Gangemi Importers & Distributors v P & T Basile Imports Pty Ltd - [2002] WASC 175

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: GANGEMI IMPORTERS & DISTRIBUTORS -v- P & T BASILE IMPORTS PTY LTD [2002] WASC 175

CORAM: ROBERTS-SMITH J

HEARD: 25-28 MARCH, 2-5 APRIL 2002

DELIVERED : 28 JUNE 2002

FILE NO/S: CIV 1448 of 1998

BETWEEN: GANGEMI IMPORTERS & DISTRIBUTORS
Plaintiff
AND
P & T BASILE IMPORTS PTY LTD (ACN 005 972 127)
Defendant

Catchwords:

Contracts - Construction and interpretation - Oral contract to supply imported food products - Implied terms - Whether for exclusive State distributorship - Termination on reasonable notice

Contracts - Implied term - Payment within 60 days of invoice - Whether implied term defendant could suspend supply if payments overdue

Contracts - Termination - Breach - Whether termination or repudiation

Legislation:

Nil

Result:

Plaintiff's claim dismissed

Category: A

Representation:

Counsel:

Plaintiff: Mr S W O'Sullivan
Defendant: Mr J P T Olivier & Mr B H Taylor

Solicitors:

Plaintiff: McCallum Donovan Sweeney
Defendant: Talbot & Olivier

Case(s) referred to in judgment(s):

Amann Aviation Pty Ltd v The Commonwealth of Australia (1990) 92 ALR 601
Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435
B P Refinery (Western Port) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20
Carr v J A Berriman Pty Ltd (1953) 89 CLR 327
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Fink v Fink (1947) 74 CLR 127
Foran v Wight (1989) 168 CLR 385
Holland v Wiltshire (1954) 90 CLR 409
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Robinson v Harman (1848) 1 Exch 850; 154 ER 363
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Shevill v Builders' Licensing Board (1982) 149 CLR 620
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

Case(s) also cited:

Abrahams v Federal Commissioner of Taxation (1945) 70 CLR 23
Australian Blue Metal Limited v Hughes [1963] AC 74
Bak-a-lum Corp America v Alcoa Building Products Inc (1976) 69 NJ 123
Baltic Shipping Co v Dillon (1993) 176 CLR 344
Best v Best (1993) FLC 92-148
BP Chemicals ANZ Pty Ltd v Manildra Starches Pty Ltd [1997] FCA 1046
Cabvan Pty Ltd v Arturo SPA Salice, unreported; FCA (Vic) (Heeney J); 0553/98; 11 May 1998
Chaplin v Hicks [1911] 2 KB 786
Crawford Fitting Company v Sydney Valve & Fittings Pty Ltd (1998) 14 NSWLR 438
Daniels v Anderson (1995) 37 NSWLR 438
Decro-Wall SA v Practitioners in Marketing Limited [1971] 2 All ER 216
Drinkwater v Caddyrack (1999) 17 ACLR 1592
Executive Director of Health v Lily Creek International Pty Ltd (2000) 22 WAR 510
Fightvision Pty Ltd v Onisforou; Tszyu v Fightvision Pty Ltd (1999) 47 NSWLR 473
Foaminol Laboratories v British Antrid Plastics [1941] 2 All ER 393
Hadley v Baxendale (1854) 2 CLR 517
Henville v Walker (2001) 182 ALR 37
Heskell v Continental Express Limited [1950] 1 All ER 1033
Hungry Jacks v Burger King (1999) 30 ACSR 551
Johnston v Great Western Railway Company [1904] 2 KB 250
Malec v J C Hutton Pty Limited (1990) 169 CLR 638
McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1
McIntosh v Williams [1979] 2 NSWLR 543
Monarch Steamship Co Limited v Karlshamns Oljefabriker [1949] AC 196
Mowbray v Merryweather [1895] 2 QB 640
Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444
Payzu v Saunders [1919] KB 581
Radferry Pty Ltd v Starborne Holdings Pty Ltd (1999) ATPR 46
Reynolds v Commissioner of State Taxation (WA) (1986) 86 ATC 4528
Rowntree & Sons Limited v Allen & Sons (Poplar) LImited (1936) 41 Com Cas 90
Sellars v Adelaide Petroleum NL (1994) 37 NSWLR 438
The Mihalis Angelos [1971] 1 QB 164
Wenham v Ella (1972) 127 CLR 454
Witt (WA) Pty Ltd v Metters Ltd [1967] WAR 15

ROBERTS-SMITH J: This is a case of alleged breach of an oral contract.
The plaintiff ("Gangemi Distributors") is a small Western Australian firm whose business was the importation and wholesale distribution of continental foods in Western Australia. A large proportion, if not most, of the goods supplied by it to retail outlets, were obtained by the plaintiff from the defendant ("Basile Imports"), a company which is registered in Victoria and whose office is in Melbourne.
The agreement between the plaintiff and defendant was entirely oral. Nothing had been reduced to writing.
The plaintiff alleges the defendant failed or refused to supply goods ordered as a consequence of which it was unable to keep operating and eventually the business had to be shut down. The plaintiff claims damages somewhere between about $260,000 to over $700,000, depending upon what aspects of its claim are accepted.
The defendant, on the other hand, denies it was in breach of contract and says it has no liability to pay damages at all. It claims the plaintiff was in breach of contact by failing to pay for goods within 60 days of their delivery, as a consequence of which, and in accordance with a term of the contract, the defendant refused to supply further goods until payments were brought up to date.

The Pleadings

The plaintiff began these proceedings by writ of summons filed on 1 May 1998. As amended to the date of the hearing, the plaintiff pleads in its statement of claim that at all material times it was a firm constituted by a partnership between Rocco Italiano and Guiseppe Italiano and carried on the business of importers and distributors of European speciality goods. The defendant at all material times was a company carrying on the business of importers and distributors of such goods. It is pleaded that dealings between the plaintiff and defendant were conducted by Rocco Italiano for the plaintiff and Pasquale Basile for the defendant.
Paragraph 5 of the statement of claim pleads that by an oral agreement "styled an exclusive distributorship agreement" made between the plaintiff and defendant in or about December 1995, it was agreed that Gangemi Distributors would act as Basile Imports' exclusive distributor in Western Australia of European specialty goods imported into Australia by Basile Imports.
The plaintiff pleads that implied terms of the contract included that the contract was terminable by either party upon reasonable notice being given and that Basile Imports would supply to Gangemi Distributors, in a timely manner, goods ordered from Basile Imports by Gangemi Distributors for distribution in Western Australia.
In its re‑amended defence the defendant admits the implied terms that the contract was terminable on reasonable notice and timely supply of ordered goods, but says that the "timely supply" was conditional on Gangemi Distributors making payment for goods within 60 days of their delivery.
The plaintiff alleges two breaches of contract by the defendant. At pars 7 – 10 of the statement of claim it is pleaded that in late January 1997, Gangemi Distributors placed an order with Basile Imports for the supply of a mixed container of Easter cakes and Pandorini ("the January order"), and that by written confirmation in or about mid‑February 1997 Basile Imports accepted that order. It is then alleged that in breach of the implied term that the defendant would supply ordered goods in a timely manner, Basile Imports failed to supply the Easter cakes and Pandorini as requested or at all, as a consequence of which Gangemi Distributors suffered loss and damage.
The second breach of contract pleaded is that in or about July 1997 the defendant terminated the contract without notice, contrary to the implied term that reasonable notice of termination was required. As to this the plaintiff relies upon a letter from Basile Imports dated 22 July 1997 in which the latter advised that Gangemi Distributors would no longer be the exclusive Western Australian distributor for the defendant's product. It is alleged that as a result of that second breach of contract the plaintiff suffered, and continues to suffer, loss and damage.
Much of this is admitted by the defendant.
What is denied is that the contract was for an exclusive distributorship in Western Australia and that the defendant was in breach of any term of the contract. The defendant says the agreement was entered into on 1 December 1995 and included the following express terms:
(a)that goods would be supplied to the plaintiff from time to time by the defendant upon receipt of an order for goods and acceptance of the order by the defendant;
(b)that trading terms would be strictly 60 days from the date of the invoice;
(c)that the supply of all goods would be suspended without notice pending the plaintiff's compliance with the trading terms; and
(d)the plaintiff would make an advance payment of $20,000 to the defendant in part payment for the first batch of goods ordered by the plaintiff.
It is further pleaded that it was an implied term of the agreement that alternatively to the term that payment would be within 60 days from the date of the invoice, the supply of goods could, at the option of the defendant, be suspended without notice, if the plaintiff failed to make payment within the 60 days.
The defendant then pleads that the plaintiff breached the agreement by failing to pay within the 60‑day term, for goods supplied between October 1996 and the end of November 1997, as a consequence of which the defendant was entitled to suspend supply.
The defendant further pleads that in any event in or about June 1997 the plaintiff purported to terminate the agreement in a telephone conversation between Rocco Italiano and Pat Basile in which, in response to a demand by the latter for a letter of credit in favour of the plaintiff for future orders, Rocco Italiano refused, stating that their business relationship was over, the defendant could keep its stock and the plaintiff would keep its money. The defendant pleads this was a wrongful repudiation by the plaintiff of its obligations under the agreement, which repudiation was then accepted by the defendant.
Alternatively to the defendant's plea of repudiation in June 1997, it pleads there was an implied repudiation in a letter from the plaintiff to the defendant dated 22 July 1997.
Finally, the defendant denies the plaintiff suffered any loss or damage, but that if it did, the plaintiff failed to mitigate by obtaining a replacement supplier or suppliers or by continuing to obtain goods through the defendant, albeit on payment by letter of credit.

