Dimmi v RestaurantDiary.com

[2018] NSWSC 846

Supreme Court

New South Wales

Medium Neutral Citation:	Dimmi v RestaurantDiary.com [2018] NSWSC 846
Hearing dates:	21/05/2018, 22/05/2018, 23/05/2018, 25/05/2018
Date of orders:	07 June 2018
Decision date:	07 June 2018
Jurisdiction:	Equity - Commercial List
Before:	McDougall J
Decision:	Declare termination of right of exclusivity invalid; grant consequential injunctive relief.
Catchwords:	CONTRACT – whether purported termination of exclusivity provisions valid – power to terminate enlivened if Dimmi missed agreed KPI targets for four consecutive quarters – whether Dimmi met the Revenue KPI Target for September 2015 quarter –whether cost of Dimmi Rewards should be offset against revenue figures or treated as a cost of sales – KPI targets agreed by reference to the latter approach – performance should be assessed on the same accounting basis as targets were set – subsequent accounting advice that this was erroneous does not displace this conclusion – power to terminate not enlivened.   CONTRACT – conventional estoppel – whether parties adopted a common assumption that revenue was to be calculated by treating Dimmi Rewards as a cost of sales – whether Dimmi would have attempted to act differently had it known the assumption to be untrue – whether loss of this opportunity would constitute detriment – unnecessary to decide.
Cases Cited:	Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 MCA International BV v Northern Star Holdings Ltd (1991) 4 ACSR 719 Miller Heiman Pty Ltd v Sales Principles Pty Ltd (2017) 94 NSWLR 500 Queensland Power Co Ltd v Downer EDI Mining Pty Ltd [2010] 1 Qd R 180
Category:	Principal judgment
Parties:	Dimmi Pty Ltd (Plaintiff) RestaurantDiary.com Limited (Defendant)
Representation:	Counsel: MS Henry SC / BK Lim (Plaintiff) JAC Potts SC / LE Hulmes (Defendant)   Solicitors: Arnold Bloch Leibler (Plaintiff) Maddocks (Defendant)
File Number(s):	2017/247231

Judgment

1. HIS HONOUR:   On 31 May 2017, the defendant (RDUK) gave written notice to the plaintiff (Dimmi) terminating (or, as Dimmi would have it, purporting to terminate) the exclusivity of Dimmi’s rights under a licence agreement dated 21 February 2014. RDUK gave that notice because it took the view that Dimmi had failed to meet, for four consecutive quarters, key performance indicator targets (KPI Targets) agreed between it and Dimmi. If RDUK were correct in that view, it would follow that its contractual right to act as it did had been enlivened.

2. Dimmi says that the contractual right to terminate its exclusive use rights was not enlivened. Alternatively, it says, RDUK is estopped from asserting that the right was enlivened. For the reasons that follow, Dimmi’s first contention is correct. It is therefore unnecessary to decide the estoppel question.

Background

3. Dimmi operates an online reservation platform whereby diners may make reservations at participating restaurants. It uses software developed and owned by RDUK (the RDUK system) for that purpose. The RDUK system was the subject of the licence agreement.

4. Subject to a number of conditions, Dimmi’s rights under the licence agreement are exclusive within the “Territory” (Australia and its external territories). That exclusivity may be lost if, among other things, Dimmi fails to meet its KPI Targets in four successive calendar quarters.

5. The licence agreement itself does not specify what the KPI Targets are to be. Instead, it requires the parties to agree them, acting reasonably and giving proper consideration to various specified matters and in accordance with specified principles. Those principles note, among other things, that KPI Targets may be waived or amended from time to time, and that from 2015 onwards, are to be based on a jointly agreed business and operational plan.

6. Under the licence agreement, Dimmi pays licence fees of two kinds to RDUK:

1. a fixed monthly fee; and

2. a variable fee of 17.5% of total gross annual revenue [1] in excess of a specified amount.

   1. The licence agreement specifies how total gross revenue is to be ascertained.

7. When the licence agreement was made, Dimmi prepared its financial accounts on a calendar year basis (that is to say, its financial year ended on 31 December in any given year). It was not required to have its accounts audited. However, in about May 2015, Dimmi was taken over by a company within the TripAdvisor Group. It became a wholly owned subsidiary of a company known as TA LF Australia Pty Limited (TA LF), a subsidiary of a French company known as La Fourchette, which itself was part of the TripAdvisor Group. In those circumstances, Dimmi was required:

1. to change its accounting period so that its financial year ran from 1 July to the following 30 June; and

2. to have its accounts audited.

8. For the relevant period, the KPI Targets agreed between Dimmi and RDUK had two elements. For each quarter, Dimmi was required to achieve:

1. “revenue” in excess of agreed and specified figures; and

2. earnings before interest, tax, depreciation and amortisation (EBITDA) in excess of agreed and specified figures.

9. Dimmi operates what it calls a rewards program. Under that program, customers earn points each time they make a reservation through Dimmi and honour that reservation. When customers accumulate a sufficient number of points (initially 8,000, later 10,000), they become entitled to a reward voucher. Over the time period relevant to this dispute, the value of the voucher was $50. Customers could use a voucher to defray the cost of a meal at a participating restaurant. Initially, the cost was split between Dimmi and the restaurant where the voucher was used. From about July 2015 onwards. Dimmi bore the whole cost.

10. In a practical (as opposed to accounting) sense, the rewards scheme operated as follows. The customer made a booking for a restaurant through Dimmi. When the time came to pay the bill, the customer presented the reward voucher. The restaurant gave credit for the value of the voucher and charged the customer the net amount. At month’s end, Dimmi sent a tax invoice to the restaurant. That tax invoice set out the charges for the various services (including making bookings) that Dimmi had provided. At the end of the statement of charges, Dimmi credited the restaurant with the value of the vouchers that it had honoured (or with Dimmi’s proportion of the value of those vouchers, according to the regime in place at any particular time). The restaurant paid the net balance.

Dimmi’s accounting for rewards

11. Before Grant Thornton became involved [2] and before Dimmi brought the cost of its rewards scheme to account by netting off the value of reward vouchers utilised in a month against revenue earned for that month, its accounting treatment essentially reflected the practice described in the various budgets, forecasts, and other material to which I refer below. Mr Asheesh Chacko, who was Dimmi’s Chief Financial Officer for most of the time relevant to this dispute, gave evidence of that accounting treatment [3] . I set out that portion of his evidence:

    2. See at [93] to [100] below for more on this topic.

    3. T80.41-81.30, 81.40-82.7.

Q.    Mr Chacko, I just want to understand, if I can, the way you accounted for Dimmi Rewards at this point is you would raise a provision in your balance sheet with an estimate of the total liability for points that were on issue and unexpired. Correct?

A.    That's correct. Yep, that's correct.

Q.    And when a diner redeemed their points for a voucher, there would be, depending on the arrangements, a split in the costs of that voucher between the restaurant and Dimmi. Correct?

A.    At - at this time, the - yes.

Q.    If a diner got 8,000 points, they get a $50 voucher. Correct?

A.    That's correct.

Q.    And at this time, when they redeem that $50 voucher at a participating restaurant, Dimmi would foot $15 of that $50. Correct?

A.    And I believe they got the booking for free as well.

Q.    So it may have been a greater--

A.    Slightly greater.

Q.    --expense, if I can call it that, to Dimmi than the mere $15 as a component of the 50?

A.    At that stage, yeah.

Q.    But for at least the $15 part, you would reduce the provision. Correct?

A.    No. No, we would just recognise it on the P and L.

Q.    And the way you recognised it--

HIS HONOUR

Q.    You would recognise it on what, I'm sorry?

A.    On the profit and loss statement. So we would - like theoretically it works out the same. It was just practically easier to allow the $15 to show up and then every - at the end of every month you would reassess your provision and see if it was reasonable or not.

Q.    But where did the $15 show up?

A.    On the cost of sales on the profit and loss statement.

…

POTTS

Q.    The way it would work in practice is this, isn't it, Mr Chacko. When you would send a bill to a participating restaurant at month's end or the appropriate point in the month, you would allow the $15 as a credit against the fees that that restaurant would otherwise have to pay Dimmi. Correct?

A.    That is correct, yes.

Q.    And the way in which you'd recognise that credit which had been allowed to the restaurant was to book it as a $15 expense in the cost of sales component of your P and L?

A.    Absolutely.

Q.    If I've understood you correctly, you didn't concurrently adjust your rewards points as Dimmi Rewards were booked as an expense, you just left the provision as it was. Is that right?

A.    So mathematically it's the same, right? So you could mathematically charge your provision and then work out what the provision balance needs to be at the end of every month. So on the technical accounting piece we did it one way, but on the math it works out exactly the same.

12. I accept that evidence as accurate, with perhaps a reservation as to the last question and answer. The last question appeared to assume that Dimmi did not adjust its provision for the cost of the rewards scheme as rewards were booked as an expense. If that is correct, the question did not reflect the whole of the evidence which, as will be seen, included the answer (to me) that the provision for rewards was assessed from month to month. With that minor and I think irrelevant exception, I take that passage of Mr Chacko’s evidence to be an accurate description of the way that Dimmi accounted for rewards before Grant Thornton became involved.

13. Thus, both when the licence agreement was made and when the relevant KPI Targets were agreed, Dimmi accounted for the cost of its rewards program as a cost of sale. In its budgets (also called “forecasts”) and financial statements, Dimmi stated separately “total income” (not, in terms, “total gross revenue”) derived from various sources in one section, and cost of sales, including the cost of the rewards program, in another.

14. When Dimmi became subject to an audit requirement, its auditors, Grant Thornton, took the view that this was not the proper way to account for rewards. They advised [4] that Dimmi should net off the cost of the rewards program against gross income. The effect of the advice was that, following its implementation, the total income stated took account of (was reduced by) the cost, for the relevant reporting period, of the rewards program.

    4. The advice was given in draft form only, but it was common ground between the parties that it should be treated as a final advice.

