Imam v Life (China) Company Limited
[2021] QSC 124
•28 May 2021
SUPREME COURT OF QUEENSLAND
CITATION:
Imam v Life (China) Company Limited & Ors [2021] QSC 124
PARTIES:
RAAFAT IMAM
(Plaintiff)v
LIFE (CHINA) COMPANY LIMITED
(first defendant)
and
GUANZHOU LIFE TRADING COMPANY LIMITED
(second defendant)
and
MAK SIU ON
(third defendant)
FILE NO/S:
BS 11921/18
DIVISION:
Trial
PROCEEDING:
Civil
ORIGINATING COURT:
Supreme Court of Queensland at Brisbane
DELIVERED ON:
28 May 2021
DELIVERED AT:
Brisbane
HEARING DATE:
14, 15, 17, 18, 21, 22, 23, 24 September, 11, 12 November 2020
JUDGE:
Callaghan J
ORDER:
The plaintiff’s claim is dismissed.
CATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – EXECUTION OF CONTRACT – CONSTRUCTION OF CONTRACT – VARIATION OF CONTRACT – BREACH OF CONTRACT – ABANDONMENT – where the plaintiff and defendant entered into a business agreement – where the plaintiff and defendant varied the agreement – where the plaintiff sues on the varied agreement for breaches – where existence and authenticity of agreements contested – whether contract varied or replaced – where the defendant claims the contract was abandoned – principles applicable to abandonment
Limitation of Actions Act 1974 (Qld), s 10
Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA (The “Leonidas D”) [1985] 1 WLR 925, cited
Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79, cited
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, cited
Concut Pty Ltd v Worrell (2000) 176 ALR 693, applied
DTR Nominees Proprietary Ltd v Mona Homes Proprietary Ltd (1978) 138 CLR 423, cited
DTR Nominees Pty Limited v Mona Homes Pty Ltd [1978] HCA 12, cited
Fitzgerald v Masters (1956) 95 CLR 420, cited
Groves v Groves [2013] QSC 277, cited
Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194, cited
Johnson v Perez (1988) 166 CLR 351, cited
L’Office Cherifen des Phosphates v Yamashita-Shinnihon Steamship Co Ltd (The “Boucraa”) [1994] 1 AC 486, cited
Marminta Pty Ltd v French [2003] QCA 541 at [27], cited
Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31, cited
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 45, applied
RMI Pty Ltd v Spray Coupe Pty Ltd [2021] QCA, applied
Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 240 CLR 45, applied
Ryder v Frohlich [2004] NSWCA 472, cited
Speets Investment Pty Ltd v Bencol Pty Ltd No 2 [2021] QCA 39, cited
Tecnicas Reunidas SA v Andrew [2018] NSWCA 192, cited
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR, cited
Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 27, applied
Wilson v Anderson (2002) 213 CLR 401, citedCOUNSEL:
M Stewart QC with M Trim for the plaintiff
G Beacham QC with D Tay for the first, second and third defendantsSOLICITORS:
McCullough Robertson Lawyers for the plaintiff
Bartley Cohen for the first, second and third defendants
Table of Contents
A Business Relationship
Two Documents
The 2004 Consultancy Agreement
The 2005 Varied Consultancy Agreement
The Relationship Breaks down
Issues for resolution
Question 1. Were agreements executed?
Question 2. Was the 2005 Agreement a variation or a new agreement?
Question 3. What were the plaintiff’s obligations under the agreement?
Question 4. Was the agreement abandoned, terminated or repudiated?
Responses to Questions
Question 1 Were agreements executed?
Question 2. Was the 2005 Agreement a variation or a new agreement?
Question 3 What were the plaintiff’s obligations under the agreement?
Principles applicable to construction of the agreement
The Agreement required the plaintiff to play an active role in the business
Reasons to question the need for activity
Recognition of the plaintiff’s efforts in establishing the business
“Notwithstanding the termination of the agreement”
“Entitled to provide”
Purchasing Orders could be placed by others
The significance of “day to day” operations
Conclusion
Question 4. Was the 2005 Varied Consultancy Agreement abandoned, terminated or repudiated?
Principles applicable to construction of the agreement
Re [146] (a) The written agreement
Re [146] (b) and (c) The duration and significance of inactivity
Re [146] (d) Other evidence about the relationship
Post abandonment
The plaintiff’s conduct in bankruptcy proceedings
Conclusion
Quantum
Quantum of Consultancy Fees – Period of Entitlement
Quantum of Future Consultancy Fees – Questions (a) to (f)
Answer (a)
Answer (b)
Answer (c)
Answer (d)
Answer (e)
Answer (f)
Quantum of Development Fees – Disagreements (a) to (e)
Disagreement (a)
Disagreement (b)
Disagreement (c)
Disagreement (d)
Disagreement (e)
Costs
Attachment 1 – Terms from the 2004 Consultancy Agreement
Attachment 2 – Terms from the 2005 Varied Consultancy Agreement
A Business Relationship
The third defendant, Mr Mak Siu On, referred to in the proceedings as Mr Mak, was born and raised in Hong Kong. He is the son of a rich man. But Mr Mak had his own aspirations. They dovetailed with his “passion for high end fashion”.[1] He wanted to market such clothing in China. This was, given developments in the Chinese economy, a visionary goal.
[1] Affidavit of M Siu On at [11].
In 2000, however, when Mr Mak was a 23 year old student, it must have seemed a remote prospect. He lacked the knowledge, expertise and contacts – or anything, really – that might have assisted him in realising his ambition.
All of those absent qualities were embodied in the plaintiff, Mr Imam. He had been involved in the fashion industry since 1970, when he was 17. He made his first business connections in Asia in 1974. He grew a business that operated some 40 stores. In doing so he developed many contacts with Italian fashion suppliers.
To Mr Mak, the experienced plaintiff must have presented, when they met in or about 2000, as the ideal mentor. Their acquaintanceship developed into a business relationship which in turn developed into a friendship.[2] With Mr Imam’s assistance Mr Mak established the “LIFE China”[3] business, which was conducted through the corporate entities of the first and second defendants.
[2]As well as being a relationship between mentor and protégé, on a personal level the parties appear to have been close. Mr Mak is the same age as the plaintiff’s son. Affidavit of R Imam at [59].
[3]“Life” derives from the acronym for Luxury Italian Fashion Emporium. Affidavit of M Siu On at [16]. On some issues, such as the guarantee (see [62]-[71] below) there is separate relevance to the existence of the third defendant as an individual. Where the relevance of the defendants’ identity is indivisible, the reference will be simply to either “the defendants” or “Life China”.
This background was the subject of much evidence but, in sum, the seasoned plaintiff assisted the inexperienced third defendant to build a successful luxury fashion retail business which now thrives in mainland China, Hong Kong and Macau. Nothing suggests that Mr Mak could have achieved this by himself.
As at 2004, the relationship was close. With Mr Imam’s assistance, Life China had established or was in the process of establishing business relationships with leading Italian fashion houses, such as Ittierre S.p.A (Ittierre), Class Cavalli and Paciotti.[4] Mr Imam was a most valuable resource – the divide between the world of Italian fashion and the emerging Chinese economy was not bridged easily.
[4] Affidavit of R Imam at [43].
Two Documents
It can, however, be inferred that Mr Mak was learning all the while.[5] There was – at least for Mr Imam – a need to formalise the arrangement, to ensure that he would receive, and continue to receive, payment for his efforts. In those circumstances, it is unsurprising that he wanted Life China to enter into a written agreement. He says there were two of those.
[5] Affidavit of R Imam at [121].
In order to decide this case it has been necessary to consider the existence, authenticity, effect, and duration of these written agreements.
The 2004 Consultancy Agreement
The plaintiff says that a written agreement was formalised in 2004, in a document referred to as the “2004 Consultancy Agreement”.[6] It detailed the sorts of things that he was already doing for Life China. Its terms included an assertion of his exclusive right to approve Stock,[7] which was defined to mean men’s and women’s fashion items of clothing and accessories that was appropriate for supply to and sale by the defendants’ business.
[6]Attachment 1 contains relevant excerpts from this document. When used in this judgment, these terms are italicised.
[7] Attachment 1 Clause 1.1.
The plaintiff as the Consultant, was entitled to be paid Consultancy Fees. These were calculated as an amount equivalent to 10% of the gross sales[8] of each store operated by the defendants. The plaintiff affirms his own belief that this fee was an on-going obligation that would, in recognition of his involvement in the establishment of the business, persist even after termination of the agreement.[9]
[8] My emphasis.
[9] Affidavit of R Imam at [68],[80].
The 2004 Consultancy Agreement also included a clause which created Mr Imam’s entitlement to a Development Fee. This was a fee payable to him upon sale of any store established by the client and calculated by reference to the goodwill growth enjoyed by that store.[10]
[10] Attachment 1 Clauses 6.2, 6.3 and 6.4.
