggesting you have not been maintaining your duplicating equipment adequately to meet the expected standard. I will keep you updated as I proceed with the process. I may want to return all of the existing tape to be QCed so all the blank tapes can be removed as a first step. I hope to have this completed or well advanced before I see you at the Expo.
Mr Stefanou’s evidence is that this was the first time there had been any mention of problems with the quality of the Private videotapes. He proposed a meeting with Mr Royston and Ms Tran to discuss their concerns about quality and the purchase of the remaining videotapes. He sent an email inviting them to add additional agenda items. Mr Royston replied, listing ten additional items for discussion.
The meeting took place on 2 May 2005 at Calvista’s Canberra office. Those in attendance were Mr Stefanou, Mr Newnham and Mr Barnes of Calvista, and Mr Royston and Mr Garth Anderson on behalf of Canberra Direct. Mr Stefanou’s recollection was that the meeting took about three hours. During the course of the meeting Mr Royston said that he was unhappy with the quality of the Private videotapes. He had brought a selection of tapes and these were viewed on a television monitor. Mr Stefanou could not see any problem with the quality of the tapes. Mr Royston said that this was because the monitor was too small. Mr Stefanou did not agree but said that Calvista was happy to replace any faulty tapes. Mr Royston then stated his belief that Calvista was in financial difficulty and at risk of closing down, potentially leaving Canberra Direct with a large amount of faulty stock. Mr Stefanou and Mr Newnham denied this and said that Mr Royston was not keeping to his side of the agreement of November 2004. The meeting concluded with Mr Royston saying that he would provide samples of faulty Private videotapes, with a proposal as to the steps he would be taking regarding the purchase of the balance of the Private VHS stock.
Both Mr Newnham and Mr Stefanou independently prepared notes of their recollection of what took place during the meeting on 2 May 2005. The notes were in evidence. They are consistent though not identical, and I accept that they were made without collusion and within a reasonably short time of the meeting. They corroborate the affidavit and oral evidence of Mr Newnham and Mr Stefanou as to what took place during the meeting.
Mr Stefanou’s evidence is that after the meeting he pursued Mr Royston by telephone a number of times in relation to the alleged quality issues and the purchase of the videotapes. He telephoned every two or three days. He was unable to make contact, and Mr Royston’s telephone did not offer a facility to leave a message. By 17 May he had not received any communication from Mr Royston since the meeting. On that day he received an email in the following terms:
I am still looking at the question you have asked me. I don’t have the result yet. I expect to have them by Thursday morning. I will not be back at work till then – as well I have seen some missed calls on my mobile from you – should be better to ring my office number if the mobile is off 02 6269 1234. I have a lot of meetings this week. I will be in Melbourne most of next week. I would like to meet if you can fit us in. I will be there for the duration of the PCK Print Expo as well as some other business. Later in the week is better.
As you know I will be retiring soon and the guard has begun to change at Adam & Eve as to who manages what. Garth will take over ordering of DVD products and Lieu will shortly take over ordering of all other products. You will start to feel this change shortly. I will try to close off this week any of the products that Teo and myself ordered at Adult EX. There is still some confusion of these. I will have delegated the reviewing of it tonight.
Mr Stefanou heard nothing further from Mr Royston before 23 May 2005 when he received the letter set out in paragraph 19 from Ms Tran, purporting to withdraw “any prior offer made to you by any representative of the business other than myself”. He immediately forwarded a copy of this letter to Mr Newnham for attention.
Mr Stefanou joined Calvista in September 2002, coincidently the same month that Ms Tran signed the customer credit agreement. He was extensively cross-examined over a period of about two and a half hours. I found Mr Stefanou an impressive witness, unshaken by cross-examination.
The evidence of Mr Robert Barnes was that he had been ACT branch manager for Calvista since August 2003. He dealt with operational matters, reporting to the operations manager in Melbourne, but not with orders from customers. He had had some dealings with Mr Royston in relation to dispatch of goods from Calvista to Canberra Direct, but the overwhelming majority of his contact with Canberra Direct had been with Mr Garth Anderson. He recalled Mr Stefanou showing him the signed purchase order on 25 November 2004. He was present at the meeting in Canberra on 2 May 2005 with Mr Newnham, Mr Stefanou, Mr Royston and Mr Anderson. He confirmed that Mr Royston had complained at the meeting about the quality of some Private videotapes, but said that he had not been able to see any defects in quality on the screen. Mr Barnes gave oral evidence and was cross-examined, but his evidence was not seriously challenged and I have no reason to doubt its accuracy.
The plaintiff relied on an affidavit by its financial administrator, based in Melbourne, Ms Ange Hopkins. She was not required for cross-examination. She flew to Canberra with Mr Stefanou on 25 November 2004, and discussed some issues relating to accounts at a meeting with Mr Stefanou, Ms Tran and Mr Royston. She recalled becoming aware during the course of the day that an agreement had been reached between Mr Stefanou and Mr Royston for the purchase of Calvista’s stock of Private videotapes. At Canberra Airport that evening, Mr Stefanou showed her the handwritten and signed purchase order. She was present when Mr Stefanou called Mr Newnham to confirm that he had the signed order.