15. The quarterly periods that are material to this dispute are those ended 31 March, 30 June, 30 September and 31 December 2015. RDUK prepared a table, the contents of which were agreed and which was tendered [5] . That table showed, for each of those quarters:

1. the KPI Targets for revenue and EBITDA;

2. Dimmi’s performance against those targets if the cost of rewards were accounted for as a cost of sale rather than as an offset against total income; and

3. Dimmi’s performance against those targets if the cost of Dimmi rewards were netted off against revenues before arriving at total income.

   5. Exhibit PX16.

16. It should be obvious, but I note for the avoidance of doubt, that the accounting treatment of the cost of the Dimmi rewards program is irrelevant to EBITDA.

17. I set out the agreed table (with some insubstantial changes):

A.    Revenue KPI Target compared to Actual Revenue (no deduction for Dimmi Rewards)

No	Quarter ending	31 March 2015	30 June 2015	30 September 2015	31 December 2015
1	KPI Target (Revenue)	$1,692,496	$1,915,965	$1,922,469	$2,163,294
2	Actual Revenue (no deduction for Dimmi rewards)	$1,625,573	$1,816,762	$1,992,270	$2,402,289
3	Performance against target	$(66,923)	$(99,203)	$69,801	$238,995

B.    Revenue KPI Target compared to Actual Revenue (deduction for Dimmi Rewards)

No	Quarter ending	31 March 2015	30 June 2015	30 September 2015	31 December 2015
4	KPI Target (Revenue)	$1,692,49	$1,915,965	$1,922,469	$2,163,294
5	Actual Revenue (deduction for Dimmi rewards)	$1,596,018	$1,695,620	$1,899,271	$2,286,319
6	Performance against target	$(96,478)	$(220,345)	$(23,198)	$123,025

C.    EBITDA KPI Target compared to Actual EBITDA

No	Quarter ending	31 March 2015	30 June 2015	30 September 2015	31 December 2015
7	KPI Target (EBITDA)	$(806)	$133,538	$(365,372)	$(253,145)
8	Actual EBITDA	$(180,936)	$(834,117)	$(186,442)	$(490,679)
9	Performance against target	$(180,130)	$(967,655)	$178,930	$(237,534)

18. The key quarters are the last two. If Dimmi is correct, it met both KPI Targets for the quarter ended 30 September 2015. As to the quarter ended 31 December 2015, Dimmi met the revenue KPI Target, and would have done so regardless of the accounting treatment applied to the cost of rewards. However, it undershot the EBITDA target. Dimmi’s estoppel case asserts that, had it known that RDUK proposed to measure revenue by treating the cost of rewards as an offset rather than a cost of sale, it would have deferred or avoided certain expenses, and thus met the EBITDA target for that quarter.

The issues

19. The parties agreed on the real issues in dispute, arising out of the quasi-pleadings. I set out those agreed issues:

Termination of the exclusivity provisions of the Licence Agreement

1.   Does the agreed revenue KPI Target for the quarter ending September 2015 refer to revenue with, or without, an offset for the cost of Dimmi Rewards?

2.   What was the revenue of Dimmi for the quarter ending 30 September 2015?

3.   Was Dimmi’s revenue less than $1,922,469, being the revenue KPI Target agreed between Dimmi and ResDiary for the quarter ending 30 September 2015?

4.   Is the notice of termination issued by ResDiary to Dimmi dated 31 May 2017 valid and effective to terminate Dimmi’s rights of exclusivity under the Licence Agreement?

Estoppel

5.   Did the parties adopt a common assumption, at all times between 8 October 2014 and 31 December 2015, that the cost of Dimmi Rewards was not, and was not to be, deducted from Dimmi’s revenue for the purpose of determining whether Dimmi achieved, and would achieve, the KPI Targets (Alleged Assumption)?

6.   Did the parties conduct their relationship from 8 October 2014 to 31 December 2015 on the basis of the Alleged Assumption?

7.   Did each of the parties know or intend that the other would act on the basis of the Alleged Assumption?

8.   Will departure from the Alleged Assumption occasion detriment to Dimmi?

The witnesses

20. Dimmi called two witnesses: Mr Chacko and Mr Richard Sumpter. Mr Chacko resigned from Dimmi in August 2016, to take up a senior role in another company in the TripAdvisor Group. Mr Sumpter was the Finance Manager of Dimmi, reporting to Mr Chacko. On Mr Chacko’s resignation, Mr Sumpter effectively assumed the role that Mr Chacko had vacated.

21. Mr Chacko was subjected to an extremely lengthy cross-examination, stretching over (and occupying a good deal of) three hearing days. It became apparent that he was both perplexed by and, ultimately, somewhat resentful of both the manner and the duration of his ordeal. In particular, it seemed, Mr Chacko did not understand why it was necessary for him to be taken to, and to confirm the accuracy of, a large number of emails and other documents created by him or sent to him. I must say that I have some sympathy for Mr Chacko in this regard.

22. Mr Chacko was given to delivering lengthy and frequently non-responsive answers to questions. On balance, I think that this reflected his desire to be accurate and helpful, and to provide as much information as possible. Having said that, it did become apparent, towards the end of Mr Chacko’s cross-examination, that he was seeking to defend opinions that he had expressed two years or more ago, and from time to time was less than willing to make what seemed to me to be appropriate concessions.

23. Mr Potts of Senior Counsel, who appeared with Ms Hulmes of Counsel for RDUK, submitted that Mr Chacko had an interest in the outcome of the litigation, and that this interest had had an adverse impact on the quality of his evidence. I do not think that this submission can be accepted. As I have said, Mr Chacko is no longer employed by Dimmi. He is employed by another company within the TripAdvisor group. Mr Potts’ submission did not explain how it was that employment in another TripAdvisor company might give Mr Chacko an interest in the outcome of the litigation sufficient to undermine the credibility of his evidence.

24. Mr Sumpter gave evidence in a clear and responsive fashion.

25. RDUK called Mr Michael Conyers. He had founded RDUK, and is its Chief Executive Officer. For the most part, Mr Conyers gave evidence in a clear and responsive way, making concessions where it was appropriate to do so. However, there were particular passages of his evidence that I found difficult to accept. By way of example only, I refer to his evidence as to the use made by RDUK of financial information supplied by Dimmi, to measure Dimmi’s performance against the KPI Targets [6] . In my view, when Mr Conyers understood the consequences of earlier evidence given by him on this topic, he sought to deflect those consequences by introducing a concept that had not hitherto featured in his written or oral testimony.

    6. See generally T255-257.

26. I formed the view that Mr Conyers was concerned to maintain RDUK’s position, and that on certain topics he allowed his appreciation of RDUK’s interest to affect both the tone and, on occasion, the substance of his evidence. I add that since Mr Conyers is a shareholder in RDUK, its interest is aligned with his.

27. It may be noted, more as a curiosity than anything else, that each party now takes a position that is directly opposite to the position taken by it earlier, when the dispute arose. Dimmi initially saw advantage in netting off the cost of its rewards program against revenue, so as to depreciate total income. That advantage came because, as Mr Chacko realised and pointed out to others in the TripAdvisor group [7] , the reduction in total income would reduce the amount of the variable component of the licence fee payable to RDUK. However, when Dimmi realised that the change meant that it would not meet the revenue KPI’s for any of the quarters in question, its hitherto happy state of corporate mind changed rapidly.

    7. One of whom expressed himself to be “HAPPY HAPPY HAPPY” at the idea.

28. By contrast, RDUK at first protested vehemently at the impact of the changed accounting treatment. Mr Conyers was extremely concerned that it would reduce the variable component of the licence fee. In an email of 18 July 2016, Mr Conyers said that discounts, promotions and the cost of rewards programs were not to be netted off against revenue. However, when RDUK realised that it might be able to terminate Dimmi’s exclusivity, it changed its position and insisted upon the use of orthodox accounting treatment.

29. To the extent that those matters are capable of bearing on the credit of any of the witnesses, they seem to me in substance to cancel each other out.

20. Considering the matters to which I have referred and the totality of the testimonial evidence and the contemporaneous documents, I conclude that:

1. I should be careful in accepting without reservation the evidence given by Mr Conyers and, to a lesser extent, Mr Chacko;

2. the evidence of Mr Sumpter is reliable and ought to be accepted; and

3. as ever, the surest guide to the truth is to be found in the contemporaneous documents – emails and the like – that the witnesses created.

31. Each party submitted that the other had failed to call relevant witnesses on disputed questions of fact, and that the appropriate unfavourable inferences should be drawn. Mr Potts noted that Dimmi had not called evidence from its founder and Chief Executive Officer, Mr Stevan Premutico, nor from its marketing director, Mr Mark Moran. Mr Premutico had been heavily involved in all relevant transactions and, no doubt, could have given evidence on matters that were in dispute. Mr Moran could have given evidence on the topic of reduction of advertising expenses: one of the ways in which Dimmi sought to argue that it could have reduced its expenses for the quarter ending 31 December 2015, so as to meet the EBITDA KPI Target for that quarter.

32. Mr Henry of Senior Counsel, who appeared with Mr Lim of Counsel for Dimmi, noted that RDUK had not called Mr Moore. Mr Moore had been heavily involved in the relevant negotiations; he had received and no doubt studied the various items of financial information sent by Dimmi to RDUK; he was RDUK’s nominated observer on the Dimmi board and received the board packs; and he was directly and closely involved in setting the KPI Targets. Although, as I have noted, Mr Moore has since left the employ of RDUK, he had not disposed of his shareholding in RDUK until April this year.

33. RDUK did not suggest that it was unaware of Mr Moore’s whereabouts, or that there was some reason why he would not be inclined to give evidence on its behalf. Nor did it suggest that he was unavailable (just as Dimmi did not suggest that Messrs Premutico or Moran were unwilling or unavailable).

34. In short, there has been an unexplained failure on each side to call material evidence, which on the face of things is likely to have been directly relevant to few matters of fact that were in dispute, from witnesses who are properly to be regarded in the camp of one side or the other. I have taken that into account in my evaluation of the factual disputes.

