GT Corporation Pty Ltd v Amare Safety Pty Ltd

recti

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 2110 of 2005

GT CORPORATION PTY LTD (ACN 073 939 474)	Plaintiff
v
AMARE SAFETY PTY LTD (ACN 006 945 811)	Defendant

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	11-15, 18-22 February 2008
DATE OF JUDGMENT:	6 May 2008
CASE MAY BE CITED AS:	GT Corporation Pty Ltd v Amare Safety Pty Ltd
MEDIUM NEUTRAL CITATION:	[2008] VSC 143

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CONTRACT – Amendment - Contract requires amendments to be in writing – Purported oral amendment – Amendment to contract constitutes a contract - Amendment by conduct – Intention to enter contract - Objective test of a reasonable person in the position of the other contracting party - Burden of proof – Whether defendant who alleges amendment to agreement bears evidentiary or legal burden of proof

CONTRACT - Repudiation – Acceptance of repudiation - Election to retain contract on foot

CONTRACT – Option to renew contract – Whether option must be exercised in good faith

CONTRACT - Agency agreement – Wrongful termination of authority of agent – Whether agency agreement otherwise remains on foot

CONTRACT - Damages on breach – Damages for repudiation – Liquidated damages clause – Whether a penalty - Interest above rate set by the Penalty Interest Rates Act 1983 – Whether a penalty

Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441

Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99

Australian Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540

Automatic Fires Sprinklers Pty Ltd v Watson (1946) 72 CLR 435

Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153

Brogden v Metropolitan Railway Co. (1887) 2 App Cas 666

Carr v J A Berriman Pty Ltd (1953) 89 CLR 327

Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520

Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd (1981) 54 FLR 439

Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64

Dockside Holdings Pty Ltd v Rakio Pty Ltd (2001) 79 SASR 374

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2008) 128 FCR 1

Gordon v Australasian & New Zealand Theatres Ltd (1940) 40 NSWSR 512

Hadley v Baxendale (1854) 9 Exch 341

Johnson v Perez (1988) 166 CLR 351

McCann v Switzerland Insurance Australia Ltd (2000) 176 ALR 711

Murray Irrigation ltd v Balsdon [2006] NSWCA 253

Pacific Carriers Ltd v BNP Paribas (1982) 149 CLR 337

Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392

Re Peatling deceased [1969] VR 214

Ringrow Pty Ltd v BP Aust Pty Ltd (2005) 224 CLR 656

Robinson v Harman (1848) 1 Ex 850

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332

Thomas Marshall (Exports) Ltd v Guinle (1979) Ch 227

Todorovic v Waller (1981) 150 CLR 402

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] 219 CLR 154

Westpac Banking Corp v Tanzone Pty Ltd (2000) 9 BPR 17

Willfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426

Willis v The Commonwealth (1946) 73 CLR 105

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M G Rinaldi	Norton White
For the Defendant	Mr J Delany SC with Ms L de Ferrari	Russell Kennedy

TABLE OF CONTENTS

INTRODUCTION

SUMMARY OF FINDINGS

THE FIRST COMMISSION BREACH

The pleadings

Amending a contract

GT submissions

Amare’s submissions

The evidence

Burden of proof

Consideration

THE TERRITORY BREACH

The pleadings

GT’s submissions on Territory Breach

Amare’s submissions on Territory Breach

Findings on Territory Breach

Estoppel by convention

Consideration

Conclusion on Territory Breach

THE EXCLUSIVITY BREACH

The pleadings

GT’s submissions

Amare’s submissions

No breach of the BDM appointment agreement

Findings on Exclusivity Breach

THE SECOND COMMISSION BREACH

The pleadings

The issues

Amare’s and GT’s submissions

Amare’s Minimum Performance calculation

Construction of the Minimum Performance provisions

Sales revenues or sales margins?

Rolling totals

The Riddell Budget

Amare’s sales figures

President Safety

Rectification

Conclusion

The Interim Agreement

The Pleadings

Amare’s submissions on the interim agreement negotiations

Findings on the Interim Agreement

AMARE WRONGFULLY PURPORTED TO TERMINATE THE AGREEMENT

The pleadings

Amare’s allegation that GT repudiated the agency agreement

Amare’s submissions on repudiation by GT

Further defences of Amare in its submissions

Amare’s submissions on Amare’s repudiation

Findings on further defences to repudiation on 20 September repudiation

Conclusion

RENEWAL OF THE AGENCY AGREEMENT

The pleadings

Amare’s submissions on the renewal of the agency agreement

Findings on the renewal of the agency agreement

Construction of the agreement

Did GT have a unilateral right to renew the agency agreement?

The notice of renewal was invalid

Finding on the invalid notice

Compliance with clause 3.10(1) (a)

Good Faith

Conclusion on renewal of term

PARTICULARS OF LOSS AND DAMAGE

Introduction

General principles

First Commission Breach and Second Commission Breach

Damages for the wrongful termination of the agency of GT

Liquidated damages

Questions outstanding?

Interest

Conclusion as to damages

Costs

HIS HONOUR:

INTRODUCTION

GT Corporation Pty Ltd (“GT”) claims damages against Amare Pty Ltd (“Amare”) for several breaches of an agency agreement under which GT acted as an agent for Amare from 2001 to 2005.

Amare is a small Melbourne based company that sells and distributes personal protective equipment. Currently, it has about twenty eight employees. Amare’s sole shareholder and managing director is Mr Geoff Pizzey.

GT’s sole shareholder and director is Mr Grant Tuckett. He uses the company to offer his services and, relevantly to the agency agreement in dispute, he used the company to offer his services as a salesman for Amare.

Prior to GT entering into the agency agreement with Amare, Mr Tuckett worked for Alsafe Safety Industries Limited (“Alsafe”) another business selling personal protective equipment. At one stage, Mr Tuckett was working on commission but after Alsafe was taken over by a large public company Alsafe ceased to employ Mr Tuckett on a commission basis and employed him on a salary. Whilst working at Alsafe, Mr Tuckett worked with Mr Ron Williams as his immediate superior.

In 1997, Mr Pizzey ceased to manage Amare on a day to day basis and employed a general manger to do so. In June 2001, the then general manager Mr Ross Kinsman was replaced as general manager by Mr Ron Williams. Mr Williams considered Mr Tuckett to be a good salesman and sounded out Mr Tuckett about moving to Amare. Mr Tuckett said that he would be willing to do so if he could use his company GT as the contracting party and that GT be paid commission on the margin earned on sales.

Mr Williams introduced Mr Tuckett to Mr Pizzey prior to Mr Pizzey leaving overseas for a holiday at the end of September 2001. There is some dispute about the timing and circumstances in which Mr Tuckett was introduced to Mr Pizzey.

Whilst Mr Pizzey was overseas on his holiday, Mr Williams and Mr Tuckett finalised negotiations for the agency agreement between GT and Amare. Mr Pizzey gave evidence that he expressly instructed Mr Williams not to enter into an agreement with GT whilst Mr Pizzey was away on holidays.

In any event on 10 October 2001, the agency agreement was entered into. Mr Tuckett prepared the contract with the help of a solicitor friend and used as a precedent a contract that he had considered putting to Alsafe.[1] Mr Williams and Mr Tuckett made some hand written amendments and signed the contract.
[1]CB 401

Mr Pizzey gave evidence that he did not become aware of the contract until late January 2002 some two months after he returned from his holiday. He did not like the contract. In 2005, he informed Mr Tuckett that he thought the contract was a fraud and that Mr Tuckett and Mr Williams were in “cahoots” in entering into the contract. Be that as it may, Amare does not dispute the validity of the contract.

It will be necessary to go to the detail of the contract in due course. At this stage it is sufficient to describe it in general terms. GT was appointed the sole and exclusive agent to act for Amare in three Victorian geographical areas and in respect of other nominated customers. The three areas were part of several areas that Amare divided its Victorian market into. The areas were then known as areas 1, 1A and 2. These subsequently became areas 210, 140 and 220. Speaking generally, area 1 covered the western suburbs of Melbourne and the area down to Geelong. Area 1A was the area beyond Geelong in the Western District to the South Australian border and south of the Ballarat Highway. Area 2 included the CBD of Melbourne and its northern suburbs.

Although not specified in the contract, Mr Tuckett had informed Mr Williams that GT intended to employ Mr Chris Littler, another Alsafe employee to handle area 220.

The contract provided that each month GT would be paid commission of 60 per cent of the gross margin or profit on the first $20,000 of sales and 40 per cent of the balance.

The agency agreement was to last for five years with GT having the option to extend the agreement for three further five year terms. There is a dispute as to whether or not GT required the consent of Amare to extend the term.

As mentioned above, GT was to have the exclusive right to sell Amare’s product to the customers in the designated areas so that Amare could not engage any one else to sell products in those areas. Amare disputes that the agency was exclusive. It submits that Amare could sell its products in the areas allocated to GT so long as it credited GT for the sales for the purposes of its commission entitlements. Amare did not say what affect such sales would have on GT’s performance under the automatic termination clause which I discuss below.

The agency agreement provided for automatic termination. In particular, it provided that the contract would be terminated if a defined “Minimum Performance” was not achieved for three consecutive months irrespective of the wishes of the parties. The construction of the terms governing this automatic termination is a matter in issue.

The “yearly budget” was used in calculating whether the Minimum Performance had been achieved. What constituted the “yearly budget” is one of the matters in dispute. Suffice it to say that for the first year of the contract the level of sales of Goods to be achieved as “the Budget” was set at $1,420,000 (including GST) at a 24.72% trading margin. One of the issues in the case is whether or not the inclusion of GST was a common mistake that ought to be rectified by amending “including” to “excluding” GST.

In October 2001, GT commenced to act as agent. GT signed an employment agreement with Mr Littler on 11 October 2001, the day after the agency agreement was signed.[2] The actual costs to GT of employing Mr Littler was estimated by Mr Tuckett in February 2002 at $9,000 per month or $108,000 per annum[3].
[2]CB 254
[3]Tuckett’s typed note at CB 567 dated 21 February 2002, Tuckett, cross examination Tr 179

Mr Pizzey gave evidence that he first discovered the existence of the agency agreement in late January 2002 when he had occasion to go into the office of the general manager Mr Williams and located the agreement on his desk. He said that he read it and was concerned to see that the commission was 60 per cent on the first $20,000 of gross profit per month and the balance at 40 per cent. Mr Pizzey said that he discussed the agency agreement with Mr Williams. Mr Williams says Mr Tuckett had informed him that if Mr Pizzey was unhappy with any aspects of the agency agreement he would discuss them with Mr Pizzey and resolve them. Mr Pizzey also said that Mr Williams told him that GT was employing Mr Chris Littler to look after area 220 and that Mr Tuckett had said that GT needed the extra 20 per cent commission rate over 40 per cent to meet the extra costs of employing Mr Littler until sales had been built up in area 220. After that happened, GT would be happy to reduce the commission rate of 60 per cent on the first $20,000 of gross profit per month back to 40 per cent. Mr Tuckett disputes this.

Mr Pizzey says that prior to his departing for his overseas holiday at the end of September 2001 he had been shown a copy of an agreement between GT and Alsafe and his recollection was that a commission of 34 per cent was being paid by Alsafe. An unexecuted copy of an agreement between GT and Alsafe tendered into evidence uses a commission rate of 38 per cent on gross margins.[4] In any event, Mr Pizzey had in his mind that 34 per cent was the rate paid by Alsafe. At that time, Mr Pizzey had no experience of paying commission rather than a salary and all salespeople working for Amare were on a salary with the possibility of bonuses if budgets were reached.
[4]CB 408

As mentioned above, Mr Pizzey gave evidence that he found out about the contract in late January 2002 and was none too pleased about it. He says he was especially unhappy about the commission structure of 60 per cent on the first $20,000 of gross profit on orders received and 40 per cent on the balance. He was also particularly concerned about the term of the agency agreement and that if extensions were exercised it could run for twenty years.