This 2004 Consultancy Agreement also provided for - and had attached to it - a deed of guarantee. It made Mr Mak personally liable for amounts due to the plaintiff.
The existence and authenticity of the 2004 Consultancy Agreement are controversial. The plaintiff says he kept possession of the original, which purports to be signed by both parties. The plaintiff’s wife swore that she witnessed the third defendant sign this agreement and the Deed of Guarantee and Indemnity in 2004.[11] The plaintiff’s solicitor gave evidence that he recalled seeing the original signed 2004 Consultancy Agreement around 2004.[12]
[11] Affidavit of V Imam at [4], [10]-[12].
[12] Affidavit of B Macgregor at [40]. Mr Macgregor’s evidence (in affidavit form) was unchallenged.
The third defendant denies ever signing this document,[13] although he admits to signing an agreement at around this time.
[13] Affidavit of M Siu On [29,[38].
The 2005 Varied Consultancy Agreement
After opening an Ittierre (IT) store, Life China opened an “Emporio Armani” store in Guangzhou. Its sales exceeded the third defendant’s expectations. He became concerned about how much he would have to pay the plaintiff under the existing (10% of gross sales) formula.
It followed, Mr Imam said, that the 2004 Consultancy Agreement was varied in 2005. A further document – the “2005 Varied Consultancy Agreement” – was executed.[14] There is no clarity about the date upon which this happened. Until recently, the only original signed copy of the 2005 Varied Consultancy Agreement was held by the plaintiff; it is likely that for a period it was kept in safe custody with his solicitor.[15] Eventually, in August 2020, the defendants’ solicitors discovered an original signed version of this document.[16]
[14]Attachment 2 contains provisions of the 2005 Agreement that are different from or additional to the terms of the 2004 Agreement. Apart from these words, and the absence of the guarantee, the print on these documents is essentially indistinguishable. As with the terms reproduced in Attachment 1, when used in this judgment they are italicised.
[15] Exhibit 3 - Letter from Mark Dillman Principal lawyer at Macpherson Kelly.
[16] Affidavit of M Siu On at [117]; Second further amended defence [1L].
The 2005 Varied Consultancy Agreement retained the plaintiff’s entitlement to receive an amount equivalent to 10% of the gross sales of Stock in relation to Stock supplied by Ittierre S.p.A.[17]
[17]Ittierre sold brands such as D&G, Just Cavalli Jeans, Ext, John Galliano, Ferre and others. Affidavit of R Imam at [20].
However, as to the balance of the defendants’ expanding operations, the plaintiff’s entitlement was calculated by reference to a new formula. Under this 2005 Varied Consultancy Agreement, he was entitled to receive payment equivalent to 10% of the value of Other Stock[18] purchased[19] by the defendants’ enterprises.[20] On the realistic assumption that the defendants would be selling stock at a price higher than that for which it was purchased, it would follow that the yield (to the plaintiff) for Other Stock would be proportionally lower than it was for Ittierre S.p.A stock. In that way, this iteration of the agreement improved the defendants’ position.
[18] Attachment 2 Clause 1.1.
[19] My emphasis.
[20]This case was concerned specifically with purchases of Giuseppe Zanotti Design (GZD) Other Stock There was conflicting evidence on the point, but it can be accepted that the expansion into the GZD line was another example of the way in which the plaintiff played a role in key events that led to the growth of Life China’s business.
There was another contrast between the documents – the 2005 Varied Consultancy Agreement did make provision for the guarantee in identical terms, but no guarantee was attached to it.
The Relationship Breaks down
The plaintiff submits that he facilitated a franchise which allowed Life China to deal in the prestigious Giuseppe Zanotti Design (GZD) label. Once Life China had secured this franchise, the third defendant effectively “shut out” the plaintiff from any further communication.[21] Mr Mak had, it seemed, turned away his former self – the aspirational fashion merchant – and, having been assisted by the plaintiff to become one, embraced the role of successful businessman.
[21] Plaintiff’s closing submissions at [78]; Affidavit of R Imam at [152]-[161].
The point came at which the plaintiff was no longer providing the defendants with the Consultancy Services for which both agreements provided. Indeed, there was a period of three years from July 2011 when there was barely any communication between them at all.[22] However, in July 2014 the plaintiff asserted his right to be paid the sum to which he says he was (and continues to be) entitled under the 2005 Varied Consultancy Agreement. He also claims that the defendants breached the 2005 contract by failing to meet a requirement to provide access to financial records. On 23 October 2018 he instructed his solicitors to send a letter that terminated the Agreement for breaches.[23] He seeks damages compensating him for the failure to pay Consultancy Fees attributable to purchasing orders, and for the Development Fees to which he says he remains entitled. His claim might, depending upon how it is calculated, amount to a total of $64,637,484.00.[24]
[22] Affidavit of M Siu On at [285]-[289].
[23] Affidavit of R Imam at [174].
[24]The issue of Quantum is discussed below at [185]-[204]. This figure comes from the latest calculations made by Mr Poole, the expert on whose evidence the plaintiff relied, see Exhibit 58: at [84]-[86]. The figure is broken down as follows: $9,459,104 for past consultancy fees, $46,563,484 for future consultancy fees and $8,615,000 for development fees. This is confirmed and summarised in paragraph 7 on page 2 of the Joint Report dated 26 August 2020 (Exhibit 61) – with further cross-references to Mr Poole’s reports in the table.
The third defendant refused to pay the debt that is attributable to something he says he never promised, so the plaintiff attempted, unsuccessfully, to sue for that sum in Hong Kong. He now brings his claim in Queensland.[25]
Issues for resolution
[25]The law of which is stipulated, by the contract, to be applicable to the agreement between the parties. See Attachment 1 Clause 10.7. Apart from noting (See below at [170]) that they contributed to the delay in the case arriving in this court, it is not necessary to say more about the proceedings in Hong Kong.
As well as disputing the existence of any operational document, the defendants have made an elaborate response to this claim. The parties exchanged some 58 disclosure related letters between 30 January 2019 and 21 August 2020. The majority of these were from the plaintiff’s solicitors, who sought disclosure of specific documents. Discerning the functional defence was like trying to press down on a blob of mercury. Apart from those considered below, the defendants have asserted estoppel, waiver and that they did not intend to be bound by any signed agreement. The full history – and fate of each argument – may be relevant to the question of costs.
The whole imbroglio can now be resolved, however, by providing answers to four questions.
Question 1. Were agreements executed?
It is first necessary to determine whether the plaintiff and the defendants entered into the 2005 Varied Consultancy Agreement.
As noted above,[26] it is on that agreement that this action is brought. It follows that if the answer to this question is “no”, there is no need to consider any further questions.[27]
Question 2. Was the 2005 Agreement a variation or a new agreement?
[26] See [21].
[27]Questions 2 to 5 should therefore be read as notionally being introduced by the words “On the basis that the parties did enter the 2005 Agreement”.
The third defendant would personally be liable for damages if the guarantee was part of this Agreement.
Answering this question involves deciding whether the 2005 Agreement was intended to vary the 2004 Agreement, or replace it.
Question 3. What were the plaintiff’s obligations under the agreement?
This is an exercise in construction of an agreement.
Specifically, it has to be determined whether the plaintiff had to be involved actively in the defendants’ business in order to become entitled to the Consultancy Fees that he now asserts are payable.[28] If he was, no such entitlements could have accrued.[29]
Question 4. Was the agreement abandoned, terminated or repudiated?
[28] Either under the Agreement or as damages. Plaintiff’s closing submissions [169].
[29] See [21].
As noted, the plaintiff sent a letter of termination on 23 October 2018.
However, if there was no functional agreement at that time, then there was nothing for the plaintiff to terminate, and no legal basis for the rights he now seeks to enforce. And it is not open for him to sue on the basis of breaches that occurred prior to 2 November 2012 – any attempt to do so would fail upon application of s 10 of the Limitation of Actions Act 1974 (Qld). [30]
Responses to Questions
Question 1 Were agreements executed?
[30]Which provides that a claim of this nature shall not be brought after the expiration of 6 years from the date on which the cause arose.
The background is canvassed in [7]–[19], above. Although the plaintiff’s case turns on the existence and effect of the 2005 Varied Consultancy Agreement, its status depends on the existence and effect of the 2004 Agreement.
