Chint Australasia Pty Ltd v Cosmoluce Pty Ltd - [2008] NSWSC 635

No judgment structure available for this case.

CITATION: Chint Australasia Pty Limited v Cosmoluce Pty Limited [2008] NSWSC 635

HEARING DATE(S): 16/05/08 - 20/05/08

JUDGMENT DATE :
27 June 2008

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Short minutes of order to be brought in.

CATCHWORDS: CONTRACT - Breach - Loss of bargain damages - ENTITLEMENT TO TERMINATE - Waiver - Breach consists of failure to comply with a time provision - Contract requires notice unless the breach is 'not capable of being remedied' - Breach capable of remedy - No election to affirm may occur before the right to terminate arises - Repudiation - Breach of non-essential term not causative of the breach of the opposite party does not prevent termination - MISREPRESENTATION - Contravention of the Trade Practices Act - Words must be proved with a degree of precision - Circumstances that may render the conduct misleading - Held that representations did not occur and/or were not misleading and deceptive - Reliance not established - No entitlement to rescind - Same considerations apply as per rescission in equity - Estoppel excluded by entire agreement clause - Rule Jones v Dunkel

LEGISLATION CITED: Trade Practices Act (1974) (Cth)

CATEGORY: Principal judgment

CASES CITED: Ajit v Sammy [1967] 1 AC 255
Adler v Australian Securities and Investments Commission [2003] NSWCA 131
Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353
Alati v Kruger (1955) 94 CLR 216
Aneve Pty Limited v Bank of Western Australia Ltd [2005] NSWCA 441
Arnot v Hill-Douglas [2006] NSWSC 429
Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267
Australian Steel & Mining Corporation Pty Limited v Corben [1974] 2 NSWLR 202
Australis Media Holdings Pty Limited v Telstra Corporation Limited (1998) 43 NSWLR 104
Balog v Crestani [1975] HCA 16; (1975) 132 CLR 289
Bank of New Zealand v Spedley Securities Ltd (in Liq) (1992) 27 NSWLR 91
Batson v De Carvalho (1948) 48 SR (NSW) 417
Bitannia v Parkline Constructions Pty Limited (2006) 67 NSWLR 9
Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339
Branir Pty Limited v Owston Nominees (No 2) Pty Limited (2001) 117 FCR 424
Burger King Corporation v Hungry Jack’s Pty Limited [2001] NSWCA 187
Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95
Canning v Temby [1905] HCA 45; (1905) 3 CLR 419
Carr v JA Berriman Pty Ltd [1953] HCA 31
CG Mal Pty Limited v Sanyo Office Machines Pty Limited [2001] NSWSC 445
Cornwall v Henson (1899) 2 Ch 710
Demagogue Pty Limited v Ramensky (1992) 39 FCR 31
Digi-Tech (Australia) Ltd v Brand (2004) 62 IPR 184
Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557
Drabsch v Switzerland General Insurance Co Ltd (1996) 130 FLR 127
Etna v Arif [1999] 2 VR 353
Ford Motor Company of Australia Limited v Arrowcrest Group Pty Limited (2003) 134 FCR 522
Franklins Pty Limited v Metcash Trading Ltd [2007] NSWSC 242
Green v Sevin (1879) 13 Ch D 589
Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546
Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497
Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409
Hope v RCA Photophone of Australia Pty Limited (1937) 59 CLR 348
Idameneo (No 123) Pty Limited v Ticco Pty Limited [2004] NSWCA 329
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26
Ingot Capital Investments Pty Limited & Ors v Macquarie Equity Capital Markets Ltd & Ors (No 6) (2007) 63 ACSR 1
Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190
Johnson v Perez (1988) 166 CLR 351
Jones v Dunkel (1959) 101 CLR 298
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 82 ALJR 345
Krywood v Drinkwater [2000] NSWCA 126
Lantry v Tomule Pty Limited (2007) ANZ Conv R 187; [2007] NSWSC 81
Larking v Great Western (Nepean) Gravel Ltd (In liq) [1940] HCA 37
Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623
Leda Holdings Pty Limited v Oraka Pty Limited (1998) ATPR 41-601
Legione v Hateley (1983) 152 CLR 406
Lenneberg v McGirr (1919) 19 SR (NSW) 83
Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361
Mangrove Mountain Quarries Pty Limited v Barlow [2007] NSWSC 492
McDonald v Denny Lascelles (1933) 48 CLR 457
Moukhayber v Camden Timber & Hardware Co Pty Limited [2002] NSWCA 58
Ogle v Comboyuro Investments Pty Limited (1976) 136 CLR 444
Perry v Sherlock (1888) 14 VLR 492
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
Poulet Frais Pty Limited & Anor v The Silver Fox Company Pty Limited (as trustee for the Baker Family Trust) & Ors (2005) 220 ALR 221
Reg Russell & Sons Pty Limited v Buxton Meats Pty Limited (1994) ATPR (Digest) 46-127
Roadshow Entertainment Pty Limited v ACN 053 006 269 Pty Limited (Receiver and Manager appointed) (formerly CEL Home Video Pty Limited (1997) 42 NSWLR 462
Ryledar Pty Limited v Euphoric Pty Limited [2007] NSWCA 65
Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594
Skywest Aviation Pty Limited v Commonwealth of Australia (1995) 126 FLR 61
Spence v Crawford [1939] 3 All ER 271
State Rail Authority of New South Wales v Heath Outdoor Pty Limited (1986) 7 NSWLR 170
Stickney v Keeble [1915] AC 386
Taylor v Brown (1839) 2 Beav 180
The Millstream Pty Limited v Schultz [1980] 1 NSWLR 555
Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689
Waters Lane Pty Limited v Sweeney [2006] NSWSC 222
Watson v Foxman (1995) 49 NSWLR 315
Wendt v Bruce [1931] HCA 9; (1931) 45 CLR 245
Whittet v State Bank of New South Wales (1991) 24 NSWLR 146

TEXTS CITED: D Byrne and JD Heydon, Cross on Evidence, 6th ed (2000) Butterworths
CB Morison, Rescission of Contracts, (1916) Stevens and Haynes
JW Salmond and PH Winfield, Principles of the Law of Contracts, 1st ed (1927) Sweet & Maxwell
EB Sugden, The Law of Vendors and Purchasers of Estates, 14th ed (1862) Sweet

PARTIES: Chint Australasia Pty Limited (Plaintiff)
Cosmoluce Pty Limited (Defendant)

FILE NUMBER(S): SC 50065/07

COUNSEL: Mr MJ Leeming SC, Mr MJ O'Meara (Plaintiff)
Mr R Stitt QC, Mr S Balafoutis (Defendant)

SOLICITORS: Corrs Chambers Westgarth (Plaintiff)
Dibbs Abbott Stillman (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Friday 27 June 2008

50065/07 Chint Australasia Pty Ltd v Cosmoluce Pty Ltd

JUDGMENT

The proceedings

1 These proceedings arise out of a Distribution Agreement entered between the plaintiff, Chint Australasia Pty Limited, and the defendant, Cosmoluce Pty Limited. By this agreement, the plaintiff appointed the defendant as its exclusive distributor in Australia and New Zealand for particular electrical products manufactured in China by Zhejiang Chint Electrics Co Limited [‘Chint products’].

2 The Distribution Agreement was for a term of five years commencing on about 10 October 2005. The agreement was written, had been the subject of negotiations between the parties and was ultimately executed by two directors of the defendant.

3 The Chint products included switches, power-points, telephone and computer sockets and circuit breakers and housings and casings for those products. Products of this kind are commonly known as “bakelite products”.

Overview of the respective claims

4 During the hearing, the case brought against the second cross-defendant was dismissed by consent and the cross-claimant's claims for loss or damages was confined to the entry into of the agreement and being exposed to the risk of these proceedings for breach of the agreement.

5 The plaintiff's overview submissions conveniently summarise the remaining claims and the state of the pleadings as follows:

Chint Australasia’s claim

i. Clause 11.3 of the Distribution Agreement required Cosmoluce to purchase from Chint Australasia minimum quantities of Chint products as set out in Annexure D to the Distribution Agreement. For the nine month period from 1 October 2005 to 30 June 2006, Cosmoluce was obliged to purchase a minimum of US$2 million of Chint products from Chint Australasia.

ii. There is no dispute that Cosmoluce failed to comply with its minimum purchase obligations for the nine month period ending 30 June 2006.

Chint Australasia 's purported termination

iii. On 11 December 2006 Chint Australasia claims to have terminated the Distribution Agreement pursuant to clause 16.3 of the Distribution Agreement, relying on Cosmoluce’s breach of clause 11.3 or, alternatively, Cosmoluce’s repudiation of the Distribution Agreement by the letter of Cosmoluce’s solicitors of 28 November 2006 [CB 920].

Loss of bargain damages

iv. Chint Australasia seeks loss of bargain damages against Cosmoluce. The quantum of those damages is agreed at USD $5.196 million : (see Joint Experts' Report dated 6 June 2008, para 20).

Cosmoluce's claims

v. Cosmoluce contends that Chint Australasia's termination of the Distribution Agreement was not valid, because it had previously waived its right to terminate for Cosmoluce’s breach of clause 11.3. As a result, Chint Australasia’s purported termination of the Distribution Agreement was a repudiation of the Distribution Agreement which Cosmoluce accepted (see paragraphs 35 to 40, Further Amended Defence).

vi. Further, Cosmoluce contends that, by reason of certain alleged breaches of the Distribution Agreement by Chint Australasia concerned with the supply of a customer list and promotion material for Chint products (eg display boards, catalogues, a magazine advertisement), Chint Australasia was not, at all times, ready, willing and able to perform the Distribution Agreement. Thus, Cosmoluce contends that Chint Australasia was not entitled to terminate the Distribution Agreement on 11 December 2006 (see paragraphs 28 – 33, Further Amended Defence).