Relevant terms of the licence agreement

35. Clause 2 deals with the rights granted by RDUK to Dimmi under the licence agreement. I set out cl 2.1(a):

2.1   Appointment and Licence

(a)   Subject to the provisions of clause 2.3, RDUK hereby:

(i)   appoints Dimmi as its sole and exclusive representative for the purpose of promoting the use of the System through licences to Customers and prospective Customers in the Territory; and

(ii)   for the purpose of exercise of the rights granted by clause 2.1(a) grants to Dimmi an exclusive licence to access and use the System; and

(iii)   grants to Dimmi an exclusive licence in the Territory to use the software comprising the System and the Documentation and other materials to be delivered under clause 2.2,

upon the terms and conditions of this Agreement.

36. Clause 2.3 deals with the content of the right of exclusivity (para (a)); what is not comprehended by that concept (paras (b) and (c)); and the circumstances in which Dimmi might lose the right of exclusivity (para (d)). I set out the opening words of cl 2.3(a), and cl 2.3(d):

2.3   Conditions of exercise of rights

(a)   Except as expressly permitted by this clause, and subject to the clauses 12.2 and 12.3, RDUK agrees that, while this Agreement remains in force and, in case of termination, for a period of 18 months after the last day of the applicable Termination Notice Period, it will not, in the Territory:

…

(d)   Subject to clause 2.4(d)(iv), if, during the term of this Agreement, Dimmi fails to meet the KPI Targets in four successive calendar quarters, then RDUK may, by notice in writing to Dimmi, terminate the restrictions on RDUK under clause 2.3(a). Such notice must specify that RDUK is relying on this clause to terminate the restrictions. For clarity, with effect from the date of termination of such restrictions, Dimmi’s appointment under clause 2.1(a)(i), and the licences granted to it under clauses 2.1(a)(ii) and 2.1(a)(iii), will be deemed to be non-exclusive, and RDUK will be free itself to exploit, and to appoint other representatives and grant other licences to exploit, the System in the Territory.

…

37. It is not necessary to go to the detail of the actions that, by cl 2.3(a), Dimmi was not to undertake. I do however note that the parties agree that clauses 12.2 and 12.3 are irrelevant, and accordingly there is no need to set them out.

38. Clause 2.4 deals with “governance”. Paragraph (a) requires the parties to meet as soon as possible “to conduct a joint business and strategic review, including agreeing a joint top level business plan and KPI Targets for FY14” [8] .

    8. By reference to the definitions, FY14 means Dimmi’s financial year ending (as was the case at the time the licence agreement was made) 31 December 2014.

39. Paragraph (b) provides:

(b)   Each calendar quarter during the term of this Agreement, the parties must meet to discuss:

(i)   Dimmi’s actual performance against the Business Plan and the KPI Targets;

(ii)   the competitive landscape and Dimmi Competitors;

(iii)   RDUK’s product roadmap and technology strategy and Dimmi’s roadmap requirements; and

(iv)   other strategic issues with respect to the parties’ relationship (such as termination and exit).

40. Paragraph (c) gives RDUK the right to appoint one observer to Dimmi’s board of directors. That observer is to be given “copies of all board papers circulated to Dimmi directors, at the same time as those papers are provided to the directors”.

41. Paragraph (d) describes how the KPI Targets are to be agreed:

(d)   The KPI Targets will be agreed by the parties, acting reasonably and giving full consideration to the then-current strategic and business priorities of Dimmi (having regard to impending competitive threats) in accordance with the following principles:

(i)   the KPI Targets may measure the sales revenue and profitability for the Dimmi business, total number of PRO users, or other such indicators as jointly agreed;

(ii)   the KPI Targets may change over time;

(iii)   the KPI Targets may be waived or amended by the parties in accordance with a process to be agreed by the parties, acting reasonably and having regard to the business needs, focus and strategy of Dimmi;

(iv)   if and for so long as Dimmi complies with the Business Plan for FY14, RDUK waives compliance with the FY14 KPI Targets;

(v)   to the extent that there is not an agreed Business Plan for FY14, the KPI Targets for FY14 will take into account the Customer pricing model and whether the FY14 plan agreed as part of the Strategic Review is to be revised or re-based; and

(vi)   the KPI Targets for FY15 onwards will be based on a jointly agreed business and operational plan.

42. Clause 2.7 deals with the term of the licence agreement:

2.7   Term

This Agreement is deemed to have commenced on the Commencement Date and will continue:

(a)   until the fifth anniversary of the Commencement Date (“Initial Term”); and

(b)   thereafter, this Agreement will automatically continue for further periods of ONE (1) YEAR (“Subsequent Terms”) unless earlier terminated in accordance with this Agreement.

43. Clauses 3.1 and 3.2 deal with “Licence Fees” and the like. There is no need to set out those clauses. It is however necessary to refer to Schedule 1, which is called up in the definition of “Licence Fees”. Schedule 1 provides for both a fixed monthly fee and a variable annual fee. The latter is descried as:

…

a variable fee of 17.5 per cent of the total gross revenue earned by Dimmi (as stated in monthly management accounts and/or any periodic financial reports required from time to time to be lodged with ASIC or another regulator (noting, in this regard, that Dimmi is not required to lodge reports with ASIC as at the Commencement Date)) that is in excess of AUD$4.8 million in any Financial Year.

44. Clauses 3.6 and 3.7 were perceived to be relevant (in particular, by RDUK). I set them out:

3.6   Accurate Records

Dimmi will:

(a)   maintain complete, clear and accurate records in sufficient detail or form to enable the Licence Fees due hereunder to be determined, such records to contain information bearing on the amount of Licence Fees payable hereunder; and

(b)   upon request in writing by RDUK no more than twice during each calendar year during the term of this Agreement, provide to RDUK certified copies of extracts of all such records relevant to the calculation of the Licence Fees hereunder, or of such records that RDUK may so request.

3.7   Audit

If RDUK notifies Dimmi in writing that it wishes to inspect and audit the records referred to in clause 3.6 in order to verify the amount of any Licence Fees paid or payable by Dimmi, or to verify Dimmi’s compliance with its other obligations under this Agreement, Dimmi must within 20 Business Days provide RDUK or its nominated third party representative with reasonable access to the records at Dimmi’s business premises during normal working hours. RDUK may not conduct more than one such audit during any Financial Year.

45. The provisions that I have set out include a number of defined terms (identified by initial capital letters). I think that the general content of those defined terms is sufficiently clear. There is no need to set them out.

46. Counsel – in particular, Mr Potts – referred to many other features of the licence agreement. I do not think that it is necessary to set out them all out.

Issues 1 to 4: was RDUK’s contractual right of termination enlivened?

How the KPI Targets were fixed

47. I start by noting that Mr Henry characterised the agreed KPI Targets as having been fixed by collateral contracts: that is to say, as I understand it, independent legally enforceable contracts that were collateral to the licence agreement. Mr Potts submitted, with some justification, that no such collateral contracts had been pleaded. For reasons that will become apparent, it is unnecessary to resolve this fascinating sub-issue.

48. KPI Targets were agreed, or fixed, on two occasions:

1. on 8 or 14 October 2014 (the dates of signature of the relevant letter by, respectively, Dimmi and RDUK) for the quarters ending 31 December 2014, 31 March 2015 and 30 June 2015; and

2. on 29 or 30 June 2015 (again, the dates of signature), for the quarters ending 30 September 2015, 31 December 2015 and 31 March 2016.

49. The following narrative draws heavily on emails exchanged between the parties. Dimmi is located in Australia. RDUK is located in the United Kingdom. Because of the time difference, the assignment of a date may depend on whether one looks at the date of sending or the date of receipt. To put it another way, the time stamps on the emails depend on whether one is looking at RDUK’s version or Dimmi’s. It may be in what follows that as a result, some of the dates that I assign to events are out by a day. To the extent that that happens, it does not affect the substantial accuracy and chronological sequence of the narrative.

50. It would seem that the parties had commenced to discuss a business plan even before the licence agreement was signed. Those discussions continued for some time after 21 February 2014. They are, if not fully recorded, at least demonstrated by an email chain starting on 1 February and finishing on 14 March 2014. The only matter of present significance about that email chain is that, in the course of the exchange of emails:

1. Dimmi forwarded to RDUK a copy of the “CY [calendar year] budget revised for January, February RD revenue…”; and

2. after that email had been sent and no doubt studied, RDUK emphasised the need to “have a list of KPI’s agreed, per the contract...”.

51. Mr Conyers studied the budget that had been sent. He was cross-examined on an electronic version of it (in Excel spreadsheet format) by reference to notes that he had made in relation to two items. One related to a line item for “ResDiary Fees”. The other related to cells that referred to “Cumulative Income”, “RDA 17.5% Threshold” and “Standard RD Licensing Fees”.

52. Mr Conyers sought to suggest that although he had looked at the budget carefully, and had annotated the electronic version as described earlier, he had not paid particular attention to the “Cost Of Sales” line item for “Dimmi Rewards” [9] . Mr Conyers suggested that he was not particularly interested in that item, because “it’s 2.6 [sic] of revenue and it wasn’t material in my eyes” [10] . There are three points to make about that evidence.

    9. See, generally, T240-244.

    10. T242.42.

53. First, it is self-evident that Mr Conyers could not have formed the view that the item was immaterial, on the basis that it represented only 2.6% of revenue, unless he had considered it. The second point is that I do not accept that Mr Conyers was a man who regarded small items of cost as immaterial. On the contrary, he impressed me in the witness box as an astute, intelligent and careful man, with an eye for detail. The third point is that even if, contrary to my view, Mr Conyers did pay but little attention to the line item, nonetheless he must have understood, from whatever consideration he gave it before dismissing it as immaterial, that Dimmi rewards were accounted for as a cost of sale and not as something to be netted off against total income (or, for that matter, shown as an expense).