The defendants’ case
Both defendants swore affidavits and gave oral evidence. Some further affidavits had been filed by their solicitors but in the event were not read. Each of those affidavits dealt with events well after the end of 2005, and the fact that they were not relied upon does not give rise to any adverse inference.
Ms Tran said in her affidavit that Mr Royston had been the IT Manager of Canberra Direct. He had played a role in relation to the purchase of stock from Calvista, and undertaken other administrative functions. He had been for some purposes her agent. Her business activities up to 2004 were extensive and complex. Canberra Direct was one of four businesses which she operated.
In December 2001 she entered a trading facility agreement with AXIS, described as a division of AdultShop.com Limited. Mr Royston witnessed her signature to that agreement, which described him as sales manager, buyer and principal sales contact for her. On 20 September 2002, she signed the trading facility application form previously referred to with Calvista, in the presence of Mr Royston and Mr Newnham.
She said that a meeting had taken place in Canberra between Mr Royston and herself and Mr Stefanou of Calvista. The latter had proposed an agreement whereby Canberra Direct would purchase all of its adult products from Calvista and cease purchasing from other suppliers, in return, she said, for a flat 17.5% discount, to which she agreed.
She annexed a copy of a letter dated 12 July 2004 signed by Mr Stefanou and addressed to Mr Royston. The letter did not mention anything about Canberra Direct ceasing to purchase from other suppliers. It offered a rebate of 15% off all purchases, with an additional 2.5% discount in respect of each monthly account paid within 30 days. There is no evidence that Mr Royston or Ms Tran contacted Calvista to say that the letter did not accurately set out the agreement reached. Having seen Ms Tran in the witness box, I am satisfied that her spoken English is less than perfect. I prefer the letter to her oral evidence as to the rebate or discount arrangement.
Ms Tran then referred in her affidavit to a meeting with Mr Royston and Mr Stefanou over lunch at a restaurant at Fyshwick, where Mr Stefanou put a proposal to the effect that Calvista would send Canberra Direct one hundred copies of every new title released by Calvista on DVD without a purchase order, at a 20% discount and subject to sale or return. She annexed to her affidavit a copy of a Calvista invoice dated 13 August 2004 showing that 100 copies of eight titles had been shipped. The invoice did not mention the 20% discount or any other discount, though it is possible that the unit prices had already been reduced by 20%.
Ms Tran said that about three months later (presumably during November 2004) she contacted Calvista to arrange to return a number of unsold DVDs. She was told that this was not permissible. Arrangements were made for Mr Stefanou to visit her in Canberra to discuss the problem. The meeting took place on 25 November 2004, with Mr Royston also present. Ms Tran said that she recalled Mr Stefanou saying that he did not remember making such an agreement, and Mr Royston responding to the effect that if there was no agreement, there was no order and Canberra Direct could return all of the stock. Mr Stefanou refused to accept the return of any of the stock. Ms Tran arranged for the stock to be delivered to Calvista’s Canberra warehouse on 15 December 2004. In her affidavit, Ms Tran mentioned nothing about any discussion during the meeting of 25 November 2004 for the purchase of all or any of Calvista’s Private VHS videotape stock.
She swore that during May 2005, she became aware that Calvista was expecting her to purchase further Private videotapes in addition to those already delivered. She had in her warehouse three pallet cages of faulty Private videotapes purchased from Calvista during December 2004, and she was not interested in purchasing any more. On 21 May 2005, she wrote to Mr Stefanou “terminating any agreement that may have existed to purchase Private brand VHS titles.” This was the letter received by Mr Stefanou at Calvista’s Melbourne office at 10.25am on 23 May 2005 by fax. Ms Tran did not elaborate in her affidavit as to the discrepancy between the date of the letter (21 May 2005) and the imprint showing the date and time of the fax transmission.
On 1 June 2005 she received a fax from Mr Newnham dated 30 May 2005, this being the letter referred to by Mr Newnham in his evidence.
In her oral evidence, Ms Tran agreed that whilst she was a sole trader operating the business Canberra Direct, Mr Royston was responsible for the adult products side of the business. She engaged another manager or agent to look after freight and packaging, another part of her business. Her own role was restricted to bookkeeping, accounting and maintenance of business records.
I found her evidence about her legal relationship with Mr Royston a little difficult to understand. She said that he was not an employee. He carried on his own business, through a company called Mitchell Products Pty Limited and a business name, Adam and Eve. She said that she reached an arrangement with him in circumstances where Mitchell Products owed her money. She said “I consign the product to his company. So Canberra Direct is purchased the product, and consign it to Mitchell Products, or the Adam and Eve store.” She said that Mr Royston invoiced her for his fees. She did not think that the fees were calculated at an hourly rate, and she either did not know how the fee was calculated, or did not understand the question. Pressed about this, she said that the invoice “just says service fee.” She did not know how the fee was calculated, but she said that she got good value for money. She never queried Mr Royston about the amount he charged, and just paid what he asked.
