Forklift Engineering Australia Pty Ltd v Powerlift (Nissan) Pty Ltd

SUPREME COURT OF VICTORIA
COMMERCIAL AND EQUITY DIVISION COMMERCIAL LIST	Not Restricted

No. 5302 of 2000

FORKLIFT ENGINEERING AUSTRALIA PTY LTD	Plaintiff
v
POWERLIFT (NISSAN) PTY LTD AND OTHERS	Defendants

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JUDGE:	Warren J
WHERE HELD:	Melbourne
DATE OF HEARING:	10, 12, 13, 14, 17, 18, 19, 20 and 24 July 2000
DATE OF JUDGMENT:	12 December 2000
CASE MAY BE CITED AS:	Forklift Engineering Australia Pty Ltd v Powerlift (Nissan) Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2000] VSC 443

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Contract – "material breach" - fundamental breach – termination.

Repudiation – breaches constituting repudiation.

Good faith – whether an implied term.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr T. North with Mr A. Hanak	J.P. Sesto & Co
For the Defendants	Mr P. Hayes QC with Mr A. Paterson	Lander & Rogers

TABLE OF CONTENTS

THE DEALERSHIP AGREEMENTS............................................................................................................................................. 1

THE DEALER'S OBLIGATIONS.................................................................................................................................................... 2

THE BUDGET TERMS....................................................................................................................................................................... 3

THE TERMINATION CLAUSE....................................................................................................................................................... 4

NOTICES OF BREACH...................................................................................................................................................................... 5

THE PLEADINGS................................................................................................................................................................................. 8

THE PROCEEDINGS.......................................................................................................................................................................... 9

THE ISSUES: WHETHER BREACHES OCCURRED TO JUSTIFY SERVICE OF THE NOTICES OF TERMINATION................................................................................................................................................................................................................... 10

1.     The Amounts Owing......................................................................................................................................................... 11
2.     Monthly Activity Reports................................................................................................................................................. 14
3.     Details of Sales.................................................................................................................................................................. 15
4.     Failure to Meet Budget Requirements.......................................................................................................................... 16
(a) The Nissan Budget............................................................................................................................................................ 17
(b) The Raymond Budgets...................................................................................................................................................... 19
(c) Explanation and Excuses of Forklift for Failing to Meet the Budgets.................................................................... 22

SUMMARY OF FINDINGS IN RELATION TO BREACHES ALLEGED IN THE NOTICES OF TERMINATION 25

MATERIAL BREACH....................................................................................................................................................................... 26

VALIDITY OF NOTICES................................................................................................................................................................ 30

REPUDIATION BY FORKLIFT.................................................................................................................................................... 31

OBLIGATION OF GOOD FAITH................................................................................................................................................. 34

SUMMARY OF FINDINGS............................................................................................................................................................. 37

HER HONOUR:

The defendants, ("Powerlift") constitute the Powerlift group of companies and imports and sells forklift machines and parts. The group is the distributor of two major types of forklifts, parts and related products known as Nissan and Raymond. The plaintiff, Forklift is a dealer of Powerlift products. It buys those machines, parts and products from Powerlift and conducts a business of selling and hiring forklift machines and parts to industry and domestic users. Forklift trades under the name "Adapt-A‑Lift Rentals & Sales" and a reference to Forklift is a reference to its trading entity Adapt-A-Lift. The arrangements between Powerlift and Forklift were the subject of two written contracts, one contract relating to the Nissan forklift products and the other relating to the Raymond forklift products. In this proceeding Forklift sought to restrain Powerlift from terminating the contracts on the basis of alleged breaches of both contracts. Powerlift counterclaimed for declarations that it was entitled to terminate the contracts.

The Dealership Agreements

On 5 March 1998 Forklift trading as Adapt-A-Lift and Powerlift entered into the two written agreements for the dealership of products supplied by Powerlift. A reference in these reasons to the Nissan dealership includes a reference to the Raymond dealership unless the Raymond dealership is referred to separately.

The first agreement was for the dealership of Nissan machines and products and was for a term of ten years commencing on 1 December 1997 ("the Nissan dealership"). Under the Nissan dealership Powerlift appointed Forklift trading as Adapt-A-Lift as the exclusive dealer of Nissan forklifts in Queensland excluding nominated areas near Goondiwindi in that State.

The second agreement was for the dealership of Raymond machines and products. It was executed on the same day as Powerlift and Forklift entered into the Nissan dealership agreement. The second agreement was between Forklift, trading as Adapt-A-Lift and Powerlift (Raymond) Pty Ltd ("the Raymond dealership"). The Raymond dealership agreement was in almost identical terms to the Nissan dealership agreement save that it was concerned with a different model of forklift and parts.

There were terms of the Nissan dealership that trading terms were for a period of 21 days from receipt of invoice for delivered goods unless otherwise agreed. The parties agreed to a period of 30 days for the payment of parts after the Nissan dealership was executed. Where products were supplied on terms they remained the property of Powerlift and title did not pass until payment was received in full and where products were supplied on consignment they remained the property of Powerlift with a requirement that it be returned on request to it.

The Dealer's Obligations

The Nissan dealership imposed particular obligations on Forklift. Under the heading "Dealer Obligations" specific provision included:

"DEALER OBLIGATIONS
a)Use all reasonable commercial efforts to promote; market and sell in the territory, NISSAN product and parts supplied by PLN [Powerlift].
b)Market the NISSAN range of engine and electric forklift trucks only. If the dealer is unable to satisfy his customer's requirements with NISSAN products, he must discuss other options with the management of PLN prior to purchasing competitive products.
c)Provide a monthly activity report to PLN by the 2^nd working day of the next month.
d)Provide PLN details of all NISSAN sales in their territory immediately upon receiving official order for the product. This information should include:
1.Customer name
2.Customer address (including postcode)
3.Industry type

e)Properly service the product sold by it or located in the territory. Satisfactory performance of service obligations will, among other things include:
1.Providing adequate delivery service, which shall include: delivery, inspecting, installing, and where necessary assembling the products.
2.Train and employ service technicians in the operation, care and maintenance of the product.
3.Make available service personnel for training to be conducted for NISSAN products by PLN.

f)Place 'NISSAN' signage on relevant buildings and service vans and display any point-of-sale provided by PLN.
g)Use the trademarks in accordance with the PLN instructions for all promotional activities.
h)The limitation imposed on the dealer of marketing only the Nissan range of products only applies in the Territory.
i)Nothing in this agreement affects the Dealer's ability to rent any make or mode of forklift trucks including competing products, in the Territory or elsewhere as part of its business operations;"

Hence, under "Dealer Obligations" Forklift had five significant obligations. First, to actively promote and sell Nissan products; second, to market only Nissan engines and forklift trucks; third, to provide a monthly activity report; fourth, to provide details of Nissan sales setting out customer name, address and industry type; and, fifth, to adequately service the Nissan product by way of delivery and training. Powerlift alleged that Forklift breached each of these obligations and others. The dealer's obligations provisions contained an important exception in relation to rental products to the effect that Forklift was able to rent any make or model of forklift trucks including competing products. The Raymond dealership imposed the same obligations save in relation to Raymond machines and products.

Specific obligations were imposed on Powerlift including to provide reasonable assistance to enable the dealer to promote products and penetrate "the territory". The agreements also imposed upon Powerlift an obligation to provide a discounting structure to enable the products to compete in the market place so as to facilitate the achievement by the dealer of sales targets.

The Budget Terms

Both agreements made specific provision in relation to budgets by imposing an obligation on the dealer to agree upon an annual sales target and to meet that target. The term provided as follows:

"BUDGETS
Six (6) monthly Sales budgets will be agreed upon between PLN and the Dealer at the commencement of each calendar and financial year. If actual sales have a negative variance of more than 20% from the budgeted sales at the end of the budget period, PLN may request the dealer to make the necessary changes to meet future budgets. If following the implementation of such arrangements or requests, actual sales for the next 6 month period continue to have a negative variance of more than 20% from the budgets sales, then so long as the negative variance is due to the failure of the Dealer factors, poor product quality or poor pricing policy of PLN or the manufacturer of the Applicable Products, then PLN reserves a right to terminate this dealership arrangement."