The “Life China” operation was conducted through the first defendant, which is a Hong Kong company incorporated on 10 May 2002.[31]
[31]Second Further Amended Statement of Claim [3],[3A] admitted by Defence paragraphs at [9], [9A]; Affidavit of Raafat Imam at [25], [62]; Certificate of Incorporation of Loyal Well (China) Company Limited dated 10 May 2002; Certificate of Incorporation in Change of Name of Loyal Well (China) Limited to Life (China) Company Limited dated 24 July 2002. It has two directors - the third defendant, Mr Mak and his wife Rebecca Kong. They are its shareholders. The second defendant is a mainland Chinese company incorporated on 16 December 2003. Mr Mak owns 90% of its shares and has been its sole director at all material times.
As noted, the business began with a store that sold “IT” products.[32] The plaintiff made this happen. He obtained the licence that enabled the defendants’ business to open the first IT store at the La Perle Mall in Guangzhou. Such a licence is not lightly dispensed, and it was secured by the plaintiff only after much travel and negotiation.[33] Under guidance from the plaintiff, further stores were opened under this brand name. He was willing to provide such services (and more) on the basis that he would receive 10% of future sales revenue from the defendants’ business.[34]
[32] Affidavit of R Imam at [67]–[70].
[33] Affidavit of R Imam at [35]–[36].
[34] Affidavit of R Imam at [31].
In 2003, the plaintiff instructed a solicitor to prepare a written agreement that reflected this arrangement as he understood it.[35] The agreement was to contain a deed which made the third defendant personally liable under the agreement.
[35] Affidavit of B McGregor at [41].
Here the controversy begins. The document[36] bears the date 6 January 2004. The plaintiff originally asserted that he had a specific recollection of this 2004 Agreement being signed on 6 January 2004.[37]
[36] Exhibit 4.
[37] Second Further Amended Statement of Claim at [9], and T1-29 line 33 to –T1-30 line 6.
This was not possible.[38] The plaintiff then affirmed a specific recollection that the third defendant signed this agreement, and its accompanying deed of guarantee and indemnity, in the lobby of the Intercontinental Hotel, Hong Kong, on 17 February and 21 February 2004.[39] The plaintiff’s wife swore to being present when this document was signed, and to having witnessed it.[40]
[38]Affidavit of R Imam at p 77.
[39] Affidavit of R Imam at [75].
[40] Affidavit of V Imam at [4], [10]-[12].
The third defendant contradicts most of this. He accepts that, at some stage prior to the opening of the IT store in December 2003, he did sign an agreement in the lobby of the Intercontinental Hotel in Hong Kong. The agreement that he signed was, he says, “about four pages”[41] long – the 2004 Consultancy Agreement and the deed of guarantee and indemnity run over 15 pages.
[41] Affidavit of M Siu On at [29].
The third defendant says that the only copy of this “four-page agreement” was kept by the plaintiff and that it is no part of the evidence in this proceeding.[42] He does allow, however, that the effect of that agreement was that the plaintiff would be paid 10% of the gross sales made by this IT store for so long as it was in operation.[43] The 2004 Consultancy Agreement had the same effect.
[42] Affidavit of M Siu On at [31].
[43] Affidavit of M Siu On at [30].
The third defendant does not believe he saw the 2004 Consultancy Agreement until he received a letter from the plaintiff’s solicitors on 15 December 2016.[44] He also points to aspects of the evidence which suggest that it is unlikely that documents were completed and signed as averred by the plaintiff and his wife. These include inconsistencies as between the signature on the document and the signature that he was in the habit of using in or about 2004.[45]
[44] Affidavit of M Siu On at [43].
[45] Affidavit of M Siu On at [38]-[42].
Similar controversy attends the authenticity of the 2005 Varied Consultancy Agreement. The plaintiff, for whom its existence is indispensable, says that two copies of this agreement were signed on 18 July 2005. One was kept by the third defendant, the other retained by the plaintiff and lodged with his solicitor “for safe keeping”.[46] It was returned to the plaintiff only when he started to pursue this claim.
[46] Affidavit of R Imam at [113].
For a long time the third defendant denied ever signing the 2005 Varied Consultancy Agreement, but eventually disclosed a signed document that looks a lot like it. He asserts, however, that this document was the only copy signed, and that he told the plaintiff he would not provide it to him until he received legal advice.[47] He says that, subsequently, they made a different agreement altogether.
[47] Affidavit of M Siu On at [112].
These conflicts would resolve easily enough if it was open to rely on sworn evidence from either party.
There are, however, reasons to be wary of the evidence given by both.
As noted, once the impossibility of his claim that the 2004 Consultancy Agreement was signed on 6 January was established, the plaintiff volunteered a version of events in which it was signed on 17 February 2004. That is an important inconsistency. Concerns about the reliability of the plaintiff’s evidence are compounded by conclusions reached below (see [173]-[179]). The plaintiff’s evidence cannot establish any proposition, even if only on the balance of probabilities, unless it is supported by logical inference or other evidence that is reliable.[48]
[48] On many other issues, the plaintiff’s evidence is supported by things like business records and emails.
For that purpose he points to the evidence of his wife. Mrs Imam said, and may believe that she witnessed the third defendant’s signature, but she could not say when or where.[49] Her signature appears on the same page as the signature of her husband, but not on the same page as the signature of Mr Mak. I do not doubt that, having seen her printed name and signature on page 12 of the exhibit, she believes that she witnessed the third defendant’s signature. Her honesty is accepted, however her evidence on this point was insufficiently convincing to tip the balance in the plaintiff’s favour.
[49] Affidavit of V Imam at [13].
Even more serious criticisms can be made of the evidence given by the third defendant. Every allowance must be made for the fact that English is not his first language and for the difficulties that were experienced in taking his evidence by way of a video link from Hong Kong. However there was a pattern of evasion which emerged at once, and kept developing as he gave his evidence. It was disconcerting. [50] In his case, as in the plaintiff’s, his testimony should be put to one side unless confirmed or supported by other evidence or obvious inference.
[50]The third defendant refused to answer questions some 138 times and on some 60 occasions needed to re-read his affidavit and other documents. There were also long pauses in his evidence before answering questions (some 17 of which are confirmed by the transcript). See, for example, T5-8 lines 27-31, T5-12 lines 2, 13 and 15, T5-23 line 13, T5-47 lines 1 and 11, T5-59 lines 1-2 and T5-60 lines 32-33.
The plaintiff attempted to resolve the stand-off by obtaining evidence from a handwriting expert in order to propound the legitimacy of the agreements.
That evidence was not as compelling as it might have been, and the defendants made some inroads into it.
It was not, however, contradicted by any other expert and, on this issue at least, it began to incline the balance of probabilities in favour of the plaintiff’s assertion that the third defendant signed the agreements.
The plaintiff also contended that it can be inferred from numerous items of correspondence (summarised in a chronology exhibited to the plaintiff’s affidavit) that the defendants acknowledged an obligation to pay the Consultancy Fee that was prescribed in the 2005 Varied Consultancy Agreement,[51] and that a similar conclusion can be drawn by reference to various financial records.[52]
[51] Affidavit of R Imam, Chronology, starting at p 56.
[52] Affidavit of R Imam at [134].
This argument then fell entirely in favour of the plaintiff because of the unchallenged evidence of the solicitor who was at the relevant times acting for him.
This solicitor did not draft the 2004 Consultancy Agreement, but he swore that it was drafted by the “corporate team” at the firm for which he then worked. He understood the need to ensure that the drafting accorded with the plaintiff’s instructions. He was not present when the agreement was signed, but his usual practice was to request fully executed copies of such documents, and he does recall seeing an “original signed consultancy agreement here in Brisbane”.[53]
[53] Affidavit of B McGregor at [39].
Similarly, whilst this solicitor did not recall exactly when it was that the plaintiff instructed him to draft the 2005 Varied Consultancy Agreement, he did recall that this had in fact occurred. Again, he did not personally draft the agreement – the “corporate team” did that – but he did recall that the 2005 document “arose out of some changes that (the plaintiff) wanted to make to the original 2004 document.”[54]
[54] Affidavit of B McGregor at [44].
The solicitor did not have a recollection of having seen the original signed 2005 Varied Consultancy Agreement. However, it was his practice to ensure that important documents were duly signed before he closed a file. A scanned copy of this version of the agreement was, at the plaintiff’s request, sent to him. From this evidence it can be concluded that, even if it was only in the form of a “copy”, the varied agreement did exist in 2005.
It is true that, if the third defendant did not sign either of the agreements provided in evidence by the plaintiff, and was not in fact aware of them, he could not be expected to explain the provenance of such a copy that purports to have his signature on it. He is not necessarily to be taken as asserting that the plaintiff has forged them,[55] and it was not put to the plainitff that he had.
[55]T9-19 lines 6-10. There is, as the plaintiff concedes, the possibility that the third defendant signed, and then forgot about the 2004 agreement, and did the same with the 2005 agreement that was subsequently discovered by him (in his possession). See also Groves v Groves [2013] QSC 277 and the concept of an “unidentified forger.”