Ms Tran agreed in cross-examination that in negotiating the terms of the agreement in November 2004 for Private videotapes, Mr Royston was acting with her authority. She had first become aware of the arrangement when she saw an invoice come through in December 2004. She did not have any discussion with Mr Royston about the arrangement. She was unaware of the terms of the agreement prior to 20 May 2005. She subsequently said that her understanding was that Canberra Direct did not have to buy any specific quantity of any title, and did not have to purchase if the product was faulty. She did not know the specific terms of the agreement between Canberra Direct and Calvista, and relied on whatever agreement Mr Royston had put in place. When she received an email from Mr Stefanou on 20 May 2005, she initiated a conversation with Mr Royston. She thought it more likely that this was by telephone rather than in person. She asked Mr Royston if there was any arrangement, and he told her that he was not sure. He gave her to understand that Canberra Direct could buy videotapes up to a specified number. She said that she did not remember precisely what Mr Royston told her during this conversation. Following this, she “go to do the letters to send to Mr John Stefanou to cancel any agreement.” She was asked why she wanted to cancel any agreement. Her reply was “If there’s any because we are not sure if we do or we don’t.” She prepared the letter to make sure there was no confusion. She said that she had asked in the letter that she be informed if Calvista argued that there was an agreement, but she said that she never received a reply. She conceded that she had been present when the various agreements had been negotiated with Mr Newnham and Mr Stefanou. She was asked why she did not ring one or the other to ask what the position was about an agreement. Her answer was “I don’t know why I didn’t ring, maybe I busy.”
In relation to the assertion in her affidavit that she had three pallets of faulty Private videotapes stored at her warehouse, she was asked whether it was the case that she did not know whether the tapes were faulty or not, but simply knew that she had three pallets. Her answer was “I know is faulty, I am not 100% sure but I know I need to return that order.” She agreed that she did not look at any of the films on the pallets.
She said that she had composed the letter dated 21 May 2005 herself. She did not think that she had spoken to Mr Royston before she sent it, but was not sure as she did not remember. She denied having received any communication from Calvista on the morning of 23 May 2005 prior to faxing the letter to Mr Stefanou. She volunteered that in May 2005 she had the capacity to open and read incoming emails addressed to Mr Royston, but she denied that she did so prior to faxing the letter. Asked in cross‑examination what she understood that she was terminating, she said “What I understand is terminate is whatever agreement is made buy that video.” She agreed that she did not know whether there was an agreement, or if so, what its terms were, and that she was simply saying that if there was an agreement it was withdrawn. She could not remember when she eventually found out what the terms of the agreement were said to have been, but thought that this might not have been until October or November 2005. She had a conversation with Mr Royston at about that time, and he told her that there was an agreement with Calvista but that it was on different terms to the terms alleged by Calvista. She could not remember whether the conversation was face to face or by telephone. She denied being surprised when she was told this, but did not remember whether she had been upset.
As far as she could recall, she had been unaware of the meeting on 2 May 2005, when quality issues were raised, until some time after she had sent the letter dated 21 May.
Ms Tran has clearly been very successful in business. She gave evidence that she owns several properties. The impression I gained from seeing her in the witness box was that she has highly superior skills in relation to financial matters but a poor grasp of legal and contractual concepts. She was not an impressive witness. She sought to distance herself from the adult products division of Canberra Direct and to convey the impression that this was entirely under the management and control of Mr Royston. I could not be sure whether she genuinely had a poor memory of the events of 2004 and 2005, or whether she was falling back on an inability to remember so as to avoid questions she found difficult.
The second defendant, Mr Royston, swore a lengthy affidavit and gave oral evidence. He explained in his affidavit that at all material times he was an agent of Canberra Direct, an unincorporated business operated by Ms Tran. His primary role was as IT manager. He also had authority to purchase adult products for the business up to a limit of estimated forward sales for two months, having a value of about $100,000.00 per month. There is no suggestion that this stated limitation on his authority was made known to the plaintiff. Mr Royston also had business interests of his own. He was sole director of Mitchell Products Pty Limited which operated a business at Fyshwick named Adam and Eve, and an unincorporated business called Cansecure which he sold in April 2005 but continued to operate on behalf of the new owner.
Mr Royston swore that at his meeting with Mr Stefanou and Ms Tran in July 2004 in Canberra, Mr Stefanou proposed an arrangement whereby Canberra Direct would discontinue purchasing from other suppliers and would purchase all of its adult products from Calvista. In return Calvista would give a flat 17.5% discount. Agreement was reached to this effect. He conceded that he received Mr Stefanou’s letter after the meeting but said that within a day or so he telephoned Mr Stefanou. He said that he accepted the terms of the letter but protested that the oral agreement had been for a flat 17.5% discount.