Thus, the Nissan dealership made specific provision in relation to budgets including five key components. First, the requirement of six monthly sales budgets; second, that budgets were to be agreed between Powerlift and Forklift; third, budgets were to be agreed at the commencement of each calendar and each financial year; fourth, if there was a negative variation of more than 20 per cent in actual sales at the end of each budget period Powerlift could request changes to facilitate the meeting of future budgets; fifth, if after changes had been implemented a further negative variation of more than 20 per cent in meeting the budget occurred due to the failure on the part of the dealer (as distinct from economic factors, or other factors such as poor product quality and the like) Powerlift reserved the right to terminate the dealership. Powerlift alleged that Forklift breached the budget term of the agreement. The Raymond dealership contained the same five key components save they related to Raymond products.

The Termination Clause

The agreement included a termination provision as follows:

"TERMINATION
PLN may terminate the dealership by giving 90 days notice to the dealer if the dealer fails to achieve the target sales performance as per Budget clause and either party may terminate this Agreement upon written notice to the other party if:
(i)the other party commits a material breach of this Agreement which is not capable of being remedied.
(ii)The other party commits a material breach of this Agreement which is capable of being remedied and does not remedy the breach within 14 days of receiving written notice to do so."

Arising from various breaches alleged by Powerlift, Forklift activated the termination clause and served notices of breach on Forklift.

Notices of Breach

On 14 April 2000 Powerlift served a notice of breach on Forklift under the Nissan dealership asserting that monies were owing under invoices, that Forklift had failed to provide monthly activity reports, that it had failed to provide details of sales and giving notice that in the absence of rectification of these breaches the agreement could be terminated. The notice, addressed to the manager of Forklift, provided:-

"Dear Sir,
I am writing concerning your continued non-compliance with certain provisions of the Agreement dated 5 March 1998 between Powerlift (Nissan) Pty Ltd ('Powerlift') and yourselves in relation to your appointment as Nissan dealer for Queensland (the 'Agreement'), and in particular:
1.your failure to make payment to Powerlift in accordance with the Trading Terms provisions of the Agreement. Details are as follows:
$105,907.63

2.your failure to provide a monthly activity report to Powerlift in accordance with paragraph (c) of the Dealer Obligations clause of the Agreement; and
3.your failure to provide details of sales in accordance with paragraph (d) of the Dealer Obligations clause of the Agreement.

We hereby give you notice that, unless each of the breaches referred to above is remedied within fourteen (14) days of your receipt of this notice, Powerlift will be entitled to terminate the Agreement and to recover damages from you.
In relation to the various breaches specified above, please note that remedying such breaches requires:
(a)in relation to the breach referred to in item (1) above, payment for all goods in relation to which payment should have been made to Powerlift by that time (i.e. fourteen (14) days from your receipt of this notice); and
(b)in relation to the breaches referred to in items (2) and (3) above, provision of the outstanding reports and information from commencement of the Agreement up to the latest report and/or information (as applicable) required by the Agreement to be provided to Powerlift by that time (i.e. fourteen (14) days from your receipt of this notice).
Please give this matter your urgent attention.
Yours faithfully,
Laurie Puddy
MANAGING DIRECTOR"

An identical notice was sent by Powerlift to Forklift in relation to the Raymond dealership except the outstanding amount demanded was $64,096.08.

Forklift questioned the form of both notices complaining as to the lack of particulars and correspondence ensued between the parties.

Eventually, on 30 May 2000 Powerlift served 14 further notices of breach on Forklift in relation to the Powerlift Nissan dealership. They were:

(1)One notice of breach asserting that invoices totalling $40,042.05 were unpaid and demanding payment of the same within 14 days failing which Powerlift was entitled to terminate the Powerlift Nissan dealership agreement.
(2)One notice asserting:-
(a) that Forklift had failed to meet the agreed 1998 calendar year budget of 250 forklifts in the calendar year being a negative variance of more than 20 per cent for the period; and giving 90 days notice of termination of the Powerlift Nissan dealership;
(b)that Forklift had failed to meet the agreed 1999 calendar year budget of 217 forklifts and that there was a negative variance of 20 per cent for the period.

(3)Twelve separate notices of breach each notice asserting that Forklift had failed to return to Powerlift an identified single Nissan forklift upon request. The notice requested return of the subject forklift within 14 days failing which Powerlift would be entitled to terminate the Nissan dealership agreement.

On 30 May 2000 Powerlift, also, served another nine notices of breach on Forklift in relation to the Raymond dealership. The notices were as follows:

(1)One notice of breach asserting that invoices totalling $38,662.38 were unpaid and demanding payment of the same within 14 days failing which Powerlift would be entitled to terminate the Raymond dealership agreement;
(2)Two notices of breach asserting that Forklift had failed to meet the agreed 1998/1999 budget to sell 68 Raymond forklifts in the financial year being a negative variance of 20 per cent and giving 90 days notice of termination of the Raymond dealership;
(3)Six separate notices of breach, each notice asserting that Forklift had failed to return to Powerlift an identified single Raymond forklift upon request. The notice required return of the subject forklift within 14 days failing which Powerlift would be entitled to terminate the Raymond dealership agreement.

Ultimately, Powerlift did not pursue the breach arising from the alleged failure to return forklift vehicles with respect to both the Nissan and Raymond notices of 30 May 2000.

The Pleadings

In the statement of claim Forklift alleged that it had met its obligations under the Nissan and Raymond dealership agreements, in particular, payments of invoices, provision of monthly activity reports and details of sales. It alleged that Powerlift had wrongfully served the initial notices of default on 14 April 2000. It alleged, also, that the initial notices of breach were invalid for procedural reasons principally lack of particulars, that the alleged breaches were not material breaches or, alternatively, that no breaches had occurred as alleged. As a consequence, Forklift sought a permanent injunction restraining Powerlift from terminating the dealerships in reliance upon the initial notices of breach served on 14 April 2000. Furthermore, injunctions were sought requiring Powerlift to perform its obligations under the dealership agreements and to restrain it from entering into dealerships with other parties.

In the defence Powerlift admitted the terms of the two dealership agreements. It alleged that as at 1 May 2000 invoices rendered to Forklift for the period prior to 31 March 2000 were unpaid, that Forklift failed to provide monthly activity reports, that it failed to provide customer details of sales and that sums were outstanding for the delivery of forklifts all of which were in breach of both the Nissan and Raymond dealership agreements. Service of both the initial notices of 14 April 2000 and the later notices of 30 May 2000 were admitted.

Arising from the alleged breaches Powerlift claimed that Forklift repudiated the Nissan and Raymond dealership agreements and it accepted that repudiation. Further, Powerlift alleged an implied term in each of the Nissan and Raymond dealership agreements that Forklift would act in good faith in its dealings with Powerlift. It alleged that Forklift deliberately made late payments for parts supplied, failed to agree to budgets under both dealership agreements, made excessive and exaggerated warranty claims and purchased forklifts at special prices for the express use of the rental fleet of Adapt-A-Lift and then on-sold some of those forklifts without accounting to Powerlift for price differences. Powerlift alleged that each of these and other matters breached the obligation of good faith owed by Forklift to Powerlift. As a consequence, it counterclaimed damages in the total sum of $2,568.81. Powerlift sought, also, declarations that it was entitled to terminate each of the Nissan and Raymond dealerships as a result of the notices of termination and the repudation. Forklift replied to the defence and counterclaim by denying the breaches alleged, including those contained in the second notices of breach dated 30 May 2000 save for some sums of money that it admitted were unpaid but alleged that those were disputed sums. Forklift claimed, also, that Powerlift did not complain about the timeliness of the provision of monthly activity reports and sales details and had thereby waived such obligations under both dealership agreements or was estopped from alleging the same. Forklift alleged that the second notices of demand dated 30 May 2000 were invalid because they did not relate to a material breach, alternatively, included claims for amounts that were not due or were ineffective because Powerlift had determined to terminate both dealership agreements in any event. Forklift alleged, also, that Powerlift breached a duty of good faith owed under the agreements by dealing with major account customers of Forklift, by seeking to terminate the agreements so as to expand Powerlift's own market and by discriminating in pricing against Forklift compared with arrangements for other dealers.

The proceedings

On 26 May 2000 the proceeding came on for directions in the Commercial List. The parties agreed to the matter being fixed for trial on an expedited basis and mutual undertakings were proffered. The defendants gave an undertaking pending determination of the proceeding not to take any further step to terminate the dealership agreements by reliance upon the notices of 14 April 2000 or any subsequent notices. The plaintiff gave the usual undertaking as to damages with respect to the undertaking proffered by the defendants.

