Greenridge Botanicals Pty Ltd v Nevin & Nevin
[1999] QDC 239
•21 September 1999
IN THE DISTRICT COURT
HELD AT TOOWOOMBA
QUEENSLAND
NO. 52 OF 1998
Before His Honour Senior Judge Skoien
[GREENRIDGE BOTANICALS PTY. LTD. v. NEVIN & NEVIN] 1999 QDC 239
BETWEEN:
GREENRIDGE BOTANICALS (AUSTRALIA) PTY. LTD.
Plaintiff
AND:
JAY NEVIN AND JUSTINE NEVIN
Defendants
REASONS FOR JUDGMENT
Reasons for judgment delivered: 21 September 1999
Counsel: Mr. Rapoport for the plaintiff
Mr. Goldsworthy for the defendants
Solicitors:Davidson & Sullivan for the plaintiff
Kineally Mahoney, town agents for Aitken McLachlan & Thorpe for the defendants
Hearing Dates: 8, 9 September 1999
IN THE DISTRICT COURT
HELD AT TOOWOOMBA
QUEENSLAND
No. 52 of 1998
BETWEEN:
GREENRIDGE BOTANICALS (AUSTRALIA) PTY. LTD.
Plaintiff
AND:
JAY NEVIN and JUSTINE NEVIN
Defendants
REASONS FOR JUDGMENT - SKOIEN S.J.D.C.
Delivered the Twenty-first day of September, 1999
In this action the plaintiffs claim is for money owing under a contract and the defendants counterclaim is for damages for breach of the contract.
The Facts
In 1991 the plaintiff was selling, on a wholesale basis, health food products to retail health food shops. The actual distribution to the shops was carried out by agents who received a commission for their efforts.
At that time Mr. Nevin had acquired a business of distributing health food products from various manufacturers to retail outlets in and about Sydney, the mid north coast of New South Wales and the New England area. By the time the causes of this action arose his wife, the second defendant, had entered into partnership with him in this business.
In mid 1991 Mr. Vandersee, the managing director of the plaintiff and Mr. Malone, the plaintiffs national sales manager, approached Mr. Nevin and offered him the exclusive right to distribute the plaintiffs products in one of the plaintiffs then existing territories. Mr. Nevin agreed to do so. The agreement was entirely oral and included the following terms:
(a)that Mr. Nevin should receive a commission of 20% of the gross sales made by him to retail outlets, he remitting the balance to the plaintiff;
(b)that the consideration for this exclusive agency was to be $6,000 to be deducted by Mr. Nevin from commission due to him.
To begin with the territory covered by Mr. Nevin on behalf of the plaintiff was New England and the north coast of New South Wales. That territory gradually expanded,
by further agreements with the plaintiff, to take in large areas of Sydney South, Sydney East, Sydney North, Central Sydney and Wollongong. All of these agreements were oral although Mr. Vandersee did, I find, tell Mr. Nevin that a written argument was to be prepared some time in the future. However that did not eventuate.
The success of the defendants in promoting the sales of the plaintiffs products is apparent from the gross returns he achieved. Before he took over the territory in 1991 the gross sales were about $24,000 per year. In the calendar year 1992 the gross sales were $163,586 and the ensuing years saw steady growth until, after a large increase during the 1997 calendar year, the figure was $553,793.
In evidence Mr. Vandersee and Mr. Osborne, the plaintiffs financial controller, were reluctant to give credit to Mr. Nevin for these expanded sales. Mr. Vandersee said that three distributors had better figures than the defendants and Mr. Osborne was at pains to point out that the period of extreme growth in 1997 coincided with the gaining of 21 extra retail shop outlets. They also suggested that Mr. Nevin could have done better as he had lost some retail shops. Mr. Nevin advanced an explanation for that to exonerate himself from blame for any of those losses. I am inclined to accept that explanation but all in all I do not think these considerations of retail shops gained and lost matter very much. The plain fact is that the defendants kept increasing the sales and in calendar year 1997 they stood at well over half a million dollars. That, to me, indicates consistent hard work on the part of the defendants, particularly Mr. Nevin.
Of course this is not a claim for damages for wrongful dismissal. I do not look at the evidence from that point of view. Rather I look at it to determine the size of the defendants business as agent for the plaintiff, what they had put into it and what they reasonably expected of it in future. Similarly the evidence that the plaintiff queried the fact that the defendants occasionally operated outside their allotted territories and also queried the distribution by them of health products other than those of the plaintiffs really went only to credit. In any event I thought Mr. Nevins evidence on the points dispelled any suggestion that the defendants were not working fully to the benefit of the plaintiff.
The bulk of the work was done by Mr. Nevin who did the actual visiting of the retail stores to take orders, supply stock and to promote the plaintiffs products. Mrs. Nevins work was clerical. By about the end of 1997 they decided that the volume of work was too great for their existing resources and they decided to expand. They acquired premises at Bonnells Bay, Lake Macquarie, which had a double garage suitable for use as a small warehouse. They took on three new staff which included a woman with experience in the health food industry, who was to act as a sales representative. They spent about $5,000 in buying a computer and installing shelving in the new premises and they leased a car for the use of the sales representative.