As a consequence of discovering the agency agreement, Mr Pizzey had a meeting with Mr Tuckett on 21 February 2002. Mr Williams was present as well.

Mr Tuckett prepared discussion points for the meeting. After the meeting, Mr Tuckett added notes about matters arising out of the meeting and gave a copy to Mr Pizzey. The notes recorded that Mr Pizzey was to put forward new commissions presumably for GT to consider.

Mr Pizzey says that at the meeting he discussed with Mr Tuckett the commission rate and suggested a flat rate of 34 per cent should be payable. He says that he could not budge Mr Tuckett one per cent. Mr Pizzey and Mr Tuckett also discussed the allocation of customers to GT and sought to correct what Mr Tuckett said were incorrect allocations.

On 14 March 2002, a second meeting was held between Mr Pizzey, Mr Williams and Mr Tuckett. Again allocations were discussed. Mr Pizzey did not put forward any new commission rates. He said he did not do so as it would have been a waste of time. On 11 April 2002, a third meeting was held between Mr Pizzey, Mr Williams and Mr Tuckett. Mr Pizzey says he again raised the issue of commissions being too high but that Mr Tuckett would not change GT’s commission arrangements. On 16 May 2002, a fourth meeting was held between Mr Pizzey, Mr Williams and Mr Tuckett and it was agreed to discuss in October 2002 the commission splits between GT and Amare.

It is common ground that, due to personal problems, Mr Littler did not perform. In July or August 2002, Mr Pizzey raised his concerns with Mr Tuckett concerning Mr Littler’s performance[5]. Prior to 9 September 2002, Mr Williams and Mr Tuckett discussed Mr Littler’s performance[6].
[5]Pizzey, paragraph 28
[6]Williams, supplementary statement, exhibit “D 6”, paragraph 2 clarify Williams (1), paragraphs 48 and 49

At Mr Tuckett’s request, Mr Williams drafted a letter from Amare to GT[7] of 9 September 2002 as follows:

The results from your (Tuckett’s) direct area of activity (Area 210 – western and south west suburbs) are strong and growing … unfortunately the results out of Area 220 are headed in the opposite direction. Chris has failed to achieve his monthly budgeted sales in every month since November (2001) with the exception of February (2002) … he is struggling to even maintain a turnover value of the territory as it was when allocated to GT Corporation back in November 2001 which is approximately $45,000 per month. … Geoff and I have both expressed our concerns to you verbally on several occasions over the past couple of months. … If Chris again fails to achieve his sales budget for September we will have no choice but to provide GT Corporation with 30 days formal notice of our intent to withdraw the allocated territory 220 (north western city) from Chris’ control.
Amare Safety will look to other options to manage and develop this territory. We would be prepared to discuss with you specific customers or parts of the territory 220 that you may wish to retain under your direct responsibility, however, we must firstly resolve this over-riding issue.[8]

[7]Williams, paragraph 47 and 48

[8]CB 714 to 715

On 17 September 2002, GT terminated Mr Littler’s employment. The letter from Mr Tuckett noted:

GT Corporation’s sole area of business is the sale of Amare Safety’s products to their customers in Amare Safety’s defined areas 140, 210 and 220 (approximately 50 per cent by area of Amare Safety’s Melbourne metropolitan business). You are directly responsible for area 220.
I have been concerned about your poor performance shortly after commencement of your employment in November last year … I have continuously warned you that you need to improve your performance, specifically at your performance review on 2 May and again in July.
Pursuant to your employment contract, you are required to achieve your contribution budget for allocated area each month. … You have failed to achieve your contribution budget 6 times, including each of the last 3 months and are unlikely to achieve it for the current month … [9]

[9]CB 710 to 711

On 16 October 2002, Mr Tuckett and Mr Pizzey met again. After the meeting the commission paid to GT was reduced from 60 per cent of gross profit to 40 per cent as from 1 November 2002. The parties are in dispute as to whether or not that reduction was done with the agreement of GT in accordance with the agency agreement or merely unilaterally imposed by Amare. GT describes this as the First Commission Breach.

In October 2002, Mr Littler left the employ of GT and on 31 October 2002 Mr Tuckett, Mr Pizzey and Mr Williams met to discuss the future of area 220 that had been serviced by Mr Littler. After that meeting, area 220 was allocated by Amare to one of its employees, Mr Michael Smith. The parties are in dispute as to whether or not Amare breached the agency agreement by giving area 220 to Mr Smith and effectively denying GT the right to service area 220. GT describes this as the Territory Breach.

In December 2002, Mr Tuckett telephoned Mr Smith and acknowledged Mr Smith was taking over area 220.

In about April 2003, Mr Williams left the employ of Amare and in about June 2003 was replaced by Mr Tony Riddell as general manager.

On 21 September 2003, Mr Tuckett emailed Mr Riddell in which Mr Tuckett confirmed the accounts that GT retained despite the accounts being in area 220 and confirmed that area 220 was Amare’s territory.

On 4 December 2003, Mr Pizzey and Mr Tuckett had further discussions about amending the agency agreement. Mr Pizzey was still unhappy about its terms.

On 16 December 2003, Mr Tuckett sent to Mr Riddell a proposed new agency agreement with the amendments discussed, particularly the commission payable. The proposed agreement included a budget of $1,772,000 exclusive of GST on a margin of 22.368%.[10] Earlier in about July 2003, Mr Williams had put forward a budget for GT for 2003-2004 which included budget sales of $1,772,000 and a budget margin of $396,690.[11] GT denies that it agreed to that budget despite recording those sales as the budget for 2003-2004 in its budget proposal of 8 June 2004 for the year 2004-2005.
[10]CB 1000
[11]CB 386-387

The commission put forward in the proposed new agency agreement of 16 December 2003 was 40 per cent and Amare relies on the email and attached agency agreement in establishing the agreement of GT to a reduction of commission to 40 per cent.

On 18 December 2003, Mr Tuckett, Mr Pizzey and Mr Riddell met again to discuss the proposed new agency agreement.

On 19 December 2003, Mr Riddell emailed Mr Tuckett the agency agreement that was discussed on 18 December with suggested tracked amendments. Mr Riddell confirmed Mr Pizzey was to seek advice on the indemnity and related clauses as well as considering the compensation for termination clause. Mr Riddell added that he would like to think they would have this matter resolved by the end of January.[12]
[12]CB 1050

On 21 January 2004, GT sought a response from Amare to the draft agency agreement it had proposed in December but received no response.[13] The negotiations ceased at this point.
[13]CB 1065

Early in 2004, GT sought to approach customers in area 220 that Mr Smith was then looking after. On 13 April 2004, Mr Tuckett emailed Mr Smith, with a copy to Mr Riddell, a list of customers that GT was working on in area 220.

In May 2004, Mr Riddell requested from GT, and Amare’s other salesmen, a proposed budget for 2004-2005 and provided GT with information on its performance for the year to date.

On 1 June 2004, Mr Tuckett met with Mr Riddell to discuss the budget for GT for 2004-2005. On 8 June 2004, Mr Tuckett faxed to Mr Riddell a hand written proposed budget for 2004-2005. It included sales of $2,000,000 and a gross margin of 23 per cent.[14] The budget dealt with areas 210 and 140 only. It did not deal with area 220.
[14] CB 1289

On 8 June 2004, Mr Riddell responded to Mr Tuckett. He returned a copy of the budget Mr Tuckett had sent to Mr Riddell noting in handwriting on the document that the proposed sales were a 13 per cent reduction on the sales actually achieved. Mr Tuckett had noted on his budget that the proposed sales were a 10 per cent increase on those budgeted by Amare the previous year. After a further exchange of emails, Mr Riddell advised Mr Tuckett he was happy to meet with him to discuss the budget.

No such meeting took place and on 24 August 2004 Mr Riddell sent to Mr Tuckett “your 2004-2005 budget” fixing both budget sales and budget margins for both area 210 and 140.[15] Mr Riddell informed Mr Tuckett that if he had any queries “refer to me.” No further discussion took place on the budget. The parties are in dispute as to whether or not this particular document constitutes the budget for GT under clause 3.2 and if so for what period.
[15]CB 1290-1292

In the mean time on 11 August 2004, Mr Riddell had emailed Mr Tuckett to arrange a meeting to discuss the possible appointment of a business development manager (“BDM”) to areas 210 and 140.

On 12 August 2004, a meeting took place in the board room of Amare at Mulgrave between Mr Pizzey, Mr Riddell and Mr Tuckett to discuss the appointment of Mr Armstrong as a BDM to boost sales in area 210 and 140. There is a dispute as to what actually transpired at the meeting.

There is no dispute, however, that following the meeting an exchange of emails took place between Mr Riddell and Mr Tuckett which concluded with GT agreeing to the appointment of the business development manager to areas 210 and 140. In substance, GT agreed that certain customers could be approached where sales had been below $10,000. A list was agreed on specifying those customers that could be approached by Mr Armstrong and those that could not be approached. The agreement provided for GT to be credited with the sales to any new customer gained after twelve months. There is a dispute as to whether or not this agreement was breached and whether or not the agency agreement was amended in terms of this agreement. GT describe this as the Exclusivity Breach.

On 13 August 2004, Mr Tuckett emailed Mr Riddell. Mr Tuckett said that he agreed to allow the BDM access to GT’s contracted areas.[16]
[16]CB 1278

On 27 August 2004, Mr Riddell emailed Mr Tuckett confirming the agreement for the BDM to operate in GT’s areas including that Amare would provide GT with a list of accounts that Amare wanted the BDM to manage, any account activity by the BDM in areas 140 and 210 would not occur without consultation by both parties and the BDM list of accounts would be reviewed periodically by agreement of both parties.[17]
[17]CB 1297

On 29 August 2004, Mr Tuckett emailed Mr Riddell stating that he agreed with Mr Riddell’s email and waited for Amare’s list of target accounts for the BDM that Amare wished GT to consider.[18]
[18]CB 1297

On 1 September 2004, Mr Armstrong commenced his role as BDM.

On 1 September 2004, Mr Tuckett emailed Mr Riddell to inform him about a potential tender and said that “if we are successful…I will be paid at the normal rate of 40%.” Amare rely on this email to establish GT’s agreement to the reduction in commission to 40 per cent.

On 2 and 3 September 2004, Mr Riddell emailed Mr Tuckett including a list of target accounts applicable “to your area.”[19] Mr Tuckett responded wishing Mr Riddell good luck.
[19]CB 1301-1307

On 6 September 2004, Mr Tuckett emailed Mr Riddell a list of accounts that GT would like to keep and also the accounts that GT allowed the BDM pursue.[20]
[20]CB 1308

On 8 September 2004, Mr Riddell responded saying there were a couple of accounts that he would like to discuss in more detail on Friday 10 September. Messrs Riddell, Tuckett and Armstrong met on 10 September and following which Mr Armstrong started pursuing customers.