Upon the proceeding coming on for trial, each of the parties called a number of witnesses. Forklift called Alan Powell, a director of Forklift; Peter Whiffen, its managing director; Michael Cunial, its Queensland sales manager; Peter Lawgall, a forklift salesperson; Carl Boothroyd, former group general manager of the Powerlift Group of Companies; Brian Poller, its service manager; and Lisa Dower and Denise Fankhauser, both Forklift bookkeepers. In addition, Forklift called Robert Kus, a chartered accountant to provide financial evidence. It also called three witnesses who represented clients of Forklift: Peter Boustead, former director of Independent Storage Systems Pty Ltd; Hugh Cullen, state manager for First Fleet Pty Ltd; and Robert Maxwell, managing director of Racknet Pty Ltd.

Powerlift called Lawrence Puddy, the managing director of the Powerlift Group of Companies. It called, also, John Ackland, general manager of Powerlift (Nissan) Pty Ltd; Eugene Devine, former national sales manager of Powerlift Australia Pty Ltd and general manager of Raymond Australia Pty Ltd; Anthony Beardmore, the major accounts manager for Powerlift (Raymond) Forklifts; Kenneth Donley, the financial controller of the Powerlift Group of Companies; and Lorraine Donnellan, the warranty clerk with Powerlift. In addition, Powerlift called Bradley Trask, a former sales representative with Adapt-A-Lift/Forklift and Dean Clark, a former forklift technician with Adapt-A-Lift/Forklift.

The Issues: Whether breaches occurred to justify service of the Notices of Termination

The first matter to be determined was whether Powerlift was entitled to serve the notices of breach it did on 14 April and 30 May 2000. In order to determine this issue it is necessary to consider the following:

1.Whether there was failure to pay amounts outstanding and whether trading terms were met?

2.        Whether monthly activity reports were provided by Forklift?
3.        Whether details of sales were provided by Forklift?
4.        Whether there was a failure to meet budget requirements?

I will deal with each of these questions separately. On the basis of the termination clauses it was necessary only for me to be satisfied that any one of the breaches relied on with respect to each dealership agreement occurred. However, there were a number of breaches together with purported answers to those breaches. I will deal with them all.

1. The Amounts Owing

The amount claimed by Powerlift in the notices of 14 April 2000 in respect of the Nissan dealership was $105,907.63 and in respect of the Raymond dealership the amount claimed was $64,096.08. Forklift complained that the amounts were not particularised and that the amounts claimed were not outstanding at the time of the service of the notices.

It was the case of Forklift that analysis of the Powerlift statements relied upon to quantify and support the sum claimed of $105,907.63 in relation to the Powerlift dealership included monies that were not actually owed, were not due, were the subject of dispute or were wrongly included. These matters were the subject of an e‑mail sent on about 1 May 2000 by Forklift to Powerlift described as "Powerlift Nissan ledger comments final".

Evidence was given by Robert Kus for Forklift as to his analysis of the monies claimed by Forklift under the Nissan dealership in the notice of 14 April 2000. His analysis was based upon the instruction of Forklift that the monies owed related to spare parts that were to be paid on "normal commercial terms". Kus gave evidence that at the time of the service of the notice in relation to the Nissan dealership on 14 April 2000 of the sum claimed of $105,907.63 no allowance had been made for the following:

(1)The sum of $42,031.56 consisting of monies paid prior to 14 April 2000, credit notes issued prior to that date, internal cash adjustments or amounts not in fact due to be paid as at 14 April 2000;
(2)a disputed amount of $9,547.74 for which Forklift claimed credit notes should have been issued;
(3)a further amount of $72,679.79 wrongly included that had been paid subsequent to 14 April 2000.

It was the case of Forklift, also, that analysis of the Powerlift accounts in relation to Raymond revealed a similar outcome. The amount claimed was $64,096.08. It was said by Forklift that analysis of the accounts revealed that the monies claimed had already been paid, were not in fact owed for various reasons, were the subject of dispute between Powerlift and Forklift or were not in fact due at the time of service of the notice of breach.

Ultimately, Powerlift did not pursue with any real conviction the specific amounts claimed under the notices of 14 April 2000. Rather, it focussed upon the amounts claimed under the notices of 30 May 2000 wherein Powerlift claimed $40,042.05 in relation to the Nissan dealership and $38,662.38 in relation to the Raymond dealership.

Forklift as the plaintiff bears the onus of proof on the usual civil standard. Hence, Forklift carried the burden of proving a negative, that is to say, that monies were not owed by it at the time the notices were served by Powerlift. In the course of cross‑examination Powell, a director of Forklift, admitted that some of the amounts referred to in the notices of 30 May 2000 were overdue at the time the notices were served. When the attention of Powell was directed to the amounts claimed under the notices of 30 May 2000 he acknowledged that a part of the monies claimed in the notices of 30 May 2000 was overdue at the time the demands were made. So far as the amount claimed under the Raymond dealership was concerned, Powell conceded that a substantial part of the sum claimed was overdue. Powell was cross‑examined, also, in relation to the amounts claimed under the notices of 14 April 2000. Again he acknowledged that part of the amounts claimed were outstanding at the relevant time. Furthermore, Powell admitted that the monies claimed that were outstanding at the time of the relevant notices remained outstanding arising from a specific instruction emanating from him not to pay the amounts owed.

Forklift contended that part of the monies claimed were not owed because some of the spare parts for which it was invoiced were not "applicable products" under the two dealership agreements. The agreements defined applicable products as "All Nissan [Raymond] industrial machinery products which includes internal combustion engine forklifts and battery-electrical forklifts". On the evidence it was apparent that some spare parts fell within the category of applicable products and some not, Cunial, the managing director of Forklift and Boothroyd, the former general manager of Powerlift called by Forklift considered that some spare parts were covered by the dealer agreements. I was satisfied on the balance of probablities that at least part of the sums of $105,907.63 [under the Nissan dealership] and $64,096.08 [under the Raymond dealership] were due and owing at the time of service of the notices on 14 April 2000 because of the concessions made by Forklift's own witnesses that monies were owed. However, on the basis of the admission by Powell some of the amounts referred to in the notices of 14 April 2000 were not paid within the 14 day period stipulated in the notice. I consider that Powerlift was entitled to serve the notices of 14 April 2000, so far as they related to monies claimed for outstanding invoices. So far as the notices of breach of 30 May 2000 were concerned demands were made for the amount of $40,042.05 in relation to Nissan and $38,662.38 in relation to Raymond. Some part of those monies were owing at the time the second notices were served on 30 May 2000. So much was conceded by Powell for Forklift. The monies were not paid as demanded in the notices of 30 May 2000 within the 14 day period stipulated in the notice. I conclude subject to the question of material breach, that Powerlift was entitled to terminate the Nissan and Raymond dealerships on the basis of both the 14 April and 30 May notices pursuant to the termination clause in each of the dealership agreements.

Forklift asserted that the non-payment of the monies under the notices of 14 April and 30 May 2000, in any event, did not constitute a material breach for the purposes of the two dealership agreements. It was argued, therefore, that Powerlift was not entitled to terminate the agreements as it purported to do. I deal with the subject of material breach separately.

Forklift challenged, in any event, the validity of the notices of both 14 April and 30 May 2000 on the ground of insufficient particularity. I deal with the subject of the validity of the notices separately.