There was a divergence of evidence between Mr. Nevin and Mr. Vandersee concerning this expansion by the defendants. Mr. Nevin said that in August 1997 he told Mr. Vandersee and Mary MacDonnell, the plaintiffs marketing manager, of his intention to take on staff and he also suggested expansion of sales into pharmacies. He said that Mr. Vandersee responded favourably and encouragingly to this information. He said that in October 1997 he told Mr. Vandersee that he had hired the new sales representative and again received favourable comment. Mr. Vandersee however said that when he was told about the defendants planned expansion he actively discouraged it. This point is of importance and I have decided it in the defendants favour. They were clearly more than happy to distribute the plaintiffs products. It was, at least in the winter months, the major part of their business (over 60%) and even in the worst months a very substantial part of it (about 40%). The 1997 calendar year had seen a very large increase in it and the return to the defendants (20% of $553,793) was a substantial one. They had every reason to feel optimistic that further growth would occur and Mr. Nevin would have had every reason to tell Mr. Vandersee of that optimism and the steps he was taking in anticipation of further growth. Had Mr. Vandersee responded negatively, on the view I formed of Mr. Nevins business acumen, I cannot accept that he would have undertaken the expansion.
On the other hand it is clear that Mr. Vandersee was playing his cards very close to his chest. Some time in late 1997 (probably December) the plaintiff, in a directors meeting, had decided to take over some of their agents distribution (including the defendants) and to continue that distribution by the plaintiffs own employees. No one told the defendants of this until Mr. Vandersee and Mr. Osborne visited the defendants new premises at Bonnells Bay on 17 February 1998. The receipt of that news on that day came as a sudden, complete and unpleasant surprise to the defendants. In this climate of secrecy it is quite plausible that Mr. Vandersee would not earlier have said anything to the defendants even to hint that the future was anything but rosy. And its unexpectedness to the defendants would not have been so complete had Mr. Vandersee said anything to discourage their planned expansion on any earlier occasion.
In reaching my conclusion on whether Mr. Nevin had been warned not to expand I think it is noteworthy that the plaintiff did not call Mary MacDonnell, nor account for the failure to call her. So far as Mr. Vandersee is concerned, I regarded him as a less credible witness than Mr. Nevin. He was inclined to put his actions in the best possible light but in a rather unconvincing way. For example he said he had a recollection that at the meeting at Bonnells Bay in mid February 1998 he offered Mr. Nevin employment with the plaintiff. I would expect such an important offer, had it been made, to be firmly within his memory. He later retreated from the suggestion altogether. No such offer was put to Mr. Nevin in cross-examination. I do not accept that the offer was ever made.
I am satisfied that the plaintiff resolved to terminate the defendants services summarily. No set period of notice was offered them although Mr. Vandersee suggested to them that some short period of grace might be offered and there was some suggestion that the $6,000 originally paid by the defendants to the plaintiff might be repaid as compensation in lieu of notice. That however was never actually offered by the plaintiff. After some discussion Mr. Nevin obtained the concession that the stock which the defendants then possessed should be left with them until the end of March to enable any outstanding orders to be filled. However no further stock was to be delivered to them. For the balance of February and all of March they sold some of the plaintiffs stock, but less than would have been the case had the agency continued in the normal way.
The defendants retained money obtained from the sale of the plaintiffs stock and that is the subject of the plaintiffs claim. That sum is agreed at $69,835 and it is owing from the defendants to the plaintiff.
Mr. Nevins evidence was that after the defendants agency was terminated he worked long hours, (he estimated sixteen hours per day) in his attempts to replace the business the defendants lost. Simply to visit all of the retailers took him about two months and that, he said, was necessary to shore up their confidence in the defendants as a supplier. His estimate was that it took them the balance of the year (that is, about ten months) to recover from the loss of the plaintiffs business and that in fact not even that period allowed them to catch up completely. No serious challenge to this evidence was made, nor was any evidence offered to the contrary. It is credible evidence, and I accept it.
The defendants called an accountant, Mr. Michael, to provide an estimate of the defendants loss caused by the removal of the plaintiffs products. He calculated it, in a schedule exhibited to an affidavit, for the period of six months following 17 February 1998. He arrived at a figure by a historical analysis of the defendants commissions earned in the corresponding months of the previous year adjusted upward by a rate of increase in them averaged over the previous six months. He arrived at the figure of $69,835.90 but it was later conceded by the defendants that credit should be given for commission actually earned from sales of the plaintiffs products during the balance of February and in March 1998. The final figure arrived at was $62,095.33.
While Mr. Goldsworthy, counsel for the defendants, submitted that I could accept that figure of $62,095.33, he urged me to accept an alternative figure of $82,000 put forward by Mr. Nevin and adopted orally by Mr. Michael. That figure was based on an extremely optimistic projection of increased sales over the already very high 1997 figure. In my view it was altogether too optimistic and I cannot accept it.