In early December 2004, Mr Tuckett was informed that GT would no longer be credited with sales made to President Safety. Earlier in August 2003, Amare had agreed in a formal “outsider agreement” that GT could service President Safety and it would be credited with sales to President Safety. President Safety had “ship to” addresses outside areas 210 and 140 and in the normal course these would not have been covered by the agency agreement. On the “outsider agreement” Mr Pizzey had stipulated six months as the period after which the status of the account would be removed.[21]
[21]CB 890

GT claims that President Safety should have been credited to GT in December 2004. Amare denies this, saying that the agreement was not to be reviewed after six months but rather it was only to last for six months. Amare relies on a notation on the form recording the opening of an account for President Safety. The form provides “Review Required (Yes/No).” That is not filled in. Next it provides “Date of Review.” That is not filled in. Next it provides “Purpose of Review.” In that section Mr Pizzey wrote “6 months.”

On 17 December 2004, Mr Tuckett gave a power point presentation to the sales staff at Amare using the 2004-2005 budget sent to GT in August by Mr Riddell as GT’s budget for that financial year. The presentation included Mr Tuckett comparing actual performance to the budget. Amare rely on this presentation as evidence that GT had accepted Mr Riddell’s budget as the budget under clause 3.2 of the agency agreement. GT disputes this.

In December 2004, Amare sought advice from its solicitors on the agency agreement without the knowledge of GT. At some time in early 2005, Amare was advised on the automatic termination clause of the agreement.

On 7 March 2005, Mr Riddell emailed Mr Tuckett and asked him to meet on 18 March 2005 to discuss sales performance. On 17 March 2005, Mr Tuckett emailed Mr Riddell to inform Mr Riddell that he was attending a funeral and could not make the meeting the next day. On 30 March 2005, Mr Riddell asked Mr Tuckett to meet with him on Friday 15 April “for the territory review.”[22] No mention was made of any proposal to discuss the termination of the agency agreement.
[22]CB 1760

On 15 April 2005, Mr Tuckett met with Mr Pizzey and Mr Riddell in Amare’s board room. The meeting was brief. Mr Tuckett was informed GT’s agency agreement had automatically terminated through its failure to achieve Minimum Performance. Mr Riddell had with him a calculation that purported to show as much. He says he may have shown it to Mr Tuckett. Mr Tuckett denies this.[23] He did not give Mr Tuckett a copy nor did he seek to explain the figures or give Mr Tuckett any opportunity to query or dispute the assertion that the agency agreement was terminated.
[23]Tr 226 lines 19-21

At the meeting, Mr Tuckett was given a letter from Amare’s solicitors Davies Elliott addressed to GT informing GT the agency agreement was terminated pursuant to clause 5.2 of the agreement.[24]
[24]CB 1786

Mr Tuckett was given another letter from Davies Elliott to GT of 15 April 2005, which enclosed a proposed new agency agreement and gave Mr Tuckett fourteen days to respond to the offer.[25] The new agreement proposed a reduction in commission from 40 per cent to 30 per cent, a 25 per cent reduction in commission. Mr Tuckett was informed he should consult a solicitor. There is a dispute as to whether or not the agency agreement had automatically terminated.
[25]CB 1787

As indicated, Mr Tuckett had no warning of what Amare was about to do and was stunned by Amare’s actions. GT was highly critical of the manner in which Amare went about asserting the agency agreement was at an end. No issue has arisen, however, in the case which turns on the manner in which Amare went about terminating the agreement. Nevertheless, I think it is proper to say that I found Amare’s conduct, in purporting to terminate the agency agreement in the manner it did, shifty and underhanded. Effectively, Mr Tuckett had worked loyally for Amare for three years and one would have expected a more sensitive and tolerant approach to the termination issue than the deceptive and underhanded tactics of Mr Pizzey and Mr Riddell. I have put that conduct to one side in considering the issues in the case, save that it has influenced my thinking to a slight degree in assessing the reliability of the evidence given by Mr Pizzey and Mr Riddell.

Mr Tuckett consulted a solicitor. On 20 April 2005, Norton White on GT’s behalf responded to Davies Elliott’s letter of 15 April 2005 referring to Amare’s purporting to terminate the agency agreement and disputing that the agency agreement had automatically terminated under the Minimum Performance provision.[26] Norton White rejected Amare’s repudiation of the agreement and advised that the agreement remained in full force. Norton White reserved GT’s rights in respect to Amare’s breaches of the agency agreement in relation to the first commission breach, the territory breach and the exclusivity breach.
[26]CB 1870

On 22 April 2005, Mr Tuckett met alone with Mr Pizzey in the Amare board room. Mr Tuckett says he asked Mr Pizzey to leave arrangements as they were until 1 July 2005 and Mr Pizzey agreed. Amare alleges that in fact an interim agreement was reached by which GT accepted the agency agreement was at an end and accepted that it would only be entitled to 30 per cent commission on gross margins from 1 July 2005 unless otherwise agreed. GT denies any such agreement was made.

Mr Tuckett made a diary entry of the meeting.[27] There is no note or reference to any interim agreement. The note records that Mr Pizzey refused to give Mr Tuckett the figures behind the termination. The note also records that Mr Tuckett informed Mr Pizzey that he wanted to stay with Amare but only if things change. The note records he informed Mr Pizzey he would not be signing the new contract.
[27]CB 1871

On 28 April 2005, Mr Tuckett again met with Mr Pizzey in the Amare board room. After the meeting, Mr Tuckett made notes of what transpired most of which is disputed by Mr Pizzey. The notes are in the form of an agenda and topics which were discussed.[28] There is no mention of any interim agreement. Rather the note canvasses things that ought to be attended to by Amare to get better value from the services of GT. The note assumes that GT will be continuing to act as an agent for Amare.
[28]CB 1899-1902

On 16 May 2005, Mr Tuckett put forward two proposals in relation to “a proposed change of commission rate.”[29] Mr Tuckett said that he thought that these would assist Amare in reducing overheads while giving incentive to GT to increase profit. Under option one GT put forward a range of commissions from 34% to 50%. Under option two, GT would receive 40% but would employ an additional person to assist. These were not proceeded with. Meanwhile, GT continued to act as the sole agent in areas 210 and 140 under the agency agreement.
[29]CB 1936

On 13 July 2005, Mr Tuckett emailed Michael Smith with a copy to Mr Riddell confirming Mr Smith’s acknowledgement to allow Mr Tuckett to approach the Department of Human Services in an attempt to gain their custom for Amare under area 220.[30]
[30]CB 2006

On 27 July 2005, Mr Tuckett emailed Mr Riddell informing him that Mr Tuckett was taking leave from 15 September 2005 to 27 September 2005 and advising of arrangements he had put in place to service accounts in his absence.[31] Mr Tuckett’s fiancé had sold the lease to the Bridge Hotel at Echuca and settlement was anticipated on 1 September. At one stage the affairs of the Bridge Hotel and Mr Tuckett’s involvement with it were the subject of pleadings by Amare. Mr Williams had left the employ of Amare to take over as manager of the hotel. The issues arising out of the hotel were not pursued by Amare.
[31]CB 2029

On 18 August 2005, Mr Tuckett telephoned Mr Pizzey to bitterly complain about the reduction of GT’s commission from 40 per cent to 30 per cent which was shown on the commission report for July 2005 that GT had recently received. The discussion was very heated. Mr Tuckett made a diary note of the conversation.[32] His note records that Mr Pizzey informed him that he thought the original offer of 30% was too low. Mr Tuckett told him that he had never agreed to such a thing. Mr Pizzey told Mr Tuckett he could not afford GT and alleged that Mr Williams and Mr Tuckett were in cahoots when the agency agreement was made and the agreement was a fraud. Mr Tuckett denied this. As mentioned above, Amare has not made that allegation in the proceeding. On the contrary it has accepted the agreement was valid and binding on Amare. GT describe the payment of the reduced commission as the Second Commission Breach.
[32]CB 2039

On 12 September 2005, Norton White wrote a further letter this time alleging breach of the agency agreement in respect of the first commission breach, the territory breach, the exclusivity breach and the second commission breach in July 2005. While reserving all GT’s other rights, Norton White demanded payment of the loss calculated at $168,112.87, failing which GT would take such action as it may be advised.[33]
[33]CB 2040-2041

On 14 September 2005, Davies Elliott replied to Norton White’s letter of 12 September 2005. As to the first three breaches, Davies Elliott alleges that they were each subject of agreement. In relation to the second commission breach, Davies Elliott says the matters referred to reflected negotiation between the parties in relation to the commencement of a fresh agreement.[34] There is no suggestion of any interim agreement in Amare’s solicitor’s letter.
[34]Supp CB 1167

On 20 September 2005 while Mr Tuckett was on leave, Mr Riddell left a voice mail message for Mr Tuckett informing Mr Tuckett that “as negotiation for our new agreement has not satisfactorily concluded there is to be no further sales marketing activity by GT Corporation on behalf of Amare Safety.” [35]
[35]CB 2057

On 27 September 2005, Mr Tuckett had returned from his holiday and received the voice mail message from Mr Riddell.

Despite the direction not to undertake any further sales marketing activity, on 27 September 2005 at 8.44 a.m., Mr Riddell emailed Mr Tuckett and asked him to confirm urgently by the close of business that day, his position regarding “our un‑resolved negotiations on your new employment agreement.”[36]
[36]CB 2052 at 8.44 a.m.

In response, on 27 September 2005 at 12.28 pm, Mr Tuckett emailed Mr Riddell and informed him that he had no intention of negotiating any new agreement. He also informed Mr Riddell that he was relying on the agency agreement and he intended to enforce it. He also advised that he was in the process of instituting legal action seeking compensation for Amare’s repeated breaches of the agreement as detailed in his solicitor’s letter of 12 September 2005.[37]
[37]CB 238

On 28 September 2005, Mr Tuckett met with Mr Pizzey to seek to resolve the dispute. He kept a diary note of the meeting. Much of what Mr Tuckett recorded as taking place is disputed by Mr Pizzey.

On the next day, 29 September 2005, Mr Tuckett emailed Mr Riddell disputing the effectiveness of Mr Riddell’s voice mail message left on Mr Tuckett’s mobile phone instructing GT not to perform sales and marketing activities on behalf of Amare.[38] GT advised that it did not accept the purported termination and the agency agreement was ongoing.
[38]CB 2054-2055

GT purported to exercise the option to extend the agency agreement under clause 3.10 for a further five year period commencing on 11 October 2006.

The letter further says that GT enforces the agreement in particular but not restricted to clauses 3.5 (commission to be paid at the rate of 60%), clause 3.1 (to be the sole agent for clause 2.16 schedule 1 (territory)) and clause 2.6 schedule 2 (customers) 1A (140), 1 (210) and 2 (220) and clause 2.7 (excluded customers).

It says that GT will require the removal of any representatives that currently engage in activity with schedule 1 (territory) and schedule 2 (customers) of the agreement.

GT asserts it had never been consulted on the sales/margin budgets for all the agreement customers and territories. GT says it did not accept such budgets.

GT says that these and any future budgets would need to be agreed upon by both parties and signed off as such as per clause 3.4.

Mr Tuckett concluded the letter by saying that GT would continue to perform under the agreement.