Realistically, however, that must be the defendants’ position. In the context of this dispute, they are not the type of documents that could have come into existence any other way.
From there, the plaintiff makes the dispositive point. If the third defendant did not sign the agreements as asserted by the plaintiff, it means that all those years ago, before there was any substantial dispute between the parties, the plaintiff had the foresight to have his solicitor’s firm draft both agreements. He must then have gone on not only to forge the third defendant’s signature, but also conscript his wife into pretending to be a witness to that signature, before returning to his solicitor at least a copy of the document which recorded this. This effort was, if the defendants are correct, expended on the whim that, any number of years hence, there might have been a need for not one but two Agreements of this kind. Curiously, whilst implementing this scheme, he made the decision not to attach the guarantee to the second agreement. The planning, calculation and subtlety involved is impossibly elaborate.
Without these agreements the legal relationship was tenuous and there were reasons why both parties would have been willing to enter into them. The plaintiff was still doing valuable work for the third defendant. The Life China business began with one store,[56] but it had always been the plan to open further stores, and the plaintiff was still needed for that purpose.[57] The fact that the terms of the first agreement, on one view, weighed in favour of the plaintiff[58] was unsurprising in these circumstances. They were terms that the third defendant would have been willing to accept at that particular point in his business relationship with the plaintiff.
[56] Affidavit of R Imam at [93]-[95].
[57] T6-29; Exhibit 49.
[58] For example, Clause 9.2 provided for unilateral termination of the agreement only by the plaintiff.
On both sides, relevant recollections are flawed. However, the objective evidence establishes on the balance of probabilities that the third defendant signed the 2004 Consultancy Agreement, and the guarantee, and both copies of the 2005 Varied Consultancy Agreement. The documents that became exhibits 4 and 5 are what the plaintiff says they are – to contend otherwise is to defy the power of logical inference. Even if he had forgotten the details, the third defendant ought, on the evidence, to have made a reasonable concession on this point.
Question 2. Was the 2005 Agreement a variation or a new agreement?
The 2004 Consultancy Agreement, signed by the plaintiff and by the third defendant as the authorised officer of the first and second defendants, was accompanied by a deed of guarantee to which reference is made in Clause 10.2 of the agreement itself. That clause provides for such a guarantee if it was required by the plaintiff. It was,[59] and the guarantee was executed and attached to the agreement as Annexure A.
[59] Affidavit of R Imam at [71].
The 2005 Varied Consultancy Agreement refers to the guarantee (and almost everything else) in identical terms. Clause 10.2 is reproduced exactly, but the document itself was unaccompanied by any Annexure A.
If the 2005 Varied Consultancy Agreement was just a variation of the 2004 Consultancy Agreement, the omission of Annexure A would be of no consequence – the guarantee would in any event attach to the 2005 Varied Consultancy Agreement.
However, if it was a replacement, it was a new agreement to which no guarantee attached. It would follow that the third defendant no longer had obligations as a guarantor, and further follow that irrespective of the position with the first and second defendants, the plaintiff’s claim against the third defendant would be unenforceable.
The question as to whether a second contract discharges (and replaces) or varies an earlier contract is to be answered by reference to the intention of the parties as revealed by the later agreement.[60] Examining differences between the two contracts can illuminate that intention.
[60] Concut Pty Ltd v Worrell (2000) 176 ALR 693 at 698.
As noted above ([15]) the need for the 2005 Varied Consultancy Agreement was prompted by Life China’s expansion into the Armani line. It accommodated the third defendant’s request that fees be payable on 10 per cent of stock purchases rather than sales.[61]
[61] Affidavit of R Imam at [107], Chronology RI-1 p 37.
As a result, clause 5 was amended and some new terms were introduced. These included Other Stock and Purchasing Order. Nothing, however, made the completion of Annexure A a prerequisite to the execution of the document. It remained, according to the words on the paper, only something that had to be executed if the Consultant/plaintiff required it.
It is theoretically possible (because almost anything is) that the plaintiff decided in 2005 that he did not require it. However, it is said, and I accept, that it is objectively unlikely that the plaintiff, once having obtained the benefit of a guarantee and indemnity as expressed in clause 10.2 would in the following year dispense with it. Functionally, the 2005 Varied Consultancy Agreement “varied” only Clause 5. [62] The significance of that alteration is discussed in detail below, but for current purposes the relevant proposition is that this (two subparagraph) clause was effectively the only change in a document that otherwise purported to be an exhaustive statement of relations between the parties. This does suggest that its effect on the original agreement was intended as no more than an alteration made in order to facilitate the inclusion of Clause 5 and the terms relevant to that clause.
[62] Affidavit of R Imam at [110].
It would have been logical to attach the guarantee to the 2005 Varied Consultancy Agreement. Its absence might do little credit to the document management skills of anyone (including the plaintiff) who could have ensured its inclusion. However, there was no evidence that the absence of a guarantee was a deliberate and considered omission.[63] The defendants’ counsel was able to argue, reasonably, that the 2005 Varied Consultancy Agreement did look like an entirely new agreement, but a full appreciation of all the circumstances compels the view that it was a variation calculated to reflect a different payment arrangement for the purposes of Other Stock. There is no objectively rational commercial explanation that could provide a basis for the absence of a guarantee from the 2005 Varied Consultancy Agreement.[64]
[63]Of course the third defendant could give no such evidence, because his position is that he did not enter into the 2005 Varied Consultancy Agreement at all.
[64]This is in fact one more reason to conclude that the agreements are genuine see [59], above. It makes little sense that the plaintiff might have gone to the trouble of forging the 2005 agreement but not bothered to forge the guarantee at the same time.
It may, given other conclusions reached below, have been unnecessary for me to decide the point, but the balance weighs in favour of the proposition (and I find that) the 2005 Varied Consultancy Agreement operates as a (significant) variation to the one that was executed in 2004. The guarantee would have taken effect had the defendants been found liable. The issue itself is moot, but I shall, when considering the issue of costs, be open to submissions about the relevance of this and any other point unsuccessfully taken by the defendants.
Question 3 What were the plaintiff’s obligations under the agreement?
A substantial part of this claim is brought for Consultancy Fees.[65] They are said to be payable because of the business that the defendants have conducted in buying and selling GZD products in some 18 stores since 2008.[66] Focus is on the period that reaches six years backwards from the date upon which the plaintiff purported to terminate the contract.[67]
[65]It is also brought for the Development Fees attributable to the goodwill growth of those stores, but there is no similar dispute about the construction of the clauses that govern entitlements to those.
[66] Second further amended statement of claim at [40]; Annexure 1.
[67]Section 10 of the Limitation of Actions Act 1974 (Qld) bars any claim for damages that are said to have arisen, for any reason, before that time.
As put by the plaintiff’s counsel:
“… in 2018, relying upon breaches including the failure to pay those consultancy fees which fell due under the 2005 agreement, the plaintiff, as he was entitled to, terminated that agreement, thereby converting his claim in debt, effectively, under the agreement into one for damages for breach of contract.
So that’s the legal analysis; but it makes no difference, because the claim in debt …..would have been precisely the same as the claim for damages. So the claim for damages is, as in all claims for contract, a claim for a judgment for a sum which will put the plaintiff in the same position as he would have enjoyed, had the 2005 agreement been performed by Mr Mak and his companies.”[68]
[68] T2-37-38.
There is an obvious issue. As noted above,[69] there has in effect been no relationship, and certainly no business relationship between the parties since 2012. The agreement had not been “performed” by either party since, at the latest, 2010. The plaintiff was not suing for lost income that was referable to anything that he actually did during the period between then and the purported termination.
[69] See [21].
Rather, this part of his case depends upon an interpretation of the 2005 Varied Consultancy Agreement that confers upon him a right to receive the Consultancy Fees from the moment the agreement was signed and extending, on one view, for perpetuity.
He rejects the suggestion that the agreement required him actually to do anything in order to earn these fees. Rather, he insists on an interpretation that confers upon him a right to receive Consultancy Fees in exchange for the services that were “provided as part of the development of the business”. These were, he said, payable “once the business was established”. After that he was entitled to a “stream of payments”[70] that would, on this analysis, flow indefinitely.[71]
[70] Plaintiff’s closing submissions at [208].
[71]Hence the Claim was not limited to damages referable to the period 2012 to 2018, but extended to a claim for loss of future entitlements as well.
The defendants therefore direct attention to that which was required of the plaintiff under the agreement. They insist that it required him to do something in order to receive money. If this is so, and an active role was mandated for him, then given that the plaintiff did nothing for and had no involvement with the business since 2012, neither debt nor damages attributable to consultancy fees could have accrued during the period in respect of which the claim is made.