The Background

Rocco and Guiseppe Italiano are brothers. They were born in Italy and migrated to Australia in March 1951. Rocco Italiano is the elder. He turned 17 years old shortly after he arrived in Australia. He was born on 23 March 1934, although due to a mix‑up recording his date of birth in the documents completed on his arrival in Australia, all official records show it as 23 April 1934. At the date of hearing Rocco Italiano was 68 years of age. His youngest brother Guiseppe is 63 years old. There is one other brother between them.
After completing schooling in Australia, Rocco Italiano obtained employment making number plates for push bikes. Later he worked in fruit shops and after some years of that he and his brothers started their own fruit market business.
In 1967 Rocco Italiano worked as a used car salesman for a Chrysler franchise in Inglewood and subsequently became manager of James Clay Motors where he remained for some four years. Mr Clay was in a plane crash. His body was never found. After that, Rocco Italiano took over as manager of a Chrysler franchise in Victoria Park for 18 months or so and then bought into a Volvo franchise. He sold that in 1976, and he and Guiseppe Italiano bought a tavern which they ran for eight years. He then took time off for about eight months, until he was approached by a businessman involved in importing continental food products, to join that business, which he did. He worked there for three to four years and then for 12 months for another firm, also in the business of importing continental foods. He then took another eight months or so off work until in 1992 he was approached by a Mr Nino Gangemi to work in his business, Gangemi Distributors.
Nino Gangemi had started that business about 1988 or 1989.
According to Pasquale ("Pat") Basile, Gangemi began dealing with his company at that time. Pat Basile testified that in accordance with his usual practice with new distributors of Basile goods, the first three deliveries to Gangemi were cash on delivery, after which they were made on payment within 60 days of the date of invoice.
Gangemi operated his business in Western Australia until 1991 but then ceased doing so for some 18 months (possibly because of a family tragedy), before apparently deciding to revive it in 1992.
It is common ground that at that time Gangemi contacted Pat Basile with a proposition that it be a joint business between Gangemi and Basile or his company, but the proposition came to nothing because Basile wanted 51 per cent of the business and Gangemi would not agree to that. In his evidence Basile said that what Gangemi had put to him was that they run the business as a partnership using the Basile name, but, as he explained, (t 577) it was his surname and he would never give it to anybody to use if he could not control it. There was no discussion between them about how much money each would put into the business because they never reached any agreement on Basile's demand for a 51 per cent share. Consequently, Gangemi continued to operate the business on his own account and being supplied by Basile Imports on the same basis as that had been done previously, namely delivery on payment within 60 days.
It is to do with events about this time that there is the first evidentiary conflict between the parties. According to Rocco Italiano, he had met Gangemi once or twice in the course of business, but that was all. It was after he had about six months off work that Gangemi telephoned him at home and asked to see him. The following day Gangemi asked him to manage a business he was going to start in partnership with Basile. Gangemi told Italiano that Basile would telephone him. Rocco Italiano had never met nor spoken to Pat Basile at that stage. Nonetheless, according to Rocco Italiano, Pat Basile telephoned him that night and offered him a job managing the new venture which he and Gangemi were going to start in Western Australia, Gangemi Importers & Distributors.
Italiano's evidence was that this did not eventuate. Gangemi told him the arrangement had not worked out because Basile wanted a 51 per cent share of the business. And so eventually in April 1992 Gangemi went ahead on his own, with Rocco Italiano as manager.
In his evidence, Pat Basile emphatically denied ever having spoken to Rocco Italiano about managing a business for him and Gangemi. He says he did not know of Rocco Italiano at all until some six or seven months after the latter had begun working for Gangemi, and never had a conversation of that nature with him.
I will return to this and to other evidentiary conflicts below, but in the meantime continue with the narrative.
The evidence of Rocco Italiano was that during the time he ran the business as manager for Nino Gangemi from April 1992 until November 1995, he saw very little of Gangemi. He saw him once a month for about half an hour at the most. When Rocco Italiano started with the business it distributed only Basile products, and was the only distributor of Basile products in Western Australia. The only other person involved with the business was an accountant, one Wendy Pabst.
Rocco Italiano said deliveries from Basile Imports were on a basis of payment within 60 days but payments were not infrequently late because the customers to whom they supplied the goods were themselves often late with payment. He testified that Pat Basile used to telephone him "screaming and yelling" about bills not being paid. On those occasions Italiano would tell him he would ring the accountant or ring Gangemi and make sure payment was made. He said that notwithstanding those occasions, the arrangement with Basile Imports continued.
For his part Pat Basile's evidence was initially that Gangemi paid but was sometimes late. He said he would telephone Gangemi and tell him to pay. This was during the earlier period, before Rocco Italiano came to work for Gangemi. Basile said that after that time there was only one occasion when Gangemi did not pay and that was because Gangemi was then in Italy. Basile says he told Rocco Italiano to make sure Gangemi paid when he got back. Apart from that he never used to ring Rocco Italiano complaining of late payment by Gangemi.
Rocco Italiano's evidence was that Gangemi Distributors continued dealing only in Basile products until about 1994. In that year Nino Gangemi went on a trip to Italy where he made an arrangement with an exporter to import Ambra products, including pasta, tomato sauce and peeled tomatoes, and distribute them in Western Australia. He also purchased a 24 tonne container of pickled vegetables from another supplier, although that was a one‑off transaction.
Some time prior to November 1995 Nino Gangemi was arrested and charged with offences involving the cultivation of a cannabis crop. He anticipated that he was likely to go to gaol and that the business of Gangemi Distributors would have to shut down.
Rocco Italiano says that knowing the potential of the business and the experience he and his brother had in the area (his brother Guiseppe had for some years been working as a sales representative for another distributor of continental foods), he approached Gangemi and offered to take over the business on the basis they purchased the plant and equipment and paid Gangemi for the stock on hand as it was sold. Gangemi agreed to this. No written agreement was entered into.
Rocco Italiano had no capital to put into the business, but Guiseppe Italiano put up his home as collateral and it was mortgaged to the Commonwealth Bank to secure an overdraft initially of $150,000.
The Italiano brothers took over Gangemi Distributors as a partnership on 1 November 1995. The business was operating at that time from President Street, Welshpool. Their intention, which they put into effect, was that Rocco Italiano would organise finance, arrange orders, deliveries and payments, deal with suppliers or potential suppliers and generally manage the business as well as work as a sales representative on the road. Guiseppe Italiano was to be a full‑time sales representative.
At that stage Gangemi Distributors had two suppliers, Basile Imports and Ambra. According to Rocco Italiano, Basile Imports was supplying about 60 ‑ 70 per cent of the products and Ambra was supplying the rest, but when the Italianos took over they began to increase the proportion of Ambra products.
Ambra supplied on different terms to Basile Imports. Ambra always required a letter of credit. Rocco Italiano did not like having to provide letters of credit, because, as he explained, once it was given the amount covered by a letter of credit was held against their account by the bank and the money could not be otherwise used. Nonetheless, despite his reluctance, it seems he had no choice but to deal with Ambra on that basis.
In late November 1995 Rocco Italiano telephoned Pat Basile and made arrangements for him and his brother Guiseppe to visit Basile in Melbourne so they could meet and discuss the business. They had not until then needed to place any further orders for Basile products because they were operating with stock on hand taken over from Gangemi.
The meeting was on 1 December 1995.
The Italiano brothers arrived at the Basile Imports premises where they were welcomed by Pat Basile and his wife Teresa.
I think it probable that the Italiano brothers were shown over the premises and introduced to Basile staff. They were given coffee and eventually they and Pat Basile went into a room to talk about a business relationship. Only the three of them were present, although Mrs Basile may have come in and out from time to time with refreshments. I am satisfied that the meeting was quite lengthy. It was probably around a couple of hours, if not longer.