Cosmoluce's misrepresentation claim

vii. Cosmoluce contends that by reason of certain pre-contractual material misrepresentations of fact by Chint Australasia, Cosmoluce was entitled to and did rescind the Distribution Agreement on 28 November 2006 (see Further Amended Defence, paragraphs 13 – 22).

viii. Cosmoluce also relies on an alleged contravention of section 52, Trade Practices Act 1974 by reason of those same misrepresentations as a defence to Chint Australasia’s claim for damages for breach of contract (see paragraphs 23 – 27, Further Amended Defence); it is not necessary for present purposes to debate whether such a pleading is a valid defence (cf Bank of New Zealand v Spedley Securities Ltd (in Liq) (1992) 27 NSWLR 91 at 98G – 99E per Kirby P, 105B – 106G per Mahoney JA, 108B – C per Hope AJA, Drabsch v Switzerland General Insurance Co Ltd (1996) 130 FLR 127 at 154 – 155 per Santow J, Bitannia v Parkline Constructions Pty Limited (2006) 67 NSWLR 9 at [96] – 38, [104] per Basten JA (with whom Hodgson JA agreed with additional observations at 13, [6] – 17, [15] and Tobias JA agreed).

ix. More particularly, Cosmoluce contends that there was a pre-contractual representation to the effect that if Cosmoluce failed to achieve its minimum purchase obligations under the Distribution Agreement for the period ending 30 June 2006, Chint Australasia would resume the role of distributor of Chint products without consequence to Cosmoluce (the “Resumption Representation” – see Further Amended Defence at paragraph 17(o)). On this basis, Cosmoluce asserts that Chint Australasia is estopped from asserting an entitlement to damages against Cosmoluce for a breach of clause 11.3 of the Distribution Agreement (see paragraph 34, Amended Defence);

x. by reason of the same alleged misrepresentations on which it relies to support its purported rescission of the Distribution Agreement, Chint Australasia is said to have contravened section 52, Trade Practices Act. It is contended that Cosmoluce entered into the Distribution Agreement by reason of those misrepresentations (see paragraphs 3 to 11, Further Amended Cross Claim);

Trade Practices Act

ab initio.

Summarising the principal issues

6 The principal issues appear to be as follows:

i. the termination issue : whether Chint Australasia was entitled to terminate the Distribution Agreement on 11 December 2006.

ii. the misrepresentation issues : whether Cosmoluce has established that Chint Australasia made the pre-contractual misrepresentations alleged by Cosmoluce and, therefore, contravened section 52, Trade Practices Act .

iii. the reliance issue : on the assumption that Cosmoluce is able to establish the pre-contractual misrepresentations on which it relies, whether Cosmoluce entered into the Distribution Agreement in reliance on those misrepresentations.

iv. the rescission issue : on the assumption that Cosmoluce is able to establish the pre-contractual misrepresentations and that it entered into the Distribution Agreement in reliance on those misrepresentations, whether Cosmoluce was entitled to rescind the Distribution Agreement on 28 November 2006 or, alternatively, is now entitled to orders under section 87, Trade Practices Act effectively rescinding the Distribution Agreement.

the estoppel issue

The key provisions of the Distribution Agreement

7 It is convenient to firstly identify the key provisions of the Distribution Agreement:

i. By clause 2.1 of the Distribution Agreement Chint Australasia (referred to as “the Supplier) appointed Cosmoluce (referred to as the “Distributor”) its exclusive distributor in Australia and New Zealand (referred to as the “Territory”) for certain Chint products identified in Annexure A to the Distribution Agreement (referred to as “the Products”) for the period from 1 October 2005 to 30 September 2010 (referred to as “the Term”).

ii. By clause 11.1 of the Distribution Agreement, Chint Australasia was obliged to arrange, on an annual basis, 5000 catalogues containing “the Suppliers Product”, 100 display boards containing the “Suppliers Product” and one “A4 page advertisement, to a maximum value of $5000 in Electrical Connection magazine”.

Minimum quantities

No	Period	Quantity
1	1 October 2005 – 30 June 2006	US$ 2 million
2	1 July 2006 – 30 June 2007	US$ 5 million
3	1 July 2007 – 30 June 2008	The value of actual purchases made by Cosmoluce in the previous year plus 20% or US$6 million (which ever is greater)
4	1 July 2008 – 30 June 2009	The value of actual purchases made by Cosmoluce in the previous year plus 20% or US$7.2 million (which ever is greater)
5	30 June 2009 – September 2010	The minimum purchase requirement for the 2009 financial year and such percentage increase as agreed

Termination for breach

Entire Understanding

(a) This document embodies the entire understanding and document between the parties as to the subject matter of this document.

(b) All previous negotiations, understandings, representations, warranties, memoranda or commitments in relation to, or in any way affecting, the subject matter of this document are merged in and superseded by this document and are of no force or effect whatever and no party is liable to any other party in respect of those matters.

(i) affects the meaning or interpretation of this document; or

The relevant market

8 By way of background, the parties went to some lengths to set out the characteristics and parameters of the relevant market, that is, the market for bakelite goods in Australia. For all the extensive cross examination which occurred on this issue, it appears that there was very little in contention regarding the basic facts. In summary, these are as follows:

i. The market for bakelite products consists of manufacturers and distributors, who produce the bakelite products and distribute them under a particular brand, and wholesalers, who purchase goods from the distributors. The wholesalers then on-sell the products to electricians and others in the construction industry, who install the products in homes and businesses.

ii. The leading brands of bakelite products in Australia are HPM and Clipsal [who both manufacture and distribute bakelite products]. While there was some dispute over the exact proportion of the market controlled by these two brands, it is clear that they dominate the Australian market to a significant extent. At least 50% of the bakelite products sold in Australia are HPM or Clipsal branded [there was some evidence that 90% of the market was so controlled by these two entities, however that evidence was retracted on cross examination].

iii. On the wholesaler side, there are various types of purchasers. There are large, branded hardware chains [such as Bunnings warehouse] who individually have significant purchasing power. There are also groups of independent wholesalers who form associations [sometimes referred to as ‘buying groups’] to increase their chance of negotiating price discounts with the manufacturers and suppliers. Finally, there are truly independent wholesalers, who are not members of any buying group.

iv. Exhibit P 8, reproduced below, notes some of the significant major wholesalers and buying groups to which Cosmoluce was either selling, or seeking to sell its products. As is apparent from the diagram, HPM and Clipsal were also selling bakelite products to these entities.

The evidence

9 The evidence accepted as reliable [comprising contemporaneous documents as well as evidence given by witnesses accepted as reliable] establishes the following events as having taken place. Most of the facts which follow were not in issue. Where the parties were in dispute regarding the content of particularly significant conversations, the cross contentions are examined in more detail later in these reasons.

Background to the Distribution Agreement:

i. Mr Tony Frangi operates a retail lighting store called “Holroyd Lighting” which is located in Merrylands in Western Sydney. In 2003 Mr Keng Soon (“Albert”) Chew (Mr Albert Chew) began supplying to Holroyd Lighting bakelite electrical products manufactured in China by Zhejiang Chint Electrics Co Limited (Chint China). In February 2004 Mr Tony Frangi, together with his sister and his sister-in-law, established Lumbalite Pty Limited (Lumbalite) to distribute Chint products in Australia. Also in February 2004, Mr Fred Frangi joined Lumbalite and, soon after, assumed main responsibility for developing Lumbalite’s distribution of Chint products. Throughout 2004 and the first half of 2005 Mr Fred Frangi worked to develop Lumbalite’s distribution business for Chint products, marketing to electricians, building and construction contractors and smaller independent electrical product wholesalers.

ii. In October 2004 Mr Tony Frangi approached Mr Jim Emirian (Mr Emirian), a director of Cosmoluce, to seek Mr Emirian’s assistance in introducing Chint products to the developer Mirvac. Cosmoluce had been a supplier of products to Holroyd Lighting since 2001. In June 2005, following a request from Mr Emirian, Mr Fred Frangi and Mr Tony Frangi held a number of meetings with Mr Emirian and, during those meetings, gave him a demonstration of Chint products. During these meetings, the prospect of Cosmoluce becoming a distributor of Chint products was first raised.

iii. On 18 July 2005 Mr Fred Frangi and Mr Tony Frangi again met with Mr Emirian and Mr Cane Graoroski (Mr Graoroski), the then Chief Executive Officer of Cosmoluce. At that meeting, Mr Fred Frangi gave a presentation entitled “ Cosmoluce – Chint Australasia Distribution Launch” which concerned the proposal that Cosmoluce become a distributor of Chint products in Australia and New Zealand to wholesalers, lighting shops, hardware and other retailers.

iv. Further meetings between Mr Fred Frangi, Mr Tony Frangi and Mr Emirian and Mr Graoroski occurred during the latter half of July 2005 and August 2005. On 2 August 2005 Mr Fred Frangi met with Mr Graoroski and supplied him with a spreadsheet that modelled, on the basis of some assumed sales figures and assumed product distributions, Cosmoluce’s likely profit margins on Chint products.

v. On 18 August 2005 Mr Fred Frangi and Mr Tony Frangi held a further meeting with Mr Graoroski and Mr Emirian. At that meeting Mr Fred Frangi gave a presentation entitled “ Draft Heads of Agreement Cosmoluce and Chint Australasia ” which addressed the proposed terms of the intended Distribution Agreement with Cosmoluce concerning Chint products. On 19 August 2005 Mr Fred Frangi again met with Mr Graoroski and supplied him with two documents, “ Lumbalite Pty Limited Who’s Buying ” and “ Lumbalite Pty Limited Sales by Month ”.

vi. On 23 August 2005 the Board of Cosmoluce resolved to ”acquire the CHINT bakelite business for $500,000” [a price which reflected the value of stock purchased, and did not include any amount for goodwill]. Cosmoluce requested that the proposed Distribution Agreement be the subject of formal documentation. On 30 August 2005 Mr Fred Frangi emailed to Mr Graoroski a draft of the Distribution Agreement.

vii. On 1 September 2005 Chint Australasia was incorporated. Its directors were Mr Fred Frangi, Mr Tony Frangi and Mr Albert Chew and its share capital was owned by companies owned or controlled by each of Mr Fred Frangi, Mr Tony Frangi and Mr Albert Chew. On 17 September 2005 Chint Australasia entered into a Distribution Agreement with Chint China by which Chint Australasia became the exclusive distributor of Chint products in Australasia for five years [with an option to renew for a further five years] (‘Chint China agreement’). Chint Australasia was obliged to achieve certain minimum sales figures for Chint products which are identified in clause 4.3 of the Chint China agreement.

viii. On 30 September 2005 Mr Graoroski and Mr George Tsagaris (Mr Tsagaris), Chairman of Cosmoluce, attended Lumbalite’s premises at Northmead in Sydney and met with Mr Fred Frangi and Mr Tony Frangi. The discussion at that meeting centred around the measures necessary to implement Cosmoluce’s distribution of Chint products.

ix. On 7 October 2005 (a Friday) Mr Fred Frangi gave to Mr Graoroski a further draft of the Distribution Agreement which included amendments negotiated by the parties. Mr Graoroski says he gave a copy to Mr Tsagaris to look at over the weekend. Mr Tsagaris says he signed the Distribution Agreement that weekend and returned it to Mr Graoroski the next week. On 10 October 2005 (a Monday) a further meeting between Mr Emirian, Mr Graoroski and Mr Fred Frangi occurred. At some stage between 7 October 2005 and 10 October 2005, Mr Emirian also signed the Distribution Agreement.