Principles applicable to construction of the agreement
Both parties have cited many authorities. Their submissions include lengthy extracts from them.[72] These establish that determination of this dispute begins with reference to the words of the written agreement.[73] Of course, if those words were just a bit clearer, then there would not be a dispute in the first place.
[72]Plaintiff’s written closing submissions at [193]-[206]; Defendant’s written closing submissions at [127]-[133].
[73] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352-3.
The court must therefore discern the objective of the parties.[74] Since each party insists on their own definition of that objective, the “common intention” to which the court must give effect has to be determined objectively and impersonally.[75] It will reflect the way in which a reasonable person would understand the language used in the agreement.[76]
[74] Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 240 CLR 45 at [10].
[75] Gleeson CJ, Wilson v Anderson (2002) 213 CLR 401 at 418 at [8].
[76] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, page 179, [40].
To that end, regard must be had to the commercial purpose of the contract, which in turn requires that consideration be given to more than the ‘internal linguistic considerations” which present on the face of the document.[77] Attention will be paid also to the “surrounding circumstances” that inform an objective conclusion.[78]
[77] Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 240 CLR 45 at [10].
[78] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, at [20].
It is a measure of the plaintiff’s argument that the court is urged, as part of this process, to read into the agreement an implied term on the basis that it is “common experience that contracts … from time to time fail to cover all of the circumstances.”[79] That may be so, and it can be acknowledged that this agreement, perhaps like many, is imperfectly drafted. However, upon application of the tests endorsed by both sides, one commercially sensible meaning does emerge from the document. In the circumstances of this relationship it made sense to require, of the plaintiff, an active involvement in the business. His claim to the contrary is unsustainable.
[79] T10-38 line 43.
The Agreement required the plaintiff to play an active role in the business
The 2005 Varied Consultancy Agreement recorded a shared vision of the way in which it was anticipated the Life China operation would work. It maintained that the plaintiff was the one who had all the skills and all the contacts. It insists that he was the only one who could provide Consultancy Services.
If the plaintiff was to earn anything on an ongoing basis (as opposed to being reimbursed for expenses), it was only for Consultancy Services. That term’s definition demands attention, if only because it includes so many verbs that connote activity: it contemplates that the plaintiff would “provide”, “promote”, “advance”, “use” “enable”, “advise”, “assist” and “supervise”.
The whole business existed for the purpose of “procuring” and selling Stock – unless there was a turnover of Stock (and, by definition, Other Stock) there was no Business.
Save only for the fact that it was not supplied by Ittiere S.p.A, Other Stock had the same characteristics as Stock. That meant that it had to have “been approved by the (plaintiff) as appropriate for supply to and sale in the business”.
The plaintiff maintains that the act of “approval” required only the endorsement of a particular fashion line or label. In effect, it is submitted that entitlements attributable to the Business’s trade in that line accrued as at the time of such approval, and did not depend on his doing anything after that.
However, to concentrate only on the plaintiff’s role in the setup and establishment of the business denies the force and commercial purpose of the instrument as a whole. It might be thought that such a construction gives insufficient recognition to the inherent nature of a fashion business,[80] which deals in commodities that change according to the zeitgeist. But in any case and on any reading, the agreement invested the plaintiff with dominion over the whole concept of Stock.[81] The definition section created a requirement that Stock be “approved” by him. Stock was something provided by Suppliers. The defendants themselves were, without the plaintiff’s written approval, prohibited from dealing with Suppliers.[82] And of course, unless the defendants were supplied with Stock, there was nothing they could do. It is difficult, in those circumstances, to see how the Business – of procuring and selling Stock – could continue to function without the ongoing involvement of the plaintiff. Properly read, the agreement did not countenance that Stock was something of which he could approve once and for all time.
[80]The plaintiff illustrated the way in which the industry works when he gave evidence about the way in which Stock from Italy was purchased. The ordering was “seasonal” and therefore “recurring”; Affidavit of R Imam [118].
[81] And therefore Other Stock.
[82] Unless the plaintiff approved in writing.
It is true that the plaintiff selected the lines and advice about them was a Consultancy Service.
However, once selected, lines became part of the Stock. And Stock meant items (of clothing and accessories), not labels. The agreement does not read as one in which it was open for the plaintiff to “set and forget”.
Without his approval of Stock, or at least his approval of the defendants’ dealing with a Supplier who might provide Stock (of which the plaintiff still had to approve), the defendants would have been in the commercially nonsensical situation of attempting to conduct a fashion business in lines that had been selected by the plaintiff, but without items of Stock of which he had approved.
It follows that the role played by the plaintiff in negotiating the agreement for Life China to sell the GZD line, which is the source of the fees he now seeks, cannot be decisive of anything. Even if he was the one who initially “approved” of the Business trading in that line, he has not approved the Other Stock in which Life China has traded since 2012. To be entitled to a Consultancy Fee calculated by reference to that trade, the agreement required him to do that.
Another cornerstone provision of this – and any – agreement is the one that provided for consideration. Clause 5.2(b)(ii) of the 2005 Agreement creates a condition precedent to payment for Consultancy Service. It is the act of advice. Whilst supervis(ing) overall retail operations and having approved items for sale, the plaintiff became entitled to fees calculated by reference to purchases of Other Stock. These became payable after he performed the act of advising that a Purchasing Order had been placed, whether by him or (with his approval in writing) by someone else within the defendants’ organisation. It is only by the act of advice that the plaintiff became entitled to the Consultancy Fees he now claims.
It is accepted that, for the purposes of any debt or damages claimed in this action, no such advice was ever provided – as already noted there has been, during the relevant period, no communication between the parties at all, still less was there advice from the plaintiff as to Purchasing Orders that might have triggered an obligation to pay him.
The plaintiff deals with this awkwardness by averring that Clause 5.2(b)(ii) only operated when a Purchasing Order had been placed by him. Since no other provision confers upon him the substantial right that he now asserts, he asks that this be done by reading into the agreement an obligation to pay him - notwithstanding the lack of advice - that arose within a reasonable time of the orders being placed. [83] He must (and does) submit that 5.2(b)(ii) is a clause that might, depending upon the circumstances, “have no work to do”.[84]
[83] Plaintiff’s written closing submissions at [264]-[265].
[84]This was described as the plaintiff’s “primary case”, (Plaintiff’s written closing submissions at [264]). To “avoid doubt”, he submitted in the alternative that the requirement for “advice” could not be a bar to a claim for damages when the reason he could not provide the advice was because the defendants had breached Clause 8 and denied him the information that would have allowed him to do so. And he says that where, because of a breach of the obligations in Clauses 8.1 and 8.2 and the failure to provide financial information, he cannot now provide notice of the precise dates on which orders were placed, the defendants cannot and should not be permitted to take advantage of their own wrongful conduct. If the defendants were in breach of the agreement in this way in the period prior to 2012, the plaintiff could have terminated the contract on that basis. Those breaches, if they occurred, cannot now affect the outcome of this action as brought. Rather, as will be found, not only did the plaintiff fail to perform the service required of him, but he chose to abandon the agreement. At that point the obligation in Clause 8 ceased to apply and breaches of it prior to the point of abandonment are beyond the reach of this claim.
However, if confronted with the entire document, the reasonable business person would not so lightly attribute occasional otiosity to one of the only two sub clauses that recorded explicitly the basis for payment of consideration.
This part of the agreement reasonably can - and, when read as part of the whole, should - be given some work to do.[85] A sensible construction does that. It was, from 2005, going to be the Purchasing Orders which were the basis for calculation of the payments to be made to the plaintiff for Other Stock. Consistently with a shared vision in which the plaintiff approved Stock and supervised overall retail operations, those payments became due within 7 days of the plaintiff providing the advice about orders that he had made himself or authorised the defendants to make.
[85] RMI Pty Ltd v Spray Coupe Pty Ltd [2021] QCA 37 at [15].
This means, on objective analysis informed by commercial reality, that an entitlement to Consultancy Fees arose only while the plaintiff was providing Consultancy Services, and in particular while he was supervising retail operations and approving Stock[86] that could become the subject of a Purchasing Order. If he wanted to be paid he had to advise that such order had been placed. Only this act of advice could keep the “stream” flowing. He did not provide it.
[86] In context, Other Stock.