54. There is another reason why I do not accept that Mr Conyers would have regarded the entry as immaterial, or not worth further attention. That is because, as his later evidence showed, he was well and truly alive to the possibility that the costs of discounts, allowances and reward programs could have the potential to reduce significantly the amount of “total gross revenues”. Although accounting for Dimmi rewards in the way that was shown (as a cost of sales) would not have had that impact, nonetheless, it seems to me, it is likely that Mr Conyers noted the fact that Dimmi did offer a rewards program, and that it did have some cost attached to it. The very fact that it was accounted for in a way that did not have an impact on total income must have given Mr Conyers some reassurance.

55. Dimmi provided a substantial amount of financial information to RDUK. Specifically, on 13, 14, and 28 March and 2 April 2014, Dimmi sent to RDUK revised versions of its budget for the calendar (and Dimmi financial) year 2014. In each case, the budget showed the various components of total income and, separately, the various components (including the Dimmi rewards program) of the costs of sale. There can be little doubt that either Mr Conyers or Mr Moore, or perhaps both, studied those documents.

56. Further financial reports (including budgets or forecasts, and comparisons of budget to actual performance) were sent to RDUK on 17 and 30 April, 19 and 27 June, and 21 August 2014. On occasions, that material formed part of the board packs sent out to Dimmi’s directors. As I have noted, RDUK was entitled to receive copies of those board packs.

57. In all those documents, income, total income and cost of sales (the latter always including the cost of the Dimmi rewards program) were treated as separate line items in the way that I have outlined.

58. On 29 August 2014, Mr Moore sent an email to Mr Premutico. The email was copied to Mr Conyers. Leaving aside formal parts, the email stated:

Look forward to meeting up next week. Mike [Conyers] will not be able to attend the Board meeting in my stead tomorrow, but just to let you know that we have reviewed the papers, are aligned to the FY15 targets and they can form the basis of the KPIs.

We think for simplicity that we simply have KPIs on revenue and EBITDA, set out quarterly per the numbers in the pack. As and when the Board approves the numbers we can confirm that they will be the firm F15 KPIs but [sic] a simple letter which we can exchange when we meet.

59. The “papers” referred to in the first paragraph were the board pack that Mr Chacko had sent out on 21 August 2014 to Dimmi’s directors, and (among others) Mr Moore. That board pack contained an “Executive Summary” of something called “Budget FY 2015” [11] . It showed for FY 2015, among other things:

(1)   “Total Revenues” of $6,638,930;

(2)   “Cost of Sales” of $2,020,973; and

(3)   EBITDA of $158,104.

11. At this time (August 2014) Dimmi’s financial year ended on 31 December.

60. Those summary numbers matched up, to the dollar, with the month by month figures in the budget supplied in spreadsheet form. That budget showed income, total income and cost of sales in the way to which I have referred.

61. Thus, when Mr Moore proposed “KPIs on revenue and EBITDA, set out quarterly as per the numbers in the pack”, the obvious inference is that he wanted the revenue and EBITDA figures for the three months comprised in each of the relevant quarters to be aggregated and stated as, respectively, the Revenue KPI Target and the EBITDA KPI Target.

62. On 29 August 2014, Mr Premutico replied to Mr Moore’s email of that date. Mr Premutico said no more than that he would “revert next week”. Mr Moore replied to that email on 1 September 2014. He said:

Just in HK on way to Sydney and look forward to meeting up.

I haven’t yet seen Board minutes but it would be helpful while I am there to finalise F15 KPIs.

Assuming the numbers have been ratified by the Board it would be helpful if your team could set these out in a simple letter, with revenue and EBITDA by quarter listed in a table, which we can then countersign to countersign to confirm that these are the F15 KPIs.

63. Mr Premutico replied to that email saying, among other things, that he was “not sure if Revenue is necessarily the right/best indicator”. Mr Premutico suggested “that we use EBITDA + # PRO Units as the key indicators” [12] .

    12. PRO is a more sophisticated version of the RDUK system. It is one of the “metrics” suggested by cl 2.4(d)(i) of the licence agreement.

64. Mr Moore was not receptive to Mr Premutico’s proposal. He said, in an email of 1 September 2014 to Mr Premutico:

From our perspective it is vital that there is a clear KPI on both top line and bottom line performance, which is why sales revenue and profitability were specifically referred to in the Licence Agreement.

Re PRO numbers, while it is one important factor in business performance, there are a number of variables that can affect this which is why we were ok to keep it simpler on two metrics for F15.

I am a little surprised that is is [sic] a subject for discussion at all, as it was very clear in the discussions about the Licence Agreement that top and bottom line performance would be KPIs. In addition, clearly top line performance is important to the incentive for RDUK which was part of the original deal structure.

65. Messrs Premutico and Moore met in Sydney on 2 September 2014. Since neither of them gave evidence, what was discussed is known only to the extent that it is canvassed in their subsequent emails. It appears from an email that Mr Moore sent to Mr Premutico on 3 September 2014 that the matters discussed included at least:

1. whether, if revenue were to be one of the KPI Targets, it should be based on the “BAU” (business as usual) or the “AP” (accelerated plan) figures set out in the forecast. The AP projections assumed increased expenditure on advertising and promotion (which the parties called “A n P”). Dimmi was not committed to incur that increased expenditure, and wished to defer the decision whether to do so.

2. RDUK’s desire to amend the licence agreement to recognise the impending change in Dimmi’s accounting period from one ending on 31 December to one ending 30 June.

66. On 3 September 2014, in the email to which I have referred, Mr Moore, having referred to “additional A n P expenditure” said:

… [W]e are okay to accept KPI’s simply on the lower case scenario i.e. the $6.6m, laid out quarterly as revenue and EBITDA Targets.

67. Mr Premutico replied on 5 September 2014, thanking Mr Moore and saying that Mr Chacko would “forward a letter summarising the Quarterly KPI shortly so we can lock it in”.

68. On 5 September 2014, Mr Chacko sent an email to the members of Dimmi’s board and, among others, Mr Moore. That email attached the minutes of the board meeting that had been held on 29 August 2014 and then stated:

I note that as requested, we have added the KPIs for the increased marketing spend in the Marketing tab.

69. The documents that accompanied the email included a spreadsheet showing income, total income and cost of sales broken up in the usual way, with Dimmi rewards listed as one of the costs of sales.

70. On 10 September 2014, Mr Premutico (or someone else at Dimmi) drafted a letter setting out KPI Targets. Mr Premutico forwarded that draft to, among others, Mr Chacko. In his email, Mr Premutico said, among other things:

RDUK has agreed that the KPI’s can be based off the BAU Plan rather than the Accelerated Plan which these [sic] numbers are based on.

71. That statement, in context, appears to be an accurate summary of RDUK’s position at the time.

72. Some days later, on 23 September 2014, Mr Premutico sent the draft KPI document to Mr Moore. In the email of that date by which this was done, Mr Premutico said, among other things:

Apologies for the delay. Please see attached the proposed KPI document as requested.

Appreciate your support by agreeing to the KPI’s being based off the BAU scenario (rather than the Accelerated Plan) to allow us to best maximise value for the business and shareholders. In discussing this further with Asheesh, I note that even basing off the BAU scenario for the December quarter is challenging as an increased investment (as planned) should see us achieving the Revenue Targets but puts significant pressure on the EBITDA line. As such we are seeking a waiver for the December 2014 Quarter.

73. The “proposed KPI document” that Mr Premutico sent to Mr Moore was a draft letter. It set out, for the quarters ended 31 December 2014, 31 March 2015 and 30 June 2015, total revenue and EBITDA figures that corresponded precisely to the corresponding figures in the latest version of the FY15 budget (of course, aggregating the figures from monthly to quarterly in each case). It said, to drive home this point, that the targets were proposed “[p]er the Company’s FY15 Budget”. It noted that the period FY15 “refers to the period 1 July 2014 to 30 June 2015, which is a change to the Financial Year as defined…” and asked that this redefinition become permanent.

74. It should also be noted that the proposed revenue KPI Targets were described as the targets for “Total Revenue”.

75. Mr Moore replied to Mr Premutico’s email on 24 September 2014. He said that he had reviewed, among other things, “the numbers provided in the excel post the last Board meeting… to check them”. He noted that he could not “see reference to a BAU case in that spreadsheet”. He asked whether there were “a document where the Board reviewed both scenarios [i.e. the business as usual case and the accelerated plan case] broken down by quarter”.

76. Mr Chacko replied to Mr Moore’s email on 24 September 2014. He said, among other things, that “[t]he BAU case was hidden in the excel document circulated to the Board…”. He attached the BAU case (presumably in electronic format) and “also added a tab showing the RDUK KPIs”.

77. The attachment to Mr Chacko’s email was in the form of a spreadsheet which set out, for each month from July 2014 to June 2015, the total revenue and EBITDA figures taken from (and corresponding precisely to) the latest version of Dimmi’s budget provided to RDUK. It then set out for “Q1”, “Q2”, “Q3”, “Q4” and “CY14” quarterly revenue and EBITDA Targets, and what purported to be the corresponding totals for CY14. However, the CY14 figures did not pick up the Q2 and Q3 results.

78. Mr Moore emailed Mr Chacko on 1 October 2014, pointing out the mistake. That email, which is of some significance, continued by saying:

I will revise the letter sent by Stevan to confirm:

1.   the KPIs figures for the quarters up to June 2015 on the BAU scenario and that we will give a waiver on the EBITDA figure for the quarter to December 31 2014;

…

79. Mr Chacko replied the same day, acknowledging the error and attaching an “updated spreadsheet which incorporates yours and Mike’s feedback”.

80. On 6 October 2014, Mr Moore sent Mr Chacko and others the promised revision of the draft KPI letter. Mr Moore’s email stated:

I attach a revised letter which picks up the latest KPI numbers.

The wording is in slightly more ‘legalistic’ form but I think it’s important to be crystal clear on the change of the Financial Year in the Licence Agreement, but that the calculation and timing of the payment of any additional licence fee in Schedule 1 remains per calendar year and paid in January.

The table could probably be laid out a little better but I have hit the limit of my word processing skills in moving across from Excel. Feel free to amend.

When you confirm this can you please put on letterhead and sign two copies, scan and send one, then put two in the post two [sic] us. We will countersign and retain one, returning the other to you.