Mr Royston then swore that on about 23 November 2004, Mr Stefanou telephoned him. He said that Calvista was discontinuing the Private videotape line, and intended to offer these for sale to retailers at about $6.00 per video for quantities of 500. Mr Stefanou asked whether Mr Royston was interested in buying any. This conversation was followed by a meeting in Canberra on 25 November 2004. Initially Mr Royston and Mr Stefanou met with Ms Tran at Hume, and then had lunch at a restaurant at Fyshwick. After lunch Mr Royston took Mr Stefanou to his shop, Adam and Eve. Mr Royston said in his affidavit that during this discussion Mr Stefanou said words to the following effect:
We want to discount the Private brand videos to sell as many of them as quickly as possible, but we would prefer to wholesale them through someone like you, because we are concerned about the effect on our customer base as we have been selling the line at $25 per video. We would like to come to some agreement with you, because you are not affected by the price drop, and because of Canberra Direct’s existing relationship with our organisation. We will facilitate the sale to our customer base by referring all wholesale inquiries to you. We will give you our wholesale mailing list. I don’t know how many videos we have, but it would not be more than around 160,000 or so, and we will provide an inventory that you can choose from. When you order, if we have that product on hand you can order it right away; if not, we can duplicate it within three days. This would be for one year.
Mr Royston’s affidavit evidence is that he replied in words to the following effect:
For Canberra Direct to accept this offer, you will have to cease all sales of Private brand videos immediately, and notify your wholesale customers of the agreement. You will also have to agree that the agreement will be terminated automatically if you reduce the price of private brand DVDs below the current level within two years. Your duplication plant will also have to be properly maintained to industry standards for the full twelve months, and each individual video will have to be quality-checked. Each video will have to meet Private brand copyright requirements, and will have to be provided in a Private brand case with a Private brand red tape and compliance label. The current trading terms with Calvista will have to remain in effect for the lifetime of this agreement. You must also have the right to assign distribution rights to us for the period of the agreement.
Mr Royston says that Mr Stefanou said that he would have to check with his boss. He made a telephone call, then returned. He said “we agree with your terms” and they shook hands.
I note in passing that despite the detail in which Mr Royston records this conversation, it does not include any reference to the price Calvista would charge per videotape, though I note that there had been, according to Mr Royston, reference to the price of “about $6.00 per video” in his telephone conversation with Mr Stefanou two days earlier.
Mr Royston then deposed that following the discussion on 25 November, his understanding was that an agreement had been reached between Canberra Direct and Calvista on the following terms:
(a)the 17.5% discount would apply, reducing the purchase price to $4.95 per videotape;
(b)Canberra Direct could select any titles from an inventory to be provided;
(c)on receipt of an order, Calvista would duplicate tapes if necessary, and fill the order within three days;
(d)Canberra Direct could purchase up to a maximum of approximately 160,000 videotapes, but was not obliged to purchase any minimum quantity;
(e)Canberra Direct could not order videotapes after one year from the agreement;
(f)Calvista would assign to Canberra Direct the exclusive right to distribute Private videotapes;
(g)Calvista would immediately take Private videotapes off the market and would ensure that all wholesale inquiries for such tapes were directed to Canberra Direct;
(h)Calvista would maintain the price of its Private brand DVDs for two years and would not reduce those prices; if it failed to do so, Canberra Direct could cancel the agreement;
(i)each videotape had to meet industry quality standards and copyright requirements, and each tape had to be provided on red tape with a compliance label;
(j)Calvista would maintain Canberra Direct’s current trading terms for the lifetime of the agreement;
(k)Calvista had the right to assign to Canberra Direct the distribution rights for Private videotapes for the period of the agreement.
Mr Royston deposed that Mr Stefanou then informed him that the total number of tapes available under the agreement was 167,775. Mr Royston directed an employee to generate a purchase order. He completed the number of units (videotapes) in handwriting, and that he said he photocopied the document and signed one copy at the bottom, handing that copy to Mr Stefanou and retaining an unsigned copy. He swore that the copy of the purchase order in evidence, with handwriting and signatures, was not his document. The signature at the foot of the document was his, but the signature above the words “Tom Roysten” was not his signature, and when he signed the purchase order it did not have the handwritten words on it. This denial was included in the affidavit as sworn and filed, but although counsel for the plaintiff did not object to it, counsel for the defendant chose not to read the paragraph in question. Counsel did read, however, a sentence to the effect that the purchase order in evidence was not Mr Royston’s document “for the reasons set out above”, which can only be a reference to his denial in relation to the handwriting and signature.
Mr Royston deposed that by 26 November 2004 he had not been provided by Calvista with an inventory of Private videotape titles. He caused an order to be placed by telephone with Mr Barnes for ten copies of each available title. He said that he had arranged for his shop, Adam and Eve, to purchase that number from Canberra Direct. The shop had shelf space available for ten copies of each of 600 titles. He said the order was delivered over a number of days, but not within the three‑day period agreed upon. The order began to arrive on 3 December 2004, and was completed on, at the earliest, 8 December 2004.