Reasons to question the need for activity
The plaintiff argued that specific aspects of the agreement pointed away from the conclusion that he was required to have ongoing involvement in the business. He says that these facets of the agreement establish that his entitlements continued to accrue even as he was taking no part in the business and making no contribution to it, still less providing the requisite advice. In particular, he:
(a) argues that his interpretation of the agreement is no more than one would expect in the circumstances. Otherwise, so it is said, his considerable efforts in establishing the defendants’ business would, at the whim of the defendants, go unrewarded. He asserts, in effect, that his entitlements depended only upon his approval of “a brand or line of clothing”,[87] rather than upon a continued need for him to approve fashion items as appropriate for the business;
(b) points to Clause 5.2(b)(iii), which established his entitlement to consultancy fees “notwithstanding the termination of the agreement”;
(c) relies upon opening words to Clause 5.2, which provide that those fees are payable in respect of stores for which he “provides or is entitled to provide” those services – the clear implication being, so it is said, that the actual provision of services was not a condition precedent to payment;
(d) maintains that just because 5.2(b)(ii) appeared to mandate the need for advice about Purchasing Orders before any fee became payable, this did not mean that he had to place those orders, nor even comply with the ostensible requirement that he advise the defendants that an order had in fact been placed. The definition of Purchasing Orders is said to make clear that they could be placed by others with the consequence that the obligation to pay was not necessarily dependent upon anything done by him; and
(e) identifies the fact that the terms of Clause 3 refer to services that are for the most part things that can be done well in advance of day to day operations, in which he was not required to be involved.
[87] Plaintiff’s closing submissions at [266].
In sum, the plaintiff submits that every one of these points, and potentially a combination of some or all of them indicate a construction that supports his claim. Accepting that it is their combined effect that may be relevant, each point will be given separate consideration.
Recognition of the plaintiff’s efforts in establishing the business
As already recorded,[88] the background is one which the plaintiff provided to the defendants many services for which he was not paid directly. Some of these, such as the use of his longstanding reputation in the fashion industry,[89] had an intangible quality and defy straightforward valuation. It would be fair to say that, but for the plaintiff’s industry, the establishment of luxury fashion retail businesses under the “Life” brand would not have happened – or at least not in the form that it took.
[88] See above [1]-[22].
[89] Affidavit of R Imam at [30].
It also can be accepted that between 2000 and 2010 he went on business trips, conducted meetings and negotiations with contacts, ordered and selected stock, trained staff and generally engaged in the conduct of the business - as contemplated in the agreement.[90]
[90]Plaintiff’s Chronology RI-1; Affidavit of R Imam at [116] and [182].
It is said that the plaintiff’s entitlement to a perpetual and passive income is a natural reflection of these roles he played in the establishment of the business. He provided evidence[91] about conversations in which his expectations of ongoing payment were made clear, and in which the third defendant promised that the plaintiff would never be “cut out”.[92]
[91] Affidavit of R Imam at [31]-[33].
[92] Affidavit of R Imam at [31].
The relevance of some conversations that happened “in or around 2000” is necessarily diminished by the subsequent agreement of 2004, as renegotiated in 2005. Nevertheless, it should be allowed that the “background”[93] may have entitled the plaintiff to something more than a routine commission.
[93]Such as all of the activity described, particularised in Plaintiff’s closing submissions at [27]–[48]; [65]-[67].
And the written agreements made both explicit and implicit provision for that. The overt method was by way of development fees. They were payable “in respect of each and every store in existence” and not just those that existed as at the execution of the agreement. It was a method by which the parties agreed to quantify the intangible benefit provided by the plaintiff’s involvement in the operation.
To the extent that the plaintiff’s argument is predicated upon the asserted obvious need for him to be compensated for otherwise unremunerated industry, provision for Development Fees is an important part of the response. It makes commercial sense for the “background circumstances” and the intangible benefits (such as goodwill) that accrued as a result of the plaintiff’s efforts to be reflected in this way.
The Consultancy Fees were of a different character, but the plaintiff’s foundational role was also reflected in the agreements made about them. In 2004 they were linked directly and immediately to gross sales which derived from business activities and any payment for sale of stock.
As noted, in or about late 2004 early 2005 Mr Mak is said to have conveyed to Mr Imam this current arrangement was too onerous. As a result, from 2005, there were two different types of Consultancy Fees. The existing arrangement continued for “IT” stock. A separate model was developed for “Other Stock”. Eventually, GZD products would fall into that category. For “Other Stock” it was agreed[94] that the contract should be varied to 10% of stock cost rather than gross sales.
[94]See email exchanges between the parties. Affidavit of R Imam at [106]-[107]. Emails from Mr Mak to Mr Imam dated 3, 7 December 2004. (RAA.001.001.2530; RAA.001.001.2531; RAA.001.001.2617).
This change left the agreement in a state that reflected the historical importance of IT Stock. As a proportion of turnover, payments referable to IT would be made to the plaintiff on a more favourable basis than that which applied to any other products. Objectively considered, this aspect of the agreement did in fact accord further recognition of the plaintiff’s role in establishing the business.
The plaintiff may now feel that, given the subsequent prosperity of a business that would not exist but for him, he has been rewarded insufficiently. He may feel that, notwithstanding the third defendant’s early assurance, he was in fact “cut out”. His chagrin might be understandable. His claim is not, however, some sort of equitable one. Nor is this some sort of intellectual property claim, in which an enduring entitlement to payment might be expected. The plaintiff sues upon the agreement and can claim only what he says would have been payable under that agreement. It was fair to argue that there should have been recognition of his role in establishing the business, but it must also be accepted that the agreement did in fact do that – as it reads, and without the need to conjure words which do not appear in it.
“Notwithstanding the termination of the agreement”
The plaintiff points to the fact that both limbs of clause 5.2, which created his entitlement to payments, are expressed to apply “notwithstanding the termination of the agreement”.
Reference is made to the concept of “termination” in two other parts of the agreement – Clause 8 and Clause 9.
Neither Clause 8.1(b) nor Clause 8.2 contains a reference to termination; both create obligations that would presumably be invoked if the prospect of termination loomed.
Clause 8.1(a) does place an obligation on the defendants to provide the plaintiff with information “after termination of the agreement”.
At once, however, it should be noted that the information in question would be of no assistance in the calculation of the consultancy fees claimed in this action, since it required only that details be presented about Gross Sales. The claim made here is only for fees referable to Purchasing Orders, and it might be thought that the plaintiff’s need for information about those would be limited, since he would have either placed those orders or authorised the defendants to do so.[95] Sales, on the other hand, were very much part of “day to day” operations, about which the plaintiff might, during the currency of the agreement and at the point of termination, have needed information.
[95] Clauses 3.3(b), 4.3(d).
Clause 8.2(a) makes express reference to Clause 9 – Termination. If the agreement was intended to contain a provision that provided for entitlements that accrued and continued to accrue after termination, then Clause 9 is the place where a reasonable business person might have expected to find it. It contains no such term, but it does include two other provisions that are informative.
First, and although it makes an ambit claim about “other rights”, Clause 9.2 provides that if the agreement was terminated pursuant to this clause the plaintiff was entitled to recover “any amounts then due to (him) as fees …”.[96] The natural meaning of these words indicates that this entitlement accrued contemporaneously with termination, and did not persist indefinitely.
[96] My emphasis.
Further, in its bold typed heading, Clause 9.3 made specific provision for entitlement to Development Fees as at the date of termination. It is silent about the status of the Consultancy Fees. It can be inferred that was because it was intended that they should have no more status than that conferred by the preceding sub-clause – that is, an entitlement to any “then due”.
In sum, allowance was made, by the words contained in Clause 5.2(a)(iii) and Clause 5 (b)(iii) for the plaintiff’s right to claim a fee to which he would have been entitled (because of a sale or a purchasing order placed) but had not received prior to termination. The reference to termination, as inserted at that point, does not alter the fundamental characteristics of the agreement so as to confer a right that existed in perpetuity.
“Entitled to provide”
The argument is made that, pursuant to Clause 5.2, fees were payable not just for stores where consultancy services were in fact provided by the plaintiff. It is said to have been enough if he was entitled to do so. The agreement created that entitlement and, therefore, fees were payable whether or not the plaintiff was performing those services.
If the words entitled to provide appeared by themselves, support for the plaintiff’s argument might have been stronger. However, if Clause 5.2 was meant to extend the plaintiff’s claim for payable fees to every store operated by the defendants, whether or not he had any ongoing connection with it, or even with the business, then there was just no need for the inclusion of the word provides – because it would not matter whether the plaintiff was providing anything or not.
The better approach is to construe the clause so that the terms provides and entitled to provide work harmoniously and in a way that avoids inconsistency between this provision and the commercial effect achieved by the balance of the agreement.[97] That can be done by allowing that the agreement was meant to ensure that the plaintiff could claim a fee even if he had not, as the defendant puts it[98] provided each and every one of the services required under Clause 3.1 in relation to the particular store. It was not intended by these words to confer an inestimable benefit that endured indefinitely.
[97] RMI Pty Ltd v Spray Coupe Pty Ltd [2021] QCA 37 per Morrison JA at [13].
[98] Defendant’s closing submission at [151].
