Georges France Photography Pty Ltd v M and T Zimmermann Pty Ltd
[2001] WASC 220
GEORGES FRANCE PHOTOGRAPHY PTY LTD & ORS -v- M & T ZIMMERMANN PTY LTD & ANOR [2001] WASC 220
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 220 | |
| Case No: | CIV:1440/1997 | 5-15 JUNE 2001 | |
| Coram: | ANDERSON J | 22/08/01 | |
| 25 | Judgment Part: | 1 of 1 | |
| Result: | Claim allowed Counterclaim dismissed | ||
| B | |||
| PDF Version |
| Parties: | GEORGES FRANCE PHOTOGRAPHY PTY LTD (ACN 008 110 674) PETER PAN STUDIO PTY LTD (ACN 008 110 665) FIRST FOTO (AUSTRALIA) PTY LTD (ACN 008 271 494) CALDILE PTY LTD (ACN 008 103 759) FOTO MAGIC PHOTOGRAPHIC PROFESSIONALS PTY LTD (ACN 058 734 231) COMMERCIAL COLOUR CORP PTY LTD (ACN 007 751 395) M & T ZIMMERMANN PTY LTD (ACN 056 571 389) ZIMMERMANN NOMINEES PTY LTD ZIMMERMANN NOMINEES PTY LTD (ACN 008 846 419) |
Catchwords: | Contract Termination for breach Failure to prove substantial damages Award of nominal damages |
Legislation: | Nil |
Case References: | Shepherd v Felt & Textiles of Australia Ltd (1930) 45 CLR 359 Baltic Shipping Co v Dillon (The Ship Mikhail Lermontov) (1993) 176 CLR 344 Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422 Buckland v Farmar & Moody [1979] 1 WLR 221 Chaplin v Hicks [1911] 2 KB 786 Commonwealth v Amann Aviation Pty Ltd 91991) 174 CLR 64 Commonwealth v Verwayen (1990) 170 CLR 394 Dimos v Willets (2000) 2 VR 170 Ferguson v Mackaness Produce Pty Ltd [1970] 2 NSWR 66 Jones v Dunkel (1959) 101 CLR 298 Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 Olga Investments Pty Ltd v Citipower Ltd [1998] 3 VR 485 R v Clune (No 1) [1975] VR 723 Rockwell Machine Tool Co v E P Barrus (Concessionaires) Ltd [1968] 2 All ER 98 Shevill v Builders Licensing Board (1982) 149 CLR 620 Stern v McArthur (1988) 165 CLR 489 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Woods v Martins Bank Ltd [1959] 1 QB 55 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : GEORGES FRANCE PHOTOGRAPHY PTY LTD & ORS -v- M & T ZIMMERMANN PTY LTD & ANOR [2001] WASC 220 CORAM : ANDERSON J HEARD : 5-15 JUNE 2001 DELIVERED : 22 AUGUST 2001 FILE NO/S : CIV 1440 of 1997 BETWEEN : GEORGES FRANCE PHOTOGRAPHY PTY LTD (ACN 008 110 674)
- PETER PAN STUDIO PTY LTD (ACN 008 110 665)
FIRST FOTO (AUSTRALIA) PTY LTD (ACN 008 271 494)
CALDILE PTY LTD (ACN 008 103 759)
FOTO MAGIC PHOTOGRAPHIC PROFESSIONALS PTY LTD (ACN 058 734 231)
First Plaintiffs
COMMERCIAL COLOUR CORP PTY LTD (ACN 007 751 395)
Second Plaintiff
AND
M & T ZIMMERMANN PTY LTD (ACN 056 571 389)
ZIMMERMANN NOMINEES PTY LTD
Defendants
(BY ORIGINAL ACTION)
(Page 2)
- M & T ZIMMERMANN PTY LTD (ACN 056 571 389)
ZIMMERMANN NOMINEES PTY LTD (ACN 008 846 419)
Plaintiffs
AND
GEORGES FRANCE PHOTOGRAPHY PTY LTD (ACN 008 110 674)
PETER PAN STUDIO PTY LTD (ACN 008 110 665)
FIRST FOTO (AUSTRALIA) PTY LTD (ACN 008 271 494)
CALDILE PTY LTD (ACN 008 103 759)
FOTO MAGIC PHOTOGRAPHIC PROFESSIONALS PTY LTD (ACN 058 734 231)
Defendants
(BY COUNTERCLAIM)
Catchwords:
Contract - Termination for breach - Failure to prove substantial damages - Award of nominal damages
Legislation:
Nil
Result:
Claim allowed
Counterclaim dismissed
(Page 3)
Category: B
Representation:
Original Action
Counsel:
First Plaintiffs : Mr K J O'Toole
Second Plaintiff : Mr K J O'Toole
Defendants : Ms P M Edward & Mr A C McIntosh
Solicitors:
First Plaintiffs : K J O'Toole & Associates
Second Plaintiff : K J O'Toole & Associates
Defendants : Murie & Edward
Counterclaim
Counsel:
Plaintiffs : Ms P M Edward & Mr A C McIntosh
Defendants : Mr K J O'Toole
Solicitors:
Plaintiffs : Murie & Edward
Defendants : K J O'Toole & Associates
Case(s) referred to in judgment(s):
Shepherd v Felt & Textiles of Australia Ltd (1930) 45 CLR 359
Case(s) also cited:
Baltic Shipping Co v Dillon (The Ship Mikhail Lermontov) (1993) 176 CLR 344
Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422
(Page 4)
Buckland v Farmar & Moody [1979] 1 WLR 221
Chaplin v Hicks [1911] 2 KB 786
Commonwealth v Amann Aviation Pty Ltd 91991) 174 CLR 64
Commonwealth v Verwayen (1990) 170 CLR 394
Dimos v Willets (2000) 2 VR 170
Ferguson v Mackaness Produce Pty Ltd [1970] 2 NSWR 66
Jones v Dunkel (1959) 101 CLR 298
Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723
Olga Investments Pty Ltd v Citipower Ltd [1998] 3 VR 485
R v Clune (No 1) [1975] VR 723
Rockwell Machine Tool Co v E P Barrus (Concessionaires) Ltd [1968] 2 All ER 98
Shevill v Builders Licensing Board (1982) 149 CLR 620
Stern v McArthur (1988) 165 CLR 489
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Woods v Martins Bank Ltd [1959] 1 QB 55
(Page 5)
1 ANDERSON J: The plaintiffs are a group of companies under the control of Mr Georges France which engage in commercial photography on a large scale. The companies use photographers in most States of Australia to take studio photographs and special occasion photographs such as of students graduating from educational institutions, newborn babies in hospital maternity wards, school and kindergarten photographs and photographs of children enjoying the Santa Claus Day at shopping centres and the like.