He deposed that on about 12 December 2004 he placed orders for a further fifty copies of each Private VHS title.
He said that on about 17 December 2004 he received a fax from Calvista with their inventory of available Private titles. The list included a column with maximum numbers available of each title. He placed an order for a large quantity of Private videotape titles, “ordering up to all of the available quantities as shown in the available column for each relevant title.”
He deposed that on about 20 December 2004 he placed further orders for 100 copies of each of seventeen titles, and 500 copies of another title. He said that this order was intended to meet pre-Christmas delivery requirements for an unnamed client of Canberra Direct.
He went on to say in his affidavit “None of the orders described set out in the above paragraphs above were fully delivered by 24 December 2004. No further deliveries were ever made, and no back-ordered items were ever delivered.” I had some difficulty understanding what Mr Royston was intending to convey in the first sentence quoted, and I sought to elucidate this in the course of his oral evidence. I shall return to this in due course.
Mr Royston then said in his affidavit that on about 23 December 2004 Mr Barnes telephoned him and told him that the Calvista duplication plant would be closed down until mid-January, so that Calvista could not accept further orders until then. Mr Royston said that during the Christmas-New Year 2004-2005 Summer Nationals selling period, Canberra Direct’s clients sold the majority of Private brand VHS tapes supplied by Canberra Direct. He said that the Summernats period was a significant selling time for Canberra Direct’s line of products. He was not specific as to the dates of the Summernats event in that year: I had the impression that it was conducted at the Canberra showground over a period of a few days at the end of December or the beginning of January each year.
Mr Royston then turned in his affidavit to the issue of the quality of the videotapes provided by Calvista. He deposed that by 10 January 2005, the Adam and Eve shop had experienced a high number of returns of faulty Private brand VHS stock. The number of returns had become a significant problem for the business. He said that on that date he put in place a procedure whereby on return of a Private videotape by a customer as faulty, one of his employees would test the tape immediately. Another would find all tapes of the same title in stock and would test a tape of the same title with a different duplication date. If that was functional it would be given to the customer by way of exchange. If all tapes in stock had been duplicated on the same date, an employee would check one of those tapes. If it had the same fault, the customer would be asked to choose a different title, or given a refund. Mr Royston said that in every case without exception, where one copy of a tape of a particular title and manufacture date was found to be faulty, all other copies of the same title and manufacture date were found to have the same fault. He estimated that there were about 500 faulty tapes brought to his attention. He was unable to establish any pattern of faults by reference to a particular duplication dates. The faults varied: some tapes had no film, others stopped part of the way through, and yet others included fuzzy images. In mid-January 2005, Mr Royston said that he telephoned Calvista’s office and complained about the faulty tapes. He said that he did not receive a satisfactory response, and as a result made a decision not to order any more tapes from Calvista until the problem was resolved.
Mr Royston in his affidavit next asserted that in late January 2005 Calvista began to supply Canberra Direct with Private brand DVDs at reduced prices, said to equate to $6.00 per copy. Mr Royston asserted that this reduction in the price of Private brand DVDs severely damaged the market for Private brand videotapes. However, an assertion in his affidavit that Calvista supplied other wholesale customers with DVDs at the same low prices was the subject of a successful objection, and there was no other evidence of any such supply, or of any such damage to the market for Private videos.
Mr Royston also asserted in his affidavit that Calvista had continued to supply Private videotapes to other customers after the agreement of 25 November 2004. Calvista conceded that some Private videotapes slipped through the net after 25 November 2004. I accept Mr Newnham’s explanation that this occurred through inadvertence, and that the amounts received on sales to other customers have been taken into account to the defendants’ credit in the plaintiff’s calculations of its loss.
A later portion of Mr Royston’s affidavit was framed as a response to Mr Stefanou’s first affidavit. In this portion of the affidavit, Mr Royston deposed:
The purchase order [identifying the purchase order previously referred to] is not the purchase order I raised … in particular, I deny that the words [the handwritten wording previously reproduced] were on the purchase order when I signed it at the bottom of the page, and the signature above the words “Tom Roysten” is not my signature. The document … is not my document and does not reflect the agreement I entered into on behalf of Canberra Direct with the plaintiff on 25 November 2004. … I do not know whose handwriting the handwritten words are in.
Mr Royston was cross-examined at some length about the handwriting on the purchase order. He agreed that the signature at the foot of the form was his, and added that he now accepted that the other signature above it was also his. The rest of the handwriting was not his. He did not know whether it was Mr Stefanou’s handwriting. He denied that Mr Stefanou had written the handwriting on the document in his presence. He agreed that he had earlier alleged that the handwriting and his signature at the foot of it were forged. His explanation about this was as follows:
I had no recollection at all of signing this and – and that, and I got forensic assistance with it that’s advised me that it’s most likely or more likely it’s my signature than it’s not. And – and I accept that that’s my signature and I have withdrawn that. I just don’t know when this was done or how it was put up to me. I – I know now I signed it, I just don’t have – I don’t know how – exactly when.