I will first recount what the Italiano brothers said about it in their evidence.
In his evidence‑in‑chief Rocco Italiano said (t 77):
"Mr Basile was very pleased that we [had] taken over the business with the experience that I had and my brother had, that we can go a long way in that business. As he said, 'We look for the future.' Anyway, as far as the finance problem, we carry on the 60 days. At one stage he said to us, 'If you want to go far as Darwin, up north, it's your land. In other words, you can sell as far as you want,' and not come near Melbourne, sort of thing.
Yes, so as far as WA was concerned, what was to be the arrangement?---Was our own; purely our own distributorship.
Your own distributorship?---Yes.
You could have up to Darwin if you wanted it?---That's correct, sir. That's about what he said.
It was to be 60 days payment?---Yes, sir.
From when?---From delivery. From the day of delivery of the invoice, when the invoice used to arrive to our warehouse or at the office.
Did you agree to that?---Yes, I did.
Was there any discussion about that payment system?---Yes. I said, 'Look, if we late, especially right at the beginning,' I said, 'You know we just started and, you know, we need a bit of help,' which he said, 'Yes, no problems. No problems.'
Anything else you discussed about the nature of the business?---Nature of the business – well, we discussed that – you know, he said eventually he's going – his son, at the time he was going to uni. He said, 'He is going to come into the business because one day when the oldies pass on,' he said, 'then I want to continue as Basile Imports,' so his son will take over the business, and I said, 'That's what we have in mind; bring our two sons in,' which eventually we did, to carry on for many, many years to come.
At that time you were also importing or intending to import from Abra. Is that right?---Yes, sir.
Was there any conversation with Mr Basile about that?---No, Mr Basile knew all along and sometime he used to make a joke sort of thing, 'If you want to sell rubbish, you stick to it,' sort of thing.
Was there any problem about that?---No, sir, no."
Rocco Italiano testified that it was then his intention to continue with the Ambra products because the quality was good but the price was cheaper than Basile products. Gangemi Distributors was turning over about 40,000 cartons of Ambra pasta a year at that time. It was a good product to get them into the stores.
Asked in examination‑in‑chief whether there was any other discussion in relation to holding Gangemi Distributors to the 60 day time limit, Rocco Italiano said there was not. Pat Basile never said anything about what would happen if they did not pay within the 60 days. Rocco Italiano testified that "not a great deal" else was said because they just wanted to continue the business the way it had been operating and hopefully to improve it.
He was then asked whether there was any discussion about the possibility of a written agreement, after which there was the following exchange:
"He – from me, we were just about to go that particular day to leave and because I was – you know, I been in business and see what happen many times in different ways.
What did he say to you?---Mr Basile, he said, 'If you want a written agreement,' he said, 'I'll give you one,' which never eventuate because while we were there we were – first day we talk all the aspect of the business, condition and that, and the second day when we went back we were there for a few hours. We place an order, which was around about – I think it was about 65, 70 thousand dollars. I said, 'Look, I tell you what I do' – we didn't have to do that because we could have wait 60 days. I said, 'I'll give you a cheque for $20,000,' which I did.
What was the point of doing that?---To prove to Mr Basile that we're not – well, 'You help me, I help you,' sort of thing, you know. I felt probably a little bit guilty if I didn't give him the cheque because first time we ever deal sort of – I dealt with Mr Basile before but first time we ever dealt as far as my own business and I want him to understand that we're not bad payers, in that line sort of thing."
I observe in passing that this was the only suggestion anywhere in the evidence that the business meeting had extended over two days and that the order was placed and the cheque was paid on the second day of the visit by the Italiano brothers to the Basile premises in 1995.
As described by Rocco Italiano, there was some further discussion and they then left. Everybody was happy. The brothers subsequently returned to Perth.
It was put to Rocco Italiano in cross‑examination that the defendant's then financial manager, Mr Livio Zotti, had also attended the meeting for between half an hour or one hour, but Rocco Italiano denied that. He said Zotti did come into the meeting but that was at the end and only to collect the $20,000 cheque. He also maintained his earlier evidence that the agreement was that Gangemi Distributors would have the exclusive distribution of Basile goods in Western Australia, adding (t 178) that Pat Basile said they could take over as far as Carnarvon. When Mr Olivier pointed out to him that in his evidence‑in‑chief he had said Darwin and now he was saying Carnarvon, Rocco Italiano's response was (t 178):
"Where do you say he said you could take over to, Carnarvon?---Even Carnarvon and Darwin up north. We could go as far as - - -
What did he say? Yesterday you didn't mention Carnarvon?---Yes, I did. I said in the country, Darwin or whatever - - -
You said Darwin?---Yes, or - - -
Carnarvon and Darwin today?---That's the way the word come out from Mr Basile that day.
How about the words from you coming out yesterday?---I think I said Darwin.
Yes?---Yes.
Why is it Carnarvon and Darwin today?---Darwin, whatever, I said. That has got – I can't see any bearing on that, sir."
As to the payment of the $20,000, it was put to Rocco Italiano (t 186) in cross‑examination that the cheque was paid after the Italianos had entered into the contract with Pat Basile. He agreed with that, saying that after they had placed the order and the price for it had been calculated, he gave Pat Basile a cheque for $20,000. However he denied that Pat Basile had demanded payment of the full amount or of the $20,000 before any goods would be supplied, because he did not know the Italianos, nor their capacity to perform the agreement. He adhered to his earlier evidence that after placing the order it was he who volunteered to make an immediate payment of $20,000, even though he could have waited for the full 60 days to do so.
The other assertion put to him in cross‑examination was that it had been agreed between them that if Gangemi Distributors did not comply with the requirement to pay within 60 days, Basile Imports could suspend the supply of goods until payments were brought up to date. He was adamant that Pat Basile never said that and it was never discussed.
Guiseppe Italiano's evidence was that the meeting was the same day the Italianos arrived in Melbourne. He said they got there about 9.30 am and the meeting started about 10.00, 10.30 or 11.00 am. No one else was present at the meeting. Mrs Basile brought coffee in and left again and at the end, when they had finished the meeting, a man to whom they had been introduced beforehand came in to collect the cheque.
During the meeting Rocco Italiano did most of the talking for the plaintiff, with Guiseppe Italiano contributing occasionally on prices.
So far as discussion about the agreement was concerned, Guiseppe Italiano said Pat Basile was happy with the Italianos taking over the business. He told them the arrangement was "60 day trading" and that they could be Basile Import's sole agent for Western Australia. As he expressed it (t 288):
"They said, 'And you be the sole agent for WA' and they said 'You can be up North, Darwin way. You can have that going over there as well.' and we sole agent for WA as well."
According to Guiseppe Italiano, nothing was said about payment being late nor what would happen if it was.
Asked whether there was any discussion at that meeting about Gangemi Distributors dealing in products from other suppliers, he said Basile was "pushing to get his pasta, the La Molisana pasta". He added (t 289):
"Mr Basile was pushing to sort of drop our pasta to get his pasta, to have his pasta on the market here. But the reason why my brother said earlier on through the – it was too dear. It didn't move here in Perth. We couldn't sell it in Perth. Which our pasta was one of our sort of pasta which we get into the shops, you know, sort of - - -
Had you been trying to sell the La Molisana pasta when you had been out on the road?---No, sir.
Had you tried to sell - - -?---No, because we had the Ambra pasta.
Did you yourself try to sell any La Molisana pasta though?---No, sir; no.
What was the reason for not doing that?---Because it was too dear. People, they didn't agree with the prices."
He says there was no discussion about how long the relationship would last but there was some talk about their sons coming into the business later.
Guiseppe Italiano's evidence was that after discussion about prices and products the Italiano brothers put in an order which was accepted by Basile. The price was agreed and the Italianos gave Basile a cheque for $20,000. About that, Guiseppe Italiano explained (t 291) that his brother said they had better give Basile that payment because it was a big order and it was the first order they had put in. He says nothing else of a business nature happened at that meeting.
He was then asked whether there was another meeting while the brothers were in Melbourne on that occasion. He said "Not really" (t 291), although they did see Basile again the next day but just had a good look around the warehouse and that was it; there was no discussion of a business nature.
Guiseppe Italiano generally reiterated the above account in cross‑examination. He denied Zotti sat in on the meeting at all. He adhered to his earlier testimony that nothing was said about supply being suspended or terminated if payments were not made within the 60 days. Then, (t 299 – 230):
"I put it to you that Mr Rocco Italiano, at the meeting, indicated that he wanted a little bit of help in terms of paying for the goods by a bit of delay. Is that right?---Which they agreed. They said in case we have a bit of delay – because at the beginning of the business it was agreed - - -
Wasn't that because Mr Basile said he wanted the first three payments or first payment up‑front, the full amount?---No, sir. We gave the $20,000 cheque, otherwise we could have wait for 60 days to give the payment.
I put it to you that Mr Basile insisted that you pay him $20,000 and that without the $20,000 were you not going to get any product?---No, sir. It wasn't that, sir.
I put it to you that that was an express term of the agreement?---No, sir. There was just 60‑day term and we gave a cheque for $20,000 because we wanted to give him the $20,000, sir.
You agree that a cheque for $20,000, nevertheless, was handed over at the time?---We gave that $20,000 to Mr – that's when I saw Mr – sorry, sir, what was his name?
Zotti?---Zotti. When we gave the cheque – he come to pick up the cheque, sir, when we finish the order.
I put it to you that at no stage was there any agreement that your firm would be the sole distributor of Basile products in Western Australia?---Yes, sir, there was – that's what Mr Basile said to us. There was a sole product, you know, for WA.
I think you say you were offered – the firm was offered the sole distributorship for the whole of Western Australia and up north to Darwin?---What he said – he said, 'You are agent for WA, plus you can go up north to Darwin and do north as well if you want.'
Did he mention Carnarvon?---Sorry, no. He said Darwin, sir.
He didn't mention Carnarvon?---I didn't say Carnarvon, sir.
I know you didn't. I'm asking did Mr Basile mention Carnarvon?---He said Darwin, up north."
In re‑examination Guiseppe Italiano confirmed Zotti was not present when the 60 day arrangement had been discussed. That had occurred earlier, before they started to talk about the order. Guiseppe Italiano maintained his answers given in cross‑examination that Rocco Italiano had asked for extra time in the beginning to make payments because their business was just starting – that related only to extra time to pay for the first order. He testified that Basile said nothing about that.
Pat Basile's evidence about the first meeting differed in several respects. He said Rocco Italiano telephoned him a couple of weeks beforehand to tell Basile he was taking over Gangemi Distributors and wanted to come and see him about buying stock. Basile agreed to see him. At that stage Gangemi Distributors had not placed any orders with Basile Imports for four or five months.
The Italiano brothers arrived at the Basile premises and were shown product catalogues and the warehouse. Pat Basile told them he had no problem supplying them, but because they were new to him they would have to pay immediately for the first couple of deliveries. Rocco Italiano said "Pat, come on, you've got to help me", but Basile asked why he should do that because if it was difficult for them to start, it would be even worse in a few years time.
While at the warehouse Rocco Italiano saw some panettone (an Italian Christmas cake). Basile Imports had a few boxes of it still in store. He said he wanted it. Basile agreed. They went from the warehouse to Basile's office. They made up an order for the panettone and other items. Pat Basile calculated the cost of it all. It came to some $61,000. Basile reiterated he had no problem with supplying goods to the Italianos, but told them he wanted payment first. The flavour of Basile's evidence on this may be seen in the following extract (t 540):
" ... I said to Rocco, 'Rocco, I haven't got a problem with supply you. If you pay me today by next week I will despatch the stock.' 'No, no, no way. We can't pay you. We haven't got any money', you know. Then it become an agreement. I said, 'Okay, give me half the money up‑front and the rest 60 days.' Then Rocco said, 'I can't give you $30,000 but what I can do, I can give you $20,000.' I wanted 30, he want 20. In the end I said, 'Okay, I'm going to let it go.' I said, 'When you want the panettone, we despatch the same day. That's what we done. We despatch the panettone the same day. He give me a cheque for $20,000. Panettone was about $2700, $2900. Then my next stock I give it to my warehouse manager about a week late. I want to make sure if my first cheque it go through.
So you delayed giving the warehouse manager the order?---I give the order and I said, 'Don't despatch before – you wait for me.'
I see?---If I remember, it was in about 6 or 8 December we despatch the rest. The first cheque went through.
Would you have sent the panettone if - - -?---Yes, the panettone. I send the panettone before I put the cheque in.
Would you have sent the panettone if he hadn't given you the 20,000?---No."
Basile testified he told them he would supply them but the first three deliveries would be cash on delivery and after that it would be payment within 60 days. He says Rocco Italiano told him they could not pay COD (t 587).
The terms upon which he would deal with the Italianos were discussed before Basile took the order. It was agreed that Gangemi Distributors would be Basile Imports' distributor in Western Australia. He says he told Rocco Italiano that if it did not work out, if Rocco Italiano did not pay, Basile would not send any stock. Rocco Italiano swore he would pay within 60 days, to which Basile responded that if that happened he would have no problem.
There was a slight difference between the parties on one aspect of the 60 day term itself. The Italianos say it was 60 days from delivery of the invoice; Pat Basile says it was 60 days from the date of the invoice. However the practice was to either send the invoice with the goods from Melbourne, or to send it from Melbourne to arrive in Perth just before the goods, if they were being shipped directly from Italy to Perth. In either event, there would only be two or three days at most between the date of the invoice and its receipt by the plaintiff, and it was accepted by counsel that for practical purposes nothing therefore turned on this difference in the circumstances of this case.
I return to the evidence of Pat Basile.
He says that there was no talk of Gangemi Distributors having the exclusive distributorship of Basile Import products; it was just a distributorship.
At the end of the meeting Zotti came in. He was there for about half an hour or an hour. Pat Basile thought that he must have given the cheque to Zotti.
Basile says that over the next few days he waited for the cheque to clear and when his wife told him it had been he dispatched the rest of the order. This is supported by the documentation. Exhibit "G" is a Basile Imports' invoice No 86425 dated 1 December 1995 for Bauli panettone and other Bauli products to a total price of $2,789.40. Exhibit "H" is a Basile Imports' invoice No 86780 dated 8 December 1995 for La Molisana pasta and a small quantity of another brand of polenta, to a total price of $13,364.64 and Exhibit "I" is a Basile Imports invoice No 86781 dated 8 December 1995 for various products to a total price of $30,171.70.
It is apparent from the evidence generally that the fact that Gangemi Distributors was not selling La Molisana pasta once the Italiano brothers took over, became something of a sore point between the parties. Pat Basile was keen for them to sell it in Western Australia; the Italianos maintain that although it was quality pasta it was too expensive and they could not sell it. In fact they were selling Ambra pasta. Although that was not as good a quality pasta as the La Molisana, it was cheaper and apparently sold well. When it was put to Pat Basile in cross‑examination that Rocco Italiano had told him at the meeting in December 1995 that La Molisana would not sell in Perth because it was too expensive, Basile said Rocco Italiano had never told him that. He pointed out that the Italianos bought La Molisana pasta from him only once, at that first meeting. They never bought it again. He did not find out why that was so until the next (and last) meeting in Melbourne in December 1996, when he found out that they had been selling Ambra pasta and he told Rocco Italiano that if he wanted to sell rubbish that was up to him. The evidence of the Italiano brothers was that Basile knew at the meeting in December 1995 that they were selling Ambra pasta and it was well before December 1996 that he first told them it was up to them if they wanted to sell rubbish.
In cross‑examination Basile did not depart from any of his earlier evidence.
He agreed he must have called Zotti in to give him the $20,000; that was what Zotti was there for – there was no other reason.
Zotti himself had, by consent, given his evidence before Pat Basile so that he could return to Melbourne. He described himself as a self‑employed principal of an accounting and management consulting practice in Victoria. He is in his early fifties. He has a Diploma of Business Accounting from RMIT and is a Fellow of CPA Australia. He has been working in the accounting industry since 1974 or 1975. He was employed by the defendant company as finance manager for approximately nine months. Initially he said this was from approximately August 1994 to April 1995. He said he had been present at a meeting between the Italiano brothers and Pat Basile at the Basile Imports' premises. When it was suggested to him that the meeting was in December 1995, he said he began his employment with the defendant three or four months before the meeting, so he must have started in 1995. Later, in cross‑examination, he said he thought he left the company in April or May (or perhaps May or June) of 1996.