2 The delivery of film to the production laboratory and the processing, printing, packaging and despatch to customers of the photographs is a major undertaking which requires systems to be employed to ensure that the customers receive their photographs while they are still keen to have them. In this respect, time is an important factor. It is one of the factors which affects the take-up rate, that is, the rate at which customers elect to accept and pay for the photographs.
3 In January 1996, the five first plaintiffs, Georges France Photography Pty Ltd, Peter Pan Studio Pty Ltd, First Foto (Australia) Pty Ltd, Caldile Pty Ltd and Foto Magic Photographic Professionals Pty Ltd, entered into two written agreements with companies controlled by Mr Bruno Zimmermann and his family. These companies were the first-named defendant, M & T Zimmermann Pty Ltd, and the second-named defendant, Zimmermann Nominees Pty Ltd. One of these agreements is called a production agreement and the other is called a service agreement. The production agreement was between Zimmermann Nominees Pty Ltd and the plaintiffs and the service agreement was between M & T Zimmermann Pty Ltd and the plaintiffs. The production agreement covered the processing of the film and printing of the negatives and the service agreement covered the collating, packaging and despatch of the prints or packages of prints to the customers. All of these activities occurred in the one building at Zimmermann's premises in Beaufort Street, Mount Lawley, in this State.
4 To give a little more detail, the system worked broadly as follows. The photographer somewhere in Australia would take photographs on a roll of film and complete customer cards with respect to that roll. The customer cards and the roll of film would be placed in a film bag and sent by the photographer to the plaintiffs. The information on the customer cards would be entered into the plaintiffs' database from which invoices and address labels would be generated. The film, customer cards, address labels and invoices would be put back into the bag and sent to the Zimmermann premises (t/s 351). The bag would be opened and the films
(Page 6)
- would be developed. The quality of the negatives would then be checked and assessed by Zimmermann's staff and a selection would be made of the negatives which were to be printed. They would then be printed to create photographs. The photographs would be collated and packaged in a certain style and this "photo pack" would then be despatched to the customer with the invoice. On receipt of the photo pack, the customer would either keep the photographs and pay the invoice, or return the photographs.
5 The success of the plaintiffs' business depended on take up rates. It was provided in the production agreement by cl 26 that Zimmermann Nominees Pty Ltd "shall process negatives and produce and manufacture prints within the time-frames stipulated in Schedule 4 to this Agreement". In Sch 4 various time limits were stipulated ranging from one to four days. By cl 29, it was provided:
"29. The time-frames set out in Schedule 4 to this Agreement are strict time-frames and provided that Zimmermann shall not be held responsible for events beyond its reasonable control Zimmermann shall ensure that production takes place in accordance with such time-frames."
6 By cl 30.1 it was provided that:
"30.1 In the event that Zimmermann shall fail to produce photographic prints in accordance with the agreed time-frames and the [plaintiffs] form the view that Zimmermann's failure to adhere to such time-frames is or is potentially damaging the GFP Group's business then the GFP Group can ...
30.1.1 In the event of a substantial failure, terminate this Agreement forthwith by written notice ... "
8 Under the service agreement, by cl 7, M & T Zimmermann Pty Ltd agreed to provide the services stipulated in the service agreement "in a timely manner and in accordance with such timeframes as are reasonably stipulated ... ". Certain time-frames were agreed upon, these being identical to the time-frames stipulated in the production agreement. A
(Page 7)
- question arose as to whether the times stipulated in the service agreement were coterminous with the times in the production agreement. The answer to this question depends on a construction of the concluding lines of cl 7 of the service agreement. These lines are as follows:
"In this clause the expression 'day' means a business day and in determining turnaround times, the first day will be the day upon which negatives which are processed to create prints which are delivered to the laboratory for processing."
"In this clause the expression 'day' means a business day and in determining turnaround times, the first day will be the day upon which film which is processed to create prints is delivered to the laboratory for processing."
10 Understood in this way (and, in my opinion, the provision cannot be understood in any other way), the turnaround times stipulated in the service agreement have the same starting-point as the turnaround times stipulated in the production agreement and, being the same periods of time (two days or three days or as the case may be) the time limits in both agreements are coterminous.
11 There was evidence that the reason why there were two agreements was to do with sales tax. To ensure that the operation attracted no more than the appropriate sales tax, a distinct charge was made for actually producing the print and a separate charge was made for collating and packaging; and different companies were used.
12 Nothing much turns on this and I mention it only to explain why what would appear to be a single composite production activity carried out at the same address (processing of film to create negatives, selection of negatives for printing, printing the negatives, collating the prints into customer packs and despatch of the packs to the customer) was undertaken by two companies under separate contracts. I should also
(Page 8)
- mention that it tends to explain why the two Zimmermann companies would each agree to do their work within the same time-frame.