Counsel for the plaintiff put to him that in these circumstances it was possible that Mr Stefanou had written the words in his presence but that he did not recollect it. Mr Royston vehemently denied that this was a possibility.
It emerged that the solicitor for the defendants had retained a handwriting expert, one Dr Stephen Strachan or some similar name. Mr Royston was evasive about the retainer of this expert. It seems to me more likely than not that this arose from embarrassment on his part that he had raised the forgery issue but been unable to maintain it.
In relation to the terms which he asserted formed part of the agreement of November 2004, he conceded somewhat reluctantly that he had not recorded these in writing prior to the commencement of the proceedings, and that they were first put into writing in the defence.
Mr Royston revealed in cross-examination that he had not reported to his principal, Ms Tran, as to the agreement he had made with Calvista on 25 November 2004, describing it as “just another day, another transaction, that’s all.” He could not remember when he had first told her about it, but thought that it was at about the end of May 2005. He had no recollection as to whether he told her face to face or by telephone or in some other manner. He had no recollection of saying to Ms Tran, consistently with her evidence, “I’m not sure whether there is an arrangement in place or not.”
Mr Royston conceded after some equivocation that having received Mr Stefanou’s email of 9 February 2005, which included a statement “as agreed, you need to take half of our total stockholding of Private video six months after our agreement. This date falls on 31 May”, he took no steps to challenge the assertion. Counsel for the plaintiff put to Mr Royston that he had taken Mr Garth Anderson to the meeting on 2 May 2005. Mr Royston’s answer was “Yes, he took me along, yes.” He was asked whether he was seeking to blame Mr Anderson. His reply was “Garth was the primary point of contact. He was a former employee, he was the warehouse manager, and so he had much better knowledge of product than me – so he was in the first instance the person … Calvista would speak to in relation to the Private VHS.”
Mr Royston agreed that during that meeting he undertook to report back to Mr Newnham and Mr Stefanou about the quality issue with the Private videotapes. He conceded that he never did, saying that he was never able to put his finger on what the exact issue was. He agreed that Calvista had chased him from time to time with emails trying to get a response. He did not remember whether he had shown any of the emails to Ms Tran. Pressed about this, he said that he had not taken the issue up with Ms Tran but had delegated it to Mr Anderson. Garth Anderson, he said, was responsible for product and was the person he instructed to make phone calls and to look at such things. I note that Mr Royston had not mentioned in his affidavit or in chief that he had delegated this task to Mr Anderson, or that Mr Anderson might be a person of any significance in the case.
Counsel for the plaintiff then put to Mr Royston that he had never returned any so‑called faulty tapes to Calvista. His answer was that he tried to do so, but he agreed that he had not done so. Mr Royston said that he could not recall whether Ms Tran consulted him before writing the letter dated 21 May 2005 to Calvista, though she may have done so.
I adjourned at 11.36 am on the fifth day of the hearing, 5 July 2007. During the adjournment I received a message that Mr Royston had been taken ill. I understand that an ambulance came to the Court to treat him. He was unable to resume his evidence until 2.15 pm on that day. At about 3.15 pm, he responded to a question from counsel for the plaintiff by saying that he had a problem. The ambulance officer had “told me to try and get my questions shorter”. He said that he had some chemical imbalance and could not remember the beginning of a lengthy question by the time he was required to answer it. At that point, I took a ten-minute break. No medical evidence was called. I was not satisfied at the time, and remain unsatisfied, that Mr Royston had any difficulty in understanding questions by reason of a medical condition or for any other reason.
After the resumption, counsel for the plaintiff put to Mr Royston that following the meeting on 25 November 2004, at a lunch at which Mr Stefanou, Ms Tran and Ms Ange Hopkins from Calvista were present, there had been discussion about the agreement reached between Calvista and Canberra Direct for acquisition of the Private videotapes. Mr Royston agreed that the lunch had taken place but denied that there had been any such discussion. I note in this regard that Ms Hopkins’ affidavit deposing to the discussion, summarised at paragraph 38 of these reasons, was admitted without objection and that she was not required for cross-examination.
I found Mr Royston an unsatisfactory oral witness. He was unable to explain satisfactorily what he meant in the paragraphs of his affidavit dealing with orders and deliveries from Calvista immediately after the agreement of November 2004. He did not answer questions with clarity or precision. He constantly prevaricated when answering questions asked by counsel for the plaintiff. On numerous occasions he purported not to understand questions. I have no doubt from his business history that he has a considerable degree of commercial sophistication and that he is an intelligent man. I found his attempts to distance himself from the handwriting on the purchase order of 25 November 2004, even going to the extent of alleging forgery of his signature and qualifying a handwriting expert, to be completely unsatisfactory and to reflect very poorly on his credibility. Where his evidence is inconsistent with that of the plaintiff’s witnesses, I prefer the latter.