Operation of the Distribution Agreement :

x. Following the execution of the Distribution Agreement, Lumbalite ceased its distribution of Chint products and effectively transferred that business to Cosmoluce. On 11 October 2004 (and again on 14 November 2005) Chint Australasia provided to Cosmoluce a list of Lumablite’s wholesale customers. In November 2005 Lumbalite transferred its stock of Chint products to Cosmoluce for a price in the order of AU$517,000.

xi. In November 2005, Chint Australasia supplied some promotional material to Cosmoluce. The exact number of display boards and catalogues supplied was in dispute, however it was acknowledged that the number supplied was less than the quantities required by clause 11.1.

xii. On 10 February 2006 Mr Graoroski attended a meeting with Mr Mike Robinson (Mr Robinson), the Business Manager of an electrical products buying group known as the Gemcell Group (Gemcell). During that meeting, Mr Robinson made it clear Gemcell would not accept Chint products. This was confirmed by Mr Robinson in an email of 10 March 2006 to Mr Graoroski.

xiii. Over the period of January – April 2006, Cosmoluce placed various orders for Chint products, amounting to significantly less than US $2 million. Over this period numerous emails were sent by Chint expressing concern over the quantity of orders being placed by Cosmoluce.

xiv. On 17 and 18 April 2006 Mr Fred Frangi and Mr Tony Frangi travelled to China to meet with Chint China representatives to discuss, inter alia , the quantities of Chint products which had been ordered by Cosmoluce. An amendment to the Chint China agreement was negotiated and documented. During the course of the meetings with the Chint China representatives, Mr Fred Frangi and Mr Tony Frangi placed a telephone call to Mr Emirian and passed on to him Chint China’s concerns, in response to which Mr Emirian stated, in effect, that Cosmoluce would place a further order in 2 weeks time and a further order in May 2006. Mr Emirian’s promise was noted in the document which recorded the amendment of the Chint China agreement reached between Chint China and Chint Australasia at that meeting. On 27 April 2006 Cosmoluce placed an order with Chint Australasia for Chint products to the value of US$99,986,90, subsequently paid for it by a letter of credit in that amount.

xv. No orders for Chint products were placed by Cosmoluce in May 2006 or June 2006. On 16 June 2006 Chint China sent an email to Mr Tony Frangi enquiring as to the status of next order for Chint products. In a conversation shortly thereafter, Mr Emirian informed Mr Tony Frangi that due to other commitments Cosmoluce could not then place any further orders for Chint products. On 3 July 2006 Gemcell rejected Cosmoluce’s application to be a preferred supplier for the financial year ending 30 June 2007.

xvi. On 7 July 2006, 16 July 2006 and 21 July 2006 Chint China sent further, increasingly insistent, emails to Chint Australasia complaining as to the lack of orders for Chint products by Cosmoluce. On 18 July 2006 Mr Tony Frangi sent an email to Mr Emirian, referring to a telephone conversation of Friday, 14 July 2006, seeking a meeting on 19 July 2006 “ to discuss Cosmoluce’s desire to exit the Chint distribution ”. On 25 July 2006 Cosmoluce placed an order with Chint Australasia for Chint products to the value of US$46,094, subsequently paid for by a letter of credit issued by Cosmoluce in favour of Chint Australasia in that amount.

xvii. On 28 July 2006 Mr Tony Frangi sent an email to Mr Emirian and Mr Tsagaris noting that “Cosmoluce’s default under our agreement has the real risk of Chint China terminating our agreement with them” and seeking “your proposal to comply with Cosmoluce’s obligations under our agreement to provide L/C’s to the value of US$2 million as at 30 June 2006”. On the same day Mr Emirian replied that “[a]t this time Cosmoluce cannot make any formal agreements regarding the Letter of Credit as there are not enough sales at the moment to warrant another Letter of Credit”.

inter alia

We reserve all rights relating to your continued breach of our agreement and again call on your to IMMEDIATELY comply with your obligations under the agreement, and in particular clause 11.3.

US$2.096Million

xix. On 10 September 2006 Cosmoluce placed an order with Chint Australasia for Chint products to the value of US$54,828.85 which was subsequently paid for by Cosmoluce issuing a letter of credit to Chint. On 19 September 2006 Mr Fred Frangi sent an email to Mr Graoroski and Mr Emirian seeking details of a further order of Chint products from Cosmoluce. On 6, 10 and 11 October 2006 Mr Fred Frangi and Mr Tony Frangi and Mr Graoroski exchanged emails referring to a proposed or promised order for Chint products from Cosmoluce in the amount of US$183,264.56. That order did not materialise and Cosmoluce made no further orders for Chint products from Chint Australasia.

Termination of the Distribution Agreement:

xx. On 4 October 2006 Chint Australasia commenced these proceedings, then seeking ( inter alia ) orders for specific performance by Cosmoluce of the Distribution Agreement. On 2 November 2006, Mr Fred Frangi sent an email to Mr Graoroski and Mr Emirian noting that “ it has been pointed out to me by several customers that Cosmoluce is in a continued out of stock situation ” and listing 12 “ key items which are currently out of stock ”. Mr Fred Frangi continued, saying “ you are yet again in breach of your contractual obligations and your out of stock situation is having a major impact on the Chint / Lumbalite brand and reputation in the market place ”.

xxi. On 6 November 2006 Chint Australasia issued a notice under clause 16.2(a) of the Distribution Agreement giving Cosmoluce notice that it was in “substantial breach” of the Distribution Agreement by failing to comply with its obligation under clause 11.3 thereof to purchase $US2 million worth of Chint products in the period 1 October 2005 to 30 June 2006. The notice went on to require Cosmoluce to remedy that breach by 8 December 2006 and stated that, if it failed to do so, Chint Australasia would terminate the Distribution Agreement.

“Based on the above investigation and information now confirmed, Chint Australasia Pty Limited is in breach of Cosmoluce Pty Limited Letter of Credit No.:Al2006259817, dated 18th July.

Cosmoluce now hold Chint Australasia Pty Limited fully and totally responsible and accountable for loss of revenue and damage to Cosmoluce’s reputation in the market due to above breach in not supplying the above 15 line items, over supplying the above 3 items and supplying the above 7 items not ordered.

inter alia

Notice of Termination:

We refer to the Notice pursuant to clause 16.2(a) of the Distribution Agreement dated 6 November 2006, which we served on Cosmoluce Pty Limited on 6 November 2006 (Default Notice). We also refer to the attached letter from your lawyers, Dibbs Abbott Stillman, to our lawyers, Corrs Chambers Westgarth, dated 28 November 2006.

This letter makes it clear that Cosmoluce Pty Limited has no intention of complying with the Distribution Agreement in the future. It constitutes a repudiation of the Distribution Agreement. In any event, we note that Cosmoluce Pty Limited has not complied with the Default Notice.

Chint Australasia Pty Limited hereby terminates the Distribution Agreement.

Following termination of the Distribution Agreement:

Dealing with credit issues

Mr Fred Frangi

10 Mr Fred Frangi, although obviously having a partisan interest in the outcome of the proceedings, gave evidence which is accepted as reliable. He was extensively challenged by reference to exhibit P 6 [previously MFI D2] which was a document which he prepared for the purpose of submitting it to Chint China at a meeting which took place in China in July 2005. Notwithstanding the contention put by Mr Stitt SC, I formed the view that Mr Frangi carried out his best endeavours to recall the events in question and that his credit was not compromised. The central purport of the cross-examination constituted an endeavour to establish that, whereas compensation was sought from Chint China by reason of product problems, none of those product problems were disclosed to Cosmoluce in the negotiations leading up to the entry into the Distribution Agreement.

11 A useful summary of the evidence given by Mr Fred Frangi in cross-examination includes the following answers by way of a short anthology of the answers given to this close cross-examination:

Transcript 49.31-40:
Q. And may we take it that you were concerned if your product was not up to scratch in the market?
A. Absolutely.

Q. And of course in that period between July '04 and August '05 your product was not up to scratch, was it?
A. On a whole our product was up to scratch. We had some - we had some faulty products as a result of early teething issues with any newly launched product.

Transcript 55.50-54:
Q. Let me suggest to you that you had these continuing problems from after the time you started selling the Chint products through to July '05. Do you agree that that's the relevant time span?
A. No, I believe that the problem was rectified prior to July '05, that we hadn't been to China in that period.

Transcript 62.46-49:
Q. And you see, this just didn't happen overnight, did it? It was a long process week after week, month after month, defective product being sold by your company?
A. No, I don't believe that's the case.

Transcript 66.47-67.15:
Q. You didn't tell them that you had losses of $356,452, did you?
A. Not that number.

We told Cosmoluce that we had some issues with some of the quality in the early stages. We also mentioned to them that in the last, I think it was six months, that we hadn't had problems because most of which had been rectified.

Transcript 71.32-38:
Q. You must have known that that was a false statement [the statement of products sold and the potential for an increase in sales]?
A. It wasn't. Our actual books had shown that those actual sales did occur.

Q. But your actual books didn't say that there had been total losses of $356,452, did they?
A. Our actual books were a net statement.

Q. But you didn't tell them about the losses or the way they were created, did you?
A. We did tell them that we had some defective material.

Transcript 80.15-51:
Q. But the quality by July 2005, it was still the same product, wasn't it?
A. I don't believe it was the case. I believe we had rectified the power points. I believe by July 2005 we had actually remoulded the double power point and the single power point and I believe we had rectified or Chint had rectified the majority of the problems that we had been confronted with earlier, your Honour.
Q. But you hadn't told Cosmoluce representatives about those problems at all?
A. I had.

Q. That you had had all these problems, is that what you are telling us?
A. I told them that we had some early teething problems, sir.

Q. When did you do that?
A. During the course of our discussion.

HIS HONOUR:
Q. I just didn't hear you. You said you told them that?
A. I told them that we had had some earlier teething problems with the product, sir. Your Honour, sorry.

MR STITT:
Q. When did you say that?
A. I can't recall the exact time but it was during our discussions.

Q. But before or after you had been to China in July?
A. I believe it may have been before I went to China, and in fact, if I can recall, I think I may have shown Jim at the time the new double power point that we had modified.

Transcript 83.27-84.16:
Q. On 18 August you said to the Cosmoluce representatives that "Chint is being well accepted in the market". Do you remember saying that?

A. And we had been, yes. Yes.

Q. And you knew when you said that that there were complaints about defective product which required you to make a claim for compensation on Chint China?
A. They were much earlier in the piece, sir.

Q. But they were nevertheless still relevant to the market place, were they not?
A. We had brought the teething issues to Cosmoluce's attention and they were much earlier in the piece and the batch problems, as I have previously stated, had been rectified, sir.