Any issues or queries please let me know.

81. The “legalistic” changes made by Mr Moore included:

1. commencing the draft by stating:

We refer to the Licence Agreement between RDUK and Dimmi dated 21 February 2014 (“Licence Agreement”).

2. setting out in more formal language the parties’ agreement as to the change in Dimmi’s financial year and the impact on the payment of the variable component of the licence fee (which was to remain payable at the end of each calendar year); and

3. stating, in relation to the KPIs, that they were specified:

[p]ursuant to cl 2.4(d)…

82. The quarterly KPI figures were marginally but not materially different to those shown in Dimmi’s draft letter. I assume that the changes reflected some further updating of Dimmi’s budget.

83. I note at this point that although Mr Potts laid emphasis on the prefatory words to the statement of the KPI Targets (“Pursuant to cl 2.4(d))”, the only change was one of location. Dimmi’s draft had started with the words “[a]s per clause 2.4 of the Licence Agreement between… RDUK… and… Dimmi…”. It is abundantly clear that each party intended, subjectively, that the purpose of its draft was to state KPIs for the purposes of cl 2.4(d) of the licence agreement.

84. Mr Potts also emphasised that Dimmi’s draft stated that the KPIs were “[p]er the Company’s FY15 Budget” whereas RDUK’s draft did not. That is correct. However, as Mr Moore’s email of 1 October 2014 had predicted, the figures were taken from “the BAU scenario” (being the business as usual scenario taken from the then current version of Dimmi’s budget). That point was reinforced by Mr Moore’s email of 6 October 2014, which made it clear that the figures had been taken directly from the Excel spreadsheet by which Dimmi had sent the budgets to him. The parties were in raging agreement that the figures set out in Mr Moore’s draft letter did in fact correspond exactly to, and could be inferred to have been taken directly from, the latest version of that budget at the time the draft was prepared.

85. Mr Potts submitted that I should conclude that the parties had deliberately omitted reference to the KPIs’ having been stated “[p]er [Dimmi’s] FY15 Budget”. He referred to what Mason J had said in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [13] at 352 – 353, as picked up and applied by Rogers CJ Comm Div in MCA International BV v Northern Star Holdings Ltd [14] at 727. Rogers CJ Comm Div suggested that extrinsic evidence was admissible to show that the parties had deliberately intended to exclude a particular provision from the written contract that they later made.

    13. (1982) 149 CLR 337.

    14. (1991) 4 ACSR 719.

86. I do not think that the submission takes the matter any further. The limitation on the principle (if it be a principle) was exposed by Chesterman JA in Queensland Power Co Ltd v Downer EDI Mining Pty Ltd [15] at [74]. His Honour said, in substance, that one would need clear and unambiguous evidence of (in that case) rejection of a particular construction before the supposed principle could operate. By analogy in the present case, it would be necessary to show that the parties had clearly and unambiguously rejected the reference to Dimmi’s FY15 Budget as the source of the KPI targets. For the reasons that I have sought to explain, the facts do not support that conclusion; on the contrary, they show that the parties did take the figures from that Budget.

    15. [2010] 1 Qd R 180.

87. Dimmi sent a signed version of the draft letter (unchanged in substance) to RDUK on 8 October 2014. Mr Conyers and, I think, Mr Moore signed it on 14 October 2014. RDUK sent a copy of the letter, so signed, back to Dimmi.

88. A very similar, although more abbreviated, process was followed in relation to the KPI Targets to be fixed for the four quarters following 30 June 2015. Budget forecasts and other documents were sent to RDUK (Mr Moore) on some five occasions between 23 January and 1 June 2015. On 22 June 2015, Dimmi sent an electronic copy of its FY16 budget to RDUK. That budget set out, among many other items of information, projected income by category, as well as total income, for the months from July 2015 to December 2017, and, separately, various costs of sale, including the cost of the Dimmi rewards program, for the same months.

89. On 23 June 2015, Mr Moore sent an email to Mr Premutico, copied to Mr Conyers. Amongst other things, that email said:

Thanks for the draft budget which we’ve had the chance to review.

…

KPIs

We are fine to agree your proposed numbers for both the revenue and EBITDA targets for the new fiscal year from 1 July 2015 to 30 June 2016. I’ll draft a letter to this effect so that we can confirm this in writing for the relevant four quarters KPI’s. This will apply unless and until a different structure is agreed for the future.

…

90. Mr Premutico replied the same day, with comments inserted into Mr Moore’s email. Under the last passage that I have just quoted, Mr Premutico said:

Great, thanks.

91. It seems that Mr Moore had a discussion with Mr Premutico on 24 or 25 June 2015. That appears from an email dated 26 June 2015 sent by Mr Moore to Mr Premutico, and again copied to Mr Conyers. Mr Moore replied to Mr Premutico’s comments including, in relation to the KPI’s, by saying:

A draft letter to document the agreed KPI’s will follow soon.

92. Mr Moore (or someone else at RDUK) did prepare and send such a letter. There is in evidence a signed version dated 29 June 2015 (signed by Mr Conyers) and 30 June 2015 (signed by Mr Premutico). It sets out, for each quarter up until 30 June 2016, revenue and EBITDA KPI Target figures. In each case, those figures are taken directly from the 2016 budget that had been sent to Mr Moore some time earlier, and are the aggregate, for each quarter, of the relevant three months’ figures for total income (with no netting off of the cost of the Dimmi rewards program and EBITDA).

The Grant Thornton advice

93. Grant Thornton audited, and prepared a report on, the special purpose financial statements of TA LF and its controlled entities for the period ended 30 June 2015. As I have noted, that audit became necessary once Dimmi became a subsidiary within the TripAdvisor group of companies.

94. The audit report included a number of recommendations. One identified, as a deficiency:

Rewards Expense

It was noted that rewards provisions is treated as an expense [16] where the technically correct treatment is to offset the amount against revenue as would be done for discounts.

16. In fact, it was dealt with as a cost of sales, before (after gross income was stated) expenses were identified.

95. The corresponding recommendation was:

It is recommended that going forward management consider the appropriate treatment of the rewards provision.

96. Grant Thornton considered that the issue was not material for the financial statements, as the amount in question fell well below the materiality threshold. At that time, Dimmi was paying only $15 of the $50 value of a reward voucher. However, for the following period, Dimmi would be paying the full cost. Thus, the issue would become material. In those circumstances, Mr Chacko said (not surprisingly) that it was necessary to address the recommendation, because it would be undesirable for Dimmi (or TA LF) to have a qualified audit report. Dimmi therefore sought Grant Thornton’s advice.

97. The advice was provided (as I have noted, in draft) on 12 May 2016. It set out what Grant Thornton considered to be the applicable Australian Accounting Standard (AAS) and the applicable interpretation (Interpretation 13) of that Standard. Grant Thornton expressed the conclusion that Dimmi should net off, against total income, the cost of its reward program.

98. Fortunately, there is no need to set out the detail of the advice.

99. Mr Chacko accepted, I think, that Grant Thornton’s advice was technically correct, as being the proper reading of the AAS and Interpretation 13. Advice that RDUK obtained from Pitcher Partners confirmed the correctness of Grant Thornton’s advice. Neither party contended that I should consider for myself whether it was in truth a correct analysis.

100. In the terms in which it was given Grant Thornton’s advice is a little difficult to follow. It seems to me, at first blush, both to apply the incorrect paragraph of Interpretation 13 and to misstate the relationship between a restaurant and Dimmi when a Dimmi reward voucher is utilised in part payment of the restaurant bill. In view of the position taken by the parties, I shall not pursue that no doubt fascinating accounting issue any further.

The parties’ submissions

101. I should start by observing that Mr Potts did not contend that the process by which the KPI Targets had been negotiated and agreed was in any way different to the process that I have set out at some length above. He did not submit that, for each of the quarters, the targets were, arithmetically, anything other than the total of the figures for the relevant three months for each quarter in relation to, first, total income and, second, EBITDA, in each case as stated in the most up to date forecasts (or budgets) prepared by Dimmi and given to RDUK before the letters were produced and signed.

102. As Mr Potts submitted, the real issue was whether Dimmi had met the revenue KPI Target for the quarter ended 30 September 2016.

103. I do not propose to set out in detail the comprehensive and helpful submissions, both written and oral, that each side produced. The outlines of their competing positions are clear enough.

104. Mr Henry submitted that, in measuring Dimmi’s performance against the target, it was necessary that the performance should be assessed on a basis that was consistent with the way the target had been agreed. Thus, he submitted, it was correct to measure performance by reference to total income without netting off, or otherwise allowing in reduction, the cost of the Dimmi rewards program for that quarter.

105. Mr Potts submitted, to the contrary, that what had to be measured against the target was Dimmi’s actual stated and audited revenue for that quarter. He submitted that since the cost of the Dimmi rewards program should be and was netted off against gross revenues so as to produce an adjusted and, in an accounting sense, correct figure, it was that correct figure to which regard should be had.

106. As I have noted earlier, there was a dispute, which is unnecessary to resolve, as to whether KPI Targets were fixed in a manner that amounted to the creation of a binding legal contract, collateral to the licence agreement but independently enforceable.

107. Mr Potts pointed to cls 3.6 and 3.7 of the licence agreement. As he correctly submitted, the former clause required Dimmi to maintain records that were, among other things, “accurate”, so as to enable RDUK to calculate the licence fees payable from time to time. The latter clause reserved to RDUK an entitlement to inspect and audit the cl 3.6 records. Clause 3.7 suggested, Mr Potts submitted, that the financial results should be analysed in the way that an auditor would look at them; in other words, that in looking at the “total gross revenue earned by Dimmi” for any period, the correct figure was that which an auditor would be prepared to let pass without qualification.

108. Thus, Mr Potts submitted, “total gross revenue earned” (the words come from Schedule 1) was to be equated with “total income” as stated in Dimmi’s audited financial statements for the relevant period for the purpose of deciding whether Dimmi had met any revenue KPI Target.