2. Monthly Activity Reports

The "Dealer Obligations" clauses of both agreements imposed an obligation on Forklift to provide a monthly activity report to Powerlift by the second working day of the next month. Failure to provide such reports constituted part of the grounds for the first notices of breach dated 14 April 2000. There was a bundle of activity reports tendered in evidence on behalf of Forklift for the period from April 1998 to March 2000. In the course of cross‑examination Ackland, the general manager of Powerlift acknowledged that monthly activity statements were provided by Forklift trading as Adapt-A-Lift. However, he said that there were deficiencies in the details provided. The evidence for Forklift was that the information constituting the monthly activity reports was provided albeit not necessarily on time in accordance with the terms of the dealership agreements but that there was never any complaint by Powerlift about the lack of timeliness. Ackland said that he sent an e-mail to Powerlift probably in about November 1999 raising the fact that the activity reports provided were incomplete and unsatisfactory. The e-mail was never produced. Forklift alleged that as no complaint was made there was a waiver alternatively an estoppel of the right to rely on the lack of provision of information in the monthly activity reports. However, no estoppel was properly pleaded. Further, there was no evidence of the usual criteria of inducement, reliance and detriment: see Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 428-429; Commonwealth v Verwayen (1990) 170 CLR 394, 413. If anything, therefore, the course of conduct of the defendants could constitute no more than waiver. The case put on behalf of the plaintiffs did not identify whether the waiver constituted waiver in the sense of estoppel, by way of election or in the sense of variation of a contract. On balance it appeared that the type of waiver relied upon by Forklift was really waiver in the sense of election. That is to say, Forklift claimed that the Powerlift elected not to pursue their rights or remedies promptly after the expiration of the second working day of the next month when monthly activity reports were not provided or were inadequately provided. Ultimately, I was satisfied that on the whole monthly activity statements were provided by the plaintiff and in so far as there were deficiencies in the timeliness and content of the statements or indeed in so far as there was failure to provide such statements there was no complaint on the part of Powerlift. In this respect I find that Powerlift made an election in relation to the provision of the monthly activity reports.

It follows that the notices of breach of 14 April 2000 in so far as they relied upon failure to provide monthly activity reports were invalid as Powerlift had waived any breach of noncompliance and was not entitled to rely upon them for the purpose of terminating either of the dealership agreements.

3. Details of Sales

It was the case of Forklift that details of sales were provided in purchase orders, invoices and other documents. Again Forklift asserted that Powerlift had never complained about the adequacy of the information provided in relation to details of sales and that the lack of complaint thereby constituted a waiver, alternatively, an estoppel. For the same reasons expressed in relation to the monthly activity statements no estoppel has been pleaded by Forklift or made out on the evidence. So far as waiver was concerned there was some complaint on the part of Powerlift that the information not included in the details of sales were details of industry types. Powerlift had a system of utilising information called "SIC codes" as a method of identifying industry types. In the course of cross‑examination each of Ackland, Puddy and Devine conceded that SIC codes had never been sought by Powerlift from Forklift. In addition, a number of documents produced by Forklift being circulars to all dealers in 1998, 1999 and 2000 made no mention of a requirement of industry types. Furthermore, there was inconsistency in the Powerlift camp as to the purpose of the provision of the information of industry type. Puddy said in evidence the information was required for warranty purposes. Devine said in evidence that the information was required for marketing purposes. At the same time both Puddy and Ackland acknowledged that no other dealer supplied by Powerlift had been required to specify industry type.

I am satisfied that details of sales were provided by Forklift to Powerlift in accordance with the requirements of the dealership agreement. In so far as there was any deficiency in the information provided with respect to identity of industry types I am satisfied that such non‑compliance was accepted and waived by Powerlift. It follows that in so far as the notices of breach of 14 April 2000 relied upon failure on the part of Forklift to provide details of sales the notices were invalid as Powerlift had waived any breach or non-compliance and was not entitled to rely upon them for the purpose of terminating either of the dealership agreements.

There is the remaining allegation by Forklift that even if the breach alleged in the notices of breach relied upon failure to provide monthly activity reports and the details of sales the relevant breaches were not material breaches under the agreements. I will deal with this subject separately. Similarly, Forklift alleged that the notices so far as they related to the provision of sales details were invalid because of insufficient particulars. I will deal with this subject also separately.

4. Failure to Meet Budget Requirements

Each of the dealership agreements were performance based agreements and contained a specific term whereby Powerlift had a right to terminate those agreements by giving 90 days' notice if Forklift failed to achieve the target sales performance as required under the relevant budget clause.

Both parties treated targets and budgets interchangably. Whiffen said that from the beginning of the agreement he knew that there would be budgets that had to be met and that if they were not met it would provide a basis for a 90 day termination notice. It transpired that Powerlift served 90 day notices on Forklift in respect of both the Nissan and Raymond dealerships on 30 May 2000 on the ground that Forklift had failed to achieve the target sales performance as per the budget clause of the respective agreements. As each of the Nissan and Raymond dealesrhips involved separate budgets it is appropriate in the circumstances of this proceeding to consider the budgets with respect to each of the Nissan and Raymond dealerships separately.

(a) The Nissan Budget

The notice of breach concerning the Nissan budget alleged that Forklift failed to meet an agreed budget for 1998 of 250 units and an agreed budget of 217 units for 1999. Consequently, Forklift needed to prove that there was not an agreed budget for 1998 or 1999 or if there were agreed budgets that it met such budgets.

Forklift through the evidence of Powell admitted that a budget for Nissan of 250 items was agreed for the 1998 calendar year. Further, in a letter written by Mr John Davin, general manager of Powerlift (Nissan) to Forklift dated 28 January 1998 reference was made to a budget of 250 units for the calendar year of 1998. Powell acknowledged that Adapt-A-Lift sold 150 units (as against 250 units) in the calendar year 1998. On these facts, therefore, Forklift failed to meet the budget for the 1998 calendar year. It was the case of Forklift that no budget had been agreed to for the 1998 calendar year. The allegation was made on the basis that the Nissan dealership agreement was signed in March 1998 notwithstanding that it was acknowledged that the agreement expressly provided for it to be effective from December 1997. In my view the assertion of Forklift there was no budget for the 1998 year does not sit with the evidence. Hence, I find that a budget of 250 units was agreed for 1998 and Forklift did not meet that budget and, further, that the number of units sold was in fact 150 units constituting a negative variance of 20 per cent for the period. I conclude that Powerlift was entitled to give the 90 day notice dated 30 May 2000 under the termination clause to Forklift for failing to meet the 1998 budget under the Nissan dealership. In so far as it is necessary, I turn to consider the matters in relation to the budget for the 1999 year.

A meeting was held on 13 January 1999 concerning, among other matters, the Nissan budget for 1999. Present at the meeting were Powell, Davin, Ackland and Puddy. Davin did not give evidence. There was agreement among Puddy, Ackland and Powell about some aspects of the meeting: that it in fact occurred, that it was held on 13 January 1999 and that the topic of the 1999 budget was discussed. Two sets of documents emanated from the meeting of 13 January 1999 consisting of a copy of notes made on a whiteboard and a set of minutes. These documents referred to a budget of 217 units. There was disagreement among Powell, Ackland and Puddy as to whether a budget of 217 units actually was agreed to at the meeting of 13 January 1999. Ackland and Puddy said that it was so agreed, Powell disputed the agreement.

After that meeting, Ackland sent Powell a facsimile on 18 January 1999 referring to an agreed budget figure for 1999 of 217 units. Subsequently, in a facsimile dated 3 February 1999 Powell informed Ackland that "our new budget is totally unrealistic" and suggested that a budget of 186 units was for 1999 more realistic. By facsimile dated 11 February 1999 Ackland informed Powell that a budget of 186 units would not be a reasonable result. Another meeting was held in March 1999. At that meeting the budget for 1999 was discussed further. Present at the meeting were Powell, Cunial and Ackland. There was agreement among these witnesses about the March meeting: that it in fact occurred, that it was held in March 1999, that the topic of the 1999 budget was discussed and that budget figures of 217 units and 186 units were discussed. Again, a document emanated from that meeting in March 1999 consisting of a copy of notes made on a whiteboard. This document referred to a budget for 1999 of 200 units. Of those present at the March 1999 meeting, Ackland said that a budget of 200 units was agreed upon, Cunial said that there was no such agreement and Powell had no recollection of the figure of 200 units.

Having had the opportunity to observe the witnesses and considering the course of events from 13 January 1999 until March 1999 supported by the whiteboard notes made at the meeting in March 1999 I am satisfied that the figure of 200 units was agreed upon. This conclusion is borne out by other evidence. Firstly, a handwritten note made by Powell on a letter dated 25 October 1999 referring to a monthly budget of 16.6 units that in turn equates to 199.2 units per year, a number capable of being rounded up to 200. Second, a meeting held at the Brisbane Airport in October 1999 when the 1999 budget was discussed although without reference to any number of units. Third, the internal records of Powerlift disclosing a budget of 200 units for the 1999 year. I conclude that the budget for the 1999 year was agreed at 200 units. Forklift did not reach that target.