At 5.32 p.m. on 29 September 2005, Mr Riddell replied to Mr Tuckett by email saying that Mr Tuckett had left Mr Pizzey with no alternative as per his voice mail message and repeated “As negotiations for our new agreement have not reached a satisfactory conclusion there is to be no further sales and marketing activity undertaken by GT Corporation on behalf of Amare Safety.”[39]
[39]CB 2056

At 10.33 a.m. the next day, 30 September 2005, Mr Tuckett emailed Mr Riddell disputing there was another agreement. He said that Amare had not effectively provided the required notice of termination, that he would continue to fulfil his obligations under the agency agreement and he reiterated the notice provided under clause 3.10 extending the terms for five years.[40]
[40]CB 2060

On 30 September 2005 at 11.26 a.m., Mr Tuckett complained to Mr Riddell by email that a client of his had been told GT would not be looking after its account in future. Mr Tuckett said that this was a blatant violation of the agency agreement and he reserved his rights.[41]
[41]CB 2058

On 30 September 2005 at 12.44 p.m., Mr Riddell emailed Mr Tuckett referring him to Amare’s solicitor’s letter of 15 April 2005. Mr Riddell referred to Mr Tuckett’s letter saying there would be no discussion entered into with Mr Pizzey. He reiterated the instruction not to undertake further sales and marketing activities on behalf of GT.[42]
[42]CB 2060

On 30 September 2005 at 2.15 p.m., Mr Tuckett replied by email to Mr Riddell asserting that Amare was not entitled to cancel the agency agreement. He said that in future all legal issues were to be directed through his solicitors.[43]
[43]CB 2059

Thereafter until 20 October 2005, GT procured many orders for Amare and emailed them through to Amare. On other occasions he advised of business that could be tendered for. On one occasion, Mr Riddell replied seeking some information from GT.

On 20 October 2005, Mr Pizzey emailed a letter to Mr Tuckett reiterating that the agency agreement was at an end and saying that any payment due to GT arises from “an interim agreement while we negotiated a further agreement.” This was the first occasion an interim agreement had been mentioned in the correspondence.

The attached commission statement indicated that GT had made sales of $72,151.43 in October 2005.

On 21 October, Mr Tuckett emailed GT’s customers informing them that GT was no longer acting for Amare and was ceasing to carry out its duties under the agency agreement. At that stage Amare had refused to accept any orders taken by GT.

On 2 November 2005, Mr Tuckett took a position with McKnight’s Retravision. He made a diary note of this matter. The note recorded that Mr Tuckett expected to be back at Amare shortly. He said he envisaged that he would earn between $60,000 and $70,000 per annum.

SUMMARY OF FINDINGS

GT complains of five breaches of its agency agreement with Amare under the headings of the First Commission Breach, the Territory Breach, the Exclusivity Breach, and the Second Commission Breach and complains that Amare wrongly terminated GT’s engagement as agent denying it the fruits of the agency agreement.

For its part, Amare disputes the extension of the term of the agreement, claims the agreement was terminated in April 2005 and seeks rectification of the agency agreement. It also claims the liquidated damages clause and the interest clause are unenforceable as penalties.

I find for the plaintiff in respect of the First and Second Commission Breaches. I find against the plaintiff on the Territory Breach and the Exclusivity Breach.

I find that Amare repudiated the agreement and wrongfully terminated GT’s authority as agent for Amare.

I find that the agency agreement was not automatically terminated in April 2005.

I find the agency agreement remains on foot.

I find that the term of the agency agreement was validly extended for five years on 29 September 2005.

I dismiss the claim for rectification.

I will hear further submissions but not receive any further evidence on damages and interest. I have formed the preliminary view that the liquidated damages clause is not a penalty but the interest clause is.

I will hear submissions on costs.

My detailed reasons follow.

THE FIRST COMMISSION BREACH
The pleadings

GT alleges that on or about 1 November 2002 Amare breached the agency agreement (“The First Commission Breach”) by purporting to reduce the commission to which GT was entitled on the first $20,000 of gross profit per month from 60 per cent to 40 per cent.[44] Particulars are given which allege that at Amare’s Blackburn offices on or about 16 October 2002, Geoff Pizzey and Ron Williams on behalf of Amare orally told Grant Tuckett on behalf of GT that Amare was going to reduce the commissions payable on the first $20,000 from 1 November 2002 and that Mr Tuckett objected to the purported variation. The particulars conclude that notwithstanding Mr Tuckett’s objection, Amare thereafter paid only the reduced commission to GT.
[44]Statement of Claim [11]

GT pleads that GT received no consideration under this alleged agreement.[45] It is not necessary that the consideration given by Amare move to GT. It is sufficient if good consideration moves from the promisee, it need not move to the promisor.[46]
[45]Statement of Claim [14]
[46] Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 at [66] per Gleeson CJ and McHugh, Gummow, Hayne and Heydon JJ

In its further amended defence Amare denies the allegation and alleges that in October 2002 GT agreed with Amare to reduce GT’s commission from 60 per cent to 40 per cent of gross profit on the first $20,000 in November 2002. Amare give particulars of the agreement as follows. The agreement was partly oral, partly in writing and partly to be implied. Insofar as it was oral, Amare alleges it consisted of conversations the substance of which was as follows. In or about September 2001, Mr Tuckett told Mr Williams that GT intended to employ Mr Littler to manage area 220 and therefore needed 60 per cent of gross profit on the first $20,000 in order to pay Mr Littler’s salary. On or about 31 October 2002, Mr Tuckett told Mr Williams and Mr Pizzey of Amare that Mr Littler had been terminated. Amare alleges it proposed and Mr Tuckett agreed to reduce the commission rate to 40 per cent of gross profit accordingly. Insofar as it was in writing, Amare alleges it relied upon emails from Mr Tuckett to Mr Riddell of Amare of 16 December 2003 and 1 September 2004. Insofar as the agreement was implied, Amare alleges it is to be implied from the conversations and documents and from the fact that from 1 November 2002 the commission was calculated and paid accordingly without demur on the part of GT until 20 April 2005. Amare merely denies the allegation that there was no consideration.

In its amended reply, GT puts in issue the alleged agreement and says that the proper characterisation of the communication by GT was not that it was consenting to the variation but that GT was attempting to mitigate its loss. It is not clear which of the communications referred to is being pleaded to.

As discussed below, Amare relies on an estoppel defence to the alleged territory breach. It alleges that GT agreed to the excision of area 220 from the agency agreement and also pleads that from October and or December 220 and thereafter Amare and GT adopted and acted upon the common assumption that area 220 had been excised. It alleges that pursuant to the common assumption, it appointed Michael Smith as area manager of area 220 and in the circumstances would be unjust if GT was allowed to resile from the assumed common basis of dealing and it is estopped from so doing. An estoppel defence is not relied in defence to the first commission breach. No submissions were made on the failure to plead an estoppel to the first commission breach but it does tend to highlight the absence of consideration on the part of Amare to its alleged contract to reduce the commission payable to GT.

Amare submits but does not plead, however, that if the Court finds that what occurred in relation to the “variations” falls short of an agreement, then, nevertheless, GT is estopped from denying that such matters were agreed by reason of the fact there was no written agreement signed by the parties to be bound.[47] In view of the pleadings and the absence of the pleading of reliance and detriment by Amare, it appears that this submission relates to the variation relating to the alleged territory breach and not the variation relating to the first commission breach.
[47]Amare final address [60]

Amending a contract

The principles of law relevant to amending contracts are well settled. Cheshire and Fiftoot express the position as follows:

“A contract cannot be varied unilaterally, but only by a further contract. Ex hypothese, variation by contract involves two contracts, the existing one (which may or may not continue to exist…) and the new one (the contract of variation).”[48]

See also Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd.[49]

[48]Cheshire and Fifoot, 9^th ed, [22.3]

[49](2000) 201 CLR 520 at 533

In GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd[50] Finn J sets out principles that he says are relevant to variations of contracts which warrant repetition in this case:
[50](2008 128 FCR 1 at 63 [226]

(1)Parties to an existing agreement may vary or extinguish some of its terms by a subsequent agreement: Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd [(1957) 98 CLR 93]. In so doing the parties will have made "two contracts": Commissioner of Taxation v Sara Lee Household & Body Care (2000) 201 CLR 520 at 533; with the latter, no less than the former being subject to the ordinary rules governing contract formation: for example, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 286; Tekmat Pty Ltd v Dosto Pty Ltd (1990) 102 FLR 240 at 248.
(2)Conduct engaged in for the purposes of ongoing commercial arrangements is not always readily susceptible to the traditional forms of analysis employed by common lawyers for the purposes of determining whether a contract has been formed: Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117. This can be particularly the case when dealings are analysed on an offer and acceptance basis. So in Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 81, Ormiston J was prepared to accept:
"... that agreement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances."
Likewise in Integrated Computer Services Pty Ltd at 11,118 McHugh JA observed that:
"... in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed."
(3)In determining whether the communications between the parties constitute a contract the court is not confined to a consideration of the terms or manner in which the communications were made: they must be interpreted by reference to the subject matter and the surrounding circumstances including, inter alia, the nature of, and the relationship between, the parties, and previous communications between them, as well as to standards of reasonable conduct in the known circumstances: Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255. See also Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550.
(4)Post-contractual conduct is admissible on the question whether a contract was formed though it is not admissible on the question of what that contract, if formed, means: Brambles Holdings Ltd v Bathurst City Council [(2001) 53 NSWLR 153] at 163 – 164; Lord Steyn, "The Intractable Problem of The Interpretation of Legal Texts", p 9 ff, The John Lehane Memorial Lecture (2002).
(5)The need frequently arises in relational contracts of significant duration to adjust terms to accommodate changed or unforeseen circumstances. For that reason it is common for such contracts to make express provision for variation. Nonetheless, and notwithstanding their contract, parties in an ongoing business relationship equally commonly "regulate their relationships in accordance with what they consider is fair and reasonable or commercially necessary at particular points in time rather than by reference to a priori rights and duties arising under a contract:" Integrated Computer Services Pty Ltd at 11,117.

Amare places reliance on these principles and especially to the principle referred to in paragraph (5).

A variation is a second contract and consideration must be established.[51] As discussed above, Amare has not pleaded any consideration for the contract to amend the agency agreement with GT. Further, the absence of consideration may be relevant to the issue of whether GT and Amare intended to enter into a legally binding contract to amend the commission payable.
[51]Ibid

GT submissions

In its outline of closing submissions GT relies on two points. First, that the variation was not in writing signed by the parties and secondly that on the facts GT expressly rejected Amare’s suggestion that it would reduce the commissions on the first $20,000.

As to the first point, the agency agreement provides as follows:

7.19 Variation
(1)An amendment or variation to this Agreement is not effective unless it is in writing and signed by the parties.

7.20 Waiver
(1)A party’s failure or delay to exercise a power or right does not operate as a waiver of that power or right.
(2)The exercise of a power or right does not preclude either its exercise in the future or the exercise of any other power or right.