Zotti's evidence‑in‑chief was that the meeting was held approximately midday to early afternoon. His recollection was that he was present at it for at least 30 minutes, maybe longer. He did participate, but to a lesser extent than the others. He described the nature of the discussions as being with respect to Basile Imports looking at distributing various product lines in Western Australia.
Asked whether there was any discussion about the nature of the agency or distribution which might be given the Italiano brothers, he said (t 313):
"The fine points not really, but discussions were held in regards to generalities.
He said the discussions centred around the possibility of giving the Italianos the distributorship on the basis that they performed and adhered to normal commercial practices. Again, asked whether those "normal commercial practices" were identified in his presence, he said (t 313):
"They were discussed in general and broad terms."
Asked what they were, he said his recollection was that the Italianos would sell enough product to warrant them having and maintaining a normal business relationship and that payment of their accounts would be kept within "normal credit arrangements". Again asked what they were, that is, whether there was any discussion about what they were, he said (t 313):
"The specific points may not have been, but they were assumed and in general terms discussed ... ."
He added they discussed 60 to 90 days being generally accepted terms and parameters they would work in. The only other major issue he could recall was that if payment was not made the product would not be supplied. He did recollect however that Pat Basile requested, or demanded, a deposit on the day before they left. He said he thought it was $20,000 and he recalled that it was paid by cheque but he did not know who physically got the cheque.
Cross‑examined, Zotti said he would normally keep notes of commercial meetings but did not know whether he had done so in respect of this meeting. He had not sought to check. When he was there Basile Imports did have a system whereby people could apply to trade with the company on credit terms. When an application was made a credit check would be undertaken. He was unaware whether any of that had been done in respect of the Italiano brothers.
Pressed about details of the meeting itself, Zotti was vague. He had no recollection of the time it started, although it could have been going for half an hour to an hour before he attended. What he did say was that he attended by pre‑arrangement. When the Italiano brothers were being shown around the premises by Pat Basile, Zotti was told there was going to be a meeting later and he was to join it after they had gone through some formalities. His understanding was that Pat Basile thought it would be a good idea for Zotti to be introduced to people they would potentially be doing business with in Western Australia. He said the purpose of his being at the meeting was to participate in it and listen to the discussions as part of his introduction to the business and to get an understanding of what Basile Imports was proposing to do in Western Australia. Pressed further on what he was to contribute to the meeting, he said that was not discussed, but it was assumed that if there was anything he needed to discuss or bring up, he would. He was asked if he went into the meeting with an agenda, or an idea of what he wanted to cover. He said he would have gone in with some thoughts of his own, coming from his accounting and finance background, about setting up such an arrangement. There were points which he would naturally assume would be covered.
When asked what he knew of the meeting before he went in, he said all he knew was that there were some representatives coming over from Western Australia to discuss the possibility of obtaining distribution rights so that Basile Imports could sell some of Basile's products in Western Australia. These people were certainly new to him, although he had a recollection that Pat Basile had known one or both of them in some business capacity previously. He was not aware if Basile Imports had done any previous business in Western Australia. The way he saw it was that when he went into the meeting they were looking at it as a proposition that this might be a new distributorship to open up a new market into Western Australia.
He reiterated that he thought he was at the meeting for 30 minutes, maybe longer, although he knew the meeting had gone for a lengthy period but could not recall whether it was one, two or three hours. He left at the same time as everybody else; they went their own ways and he went back to work.
Mrs Maria Teresa Basile did not attend the meeting and so could give no evidence about what was discussed at it. It was she who invoiced the order for the panettone immediately following the meeting. The order was made on the same day as the meeting. She explained that the company's practice generally was that the first three invoices would be paid cash on delivery.
Following their return to Perth the Italiano brothers worked on developing the business. From November 1995 to the end of June 1996, Gangemi Distributors made total sales of $287,911.45, of which $128,415.94 was for Basile goods. The monthly sales figures are shown at Annexure 2 to a report of Mr John Hogg (Exhibit "H2"). They are as set out below:

Sales
Nov-95	Dec-95	Jan-96	Feb-96	Mar-96	Apr-96-	May-96	Jun-96	TOTAL
Basile goods	3,613.75	25,448.79	24,814.03	22,389.98	22,469.72	10,183.42	10,431.51	9,064.75	128,415.49
Other goods	7,464.60	3,343.98	43,339.84	18,880.61	18,070.50	10,705.96	39,900.57	17,789.45	159,495.51
Total Sales	11,078.35	28,792.77	68,153.87	41,270.59	40,540.22	20,889.37	50,332.08	26,854.20	287,911.45

It can immediately be seen that the best months were January, May, February, March and December. According to Rocco Italiano sales always fall during January and February because of the Christmas holidays, and he was surprised at how good sales were in January 1996. He said a fall in sales can be expected again in April because people start putting money away for shire rates, water rates and so on. These observations were not entirely borne out by the sales figures for the 12 months from July 1996 to June 1997. The figures for January and February 1997 were $34,653.93 and $57,810.60 respectively. In that year sales ranged from a high of $93,796.96 in November 1996 to a low of $15,459.60 in June 1997. I will return to the figures later, but for the moment it is enough to observe that the proportion of Basile goods to total sales steadily declined prior to December 1996. In the eight months to 30 June 1996 Basile goods constituted 44.6 per cent of the total; in the six months to 31 December 1996 it had fallen to 33.9 per cent, or just over one third.
Rocco Italiano's evidence was that some time in 1996 Gangemi Distributors moved into a new warehouse at Malaga. This was a new building twice the size of their previous premises and included a 70 square metre showroom and two offices. The lease document (Exhibit "C") however shows the commencement date as being 1 May 1997. The document was stamped on 8 December 1998.
The Italiano brothers relocated the Gangemi Distributors cool room from Welshpool to Malaga at a cost of some $900.
Rocco Italiano testified that the Basile products were important to Gangemi Distributors because they were a better product, but because they were more expensive than those of other suppliers it took a long time to establish them in the market. He said there were some items that were particularly difficult. La Molisana pasta was one which he and Pat Basile "always used to argue about" (t 83). Although Basile Imports had a very large product range (Pat Basile himself said it was over 2000), Gangemi Distributors was carrying only in the vicinity of 20 to 25 Basile lines.
Rocco Italiano said Gangemi Distributors paid within the 60 days for a while but in late 1996 they started to have some difficulty. Their own customers did not pay on time. They had to increase their overdraft limit with the bank from $150,000 to $220,000.
The documents reveal the following history of dealings and payments between Gangemi Distributors and Basile Imports from December 1995 to May 1997.
Goods were supplied to Gangemi Distributors on three invoices dated 8 December 1996, totalling $58,772.67. That was payable by 5 February 1996. Payment of $20,000 was made on 8 January and again on 8 February 1996. Payment of $8,296.38 was made on 28 March 1996.
In the meantime, goods to the value of $6,734.31 had been supplied by invoice dated 19 December 1995, payment for which had to be made by 16 February 1996. A payment of 28 March 1996 was therefore for the invoice of 19 February and the balance of the amount due on those of 8 December 1995. The latter, some $1,500, was therefore almost two months beyond the 60 days.
There was an invoice for $10,027 on 19 January 1996. It was not paid until 11 June 1996, about three months overdue.
Basile Imports dispatched goods to a value of $7,474.41 on 6 February 1996. The order was met because payment on the invoice of 19 January was still not overdue and the only amount overdue at that time was that of approximately $1,500 on the 8 December 1995 invoice. Mrs Basile, who was responsible for monitoring the payments, explained that she did not see that amount in the circumstances as being a problem sufficient to justify withholding supply; in any event at that stage they were not particularly worried about it, although as time went on she did come to be.
Basile Imports met a Gangemi Distributors' order invoiced and supplied on 14 March 1996 to a value of $13,584.08, even though by then there was over $8,000 overdue from 8 and 19 December 1995. Mrs Basile thought that was done only because Rocco Italiano had said a cheque was coming. Something which she said he used to tell her frequently. That was the overdue amount paid on 28 March 1996.
Payment on the invoice of 19 January was due by mid March, but Gangemi Distributors was in default until 19 June 1996. It was also in default of the 60‑day period for payment of the invoice of 6 February, which was due by early April but on which payments were not made until 18 June ($7,474.41) and finally 30 June 1996 ($2,525.59). However, Gangemi Distributors had placed no orders between 15 March and about the third week of June.
I pause here to note that with only a couple of exceptions, the evidence did not reveal when orders were actually placed with Basile Imports by Gangemi Distributors. The Basile Imports' office system was that once an order was met and invoiced it was the invoice which became the primary record and was permanently retained; the orders would usually be discarded later.
What the evidence does show is that on 18 June 1996 $2,525.59 was paid on the 14 March invoice, approximately one month overdue, leaving a balance of $11,058.49 still outstanding and overdue on that invoice.
Nonetheless, on 19 June goods to the value of $17,630.69 were supplied by Basile Imports to Gangemi Distributors.
The effect of Mrs Basile's evidence was that as time passed she had become more concerned about the difficulty in getting payment from Rocco Italiano. She said it was not necessary to actually withhold supply because Rocco Italiano would not even place an order when he knew he was in arrears. This was her explanation for instance, for the fact that there were no orders between 15 March and 19 June 1996. Although she was concerned about the outstanding amounts, she was not imposing a strict rule of refusing supply when there were amounts owing outside the 60 day period, because some payments were still being made and she was trying to get Gangemi Distributors back to the 60 days. Her approach by June 1996 was that unless she received some payment no other invoice would be issued – that is, no more goods would be supplied.
However payment on the 19 June invoice was due not later than mid August. By 19 August it was still outstanding. Mrs Basile said Rocco Italiano kept promising to pay. Despite that, goods were supplied on an invoice for $9,712 on that date, no doubt because on 12 August Gangemi Distributors had paid the balance of $11,058.49 outstanding from the invoice of 14 March – some three months overdue.
On 7 October 1996 Basile Imports supplied and invoiced Christmas cakes for $19,533.02. Gangemi Distributors at that stage owed $9,712 on the August invoice but payment was not overdue until mid October.
More goods were supplied and invoiced on 6 November in the sum of $18,337. By then the $9,712 on the August invoice was overdue, but payment on the October invoice was not. The $9,712 was paid by Gangemi Distributors on 13 November 1996.
There were three other invoices issued in November 1996 taking the total for that month to $27,931.60. Payments for the November invoice were not overdue until early and mid January 1997. In fact, $8,000 was eventually paid on 13 March 1997, $10,000 was paid on 18 April 1997 and the remainder of $9,931.60 was not paid until 16 April 1997.
In the meantime, things had come to a head.
In his evidence, Rocco Italiano's explanation for the late payments was that Gangemi Distributors did not have enough cash because its own customers were not paying on time. As he put it (t 183):
"We didn't have the money available to pay Mr Basile because ... we didn't have any cash coming in from our customers."
He agreed in cross‑examination that both Pat and Mrs Basile rang him on many occasions between the beginning of 1996 and mid 1997 seeking payment of overdue accounts and that he promised money on those occasions. Mrs Basile's evidence was that he repeatedly told her he would send a cheque, or at other times he would say things like "Hasn't she paid you?", referring to Wendy Pabst. She says he never told her he had problems with money.
Mrs Basile's evidence was that by late 1996 she was particularly concerned about what was happening and in late November or early December told Rocco Italiano that she wanted payment to be made for the Christmas cakes invoiced on 7 October. He told her he was going to be in Melbourne between Christmas and New Year and would bring the cheque with him. She says that once Rocco Italiano told her that, she really did not push too much. She told her husband and left it at that.
Rocco Italiano's account is different. He said in his evidence‑in‑chief that there were no problems in his relationship with Mrs Basile by the end of 1996 concerning the issue of payment on 60 days terms. He said there was very little discussion about late payment at that time until they got to Melbourne. He testified that he spoke to Pat Basile prior to January 1997 and told him that he and his brother were going to Melbourne with their wives for a few days, at which Basile told him not to forget to drop in and see them.
In cross‑examination he conceded that Mrs Basile had rung him on many occasions between the beginning of 1996 and mid‑1997 requesting payment of overdue accounts and that Pat Basile had also rung him similarly on occasions and that he had promised to make payment.
In late December, and according to Mrs Basile, after Rocco Italiano told her he would bring the cheque for the Christmas cakes when he came to Melbourne, they had a conversation about Easter cakes.
The Basile's daughter, Patricia, who also worked in the business, had earlier faxed to their various distributors a copy of the price list for Bauli Easter cakes. One was sent to Gangemi Distributors. Rocco Italiano telephoned Mrs Basile about it. There was some discussion about whether he wanted to increase the size of the order from the previous year. She sent him by fax on 9 January 1997 a copy of the Gangemi Distributors' 1996 order for Easter cakes. He subsequently placed an order and it was confirmed.
There is a lead time for the ordering and supply of Christmas and Easter cakes. Such cakes are usually pre‑sold to the suppliers and stocks must ordinarily be on hand with them at least a month before the event. That is because they have no market value beyond Christmas or Easter, as the case may be.
Shortly after Christmas 1996 and before the New Year, Rocco and Guiseppe Italiano with their wives and another couple who were from Gippsland arrived at the Basile premises in Melbourne.
Mrs Basile was busy in the office. Pat Basile greeted the visitors and then came in and told her they were all going to lunch. She thought that must have meant Rocco Italiano had given him the cheque. Pat Basile's evidence was that he thought she had already received it.
The Basiles drove to the restaurant in their car. The Italianos and the other couple went in another. On the way the Basiles realised neither of them had received a cheque from Rocco Italiano. Nonetheless, they had already told the Italianos they would take them for lunch, so they did.
Afterwards, in the carpark, Pat Basile confronted Rocco Italiano and demanded the promised cheque. Rocco Italiano said "Didn't she send it?" (this being a reference to Wendy Pabst) and then told them he would send a cheque as soon as he got back to Perth. That was how it was left.
Subsequently Basile Imports confirmed all the Easter cake orders with the Italian supplier and the container left Italy some time in February 1997. It was due to arrive in Fremantle in early to mid‑March.
As at early February 1997 Gangemi Distributors was $10,533.02 overdue on the October invoice and $27,931.60 overdue on the November invoices.
Mrs Basile telephoned Rocco Italiano and asked for payment. He said he had no money to pay. She was upset, and told him "You have the money to take a holiday, but you don't have money to pay our account?", to which, according to her, he replied "You're being cocky".
That was the last time she spoke to Rocco Italiano. She thought she was not getting anywhere with him and so told her husband he had better deal with Italiano in future.
Rocco Italiano's account of this trip was that he spoke to Pat Basile prior to January 1997 and told him he and his brother were going to Melbourne with their wives for a few days, at which Basile said "Don't forget to drop in and see us". So they did that and had what he described as a bit of a discussion about business. He said in evidence‑in‑chief that Pat Basile "keep on" saying that they were "a bit late with the payments" and so Rocco Italiano told him he would send some money as soon as he got back to Perth. He said no particular figure was mentioned, and that was something he initially maintained adamantly in cross‑examination.
Rocco Italiano said there was some talk about La Molisana pasta, with Basile trying to get them to sell more, but Rocco Italiano said they were doing their best and could do no more. In cross‑examination he said that (t 189):
" ... he tried to tell me about La Mollisana [sic] pasta, he still hammer on the same subject, want me to bring five, six, containers of pasta and do a special and all this, which I reject."