Forklift criticised the notice of 30 May 2000 with respect to the breach relying upon failure to meet budget on the basis that the notice stipulated the failure to sell 217 units in 1999 as distinct from the 200 units agreed upon. Again, I will consider the question of the form of the notice separately.

(b) The Raymond Budgets

The notice of breach concerning the Raymond budget alleged that Forklift failed to meet an agreed budget for 1998/1999 of 68 units. Consequently, Forklift needed to prove that there was not an agreed budget for 1998/1999 or if there was an agreed budget that it met such budget.

The Raymond budgets were considered by the parties on a financial year basis, that is, compared with a calendar year basis. For the 1998/1999 financial year the budget for the Raymond agreement was set out in a spreadsheet entitled "Raymond Orders Actual vs Budget". The budget amount was 68 units. The spreadsheet disclosed actual sales of 30 units. The figures in the spreadsheet were not challenged by Forklift. In any event, Devine gave evidence to the effect that later in time at a meeting on 6 or 7 April 2000 Powell acknowledged that the Raymond budget for 1998/1999 was 68 units and complained that the figure could not be achieved. I accept the evidence of Devine. I find that there was an agreed budget for this period of 68 units. Forklift did not reach that budget. I conclude that Powerlift was entitled to give the 90 day notice dated 30 May 2000 under the termination clause to Forklift for failing to meet the 1998/1999 Raymond budget.

The budget for the 1999/2000 year was considered over a period of some months. On 13 January 1999 Puddy, Ackland, Davin and Powell met. It was the same meeting described already in relation to the Nissan budget. The Raymond budget for 1999 was discussed, it seems on the basis of a calendar year at that stage rather than a financial year. In the notes made by Ackland during the meeting on a whiteboard figures for the Raymond budget were included. The whiteboard notes showed entries of a Raymond budget of 30 units for the first half of 1999 and 60 units for the second half of 1999. Powell accepted that the whiteboard notes emanated from the meeting of 13 January 1999. Puddy and Ackland said in evidence that a budget figure was agreed at the meeting on 13 January 1999 of 90 units for the calendar year 1999. In the notes made by Ackland of the meeting of 13 January 1999, as well as referring to the Nissan budget as already described, the notes recorded that a Raymond budget of 90 units for 1999 was agreed. Powell did not accept that a budget figure had been agreed upon but recalled that a budget figure of over 100 units had been stated by Puddy.

On 3 February 1999 Powell wrote on behalf of Forklift to Powerlift as already described. The letter was concerned principally with the Nissan budget and did not make any reference to the Raymond budget as discussed at the meeting of 13 January 1999. Little if anything was said or done in relation to the Raymond budget until a meeting in Brisbane on 7 and 8 April 1999 attended by Powell, Cunial, Boothroyd and Devine. Over the two days discussions were held and visits were made to customers of Forklift. Scant evidence was given by any of the witnesses about discussions at the meeting, in particular, there was no suggestion that the Raymond budget was discussed. On 13 April 1999 Devine sent a facsimile transmission to Powell referring to the visit. There was no reference to the Raymond budget. Ongoing discussions and correspondence continued thereafter about the Nissan and Raymond dealerships without specific reference to budget.

In early October 1999 Devine sent a facsimile to Powell setting out the budget sales figures of Forklift in relation to Raymond products for the period April to September 1999. The document set out in a tabulated form budget sales figures for April to September 1999 of 37 units (a proportion of a budget of 68 units) compared with actual sales of 30 units. The document set out, also, in unequivocal terms that the Raymond budget for the financial year 1998 to 1999 was 68 units. In discussions and correspondence following receipt of the document at no stage did Forklift challenge the budget figure of 68 units and actual sales of 30 units for 1998/1999.

A meeting was held at Brisbane Airport on 28 October 1999 attended by Powell, Whiffen, Arthur Martin a director of Forklift, Cunial, Ackland, Puddy and Devine. Discussion at the meeting revolved around the future of the Nissan and Raymond dealerships. There did not appear to be specific discussion on the topic of the Raymond budget. On 2 November 1999 Puddy wrote to Forklift about the meeting. Again no reference was made to the Raymond budget but reference was made to a sales performance of Raymond products by Forklift of 28 units (for an unspecified period). On 10 December 1999 Devine, Powell and Cunial met and a budget of 75 units was considered for the 1999/2000 financial year. At the meeting Powell requested that the figure be reviewed.

On 29 February 2000 Devine sent Powell a facsimile referring to a budget figure of 17 units for the three month period December 1999 to February 2000. If that figure is extrapolated to the full 12 month period it gives a yearly budget figure of 68 units. Powell did not reject these figures at any stage after receipt of the facsimile from Devine. On 2 March 1999 Ackland sent Powell a facsimile. It included a reference to a budget of 68 units. The figure was never questioned by Powell. Consideration of the evidence, in particular, the fact that Powell did not at any stage take the opportunity to reject a budget figure of 68 units for the 1998/1999 year leads me to conclude that there was a Raymond budget agreed to for that period of 68 units. There was no dispute between the parties that Forklift failed to sell that number of units. Rather, its position was that a budget figure was never agreed upon.

For the purposes of determining whether Powerlift was entitled to serve the notice of breach in relation to the Raymond budget, I am satisfied that there was an agreed budget and that it was not met. Furthermore, a great deal of evidence was devoted to the 1999/2000 Raymond budget. As I have found that the 1998/1999 budget was agreed and not met it is unnecessary for the purposes of determining the entitlement of Powerlift to serve the notice of termination to consider the circumstances surrounding the 1990/2000 Raymond budget. However, it is convenient to deal with these matters at this juncture as the question of agreement over budget and the meeting of budget for the period 1999/2000 was relied upon by Powerlift to support its assertion of repudiation of the Raymond agreement.

Analysis of the meetings, correspondence and discussions of this period reveals a number of outcomes in relation to the Raymond budget for 1999 and 2000. At the outset a budget figure of 90 units for the calendar year was said to have been agreed on 13 January 1999. Later, a budget of 75 units was apparently agreed by 10 January 2000 without reference to whether it was for a calendar or financial year. Later, by April 2000, discussions reverted back to a budget of 75 units for the 1999/2000 financial year. In my view the evidence established that a budget of 75 units was agreed to. There was no dispute that Forklift failed to meet that budget figure.

(c) Explanation and Excuses of Forklift for Failing to Meet the Budgets

Finding as I do that there was a budget agreed for 1998 and 1999 under the Nissan agreement that was not met, it was the case on behalf of Forklift that in any event there were reasons for its failure to meet such budget. The legal foundation for this assertion was unclear and not clarified on the pleadings or in submissions. The case for Forklift seemed to be one in this regard of "lawful excuse" on its part or "contribution" on the part of Nissan.

The matters relied upon by Forklift were numerous. It was asserted that on a comparative basis its sales figures were no worse than other dealers in any event. In my view this is not a matter of any consequence as either there was a contractual obligation to sell a certain number of units or there was not. I have found that the agreed number of units were not sold. It was said by Forklift that the market share of Nissan dropped across Australia during the relevant period. Again, I consider this to be of no relevance but in the event that it may have been I accept the evidence of Puddy that during the year 2000 Nissan was the market leader in its field. Next it was said on behalf of Forklift that fluctuations in the exchange rate affected the Australian dollar that in turn affected the market. This is a further irrelevant matter but even so fluctuations in the exchange rate affected the entire forklift market not merely the Nissan market, hence, its competitors would have been equally affected. It was said further on behalf of Forklift that mechanical problems encountered with the Nissan model affected its market. This was a reference in particular to the forklift vehicle known as "GNO1". Again I consider the matter to be irrelevant but in any event I accept the evidence of Puddy that sales of the particular "GNO1" unit were insignificant in the overall scheme of things. In addition it was said by Forklift that there was a fear in the market of a takeover of the Nissan company in Japan that in turn impact on the marketplace. I do not accept this matter as being relevant but even if it was there was no evidence before me at all of any sale lost for this reason or of a customer commenting upon the subject. Next it was complained that there was price discrimination favouring some dealers, in particular a Western Australian dealer known as "WAFT" that had the net effect in turn of discriminating against Forklift. In my view the arrangements between Nissan and the Western Australian dealer known as WAFT was as a result of an inducement to persuade that dealer to change from a longstanding association with another manufacturer to Nissan and Raymond products. There was insufficient evidence before me of the pricing arrangements in relation to the Western Australian dealer to support a finding of price discrimination.