13 Performance of the agreements commenced in about January 1996 and until July 1996 the plaintiffs' depot was in Adelaide. It was to this Adelaide address that the photographers would send their film bags and it was at that address that the plaintiffs would enter up their computer data and make labels and invoices. It was also from that address that the plaintiffs would send the film bags, labels and invoices to the Zimmermann laboratory in Perth for processing.
14 In July 1996, the plaintiffs relocated their depot to an address in Newcastle Street, Perth and thereafter entered up their database and created their labels and invoices at that address and made their deliveries to the Zimmermann laboratory from that address.
15 It is perhaps worth noting that, prior to the entry into the agreements with the Zimmermann companies, the Georges France group of companies operated their own laboratory and themselves attended to the collating and invoicing and despatch of photo packs to customers. The agreements with the Zimmermann companies were the result of a decision taken by the plaintiffs to "out-source" these activities. The entry into the two agreements represented a new development in the plaintiffs' business or businesses and I accept that Mr France and his fellow directors were concerned to monitor the performance of the agreements to ensure that the plaintiffs' overall business did not suffer by poor performance of the out-sourced work.
16 I accept the evidence of Mr France that by mid-1996 the plaintiffs were becoming concerned about a number of problems. One of these problems was what appeared to be large backlogs in the Zimmermann laboratory (including the packaging area) and another was the use by Zimmermann of photographic paper not purchased from Kodak.
17 The Georges France group of companies had a contractual arrangement with Kodak (Australasia) Pty Ltd pursuant to which Kodak provided equipment finance with respect to the purchase of a film processor and a package printer, valued at about $144,500. In consideration of the provision of this finance, the Georges France group through the second plaintiff, Commercial Colour Corp Pty Ltd, agreed to use Kodak photographic paper exclusively for a period of three years (the term of the finance arrangement) and agreed to purchase a minimum of $1.4 million worth of material from Kodak in that period. It was a
(Page 9)
- condition of this arrangement that Kodak had the right to demand immediate repayment of the money lent if there was non-fulfilment of these obligations. To keep faith with this arrangement and to protect themselves against termination by Kodak of the finance facility, the first plaintiffs required Zimmermann to agree to use Kodak photographic paper exclusively in producing prints for the plaintiffs. To this end, the production agreement between Zimmermann Nominees Pty Ltd and the first plaintiffs contained the following condition:
"32. Zimmermann shall use photographic paper to a standard stipulated by the GFP Group. For the duration of this Agreement Zimmermann shall purchase its requirements of photographic paper from Kodak pursuant to the Supply Agreement. In the event that Zimmermann shall breach this clause, then the GFP Group shall be entitled to terminate this Agreement forthwith by written notice to Zimmermann.
Zimmermann shall pay such prices for photographic paper as are payable by the GFP Group pursuant to the Supply Agreement and Zimmermann shall observe all of the terms and conditions of the supply agreement relating to the supply of photographic paper."
19 By par 8(c) of the statement of claim, the plaintiffs plead that Zimmermann Nominees Pty Ltd breached this condition by failing to purchase its requirements of photographic paper for the performance of the production agreement exclusively from Kodak. I am satisfied that this breach has been made out.
20 There is actually no dispute that the defendant did use photographic paper manufactured by Agfa-Gevaert Ltd for the Georges France work. This aspect of the claim is answered by the defendants by a confession and avoidance. Non-compliance with cl 32 is admitted, but is sought to be excused. The defendants' case is that, in order to better perform its obligations under the production agreement, the defendants had ordered a
(Page 10)
- special Agfa photographic printer from Agfa-Gevaert Pty Ltd, which was adjusted or "balanced" to use Kodak paper. Before delivery, however, it was irreparably damaged in transit from Melbourne to Perth. The evidence is very unclear as to when this printer was ordered. The evidence does not reveal the date of the accident. Mr Zimmermann's evidence was to the effect that Agfa could not immediately supply another new printer balanced to use Kodak paper. He said that the replacement had to come from Germany and he did not get this replacement until November 1996. He said that he had to borrow a machine from Agfa to tide him over while he arranged for "one of my fully owned machines to be reinstated and changed over to use of Kodak paper, which was done immediately but in the meantime for one machine we have used the Agfa paper … ". He said that Agfa paper was used in the borrowed machine because only Agfa paper could be used in that borrowed machine. His evidence was that he spoke with the chief executive of the plaintiffs, a Mr Reynolds, explained the position to him and obtained his permission to use Agfa paper and that he also spoke with Mr Georges France "a few days later on when he came into my laboratory … " (t/s 432-434). Mr Zimmermann's evidence was that, pursuant to this arrangement with the plaintiffs, through Mr Reynolds and Mr France, he used Agfa paper in the borrowed machine on Georges France work for a short time and not otherwise.
21 His case was that to this extent the contractual obligation to use Kodak paper exclusively on Georges France work was waived or varied.
22 This evidence as to the use of Agfa paper was to some extent confirmed by Mr Reynolds, but generally the evidence, including Mr Reynolds' evidence, was very confusing. Mr Zimmermann's evidence was that the printer which was damaged was not ordered until "somewhere in February or March" 1996. However, Mr Reynolds recalled that he approved the temporary use of Agfa paper in January 1996. There is clear evidence that Mr Reynolds resigned his position on 29 January 1996 and actually left the plaintiffs' employment on 6 March. I find it impossible to reconcile Mr Reynolds' evidence with Mr Zimmermann's evidence as to when the arrangement contended for by Mr Zimmermann was actually made. One of them is wrong. The matter was not resolved by evidence led on behalf of the defendants from Mr Hayes, who was Agfa-Gevaert Ltd's field sales supervisor at the material time. Mr Hayes confirmed that the first Agfa printer which he sold to Zimmermanns was damaged in transit to Perth. However, the effect of his evidence was that the transit did not commence until the documentation with respect to the purchase was signed. On the evidence,
(Page 11)
- the first document which was signed was a heads of agreement, and that was not signed until 1 April 1996. It was followed by a lease agreement dated 13 May 1996 and there is an acknowledgement of delivery attached to the lease agreement. If these documents relate to the first Agfa printer, damage to that printer had nothing to do with the use of Agfa paper at any time earlier than 1 April 1996. If the documents relate to the replacement machine, they are quite inconsistent with Mr Zimmermann's evidence that he did not obtain delivery of that machine until November 1996.