He said that when he got back to Perth he found he could not send the cheque because there was no money, but he did make a payment about a week later. That could only have been a reference to the payment of $9,000 on 31 January 1997 in part payment of the October invoice, on which payment had been due early December 1996 – and on which after the 31 January payment $10,533.02 still stood overdue.
In any event Rocco Italiano testified that some time after his return to Perth (and obviously when the cheque was not forthcoming) Pat Basile:
" ... rang me and started going a little bit mad." (t 115)
Rocco Italiano said Pat Basile never told him they could not carry on like that, but he was "pushing about money", and he then continued (t 115):
" ... and then I can't remember exactly if it was that particular phone call or the month after which he rang and we had a little argument over the phone about payments and then he said he want 20 per cent of the business, which I declined that because I said, 'No, I'm sorry, this is family business.' I said, 'That's it. You had your chance.' In my opinion Mr Basile had the chance to go back into business in WA in 1992 but he didn't take it.
Was that when there was talk of him being with Mr Gangemi?---That's correct.
So he asked for 20 per cent of the business. You knocked him back?---Yes."

Rocco Italiano's evidence was that he explained to Basile that it was a family business. He and Guiseppe had their two sons working there and that was how it was going to be, to which Basile replied (t 116):
"Someone is going to suffer and it won't be me."
Rocco Italiano said nothing was resolved about money at that time but he thought Gangemi Distributors made a payment the following month, which was in March. The documents indicate there was a payment on 13 March 1997, being $8,000 payment on the invoice of 6 November 1996 – some three months overdue and which still left $10,337 outstanding and overdue on that invoice.
Rocco Italiano's evidence‑in‑chief clearly melded together a conversation in January and one in February 1997.
In cross‑examination he was referred to the proof of evidence he had given to his solicitors. There he had said about the Melbourne meeting (which he said was in early January 1997) that (t 197):
"Basile again tried to push La Mollisana [sic] pasta issue. He said we will have to talk about it again after we return to Perth. As I recall, there was some general discussion about outstanding account but no discussion about our ongoing relationship. At that time everything seems to be working fine. We discuss some payment. I promise to pay 18,000 by late January and then we got back to Perth. About a week after I return to Perth Basile telephoned me about the promised money. The discussion become somewhat heated and accuse us of holiday in Melbourne with his money. I told him the money will be sent as soon as we receive outstanding customer payment. This was the first time that things were really quite difficult between Basile and I. The money was eventually paid on 31 January 1996 and 16 February 1997. As soon as we got back to Perth in January we place an order with Basile for Easter cakes."
Pat Basile gave evidence about these events. The Gangemi Distributors' payment on the October invoice was due in December. Just before Christmas 1996 payment had still not been made. As a result of what his wife told him, Pat Basile knew the Italianos were going to visit them in Melbourne between Christmas and New Year and he was expecting them to bring him a cheque. He said that when they arrived it was with another couple with whom they had been staying in Gippsland for a holiday. Pat Basile was surprised they had no money to pay Basile Imports but could afford to go on a holiday, but he made no comment about that. On the way to lunch he discovered his wife had not been given the cheque, so after lunch, when they were in the carpark, he asked Rocco Italiano where it was. Rocco Italiano professed surprise, saying "Didn't she send it to you?". Pat Basile became angry. Rocco Italiano told him that as soon as he got back the following week he would send a cheque. A figure of $18,000 was mentioned. A week went by but there was no cheque. By the end of January Pat Basile was ringing Rocco Italiano every two or three days asking for the money. Each time Italiano promised the money was coming. Towards the end of January it still had not arrived.
According to Pat Basile it was probably just before Australia Day that he spoke to Guiseppe Italiano (t 550):
" ... and I ask Joe – I said, 'Joe, please, when do we get this money? The last 2 weeks ago you were here he said he going to send the money, you brothers. I want to get this money.' Joe said, 'Pasquale, don't speak to me. Speak with my brother, with Rocco. Rocco has got to do.' I said, 'Where's Roc?' He telling me he wasn't home. I said, 'Give me phone number. I'll phone him at home.' I think this was about 6.00, 7 o'clock in the night. At that time I was a bit mad. I ring up. His wife answer the phone. I ask if Rocco was there. Then she tell me (indistinct) I said, 'Please I want to speak with Roc.' When Rocco come to phone I said to Roc, 'You promise a cheque about 4 weeks ago. Where's this cheque?' and I was mad with him, and even I said to Roc (indistinct) and Roc telling me, 'Pat, don't ring me at home any more.' That was very (indistinct) ring him up any more, but 2 days later I ring up on the mobile. I think in February if I remember (indistinct) ringing up at home I would be very disappointed, especially if he got any money."
Pat Basile says his wife later told him Gangemi Distributors had placed an order for Easter cakes. Late in February or the beginning of March, Rocco Italiano telephoned. Pat Basile told him that if he did not pay the balance due from November and December (sic) he would not supply the Easter cakes (Colombo). Rocco Italiano promised to send a cheque. However, when the container was about to arrive in Western Australia it had still not been paid, so Pat Basile directed that the container stay on the ship and be brought to Melbourne. A couple of weeks later (and still about two or three weeks before Easter) Rocco Italiano rang Basile and asked where the Easter cakes consignment was. Basile pointed out that Basile Imports had still not been paid on the October and November invoices. In his evidence‑in‑chief Pat Basile said he told Rocco Italiano that if he paid then he would send some of the Colombo to him from Melbourne. However he said Rocco Italiano never paid him so he never sent the cake – and that was the finish. Italiano never asked him for it again.
Rocco Italiano had said in evidence about this that a few weeks before Easter Gangemi Distributors' customers began asking where their Easter cakes were, so he telephoned Pat Basile who told him that a couple of containers had been left behind in Italy and one of them was that for Gangemi Distributors. He says Pat Basile told him all he could do was send a few (perhaps 10 to 15 cartons) from Melbourne. He refused that because of the additional cost and because it would have enabled Gangemi Distributors to supply only a few customers; which would cause an even greater problem with the others. He said there was no mention whatever of money or payments in this conversation.
Pat Basile had initially said nothing in evidence‑in‑chief about telling Rocco Italiano the container had not left Italy, but when it was put to him in the form of a leading question (t 556) he agreed he had. In cross‑examination he acknowledged what he had told Italiano was a lie and when pressed to explain why he told it he asserted that it was because he wanted to make sure Rocco Italiano paid him the money that was still outstanding, but could not explain beyond that why it was he thought telling that lie would achieve that result. He insisted he had telephoned Rocco Italiano at home and he denied he had complained to Rocco Italiano that he had used the money to go on holiday instead of paying Basile Imports. Pat Basile continued to insist that he had complained to Rocco Italiano about him being able to afford to have a party when he could not pay Basile Imports.
Pat Basile denied there was any conversation about him taking a share in Gangemi Distributors and said he certainly would not have wanted a 20 per cent share then when he had earlier refused to do so with Nino Gangemi unless he got a 51 per cent share.
There was no order placed by Gangemi Distributors then until May 1997. Rocco Italiano said the explanation for that was because Pat Basile was "arguing" and saying he was not going to send any more stock until Gangemi Distributors paid their bills.
At the beginning of May 1997 Gangemi Distributors placed an order (Exhibit "XI") for goods to a value of $32,931.50. Rocco Italiano assumed the order was accepted because the balance of all overdue amounts was discharged with a payment of $9,931.60 on 16 May 1997.
He says he waited for delivery but when the goods did not arrive he wrote to Basile Imports on 21 May 1997 (Exhibit "C1") asking when the goods would arrive. He then telephoned Pat Basile who told him Gangemi Distributors would not get the goods unless Basile Imports was given a letter of credit. Rocco Italiano says he explained to Basile he could not give him a letter of credit but offered to send him a post‑dated cheque. Basile refused.
According to Pat Basile, Rocco Italiano told him he had to send the stock, but Basile said that nothing had changed. Last time it was seven months before Basile Imports was paid. He told Italiano that the only way he would send any stock now was if Italiano gave him a letter of credit.
He says right to the end Rocco Italiano told him there was "no chance" he would give Basile Imports a letter of credit even though Pat Basile said there was no other way. The conversation concluded on an acrimonious note with Italiano abusing Basile and saying:
"You keep your stock; I keep my money"
to which Basile says he replied:
"Roc, if that's what you want, fine".
Rocco Italiano denies ever saying to Pat Basile that Basile could keep his stock and he would keep his money.
Basile did not speak to Italiano again after that, although a couple of days later, on 22 May 1997, Basile Imports sent by fax a letter forwarding an invoice for the goods ordered (Exhibit "W") and advising that as soon as Basile Imports received Gangemi Distributors' letter of credit for $32,931.50 the stock would be dispatched. Payment would be due on 31 July 1997.
This was not well received by Rocco Italiano. He says he rang Basile and explained that Gangemi Distributors' money was tied up with letters of credit to pay for stock purchased from Europe and he could not see the difference from Basile Imports' point of view between Gangemi Distributors giving a letter of credit or a post‑dated cheque, because either way, when the money became due Basile Imports would get its money. He said that Pat Basile knew that once Gangemi Distributors issued a letter of credit that money in its bank account was "dead" and could not be used until the letter of credit was cleared. He said he had something like six telephone calls with Pat Basile about this, but Basile was immoveable.
The thrust of Rocco Italiano's evidence about this here and elsewhere was that by that time Pat Basile had decided to move into the Western Australian market directly and was actively trying to make things as financially difficult as possible for the Italianos.
At that point Gangemi Distributors had very little Basile stock left.
Nothing further happened until Rocco Italiano received a letter from Pat Basile dated 22 July 1997 (Ex "E1") which read:
"We wish to inform you that our company, P & T Basile Imports Pty Ltd, has further expanded its interstate branches to national level. Our own representatives will be attending to the needs of the Western Australian market.
Your company may still be a Western Australia distributor for our products, however the revised Trading/Credit terms, such as a Letter of Credit will still apply."