There was no evidence led by the plaintiff to suggest a figure which might challenge the estimate given by Mr. Michael. While his estimate was a theoretical one (as indeed perforce are virtually all such estimates), the methodology he employed is a recognised one. The performance of the defendants over six years showed a steady increase in the sale of the plaintiffs products. Despite the massive increase in the last calendar year Mr. Michael used a relatively modest figure to calculate the likely increase in 1998 sales. As it is really the only evidence on the point and as it is credible, I accept it.
The Law
It is common ground that the plaintiff should have given reasonable notice to the defendants of its intention to terminate their agency. The plaintiff argues for three months notice, the defendants for six months, so that is the first issue for me to decide. The second is the damage suffered by the defendants as a result of not being given the appropriate period of notice.
The most helpful authority on the point is Crawford Fittings Co. & Ors. v. Sydney Valve and Fittings Pty. Ltd. & Anor (1988) 14 NSWLR 438 in which the leading judgment was written by McHugh JA (with whom Priestley JA agreed). At p444E, McHugh JA said:-
When a contract is terminable on reasonable notice, the period of notice must be sufficiently long to enable the recipient to deploy his labour and equipment in alternative employment, to carry out his commitments, to bring current negotiations to fruition and to wind up the association in a businesslike manner.
At p445B McHugh JA adopted a passage from Australian Blue
Metal Ltd. v. Hughes (1963) AC 74 at 99:-
The implication of reasonable notice is intended to serve only the common purpose of the parties...the common purpose is frequently derived from the desire that both parties may be expected to have to cushion themselves against sudden change, giving themselves time to make alternative arrangements of a sort similar to those which are being terminated.
In Crawford at p445G, McHugh JA said, in respect of distribution agreements:
It will often be a common purpose of a distributorship agreement that the relationship of the parties will continue for long enough after the giving of a notice of termination to enable the distributor to recoup any extraordinary expenditure or effort. Otherwise each distributor would have no incentive to make or outlay additional effort or expenditure for the mutual benefit of the parties. Inability to reap the benefits of ordinary expenditure or effort incurred during the course of the agreement may be regarded as a business risk which a distributor takes when he enters into an agreement terminable at any time. If the nature of the business produces a lapse of time between effort or expenditure and earning, a certain amount of such effort or expenditure will go unrewarded whatever period of notice is given. But extraordinary effort or expenditure by the distributor incurred with the actual or tacit authority of his principal is in a different category. An appropriate period of notice can give the distributor the opportunity to exploit any extraordinary effort or expenditure. In principle, therefore, it is difficult to see why extraordinary effort and expenditure is not relevant to the reasonableness of the notice period even though the agreement has been in existence for more than a reasonable period.
Thus a clear distinction is drawn between ordinary and extraordinary effort or expenditure.
In Crawford, McHugh JA referred with approval to two cases which followed the extraordinary expenditure principle. In particular, in Decro-Wall International SA v. Practitioners in Marketing Ltd (1971) 1 WLR 361, a case remarkably similar on the facts to this case, twelve months notice was held to be reasonable in a distribution agreement which was terminated after three years. At 446C His Honour (of the facts in Decro-Wall) noted that:
By 1970, without any obligation to do so, the defendant had spent a very large sum of money in advertising the manufacturers products. It had engaged additional salesmen, acquired new premises, and introduced the goods to seven hundred outlets.
In holding that the expenditure of money or effort cannot be confined to the initial stages of the contract, at 448C of Crawford McHugh JA said:
If, during the contract, a party acting within the scope of the agreement, engages in extraordinary expenditure or effort, that factor must be taken into account in determining the reasonableness of any notice given.
Application of Law to Facts
The basic task is to decide upon a period of notice, as Crawford lays down (paras. 19 and 20 supra) long enough to allow the defendants to deploy their labour and equipment in alternative employment, to carry out their commitments, to cushion themselves and to make alternative arrangements of a sort similar to those they had with the plaintiff. In this case, of course, not just does one have to consider the fact that the relationship had lasted for over six years, the fact that geographically it covered a vast area and the fact that substantial success was being enjoyed as a result of the defendants efforts, but also a matter of extreme importance is the fact that the defendants had only recently outlaid extraordinary expenditure (paras. 21 and 22 supra) in moving to Bonnells Bay to be closer to the geographical centre of operations, outlaying $5000 in setting up costs, taking in three new employees and entering into a lease for four years of a company car. I have found (para. 14 supra) that in fact ten months was needed to achieve the ends referred to in Crawford, and even that, imperfectly. Of course, the defendants contend only for six months notice as reasonable.
The submissions of Mr Rapoport of counsel for the plaintiff, in contending for a three month period, were really based on a comparison of the facts in this case with the facts in other cases. It is trite to say that all cases depend on their own facts and even more trite to say that the facts depend on the evidence offered in the particular case. In this case, as I have said, the evidence was all one way, supporting the defendants argument for a period of notice of six months.
Similarly, on the question of the defendants loss, the evidence was all one way and I have found it (paras. 15-17 supra) to establish a loss of $62,095.33.
Conclusion
The claim succeeds to the extent of $69,835 and the counterclaim succeeds to the extent of $62,095.33.
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