Q. But, Mr Frangi, once good will is lost it's very hard to regain, isn't it?
A. I agree.

Q. And once you have got somebody who is not prepared to buy your product with a repeat order, it is difficult to suggest that they in those circumstances were accepting Chint product?
A. We did a lot of work to regain confidence in the market place and we were quite successful in doing so.

Q. Mr Frangi, you weren't successful at all. After the distribution agreement was signed you couldn't sell the product in any great quantities at all because of the buyer resistance, could you?
A. I reject that.

Q. That's why the distribution agreement didn't make its sales target?
A. I totally reject that.

Mr Tony Frangi

12 Likewise Mr Tony Frangi gave evidence which is accepted as reliable. He was also closely questioned in relation to the suggestion that problems with quality should have been disclosed to Cosmoluce and again his credit did not seem to be affected by what I regarded as reliable evidence given in response to these questions. That cross examination included the following:

Transcript 135.22-35:
Q. And did he explain to you the difficulties that he was experiencing right from the outset?
A. Yes, he did.

Q. Did you understand that the quality of the product was a highly significant factor in any attempt to sell into that market?
A. Yes, sir.

Q. Did you understand that it was crucial to have good quality product?
A. Absolutely.

Q. And did you understand that there were difficulties with the quality of the Chint product?
A. Yes, we did have some difficulties, yes.

Transcript 146.41-147.10:
Q. Well, by July 2005 you knew at least to the extent of the products identified in this document that there were problems with quality?
A. Yes, sir.

Q. And you knew the nature of those problems?
A. Yes, I did.

Q. And you knew the extent of those problems?
A. Yes, I did.

Q. And you also knew the cost which your company had incurred because of those problems, did you not?
A. Yes, sir, that's right.

Mr Tsagaris

13 Mr Tsagaris left the negotiation of the arrangements leading to the distributorship Agreement and the contractual documentation to his son-in-law Mr Emirian and his chief executive officer Mr Graoroski. He had a very poor recollection of the close detail concerning the contemporaneous events which occupied so much of the court time. In consequence his evidence cannot be accepted as reliable unless corroborating by contemporaneous documents or by the evidence of other witnesses who in turn were accepted as reliable.

Mr Graoroski

14 Mr Graoroski cannot be accepted as having given reliable evidence. On a number of occasions he gave answers which could not reflect the contemporaneous position, and in some cases deliberately avoided answering the question put to him where the matter was particularly sensitive. He was not a totally disinterested party, despite the fact that he is no longer employed by Cosmoluce. While Mr Graoroski did not disclose the precise extent of his current relationship with Cosmoluce, giving indirect answers to questions put to him in cross examination, it is clear that Cosmoluce continues to be a significant customer of Mr Graoroski’s current business, Megaman Lighting Australia [cf T279.18-281.10].

15 MFI P 7 was an e-mail from an to Mr O'Connor and copied to Mr Emirian of 30 January 2006 reading:

" Chint Bakelite & Lumbalite accessories

16 Under cross-examination the following questions and answers were given [this section of the transcript includes comments from Mr Leeming]:

Q. John O'Connor lives in New Zealand, doesn't he?
A. Yes, at that time.

Q. At that time he was your contact in the New Zealand store that sold Cosmoluce products?
A. John at that time was part of Rexel Pacific. He was the general manager of Impel, being the Rexel group in New Zealand. Impel is the importer distributor and sold to Rexel and Ideal who are part of the Rexel group Pacific.

Q. So that if you were selling Cosmoluce product to New Zealand, John O'Connor would be a man you would talk to?
A. Yes.

Q. And you had a longstanding relationship with him?
A. Depending what you mean by the definition of longstanding, but I had a relationship with him.

Q. How long had you been dealing with Mr O'Connor?
A. Two years.

Q. Thank you. Do you see where you say, "We have now been selling the Chint product for three months and all is good. Nice product and also suits the retail market." Were you telling the truth?
A. Well what I refer to is, "All is good with the Rexel group".

Q. I can't help but noting that you look 55 seconds to give that answer. Let me ask you the question again. Were you telling the truth?
A. I was telling the truth regarding the Rexel group when I am talking to the Rexel Pacific group.

Q. Perhaps I am not being clear. I read out two sentences to you. Let's do it one at a time. One of the things you say is, "We have now been selling the Chint product for three months and all is good." When you said that were you telling the truth?
A. What I am trying to do is define what I meant by "all is good".

I note it has been another minute

17 It was quite plain that Mr Graoroski, faced with a matter adverse to Cosmoluce's case, was simply not prepared to answer the question. At other times during the cross-examination, his answers were not responsive or hedged with qualifications which were not called for.

18 It is appropriate to observe that Mr Graoroski accepted under cross-examination that he knew right from the outset that there would be pressure from Clipsal and HPM once Cosmoluce started selling Chint product.

Mr Robinson

19 There were no issues as to Mr Robinson's credit. The reasons below deal with the question of whether or not the evidence which he gave under the voire dire are to be allowed into evidence.

The voir dire issue

20 Cosmoluce called Mr Robinson to give evidence on its behalf. He was before the court on a subpoena to give evidence. Before he ascended into the witness box, a question arose as to whether or not he was being called as an expert witness, in which case it was significant that he had not signed to the experts code of conduct. It was said by counsel appearing for Cosmoluce that his evidence would be 'lay evidence'.

21 Because of the possible difficulties in the admissibility of evidence to be given by the witness, a direction was given that the evidence would be taken on a voir dire basis. During final address, Counsel were given the opportunity to make submissions as to whether or not all or some of the evidence should be admitted as evidence in the proceeding.

22 In the event, Mr Leeming consented to that evidence which was referred to by the defendant in its written and oral submissions being admitted. The remainder, he objected to on the grounds of relevance.

23 Mr Robinson’s evidence related to the nature of the Australian electrical goods market in mid-2005. Specifically, he gave evidence that the electrical goods market at the time was dominated by two major players who strenuously fought to exclude other smaller manufacturers, including brands such as Chint which sold Chinese bakelite, from the market. Various commercial tactics were used by Clipsal and HPM to maintain their market share, and to prevent electrical wholesalers from agreeing to purchase Chinese bakelite.

24 Mr Robinson at first gave evidence that Clipsal and HPM controlled somewhere around 90% of the Australian market, however on cross examination he admitted that this did not take into account those products which were sold by wholesalers who were not affiliated with any buying group [non-aligned wholesalers].

25 Mr Robinson was not a witness who answered questions responsively. Time and time again his answers extended across many many many minutes and he seemed content to express opinions on all manner of subjects, interspersing those opinions with hearsay material. In consequence the evidence which he gave could only be of limited value, if permitted to be adduced at all.

26 Ultimately I have determined to allow the evidence and to treat with the difficulties involved in accepting the evidence as a matter of weight. In that regard the readiness of Mr Robinson to venture opinions outside of the questions asked of him very severely limits the ability of the Court to accept the evidence save where it was corroborated by contemporaneous documents already in evidence or by the evidence given by other witnesses whose credit was unassailable.

27 Ultimately, Mr Robinson’s evidence was not of any great utility to the Court. All he was able to establish was that the electrical goods market was dominated by two major players – HPM and Clipsal, and that these large manufacturers used various commercial tactics against their competitors in the market. Neither of these facts was in dispute. In addition, Mr Robinson’s evidence regarding the nature of the market was primarily relevant to the question of whether the market share and sales representations allegedly made by the plaintiff were misleading and deceptive. For reasons set out below, the finding is that the pleaded market share and sales misrepresentations were not made out.

The evidence given by Mr Adam Thomas

28 Mr Thomas commenced working for Cosmoluce in May 2006, some time after the agreement was entered into. Prior to this, he was employed as a sales representative by HPM. As with Mr Robinson, a large part of Mr Thomas’ evidence went to the nature of the electrical goods market. He also gave evidence as to the difficulties he experienced while trying to sell Chint products as an employee of Cosmoluce.

29 The plaintiff did not successfully raise any issues as to Mr Thomas’ credit. Ultimately, the main area of dispute with regards to Mr Thomas’ evidence did not concern his evidence per se, but rather the inferences which the defendant sought to draw from this evidence regarding the allegedly misleading and deceptive nature of the various representations allegedly made by the plaintiff. To the extent it was necessary for the Court to decide these issues, they are discussed further below.

The termination issue – Did Chint Australasia waive its rights to terminate the Distribution Agreement?

30 The termination issue raises a number of matters, each of which has been carefully addressed by the plaintiff in its detailed written submissions. In relation to this issue, the plaintiff’s submissions are generally accepted, and are incorporated into the following reasons.

31 The finding is that Chint Australasia did not waive its rights to terminate the Distribution Agreement. This finding is informed by the following considerations.

Proposition 1

32 Chint Australasia’s entitlement to terminate the Distribution Agreement by reason of Cosmoluce’s breach of clause 11.3 was governed by the provisions of clause 16.2(a) of the Distribution Agreement. Clause 16.2(a) specifically identifies a breach of clause 11.3 as a “substantial” breach to which the mechanism provided in clause 16.2(a) for the termination of the Distribution Agreement applied.

Proposition 2

33 Cosmoluce’s breach of clause 11.3 was not a breach “not capable of being remedied” within the meaning of the second sentence of clause 16.2(a) of the Distribution Agreement. Cosmoluce could have remedied its breach of clause 11.3 by simply purchasing the outstanding amount of Chint products, as the notice of 6 November 2006 invited it to do.

A reference to authorities

34 The judgment of Rein J in Waters Lane constitutes [at 70 and following] an illuminating summary of both the principles and the manner of their application across a number of authorities.

35 At [87] – [89] His Honour observed as follows:

In his analysis of the notice clause at [247]-[264], Rolfe J in Burger King [1999] NSWSC 1029 made the following points:

(1) A clause of this type must be given a commercial meaning and the purpose of such clause is to give the party the opportunity of curing the position for the future and is aimed at certainty: at [248]-[249].

(2) The giving of notice is a condition precedent to the right to terminate: at [249].

(3) The reference to a “breach capable of being cured” was not a reference to a breach capable of being cured within a particular period: at [248], [256].

(4) The fact that the restaurants could not be established within 30 days (this was conceded) did not render the breach one that was not capable of being cured: at [262], [264], [266].

(5) The contrary construction removes an element of certainty because it intrudes into consideration the question of by whom it is to be decided that the breach is capable of being cured within the specified time: at [248].

(6) “Capable of remedy” is not concerned with whether the breach will be remedied: at [254].

Burger King

(8) Even breaches which as at the date of the notice appear to be incapable of being cured within the 30 days require notice: at [262].

(9) “Remedy” means, in accordance with Batson, Schuler and Tricontinental , “ setting things right for the future”: at [258].

It will be observed that the notice clause in the Burger King case specifically drew a distinction between breaches that were capable of cure and breaches that were not. Rolfe J did advert to that point at [262].