According to Rocco Italiano this letter confirmed what he already believed was happening from his observations in the market place, namely that Basile Imports was supplying directly into Western Australia.
Pat Basile denied having any ulterior motive in refusing to supply Gangemi Importers unless paid by letter of credit, and testified that the decision to move directly into Western Australia was made after the acrimonious conversation with Rocco Italiano in which the latter said he could keep his stock. He did not tell Rocco Italiano he was going to open in Western Australia, until after he had received his last payment from Gangemi Imports. This would have been, he said, four or five weeks after the conversation.
Having received Basile Imports' letter dated 22 July 1997, Rocco Italiano obtained legal advice and by letter dated 31 July 1997 wrote to Basile Imports.
He pointed out that it appeared Basile Imports was seeking unilaterally to alter the terms of the longstanding agreement between them and reminded Basile that those terms included Gangemi Distributors being the sole agent for distribution into the Western Australian market for all Basile products on a 60 day payment basis. He wrote that it had never been part of the agreement that a letter of credit be employed and such credit arrangements had not been used previously.
He wrote that it had always been the case that Gangemi Distributors had been Basile Imports' sole Western Australian distributor and it was under that arrangement that Gangemi Distributors had developed local markets for Basile Products. He pointed out that:
"Obviously we would not have worked for so long in developing these markets if it was intended that you would unilaterally seek to take the benefit of our work without our being involved as agents."
He offered to discuss the possibility of Basile Imports independently handling in this State any products in respect of which Gangemi Distributors had been unable to develop markets, for example pasta, but that would be on the basis of Gangemi Distributors continuing to handle the products already being distributed by that firm.
Basile Imports replied by letter dated 8 August 1997, asserting that the agreement between them had been "extensively breached on previous occasions". This was said to have been first by payments "not adhered to within the prescribed time limits" and secondly, "payments were not even made by 90 days". It was said payments had been delayed "quite extravagantly" and promises were not kept. Due to the increased cost of financing the debt Basile Imports had no option but to enforce a 60 day letter of credit arrangement – which was in line with the 60 day payment basis. The letter concluded:
"With regards to your company being our sole Western Australian distributor to develop the local markets for our products, we believe that our total product profile should have been promoted and not another pasta imported by your company, when you had our 'La Molisana pasta' to recommend and sell. In our belief sole Western Australia distributor means total product coverage."
In his evidence Rocco Italiano maintained the 60 day payment basis and a 60 day letter of credit were not the same. His explanation was that for a letter of credit he would have had to outlay the money the moment the goods were ordered even though not paid until the end of the 60 days, whereas otherwise he would not have to outlay the money until 60 days after he had received the goods, which would give him time to sell them and receive the money from the customer.
So far as the suggestion that to be a sole State distributor meant total product coverage was concerned, he said that would mean if Basile Imports had 1200 product lines Gangemi Distributors would have to carry them all. That could not be right, he said, because it would cost millions of dollars to keep that stock and some of it (like La Molisana pasta) would not sell anyway.
Pat Basile testified that he thought the first Basile Imports representative in Western Australia, Mr Solante, started in August 1997 after his son came to Perth to interview him. The company took Mr Solante to Victoria for training for a couple of weeks. Mr Solante is now the Basile Imports Western Australian State Manager and has another six people working under him.
According to Pat Basile, Mr Solante was the sole Basile Imports representative in Western Australia for about 18 months and other representatives were employed at various stages thereafter. He said the company made a large capital investment, purchasing a warehouse, a truck, and other facilities as well as the stock. At the date of trial Basile Imports' turnover in Western Australia was "a bit over" $300,000 per month.
Rocco Italiano's evidence was that after Gangemi Distributors was no longer supplied by Basile Imports the business of Gangemi Distributors dropped badly. They had intended to arrange other finance but the goods they were importing from Italy themselves were insufficient for them to survive. The business was losing about $6,000 a month until they shut the warehouse.
In fact the Commonwealth Bank wrote to Gangemi Distributors on 4 March 1998 cancelling its overdraft with effect from 30 March 1998. The bank acknowledged earlier correspondence from and discussions with the Italiano brothers. It referred to what it described as the ongoing problems that Gangemi Distributors had experienced since April 1997 "as a result of the withdrawal off [sic] supply of produce by Basile ... ". (This was obviously what the bank had been told by the Italiano brothers). Notwithstanding that Gangemi Distributors had commenced litigation against Basile Imports, the main consideration for the bank was said to be that Gangemi Distributors had not been able to re‑establish a permanent avenue of supply of produce and as a result had little or no stock, which made it difficult to service its customers. The letter advised that consequently, "as the business has essentially ceased to trade" the overdraft limit had been cancelled and the outstanding debt was required to be cleared on or before 30 April 1998. The amount outstanding was $225,515.91.
There were some negotiations with the bank but on 12 April 1998 Guiseppe Italiano's house was sold by the bank for $226,902.31 and the overdraft was discharged.
On 4 November 1998 a notice of default was issued to each of Gangemi distributors and the Italiano brothers as guarantors, in respect of the lease of the Gangemi Distributors' warehouse premises at Malaga. The claim was for unpaid rent, outgoings and interest of $26,944.22. Rental payments had been outstanding for each month from February 1998 to the end of November. According to Rocco Italiano court action was subsequently taken in respect of that claim and judgment was obtained against Gangemi Distributors for $32,561.57 inclusive of costs.
According to Rocco Italiano Gangemi Distributors was unable to maintain its business once it became unable to obtain supplies from Basile Imports. Time was needed to find another supplier of similar goods of equivalent quality and then more time would have been needed to persuade customers to put the new brand on their shelves and then for the product to sell and show a financial return. It was Rocco Italiano's evidence that it would not have been possible to find suppliers of equivalent products in Australia; it would have been necessary to go overseas, find the product, establish a relationship with the supplier and then introduce the product into the Western Australian market. The process could take years – he said between five and seven years.
The Italiano brothers plan for the Gangemi Distributors business was to bring their sons into it (Rocco Italiano's son joined in January 1997) and subsequently take on other employees as the business grew. Their aim and expectation was that turnover would reach $1 million per annum by the end of 1998 or mid‑1999 at the latest. To achieve that they would need more finance for stock. They also intended to increase their range of stock and raise their average profit margin from 16½ per cent to 20 per cent. The additional finance would come from Rocco Italiano's eldest son, who was going to inject $250,000 into the business. Their intention was that ultimately their children would take over the business.
For both the Italiano brothers and Pat Basile, English was not their first language. That sometimes made their evidence difficult to follow. It was also apparent at times that their English expression was not necessarily conveying an accurate understanding of what they were trying to say. I am mindful that I must approach their evidence cautiously for this reason and not draw adverse conclusions about their credibility from what might well be no more than inadequate communication.
The difficulty is compounded because, as might be expected in the circumstances, critical conversations – including those relied upon as evidencing the terms of the oral agreement – were recounted not verbatim, but only as to their effect. In turn that was no doubt coloured now by both selective recall and ex post facto reconstruction.

The defendant called only one witness on this issue. That was Mr Russell Morgan. He is a chartered accountant with the firm of William Buck. He has a Bachelor of Commerce degree, is a registered company liquidator and has had 22 years experience as an accountant.
The first point to note about Mr Hogg's evidence is that it was (as he frankly conceded) based upon the documentary material with which he was provided by the plaintiff (which was incomplete) and on certain assumptions made in reliance upon what he was told particularly by Rocco Italiano and the accuracy of which assumptions it was not for him to seek to objectively confirm. He acknowledged that his conclusions would stand only to the extent the assumptions on which they were founded could be shown to be true. Some of those may be addressed immediately.
The first assumption made by Mr Hogg was that the purchase and sale of goods from Basile Imports was an essential platform for the sale of a wider range of goods offered for sale by Gangemi Distributors. Mr Hogg said he made that assumption in reliance upon what he was told by Rocco Italiano. The evidence does not establish that to have been the case. Likewise, his assumption that the consequence of the non‑supply of Basile goods was a decline in business to the extent that Gangemi Distributors ceased its business operations, was not merely based only on what Mr Hogg was told by Rocco Italiano, but is one of the central issues to be determined by these proceedings. The assumption that upon the retirement of the Italiano brothers, it was their intention to sell Gangemi Distributors is not only not supported by the evidence, it is in conflict with it. The Italiano brothers have maintained throughout - and say they told Pat Basile - that their intent was not to sell the business but to pass it on to their children. That may not make any difference to Mr Hogg's opinions and calculations going to the assessment of damages, but it does impact on the credibility of the Italiano brothers.
It is Mr Hogg's analysis upon which the plaintiff relies for the claim based on loss of sales between 1996 and 1997 (described by him as "past economic loss" and criticised by Mr Olivier on that account). His methodology was to analyse the plaintiff's historical financial information to determine actual historical profit/loss figures, establish a basis for calculating profit or loss had the supply of goods from Basile Imports continued and compare the two to establish "past economic loss". As Mr Morgan pointed out, that description does not refer to actual losses which had occurred in the past but to an estimation of future losses beyond 31 December 1996 - but I did not understand Mr Hogg to be suggesting otherwise.
The following summary of the Gangemi Distributors' trading results from 1 November 1995 to 30 June 1999 was taken from Mr Hogg's report dated 20 January 2000 (Exhibit "H2") ("the Hogg report") and, subject to two qualifications, accepted as correct by Mr Morgan. There is no reason I should not so accept it.