GT submitted that clause 7.19 is in the contract to avoid the very mischief that the court finds before it in this case. It quotes Cheshire and Fifoot:

Although commercial contracts often contain stipulations that they can only be varied in writing (“no oral modification clauses”), such stipulations are ineffective, except as evidence relevant to the question of whether a variation was in fact agreed.[52]

[52]Cheshire and Fifoot [22.4]

Cheshire and Fifoot cite as authority many cases but draw special attention to the decision of Finn J of the Federal Court of Australia in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd.[53] Finn J said specifically on this issue:

Though lacking legal effect in the face of a subsequent oral or implied agreement, it seems to be accepted that a no oral modification clause can have significant evidentiary effect. As Holmes J commented in Barlett v Stanchfield “The [clause] is a fact to be taken into account interpreting the subsequent conduct of the plaintiff and defendants”; see also Principles of European Contract Law, Art 2: 106.[54]

[53](2003) 128 FCR 1

[54]Ibid, [221]

Amare’s submissions

Amare submits that at the end of October 2002, Mr Pizzey, Mr Williams and Mr Tuckett met to discuss Mr Littler and how to grow the business in Area 220. Mr Littler had either gone or had been given notice by this time. Amare submits that Mr Tuckett was asked whether he intended to take on a new employee to manage Area 220. Amare submits he said that he did not.[55] Amare submits he said he wanted to retain the territory and service selected accounts so that he would keep drawing commission from the sales made in that area, consistent with the 9 September 2004 Amare letter. Amare submits that at the meeting, Mr Tuckett acknowledged that GT could not perform that which it had contracted to do and, further, that it did not propose to employ a replacement for Mr Littler.
[55]Tuckett, cross examination Tr 186

Amare submits that given the size of area 220, more than one person was reasonably required to service the territory, including territory 220. Amare submits that is what had been agreed in 2001. Amare submits that at that time, it was agreed that Mr Littler would service that territory and, after he left, Mr Smith did so. Amare submits that, as Mr Williams said in oral evidence, the size of the area that had to be managed required two persons and the rationale for the 60/40 commission split was that GT required an income to support the employment of Mr Littler[56] in an area which, at the time, was not generating enough income in its current format.[57]
[56]Williams, re-examination Tr 471
[57]Williams, re-examination Tr 479

Amare submits that it was in this context that the rate of commission was agreed between Mr Pizzey and Mr Tuckett to be reduced to a flat 40 per cent. Amare submits that it was no secret that Mr Pizzey had ever been happy about a 40 per cent rate of commission, let alone 60 per cent on the first $20,000 gross profit.[58] Amare submits that Mr Pizzey’s recollection that Mr Tuckett had been on 34 per cent commission at Alsafe coincides with Williams’ internal note made shortly prior to the entry into the agency agreement[59] and also with Mr Tuckett’s proposal to Mr Pizzey after the 15 April 2005 automatic termination.[60]
[58]Pizzey, cross examination Tr 510, 512 to 513
[59]CB 179
[60]CB 1936

In fact Mr Williams’s internal note also states “consider tiered levels of percentage to compensate for low GP (gross profit) base.” This note tends to support Mr Tuckett’s contention that the 60 per cent commission was not related to the employment of Mr Littler.

Amare submits that Mr Pizzey made his discontent, as to the level of commission, known to Mr Tuckett and Mr Williams in no uncertain terms at the meeting in February 2002 at which time, (as Amare submits) Mr Tuckett and Mr Williams assured Mr Pizzey that the 60 per cent rate of commission was a temporary measure and to “help start up” or finance Mr Littler, and once the area was up and running, the commission would drop back to the flat 40 per cent.[61]
[61]Pizzey, cross examination Tr 512 to 513, Williams, cross examination Tr 465

Amare submits the issue was raised by Mr Pizzey at subsequent meetings with Mr Tuckett whilst Mr Littler continued to be employed[62] and confirmed by Mr Tuckett’s note which referred to “commission split”.[63]
[62]Pizzey, cross examination Tr 510
[63]CB 568, 569, 570, 600

Amare submits that when Mr Pizzey expressed concern about the rate of commission, as at the first meeting, whilst Mr Tuckett said he would talk about changes,[64] Mr Tuckett never agreed to move one per cent.[65]
[64]Tuckett, cross examination Tr 183
[65]Pizzey, cross examination Tr 511

Amare submits that after Mr Littler left, Mr Pizzey, Mr Williams and Mr Tuckett met to discuss area 220 and Mr Smith.

Amare submits that separately, Mr Pizzey met with Mr Tuckett and said that the commission should be reduced to a flat 40 per cent because there was now no need for 60 per cent to cover Mr Littler. Amare submits that in substance, Mr Tuckett said that he “supposed this was right” and that GT could do quite well on 40 per cent.[66] Amare submits that objectively, the rationale by which Mr Pizzey preferred the reduction makes commercial sense; it also fits with the common facts known to those who negotiated the agency agreement in 2001.
[66]Pizzey, paragraph 53, c/f Tuckett, paragraph 26

Amare submits that to the extent Mr Tuckett’s witness statement and oral evidence conflict on this issue, the evidence of Mr Pizzey on what was to occur and as to what was agreed should be preferred. Amare submits that is so for the following reasons:

a.That there was an agreement is confirmed by Mr Williams’ evidence concerning the phone call he received from Mr Tuckett after the meeting[67];
b.that 40 per cent was agreed is consistent with the absence of any email or demand by Mr Tuckett on behalf of GT for the commission at the higher rate of 60 per cent;
c.it is consistent with the fact that thereafter, once commission reduced to 40 per cent from 1 November 2002, GT generated tax invoices at the flat rate of 40 per cent in lieu of those which had previously been generated based on 60 per cent of the first $20,000 gross profit and 40 per cent thereafter[68];
d.the first occasion on which GT made any complaint of the commission being reduced to a flat 40 per cent was in September 2005 by its solicitor’s letter[69];
e.in the meantime, there was no demand for commission at the higher rate in relation to territories 140 and 210. Further, when Mr Tuckett, on behalf of GT, claimed commission in relation to particular transactions, those claims, after November 2002, were all expressed on the basis of an entitlement to a flat 40 per cent commission[70]. In September 2004, Mr Tuckett emailed Mr Riddell and described 40 per cent as GT’s “normal rate”[71]. That it was in fact so and accepted to be so by GT appears from that email and the other communications mentioned.

[67]Williams, paragraph 53 and cross examination Tr 445 to 447

[68]See at SCB 274 to 276

[69]CB 2040

[70]For example, emails to Riddell at SCB 1160 and 1171

[71]CB 1300

Amare submits that applying the criteria referred to by Finn J in GEC Marconi that there was an express agreement to vary or extinguish one of the terms of the agency agreement:

a.even if there is doubt as to an express agreement, the “manifestation of mutual assent is to be implied from the circumstances” set out above;
b.the informality and frequency of dealings and content show the contract was not required to be formally varied or recorded in writing[72];
c.subsequent conduct is all one way, confirming that a contract variation occurred. Just as Mr Tuckett did not seek to sell or claim commission or set budgets for area 220, similarly he did not seek to claim a 60/40 basis for commission at any time from late 2002 until September 2005;
d.this variation, like the excision of area 220 by agreement, was an example of the parties regulating their relationship in accordance with what they considered fair and reasonable at the time.

[72]The only such variations were the Tuckett initiated and authored “Outsider Agreements”

Amare submits that it was consistent with what Mr Tuckett told Mr Pizzey would occur once Mr Littler got “up and running and making a profit in his area.”[73] That when Mr Littler left and was not replaced and area 220 was not being served by Mr Littler the basis for the 60/40 split and for area 220 had both disappeared. Amare submits the parties proceeded accordingly by agreement.
[73]Pizzey, cross examination Tr 513

The evidence

I shall now return to my analysis of the relevant events surrounding the alleged agreement to reduce the commission. As contemplated at the meeting in May 2005, a further meeting was held regarding commission. Mr Tuckett says that it was on 16 October 2002 and refers to a diary note entered at 16 October 2002 recording; “5.00pm Ron and Geoff.” Mr Pizzey did not know the date but said the meeting was after a meeting with Mr Littler and probably after the meeting that excised area 220 from GT’s territory.

Mr Tuckett says that Mr Williams was also at the meeting with Mr Pizzey. Both Mr Williams and Mr Pizzey said they do not recall Mr Williams being present. Who was at that meeting and what happened is a matter of dispute.

Mr Tuckett says that Mr Pizzey opened a copy of the agency agreement and pointing to the commission term told him that GT’s commission was being reduced to a flat 40 per cent on 1 November 2002. According to Mr Tuckett, Mr Pizzey said that he should not have to pay a higher rate than Mr Tuckett received when he was at Alsafe.[74] As indicated earlier Mr Pizzey believed the Alsafe rate was 34 per cent. Mr Tuckett says there was no mention of Mr Littler no longer working for GT and that Mr Pizzey did not seek to justify the reduction on the basis that Mr Littler was no longer working for GT.[75] This is important, as Mr Pizzey’s version, which I will come to in a moment, submits that he sought to justify the reduction on the fact that Mr Littler had left.
[74]Mr Tuckett’s witness statement of 24 July 2007 (Exhibit P1) , para 26
[75]Ex P1, paras 28 and 29

Mr Tuckett says he strongly objected to Mr Pizzey’s decision pointing out that he had incurred expenses in moving into the city to be closer to his territories, had car commitments and mobile phone plans. Nevertheless, he maintains, Mr Pizzey was adamant. Mr Tuckett says he did not agree to the reduction and made that quite clear to Mr Pizzey.

Under cross examination, Mr Tuckett agreed that Mr Pizzey sought to justify the reduction in commission on the basis that Mr Tuckett was no longer employing Mr Littler, GT was no longer covering area 220 and there was no need to cover Mr Littler.[76] This concession was inconsistent with his witness statement. The concession also does not fit easily with the date of the meeting suggested by Mr Tuckett. He says that the commission reduction was discussed on 16 October 2002 and the loss of area 220 subsequently on 31 October 2002. Mr Pizzey did not put a time on the meeting to discuss the commission reduction but he did say in his witness statement that he sought to justify the reduction on the basis that GT was no longer servicing area 220 or employing Mr Littler.
[76]Tr 187, lines 7-10

Mr Tuckett was not prepared to deny that Mr Pizzey may have referred back to the earlier meetings when they had discussed reducing the commission. He only went as far as saying he would be surprised if he did.[77] He did concede in cross examination that he would be saving about $100,000 in the interim by no longer employing Mr Littler and that he was not proposing to put on someone else.[78]
[77]Tr 188
[78]Tr 188

Mr Tuckett agreed that he telephoned Mr Williams but said that he told Mr Williams that he was not happy about the commission reduction and “didn’t agree with it and it was just basically done.” He said that Mr Williams asked him what he was going to do about it and he replied that he did not know.

Mr Tuckett agreed in cross examination that thereafter he prepared his tax invoices to reflect the reduction and never complained about the reduction after the meeting with Mr Pizzey until September 2005 when legal threats were being made.[79]
[79]Tr 189

On the other hand, Mr Pizzey says that Mr Tuckett accepted and agreed to the reduction in commission. Mr Pizzey says that Mr Williams was not present. He says that he sought to justify the reduction as Mr Littler would no longer be looking after area 220 and GT would no longer need the increased commission of 60 per cent to pay Mr Littler’s wages. He claimed that Mr Tuckett had previously given GT’s employment of Mr Littler as the reason for the 60 per cent commission. Mr Pizzey says that Mr Tuckett “said that he supposed this was right, that Chris Littler was no longer employed by him and that he could do quite well on 40 per cent.”[80]
[80]Ex D 9, para 33

Under cross examination it was put to Mr Pizzey that he did not seek to justify the reduction in commission based on the fact Mr Littler was no longer employed despite the fact that under cross examination Mr Tuckett had agreed that, contrary to his witness statement, this was the case.[81] When it was put to Mr Pizzey that Mr Tuckett contested the reduction in commission, Mr Pizzey said Mr Tuckett agreed very easily.[82]
[81]Tr 556
[82]Tr 555-556

Under cross examination Mr Pizzey maintained Mr Williams was not at the meeting concerning the commission reduction. He was vague on the timing but was adamant that it was after Mr Littler had gone. He did say under cross examination that he thought Mr Tuckett had relinquished area 220 at the time of this meeting. He was not sure but 90 per cent sure.[83] Mr Littler did not actually leave GT’s employ until 25 October but his services had been terminated in September. Mr Pizzey insisted that it was Mr Littler leaving and not the issue about territories that led him to reduce the commission. He said “You see Your Honour, they [referring to Mr Williams and Mr Tuckett] had given me the argument, once they gave it to me and Littler was no longer there, and there was a problem for them to deny it.”[84]
[83]Tr 558, lines 5-14
[84]Tr 557 lines 19-21

Mr Williams gave evidence that he didn’t believe he was at the meeting where the reduction of commission was discussed.[85] He said that in October 2002 he received a telephone call from Mr Tuckett about the meeting with Mr Pizzey regarding the renegotiation of the commission scheme. Mr Williams stated in his witness statement that Mr Tuckett told him that “while he wasn’t happy about it, he had accepted the revised position. He said words to the effect “well I didn’t win that one.” Mr Williams said that Mr Tuckett told him that under the revised position he would be paid 40 per cent on gross profits generated from his territory.[86]
[85]Tr 445
[86]Ex D5, para 53

Under cross examination, Mr Williams maintained he was not at the meeting that discussed the commission reduction. Mr Tuckett’s version of the conversation with Mr Williams was put to him but he did not change his evidence. He did concede the events took place a long time ago and his memory may not be clear. He confirmed the earlier discussions about reducing the commission and said that he knew that Mr Tuckett would not be happy about the reduction. He said that Mr Tuckett seemed to have acquiesced and was not up in arms about the reduction.[87]
[87]Tr 446-447

Despite Mr Tuckett’s practice of taking notes at meetings and producing records of meetings, there is no record of the meeting apart from the diary note of the appointment that says “5.00pm Ron and Geoff”[88]. Although GT’s commission was reduced from 1 November 2002 there is no record of any dispute about the reduction of the commission until April 2005 when GT’s solicitors wrote to Amare disputing the termination of the agency agreement after the meeting of 15 April 2005. Mr Tuckett conceded he did not dispute the use of 40 per cent commission after the reduction was implemented on 1 November 2002 until after 15 April 2005.
[88]CB 717

On the other hand, Mr Pizzey did not seek to put Mr Tuckett’s supposed agreement to reduce the commission in writing even though the agency agreement stipulated that should be done. Mr Pizzey made no note of this alleged agreement.