The defendants did not call Mr Garth Anderson to give evidence, or file or serve an affidavit by him. There was no satisfactory explanation for this. I draw the available inference that his evidence would not have assisted their case.
Application to amend defence
At the end of the fifth day of the hearing, the defendants closed their case. I directed, with the concurrence of counsel, that the parties lodge written submissions, and granted both parties leave to relist the matter for oral supplementary submissions if necessary. Over the ensuing three weeks counsel for the plaintiff lodged written submissions, which were followed by written submissions on behalf of the defendants. Counsel for the plaintiff lodged submissions in reply. Neither counsel sought to take advantage of the opportunity to supplement their submissions orally.
On 7 August 2007, some two weeks after submissions had been finalised, the solicitors for the defendants made application to deliver a further amended defence. The amendment they sought was to add a paragraph to the amended defence which had formed the basis of the case of the defendants on hearing, in the following terms:
The defendants further say that only approximately 56% of Private brand VHS tapes ordered by him [sic] were delivered by the plaintiff. This constitutes a repudiation of any agreement between the plaintiff and the first defendant, or alternatively a fundamental breach of any such agreement. The plaintiff terminated the agreement on 23 May 2005. The plaintiff is thereby estopped from relying on any later alleged breach by the defendants, or alternatively it would be inequitable for the plaintiff to rely on any such alleged breach.
The application was supported by an affidavit sworn by the solicitor for the defendants, Mr Barker. He said in his affidavit that he had originally been instructed that Calvista had delivered about 94% of the tapes ordered, a figure calculated from Calvista invoices delivered with the tapes. On the evening of 4 July 2007 (the second‑last day of the hearing) he had conferred with both defendants and counsel. They had gone through an exercise of comparing purchase orders made by the second defendant with the plaintiff’s invoices. The exercise resulted in a conclusion that Calvista had delivered only 56% of the tapes ordered. Mr Barker expressed his belief that the plaintiff’s failure to deliver 44% of the goods ordered amounted to either a repudiation or a breach of any agreement between the plaintiff and the first defendant. The difference arose because the original calculation of 94% had been made by taking account only of written orders and not of telephone orders.
No further affidavit by Mr Royston was filed. Such an affidavit might have been expected in the circumstances, to explain why he did not raise this issue in his principal affidavit of 4 May 2007.
As I have said, I found Mr Royston an unconvincing witness. The amendment sought is based upon instructions given by Mr Royston to his solicitors and counsel in conference during the hearing, on the evening of 4 July 2007. Mr Royston was at that stage still in chief, and gave further evidence in chief on the morning of 5 July. Evidence was not elicited from him to the effect of the factual assertions sought by counsel for the defendant to be added to the defence. Any shortfall in delivery of ordered tapes was a matter which Mr Royston was given every opportunity to bring out in the course of his oral evidence, and he did not do so.
There is no other evidence, oral or documentary, which would support the allegations sought to be made. On the contrary, the allegations are inconsistent with the evidence of the plaintiff’s witnesses.
Further, to permit the amendment would cause prejudice to the plaintiff which could be met only by permitting the re-opening of the plaintiff’s case to allow further evidence to be called on the issue, and requiring Mr Royston to be recalled for further cross-examination. The factual allegations, if true, are of such a kind that they would be expected to have been included in Mr Royston’s original instructions to his solicitors and in his principal affidavit.
It need hardly be added that the facts sought to be pleaded in the amended defence were not put to the plaintiff’s witnesses in cross-examination.
A further consideration is that the defendants’ case was presented, and their final submissions were based, on the agreement having been terminated by the first defendant on 23 May 2005. The entire trial was conducted on that footing. If the amendment were allowed, it would raise an assertion quite inconsistent with that, namely that the agreement was terminated on that date by the plaintiff in circumstances creating an estoppel from reliance by the plaintiff on any breach of the agreement subsequent to that date. This is simply not the basis upon which the trial was conducted.
On the hearing of the application to amend on 17 August 2007, I reserved my decision and expressed my intention to deal with it when giving judgment in the action. For the reasons stated, the application to amend must be dismissed.
Conclusion
As I have explained, I found the evidence of Mr Newnham and Mr Stefanou convincing. I found the evidence Ms Tran unconvincing, and that of Mr Royston unsatisfactory to the extent that I would be disinclined to believe any evidence he gave in his own interests unless it was independently corroborated.