There was also considerable dispute between the parties concerning discriminatory pricing generally. An analysis of discounts given by Powerlift was prepared by Donley the financial controller of Powerlift. That analysis was in turn considered and re‑analysed by Whiffen the managing director of Forklift. The two witnesses were at odds in their analysis of the impact of the discounts given by Powerlift to dealers. At the end of the day the evidence of both Donley and Whiffen was inconclusive in that there were errors and omissions on both sides. In any event, it was Forklift who carried the evidentiary burden of proving the allegation of price discrimination. In my view the allegation was not made out so as to satisfy the usual standard.

Furthermore, in my view the complaints by Forklift of discriminatory pricing were irrelevant to the question of whether the notices of breach and termination ought have been served. Forklift had obligations to agree and meet budgets. I have found it did not meet budgets.

In any event, insofar as Forklift complained that it was unable to meet its budget obligations under the Nissan agreement I consider that the difficulty arose not because of factors such as discriminatory pricing but because Forklift was focussing upon its rental business rather than its sales business. Indeed, Whiffen on behalf of Forklift acknowledged in his evidence that the rental business of Forklift was a main priority.

There were other factors that exacerbated the position. Forklift failed to employ sufficient staff and despite a number of requests by Nissan it failed to increase its staff numbers. There appeared to be no issue between the parties that the maximum number of forklifts that two dedicated sales staff could sell in a calendar year was about 120. By contrast, all of the sales staff employed by Forklift sold Nissan products, Raymond products, second hand forklifts of various brands and rented forklifts of various brands. It was the unchallenged view of Nissan expressed by Puddy that different people were needed to sell the two products of Nissan and Raymond, that is, specialist sales staff were required for each product. However, Forklift admitted that it had never employed a dedicated Raymond sales staff member. Indeed, evidence was given by Lawgall, a sales person employed by Forklift, that he did not know all the features of either Nissan or Raymond products.

In my view none of these matters relied upon by Forklift to support an allegation of excuse or contribution went to the question of breach of the budget clause in either the Nissan or Raymond dealerships. There was no allegation of induced breach or the like by Forklift against Powerlift. I consider all these explanatory matters to be irrelevant on the basis of the case as pleaded by the plaintiff.

Summary of Findings in Relation to Breaches Alleged in the Notices of Termination

Subject to the determination of the issue of material breach relied upon by Forklift, I summarise my findings in relation to the breaches alleged under the notices of termination, as follows:

1.Monies were owed at the time the notices were served on 14 April and 30 May 2000 and Powerlift was entitled to serve those notices accordingly. The amounts specified in the notices were not paid in full in the stipulated 14 day period.
2.Forklift provided monthly activity statements and details of sales, thus, Powerlift was not entitled to serve the notices of breach of 14 April and 30 May 2000 relying upon such breaches. Insofar as there were any deficiencies in the information provided they were waived by Powerlift.
3.Budget figures were agreed for the relevant periods and Forklift failed to meet budget requirements in breach of the budget clauses in each of the Nissan and Raymond dealerships. Powerlift was entitled, therefore, to serve the notices of termination on 14 April and 30 May 2000 in so far as the notices relied upon those breaches.

I turn then to consider whether the breaches I have found made out constituted "material breaches" for the purposes of both agreements.

Material Breach

Forklift asserted that even if the breaches relied upon in the notice of termination were found against it, the breaches did not constitute "material breaches" under the termination clause of both dealership agreements. It was asserted, therefore, that the notices were invalid. The termination clause allowed Powerlift to terminate the dealership on 90 days' notice to Forklift if the latter failed to achieve the target sales performance as provided in the budget clause to the agreements. There was no requirement under the clause that the failure to achieve budget constitute a material breach. It was not an issue, therefore, in relation to the termination notices concerned with budget. The termination clause provided, also, a right of termination to either party on written notice where the other party committed a material breach. Hence the issue to be determined is whether the notices of breach of 14 April 2000 concerned with the failure to pay and failure to provide information constituted a material breach.

A "material breach" of a contract does not appear to be a concept known to the law of contract.[1] It is then a question of determining the parties' intention of the use of the expression "material breach" in the agreement. In so doing I identify the ordinary sense of the word or words used unless such application leads to absurdity or inconsistency: see Watson and Anor v Phipps (1986) 60 ALJR 1, 3; Caledonian Railway Co v North British Railway Co (1881) 6 App. Cas. 114, 131. Furthermore, it is to be recalled that each of the dealership agreements was a commercial transaction. The general approach of the courts has been to strive to give effect to commercial arrangements and expectations: see Vroon BV v Foster's Brewing Group Limited (1994) 2 VR 32, 67-68.
[1]Although "material breach" appears to be recognised under the law relating to international treaties e.g. The Vienna Convention on the Law of Treaties (Vienna 23 May 1969).

The dictionary meaning of "material" is "essential" or "important": see Oxford English Dictionary. At common law the word "material" has been attributed a meaning of "significance" in the context of a material risk: see Rogers v Whitaker (1992) 175 CLR 749, 490. In the context of statutory construction the word "material" has been attributed a meaning of "significance". Also, see: Duke of Westminster v Birrane (1995) 3 All ER 416, 422-3, CA. Applying these meanings to the expression "material breach" in the termination clause I consider the expression can be equated with the expression known to the law of contract of "fundamental breach".

A "fundamental breach" has been held to mean a breach of a contract that goes to the very root of the contract: see Suisse Atlantique Societe d'Arment Maritime SA v NV Rotterdamsche: Kolen Centrale (1967) 1 AC 361, 397, 421-2. Whether a breach of contract constitutes a fundamental breach will depend upon the contract and all the facts and circumstances of the particular case: see Suisse Atlantique at 422. It is relevant, also, to consider the consequences of the act constituting the breach: Harbutt's "Plasticine" Limited v Wayne Tank and Pump Co Limited (1970) 1 QB 447. A "fundamental breach" has been described as any breach which provides the promisee with a right to terminate performance of the contract: Suisse Atlantique, supra, at 397. It can consist of total non-performance of the contract: Suisse Atlantique at 431. It can be a breach that deprives a party of substantially the whole benefit of the contract: see Hong Kong Fir Shipping Co Limited v Kawasaki Kisen Kaisha Limited (1962) 2 QB 26, 71; Suisse Atlantique at 397, 410.

There were three relevant categories of breach alleged by Powerlift against Forklift and relied upon in support of the notices of termination. The three categories were failure to pay amounts due and owing, failure to provide monthly activity reports and failure to provide details of sales. I have found that the breach constituted by failure to pay amounts due is the only relevant breach made out. Under the termination clauses the issue of material breach is confined to this particular breach.

It was clear from the evidence that there was a pattern on the part of Forklift of paying its Powerlift accounts late. There was evidence of invoices dated 28 February, 8 and 20 March 2000 being paid on 11 July 2000 and other invoices dated 15 and 17 March 2000 were paid on 30 June 2000. Another invoice was dated 31 March 2000 but not paid until 30 June. I was satisfied that the plaintiff had an established pattern of paying its accounts late. So much was conceded by Powell. I have found that monies were owed at the time notices were served. Powell acknowledged that the amounts owed were material. He conceded that even if one dollar was owed it was material.

Each of the Nissan and Raymond agreements contained a provision dealing with the trading terms of the agreement. It provided in both agreements:

"Trading Terms:
1.The trading terms of Powerlift (Nissan) Pty Ltd – the 'Company' are 21 days from the receipt of invoice for delivered goods unless other terms for specific sales have been arranged and agreed to by the Company."

The trading terms provision dealt with the terms for payment of goods. With respect to payment for parts, the term was varied. The variation to the trading terms for parts was recorded in a letter from Boothroyd for Powerlift to Whiffen for Forklift dated 11 May 1998 and endorsed at the foot of the invoices sent by Powerlift to Forklift. The invoices specified a particular date for payment, usually being the 30^th day of the month following the month in which the invoice was dated. The invoices included the endorsement "EOM 30". Powerlift relied on these matters in relation to parts to establish that the trading terms with respect to payment of parts was 30 days. The evidence relied upon by Powerlift was not rebutted by Forklift. I accept that the trading terms of both the Nissan and Raymond agreements was varied with respect to parts so that the trading terms were a period of 30 days.