Generally, I found both Mr Tuckett and Mr Pizzey to be honest witnesses. I did form the impression, however, that much of Mr Pizzey’s evidence was reconstructed and constituted what Mr Pizzey believed took place rather than what he could actually recall taking place. I was not entirely satisfied with Mr Tuckett’s evidence on how the figures in the first Budget were arrived at. I found that he also tended to reconstruct his evidence.

Mr Williams honestly conceded the events he was giving evidence about were a long time ago. He properly qualified his evidence by the expression “my best recollection” and to many questions said he did not recall. To the question “That recollection is not very strong is it? Not very clear? He answered “It’s a long time ago.” He said he could be wrong in his recollection that he was not at the meeting regarding the reduction of commission.[89]
[89]Tr 445 line 19

The writ and statement of claim are dated 21 October 2005 and legal action had been threatened in September 2005 by GT’s solicitors in correspondence with Amare. On 18 October 2005, Amare indemnified Mr Williams from any action, claim or demand by Amare against Mr Williams in respect of his employment by Amare and Mr Williams’ relationship with Mr Tuckett or GT.[90] Mr Williams conceded that Amare was critical of Mr Williams for entering into the agency agreement with GT on behalf of Amare.[91] On 30 August 2005 Mr Pizzey informed Mr Tuckett that he believed the agency agreement was a fraud and that Mr Tuckett has been in “cahoots” with Mr Williams.[92] I am not satisfied that the indemnity and the discussions that lay behind it may not have influenced Mr Williams’ evidence. No satisfactory explanation was given why the indemnity was given three days before the proceedings were commenced.
[90]Exhibit P11
[91]Tr 417 lines 12-20, see also Tr 635 lines 22 to 636 line 17
[92]Diary entry of Mr Tuckett, CB 2039

Mr Williams left the employ of Amare to manage an hotel that Mr Tuckett and his partner had purchased at Echuca. Originally, the statement of claim made allegations that Mr Tuckett’s involvement in the hotel led to GT neglecting its contractual duties. Those claims were not pursued. The evidence did establish, however, that Mr Williams ceased acting as manager. Mr Pizzey said in evidence, that Mr Tuckett and Mr Williams had a falling out.[93] That matter was not explored but it is relevant in considering the evidence of Mr Williams.
[93]Tr 637 line 2

In conclusion, I find that Mr Williams’ evidence is of not much weight and provides me with little, if any, assistance one way or the other.

Amare rely on the subsequent conduct of Mr Tuckett to establish an agreement to reduce the commission or as evidence that such an agreement was otherwise made.

First, Amare relies on the fact that after 1 November 2002, GT did not complain about the non payment of the 60 per cent commission. Further, any written claim for commission was on the basis of 40 per cent and no claim was made to the 60 per cent. Further, Amare submits that as Mr Littler’s services were terminated on 25 October 2002 and as discussed below, area 220 was excised from the agency agreement on 31 October 2002, the commercial justification for 60 per cent had ceased.

Amare relies on two emails as constituting or evidencing the agreement: emails from Mr Tuckett to Mr Riddell of Amare of 16 December 2003 and 1 September 2004. In the first email Tuckett enclosed a new agency agreement for the consideration of GT.[94] The agency agreement contained a suggested level of commission of 40 per cent. That does not infer that a contract to reduce commission was made in October or thereafter but rather GT accepted the realities of what Amare was willing to pay. The second email of 1 September 2004 was from Mr Tuckett to Mr Riddell. The email dealt with a tender for wire gloves to a potential customer. Mr Tuckett said that if “we are successful with any of the other three tenders I submitted I will be paid at the normal rate of 40%.”[95] Again, I do not believe a reasonable construction of the letter is an acceptance of the amendment of the agency agreement but merely a recognition of what Amare had been paying since November 2002. I do not consider the emails establish or evidence the agreement alleged by Amare.
[94]CB 994 and following
[95]CB 1299

I find Mr Tuckett’s acceptance of the lower commission relevant but do not give it the weight Amare seek to. Although Mr Tuckett was not an employee of Amare, for all intents and purposes Mr Pizzey treated him as an employee. It was readily agreed by Mr Pizzey that Mr Tuckett was a good salesman, easy to get along with and personable. He presented as such in the witness box. He is not an aggressive or assertive type. It is entirely consistent with Mr Tuckett’s version that he had not and was not contracting on behalf of GT to lower the agreed commission but rather accepted the reduction as a fait accompli in the sense that he accepted that all he was going to receive was 40 per cent without agreeing to amend the contract of agency.

As indicated above, the test of whether the parties entered into a contract is an objective one to be assessed by a reasonable person in the position of the parties. The conduct of Mr Tuckett must be viewed as a whole and in the commercial context in which GT was operating.

It has been submitted by Amare that it was commercially rational and likely that the parties agreed on a commission reduction due to the departure of Mr Littler and the excision of area 220. There is some force in that argument. Equally, however, a reduction of 60 per cent to 40 per cent amounted to a reduction in commissions of approximately $48,000 per year. On the basis of GT’s expenses this constituted approximately 30 per cent of net income or profit per year. It seems unlikely that Mr Tuckett would agree to such a large reduction in GT’s income when in the previous months he would not agree to even one per cent reduction.

In October 2002, Mr Pizzey was anxious to reduce the commission and had been for some time. He believed the agency agreement was a fraud and that Mr Williams and Mr Tuckett were in “cahoots” in entering into the agreement. He believed that Alsafe had been paying considerably less. No other salesman at Amare was being paid commission. Mr Pizzey did not respect the document as a proper contract. I am sure he felt personally justified in reducing the commission to 40 per cent. I am not confident that Mr Pizzey would have been keen to observe the legal niceties in achieving that result. His behaviour, in asserting the agency agreement was at an end in April 2005, was less than honourable and showed that he considered Mr Tuckett to be on the same level as an employee rather than an independent contractor.

There is a dispute as to what was said at the meeting in October 2002. No contemporaneous document exists to record what took place. The conduct of both parties after the agreement may be used as evidence of an agreement being entered into though not of its meaning.[96] As indicated above, the conduct is ambiguous and the making of a binding contract is not a necessary inference.
[96] Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163-164

Despite Mr Pizzey’s sworn evidence that Mr Tuckett agreed to the commission reduction, after having regard to all the relevant evidence including all the evidence relied on by Amare, I am not satisfied on the balance of probabilities that a contract to amend the agency agreement in fact was entered into when Mr Pizzey met with Mr Tuckett on 16 October 2002 or whenever the meeting was held.

Burden of proof

In Re Peatling deceased McInerney J said:

The location of the general burden of proof”, wrote Professor R Morgan in the article in 44 Harvard Law Review 906 at p 911 to which reference has already been made, “is important at only one stage of the trial, and then only in a situation seldom occurs - namely, when at the close of the evidence the mind of the trier of fact is in equilibrium on the issue.[97]

[97][1969] VR 214 at 225

I have had the benefit of seeing Mr Tuckett, Mr Pizzey and Mr Williams in the witness box and subject to vigorous cross examination. I have considered the other matters relied on by Amare as set out in its particulars. Nevertheless my mind is in equilibrium on the issue of whether or not the parties contracted to reduce the commission as alleged by Amare.

The authorities on the burden of proof, the legal onus, the evidentiary onus and the shifting onus are legion: see Cross on Evidence. In this case I will refer to two. In Gordon v Australasian & New Zealand Theatres Ltd[98] the plaintiffs had been hired as entertainers by the defendant to perform on tour in Australia and elsewhere. The plaintiffs had their contracts terminated and sued for damages. The defendant alleged that it was entitled to terminate the contracts under a term that provided it could do so where due to the outbreak of war it had formed the opinion that it was expedient to suspend, postpone or abandon the tour. Jordan CJ held that the burden of proof was on the defendant to prove that when it purported to terminate the contracts it was of the opinion that the outbreak of war rendered it expedient to abandon the tour in which the plaintiffs were engaged. In doing so he held that in the circumstances there was no onus on the plaintiffs to prove facts to negative the application of the exception which allowed the contracts to be terminated. In Commonwealth of Australia v Amann Aviation Pty Ltd[99] the plaintiff sought damages for the wrongful termination of a contract to provide aerial surveillance services for the Australian Government. In particular, the plaintiff sought to recover the extensive costs it had incurred in acquiring planes to carry out the contract. The defendant argued that the plaintiff could not recover those expenses if the plaintiff would not have earned sufficient to do so if it had performed the contract. The High Court accepted that was a correct principle of law but held the onus of proof fell on the defendant to establish that, even if the contract had been fully performed, the plaintiff would not have recovered his reasonable expenditure.[100]
[98](1940) 40 NSWSR 512
[99](1991) 174 CLR 64
[100]Mason CJ and Dawson J at 86-90

Further, Amare alleges that the purported notice of exercise of the option was not a valid notice because it wrongly insisted upon performance: (a) without excision of area 220; and (b) without the agreed role of the business development manager.

By its reply, GT denies acting in bad faith and says that the notice represented its genuine desire to continue the agreement.

Amare’s submissions on the renewal of the agency agreement

In its submissions, Amare claims that the agreement could not be extended as:

(a)on its true construction the agreement required both parties to agree to the new term;
(b)the notice to extend was invalid or ineffective as GT sought to renew an agreement that was no longer on foot as it had been amended as Amare alleges above; and
(c)a valid extension required that GT had properly observed and performed its obligations under the agreement which it had not, including the obligation in all matters to act loyally and faithfully towards the principal.

I have assumed these grounds are additional to the pleaded allegations that the agreement had been terminated and the agreement could only be extended in good faith.

Findings on the renewal of the agency agreement

Amare alleges the agreement had been terminated under clause 5.2. I have already rejected that ground.

Amare also alleges the agreement had been terminated on 15 April 2005 or alternatively 20 September 2005. I have already rejected those allegations.