23 A number of photo packs of graduate photographs were tendered by the plaintiffs (exhibit 31). These were photographs returned by customers who did not wish to purchase them. There are, in all, 29 prints making up exhibit 31 which are of various graduands made from photographs taken between 15 and 29 April 1996. Printing of these photographs would have extended into May 1996. 28 of these prints are on Agfa photographic paper. One of the photo packs comprised four prints of the same graduand, three of which were on Agfa paper and one on Kodak paper. Those four prints were obviously in the same run and must have been produced by the same machine. This evidence alone seriously damages the credibility of Mr Zimmermann's evidence that he used Agfa paper only in the borrowed machine because that machine only took Agfa paper. Either his borrowed Agfa printer could use Kodak paper or Agfa paper was used in one of his other printers. Anyway, this use of Agfa paper at this time is not explained by any evidence given by Mr Reynolds. I do not see how he could have approved it. He had left the plaintiffs' employment six weeks previously.
24 I reject Mr Zimmermann's evidence that he obtained agreement from Mr Georges France to use Agfa paper. On 8 July 1996, Mr France wrote to Mr Zimmermann about a number of matters, including the use of Agfa paper. In the letter, Mr France said:
"Our Production Agreement also requires you to use Kodak paper in accordance with a Supply Agreement. This is the standard of paper stipulated by GFP Group. However, I understand that over a period of two weeks or so, and in contravention of this obligation you used paper supplied by AGFA. This put GFP Group into a position where the Supply Agreement was breached and Kodak are most concerned about this.
Rather than now exercise whatever rights are available to GFP arising from these matters, what I am proposing to do is monitor
(Page 12)
- the situation over a period of time so that your performance under the Production Agreement can be evaluated. However, GFP reserves its rights to exercise whatever remedies it has available to it presently under the Production Agreement and the ongoing monitoring and evaluation by GFP Group and our forbearance from exercising our rights is not a waiver of those rights."
25 In evidence, Mr France said that he wrote that letter "after I realised that Bruno had actually breached the agreement without even contacting me, without even letting me know that he was - you know, he'd gone over to Agfa paper". Under cross-examination, Mr France adamantly denied that he had ever discussed the use of Agfa paper with Mr Zimmermann or approved its use. I accept that evidence. On my assessment of Mr France, he would not have written the letter if any such agreement had been made by him.
26 Mr Zimmermann instructed solicitors to reply to Mr France's letter and in respect to the allegation about the use of Agfa paper, this is what was said in the solicitor's letter of 29 August 1996:
"The loan to our client by AGFA of a replacement machine free-of-charge was in itself a substantial benefit to you as it meant that work could be processed which would otherwise have been substantially delayed.
The machine itself was a demonstration machine set up to use AGFA product. At the time the machine was loaned our client was behind schedule and rather than cause you any possible loss by reason of delay the machine was used balanced for AGFA product until our client was able at the first possible opportunity to re-balance it to use Kodak product. This was to your benefit and we must say in the circumstances that we are most surprised to see this very minor deviation from the literal terms of the Production Agreement being used by yourself as the basis for an official complaint. One would have thought that our client would be congratulated on the manner in which he overcame a most difficult situation rather than you seizing upon this as an opportunity to censure him."
27 The notable feature of this reply is that it makes no reference to any agreement or approval or permission from Mr France for the use of Agfa product. If any such permission had been given, I have no doubt that it
(Page 13)
- would have been the first thing said in reply to Mr France's allegation of breach of contract. The other curious feature of the letter as a whole is that it places the incident involving the transit damage and the consequent need to use Agfa paper as being "in a two week period to the end of June 1996". This is to be compared with Mr Reynolds' evidence that the incident was in January and with Mr Zimmermann's evidence that it was in February or March and is refuted by the graduation photographs comprising exhibit 31 which reveal a use of Agfa paper in April/May.
28 The defendants' pleadings as they stood really until the trial commenced also placed the incident involving the transit damage and the alleged consequent need to use Agfa paper as being in June 1996. It is worth setting out par 6(e) of the substituted defence and counterclaim filed on behalf of the defendants on 30 December 1998, which pleads to the plea in par 8(c) of the statement of claim - that is, the plea of breach of cl 32 of the production agreement. This part of the defence is in the following terms:
"6. As to paragraph 8 of the substituted statement of claim the secondnamed defendant:
…
(e) says that on one occasion only during the term of the Production Agreement Agfa-Gevaert Limited paper was used for the purposes of the Production Agreement but this was for reasons which were beyond the secondnamed defendant's reasonable control.
Particulars
In or about June 1996 equipment purchased by the secondnamed defendant for the purposes of the Production Agreement was extensively damaged while in transit from the Eastern States. In order to assist the secondnamed defendant to meet the requirements of the Production Agreement, and as a goodwill gesture, Agfa-Gevaert Limited loaned to the secondnamed defendant a replacement machine. The replacement machine was balanced for Agfa-Gevaert product and in the brief period that it took for the secondnamed defendant to make all necessary arrangements for the
(Page 14)
- re-balancing of the replacement machine it was necessary for a small quantity of Agfa-Gevaert paper which the secondnamed defendant had in stock for customers other than the first plaintiffs to be used."