There was evidence given by Donley on behalf of Powerlift that 22 individual invoices were unpaid. These invoices were set out in a document annexed to his witness statement. Donley was not challenged or cross-examined about these matters. There was dispute between the parties as to particular invoices and whether the amounts therein were owing. A number of invoices were paid. However, there appeared to be agreement between the parties that there was a separate category of invoices that were the subject of dispute by Forklift. One of these invoices was for an amount of $41.06. Forklift argued that it was entitled to a 40 per cent discount but admitted that even if it was the balance of 60 per cent of the invoice was owed.

There was an additional category of invoices that were paid but were paid late. There was an invoice dated 31 March 2000 marked due 30 April 2000 but in fact not paid until 30 June 2000, that is, two months late. The position of Forklift was that it did not receive the particular invoice until during the month of April and that it was not payable as a consequence until 30 May 2000. This attitude ignored the fact that the invoice specified a date for payment of 30 April 2000 but even if it was not received until during the month of April it was in any event due and payable on the 30 day terms arrangement by 31 May 2000 and was, therefore, not paid until a month later. There were other items that fell within the same category. There was evidence given by Kus on behalf of Forklift as to the amounts alleged to be actually owed under the notices of termination. However, the evidence of Kus was based upon a series of assumptions based presumably upon instructions from his client. However, those assumptions were not proved by Forklift. The assumptions consisted of annexures to his witness statement (Nos 4 and 8) that listed a series of explanations as to why amounts were not owed or had not been paid. In my view, Forklift failed to make out its case in this respect to the usual standard. It was well aware that there was issue between the parties on this matter and it did not prove the assumptions although it could have done so easily.

As plaintiff, Forklift carried the burden of proving on the balance of probabilities that none of the amounts claimed as owing in the 14 April and 30 May 2000 notices were in fact owed. I consider it has failed to fulfil that burden. It was clear from the evidence that payments were late, well beyond the 14 days stipulated in the notices. There was clear evidence that Forklift was slow, on occasions deliberately so, in the payment of Powerlift accounts. There was evidence that it did not pay for parts for a period of 150 days or more. Indeed, Powell admitted that there was a deliberate policy by Forklift to refuse to pay for parts.

The issue arises as to whether the failure to pay invoices from time to time constituted a minor matter or a material breach for the purposes of the Nissan and Raymond agreements. In my view in so far as Forklift failed to pay monies due the breach of the trading term constituted a material breach for the purposes of the agreements. It was a term that went to the very root of the agreement between the parties. I am satisfied, therefore, that the breach by Forklift in failing to pay amounts due and owing was a material breach under the agreements and that Powerlift was entitled to serve the notices of termination on 14 April and 30 May 2000.

The remaining matter to be considered is the validity of the notices.

Validity of Notices

Forklift criticised the form of the notices of 14 April and 30 May 2000. It complained that the notices were invalid in any event because they lacked sufficient particularity of the breaches relied upon. Furthermore, Forklift relied upon the fact that the notice of 30 May 2000 in so far as it provided particulars of the breach with respect to the budget clause for the 1999 period incorrectly referred to a budget of 217 units rather than the 200 units that I have found to have been agreed.

I do not accept the criticism of Forklift of the notices. Consideration of the notices of both 14 April and 30 May 2000 ought have left no reasonable doubt in the mind of the recipient as to the basis of the breaches alleged. With respect to the notices an amount was claimed as due and Forklift conceded at least part of the sums claimed were unpaid. The notices claimed that information was not provided, namely monthly reports and sales details. The notices claimed, also, that the budget requirement had not been met. The breach was clear. In so far as the notice of 30 May 2000 under the Nissan dealership recited a 1999 budget figure of 217 units instead of the agreed budget of 200 units it did not matter. Strictly speaking, all Nissan needed to do was give notice of the failure to meet the agreed budget. It did that. In any event, on the basis of my findings Powerlift was entitled to rely upon the failure to meet the agreed 1998 budget. Once that breach was found, strictly speaking, it was unnecessary to pursue the matter further with respect to the Nissan budgets.

Ultimately, in my view the notices, after careful consideration, contained sufficient particularity. Powerlift satisfied the necessary requirements of sufficient clarity: Falconer v Wilson (1973) 23 NSWLR 131, 145; Taylor v Raglan Developments Pty Ltd (1981) 2 NSWLR 117, 132; Catley v Watson (1983) V. Conv. R. 54-003 at 62,115; DWJ Holdings Pty Ltd v Carrideo (1990) V. Conv. R. 54-361; Central Pacific (Campus) Pty Ltd and Anor v Staged Developments Australia Pty Ltd, unreported judgment of the Court of Appeal dated 28 November 1997.

Repudiation by Forklift

Having made findings in relation to the breaches constituted by the failure to pay amounts due and failure to meet budgets the matter is determined with respect to the claim by Forklift against Powerlift. I turn to consider the allegation of repudiation relied upon by Powerlift partly in its defence but more particularly in support of its counterclaim for declaratory orders.

Powerlift alleged that even if the Nissan and Raymond agreements were not breached as asserted in the notices of termination, nevertheless, Forklift had repudiated both agreements. Powerlift relied upon a number of actions and events to support a finding of repudiation. It purported to accept the repudiation. First, Powerlift asserted that Forklift failed to pay for parts in breach of the trading terms and for extensive periods including one example where parts were not paid for a period of 150 days. I have found the facts proven that are relied upon to support this allegation. Second, Powerlift asserted that Forklift failed to pay invoices in accordance with trading terms. I have found the facts proven that are relied upon to support this assertion. Thirdly, Powerlift asserted that Forklift did not agree to budget targets. For the reasons already stated I have found that there was in fact agreement by Forklift to budgets under both agreements. It follows that this assertion cannot be relied upon to support an allegation of repudiation. Fourthly, Powerlift relied upon the fact of failing to meet budget targets. For the reasons already stated I have found the facts proven that are relied upon to support this assertion. Fifthly, Powerlift asserted that Forklift failed to promote the sale of Powerlift products by employing suitably qualified and experienced personnel. I have found the facts proven that are relied upon to support this assertion. Sixthly, Powerlift complained initially that Forklift failed to return forklifts to Powerlift. There was evidence that Powerlift demanded that 20 forklift vehicles be returned by Forklift but the demands were refused. So much was admitted by Powell. Ultimately, the forklift vehicles were returned or offered to be returned by Forklift. However, the return or offer of return of the vehicles occurred only after the service of the notice of default by Powerlift. For the purposes of alleging repudiation Powerlift relied upon late return of forklifts. There was no dispute by Forklift that this occurred. I find, therefore, that late return of vehicles (for the purposes of repudiation) was made out.

Seventh, Powerlift complained that it supplied six forklift vehicles to Forklift at a special price for the express purpose of being used in the Adapt-A-Lift rental fleet but that the vehicles were sold in the usual way by retail sale. Powerlift complained that this was done without its permission and, further, that Forklift did not account to Powerlift for the difference between the special price at which the vehicles were supplied and the price at which the vehicles would normally have been supplied for retail sale. So much was acknowledged by Powell and Cunial. Furthermore, there was one episode of Davin of Powerlift approving a sale of a vehicle supplied at the special price for a normal retail sale. I was satisfied that Forklift sold forklift vehicles supplied to it at a special price for rental purposes without the knowledge and consent of Powerlift. Eighth, Powerlift complained that Forklift stripped parts from stock supplied on consignment that remained the property of Powerlift without its permission. These matters were acknowledged by Powell, Whiffen and Poller. Powell went so far as to acknowledge that he, on behalf of Forklift, was prepared to strip parts from consignment stock without the consent of Powerlift at any time. I was satisfied that Forklift stripped parts from consignment stock without the permission of Powerlift. Ninth, Powerlift complained that Forklift made an excessive number of warranty claims over and above those made by other dealers. On balance I find that Powerlift carried the burden of proving this allegation as it was made in the counterclaim as a basis for seeking a declaration that the agreements were terminated. On the evidence it was apparent that Forklift made a substantial number of warranty claims and more than other dealers. However, that of itself did not establish excess or exaggeration. Furthermore, the allegation carried an overtone of fraud. I was not satisfied on a sufficient basis that the allegation was proven. Tenth, Powerlift relied upon the alleged failure to provide monthly activity reports and sales details. I have found previously that the allegation is not made out.