Schuler

Batson v De Carvalho

Tricontinental Corporation Ltd v HDFI Ltd

Burger King,

36 Importantly for present purposes, in dealing with Schuler, Rein J observed [at 94] as follows:

Schuler

party an opportunity to see what is can do to “put matters right”, even in circumstances where it might appear to the innocent party that there is nothing that can be done.”

37 In short, the fact that the temporal period in which the obligation had to be performed had expired does not prevent the breach from being a breach which is “capable of being remedied:” see Batson v De Carvalho (1948) 48 SR (NSW) 417 at 427 (“[a] breach may be remedied even … though the time for doing the thing under the contract may have passed”), Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 at 702 and 722 – 723, Burger King Corporation v Hungry Jacks Pty Limited [2001] NSWCA 187 at [113] – [124], Mangrove Mountain Quarries Pty Limited v Barlow [2007] NSWSC 492 at [22]. The present case is in contradistinction with decisions holding that such clauses apply even if in fact the obligation cannot readily, if at all, be cured: cf: Waters Lane Pty Limited v Sweeney [2006] NSWSC 222 at [67] – [95].

Conclusion

38 As a result of propositions one and two, Chint Australasia had no entitlement to exercise its clause 16.2(a) contractual right of termination by reason of Cosmoluce’s breach of clause 11.3 until it issued a written notice requiring the remedy of that breach and that breach was not remedied within 30 days after the receipt of the notice. Chint Australasia issued a notice under clause 16.2(a) on 6 November 2006. Thus, Chint Australasia’s entitlement to terminate the Distribution Agreement by reason of the breach of clause 11.3 arose no earlier that 7 December 2006.

39 The acts, matters and circumstances relied on by Cosmoluce as being actions “unequivocally … inconsistent with the [Chint Australasia’s] exercise of the right to terminate” all occurred prior to 7 December 2006 (see paragraph 37, amended defence). However, because no right to terminate had arisen prior to 7 December 2006, those matters cannot be actions “inconsistent with the exercise of … [Chint Australasia’s] right to terminate” and cannot constitute an “election to affirm the Distribution Agreement”.

40 It is axiomatic that no waiver of the right to terminate could be effected by Chint Australasia prior to the right to terminate arising. Prior to that right arising there can be no confrontation between mutually exclusive courses, which is the essence of waiver or election: Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 41.

41 There is no substance in Cosmoluce's proposition that in commencing these proceedings seeking specific performance, Chint Australasia is seen to have affirmed the Distribution Agreement. Ogle v Comboyuro Investments Pty Limited (1978) 136 CLR 444 involved a vendor who was entitled to rescind a contract for the sale of land because of the purchaser's failure to complete on time, despite the fact that he had elected to sue for specific performance. It was found that the vendor was not precluded from later rescinding the contract and claiming damages for the continued refusal by the purchaser to complete if the purchaser's conduct evinced an intention no longer to be bound by the contract.

42 The following observations were made by Gibbs, Mason and Jacobs JJ [at 457-459]:

Carr v JA Berriman Pty Ltd

Larking v Great Western (Nepean) Gravel Ltd (In liq.)

Carr v JA Berriman Pty Ltd

When this principle is particularly applied to contracts for the sale or purchase of land and where the breach is a failure to complete on the due date, a party who has waived a right to treat that failure to complete on the due date as the breach of an essential term may nevertheless thereafter call on the other party to complete and a failure on the part of the latter to complete on or by a further named day fixed reasonably ahead or even a continued long failure to complete will amount to a refusal to be bound by the contract ( Holland v Wiltshire , per Kitto J [1954] HCA 42; (1954) 90 CLR 409, at p 420 ) and a repudiation thereof entitling the other party to rescind and to claim damages for loss of the bargain. In this particular context there is no different in consequence between regarding the conduct subsequent to the actual breach as a further breach of the contract and regarding it as a refusal to be bound by the contract and consequently a repudiation thereof. Or it may perhaps better be said that the first breach is a failure to complete on the due date and the later breach is a failure to complete at all. (at p459)

Balog v Crestani

Holland v Wiltshire

43 Having found that Cosmoluce could remedy its failure to purchase US $2,000,000 in the period until 30 June 2006 by purchasing further goods in the following financial year, there is no substance in Cosmoluce’s contention that Chint Australasia had a right to terminate the Distribution Agreement which arose on or about 25 September 2006. The proposition put by Cosmoluce is that the right to terminate arose on that date because:

‘[we] again call on you to IMMEDIATELY comply with your obligations under the agreement, in particular clause 11.3.’

44 The proposition put by Cosmoluce is flawed because the letter of 26 August 2006 does refer to clause 16(a) and does not state that if the notice is not complied with the party giving it will treat the contract as at an end. The matter is dealt with in the High Court in Balog v Crestani [1975] HCA 16; (1975) 132 CLR 289 by Gibbs at 296-297:

Carr v JA Berriman Pty Ltd

must inform the party to whom it is given that the party giving it will treat the contract as at an end if the notice is not complied with

Sugden on Vendors and Purchasers

a distinct written notice by the other, that he shall consider the contract at an end if it be not completed within a reasonable time to be named

Taylor v Brown

Green v Sevin

Stickney v Keeble

Ajit v Sammy

Perry v Sherlock

Lenneberg v McGirr

Stickney v Keeble

Canning v Temby

Wendt v Bruce

The repudiation of the Distribution Agreement by Cosmoluce on 28 November 2006

45 Whilst it is unnecessary to go further it may be observed that even had Chint Australasia lost its right to terminate the Distribution Agreement by reason of Cosmoluce’s failure to comply with its minimum purchase obligations in clause 11.3, Chint Australasia’s termination of the Distribution Agreement on 11 December 2006 also relied upon and is supported by Cosmoluce’s repudiation of the Distribution Agreement in the letter of its solicitors of 28 November 2006.

46 A party who waives the right to terminate following an essential breach of contract by the other party may, nonetheless, terminate the contract if the subsequent conduct of the guilty party [including a persistence by the guilty party in their breach] manifests a repudiation of the contract: see Ogle v Comboyuro Investments Pty Limited (1978) 136 CLR 444 at 461 – 462, The Millstream Pty Limited v Schultz [1980] 1 NSWLR 555 C – G, per McLelland J.

47 In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 82 ALJR 345, the majority decision dealt with the different senses in which the term repudiation falls to be used. The first was identified as a reference to conduct which evinces an unwillingness or inability to render substantial performance of the contract. Their Honours observed that this is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations. That form of conduct may be determined renunciation:

48 The finding is that Cosmoluce clearly renounced the Distribution Agreement in the letter of Cosmoluce’s solicitors of 28 November 2006. “It is obvious” the solicitors stated “that the contractual relationship between our parties cannot continue and our client agrees that it should now come to an end”.

49 By that letter Cosmoluce evinced its intention “no longer to be bound” by the Distribution Agreement: see Laurinda Pty Limited v Capalaba Park Shopping Centre (1989) 166 CLR 623 at 634, at 647 – 648, at 657 - 658; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 82 ALJR 345 at [44].

50 The short background context against which the letter requires to be read involves very substantial non-compliance by Cosmoluce with the terms of the Distributorship Agreement over an extended period of time.

51 The material events have already been referred to, but it is perhaps convenient to shortly thumbnail them in the one place:

i. Chint Australasia had on 26 August 2006 reminded Cosmoluce that they had repeatedly pointed out that its continued breaches of the agreement was placing the agreement at an increased risk of being terminated; that the continued delay was not acceptable and that they reserved all rights relating to that continued breach of agreement. They called on Cosmoluce to immediately comply with its obligations under the agreement, in particular clause 11.3 and observed that they intended to take action to enforce their rights under the agreement without further delay;

ii. Then on 6 November 2006 Chint Australasia had sent a formal notice pursuant to clause 16.2 (a) putting Cosmoluce on notice of its relevant breaches of clause 11.3 in terms of its failures to purchase the minimum amount of products as required by that clause; and requiring Cosmoluce to remedy the breach by purchasing additional products to a stated nominate value by 8 December 2006. The notice had explicitly referred to clause 16.2 (a) as defining a breach of clause 11.3 as a 'substantial breach' and had made clear that if Cosmoluce failed to remedy the breach of clause 11.3 in accordance with the notice, Chint Australasia would terminate the distribution agreement;

[There was a handwritten note admitted into evidence which suggested that Mr Graoroski had followed up on this communication by speaking to Mr Fred Frangi who had said that the letter was funny and that he found it amusing but that he could not talk to Mr Graoroski about the matter because his lawyers had told him not to do so and that the letter had been passed on to Chint Australasia's lawyers]

a) Cosmoluce did not accept the validity of the purpose of notice given on 6 November 2006;

"Nevertheless, it obvious that the contractual relationship between the parties cannot continue, and our client agrees that it should now come to an end. Our client would be happy if that to occur upon the date nominated in the purported notice, namely on 6 December 2006". [Ex PX at 921]

52 The crucial context against which the 28 November 2006 facsimile was sent was simply the content of the letter of 6 November 2006 requiring Cosmoluce to cure its breach failing which Chint Australasia would terminate the Distribution Agreement. The 20 November 2006 facsimile response to this clear threat was to say that it was obvious that the contractual relationship between the parties could not continue. This was a very important facsimile. The statement that Cosmoluce agreed that the contractual relationship should come to an end and would be happy if that would occur upon the date nominated in the purported notice, cannot gloss over the significance of the statement that it was obvious that the contractual relationship between the parties could not continue, which was clearly repudiatory in all of the circumstances. It was the antithesis of a communication that Cosmoluce intended to comply with its contractual obligations.

53 By letter of 11 December 2006 Corrs had responded to the 20 November 2006 facsimile by stating that the facsimile made it clear that Cosmoluce had no intention of complying with the distribution agreement in the future; that the facsimile constituted a repudiation of the distribution agreement; and that in any event, it was noted that Cosmoluce had not complied with the default notice dated 6 November 2006. This letter had enclosed the formal notice of termination.

54 By letter of 18 December 2006 Cosmoluce had written directly to Chint Australasia referring to the clause "16.3 consequences of termination or expiration of this document" clearly acknowledging that the agreement had come to an end.