Period 01/11/95 to 30/06/96 $	Year Ended 30/06/97 $	Year Ended 30/06/98 $	Year Ended 30/06/99 $
Sales	288,655	467,777	81,415	5,094
Less: Cost of Goods Sold	241,317	394,245	81,533	9,739
Gross Profit from Trading	47,338	73,532	(118)	(4,645)
Other Income/(Losses)	-	-	1,568	(1,272)
47,338	73,532	1,450	(5,917)
Less: Expenses	41,923	98,283	72,304	34,655
Net Profit/(Loss) Before Income Tax	5,415	(24,751)	(70,854)	(40,572)

Mr Morgan noted a discrepancy between the amount deducted for rent, rates and taxes expenses in the eight months to 30 June 1996 and the 12 months to 30 June 1997. He suggested proportion of those properly attributable to the former had probably been taken up in the latter. The figures appear to support this suggestion. The effect would be that each of the reported net profit for the former and net loss for the latter would be overstated by $5,414.43. The second qualification is more of an observation. It is that the whole report does not dissect the net profit for the year ending 30 June 1997 into the first six months (when Gangemi Distributors received normal supplies from Basile Imports) and the second six months (when supplies had ceased).
The analysis of monthly sales reports (annexure 2 to the Hogg report) reveals that in the eight months to 30 June 1996, total sales by Gangemi Distributors were $287,911 of which $128,416 (44.6 per cent) were Basile Products and $159,495 (55.4 per cent) were other products. In the six months to 31 December 1996 - that is during a period of normal supply by Basile Imports - total sales by Gangemi Distributors were $272,617 of which $92,461 (33.9 per cent) were Basile products and $180,156 (66.1 per cent) were non‑Basile products. In the six months to 30 June 1997 - that is during the period Basile Imports refused to supply goods other than on letter of credit, and Gangemi Distributors were selling off Basile goods in stock - total sales were $196,310 of which $27,044 (13.8 per cent) were Basile products and $169,266 (86.2 per cent) were non‑Basile products. What is noteworthy is that even in the period to 30 June 1996, Basile products comprised less than one‑half the Gangemi Distributors' total sales and by December 1996, under conditions of normal supply, that had fallen to under 34 per cent (that is approximately one‑third).
Mr Hogg's calculation of total (anticipated) sales for the years ended 30 June from 1997 to 2000 respectively, had the supply of Basile goods been continued, was:
1996/97      -       $595,117
1997/98      -       $807,000
1998/99      -       $1,011,000
1999/2000   -       $1,184,500
To these figures he applies a gross profit margin of 16.4 per cent for each year to 30 June 1999 and 20 per cent for the year ending June 2000. He then deducts expenses based on historical financial information and certain assumptions. He has increased most expenses in proportion to his projected increase in sales, on the basis expenses are in the main directly related to sales. That approach has been applied also to the actual expense for wages as shown in the Gangemi Distributors' accounts for the year ending 30 June 1997.
The calculation of total sales is derived from a trend line obtained by graphing Basile and non‑Basile goods sold by Gangemi Distributors from 1 November 1995 to 30 June 1997. Actual sales data ends in December 1996. Mr Hogg has calculated the sales trend until the figure for monthly sales reaches $100,000 (according to the trend line, in November 1999). In doing this, Mr Hogg relied on representations by Rocco Italiano that that level of sales was achievable and sustainable under the existing Gangemi Distributors method of operation - indeed, Rocco Italiano maintained that level of sales would have been achieved prior to November 1999. In my view that is not supported by the evidence. Actual monthly sales do not suggest that prospect would have been achieved - nor even necessarily achievable. Actual sales for the six months from 1 July 1996 to 31 December 1997, during which supplies were received from Basile Imports, totalled $272,617. That would represent sales for the full year under normal conditions of supply, of $545,234. Monthly sales of $100,000 would represent annual sales of $1.2 million, more than double the actual monthly sales to December 1997.
Mr Thompson was called by the plaintiff to prove, inter alia, the validity of the assumptions made by Mr Hogg. Broadly speaking, Mr Thompson's evidence in this regard failed to determine whether the assumptions made were "best estimate" or merely hypothetical. However, subject to the aspect of return on investment ("ROI") to which I shall return, they were not supported by market research findings nor other objective data. That leads to the conclusion that they are based on nothing more than unsupported statements by Rocco Italiano and are, in substance, merely hypothetical.
In his evidence, Mr Thompson considered the prospect that Gangemi Distributors would double its monthly sales to be a realistic expectation given that Rocco Italiano said he intended to achieve it by offering a greater range of products to existing customers, selling more of the same lines to existing customers, and lowering prices.
Mr Thompson himself noted Gangemi Distributors was distributing a limited range of only some 20 Basile products and a few product lines from Ambra. Rocco Italiano told him it was their intention to develop specialty lines exclusive to Gangemi Distributors. In Mr Thompson's opinion, the Italiano brothers would have found it easier to introduce new lines as the years passed and that alone gave them the potential to significantly increase sales in future. This is all very speculative and vague and in my view affords a wholly inadequate basis upon which to confidently prognosticate an increase in sales. It was by no means clear what "specialty lines" were being contemplated, from whom they would come, nor what marketing prospects they might have had. I consider this a hypothetical assumption (in the sense in which that term was used by Mr Morgan).
I have similar difficulties with the assertions that Gangemi Distributors would have sold more of the same lines to existing customers and more Basile products by lowering their prices. These are hypothetical assumptions. Furthermore, as Mr Thompson observed, and as is apparent from the actual sales figures, whatever growth there was in sales was occurring in the non‑Basile products which, by contrast, were declining. There was some inconsistency in what Rocco Italiano had told the plaintiff's experts. Thus, the assumption that the Basile goods provided a platform for the plaintiff to sell other goods directly imported by it and the loss of Basile products meant it was no longer viable for Gangemi Distributors to sell its other goods, is inconsistent with Rocco Italiano's stated intention to substitute lower priced pasta products for the higher priced Basile products in any event. Nor does that assumption have cogency, because even when Basile goods were not being supplied between 1 January to 30 June 1997, sales of non‑Basile goods fell only by 6 per cent. Furthermore, Rocco Italiano said his intention was to reduce the price of Basile goods because of buyer resistance, and to increase the price of Ambra products, which he said sold better because they were cheaper. Once again, this is mere assertion and the proposition that either alone or in combination these measures would have significantly increased turnover is not one I would be prepared to accept on the evidence.
The plaintiff has advanced no cogent reason to justify the optimistic expectation that Gangemi Distributors would have doubled its annual sales to $1.2 million, and I do not accept it.
On the other hand, I do accept the point made by Mr Morgan that whilst the rate of growth in annual sales used by Mr Hogg was 36 per cent, 28 per cent and 26 per cent for the years ended June 1998, 1999 and 2000 respectively, the actual difference between annualised sales to 1997 ($545,234) and those for 1996 ($432,982) was 25 per cent. The projected rate of growth is not supported by historical experience.
The calculations based on a forecast that the plaintiff would have more than doubled its sales level between 30 June 1997 and 30 June 2000 were necessarily founded on a broad assumption that costs would increase in direct proportion to sales. I say necessarily, because nowhere is there any evidence the plaintiff had prepared even the most rudimentary business plan, budgets, or forecasts of staff and resources which could be required to achieve it.
In that lacuna Mr Hogg's assumption was not unreasonable, but it is not one which provides particularly meaningful results in the circumstances. Indeed, the lack of any such documentation tends to confirm that the Italiano brothers really had no business plan at all and that Rocco Italiano's assertions that Gangemi Distributors would have achieved increasingly higher levels of sales to the extent of a monthly turnover of $100,000, were no more than assertions or hopeful expectations. There has been no attempt to cost the financial and other resources needed to achieve a projected sales level of $1.2 million per annum and the evidence suggests that those resources would not in any event have been available to Gangemi Distributors. I am not prepared to rely upon mere statements that Rocco Italiano's son would have been in a position to inject another $250,000 into the business and that more staff could be taken on as needed.
There is, however, a more fundamental problem with the analysis of future sales relied upon by the plaintiff. The trend line analysis chart (annexure 4 to the Hogg report) is a presentation of straight line graphs which bisect the median of the peaks and troughs designating the monthly sales. The chart has been produced by recording the monthly sales figures to December 1997 on an Excel spreadsheet which then has automatically generated the relevant trend lines. The mathematical formula applies progression analysis to produce a straight line graph. In my opinion that is inapt for the present purpose.
Some of the various plotted points fall nowhere near the trend line, whilst others do. In February 1996 when the actual sales of Basile goods were $22,389.98, the trend line shows them about $24,000. In the same month, total sales were $44,270.59; the trend line puts them at approximately $52,000. In July 1996, actual sales of Basile goods and total sales were $7,429.65 and $38,464.45 respectively; according to the trend lines they would have been approximately $15,500 and $42,000 respectively.
In October 1996 actual sales of Basile goods and total sales were $14,354.73 and $33,625.49 respectively; according to the trend lines, the figures should have been approximately $15,000 and $47,000 respectively.
Progression analysis may well be a useful and reasonable reliable tool where the points plotted on the basis of empirical data fall on, or close to the line, but its utility as a predictor of future events decreases markedly the more the plotted points fall further away from the line.
So too, the effect is to produce an average figure which does not accommodate seasonal results. On the evidence adduced by both parties, sales of imported food products are significantly subject to seasonal fluctuations. The straight line graph not only cannot accommodate them, it produces figures which will not accord with seasonal realities. For the same reason, month by month comparisons with previous years are not possible. A technical criticism made by Mr Morgan of the use of progression analysis in this context was that it is ordinarily used where there are only two variables, which are measured on the X and Y axis respectively; but business sales are affected by a multiplicity of factors and so a two‑factor analysis is not applicable.
In my opinion the utility of the trend line analysis here is limited to giving the broadest indication only of whether over a period sales are generally tending to increase, decrease or remain at an approximately constant level. It says nothing about the level which is likely to be achieved in any particular month; nor, for present purposes, do I consider it a reliable indicator of future sales, dependant as they are on so many uncertainties.
Even looked at in this light, perhaps the most significant feature of the graph is that it shows a level of sales of Basile products by Gangemi Distributors which overall was consistently decreasing from November 1996 to January 1997, albeit there were marked fluctuations both above and below the trend line during that time.
Gangemi Distributors' gross profit margins for the periods ending 30 June 1996 and 1997 were 16.4 per cent and 15.7 per cent. Mr Hogg accepted as a reasonable assumption Rocco Italiano's assurance that the reduced margin of 15.7 per cent was a consequence of the detrimental affect of the non‑supply of Basile goods and that in any event, those two margins were low because Gangemi Distributors was trying to establish market share - as that developed the profit margin would increase to 20 per cent.
Once again, the first proposition was not established and little evidence has been adduced by the plaintiff to show a profit margin of 20 per cent could have been achieved. An increase in price to attain that might well have discouraged sales (it is also inconsistent with Rocco Italiano's statement that he intended to reduce the price of Basile goods). I note too that the plaintiff's own expert, Mr Thompson, considers the assumption of a 20 per cent gross profit margin for the year ending 30 June 2000 is not reasonable. I agree.
Despite their description that claimed losses between December 1996 and June 1999 represent past economic loss, it is important to appreciate that they (together with claim losses subsequent during 1999) are actually a claim for estimated future loss from December 1996 - that is to say they all represent future earnings that Gangemi Distributors may have made after December 1996.
Based on the sales trend line, the Hogg report estimates the net profit/loss which would have been made in the year ending 30 June 1997 had normal supply of Basile products continued, as a loss of $4,218, whereas the actual loss was $24,751. However, as Mr Morgan pointed out, if the figures are dissected into those which pertain to the first half of the year when there was normal supply of Basile products, and the second half when there was not, there was a loss of $14,283 in the former and a loss of $10,285 in the latter. This dissection seems to me appropriate. As Gangemi Distributors obtained normal supplies of Basile goods during the first six months to 31 December 1996, it is reasonable to conclude that if that situation had continued, a similar loss would have been recorded in the second half of the year and the trading loss for the whole of the year would have been $28,566. In fact, as has been seen, the actual loss reported was less than that ($24,751). Given therefore that the actual loss was less than the loss which would have been likely under conditions of normal supply from Basile Imports, Gangemi Distributors did not suffer any loss of profits for the year ending 30 June 1997 as a result of the cessation of supply from Basile Imports.
Mr Hogg's calculations of compensable loss are based on the plaintiff's business being profitable, whereas the reality was that it did not trade profitably for the 14 month period from 1 November 1995 to 31 December 1996, during which period it obtained normal supplies from the defendant - and as has just been explained, it would have suffered a greater loss for the year ending 30 June 1997 had normal supplies continued. The figures show a substantial decline in the sales of non‑Basile goods after 30 June 1997. Although the plaintiff contends that was in some way due to the non‑supply of Basile goods, no adequate evidence for that proposition has been advanced. As already noted, the plaintiff has not provided any business budgets, plans or forecasts of projected future results. Under these circumstances I accept Mr Morgan's evidence that there is no basis upon which it could be concluded that Gangemi Distributors would have earned future profits (or even reduced its losses) if the cessation of supply of Basile products had not occurred. There were other commercial factors in play here, of which the plaintiff's inability to make timely payments to the defendant and the defendant's consequential insistence upon payment by letter of credit before further goods would be supplied, were symptomatic rather than causal. In my view the plaintiff has not made out the first component of its claim for loss of sales to 31 December 1996.