Powerlift relied upon each of the acts and occurrences that I have found proven to support the assertion that Forklift evinced an intention to no longer be bound by the terms of the agreements or to fulfil the agreements in a manner substantially consistent with its obligations under the Nissan and Raymond agreements. Furthermore, Powerlift asserted that each of these acts and occurrences manifested an inability or unwillingness on the part of Forklift to perform either the whole contract or an essential term of it: see Carr v J.S. Berriman (1953) 89 CLR 327, 351; Foran v White (1989) 168 CLR 385, 441.

Successive breaches can have a combined significance or a cumulative effect such as to constitute repudiation: Carr v J.S. Berriman Powerlift, supra, 351-2; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 57 ALR 609. When considered in isolation each of the acts and occurrences as proved and relied upon by Powerlift as supporting repudiation would not necessarily amount to sufficient seriousness to constitute repudiation. However, when the various allegations of conduct and actions by Forklift are considered on a cumulative basis the conclusion is reached that it and its employees adopted a cavalier attitude towards the obligations owed by Forklift to Powerlift under the two agreements. In this regard, in my view, the overall conduct of Forklift manifested an intention not to be bound by the terms of the two contracts. Hence, I find that Forklift repudiated each of the agreements and Powerlift was entitled to accept the repudiation in each case. It follows that Powerlift is entitled to the declaratory relief it seeks.

Obligation of good faith

Having determined the question of the breaches and, if necessary, the question of repudiation that is the end of the matter save for the claim for damages for breach of duty of good faith brought by Powerlift in the counterclaim.

Unlike the approach in the United States, until relatively recently, there was hesitation if not reluctance in Australian courts to impose upon parties to contracts an implied term of good faith: see Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 263-264; Service Station Association Limited v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84, 96; also, "Good Faith and Contractual Performance", H.K. L�cke, Essays on Contract, ed. P. Finn. An exception applied to contracting parties who had a fiduciary relationship: see Noranda Australia Limited v Lachlan Resources NL (1988) 14 NSWLR 1; Kelly v CA Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248; AMP Society v 400 St Kilda Road Pty Ltd (1990) VR 646; Hospital Products Limited v United States Surgical Corporation (1984) 146 CLR 141.

In Australia the approach has been to impose an implied duty of co-operation to secure performance of the contract: see Secured Income Real Estate (Aust) Limited v St. Martins Investments Pty Ltd (1979) 144 CLR 596, 607; CSS Investments Pty Ltd v Loprion Pty Ltd (1987) 76 ALR 463; Adelaide Petroleum NL v Poiseidon Limited (1988) 98 ALR 431; AMP Society v 400 St Kilda Road Pty Ltd, supra. Stating the approach more precisely, the courts have recognised a contractual duty to act in accordance with the objective of the contract, that is, each party must comply not merely with the strict terms of the contract but act with due regard to the objective to which the contract is directed: see also Commissioner of Taxation v Sara Lee Household & Body Care (Aust) Pty Ltd (2000) 74 ALJR 1094, 1105.

More recently, Australian courts have recognised the application of the doctrine of good faith: see Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1, 36; also, Alcatel Australia Limited v Scarcella & Ors (1998) 44 NSWLR 349, 369; Far Horizons Pty Ltd v McDonald's Aust. Ltd [2000] VSC 310. In a commercial context, if there is an implied duty of good faith the duty must be owed mutually between the parties. That is to say, one party to a contract ought not be allowed to rely upon a breach of a duty of good faith if it is in breach of that duty itself. Just as the doctrine of good faith draws on equity so too does the concept of "clean hands" have a part to play.

In this proceeding Powerlift alleged that Forklift breached a duty of good faith constituting a repudiation of the agreements that Powerlift accepted. The breaches relied on were four in number. First, deliberate late payments by Forklift for parts supplied by Powerlift. Second, failure to agree to budgets. Third, the making of exaggerated warranty claims. Fourth, the false purchase of vehicles for rental purposes in fact intended for sale without accounting to Powerlift for price differences.

However, Forklift alleged that Powerlift itself breached the agreements in a number of ways including non-compliance with a term excluding dealings by Powerlift with a list of nominated customers forming part of "the major accounts". There were specific terms of the Nissan and Raymond dealerships that Powerlift would not deal with customers of Forklift during the term of the agreement for the purposes of selling or renting forklift trucks to those customers. There were further terms that Powerlift would not deal with certain customers known as "Major Accounts" for the purposes of renting forklift trucks to those customers. The major accounts included larger corporations that had a high level of requirement for forklift usage in their particular field. The requirement of non-contact with major accounts was stipulated in the Nissan dealership:

"PLN [Powerlift] agrees, whether on its own account or on behalf of any other person or company, not to solicit, canvass or endeavour to obtain the business or custom of those customers of the Dealer [Forklift/Adapt-A-Lift] described in the Schedule annexed as 'Major Accounts', for the purpose of renting forklift trucks to those Major Accounts whether in or outside the Territory without the prior written consent of the Dealer.
PLN and the Dealer agree that the restraint referred to in the previous sub‑clause is necessary to enable the dealer to protect its legitimate business interests of renting forklift trucks and is reasonable in all the circumstances and is given in consideration of the dealer agreeing to this dealership".

It was conceded by Powerlift witnesses that it had dealt with customers listed in the schedule and known as major accounts. In this regard Powerlift demonstrated an attitude of non-compliance with the terms of the agreements when it suited it. I consider that a duty of good faith was to be implied and that it was breached on both sides. In my view it was not open to Powerlift to allege a breach of duty of good faith against Forklift when it had engaged in actions that constituted a breach of the duty of good faith on its own part. In the commercial context of the arrangement between these parties their obligations were to a large extent interwoven. It seems to me, therefore, that Powerlift cannot rely upon the breach of duty of good faith in light of its attitude and conduct in relation to the major accounts. There were other allegations made by Forklift against Powerlift with respect to the change in the nature of the business of Powerlift from one of national sales to one of national rental. In essence, it was alleged by Forklift that Powerlift had changed the nature of its business on a national basis and, therefore, had an ulterior motive in terminating the Nissan and Raymond dealerships in order that it could expand its national business, in particular, in relation to the rental market and take over the market share of Forklift. The nature of the allegation made by Forklift against Powerlift with respect to ulterior motive is a serious allegation. In making the allegation Forklift carried the evidentiary burden. In light of the evidence I do not consider that the burden has been made out sufficiently.

Finally, in relation to the allegation of breach of duty of good faith made by Powerlift against Forklift, if the duty had been breached by Forklift and Powerlift was entitled to damages it would have been necessary for me to assess damages. I was satisfied that the loss and damage claimed by Powerlift in the sum of $2,568.81 was made out. The sum claimed was not seriously challenged by Forklift.

Summary of findings

In summary, therefore, I make the following findings:

(1)The breaches properly relied upon in support of the notices of termination were the failure to pay amounts due and the breach of the budget clause under both agreements.
(2)In view of the failure to pay amounts due in full Powerlift was entitled to serve the notices on 14 April and 30 May 2000. As the relevant amounts were not fully paid within 14 days of the notices, Powerlift was entitled to terminate the agreements.
(3)In view of the breach of the budget clauses in each agreement Powerlift was entitled to serve the notices of 30 May 2000 and terminate the agreements.
(4)In view of the various acts and occurrences found proven and relied upon to support repudiation, each of the agreements were repudiated by Forklift and Powerlift was entitled to accept such repudiation and the agreements were terminated accordingly.

Arising from these findings certain consequences flow. First, Forklift fails in its claim for a permanent injunction to restrain Powerlift from terminating the dealerships. Second, Forklift fails in its claim for a permanent injunction requiring Powerlift to perform its obligations under the agreements. Third, Powerlift fails in its counterclaim for damages for breach of the obligation of good faith. Fourth, Powerlift succeeds in its counterclaim for declarations that it was entitled to terminate the agreements.

It follows, therefore, that the plaintiff fails on its claim and the defendants succeed in part on the counterclaim. I direct the parties to prepare minutes of orders in accordance with these reasons.

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Forklift Engineering Australia Pty Ltd v Powerlift (Nissan) Pty Ltd [2000] VSC 443

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[2000] VSC 443

12 December 2000