Construction of the agreement

Amare’s submissions that the agreement required both parties to agree to the extension are as follows

When construing clauses 5.1 and 3.10 concerning any extension of the term, the Court is required to apply the following principles:
(a)in ascertaining the objective meaning of a contract, its terms must be considered in context;
(b)context includes the “factual matrix”, and modern authorities make clear that it is not only after an ambiguity can be established that recourse can be had to considerations of context;[186]
[186]See eg Toll (FGCT) Pty Ltd v Alphafarm Pty Ltd (2004) 219 CLR 165 at [41]
(c)the contract must be considered as a whole;[187]
[187]Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109
(d)questions of meaning are “to be answered in a practical and realistic way, not in a way which adopts an overly fine or theoretical approach that is alien to commercial agreements;”[188]
[188]McCann v Switzerland Insurance Australia Ltd (2000) 176 ALR 711 at 729 per Kirby J
(e)where a contract contains terms that are inconsistent with each other, the court must decide which term represents the objective intention of the parties in the circumstances;
(f)a more reasonable interpretation is to be preferred in cases of ambiguities: “if the language [of a contract] is open to two constructions, that will be preferred which will avoid consequences which appear capricious, unreasonable, inconvenient or unjust,”[189]
(g)the literal terms of a clause in a contract may well be “corrected” to avoid absurd consequences;[190]
(h)there is not the need for an ambiguity before the court may depart from the literal terms of a clause, if necessary to avoid “ridiculous commercial results.[191]

There is, between clause 5.1 and clause 3.10 (1), both a clear conflict and some ambiguity. The question is whether, construed in context and considering the agency agreement as a whole, and seeking to give it business efficacy and avoid absurd, ridiculous or plainly unjust results, this Court should construe it:
(a) by finding that the agency agreement can only be extended by the agreement of the parties (as provided in clause 5.1); or
(b) by finding that it can be extended at the unilateral election of the agent, as GT seeks to contend (by reference to clause 3.10 (1)).
This is an agency agreement, and GT would be the agent of Amare; while GT would be deriving a profit from its efforts, it can hardly be considered a common commercial situation that an agent would be able to bind the principal to use the agent, at the agent’s unilateral option.

[189]Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109

[190]See eg Westpac Banking Corp v Tanzone Pty Ltd (2000) 9 BPR 17,521; Dockside Holdings Pty Ltd v Rakio Pty Ltd (2001) 79 SASR 374 at 387, where the Court construed the literal terms of the contract so that there would not be “a ridiculous commercial result based upon a review process which flouts commonsense.”

[191]Dockside Holdings Pty Ltd v Rakio Pty Ltd (2001) 79 SASR 374 at 387

Further, matters leading to the conclusion that the agency agreement could only be extended by the agreement of the parties are relied on by Amare which I quote below.

Did GT have a unilateral right to renew the agency agreement?

Clause 5.1 provides that the agency agreement terminates “unless the parties agree to extend the Term pursuant to clause 3.10”. Clause 3.10 provides:

(1)       GT Corporation may extend the Term of this agreement for 3 further periods of 5 years commencing on the day following the expiration of the Term provided in this agreement, provided GT Corporation has:
(a)       properly observed and performed its obligations under this agreement throughout the term; and
(b)       has served a notice on Principal requiring such extension not later than 90 days before the Expiry Date.

I accept Amare’s submissions on the approach to contractual interpretation. There is a conflict between clauses 5.1 and 3.10. Clause 5.1 contemplates an agreement between the parties whereas clause 3.10 provides that GT may extend the term. The question therefore arises; did the parties by this agreement intend that GT should have the unilateral right to extend its term or did the parties intend that an extension would require the consent of both parties?

In most commercial contracts an option to extend is a unilateral right. For example in a lease, an option to renew is a right extended unilaterally to the lessee.

Amare submits that it can hardly be considered a common commercial situation that an agent would be able to bind the principal to use the agent, at the agent’s unilateral option. I do not accept this argument.

As discussed above when considering whether the agreement had been terminated, the principal may wrongfully terminate the agent’s authority to act as its agent and nevertheless the agent may elect to maintain the contract on foot.

Accordingly, the extension of the term would not necessarily bind the principal to use the agent at the agent’s unilateral option.

Amare also point to the following matters as supporting its contention that the agency agreement could only be extended by the agreement of the parties.

There is no provision allowing the principal to terminate the agency relationship on giving a fair notice to its agent. I accept that this is a relevant factor to bear in mind.

The initial term of the agency agreement is a very substantial one (5 years), and any investments (sunk costs) on the part of the agent would have been recouped during that initial term. I accept that this is likely to be the case.

The period of an extension, if it were available at the unilateral option of the agent GT, would also be very substantial (another 5 years). I accept that this is the case.

If GT’s construction argument as to clause 3.10 (1) were to be accepted, in fact GT would be able to unilaterally extend for a total of 15 years. I accept that this is the case. But it must be viewed in the light of the other clauses permitting termination, including automatic termination for failure to achieve Minimum Performance.

In my view these factors do not override the normal and natural implication that a provision that grants GT the right to renew is a unilateral right given to GT. I consider that this express provision governs the matter. The reference to the agreement of the parties in clause 3.10 must be taken to refer to the agreement that is affected by the renewal.

In the circumstances, I reject the submission that both parties had to agree to the extension.

The notice of renewal was invalid

Amare argues GT sought to extend the term of an agreement, key elements of which were not on foot.

Amare submitted that by its letter of renewal, GT sought to:

(a) “enforce” rates of commission to which GT was no longer entitled;
(b)“require” the removal of other Amare sales representatives from what it described as the “schedule 1 (territory) and schedule 2 (customers); and
(c)disclaim the existence of an agreed budget for the financial year 2004/2005, which budget GT was required to achieve.

Amare submitted that GT was no longer entitled to the matters it was seeking to enforce because:

(a)the agency agreement had been varied in that respect;
(b)GT was estopped from asserting on 29 September 2005 that the agency agreement had not been varied; and
(c)the act of seeking to “enforce” each of those terms in an agreement with Amare was done in breach of GT’s continuing obligation of good faith under clause 4.4 of the agency agreement and of an implied contractual duty of good faith and fair dealing.

Finding on the invalid notice

In its Further Amended Further Defence Amare relies on two other matters: first, that GT insisted upon performance of the agreement without excision of area 220; and secondly, without the agreed role of the BDM. I have found that there was no Territory Breach or Exclusivity Breach.

I do not agree that GT was seeking by its letter of 29 September 2005 to renew an agreement that was no longer on foot. The letter says “GT enforces the agreement in particular to but not restricted to” certain clauses.

I do not construe that assertion to be an insistence that the agreement which is to be extended contains those clauses. The letter began by saying that its purpose was seven fold. The extension of the term was one of seven points. The enforcement of rights asserted by GT was another.

In my opinion, the notice requiring the extension assumes the agency agreement as it is. The agreement contemplated variations from time to time on such matters as customers and determining annual budgets. I construe the exercise of the option to extend the agreement as no more than extending the agreement as it stood at the time of the notice or as it would stand at the date of its continued application.

I reject the allegation that the notice to renew was invalid for the reasons pleaded or relied on in the submission.

Compliance with clause 3.10(1) (a)

Amare submits that there was no compliance with clause 3.10 (1) (a) as GT had not properly observed and performed its obligations throughout the term, in particular it had not complied with clauses 4.1 and 4.3 (2). This allegation was not pleaded.

The allegation relies on an assumption that if GT is correct on its construction of the agency agreement, as effectively granting it a right to make all sales in territory 220 for the term including to the exclusion of Amare as principal, then it had such a right under the agency agreement only to the extent that (a) it was able to achieve the budget (clause 2(2), definition of “Budget”) and (b) it would promote and protect the interests of Amare (clause 4.1).

Amare alleges that GT did not comply with its obligations as leading up to September 2002, GT was not promoting and protecting the interests of Amare in the way Littler was performing[192] and after GT terminated Littler’s employment, GT did not offer to employ another person to service area 220.
[192]9 September 2002 letter from Amare to GT, setting out matters not working CB 714; Williams, cross examination Tr 442 to 444, 451 to 452, 453, Pizzey, cross examination Tr 561 to 562

Amare submits that if GT is correct in its construction (which is disputed), then it constituted a breach by GT to refuse, alternatively fail, to employ another sales representative to cover territory 220, in a way that would have promoted and protected Amare’s interests which would have required a sustained meeting of the budget, in fact expansion of the level of sales.

As mentioned above, these allegations were not pleaded in relation to clause 3.10(1)(a). In any event, no complaint was made by Amare that GT was in breach of its obligations. Further, if there was a breach the breach was remedied by Amare taking over area 220 and I have found that Amare did not breach the agreement in taking over area 220.

Accordingly, this ground for alleging the renewal was ineffective is not made out.

Amare submits that there was no compliance with clause 3.10 (1) (a) as GT had not met the minimum performance requirement for the period January to March 2005.

I have rejected that submission in dealing with the alleged automatic termination.

Good Faith

Clause 4.4 of the agency agreement provides that “GT Corporation shall in all matters act loyally and faithfully towards Principal.”

Amare submits that GT was not acting in good faith. Amare relies on two matters as going to lack of good faith.

First it pleads that it lacked good faith in seeking to exercise the option. It submits that GT’s conduct in giving instructions to its solicitors to institute legal proceedings[193] demonstrate it was not in good faith contemplating resuming the agency relationship with Amare.
[193]SCB 1169

Secondly, it alleges that GT acted disloyally by making an improper offer to Smith[194]. This allegation was not pleaded.
[194]Smith, statement paragraphs 9 to 12 and cross examination Tr 787 to 792, re-examination Tr 801

On 15 September 2005, Norton White on behalf of GT had written to the solicitors for Amare saying that they would institute legal proceedings against Amare in respect of the first and second commission reductions, the excision of area 220 and the breach of the exclusivity agreement.

On 20 September 2005, Amare had left a message for Mr Tuckett instructing him that GT should cease acting as agent for Amare and confirmed that instruction in writing on 27 September 2005.

On 27 September 2005, Mr Tuckett advised Amare that GT was in the process of instituting legal action. Nevertheless, on 29 September 2005, GT purported to exercise its option to extend the term of the agreement for five years.

Mr Tuckett denied in cross examination that he was motivated by any desire to improve his position in the foreshadowed legal action. Mr Tuckett denied that he extended the term to enhance GT’s prospects in any future litigation. He said that did not cross his mind and to the effect that he never expected the litigation to go ahead.[195]
[195]Tr 244

The timing and circumstances of the notice might lead to the inference that Mr Tuckett did exercise the option for the purpose suggested by Amare. On the other hand, his actions during October in trying to keep the agreement on foot and his diary note of 2 November 2005 where he states that he expects to be back with Amare in the near future lead me to conclude that I am not satisfied that Mr Tuckett’s dominant purpose was to improve his position in any future litigation. He said he wanted to secure his position as he and his partner wanted to buy a house. The evidence strongly suggests that Mr Tuckett wanted to continue to work for Amare. He went to extraordinary lengths to maintain GT’s position as Amare’s agent.

I find that GT did wish to resume the agency relationship with Amare. In the very notice extending the term of the agreement Mr Tuckett indicated his intention to perform GT’s obligations under the agency agreement and confirmed that intention the next day. On the day before the notice, Mr Tuckett had met with Mr Pizzey to seek to iron out their differences.

I am not satisfied that GT was not in good faith contemplating resuming the agency relationship with Amare and I am not satisfied as the Further Amended Further Defence alleges that GT gave the notice for the purpose of seeking to obtain collateral advantage in litigation which GT had threatened and intended to institute.