29 Notably, there is no reference in the pleading to any agreement with Mr France for the use of Agfa-Gevaert paper.
30 I should also mentioned that pursuant to pre-trial directions, the parties prepared chronologies and, in their chronology, the defendants put June 1996 as the time when they did "for a brief period have to use the AGFA paper … ". There was also some vague evidence from a Ms Gibbins, one of the Zimmermann office workers at the time. She recalled a conversation between Mr Zimmermann and Mr France which she happened to overhear. She recalled that Mr Zimmermann was explaining to Mr France that a printer had been damaged in transit and there was a need to use Agfa paper in a borrowed machine for a period of time (t/s 645). Her evidence was that Mr France said "something like, 'That's fine, but get back to using Kodak paper as soon as possible', or something to that effect." She said she overheard this conversation whilst she was sitting at her desk and Mr France was at Mr Zimmermann's desk four to five metres away. She admitted that she had given a written statement to the defendants' solicitors to the effect that she saw the letter of complaint written by Mr France to Mr Zimmermann (set out above) complaining about the use of Agfa paper and that in that statement she said that that letter was received "about a month later", that is, about a month after the conversation which she had overheard. Having regard for the date of the letter of complaint, this would have put the conversation in about early June.
31 What is to be made of all of this?
32 I find that the printer ordered for the Georges France work was damaged in transit and that this probably happened in January or February 1996, when Mr Reynolds was still with the Georges France group. I find that Agfa paper commenced to be used while Mr Reynolds was still in the employment of the Georges France group. I find that Mr Reynolds probably did approve its use temporarily in the belief that, unless he did so, production of Georges France work would cease. I find that such approval as he did give was for Agfa paper to be used for a short time whilst Zimmermanns tooled up another printer to accept Kodak paper. I do not need to consider the extent of Mr Reynolds' authority to authorise
(Page 15)
- departure from the terms of the production agreement. There was a much more extensive use of Agfa paper than any use that may have been approved of by, or known to, Mr Reynolds. Mr Reynolds could not have participated in any arrangement after 6 March 1996, when he left the employment of the Georges France group.
33 I find that Agfa paper was still being used by Zimmermanns in April/May 1996 when the photographic prints comprising exhibit 31 were printed. There is no evidence that there was then any emergency or that there was any approval for that use. I find that Agfa paper was still being used in June 1996, that being the inference I draw from the following matters. First, the letter written by Mr France on 8 July 1996, which I interpret as complaining of the use of Agfa paper shortly before that letter was written. Secondly, the letter in reply of 29 August 1996 from the defendants' solicitors expressly admitting use of Agfa paper in June 1996. Thirdly, the defendants' pleadings as they stood right up until trial. Fourthly, the defendants' chronology which put June 1996 as the period during which Agfa paper was used. Finally, there is the evidence of Ms Gibbons given under cross-examination to the effect that she had made an out-of-court statement for the purposes of trial in which she recalled Agfa paper being used about a month before Mr France's letter of complaint was received.
34 It follows that I reject the defendants' case that the use of Agfa paper contrary to the production agreement was confined to a brief period for which approval had been obtained immediately after the damage to the Agfa printer. On the defendants' own case, it is only such a very limited use of Agfa paper for which any excuse at all is put forward. It is not contended that there was any other permission to depart from the production agreement as to the use of Kodak paper or that there was any excuse for doing so.
35 On behalf of the defendants, it was contended that the reference to the use of Agfa paper in June 1996 in the solicitor's letter of 29 August 1996 and in the pleading, and in the chronology, was a solicitor's mistake. I am unable to accept this. The letter of 29 August 1996 is plainly a comprehensive refutation made after full instructions received from Mr Zimmermann. I must also assume that par 6(e) of the substituted defence was a paragraph drafted upon instructions.
36 The contravention of cl 32 of the production agreement gave rise to a contractual entitlement in the plaintiffs to terminate the production agreement.
(Page 16)
37 The production agreement was terminated by notice dated 20 March 1997. The grounds of termination do not include breach of cl 32. No point is taken about this, nor could it be. It is not suggested that when the notice was sent the plaintiffs were aware of any breach of cl 32 except that referred to in Mr France's letter of 8 July 1996. Failure to expressly rely on breaches of which it was unaware does not disentitle a rescinding party from relying on those breaches in refusing to further perform the contract: Shepherd v Felt & Textiles of Australia Ltd (1930) 45 CLR 359, especially per Dixon J at 377 - 378.
38 The other main ground upon which the plaintiffs claim that they were entitled to rescind the contract is contravention of the time requirements in the production agreement. I now turn to this aspect of the case.
39 In pars 8 and 9 of the statement of claim, the plaintiffs plead that Zimmermann Nominees Pty Ltd breached the production agreement by failing to meet the time requirements in that agreement and that the breach was substantial and caused the plaintiffs to form the view that this defendant's failure to adhere to the time-frames was, or was potentially, damaging the first plaintiffs' business.
40 If those facts are made out, this provided an additional ground to terminate the production agreement (cl 30.1.1). Termination of the production agreement entitled the plaintiffs to terminate the service agreement (cl 6).
41 In my opinion, the plaintiffs have established there was a substantial non-compliance with the time requirements for production. I am satisfied that the plaintiffs did actually form the view that this was potentially damaging to their business and, if it matters, I am satisfied that it was reasonable to form that view. Delay in the delivery to customers of photographs of the kind in which the plaintiffs specialised obviously would tend to affect the rate at which customers would elect to keep and pay for the photographs.
42 Exhibit 20 is a box containing computer print-outs of entries made into the plaintiffs' computer database in the ordinary course of business between January 1996 and February 1997. I am satisfied on the evidence as to the systems which operated in the plaintiffs' offices pursuant to which the data entries were made into the computer that the print-outs accurately record the date of the events which they purport to record, with one qualification which I will mention later. Evidence was given of the
(Page 17)
- preparation of an analysis of the print-outs and exhibit 30 is that analysis. It purports to show that most of the orders delivered to the Zimmermann laboratory were not despatched within the times stipulated in the contract. This documentary evidence purports to reveal quite serious and persistent delays from the commencement of the contract until its termination.