Decision

109. I start with two observations. First, the expression “total gross revenue” is not one found in Dimmi’s budgets or financial statements. The expression used is “total income”. That latter expression has a clear and well-understood meaning. Income is to be measured and reported in accordance with applicable Australian Accounting Standards. Revenue, without the double adjectival qualification, denotes “income”. As doubly qualified, however, it seems to call up the concept of gross “receipts”. Thus, as the present case shows, income (or total income) may differ from “total gross revenues”.

110. Second, there is implicit in RDUK’s submissions the proposition that the agreed revenue targets are to be taken as projections of the contractual concept of “total gross income”. But that seems to me to beg the question. If the proposition is correct, that must be because it is the outcome of, not the foundation for, what the parties did and said when they fixed the revenue KPI Targets.

111. Mr Potts submitted, correctly, that RDUK’s interest lay in knowing what was the revenue (or income) figure by reference to which it would derive (if it did) the variable performance component of the licence fee. Thus, he submitted, its interest in relation to revenue targets lay in having stated targets that reflected the projected quarterly totals of that income. If the income were to be stated after netting off the cost of Dimmi’s rewards program then, Mr Potts submitted, the same should apply to the KPI Targets.

112. There is an element of artificiality to this submission. At the times the KPI Targets were fixed, neither Dimmi nor RDUK knew that, at least on what is now agreed to be the correct view of the AAS and Interpretation 13, the cost of the Dimmi rewards program should be netted off against revenue before arriving at the statement of total income. It is clear that the parties had proceeded on the basis that the cost of the rewards program was to be accounted for as a cost of sales, and not in the way that (subsequently) was said to have been correct as a matter of accounting principle.

113. The evident contractual purpose of the KPI Targets is to provide the parties with agreed performance standards to enable Dimmi to know what it had to do to maintain exclusivity, and to allow RDUK to assess how its interest in having the use of its system turned to profitable account was faring. It seems to me to be inherent in the concept of an agreed performance standard that compliance should be assessed in a way that is directly comparable to the way the standard was fixed; that like should be compared with like.

114. There are two distinct concepts to bear in mind. One is the concept of “revenue” used in each of the letters agreeing the KPI Targets. The other is the concept of “total gross revenue” used in Schedule 1 (and elsewhere) of the licence agreement. They are not necessarily one and the same thing.

115. Clause 2.4(d)(i) permits (but does not require) KPI Targets to “measure the sales revenue and profitability for the Dimmi business”. It does not use the expression “total gross revenue” that appears elsewhere in the licence agreement (not just in Schedule 1, relating to licence fees, but in two places in cl 12.16 relating to “transition assistance” following “disengagement” – i.e., termination of the licence agreement – and in other places).

109. The budgets and other records that Dimmi provided to RDUK from time to time before each of the KPI letters was signed stated, among other things, Dimmi’s revenues from all sources. Clearly, the collection of all those revenues (on the face of things, not limited to “sales revenue”) can properly be described as Dimmi’s projected “total revenue”. Likewise, the total was stated in a way that was “gross”; i.e., gross of, rather than netting off, the cost of discounts, promotions and rewards (matters that exercised Mr Conyers’ mind greatly when he insisted “that discounts, promotions or rewards could not be netted off against revenue”[17] ).

     17. See at [28] above.

110. It would follow, as a matter of construction of the licence agreement, that the requirement that the revenue stated be both “total” and “gross” means, as Mr Conyers insisted at an earlier time, “that discounts, promotions or revenues” are not to be netted off before the total (whether for the purposes of setting a revenue KPI Target or for the purposes of Schedule 1) is reached.

111. In considering the matter thus, I have proceeded on the basis that, as Mr Potts submitted, the signed and countersigned letters fixing the KPI Targets do not have independent contractual force: that is to say, contrary to the position for which Mr Henry contended, that they do not take effect as legally binding contracts, although collateral to the licence agreement. It is, therefore, legitimate to look at the process by which the parties came to agree upon the KPI Targets set out in each of those letters. As I have noted, they did so in each case by reference to the total income stated in the last, most up to date, version of Dimmi’s budget for the relevant period that had been provided to RDUK before the relevant KPI letter was signed.

112. In this context, although it is by no means determinative (indeed, it may not be relevant to this point at all) it is convenient to refer to an aspect of the evidence given by Mr Conyers [18] :

Q.    You understood, though, didn't you, that ResDiary in fact went into the licence agreement on the basis that Dimmi Rewards would not be deducted from revenue. Correct.

A.    Correct.

Q.    And as far as you were aware, Dimmi proceeded on the same basis.

A.    Yes.

18. T269.1-.8.

120. That evidence does not bear directly on the first four issues, although it could have some bearing on the conventional estoppel case. I refer to it at this point only because it demonstrates the hindsight approach to analysis that is inherent in Mr Potts’ submissions referred to at [105]-[108] above. The first four issues are to be decided taking into account what the parties, objectively, intended to do (and did) at the times they fixed the KPI Targets.

121. In my view, it is illogical and erroneous to assess those matters with the benefit of hindsight analysis, taking into account the proprieties of accounting treatment to which the parties had not turned their mind and of which, so far as the evidence goes, they were then entirely ignorant. When the parties fixed the KPI targets, they looked to the “total income” as shown in Dimmi’s forecasts as being the revenue KPI Target. They should not be taken, objectively, to have understood and agreed that performance against the agreed revenue KPI Targets should be assessed in some different way, on the basis of an alternative accounting approach.

122. The consequence of RDUK’s approach is that, accepting that the targets have been fixed based on the basis of projections prepared by reference to a mutually understood and apparently acceptable accounting treatment, performance is to be measured on an ambulatory basis, taking into consideration whatever is said to be the “correct” accounting treatment from time to time. I do not think that this is what the parties had in mind (looking at the matter objectively) when they fixed the KPI Targets.

123. It follows that, in assessing performance, total income assessed in the same way should be considered. The approach for which Dimmi contends requires the comparison of like for like. By contrast, the approach for which RDUK contends does not.

124. Further, it is plain from the exchanges from emails and the like between the parties prior to the preparation and signature of each of the KPI letters that RDUK wanted – indeed, insisted upon – total gross revenue (in the sense I have broken down that term at [116] above) as one of the KPIs. The reasons for that were set out in Mr Moore’s email to which I have referred. They were also set out, with concision and clarity, in Mr Conyers’ email of 18 July 2016, to which I have referred at [28] above, and in his oral evidence. In the course of his cross-examination, Mr Conyers went so far as to say that RDUK would not have agreed to license its software to Dimmi on the terms that it did, had it known that the cost of the rewards program was to be deducted from total gross revenues [19] .

     19. T268.27-.50.

125. Mr Conyers said, further, that if Dimmi had propounded KPI targets by reference to income net of the cost of Dimmi rewards, he would not have agreed [20] . He elaborated on this [21] :

Q.    Yes. What I'm suggesting to you is if Dimmi Rewards had have been accounted for as a deduction from income, above the total income line on the spreadsheet, particularly the amounts involved, ResDiary would've accepted those adjusted targets?

A.    No we wouldn't have. You don't me to tell you why.

Q.    You say now that you wouldn't have agreed because it suits your case, don't you?

A.    No.

Q.    You don't seriously suggest you wouldn't have agreed those figures if they had have had those minor adjustments?

A.    You'd be introducing the concept of them having the ability to manipulate the figures of the rewards provision in the accounts, and you will see that they changed the value of rewards, how long it took to redeem them, and rewards are easily manipulated, ergo if affecting profitability, which is fine, because..(not transcribable)..but when they can manipulate to affect top line on which revenue on which we are in 17.5%, we would've had a major concern.

20. T270.2-.28.

21. T271.23-.40.

126. All that explains why, as Mr Conyers had insisted in his email of 18 July 2016[22] , “discounts, promotions or rewards could not be netted off against revenue”.

     22. See at [28].

127. In short, the conclusion I draw from the whole of the evidence is that for the purposes of the KPI letters, assessment of Dimmi’s performance against the revenue KPI Target should not be assessed by netting off, against the total otherwise obtained, the costs of the Dimmi rewards program.

Conclusions on the first four issues

128. For the reasons I have given, the first four issues should be answered as follows:

1. Issue 1: the agreed KPI revenue target for the quarter ending 30 September 2015 refers to revenue without an offset for the cost of Dimmi rewards.

2. Issue 2: $1,992,270.

3. Issue 3: No.

4. Issue 4: No.

Issues 5 to 8: estoppel

129. I start by observing that, having regard to my conclusions on the first four issues, these issues do not arise for decision. Nonetheless, I shall set out (to the extent I have not done so already) the relevant facts.

The pleaded estoppel

130. Dimmi’s estoppel case is pleaded in the following terms[23] :

40.   In the alternative, Dimmi assumed that, at all times from 21 February 2014 to at least 12 May 2016, the value of Dimmi Rewards was not, and was not to be, deducted from Dimmi’s revenue for the purpose of assessing whether Dimmi would achieve, and achieved, the KPI Targets for a calendar quarter (the Assumption).

Particulars

Dimmi Rewards was a customer loyalty programme operated by Dimmi pursuant to which customers of Dimmi received reward points, which could subsequently be redeemed for value at certain restaurants, when the customers honoured restaurant reservations. At all times from 21 February 2014 to at least 12 May 2016 Dimmi’s management accounts recorded the value of Dimmi Rewards as an expense; not as a deduction from, or in diminution of, Dimmi’s revenue. The persons at Dimmi who prepared the management accounts and held the Assumption during this period was Asheesh Chacko and Richard Sumpter (from about April 2015). – Dimmi repeats and relies on paragraphs 4 and 9 to 36 above.

23. Amended Commercial List Statement filed 19 April 2018 at [40].

131. The earlier paragraphs called up by and repeated for the purposes of the particulars set out the relevant history, including as to the setting of the KPI Targets. There is no need to set out those earlier paragraphs.

132. Dimmi also pleaded, with lengthy particulars, that RDUK adopted the “Assumption”. There is no need to set out that pleading.