55 It has to also be recalled that there was a litigious context whereunder:

i. Chint Australasia had commenced the proceedings by statement of claim filed on 14 October 2006 which had sought inter alia an order for the specific performance by Cosmoluce of obligations which were outstanding under the Distribution Agreement;

ii. in early November 2006 Chint Australasia's solicitor had informed the solicitor on the record for Cosmoluce that Chint Australasia proposed to abandon its claim for specific performance , to terminate the Distribution Agreement and to amend its statement of claim to seek damages;

iii. it was on 6 November 2006, that with a view to terminating the distribution agreement, Chint Australasia served a notice on Cosmoluce requiring it to remedy certain breaches;

iv. after the 30-day period prescribed by clause 16.2 (a) had expired the document purporting to terminate the distribution agreement effective on 18 December 2006 was sent;

56 To the extent that it is necessary to do so, I reject the proposition put by senior counsel for Cosmoluce to the effect that in some fashion the Court may take into account the probability that the solicitor for Cosmoluce would not have had authority to send the facsimile of 28 November 2006. The letter was written against a considerable background. The finding of the court is that against that background, a fair reading of the letter is that Cosmoluce not longer intended to be bound by the agreement. If it be relevant, a reasonable bystander having the knowledge of that background would have formed the view that the letter exhibited an acceptance that the contract should now come to an end.

Whether or not Chint Australasia was disentitled from terminating due to absence of readiness and willingness

57 Cosmoluce relies on an alleged breach by Chint Australasia of its obligation in clause 11.1 of the Distribution Agreement to provide 5000 catalogues, 100 display boards and an advertisement in Electrical Connection magazine as constituting an absence of readiness and willingness on the part of Chint Australasia which disentitled Chint Australasia from terminating the Distribution Agreement in December 2006 (see paragraphs 28, 31 and 33 Further Amended Defence).

58 The applicable principle has been recently stated by White J in Lantry v Tomule Pty Limited (2007) ANZ Conv R 187; [2007] NSWSC 81 at [81]:

“… in the case of termination for breach, a party seeking to terminate for the opposite party's breach is not precluded from doing so by reason of his own breach of contract if he has not repudiated the contract, if his breach is of a non-essential term, and if there is no causal relationship between his breach and that of the opposite party.

Roadshow Entertainment Pty Limited v ACN 053 006 269 Pty Limited (Receiver and Manager appointed) (formerly CEL Home Video Pty Limited

Krywood v Drinkwater

Idameneo Pty Limited v Ticco Pty Limited

59 There was some dispute over the exact number of catalogues and display boards supplied by Chint Australasia, although there was no dispute that this number fell short of the amount required under clause 11.1. On the plaintiff’s case, approximately 70-80 display boards were provided [out of the 100 required], and around 300 catalogues [out of a required 5000]. The defendant claimed that only 20 display boards and 50-100 catalogues were received.

94 The defendant’s submissions claimed that the statements made above were misleading and deceptive because they failed to mention three significant matters, and therefore created a false impression of the strength of the Chint brand in the Australian market. These significant omissions were:

i. that Chint was a start up brand in the Australian market, and not well established;

ii. that Mr Fred Frangi had experienced difficulties in getting major wholesalers to stock Chint products, as a result of pressure from the larger brands who used their market dominance to exclude smaller manufacturers; and

95 The defendant also relied on evidence from Mr Thomas, currently the National Sales Manger of Cosmoluce and previously a sales representative of HPM (a competitor of Chint). Mr Thomas gave evidence that he had never seen or heard of the Chint name or products prior to mid-late 2005, despite his extensive experience in the industry. He also gave evidence that, once he began selling Chint products for Cosmoluce, he encountered a number of customers who were unwilling to buy Chinese-made or Chint brand products.

96 The difficulty with the defendant’s case is that it fails to take into account the context in which the negotiations took place. Specifically, it ignores the fact that some of the alleged ‘omissions’ were either told to Mr Graoroski, as CEO of the defendant, or were known to him due to his experience in the industry.

97 Specifically, Mr Graoroski admitted, under cross examination, that he was aware in July 2005 that:

i. Chint was a start up brand in Australia [T322.22]; and

98 With regards to the quality issues, Mr Fred Frangi gave evidence that he told Cosmoluce that there had been some problems with quality in the early stages, which had since been rectified [T67.12]. He admitted that he had never informed Cosmoluce of the extent of those problems [T66.39]. However, as noted above, the defendant did not plead a case of misrepresentation with regards allegedly defective Chint products. In any event, issues with quality would only be relevant if the defendant could establish that the allegedly defective products caused damage to Chint’s reputation in the Australian market. Had this been found to be the case, then the fact that some products may have been defective may have constituted indirect evidence that the representation that “Chint is a well recognised and well accepted brand, with a good name, in the Australian Market” was untrue.

Finding of fact – brand awareness representation

99 Ultimately, the defendant fails on this point because it has not effectively demonstrated the causal link between the quality issues in the early Chint batches and the misleading and deceptive nature of the alleged representations. It has not shown that that the problems with defective goods, which arose prior to the distribution agreement, had caused such significant damage to the Chint brand that the representations which were made in July 2005 regarding the strength of the Chint brand in the market were misleading and deceptive.

100 Mr Tony Frangi gave evidence, which was not substantially refuted by the defendant, that the problems experienced with the early batches of Chint products involved only a small percentage of the total volume of Chint products, and that the return of small numbers of goods was considered normal within the industry [T147].

101 Mr Fred Frangi’s evidence, which is accepted as reliable, is that, in the wake of the early batches of defective goods, Chint Australasia “did a lot of work to regain confidence in the market place and we were quite successful in doing so” [T83.48].

102 It is true that the Frangi brothers had claimed, in their approach to Chint China for compensation, that “the Chint brand is starting to be affected” by the defective stock [Ex P6]. Nonetheless, these kind of statements are not sufficient to establish that Chint was no longer, in July 2005 a “well recognised and well accepted brand, with a good name, in the Australian Market”, as this representation would have been understood by Cosmoluce in the circumstances.

103 Similarly, Mr Thomas’ evidence that he personally, as a representative of competitor brand, had not come across the Chint brand prior to mid-late 2005 is insufficient to establish that the alleged representation was false. This is true especially where Cosmoluce would have been interpreting the representation in light of its own knowledge that Chint was a start up brand in Australia, and with regard to their own knowledge of the dominance of HPM and Clipsal in the relevant market.

The customer base representation

104 In relation to the 18 July 2005 meeting, Mr Graoroski gave evidence that Mr Tony Frangi and Mr Fred Frangi gave Mr Graoroski a printed PowerPoint presentation. On the bottom of the 5th page of the presentation is the statement:

105 A similar note appears in a PowerPoint presentation presented on 18 August 2005 [Ex PX at 389].

106 Mr Graoroski gives evidence that, on 19 August 2005, Fred Frangi provided Cosmoluce with a customer list showing the number of customers and the quantity of orders, with the individual names of the customers blacked out. At this time, the following conversation is said to have occurred:

Mr Fred Frangi: “Here, we have a customer base of about 60 and they’ll all go to you once you have signed the agreement. We have a good, loyal customer base. We haven’t given you the names because we don’t want you sniffing around our customers in case you don’t go ahead with the agreement.”

Mr Graoroski: “Who is one of the big ones then?”

[Affidavit Graoroski at 39]

107 Mr Graoroski also recalls the following conversation which took place at a meeting on 31 September 2005:

Mr Graoroski: “You have to change your customers and orders over to Cosmoluce. You will have to provide to us your list of customers and you need to write a letter to the customers to send them Cosmoluce account forms. We also have to set up a wholesaler display stock stand for the launch.”

[Affidavit Graoroski at 48(c)]

108 During the meeting, Mr Graoroski recorded the following handwritten notes:

Check List

5th October 2005

1. Customer change over to Cosmoluce + Orders…

109 Mr Tsagaris gives evidence that he recalls either Fred or Tony Frangi making the following statement at a meeting at Cosmoluce’s offices:

The plaintiff’s evidence

110 The evidence of Tony and Fred Frangi is that there was never any promise to transfer all of the customers, or to transfer any specific number of customers. Rather, only the names of the wholesale customers were to be given to Cosmoluce. The retail customers would continue to be supplied by the plaintiff’s company (Holroyd), which, in turn, would need to purchase its stock from Cosmoluce.

111 Mr Fred Frangi’s evidence is that he communicated this to Mr Graoroski at the meeting on 15 August 2005, saying:

112 Mr Tony Frangi gives evidence that he recalls his brother making a statement to that effect [Affidavit Tony Frangi at 37].

113 Mr Fred Frangi also gives evidence that he did, in fact, provide the names of the 27 wholesale customers to Cosmoluce on or about 11 October 2005. He claims that he was never approached by anyone from Cosmoluce complaining about the customer list not containing 60 names [Affidavit Fred Frangi at 118-120].

Finding of fact - the customer base representation

114 While there was no express qualification of the statement made in the two PowerPoint presentations, that “(a)fter signing, Lumbalite customers will deal directly with Cosmoluce”, it appears that, in the context in which the parties were negotiating, it was clear to both parties that Cosmoluce, as a distributor, would be dealing with wholesale, and not retail customers. The word ‘customers’ in this context therefore has a narrower meaning, and is confined to wholesale customers of Lumbalite.

115 Under cross examination, Mr Graoroski acknowledged that the only customers to whom Cosmoluce was selling Chint products were wholesalers and lighting retailers. He also accepted that Cosmoluce only expected to have the wholesale customers transferred, and not any electrical contractor customers. He was aware that these electrical contractors would continue to go through Holroyd [T302.43 and T326.23-326.29].

116 Taking this mutual understanding of the parties into account, and accepting that the names of the wholesale customers were given to Cosmoluce in October 2005, the finding is that there was no relevant misrepresentation by Chint Australasia.

The resumption representation

117 Mr Graoroski gives evidence that the following conversation [which is in part repetitive of the conversation already set out in the market share and sales representations section above] took place on 10 October 2005, when the parties were preparing to sign the Distribution Agreement:

“Mr Emirian: “You haven’t changed the numbers, c’mon Fred. The numbers still seem a bit high.”

Mr Fred Frangi: “We won’t agree to less. You will achieve these numbers.”

Mr Emirian: “Ok, if you feel that we can get those numbers, Fred, then we’ll sign. But if we don’t make the number you’re taking the distribution and stock back and the agreement is over.”

118 Mr Fred Frangi denies that this conversation occurred, or that he would ever have accepted such a proposal. He gives evidence that he perceived the minimum purchase obligations as:

119 Mr Fred Frangi also gives evidence that:

Finding of fact – the resumption representation

120 The finding is that the defendant has not discharged its onus of establishing that this representation was made. The defendant’s evidence depends upon Mr Graoroski’s recollection of a possibly equivocal gesture made by Mr Fred Frangi on the day the contract was signed.