43 There was no serious challenge to the integrity of the data entry processes or to the accuracy of the computer print-out. However, insofar as the print-outs and, hence, the analysis, purport to reveal non-compliance by the defendants with the time-frames stipulated in the contracts, the print-outs and the analysis depend on the accuracy of the record of the date on which the job was despatched to Zimmermann's laboratory from the plaintiffs' premises. In fact, this is not a recorded date. The computer was programmed to assume that date. To understand this, it is necessary to give a little more detail.
44 When the plaintiffs' data entry operators opened a film bag, they would be provided with certain information either on the film bag itself or on the customer cards within the bag, or both. This information would be keyed into the computer so as to produce a report and an order summary. The report with respect to, say, a baby photograph (exhibit 19 is an example) would include the birth date and the date on which the photograph was taken. That information would have been keyed in by the operator from information on the film bag or customer card relating to that subject. On keying-in this information, the software programme would be activated to automatically generate four additional lines of information, they being the "Order Date" (being the date on which the entry was made into the computer), the "Printed" date (being the date on which the invoice was printed), the "To Lab" date (being the date on which the programme assumed the job would be delivered to the laboratory for processing) and the "Expected Despatch" date (being the date on which the photo pack should be sent to the customer according to the time-frame stipulated in the contract for that category of photograph). The Order Date, Printed date and To Lab date were always the same dates. This is because the computer was programmed to assume that these activities would occur on the day that the programme was opened to create the report; ie, that the job would be sent to the Zimmermann laboratory on the same day that the report with respect to that job was originated in the plaintiffs' computer. The programme was also designed to calculate and show the expected date of despatch to the customer; ie, the "Expected Despatch" date, by reference to the time-frames provided for in the contracts. As each order was, in fact, despatched to a customer, a bar code on the customer's address label on the photo pack was scanned
(Page 18)
- by a "zapper". Zapping occurred as the packages were on their way out of Zimmermann's premises and the information would be electronically reported back to the plaintiffs' computer. In this way, the actual despatch date was also entered in the report. The validity of the report insofar as it purported to report the time between delivery to the Zimmermann laboratory and despatch to the customer depended on the correctness of the assumption built into the programme that each job actually was delivered to the Zimmermann laboratory on the day that the job report was originated. Assuming it to be correct, then, by reading the report, after a job had been despatched to a customer from the Zimmermann premises, the plaintiffs would see a date on which the job had been sent to Zimmermann's laboratory ("To Lab") and a date on which the job left the laboratory as a completed job ("Despatch"). They would also see a date on which that job should have been completed and should have left the laboratory ("Expected Despatch"). On the face of it, therefore, and always assuming the "To Lab" date to be correct, the report was proof positive of any delay in the Zimmermann premises.
45 The plaintiffs sought to support the correctness of the assumed date, that is, the "To Lab" date, by evidence from the plaintiffs' staff that the film bags were always, or mostly always, delivered to Zimmermann's in the late afternoon of the day that the bags were opened and data entry activities conducted. This basic assumption (that there was prompt delivery to Zimmermann's) and the evidence in support of it was disputed by the defendants and I must say more about the issue. However, I observe that the computer print-outs and the analysis of them in exhibit 30 was not the only evidence relied on by the plaintiffs to prove that the defendants failed to meet the time-frames stipulated in the two agreements.
46 Mr Ronald Sullivan was the national accounts manager of the Georges France group at the material time and one of his tasks was to arrange photography contracts with hospitals and universities to provide photographic services. His job included keeping in touch with the institutions to ensure continuing satisfaction on their part. As he put it: "part of my role was to be aware of how the packages were going out to the customers because if we got any untoward feedback from the customers in any delays and they rang the hospital or the university, that would come back to me." He said he visited the Zimmermann laboratory regularly, perhaps three or four times a week, to "see how the work was going, how the program was going for all the areas, and also used to look over some of the prints for quality". In substance, his evidence was that it was obvious to the eye that the contracts were simply too large for the
(Page 19)
- Zimmermann organisation. The volume of work was such that they could not meet the turnaround times in the contract. The backlog of unprocessed work could be seen at the defendants' premises. He said that he spoke to Mr Zimmermann on many occasions about this and invariably Mr Zimmermann would respond not by denying that there was a backlog, but by blaming the plaintiffs for it. As Mr Sullivan put it (t/s 276): "Somehow it always seemed to come back as our fault why the printing wasn't being done on time and I was starting to already feel that was fairly difficult to deal with." The problems were so serious that he looked for other laboratories that might be able to do some of the work. He said that he was receiving complaints at the rate of about one a week from hospitals about delays in getting photographs to patients. He said it was always of concern that a hospital might terminate its contract if complaints from patients persisted. He said: "many times I'd go over there [to Zimmermann's premises] and I would see boxes of photographs that had been there - sorry, film bags with the films in them day after day without actually being moved. In other words, they weren't going into the printing to be printed. Then over the next 2 months or thereabouts this became a real problem to me because the turnaround times that we promised our customers weren't really being adhered to." I accept this evidence. It is supported to some extent by Mr Zimmermann's evidence that he was constantly being spoken to by the plaintiffs' people about backlogs and delays.