The factual basis for the alleged estoppel

133. The history that I have set out at length above was said to be, or to provide, the factual basis on which the court would find that the parties did indeed conduct their contractual relationship at all relevant times on the basis that each understood, and knew that the other understood, that Dimmi’s financial performance would be assessed on the basis that its total income, or total gross revenue, was to be stated and measured exclusive of the cost of the Dimmi rewards program, and that its performance against the revenue KPI Targets was to be assessed on the same basis. In the course of submissions, Mr Henry referred as well to aspects of the evidence given by Mr Conyers, some of which I have set out above.

134. Because the issue does not arise, I do not propose to analyse the evidentiary material for the purpose of reaching an irrelevant conclusion as to the existence of the conventional estoppel. I should however note that in the course of the submissions, I asked Mr Henry how the pleaded estoppel could stand if his client lost on the facts in relation to the first four issues [24] . Mr Henry contended against that view; Mr Potts supported it. Their arguments either way have been recorded in the transcript.

     24. T281.45-282.31; T307.48-308.15.

Detriment

135. Mr Henry accepted that, as part of its conventional estoppel case, Dimmi needed to prove that it would suffer detriment if RDUK were permitted to resile from the alleged conventional position. He referred to three kinds of detriment (and I take them slightly out of order):

1. loss of exclusivity, in the event that RDUK is permitted to depart from the common assumption and avail itself of the termination power;

2. loss of the opportunity to propose revenue KPI Targets based on income after netting off the cost of the Dimmi rewards program; and

3. loss of the opportunity to seek to meet the December 2015 EBITDA KPI Target.

136. The parties disagreed as to whether, for the purposes of conventional estoppel, detriment must consist of something more than the loss of an opportunity. Mr Henry contended that loss of a real, as opposed to theoretical, opportunity to bring about a different result was sufficient. Mr Potts contended to the contrary. It is not necessary to resolve that debate.

First head of detriment

137. Mr Henry accepted that the decision of the Court of Appeal in Miller Heiman Pty Ltd v Sales Principles Pty Ltd [25] was against him. He submitted that the decision was incorrect. However, Mr Henry accepted, that was for the Court of Appeal to decide, not a matter to be resolved at first instance.

Second head of detriment

25. (2017) 94 NSWLR 500.

138. By reference to the table set out at [17] above, it may be seen that Dimmi comfortably exceeded the EBITDA KPI Target for the September 2015 quarter, but (on the adjusted figures) missed the revenue KPI Target by a relatively small dollar amount. Mr Henry submitted that if the parties had been aware of what is said to be the proper accounting treatment when the budgets were prepared and when the KPI letters were drafted, finalised and signed, Dimmi could and would have proposed revenue KPI Targets based on total income stated correctly from an accounting perspective. He submitted that the loss of the opportunity to persuade RDUK to agree to KPI Targets on that basis was a real and sufficient detriment.

139. I accept that in the counterfactual situation referred to in the preceding paragraph, it would have been open to Dimmi to propose revenue KPI Targets on the basis described. The difficulty with accepting this as a ground of detriment is that I think that it was extremely unlikely that Mr Conyers would have permitted RDUK to agree to targets so calculated.

140. I have referred already to Mr Conyers’ strong views about the meaning (to him) of the expression “total gross revenue”. His fundamental reason for not accepting, as the basis for calculating any variable component of the licensing fee, the total revenues net of the cost of the rewards program was that in essence this would give Dimmi an opportunity to fund that aspect of its marketing program at RDUK’s expense[26] . That aspect of Mr Conyers’ evidence is persuasive, and I accept it. Mr Conyers impressed me as a man who was thoroughly aware of the value of a dollar (or a pound) and who was not prepared to allow Dimmi to divert away from RDUK any amount of variable licensing fee that, on Mr Conyers’ view of the meaning of “total gross revenue”, RDUK was entitled to receive.

     26. T271.23-.40. See also RDUK’s written closing submission at [63].

141. Of course, we are not talking here about total gross revenue for the purpose of calculating the variable component of the licence fee. We are concerned, instead, with the setting of KPI Targets. In a logical sense, there might be something to be said, from RDUK’s perspective, for receiving the variable component of the licence fee calculated on revenue gross of the cost of the rewards program, and measuring performance against targets on a net basis. I am not certain that this distinction would have appealed to Dimmi.

142. In truth, if Dimmi lost anything, it was the opportunity to have its performance against KPI Targets measured on the basis that the cost of the rewards program was to be added back to total income (assuming that in other respects total income had been accounted for on a “correct” basis) so that like could be compared with like. But again, Mr Conyers’ evident and understandable antipathy to subsidising this aspect of Dimmi’s promotional activities would have told against acceptance of any such proposal.

143. Were it necessary to do so, I would conclude that this head of detriment has not been made out.

Third head of detriment

144. In the December 2015 quarter, Dimmi missed the EBITDA KPI Target by a considerable amount: $237,534[27] .

     27. See the table at [17] above.

145. Mr Chacko gave evidence that there were items of expense, for that quarter, that Dimmi could have avoided or deferred. The material in relation to “A n P” expenditure referred to at [65] above suggests that Dimmi did have some degree of flexibility in planning and incurring discretionary expenses.

146. The big ticket items of expense to which Mr Chacko referred were a management fee of $222,353 imposed by La Fourchette (the parent of TA LF which in turn was the parent of Dimmi) and marketing expenses, of various kinds, totalling about $203,880. It will be seen, from the size of the figure by which the EBITDA KPI Target was missed, that for this counterfactual strategy to have succeeded in reversing the result, it would have been necessary for the whole of the management fee (assuming it was indivisible) and part of the marketing expenses to be put off, or for some part of the former and a greater part of the latter to be put off.

147. The evidence in relation to the management fee is in essence that it was imposed by La Fourchette without first obtaining the concurrence of Dimmi (or, for that matter, giving any forewarning to Dimmi). Mr Chacko said that he accepted – did not “push back against” – the imposition of the management fee because he did not understand that it might become important to seek to resist the idea that it should be charged to Dimmi. Had that been known, he said, he could have proposed either that it not be charged at all or that it be charged, in whole or in part, to TA LF.

148. Mr Chacko accepted, correctly, that if the management fee related to services provided by La Fourchette in the quarter in question then it should be charged against revenue derived in that quarter. He accepted that it was not immediately clear how or why the fee could be charged to TA LF, or how TA LF could pay it except thought intercompany journal entries. He accepted, further, that the imposition of the fee was the result of a decision taken by people above him in the TripAdvisor group hierarchy.

149. Mr Chacko’s evidence on the topic of detriment was attacked. It was suggested that he had no real opportunity to, as he put it, “push back against” the imposition of the fee, and that had he sought to do so, his efforts would have been unsuccessful. He denied both those propositions.

150. I think that there is a strong basis for concluding that if Dimmi, in particular Messrs Premutico and Chacko, had been aware of the significance of EBITDA for the December 2015 quarter, it could have protested with some force, and that its protests might well have been successful. Mr Chacko would know, from the monthly management accounts, that Dimmi was not tracking well on EBITDA. Had he known that it was, or was likely to be, important that Dimmi should meet the EBITDA target for that quarter, he would have a valid basis for disputing the imposition of the charge.

151. Further, I think, it is inherently likely, looking at the probabilities as they appear objectively from the evidence, that these hypothetical protests might have borne fruit. After all, it was in the interests of La Fourchette and, for that matter, the TripAdvisor group as a whole, that Dimmi should retain the benefit of exclusivity. Exclusivity was a valuable asset, particularly in relation to Dimmi’s attempts to promote itself ahead of rivals in the online booking market (the evidence establishes that by 2015, there were several). Had La Fourchette or others in the TripAdvisor group been given to understand that the charging of the fee to Dimmi might put it at risk of losing exclusivity, there is reason to think that, acting rationally and with an eye to commercial common sense, La Fourchette might have dropped the fee entirely, or lowered it, or charged it in whole or in part to TA LF.

152. I am not to be taken as finding that Dimmi’s protests would have been successful. I am saying no more than that it would have had a valid ground of protest, and a real chance of having its protest upheld. In short, I find, at the very least there would have been a real and not merely theoretical likelihood that Dimmi could have persuaded La Fourchette not to impose the management fee on Dimmi for that quarter. In reaching that conclusion, I rely on my view of the probabilities and commercial common senses, viewed objectively, not just on the evidence of Mr Chacko.

153. I turn to the marketing expenses. They comprise three elements. About $75,000 related to search engine marketing expenses. The balance related to other items of marketing expense. It is in this context that the point made at [145] above becomes significant.

154. Mr Chacko gave evidence that, had he known that if Dimmi were to miss the December EBITDA Target it would be at risk of losing exclusivity, he would have taken steps to ensure that Dimmi did not incur at least some parts of those expenses. His evidence was attacked on three main bases.

155. Mr Potts’ first basis of attack related not just to this (the third) head of detriment, but also to the second. The point was raised first as an objection to paragraphs of Mr Chacko’s first and third affidavits (affirmed, respectively, on 13 November 2017 and 29 March 2018) where he dealt with the question of detriment. The objection was put on the basis that the relevant paragraphs did not address the correct counterfactual: namely, “the Assumption” pleaded at [40] of the Amended Commercial List Statement.

144. In terms, there was something to be said for that objection. The point may be illustrated by looking at one paragraph, [66], of the first affidavit. In that paragraph, Mr Chacko, having referred to his belief in October 2015 that Dimmi had met its KPI Targets for the September 2015 quarter, said:

If [RDUK] had told me in October 2015 that it took the view that Dimmi had failed to reach its KPI Targets for the September 2015 Quarter such that [RDUK] may have a right to terminate the exclusivity provisions of the Licence Agreement if those targets were not met for the December 2015 Quarter, I would have:

…

157. Mr Chacko then, and in subsequent paragraphs, set out what he would have done had he been informed, at various times, that RDUK did hold the view set out in the quoted portion of [66] of his first affidavit.