121 On this matter, Mr Graoroski’s evidence is rejected for the following reasons:

i. as discussed above, with regards to the judgment of McClelland CJ in Eq in Watson v Foxman , it is necessary that any alleged words [or conduct] alleged to be a misrepresentation be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading. The evidence offered by the defendant is insufficiently clear and precise;

ii. it is inherently improbable that this representation was made by Chint Australasia. The benefit of the Distribution Agreement for Chint Australasia was that it guaranteed it a minimum income from Cosmoluce in return for which it gave Cosmoluce the opportunity to make a profit from the distribution of Chint products. A representation to this effect would mean that Chint Australasia gave to Cosmoluce the opportunity to make a profit from the Distribution of Chint products but received no corresponding benefit;

iii. Mr Fred Frangi did not have the authority to make such a significant change to the agreement without the consent of the other directors of Chint Australasia. There is no evidence that Mr Fred Frangi ever discussed the proposal with Mr Tony Frangi or Mr Chew; and

The reliance, rescission and estoppel issues

122 Chint Australasia further or in the alternative, put forward submissions seeking to make good the following propositions:

i. on the assumption that Cosmoluce was able to make out one or more of the misrepresentations it pleads, considerable difficulties attend it establishing that it relied on and was induced by those representations into entering the Distribution Agreement;

ii. on the assumption that Cosmoluce was able to make out one or more of the misrepresentations it pleads, it was not entitled to rescind the Distribution Agreement or, alternatively, no orders rescinding the Distribution Agreement (in full or in part) should be made under section 87, Trade Practices Act ;

123 Here again the plaintiff’s submissions were of substance and are generally adopted in what follows.

The reliance issue:

124 I accept that if and to the extent that Cosmoluce can establish any of the pleaded misrepresentations, Cosmoluce must also establish that it relied on that representation to enter into the Distribution Agreement.

125 This requirement applies to Cosmoluce’s claim that it validly rescinded the Distribution Agreement because of a pre-contractual misrepresentation (see Australian Steel & Mining Corporation Pty Limited v Corben [1974] 2 NSWLR 202 at 207D and Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361 at [2] and at [78] – [83]) and to its claims under the under the Trade Practice Act: see Ford Motor Company of Australia Limited v Arrowcrest Group Pty Limited (2003) 134 FCR 522 at 537, [105] – 539, [123], Digi-Tech (Australia) Ltd v Brand (2004) 62 IPR 184 at 210, [147] – 212, [159].

126 The finding is that Cosmoluce has not been able to show that it relied on or was induced by any of the pleaded misrepresentations to enter into the Distribution Agreement. That finding is informed by the following matters:

i. Cosmoluce appears to have resolved to proceed with the transaction with Chint Australasia in its board meeting of 23 August 2005. Any representations made after that date can have only an attenuated relationship with the decision of Cosmoluce to enter into the Distribution Agreement. In particular, the alleged resumption representation [and some conversations relied upon in relation to the sales representation] occurred at the meeting between Mr Fred Frangi, Mr Graoroski and Mr Emirian on Monday, 10 October 2005. On the previous Friday, 7 October 2005, an execution copy of the Distribution Agreement had been provided for Mr Tsagaris to sign. By 10 October 2005 Cosmoluce’s decision to enter into the Distribution Agreement may have been irrevocable.

ii. the officers who executed the Distribution Agreement for Cosmoluce were Mr Emirian and Mr Tsagaris. Mr Tsagaris was not an active or frequent participant in the pre-contractual negotiations leading up to the execution of the Distribution Agreement. He was not at the meetings of 18 July 2005 or 18 August 2005. His reasons for entering into the Distribution Agreement related mainly to the “long term relationship with the Frangi family” and his resultant confidence that “they would do the right thing by Cosmoluce”. Mr Emirian did not give any evidence of his motivations for entering into the Distribution Agreement [the inferences which the parties sought to draw from Mr Emirian’s absence are dealt with further below].

iii. Cosmoluce’s case that it relied on or was induced by the misrepresentations to enter into the Distribution Agreement must contend with the operation of clause 19.10 of the Distribution Agreement, which sought to negative any such representations.

Trade Practices Act

Leda Holdings Pty Limited v Oraka Pty Limited

Poulet Frais Pty Limited v The Silver Fox Company Pty Limited

The rescission issue

127 If it had been successful in establishing one or more of the alleged misrepresentations, the defendant had sought that the Court should make orders under the Trade Practices Act validating its purported rescission of the Distribution Agreement or, alternatively, orders under those Acts whose effect is to delete clause 11.3 of the Distribution Agreement.

128 As the defendant has been unsuccessful in its misrepresentation cases, the question of whether any of the alleged misrepresentations would have entitled it to this relief does not strictly need to be answered. Nonetheless, the finding is that, even if the defendant had succeeded in any of its misrepresentation cases, it would not have been entitled to this remedy.

129 Here again the submissions of the plaintiffs are of substance and are generally adopted in what follows.

130 The power of the Court to make orders in the nature of rescission under the Trade Practices Act is guided (but not controlled) by the same considerations as affect the availability of rescission in equity: see Akron Securities Ltd v Ilife (1997) 41 NSWLR 353 at 367E, Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95 at [105] per Giles JA. In equity, the availability of rescission depends on the ability of the Court to make orders for restitution which effect practical justice between the parties: see Alati v Kruger (1955) 94 CLR 216 at 223 – 224.

131 At least where (as here) no question of fraud is involved, orders for rescission are not made by way of punishment of the representor and are not occasions to extend benevolence to the representee: see Spence v Crawford [1939] 3 All ER 271 at 289 and Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 at 48.

132 For the reasons set out below, orders for rescission of the whole of the Distribution Agreement or of clause 11.3 thereof would not, in the circumstances of this case, be practically just:

i. An order for rescission of the whole of the Distribution Agreement or for rescission of clause 11.3 would not operate evenly as between Cosmoluce and Chint Australasia. It would leave Cosmoluce in the position of having enjoyed the benefit of the Distribution Agreement but deprive Chint Australasia of any benefit in return.

ii. The substance of the commercial transaction in the Distribution Agreement was that, in return for the minimum purchase obligations, Chint Australasia sold to Cosmoluce the opportunity to make profit by the distribution of Chint products during the term of the Distribution Agreement. Cosmoluce had that opportunity and the attendant benefit of possible gain for the currency of the Distribution Agreement. That is a benefit that cannot now be restored to Chint Australasia and, given the deterioration of the relationship with Chint China, is unlikely to be of much value in the future to Chint Australasia. An order for rescission of the whole of or clause 11.3 of the Distribution Agreement would permit Cosmoluce to retain the benefit of the commercial opportunity it received under the Distribution Agreement while entirely depriving Chint Australasia of any of benefit in return.

iii. Put another way, far from being a substantial restoration of the status quo ante , rescission of the whole of the Distribution Agreement or of clause 11.3 of the Distribution Agreement would transform the commercial bargain between Chint Australasia and Cosmoluce into one in which Cosmoluce had the whole of the commercial benefit associated with the opportunity to distribute Chint products but was immunised from any commercial risk.

iv. Rescission would not be a proportionate remedial response to the (assumed) wrongdoing of Chint Australasia: see Akron Securities Ltd v Ilife (1997) 41 NSWLR 353 at 368E – F. Many of the alleged misrepresentations concern matters which were not at the centre of the commercial bargain contained in the Distribution Agreement. In those circumstances, the “total dismantling of the parties’ relationship ex post” would not be an appropriate remedial response: Akron Securities Ltd v Ilife (1997) 41 NSWLR 353 at 368E.

v. The quantum of damages suffered by Cosmoluce from the (alleged) misrepresentations would represent a fraction of the value of the bargain of which Chint Australasia would be deprived if an order for rescission was to be made.

vi. In relation to the vast bulk of the pleaded alleged misrepresentations there is no apparent causal connection between them and the inability or unwillingness of Cosmoluce to comply with its minimum purchase obligations in the Distribution Agreement: Akron Securities Ltd v Ilife (1997) 41 NSWLR 353 at 366F, quoting with approval Ipp J (as he then was) in Reg Russell & Sons Pty Limited v Buxton Meats Pty Limited (1994) ATPR ¶ 46-127 at 53,614.

vii. Cosmoluce delayed until after Chint Australasia had served a notice under clause 16.2(a) of the Distribution Agreement before asserting an entitlement to rescind the Distribution Agreement. This was well after the time when it must have been aware of the (for present purposes, assumed) misrepresentations. Delay in the assertion of a right to rescind an agreement is a relevant consideration both at general law and under the Trade Practices Act : see Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546 at 564 – 565. Cosmoluce was content to delay the assertion of its right to rescind until it had exhausted exploiting the commercial opportunity it acquired in the Distribution Agreement and then did so in order to avoid paying the price for that commercial opportunity which it had agreed to pay.

133 For these reasons, even if the defendant had succeeding in any of its misrepresentation cases, no order rescinding or validating the purported rescission of the Distribution Agreement or clause 11.3 of that Agreement would have been made.

The estoppel issue

134 Cosmoluce attempts to establish, in answer to Chint Australasia’s claim for breach of contract, a promissory estoppel based on the final alleged misrepresentation (the Resumption Representation). This, it is claimed, bars Chint Australasia from asserting an entitlement to damages against Cosmoluce for a breach of clause 11.3 of the Distribution Agreement (see paragraph 34, Further Amended Defence).

135 Cosmoluce’s estoppel case fails on the facts. No representation to the effect of the Resumption Representation was made by Chint Australasia.

136 In any event, the conduct of Mr Fred Frangi, which is alleged and relied on to form the foundation of the estoppel (being a nod of the head or other apparent indication of agreement when Mr Emirian put the substance of the Resumption Representation to Mr Fred Frangi), is not sufficiently clear and unambiguous to form the foundation of an estoppel: see Legione v Hateley (1983) 152 CLR 406 at 435 - 436.

137 Further, the attempt by Cosmoluce to establish an estoppel on the basis of the Resumption Representation is excluded by the entire agreement clause 19.10 of the Distribution Agreement.

138 The capacity of an “entire agreement” clause in the nature of clause 19.10 of the Distribution Agreement to exclude an estoppel arising from pre-contractual conduct has been the subject of a division in the authorities. It is supported by the judgment of McLelland J in Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 at 195G – 196D, the judgment of Miles CJ in Skywest Aviation Pty Limited v Commonwealth of Australia (1995) 126 FLR 61 at 102 – 106, the judgment of Bryson J in Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 at 279, [51] – [52], the judgments of Young CJ in Eq in CG Mal Pty Limited v Sanyo Office Machines Pty Limited [2001] NSWSC 445 at [49] – [54], and Arnot v Hill-Douglas [2006] NSWSC 429 at [80] – [87] and Palmer J in Franklins Pty Limited v Metcash Trading Ltd [2007] NSWSC 242 at [94] – [97].