Purchasing Orders could be placed by others
It may be, as the plaintiff submits,[99] that the obligation to pay him did not necessarily depend on whether he personally had placed an order. The agreement does contemplate that purchasing orders could be made by someone other than the plaintiff.
[99] Plaintiff’s closing submissions at [263].
Again, however, it is necessary to contextualise that provision by reference to the agreement as a whole. It was expressly contemplated[100] that only the plaintiff could approve dealings between Life China and the Suppliers with whom the orders were placed.
[100] Clause 4.3(d).
It did not, however, contemplate that an order could be placed for anything apart from Stock or Other Stock.[101] Nor did it contemplate direct contact between the defendants and a Supplier, unless that had been approved in writing by the plaintiff. Only he could do that, and only he could make or approve the placement of orders
[101]As already noted, this still had to be something that had been approved by the plaintiff as appropriate for the business.
Those fundamental characteristics of the agreement dictate that the plaintiff himself was required to play an active role in the business in order to earn a consultancy fee. The fact that orders could, if he allowed, be placed by others, did not remove the requirement for the plaintiff to be involved in the business in an ongoing way.
The significance of “day to day” operations
The plaintiff argues, by reference to the definition of consultancy services, that they were things rendered “potentially well in advance” of his being paid any money by the defendants,[102] and that this tells against any need for active involvement in the business. Four of the five subparagraphs in Clause 3.1 offer some support for this argument.
[102] Plaintiff’s closing submissions [208].
Particular emphasis is placed on Clause 3.3(c), which provided that the plaintiff was not to advise or be required to advise… in relation to the day-to-day operations of the business.[103] These remained the sole responsibility of the defendants.
[103] Clause 3.3(c).
These provisions are said to demonstrate strict limits to the plaintiff’s authority. This, in turn, is said to inform the obligations imposed by Clause 3.1.[104]
[104] Plaintiff’s closing submissions [220].
However, Clause 3.3(d) makes special provision for exceptions in the agreement. And one such exception appears in Clause 3.3(b), which specifically authorised the plaintiff, after proper consultation[105] with the defendants, to be the agent of the defendants in respect of any matter reasonably necessary to carry out the Consultancy Services. The inclusion of this provision – which contemplates the plaintiff’s participation in any aspect of the business – points away from any need to read this clause in a way that suggests the plaintiff was entitled to payments without any effort on his part.
[105] Consultation did not include a requirement for consensus.
Further, framed in this way the argument isolates, for special attention, Clause 3.1(d). The plaintiff agreed to supervise the overall retail operations of the defendants’ businesses.[106]
[106] Clause 3.1(d).
Nowhere in the document did the drafters attempt to clarify the meaning of the terms supervise or day-to-day operations, but there was no such need. A retail operation will always involve some sort of structure in which those who provide overall supervision sit apart from those who perform the quotidian. The clauses are not inconsistent and one cannot be used to defeat the requirements of the other. Supervision is, inherently, an ongoing process. The stark terms of 3.1(d) cannot be ignored. Clause 3 does not, when read in entirety, provide support for the plaintiff’s assertion that he did not need to do anything in order to earn consultancy fees under the agreement. On the contrary, he had agreed to supervise.
Conclusion
The object of the exercise was to make money. To do that, the parties agreed to create a business in which the plaintiff’s involvement was indispensable.
The points he now makes may illustrate the proposition that, as allowed by the defendants, no agreement is perfect. However, and although no one term or background circumstance is decisive, when the document and all of the circumstances are examined as a whole, the emerging picture is clear enough. It is not distorted for any or all of the reasons urged by the plaintiff. An objective observer, furnished with the agreement, informed by those circumstances, and exercising rational commercial judgment would not conclude that the mutual intention of the parties was for the plaintiff to receive consultancy fees in the way he asserts he should have.
It follows that the defendants’ argument as to the manner in which this agreement should be construed must be accepted. Without performing Consultancy Services, and specifically in the absence of advice about Purchasing Orders, no debt was raised. It was not open for the plaintiff to sue as if there was.
Question 4. Was the 2005 Varied Consultancy Agreement abandoned, terminated or repudiated?
It does not necessarily follow that, just because the plaintiff was neither providing consultancy services nor being paid for them, the 2005 agreement itself had ceased to exist. It may be that the defendants were making it impossible for him to supply those services. They may have been breaching the terms of the agreement and either receiving Consultancy Services from someone else or performing the function for themselves without the authority of the plaintiff. The plaintiff does claim, specifically, that the defendants were in breach of the agreement by failing to provide him with information of the kind contemplated by Clause 8, which may have been used by the plaintiff for the purposes of termination in accordance with Clause 9.
Further, if the contract was ongoing, then there was no timetable that insisted the plaintiff terminate it within any particular period. It follows that unless the agreement had, for some reason, ceased to exist then the plaintiff’s termination of it in 2018 was valid, and he would at least have been entitled to payment of Development Fees in accordance with Clause 9.3. The validity of any claim to these fees depends upon the status of the contract as at that time. If the plaintiff is right, then he was entitled to stand back from the arrangement, allow the defendants to take the risks and do the work involved in expanding the business, and at the time of his choosing fix the point at which he would terminate the Agreement and thereby capitalise on their efforts. However if, for whatever reason, at some point prior to that date the contract had ceased to be, there was nothing to terminate and is nothing on which he can now sue.
The plaintiff therefore necessarily avers that, even though he was paid nothing[107] since 2008 and did nothing since 2010, the agreement itself was ongoing and continued in force until he terminated it on 23 October 2018.
[107] And did nothing – and in particular gave no advice about purchasing orders.
The defendants counter that, whatever may have been the situation as at 18 July 2005, at some point it became the shared intention of the parties that there was no longer any agreement between them. It is said that whilst it might not be possible to be precise as to the particular moment in time at which their intentions crystallised,[108] it was in any event no later than 2 November 2012 – that is six years prior to the commencement of legal proceedings. If that is so, then neither debt nor damages attributable to anything that happened prior to that time will be recoverable.[109]
[108] The third defendant might fix it at a point in 2011; Affidavit of M Siu On at [286].
[109] See [72].
The situation is said by the defendants to be one in which the contract was abandoned. In the alternative, it is said that the same effect was achieved because either the plaintiff or the defendants repudiated or terminated the agreement, and the other party accepted. In practical terms the facts relied upon to establish repudiation and/or termination were part of the case made for abandonment. When pressed, the defendants submitted that this concept should be addressed first, and it is convenient to do so.
The defendants are confined, in these proceedings, by the way in which this issue has been pleaded. Paragraph 1T of the second further amended defence averred that the defendants had not performed the 2005 Varied Consultancy Agreement since early 2008 and that the plaintiff had not performed it by, at the latest, March 2010. It also references the emails identified in [141](b) below.
For those purposes of determining whether the defence is made out on that basis, relevant findings of fact include the propositions that:
(a) The last time any money was paid to the plaintiff pursuant to the 2005 agreement was in May 2008.[110]
[110] Further amended Statement of Claim at [31]; Second further amended defence at [19].
(b) In an email exchange during March 2010, the plaintiff asked the third defendant about his plans “for payment on my behalf”. After suggesting a lump sum annual payment, the third defendant ultimately concluded this exchange by saying “sorry, I cannot help you this time”.[111]
[111] Affidavit of R Imam, Chronology, RI-1 p 231 reference to RAA.001.001.0071.
(c) The last “active” business related communication between the plaintiffs was an email in which the plaintiff informed the defendant and his wife that the fashion house Versace was looking for franchises in China and Hong Kong in order to distribute the label “Versus”.[112] This was sent on 27 June 2010.
(d) In June 2010, as a result of what the plaintiff says was a lot of effort from him, an agreement was struck between “Vicini” (the source of GZD products) and Life China. Mr. Eugenio Morselli of Vicini was the person with whom dealings were conducted.
(e) In an email of 7 November 2010, the plaintiff wrote to Mr Morselli[113] and informed him that he was “no longer involved with the company Life China.”[114]
(f) In an email dated 14 January 2011, the plaintiff wrote to the third defendant and asked him to send a “final account as at the end of 2010, and I will upon receipt, send you a final account. And lets settle our affairs and say goodbye”.[115]
(g) In the same email chain the plaintiff suggested that he and the third defendant calculate what they owe each other “and that will bring our business to an end”.[116]
(h) In an exchange on 26 May 2011 the plaintiff mused that the parties had done “a lot of good things together” and expressed a desire to “stay friends and let the business pressures go their own way”. The third defendant recorded that he and his wife had “tears in our eyes when we go through your words”.[117]
(i) In an email of 27 July 2011, the plaintiff wished the third defendant and his wife both “a happy life and successful business” and asked the third defendant to “finalise our buss”.[118] The third defendant responded “we will settle it”.