158. Mr Chacko’s evidence on this topic, at least in his first affidavit, seems to have been directed towards the form of conventional estoppel that was then pleaded. However, when Dimmi obtained leave to amend and filed its Amended Commercial List Statement, the pleading as to conventional estoppel was amended substantially. Mr Chacko did not seek to address, in a further affidavit, the form in which the conventional estoppel is now put. Nor did he explain why it was that the evidence earlier given remained relevant.

159. I took the view that this and other paragraphs (including of the third affidavit where Mr Chacko dealt further with the question of detriment) were capable of proving the fact that “if Mr Chacko had thought there were a risk of not meeting KPI targets, then there were commercial steps available to avert that risk” [28] . Thereafter, with Mr Potts’ concurrence (in fairness, given on the basis that reading the material subject to relevance would expedite matters [29] ), I admitted the material to which objection on this basis was taken [30] .

     28. T35.19-.22.

     29. T35.34.

     30. A full list of the paragraphs admitted subject to relevance on the “paragraph 66” basis may be found at T36-37.

160. Neither Mr Potts nor Mr Henry specifically addressed the relevance issue in their final submissions. Nonetheless, I think I should deal with it, given the way in which the objection was framed and dealt with. I will return to this after I set out the second and third bases on which Mr Potts attacked this aspect of Mr Chacko’s evidence.

161. Next, Mr Potts submitted, Mr Chacko had greatly overstated his role in the marketing side of the business and his ability to countermand the incurring of marketing expenses. It was in this context in particular that Mr Potts drew attention to the unexplained absence from the witness box of Messrs Premutico and Moran.

162. Mr Potts’ third principal attack was based on the proposition that deferring the marketing expenses would have led to a reduction in income, so that the net effect on EBITDA would have been, at best, minimal. Mr Potts drew attention to a number of graphs contained in Dimmi’s management accounts and other financial records that showed, he submitted, a correlation between marketing expenditure and revenue.

163. I return to the first basis of attack. I accept that in terms, the relevant paragraphs of Mr Chacko’s first affidavit are not framed in terms of the “Assumption” upon which Dimmi now relied. The same may be said of his third affidavit, since the paragraphs in which he gives further detail of steps that could have been taken to improve Dimmi’s EBITDA position, are prefaced by a reference back to [66] of the first affidavit.

164. A convenient starting point is to compare the pleaded “Assumption” to Mr Chacko’s stated purpose for describing the steps that he could have taken; that is to say, to the counterfactual that he postulates. The “Assumption”, Dimmi pleads was that the value of those rewards was not and would not be deducted from revenue for the purpose of assessing performance against the KPI Targets.

165. Mr Chacko’s evidence on the question of detriment addresses what might be called the end point: the result of any departure from that pleaded common assumption, in the real world that existed in September and December 2015. Mr Chacko said that had he understood that it would be alleged that Dimmi had not met its EBITDA targets, he could and would have taken the steps that he described then and in his third affidavit. In other words, so it seems to me, Mr Chacko described steps that could and would have been taken to meet the factual situation that would have arisen if RDUK had sought to depart from the pleaded “Assumption”.

166. On that basis, I think, the evidence to which objection was taken, and with which I am now dealing, was capable of applying to the case that was, ultimately, pleaded and run. In other words, that evidence remained relevant to the question of detriment, even though it was directed towards a different formulation of the conventional estoppel.

167. Thus, I conclude, the evidence in question is capable of proving both reliance and detriment, in each case by reference to the counterfactual situation implicit in the “Assumption” that is now pleaded as leading to the conventional estoppel for which Dimmi now contends.

168. I turn to the second basis of attack. There is some force in the submission that Mr Chacko overstated his role. However, it is important to bear in mind that he was the chief financial officer, and the person with ultimate authority for ensuring that Dimmi met (as best it could) its financial targets and financial obligations. That finds support in Mr Chacko’s affidavit affirmed 29 March 2018. He said at [9]:

Decision making in relation to expenditure

[9]   As Director of Finance and Operations, I was the person with overview of, and ultimate responsibility for, Dimmi’s performance against its budgets and KPI Targets, both those agreed within the TripAdvisor group and with ResDiary. In that capacity I had the authority to make, and responsibility for making, decisions about the way in which Dimmi’s expenses were incurred to ensure that Dimmi’s financial performance met those financial metrics. My approval for expenditures was required as Director of Finance and Operations and so, in practical terms, I had control over the manner in which, and when, particular expenses were incurred.    

169. It was not put directly to Mr Chacko that this paragraph was false. [31] With the reservation as to overstatement set out in [168] above, I accept the substance of this part of Mr Chacko’s evidence.

     31. It was put to Mr Chacko several times that the facts were otherwise: see, generally, T122-123, 129-130, 167. The point is simply that there was no express and direct challenge to the truth or accuracy paragraph in question.

170. It is logical to assume that if Mr Chacko had seen the need to defer certain items of expenditure, he would have spoken to Mr Premutico about this. It is also logical to assume that had those items of expenditure included marketing expenses, Mr Chacko would have spoken to Mr Moran.

171. I have no doubt that Mr Premutico would have understood the significance, to Dimmi, of losing the exclusivity that it had under the licence agreement. I have no doubt that if Mr Moran did not understand this, Mr Premutico and Mr Chacko would have explained it to him very clearly. Thus, I think, if Mr Chacko had discussed the matter with those two gentleman, the likelihood is that they would have sought to defer marketing expenses to the extent that to do so would not have a significant adverse impact on Dimmi’s revenues.

172. Mr Chacko contended that, with an exception to which I shall turn in a moment, there was no direct or straight line correlation between marketing expense and revenue. He accepted that marketing expense would increase revenue in the long term. However, and again with the same exception, he said that this would not necessarily happen in the period in which the marketing expense was incurred.

173. The exception which Mr Chacko referred was search engine marketing. There is no need to go into that abstruse field of endeavour, because Mr Chacko accepted that it did have a direct, effectively dollar for dollar, impact on revenue. Thus, this suggested head of detriment really relates to the other items of marketing expense, totalling about $128,880.

174. I am disposed to accept Mr Chacko’s evidence on the absence of a direct correlation between those kinds of expense and revenue. It seems to me that this is something that a person in his position, having the responsibilities that he as Chief Financial Officer had, should be expected to know. The question is not whether those expenses would produce an improvement in revenue: obviously they did (or it was hoped that they would), as otherwise they would not have been incurred. The question is, rather, whether that impact would be felt immediately, or at some time in the future.

175. As I have said, Mr Potts relied on graphs in various financial records prepared by Dimmi. I accept that those graphs appear to show revenue and marketing expense tracking each other. However, what they do not show, except at the level of simple visual observation, is any correlation between the two. Mr Potts offered no informed analysis (for example, regression analysis) to demonstrate that the visual impression gained from looking at the graphs was in fact correct: that is to say, that causation could be inferred. At most, the inference of causation relies on chronological coincidence. That is not necessarily a sound basis for drawing such an inference.

176. There is, so it seems to me, a more fundamental problem with Mr Potts’ submission. Even if it is proper to infer causation from visual similarity, that says nothing as to what event is the cause and what is the effect. On Mr Potts’ analysis, marketing expenditure is the cause and increased revenue is the effect. But it could equally be put the other way round: namely, that as developing businesses increase their revenue, they are able to devote more revenue (in dollar terms) to marketing expenses. The reasons why they would do so are obvious, even to the lay person. It would assist them at the very least to maintain their market share. It could assist them to increase their market share at the expense at their rivals. Finally, it could assist them to expand the market, so that even at a constant share their business develops further in terms of gross revenues.

177. In the absence of any informed analysis, I see no reason to infer causation at all; but if there were some basis to infer causation, I see no reason to infer causation of the kind for which Mr Potts contended.

178. Again, I am not to be taken as concluding that, had Dimmi understood that the failure to meet its EBITDA target for the December 2015 quarter might mean that it could lose exclusivity, it would have reduced its marketing expenses. I say no more than that, had Dimmi been aware of that possibility, it would have sought to reduce marketing expenses by a sufficient amount to avert that consequence (in conjunction with its dealings with La Fourchette over the management fee). In the counterfactual world, that there was in my view a real possibility (far more than negligible) that Dimmi could do so.

179. Finally (and I have not yet mentioned this), Mr Chacko referred to a fee of $12,650 paid in the December 2015 quarter for the redesign of Dimmi’s website. He said that Dimmi could have put the redesign off to January or February 2016. Of course, that amount of itself would not have been sufficient to tip the balance. Nonetheless, the loss of the opportunity to put off the redesign (and to me it seems obvious that Dimmi would have done had it known that needed to bring its EBITDA to a point that it met or exceeded the EBITDA KPI Target) adds to this element of detriment.

Conclusions upon detriment

180. Had it been necessary to do so, I would have found that Dimmi lost a real and not merely theoretical opportunity in relation to management fees and marketing expenses (more accurately, to resist liability for the former and to postpone the latter).

Conclusion and orders

181. Dimmi has made good its claim to the relief sought in its summons filed on 14 August 2017. There was an agreed amendment to be made to the third prayer for relief, and that will be reflected in the orders that I make.

182. There is no reason why Dimmi should not have its costs. Neither party asked for the question of costs to be reserved.

183. I make the following orders:

1. declare that the plaintiff met the KPI Targets, as defined in the licence agreement dated 21 February 2014 (Licence Agreement) for the quarter ended 30 September 2015.

2. Declare that the purported notice of termination dated 31 May 2017 sent by the defendant to the plaintiff is invalid.

3. Order that the defendant be restrained, during the continuance of the Licence Agreement, from granting, without the plaintiff’s consent, to any person (other than the plaintiff) a licence to access and/use the “System” (as defined in cl 1.1 of the Licence Agreement) prior to termination of the restrictions on the defendant under cl 2.3(a) of the Licence Agreement, pursuant to cl 2.3(d) of the Licence Agreement.

4. Order the defendant to pay the plaintiff’s costs.

5. Direct that the exhibits be returned.

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Endnotes

Decision last updated: 07 June 2018