After hearing the evidence of Mr Smith and Mr Tuckett, I do not find that Mr Tuckett made any improper overtures to Mr Smith as alleged in the submissions. I am not satisfied that his remark was improper or was anything more than a joke.

Assuming for present purposes Amare’s submissions on GT’s purpose is correct; does that purpose disentitle GT to extend the agency agreement?

Although not expressly relied on by Amare, in my opinion the good faith clause merely applies to how GT carries out its duties as agent under the agency agreement. It does not apply to the mechanics of extending the agreement.

In any event, I do not believe that it is necessary for GT to establish any particular purpose of motive to validly exercise the option to renew. No authorities were referred to or relied on by Amare in support of its submission that apart from the terms of the agreement GT had to act in good faith to extend the term of the agreement.

Conclusion on renewal of term

In conclusion, I find that on or about 29 September 2005 by the letter of GT to Amare, GT gave notice under clause 3.10 of the agency agreement exercising its option to renew the agreement for a further five years from 9 October 2006.

PARTICULARS OF LOSS AND DAMAGE
Introduction

GT is entitled to damages for Amare’s failure to pay the agreed commission on the orders achieved by GT between 1 November 2001 and 21 October 2005 when GT ceased procuring orders for Amare. This has been calculated in two tranches: first for the period 1 November 2002 until 30 June 2005 and then from 1 July 2005 to 21 October 2005.

GT is also entitled to damages for Amare’s wrongful termination of GT’s authority to act as agent.

There are many issues that must be resolved in making these calculations. I have decided that it would be in the best interests of all parties that I receive submissions on the calculation of these damages. I have received evidence on these matters and I will not hear any further evidence. To assist the parties I set out below my preliminary views on some of the issues involved.

General principles

Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.[196]
[196]Robinson v Harman (184) 1 Ex 850 at 855 per Parke B; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J

The award of damages for breach of contract protects a plaintiff’s expectation of receiving the defendant’s performance. That expectation arises out of or is created by the contract.[197]
[197]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J at 80

The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff’s expectation objectively determined, rather that subjectively sustained.[198]
[198]Ibid

The plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed.[199]
[199]Ibid at 82

The damages recoverable are limited by the rule in Hadley v Baxendale[200] where Alderson B said the plaintiff is entitled to recover such damages as arise naturally, that is according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach.[201]
[200](1854) 9 Ex 341
[201]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 90

The plaintiff is entitled to be compensated for the loss of benefits that otherwise would have accrued to it if the contract had been performed and these can extend beyond those expressly promised under the contract. Such benefits may include the opportunity to renew the agreement.[202]
[202]Ibid at 92 and 94 per Mason CJ and Dawson J and at 102-103 per Brennan J

Accordingly, if it be right to suppose that the loss of the prospect of securing a renewal of the contract was within the contemplation of the parties as a probable result of the breach, the plaintiff is entitled to compensation which takes into account the value of the loss of the prospect of securing a renewal of the contract.[203]
[203]Ibid at 91 per Mason CJ and Dawson J

To obtain damages for a loss of chance or opportunity it is not necessary to establish that the chance would probably have been realised but rather that there was a chance that might have been realised whatever the degree of probability.[204]
[204]Cheshire and Fifoot ninth Australian edition [23.15]; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64

Normally, damages are assessed at the time of the breach. This principle is not of universal application and it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered.[205] The guiding principle in the assessment of damages is compensatory. The object is to award the plaintiff an amount of money that will, as nearly as money can, put him in the same position as if he had not been injured by the defendant.[206]
[205]Johnson v Perez (1988) 166 CLR 351 at [5] per Mason J See also Willfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426 at 431; Willis v The Commonwealth (1946) 73 CLR 105
[206] Todorovic v Waller (1981) 150 CLR 402 at 412 per Gibbs CJ and Wilson J

First Commission Breach and Second Commission Breach

On the First Commission Breach, GT submits that the amount of commission that GT was not paid on orders it achieved are $128,000.[207] This figure has been discounted back to its value on 1 November 2002.
[207] Exhibit P5 table 10

Accordingly, in this case the breaches causing the damage are the failure to pay the agreed amount on each occasion commission was paid to GT. We know that GT did achieve orders up to 21 October 2005. It may be that there is no need to estimate the likely future damage as at 1 November 2005 when the commission rate was reduced as we know what the actual damage was.

It may be that GT is entitled to damages under this head of $128,000.

As a result of the Second Commission Breach GT claims damages under this head of $25,437.[208] For similar reasons, it may be that the sum need not be discounted.
[208]Exhibit P5 table 11

On the other hand, GT may wish to recover the discounted amount to recover pre-judgment interest.

The parties may wish to address me on this issue.

Damages for the wrongful termination of the agency of GT

GT claims damages for the wrongful termination of the agency agreement on 20 September 2005. The statement of claim gave an estimate of damages at $1,658,627.80 and said the losses were continuing.

Evidence was given of the actual earnings of GT for the years 2005-2006 and 2006-2007. Should these be used to calculate the damage suffered by GT?

GT had the opportunity of renewing the agreement for a further ten years. It is arguable that it lost that opportunity through Amare’s wrongful termination of GT’s authority to act as Amare’s agent. How should this lost opportunity be valued?

GT’s final submissions referred to several calculations of Mr Owain Stone.

I would be assisted by further submissions on the damages due to GT through Amare’s wrongful termination of GT’s authority to act as Amare’s agent.

Liquidated damages

GT makes an alternate claim relying on the liquidated damages clause 6.4. GT submits that if the agreement has been terminated, Amare owes GT one half of the average annual commission including GST earned by GT to the expiry of the term, plus interest, if not paid within 28 days of the termination.

GT submits that if the term of the agreement was extended the compensation payable on this basis would be $943,356.

Amare submits that the liquidated damages clause is unenforceable as a penalty.

Clause 6.4 provides:

“Compensation for termination
If this agreement is terminated by Principal for any reason other than a reason set out in clauses 5.1 to 5.4 inclusive, or otherwise than in accordance with the terms of this agreement, Principal shall pay to GT Corporation compensation as follows:
(1)an amount equal to one half of the average annual Commission earned by GT Corporation to the expiry of the term; and
(2)the compensation shall be paid by Principal to GT Corporation not later than 28 days after termination.”

Both parties agree that the average annual Commission earned by GT is payable in respect of each remaining year of the agency agreement until it was due to expire. GT does not seek damages under this ground for the loss of the opportunity to extend the agency agreement beyond 2011.

Both parties agree that in the circumstances which have happened, the clause is activated and the clause applies to calculate the damages due to the plaintiff for the unexpired portion of the agency agreement. In saying that I acknowledge that Amare still claims the option to extend was not validly made.

The agreement was not terminated by Amare but on 20 September 2005 Amare gave notice to GT that it terminated GT’s authority to act as agent for Amare. The notice of termination was repeated on 27 September 2005 and also on 20 October 2005. The clause only applies where there is a “termination” by Amare. At law, Amare does not have the right to terminate the contract unilaterally although it does have the right and power to terminate GT’s authority to act as Amare’s agent. In my opinion, Amare’s conduct in terminating the agency does constitute a termination by it within the meaning of clause 6.4.

In Ringrow Pty Ltd v BP Aust Pty Ltd[209] the High Court proceeded on the basis that Lord Dunedin’s speech in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd[210] expresses the law in Australia on the identification, proof and consequences of penalties in contractual stipulations. Lord Dunedin said:
[209](2005) 224 CLR 656 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ at 662-663
[210][1915] AC 79 at 86-87

2The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage….
3.The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach.
4.To assist this task of construction various tests have been suggested which if applicable to the case under consideration may prove helpful or even conclusive. Such are:
(a)It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach….
(b)It will be a penalty if the breach consists in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid….
(c)There is a presumption (but no more) that it is penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling”.

Amare submits that the term of the agency is five years and it would be clearly “extravagant and unconscionable” to suggest that , say after twelve months, Amare was required to pay to GT the equivalent of the commission for two full years.

Taking 2004-2005, being the last financial year before GT ceased to act as agent for Amare, the financial accounts of GT indicate it earned $208,135.23 commission and incurred $210,919.81 in expenses. Of the expenses incurred the following were not referable to GT carrying out the agency agreement:

$33,000.00

advertising and promotion

$55,847.22

contractors

$ 7,020.91

legal expenses

6.

$95,868.13

total

Thus actual expenses incurred in earning commission was:

total expenses

$210,919.81

non agency expenses

$ 95,868.13

agency expenses

$115,051.68

GT also paid Mr Tuckett a wage. There was no evidence to suggest it was excessive or inadequate. I assume that if GT ceased to carry out the agency agreement it would no longer be obliged to pay Mr Tuckett for acting as a salesman under the agency agreement. On the other hand if the agency agreement had continued I assume he would have been paid as normal. In those circumstances GT was earning some $93,083.55 profit in 2004-2005 under the agency agreement.

The liquidated damages clause provided for half of the commission earned to be paid. If 2004-2005 is used, half the commission was $104,067.62. This is some 12 per cent above the actual profit.

The profit would have been greater if Amare observed the commission clause. On that basis GT would have earned an extra 20% on $20,000 gross profit each month making a total of $48,000 if a gross profit of at least $20,000 was achieved.

Accordingly, on this assumption, GT’s profit from conducting the agency ought to have been approximately $140,000 per year.

The liquidated damages clause provided for half of the commission earned to be paid. If 2004-2005 is used half the commission was $104,067.62. If commission was paid at the agreed rate, $128,000 was half the commission that ought to have been paid. On this basis the compensation payable was less than the actual profit earned.

My preliminary view is that the liquidated damages clause did not constitute a penalty as submitted by Amare.

Questions outstanding?

There are many issues to be addressed in assessing damages on which I would be assisted by submissions.

Should tax be taken into account and if so how?

Should any allowance be made for inflation and if so how?

Assuming GT was obliged to mitigate its loss, what did it do to do so and could it have done more?

Are GT’s damages to be reduced for failure to mitigate its loss and if so what and how much?

If future earnings are to be discounted to present values, what discount rate should be applied?

What expenses were incurred after GT’s authority as agent was terminated and what allowance, if any, should be made for them in calculating the damages for wrongful termination of the contract and how?

Does the renewal of the agreement make any difference to the calculation of damages and if so what?

How is the possible renewal of the agreement for another ten years to be compensated, if at all?

Does the present value of the future profits that might have been earned if Amare had performed the agreement make any difference?

Interest

I will hear submissions on interest payable under the agreement or otherwise payable at law.

Amare claimed the interest provision under the agency agreement constituted a penalty.

Clause 7.6 provides:

“Interest
All sums due from either Principal or GT Corporation to the other which are not paid on the due date shall bear interest from day to day at the annual rate of interest of 2% above the interest rate specified in the penalty Interest Rates Act as amended from time to time.”

GT seeks interest from the date the respective liquidated amounts were due at the rate specified. In the case of the reduced commission that will be from the 15^thof each month after the month in which the relevant sales were achieved. In the case of the termination that will be from 20 September 2005, if the damages are assessed on the date of that breach.

The rate is two per cent above the penalty interest rate. There was no evidence before me as to the rate at which GT would have had to borrow or it could have achieved if it had the moneys to otherwise use.

My preliminary view is that the interest clause is a penalty.

Conclusion as to damages

I shall hear the parties on the quantum of damages including interest.

Costs

I shall hear the parties on costs.

---

$33,000.00	advertising and promotion
$55,847.22	contractors
$ 7,020.91	legal expenses
6.	$95,868.13	total

total expenses	$210,919.81
non agency expenses	$ 95,868.13
agency expenses	$115,051.68

[2008] VSC 143

6 May 2008