47 Mr Zimmermann admitted that the plaintiffs were constantly complaining about delays on his part. He said complaints were made by Mr Sullivan, Mr France and another of the plaintiffs' executives, Ms Ramsay. He said these complaints started from "about June, July, August onwards until Christmas, until right to the end. We were always being picked on for being late". The effect of his evidence was that delays were indeed occurring, both with production and collating and despatch, but that, for the most part, the delays were due to inefficiencies on the plaintiffs' side. His evidence was that he determined upon a strategy to demonstrate that it was not the fault of his laboratory and staff. He said he instructed his employees to stamp the date of receipt of film bags on the bags as they came in, to show Mr France that film bags were being received at the laboratory many days after the photographs had been taken. Thirteen photocopies of film bags were produced (exhibit 22 to exhibit 26, exhibit 37 to exhibit 44), which purported to be photocopies of film bags with date stamps on them. He described his purpose in date-stamping the film bags as being: "I wanted to have a talk to him and discuss these complaints about being late all the time. We had no other
(Page 20)
- problems at all except being harassed and continuously picked on by telling us we were late". I did not find this evidence about date-stamping at all convincing. Support for it was sought to be obtained from the film processor, Mr Jaggs, who was employed in the laboratory at the time. He gave evidence that he started putting dates on the film bags from about "halfway through doing the work [the plaintiffs' contract] maybe a bit earlier". The effect of his evidence was that he did this in self-defence, to be able to prove to his employer that the delays, about which he had been told, were not his fault. It did not clearly emerge from his evidence that he dated the bags on delivery of them to the premises. As I understood his evidence (t/s 632 - 633), he did not put a date on the film bag until he commenced to process the film in that bag. His evidence does not prove that there was a pattern of late delivery of film bags by the plaintiffs. The photocopy date-stamped film bags produced in evidence were all January 1997 bags date-stamped between 14 January 1997 and 21 January 1997. In the totality of things, 13 bags selected from one week's production seems a very small sample with which to prove the point. Mr Zimmermann said that he kept a great many more bags, but they are lost. His evidence as to how they came to be lost was vague and unsatisfactory. I think it is highly unlikely that he would have lost evidence which he considered to be so telling. On his own evidence, he never actually got around to having this "talk" with Mr France. For this, he blamed Mr France who, he said, was never available. I do not accept that evidence. I find that Mr France was, at all times, from quite early in the contract very concerned about the performance of the Zimmermann laboratory and he would have made time to meet with Mr Zimmermann to look at hard evidence of fault on the plaintiffs' part if he had been approached for a meeting for that purpose. Likewise, I think Mr Zimmermann would have insisted on meeting with Mr France if Mr Zimmermann truly believed he was being wrongly "picked on" and had evidence to prove it.
48 I find that, for the most part, film was delivered by the plaintiffs to the laboratory either on the day of completion of the data entry work or on the next day. The plaintiffs' witnesses who gave evidence to that effect were credible. Ms Praschifka said (t/s 261): "We aimed to get 100 per cent out every day. If we didn't, basically my bum was kicked, so I would". Ms Duzevich said (t/s 267): "We tried hard to do whatever came in that day". Ms Johnson said (t/s 351 - 352): "We always definitely tried to have the work that arrived that day would leave that day so that each day was fresh, and that was our aim every day and I would say we pretty well met it every day". I accept this evidence. I do not
(Page 21)
- think the plaintiffs' systems were foolproof or that there was a complete clearance every day. However, my assessment of Mr France, Mr Sullivan and Ms Ramsay leads me to the firm conclusion that they would not have countenanced persistent delays within their own organisation and would not have constantly complained to Mr Zimmermann about production delays unless delays not attributable to the plaintiffs were occurring within the Zimmermann laboratory.
49 Curiously, two of the photocopy film bags which Mr Zimmermann produced themselves lend support to the plaintiffs' claim that films were not being processed promptly after delivery to the laboratory. On the front of each bag is a small stick-on label carrying a four-digit number. Mr Zimmermann explained that this number was put there by his staff and was part of the laboratory's "twin check numbering system". He said that when bags are opened for the purpose of processing the film, a number would be stuck on the bag and the same (or "twin") number would be stuck on the film (t/s 455). He said that the number was the laboratory's "continuous film processing number". As I understood this evidence, it means that the processing sequence, that is, the sequence in which the films were processed, can be determined by reference to the continuous film processing number on the bag and film. For example, the film bag bearing the number 9429 would have been opened and the film in it processed before the film bag bearing the next consecutive number, 9430, was opened; and so on. The trouble is that the film bag, exhibit 22, which is date-stamped 16 January 1997 bears the number 9429, whereas the film bag, exhibit 23, date-stamped 14 January 1997 (two days earlier) bears the higher number, 9479. On Mr Zimmermann's own evidence, therefore, the film received on 14 January was processed after the film received on 16 January. In the absence of any other explanation (and none was forthcoming), this must mean either that the date-stamp is not reliable or the film bag numbered 9429 was in the laboratory for at least two days before it was opened for processing.
50 On the whole of the evidence, I am satisfied that there were frequent and quite serious delays in the processing of film delivered to the defendants under the production agreement and that, by and large, these delays were not the fault of the plaintiffs and were not beyond the reasonable control of the defendants.
51 This is not to say that all delays which actually occurred were attributable to the Zimmermann laboratory. There may have been, and probably were, a number of occasions when production was held up through data entry errors by the plaintiffs and late delivery from the
(Page 22)
- plaintiffs, and perhaps also through a bad batch of film received from Kodak. This latter problem was a real problem for some time in late 1996. Zimmermann's production staff noticed excessive "spotting" which was probably due to dust or dirt on the surface of the film supplied by Kodak. It required much time and effort to correct and probably did cause some delay in getting photographs out to customers. I do not overlook the other causes of delay not attributable to Zimmermanns which were complained of by Mr Zimmermann in his evidence. He gave evidence, which was supported by witnesses who were his employees at the time, of breakdown in equipment supplied by the plaintiffs, shortage of "thank you" cards the plaintiffs provided for inclusion in the photo pack, stationery shortages, bad photography, invoicing errors, insufficient packaging, and the like. It is arguable that not all of these shortcomings were the plaintiffs' responsibility, but I do not go into these matters in detail. I find that when the evidence as to all of the matters that could possibly be described as events beyond the reasonable control of the laboratory is put together it falls well short of explaining the delays revealed in the evidence referred to above.