139 In State Rail Authority of NSW v Heath Outdoor Pty Limited (1986) 7 NSWLR 170 McHugh JA (at 193) rejected the ability of the parties to exclude, by contract, an estoppel based on pre-contractual conduct (see, to the contrary, Kirby P at 195 – 196). McHugh JA’s view was followed by Rolfe J in Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 at 153D – 154D. The authorities were discussed by Allsop J in Branir Pty Limited v Owston Nominees (No 2) Pty Limited (2001) 117 FCR 424 at 543, [444] – 544, [447], where the view of McHugh JA in State Rail Authority of NSW v Heath Outdoor Pty Limited was (in obiter) preferred.

140 In Ryledar Pty Limited v Euphoric Pty Limited [2007] NSWCA 65 at [204] – [214] Tobias JA discussed the authorities but expressly left the question open.

141 In my view the plaintiff is correct in its submission that, notwithstanding the division in the authorities, the balance of the authorities in the Equity Division of the Supreme Court of New South Wales favours the view that no estoppel based on pre-contractual conduct can be established in the light of an “entire agreement” clause of the kind contained in clause 19.10 of the Distribution Agreement.

Clause 16.3(p)

142 Clause 16.3(p) of the Distribution Agreement was in the following terms:

Consequences of termination or expiration of this document

143 Cosmoluce contended that the plain and ordinary meaning of this clause was to provide that, after the termination of the agreement, the parties would have no rights, remedies or benefits that were not contained in the Distribution Agreement. The proposition was that the clause had two purposes:

i. the first was to preserve the effect of the clauses which were intended to survive the termination of the Distribution Agreement: namely confidentiality, restraint of trade and the like;

144 Cosmoluce argued that this clause did not preserve Cosmoluce’s obligation to pay Chint loss of bargain damages. This is based on the view that the obligation to pay loss of bargain damages is an ‘anticipatory secondary obligation’ (as described by Lord Diplock in Photo Production v Securicor [1980] AC 827 at 848-850) which does not accrue prior to termination of the Distribution Agreement.

145 There is no substance in these contentions. It is unnecessary to go beyond the judgment of Dixon J in McDonald v Denny Lascelles (1993) 48 CLR 457 at 476-477 to recall the basic principles:

the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired

But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.

Boston Deep Sea Fishing and Ice Co v Ansell

Hirji Mulji v Cheong Yue Steamship Co.

Cornwall v. Henson

Salmond and Winfield

Law of Contracts

Morison

Principles of Rescission of Contracts

146 The words in 16.3(p) "subject as otherwise provided in this document and to any right or obligations which have accrued prior to termination or expiration" make it clear that the construction for which Cosmoluce contends it is misconceived.

The foreign exchange issue

147 During the hearing the parties resolved the currency conversion issues which had previously separated them.

The Rule in Jones v Dunkel (1959) 101 CLR 298

148 Mr Leeming SC submitted that there was special significance in the failure of Cosmoluce to call Mr Emirian to give evidence.

149 In dealing with this contention it is to be noted that there is before the Court evidence given by Mr Swayn, a director of Cosmoluce, seeking to explain Mr Emirian’s unwillingness to give evidence on behalf of Cosmoluce. That evidence amounted to the following:

150 Mr Swayn’s evidence is unchallenged.

151 The Court requires to be particularly cautious in dealing with claims that a witness should have and could have been called by a party to proceedings, especially where the failure to call such a witness is said to have been explained. In this regard Mr Leeming contended that Cosmoluce could have called Mr Emirian pursuant to a subpoena to give evidence.

152 The principles which obtain in this area of discourse may be conveniently discerned from the following observations:

[ Cross on Evidence, Butterworths , [6th Ed] D Byrne, JD Heydon vol 1 at [1215]]

Schellenberg v Tunnel Holdings Pty Ltd

Adler v Australian Securities and Investments Commission

Jones v Dunkel

Dilosa v Latec Finance Pty Ltd

153 In truth, even if it were found that the failure of Cosmoluce to call Mr Emirian was not properly explained by the evidence given by Mr Swayn, all that the Court could infer from the failure of Cosmoluce to call Mr Emirian is that his evidence would not have assisted Cosmoluce’s case. That inference, even if drawn, would not materially strengthen the plaintiff’s case because the inference still leaves the Court in the dark as to what evidence if any Mr Emirian would actually have been able to give.

154 In those circumstances I have not relied upon Cosmoluce’s failure to call Mr Emirian for the findings made in these reasons.

Conclusion

155 In the result, the plaintiff’s claim for damages for breach of contract is successful and the defendant’s cross claim is dismissed.

Short minutes

156 The parties are to bring in short minutes of order, on which occasion costs may be argued.

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Citations

Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 635

Most Recent Citation

Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 1054

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CITATION:	Chint Australasia Pty Limited v Cosmoluce Pty Limited [2008] NSWSC 635
HEARING DATE(S):	16/05/08 - 20/05/08
JUDGMENT DATE :	27 June 2008
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Short minutes of order to be brought in.
CATCHWORDS:	CONTRACT - Breach - Loss of bargain damages - ENTITLEMENT TO TERMINATE - Waiver - Breach consists of failure to comply with a time provision - Contract requires notice unless the breach is 'not capable of being remedied' - Breach capable of remedy - No election to affirm may occur before the right to terminate arises - Repudiation - Breach of non-essential term not causative of the breach of the opposite party does not prevent termination - MISREPRESENTATION - Contravention of the Trade Practices Act - Words must be proved with a degree of precision - Circumstances that may render the conduct misleading - Held that representations did not occur and/or were not misleading and deceptive - Reliance not established - No entitlement to rescind - Same considerations apply as per rescission in equity - Estoppel excluded by entire agreement clause - Rule Jones v Dunkel
LEGISLATION CITED:	Trade Practices Act (1974) (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Ajit v Sammy [1967] 1 AC 255 Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 Alati v Kruger (1955) 94 CLR 216 Aneve Pty Limited v Bank of Western Australia Ltd [2005] NSWCA 441 Arnot v Hill-Douglas [2006] NSWSC 429 Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 Australian Steel & Mining Corporation Pty Limited v Corben [1974] 2 NSWLR 202 Australis Media Holdings Pty Limited v Telstra Corporation Limited (1998) 43 NSWLR 104 Balog v Crestani [1975] HCA 16; (1975) 132 CLR 289 Bank of New Zealand v Spedley Securities Ltd (in Liq) (1992) 27 NSWLR 91 Batson v De Carvalho (1948) 48 SR (NSW) 417 Bitannia v Parkline Constructions Pty Limited (2006) 67 NSWLR 9 Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339 Branir Pty Limited v Owston Nominees (No 2) Pty Limited (2001) 117 FCR 424 Burger King Corporation v Hungry Jack’s Pty Limited [2001] NSWCA 187 Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95 Canning v Temby [1905] HCA 45; (1905) 3 CLR 419 Carr v JA Berriman Pty Ltd [1953] HCA 31 CG Mal Pty Limited v Sanyo Office Machines Pty Limited [2001] NSWSC 445 Cornwall v Henson (1899) 2 Ch 710 Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 Digi-Tech (Australia) Ltd v Brand (2004) 62 IPR 184 Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557 Drabsch v Switzerland General Insurance Co Ltd (1996) 130 FLR 127 Etna v Arif [1999] 2 VR 353 Ford Motor Company of Australia Limited v Arrowcrest Group Pty Limited (2003) 134 FCR 522 Franklins Pty Limited v Metcash Trading Ltd [2007] NSWSC 242 Green v Sevin (1879) 13 Ch D 589 Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546 Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409 Hope v RCA Photophone of Australia Pty Limited (1937) 59 CLR 348 Idameneo (No 123) Pty Limited v Ticco Pty Limited [2004] NSWCA 329 Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 Ingot Capital Investments Pty Limited & Ors v Macquarie Equity Capital Markets Ltd & Ors (No 6) (2007) 63 ACSR 1 Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 Johnson v Perez (1988) 166 CLR 351 Jones v Dunkel (1959) 101 CLR 298 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 82 ALJR 345 Krywood v Drinkwater [2000] NSWCA 126 Lantry v Tomule Pty Limited (2007) ANZ Conv R 187; [2007] NSWSC 81 Larking v Great Western (Nepean) Gravel Ltd (In liq) [1940] HCA 37 Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623 Leda Holdings Pty Limited v Oraka Pty Limited (1998) ATPR 41-601 Legione v Hateley (1983) 152 CLR 406 Lenneberg v McGirr (1919) 19 SR (NSW) 83 Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361 Mangrove Mountain Quarries Pty Limited v Barlow [2007] NSWSC 492 McDonald v Denny Lascelles (1933) 48 CLR 457 Moukhayber v Camden Timber & Hardware Co Pty Limited [2002] NSWCA 58 Ogle v Comboyuro Investments Pty Limited (1976) 136 CLR 444 Perry v Sherlock (1888) 14 VLR 492 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 Poulet Frais Pty Limited & Anor v The Silver Fox Company Pty Limited (as trustee for the Baker Family Trust) & Ors (2005) 220 ALR 221 Reg Russell & Sons Pty Limited v Buxton Meats Pty Limited (1994) ATPR (Digest) 46-127 Roadshow Entertainment Pty Limited v ACN 053 006 269 Pty Limited (Receiver and Manager appointed) (formerly CEL Home Video Pty Limited (1997) 42 NSWLR 462 Ryledar Pty Limited v Euphoric Pty Limited [2007] NSWCA 65 Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 Skywest Aviation Pty Limited v Commonwealth of Australia (1995) 126 FLR 61 Spence v Crawford [1939] 3 All ER 271 State Rail Authority of New South Wales v Heath Outdoor Pty Limited (1986) 7 NSWLR 170 Stickney v Keeble [1915] AC 386 Taylor v Brown (1839) 2 Beav 180 The Millstream Pty Limited v Schultz [1980] 1 NSWLR 555 Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 Waters Lane Pty Limited v Sweeney [2006] NSWSC 222 Watson v Foxman (1995) 49 NSWLR 315 Wendt v Bruce [1931] HCA 9; (1931) 45 CLR 245 Whittet v State Bank of New South Wales (1991) 24 NSWLR 146
TEXTS CITED:	D Byrne and JD Heydon, Cross on Evidence, 6th ed (2000) Butterworths CB Morison, Rescission of Contracts, (1916) Stevens and Haynes JW Salmond and PH Winfield, Principles of the Law of Contracts, 1st ed (1927) Sweet & Maxwell EB Sugden, The Law of Vendors and Purchasers of Estates, 14th ed (1862) Sweet
PARTIES:	Chint Australasia Pty Limited (Plaintiff) Cosmoluce Pty Limited (Defendant)
FILE NUMBER(S):	SC 50065/07
COUNSEL:	Mr MJ Leeming SC, Mr MJ O'Meara (Plaintiff) Mr R Stitt QC, Mr S Balafoutis (Defendant)
SOLICITORS:	Corrs Chambers Westgarth (Plaintiff) Dibbs Abbott Stillman (Defendant)