I accept that on 25 November 2004 Mr Royston, with Ms Tran’s authority, entered an agreement on her behalf with the plaintiff to purchase the entirety of the plaintiff’s then existing stock of private VHS videotapes, including covers with slicks in respect of which tapes had not yet been duplicated. I find that Mr Stefanou wrote the words on the purchase order which appear on the copy which was in evidence on 25 November 2004 in the presence of Mr Royston, and that he and Mr Royston signed the purchase order in each other’s presence. I accept that the agreement was to purchase 167,775 tapes for $6.00 each, a total of $1,006,650.00 (not including GST). I accept that it was a term of the agreement that Ms Tran was to purchase half the stock within six months, that is by 25 May 2005; and the balance within 12 months, that is by 25 November 2005.
I reject the contention that the unit price of $6.00 was subject to further reduction because of any earlier agreement as to discounting. I reject the patently implausible assertion that the effect of the agreement was that Ms Tran could buy stock up to the quoted limit but was under no obligation to do so.
It follows from these findings that Ms Tran did not commit any breach of the agreement simply by failing to order stock after Christmas 2004. She was under no obligation to order any further stock until 25 May 2005, when she was obliged to take half the stock.
I accept that Ms Tran’s letter to Calvista dated 21 May 2005, but sent by facsimile on 23 May 2005, had the effect of a termination by Ms Tran of the agreement. It seems to me more probable than not that that letter was brought into existence immediately after Ms Tran became aware of the terms of Mr Newnham’s email to Mr Royston of 9.14 am on 23 May 2005, and was intentionally backdated.
Thereafter, I find that Calvista acted reasonably in its attempts to mitigate its loss by disposing of its remaining stock of Private VHS videotapes. I accept that Mr Newnham, who made the decisions in this regard, was motivated by a genuine desire to maximise Calvista’s return, and that the steps he took were in Calvista’s best commercial interests.
I reject the evidence of the defendants that the tapes supplied were not of merchantable quality.
I find that the steps taken by Mr Newnham in relation to Calvista’s trading arrangements with Ms Tran, as implemented by his letter of 30 May 2005 and subsequently, were entirely reasonable in the circumstances. I reject the submission that anything done by Calvista at that time constituted a wrongful termination of any arrangement with Ms Tran.
Ms Tran did not concede on the pleadings or in her affidavit that Mr Royston had been her agent for the purpose of negotiating the agreement of 25 November 2004. Nor did Mr Royston make an admission to that effect. This was probably inevitable having regard to their denial of the agreement. I am now satisfied that Mr Royston was Ms Tran’s agent for that purpose, and that Calvista entered the agreement with that understanding; that is to say, that its agreement was with Ms Tran and not with Mr Royston personally. I find that the contract was between Calvista and Ms Tran, and that Mr Royston was not a party to it. The breach must therefore be seen as a breach by Ms Tran. No cause of action has been made out against Mr Royston.
Damages
I accept generally the calculation as to damages set out by Mr Newnham at paragraph 47 of his affidavit of 21 May 2007. The sum to which Calvista is entitled by way of damages for breach of contract is calculated as follows:
Contract Value $1,006,650.00
Sales to first defendant $58,110.00
Mitigation –
Wholesale sales $122,867.80
Retail sales $172,666.34
New Zealand sales $119,541.75Sales re hologram and
rating labels $6,091.42Savings re duplication of tapes $62,537.00
Additional costs re
mitigation –
Freight to New Zealand $12,033.82
Duplication in New Zealand $89,791.90
Licence acquisition (50%) $33,512.00
__________________________
$541,814.31 $1,141,987.72
$541,814.31
___________$600,173.41
==========
The award attracts interest at the prescribed commercial rate of 9 % per annum. I take account of the fact that pursuant to the agreement, the first defendant was obliged to purchase half the stock by 25 May 2005 and the balance by 25 November 2005. It would seem to me to do justice between the parties to allow interest on half the damages figure for the six months from 25 May 2005 to 25 November 2005, which amounts to $13,503.90. Interest should then be awarded on the full amount of the damages figure from 25 November 2005 to date. That is a period of two years 103 days, and the amount is $123,273.98. I accordingly allow a total amount for interest of $136,777.88.
There will be judgment for the plaintiff against the first defendant, Ms Tran, for damages of $600,173.41 plus interest of $136,777.88, a total of $736,951.29. Her counterclaim will be dismissed.
Judgment should be entered for the second defendant, Mr Royston in the action, but my provisional view is that having regard to the way in which the action has been conducted on behalf of the defendants he should not have an order for costs in his favour. The first defendant, Ms Tran, should be ordered to pay the plaintiff’s costs. It may be that there are factors of which I am presently unaware which are relevant to costs. I propose to provide the parties with an opportunity to make further submissions if any party contends for some different order.
I certify that the preceding one hundred and six (106) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.
Associate:
Date: 7 March 2008
Counsel for the plaintiff: Mr JM Hennessy
Solicitors for the plaintiff: Clayton Utz
Counsel for the defendant: Mr RG Thomas
Solicitors for the defendant: Trevor Barker & Associates
Date of hearing: 22, 23, 24 May 2007
4, 5 July 2007
17 August 2007
Date of judgment: 7 March 2008
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