The second component, described by Mr Hogg as future economic loss, from 30 June 1999, is also founded on the same assumptions. In particular it takes as its starting point an assumed profit of $85,065 for the year ending 30 June 2000. That is derived from the trend line graph. To that figure Mr Hogg has applied a multiplier of 6 per cent.
This component of the claim falls at the outset because the plaintiff has failed to establish the validity of the assumptions upon which it is founded, most significantly that there would have been a profit of $85,065 (or at all) in 2000.
Further, the 6 per cent multiplier is ordinarily used in the calculation of economic loss in respect of claims for personal injury. It is not apposite here, first because unlike the situation in a personal injury case, it is not being applied to a quantified actual past loss or actual past or present cost, but to an estimate of a future loss after December 1996. Secondly, as Mr Morgan pointed out, the multiplier in personal injury cases is actually a discount of future loss or cost, to present value. It is a discount of future loss or expenditure to take account of the interest available on the investment of the amount awarded (that is for the early and certain receipt of the money) and for the contingency that some or all of it will never be spent.
Mr Hogg's evidence was that he used a 6 per cent multiplier simply because he obtained it from previous reports he had done and believed it to be the discount factor used by courts in assessing future economic loss in terms of present day values. He gave no evidence of the contingencies being allowed for by such a figure, although he acknowledged in cross‑examination (t 413 ‑ 414) that the 6 per cent did not take into account the significant risks of the business being conducted by the plaintiff. He conceded that a figure of 20‑25 per cent could have been a more appropriate discounting factor. It is obvious from the evidence that quite apart from contingencies such as the uncertainty of supply (whether from Basile Imports or otherwise) the influence of seasonal variations, industrial competition and market influences, allowance would have to be made for the very real factors present here, of the high debt level of the business, the need to rely upon borrowed capital, the cash flow problem, the continuing pattern of losses and ultimately the prospect that the business might fail in the relatively short term.
Even taken at its highest and on the most favourable view for the plaintiff, I would not be prepared to regard the figures of loss of future profits derived from the trend line graph as reliable indicators of estimated loss, much less extending beyond three years and much less again when based on a 6 per cent multiplier. But there is here a greater threshold issue.
I consider the evidence shows the business of Gangemi Distributors was in serious financial trouble by December 1996 and even had Basile Imports continued to supply products as it had done previously, the plaintiff would have had to cease trading probably about the time it in fact did, or at least not much later. I am not satisfied that the plaintiff had any realistic prospect of obtaining further finance to the extent which would have been necessary to enable it to continue, and even if it had, the sales and profit history would not suggest there was any real capacity to trade profitably after allowance was made for repayment of debt.
My conclusion on this aspect of the plaintiff's claim is that there is no basis upon which the proposition that the plaintiff's business would have earned future profits had the supply of Basile Products continued beyond December 1996 on the same basis it had been made prior to that date, has been established. The plaintiff has accordingly failed to prove that it has in fact suffered any loss of profits as pleaded.
I turn now to the alternative way in which the second part of the plaintiff's claim was put, namely as to the goodwill and "value" of the business as a going concern. The evidence principally relied upon by the plaintiff in this regard came from Mr Thompson.
The principal thrust of Mr Thompson's evidence was about the valuation of the business which was done by him according to what he described as the ROI method.
Mr Thompson's starting point was future maintainable earnings, that is what level of profit could be expected to be maintained in future. The next step was to work out a figure for ROI.
Mr Thompson described the ROI method as one form of the well‑recognised capitalisation of future maintainable earnings method of business valuation. He had developed it essentially for the sale of small businesses. The method is based upon actual sales experience. According to Mr Thompson it evolved out of the need to explain how small businesses are actually sold in the marketplace. The example he gave was a business making an annual profit of $30,000 before deduction of owner's wages. If wages of $30,000 were deducted there would be no profit (and by definition, no goodwill), but "… there are thousands upon thousands of those businesses each year which sell for quite a bit of goodwill" (t 463). He postulated that in such cases, if the cost of plant, equipment and stock was allowed for, there could be between $30,000 and $40,000 goodwill. He said the only method that will cover this situation is the ROI method.
The ROI percentages used are extremely high because the calculation makes no allowance for wages (it being understood that the owner is not receiving a wage - as was the case here, although the Italiano brothers were drawing income from the business). Mr Thompson said that the ROI percentages for most businesses vary between 25 to 150 per cent, which incorporates the knowledge of the market that the profit shown is profit before deduction of owner's wages. The method is based on sales evidence obtained by Mr Thompson from a network of business brokers throughout Australia who report details of sales to him which are then reported in his bi‑monthly newsletter which he has been publishing for the last seven years. These details include the annual profit made by the business (without allowing for owner's wages or drawings) and the sale price. The ROI percentage is then calculated by the formula:
"ROI (%)= Net profit before tax x 100
purchase price"
An analysis of sales made in the business category will give an ROI percentage range. That can then be applied to the business to be valued (that is, priced for sale) and the value (or price range) calculated by the formula:
"Price = net profit before tax x 100
ROI"
In this case, Mr Thompson took the ROI percentage range for a food wholesaler similar to Gangemi Distributors as being between 45 and 65 per cent. He obtained that range from Issue No 59 of his "Business Values Newsletter" (September/October 2000).
In his report (exhibit I2, p 9) he set out a table showing the value (price) of the plaintiff's business at various profit levels, ranging from $30,000 to $150,000. The prices range from $46,000 to $357,000 respectively. The value (price) includes plant and equipment, stock and goodwill. The value of goodwill is therefore obtained by deducting the value of plant and equipment and stock from the price.
Taking Gangemi Distributors' plant and equipment to be worth approximately $15,000 (based on the 30 June 1998 balance sheet contained in the Hogg report) and the trading stock to be worth $140,000 (the estimate of 1996/97 stock), Mr Thompson calculated the goodwill of Gangemi Distributors at the various profit levels he had set out earlier. On those, there would be no goodwill until the annual profit reached almost $100,000 (at which it would be worth $65,000, rising to $202,000 at an annual profit of $150,000) - but as profits go higher, that will generally be because sales have increased, which in turn means an increase in stock levels, the additional cost of which would reduce the value of goodwill accordingly.
The specific basis upon which Mr Thompson had calculated the ROI percentage range for this category was not established. He was not able to say how many sales had been reported, nor where they were located.
Mr Thompson's approach was serious criticised by Mr Morgan on a number of fronts, perhaps the most important being that valuation of goodwill should require that notional salaries for working proprietors be calculated and deducted from net profit in order to determine the net profit that would be available to a hypothetical purchaser of a business on a willing buyer/willing seller basis.
I would accept this criticism. I consider Mr Morgan's approach to be more credible and reliable as an indicator of value in this context. But it is unnecessary for me to deal with this aspect further because even on Mr Thompson's evidence, there was no goodwill until the annual profit reached $80,000 ‑ $100,000 and not only has the plaintiff failed to prove any annual profit of that order, the evidence is that the plaintiff was making, and would have continued to make, a loss.
I also accept the defendant's submission that insofar as it is characterised as "reliance damages" this component of the plaintiff's claim must fail. That is first because the plaintiff paid nothing to Nino Gangemi for goodwill when it purchased the business (and there was none when it ceased for the reasons I have just explained); the stock purchased was paid off as the goods were sold; and the plaintiff purchased only minimal plant and equipment and the evidence does not show that was wasted.
Accordingly, in both these ways the plaintiff's claim on this alternative basis would also fail.
The third component of the plaintiff's claimed loss relates to losses said to have been associated with the termination of the warehouse lease agreement and the loss said to have been associated with the withdrawal of the plaintiff's overdraft and the mortgagee sale of Guiseppe Italiano's residence.
These alleged losses are described in the plaintiff's further and better particulars as having been suffered as the result of the circumstance that the plaintiff (sic: the defendant) has deprived the plaintiff of the opportunity to recover its business establishment and associated costs. As I understand, this claim is characterised as being for "reliance damages". In my view it cannot be sustained.
The overdraft was obtained and secured by a mortgage on Guiseppe Italiano's house by the Italiano brothers for the purpose of taking over Nino Gangemi's business. It may well have been done with an expectation by them of continuing supplies from the defendant, but it was done before the meeting in December 1995 (see Ex "X") and on any view before Gangemi Distributors under their ownership, had any contract with Basile Imports.
In my view however, that would not be fatal to the plaintiff's claim were it to be shown that these were losses caused by a breach of contract on the part of the defendant and were not too remote. I have found that not to have been so, but on the issue of assessment only, I would have to take the view that the only costs which should be allowed in respect of the tenancy would be those involved in paying out the lessor's claim, namely $27,194.22, not the legal costs of the action for recovery. There is no reason the defendant should have to pay for the plaintiff's decision to contest the claim.
So far as the overdraft component is concerned, that was a liability to the bank which the plaintiff had accrued in the course of trading over many months. It was accrued by reason of the need to make payments (to Basile Imports and other suppliers) for stock, for other expenses and by way of drawings by the Italiano brothers. The claim must in reality be put on the basis that had the supply of Basile goods continued, the plaintiff would have been able to continue to service the overdraft and eventually pay it out in full. Otherwise, the liability (and hence the loss) could not be said to have been caused by the defendant's breach. For the reasons already articulated above, that claim is not sustainable. The plaintiff has not quantified any particular portion of the $230,000 which it could say represents a loss suffered specifically due to the non‑supply of Basile goods after December 1996. I would not allow it.
I will hear from counsel on the orders to be made in accordance with these reasons.