52 I am satisfied that the rescission of the production agreement was justified on the ground of breach of cl 26.
53 Termination of the production agreement entitled the plaintiffs to bring the service agreement to an end by notice, which they did on 20 March 1997 also.
54 The claim for relief against each defendant is now reduced to a claim for damages for breach of the clauses in the production agreement and the service agreement in which the respective defendants agreed not to make charges for their services if the work was done outside the stipulated time-frames. The relevant clause in the production agreement is cl 30.3, which is in the following terms:
"Where there is a failure to produce photographic prints in accordance with the agreed timeframes set out in Schedule 4 then, unless the cause of such delay shall be attributable to any act or default on the part of the GFP Group or unless such delay is beyond the reasonable control of Zimmermann, no charge shall be made by Zimmermann for the production of prints which are produced outside those timeframes."
55 The relevant clause in the service agreement is cl 7, which provides:
(Page 23)
- "In the event that there shall be a delay in the collation of and dispatch of packs beyond the timeframes set out in this clause then, unless the cause of such delay shall be attributable to any act or default on the part of [the plaintiffs] or unless such delay is beyond the reasonable control of [the defendant M & T Zimmermann Pty Ltd], no service charge shall be made by Zimmermann in relation to packs which are collated and despatched outside those timeframes."
56 The plaintiffs claim to recover damages quantified at the sum of the charges made in breach of these clauses.
57 I think that, in order to maintain a claim for damages for breach of these clauses quantified at the amount of the defendants' charges, the plaintiffs would have to make good the proposition that the clauses are enforceable liquidated damages provisions. Unless they are construed as liquidated damages provisions, there is no basis for contending that the damages should be quantified by reference to the amount of the charges that were made which should not have been made. If the work done outside the contractual time limit was accepted and paid for in full by the customer, the plaintiffs suffered no loss in point of fact. Counsel for the plaintiffs really did not seek to argue that, on the conventional basis on which damages for breach of contract are assessed at common law, the plaintiffs could be awarded, as damages, the whole of the defendants' charges for doing the work and as well be permitted to retain the full benefits of that work. That would offend basic principles of restitution. Putting aside indirect losses such as those flowing from damage to reputation and the like, the plaintiffs suffered no loss if the late work was accepted and fully paid for by the customer.
58 If the clauses in question are construed as liquidated damages clauses, the defendants plead that each of the clauses is "void because it is a penalty and not a genuine pre-estimate of the first plaintiffs' losses". In my opinion, that is plainly so.
59 There is another problem. If the damages are said to be the amount of each charge made in breach of the clauses in question, the difficulties of proof are considerable and have not been overcome. Prima facie, each impugned charge would need to be identified and, as to that particular charge, it would need to be shown that it was for a service performed late, that is, otherwise than "in accordance with the agreed time-frames". There was no attempt to do this in the case with respect to breach of the production agreement. This is because there is no record at all (and, thus,
(Page 24)
- no evidence) of how long production took with respect to any job. A comparison between the "To Lab" date and the "Despatch Date" might reveal an overall delay, but does not prove at what particular stage the delay occurred. It might have been in production. It might have been in collating, packaging and despatch. That is, it might have been a delay by the first-named defendant or the second-named defendant. Or there might have been delay by both of them. Whilst I am satisfied that there were substantial delays in production such as to entitle the plaintiffs to terminate the production agreement, the specificity that is required in order to quantify the loss in the manner claimed by the plaintiffs is not present in the plaintiffs' proofs. At the risk of repetition, the evidence that particular orders were despatched outside the stipulated time-frame does not mean that production of those orders did not take place within that time-frame. Delay in despatch might have been due to delays in performance of the service agreement. There is ample evidence that there were delays in that aspect of the work. Mr France himself gave evidence that, from his observations, the main source of delay was in the collating and packaging work (t/s 111). It was for that reason he wanted to, and did, take steps to have that work transferred to the plaintiffs' own office. Although there is dispute between the parties as to the cause of these delays, there is hardly any dispute that delays did occur.
60 It is not therefore possible to say in the case of any particular order despatched late to the customer that it was due to a breach of the production agreement.
61 In the result, the plaintiffs have failed to prove an entitlement to substantial damages against Zimmermann Nominees Pty Ltd for breach of the production agreement. Nevertheless, I am satisfied that breach of that agreement has been proved and there should therefore be an award of nominal damages. I fix those damages at $100.
62 As to the service agreement and the delays in performance of it, the same problems arise for the plaintiffs. As in the case of breach of the production agreement, it is not possible to claim damages quantified on the basis of the charges made for late work. Accepting that cl 7 of the service agreement is a liquidated damages provision, it is unenforceable because it is penal. Unliquidated damages have not been proved. It has not been proved that any photo packs despatched late were not accepted by the customer and paid for.
63 It was also argued, although perhaps rather obliquely, that evidence of delay in production by Zimmermann Nominees Pty Ltd was evidence
- (Page 25)
of delays beyond the reasonable control of M & T Zimmermann Pty Ltd. I think this must be correct in point of principle. If prints were sent for collating, packaging and despatch outside the time-frame stipulated in the service agreement, the despatch of the photo packs outside that time-frame could hardly be the fault of M & T Zimmermann Pty Ltd. Nor is there any basis on which to argue that delays by Zimmermann Nominees Pty Ltd in producing the prints were delays which were within the reasonable control of M & T Zimmermann Pty Ltd.
65 I now turn to the counterclaim. It can be disposed of quite shortly. The counterclaim rests on the proposition that the production agreement and service agreement were wrongfully terminated. Damages are sought for wrongful termination.
66 I have found that the production agreement was lawfully rescinded. The rescission of that agreement entitled the plaintiffs to terminate the service agreement.
67 The counterclaim must be dismissed.
68 In the result, there will be judgment for the first plaintiffs in the sum of $200.
0
13
0