(j) In an email dated 29 July 2011 the plaintiff recalled that when he and the third defendant had first started business, that he foresaw that “one day you will stop speaking to me because of money” and that “our business relationship will come to an end”. He maintained, however, that the friendship might persist “without money in the middle”. [119]
(k) On 7 June 2012, the plaintiff, by email, asked to meet the third defendant to “discuss payments”. In the email it was suggested that he and the third defendant should grow up and “let bygone be bygones”.[120]
(l) On any view of the evidence, neither the plaintiff nor any of the defendants attempted to perform or call upon each other to perform any aspect of the agreement after November 2010.
[112] Affidavit of R Imam, Chronology, RI-1 p 235 reference to RAA.001.001.0094.
[113] Mr Morselli was the general manager of GZD. Affidavit of R Imam at [138].
[114] Affidavit of R Imam, Chronology, RI-1 p 236 reference to RAA.001.001.0100 (my emphasis).
[115]Affidavit of R Imam, Chronology, RI-1 p 237 reference to RAA.001.001.0101; Exhibit 28 (sic, my emphasis).
[116]Affidavit of R Imam, Chronology, RI-1 p 237 reference to RAA.001.001.0101; Exhibit 28 (my emphasis).
[117] Affidavit of R Imam, Chronology, RI-1 p 237 reference to RAA.001.001.0104.
[118] Affidavit of R Imam, Chronology, RI-1 p 237 reference to RAA.001.001.0104 (sic, my emphasis).
[119]Affidavit of R Imam, Chronology, RI-1 p 237 reference to LCC.001.00l.037320; Exhibit 27 p 22 (my emphasis).
[120] Affidavit of R Imam, Chronology, RI-1 p 237 reference to LCC.001.00l.037320; Exhibit 27 p 28.
Against that background, the defendants submit that by November 2010 or, if not by then, by May 2011 or in any event as reflected in emails exchanged up until 2012 the agreement was abandoned by both the plaintiff and the defendants.
Principles applicable to construction of the agreement
The plaintiff submits that “it is very difficult, albeit not impossible, to establish tacit abandonment by both sides”.[121]
[121]Plaintiff’s closing submissions at [146].
That may be so, but the suggested abandonment is not completely “tacit”. In any case, the issue is approached not on the basis of a qualified generalisation like that, but by reference to applicable principle. As written by Kiefel J (as her Honour then was):
“While the Australian cases may not have discussed the theoretical basis for abandonment to any great extent it is clear that regard is to be had to the conduct of the parties and what might be inferred from it. Abandonment may be seen as a conclusion that parties have no further interest in a contract continuing, even though they may have said nothing to that effect. It may nevertheless be clear that they both regard it as at an end. This can more readily be discerned where one or more of the parties have ineffectively attempted to bring the agreement to an end and both behave as if it was ended as occurred in Summers v The Commonwealth (1918) 25 CLR 144 and DTR Nominees Proprietary Ltd v Mona Homes Proprietary Ltd (1978) 138 CLR 423.”[122]
[122] Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 27, Kiefel J at [40].
Her Honour pointed to the need for consideration of “the available evidence of the parties’ conduct and their circumstances under the agreement”.[123]
[123] Ibid, Kiefel J at [54].
As is to be expected, a review of other authorities[124] reveals that each case was decided in a different context and turned upon the “available evidence”. In this case, relevant considerations include:
(a) the nature of the relationship between the parties as discernible from the written agreement; in particular, the express provisions referable to the termination of the agreement that were contained in the agreement itself;
(b) the length of inactivity and, in particular, its length as a proportion of the time for which it was contemplated that the contractual relationship would endure;
(c) the significance of inactivity when considered in context of (a)-(b); and
(d) the nature of the relationship between the parties as disclosed by other evidence.
[124]Fitzgerald v Masters (1956) 95 CLR 420; L’Office Cherifen des Phosphates v Yamashita-Shinnihon Steamship Co Ltd (The “Boucraa”) [1994] 1 AC 486; Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA (The “Leonidas D”) [1985] 1 WLR 925; Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194; Ryder v Frohlich [2004] NSWCA 472; DTR Nominees Pty Limited v Mona Homes Pty Ltd [1978] HCA 12; Tecnicas Reunidas SA v Andrew [2018] NSWCA 192; Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79.
Re [146] (a) The written agreement
Whilst as a matter of objective construction the agreement envisages the plaintiff’s ongoing and active involvement in the business,[125] the concern under this heading is how it might assist in drawing conclusions about the parties’ actual states of mind.
[125] As concluded above, [97].
It has to be allowed that if indeed it was because he was “shut out”, the plaintiff’s failure to perform actions such as approve Stock would not support a conclusion that he thought the agreement had run its course – although it is a pretty good clue that the third defendant saw it that way. However, and even if it was a case of being “shut out”, the situation must have been exercising the plaintiff’s mind. It is fair to ask what would have been expected of this experienced businessman if he did believe in the ongoing existence of an agreement, especially when he had been so particular about its requirements, and when he must have known that he was not performing them.
Since the agreement was abandoned, no aspect of the plaintiff’s claim can succeed.
Quantum
As already foreshadowed, there may be debate about the question of costs[153] in this case. For that reason, and since a significant part of the hearing was consumed by evidence about quantum, and although strictly it is not necessary to do so, I propose to record my views on the way in which I would have dealt with the issues raised under this heading.
[153]If such ensues, it may be guided by the observations made by Bond J (as His Honour then was) in Speets Investment Pty Ltd v Bencol Pty Ltd No 2 [2021] QCA 39 at [11]-[17].
The plaintiff’s claim comprises of Consultancy Fees, future Consultancy Fees and Development Fees.
Evidence was received concurrently from two experts, Mr Neill Poole and Mr Cosimo Borelli as to the calculation of the quantum of the plaintiff’s claim. There was a large area of common ground, and although the complexity of issues meant that resolution of the residual conflict absorbed a lot of legal energy, it was, with respect, skilfully and efficiently litigated by Mr Trim and Mr Beacham QC.
I shall deal with each issue briefly, but the overarching conclusion is that where there is a difference in approach, Mr Borrelli’s methodology is to be preferred; there is overreach in the plaintiff’s claim.
Quantum of Consultancy Fees – Period of Entitlement
The plaintiff claims Consultancy Fees for the period from 2 November 2012. This is the period from which the claim is not statute barred.[154] The defendant submits that this period should be limited to 2 November 2012 to 1 April 2015 for stores located in Hong Kong, and 2 November 2012 to 1 August 2015 for stores located in China. 1 April 2015 and 1 August 2015 are the dates upon which Joint Venture Agreements (JVA) [155] between Life Footwear Company Ltd and GZD Asia Pacific Limited and Giuseppe Zanotti Design Holding Hong Kong Limited (GZD Holding) were completed. In essence, the effect of the JVA was that the existing Life business would be transferred to GZD Holding.
[154] s 10 Limitation of Actions Act (1974) Qld.
[155] Exhibit 40 and 41.
The defendant submits that the effect of this transfer on the notionally current 2005 Varied Consultancy Agreement would have been that, from the completion of the JVA, the GZD stores were not Stores for which the consultant was entitled to provide Consultancy Services.[156] The defendants submit that the transfer amounted to a sale of stores, and that seems to be correct. It would follow that the plaintiff was entitled to Development Fees for the respective stores calculated as at 1 April 2015 and 1 August 2015,[157] but that even if I was wrong about their nature, period of entitlement to consultancy fees would be 2 November 2012 to 1 April 2015 for the Hong Kong stores, and 2 November 2012 to 1 April 2015 for the China stores.
[156] Clause 3.
[157] Clause 5.
If it was necessary to do so, the Consultancy Fees for this period would be calculated by the method adopted by Mr Poole.
Quantum of Future Consultancy Fees – Questions (a) to (f)
If, contrary to my expressed conclusions, there was not a requirement for the plaintiff to provide services under the Agreement, then the questions that would have to be addressed in any quantification of future Consultancy Fees:
(a) Should the fees be calculated in perpetuity, or over some more limited period?
(b) Should the fees be calculated as at the termination date, or as at the date of trial?
(c) What is the appropriate annual growth rate?
(d) What is the appropriate perpetuity growth rate?
(e) What is the appropriate present value discount rate?
(f) Whether, and to what extent, should store closures be taken into account?
Answer (a)
I would have taken the view that the calculations should take into account the average life of GZD stores.[158] In all the circumstances, adequate recognition would take the calculation to 2025, seven years from the termination date.
[158] Affidavit of M Siu On at [305], Borelli report at [7.4].
Answer (b)
Fees should be calculated on the basis of the relevant forecasts as at the date of the trial. The general rule that damages are assessed at the time of breach can be accepted, [159] but so too must be the occurrence of significant events – relevant to determining fair compensation – that have occurred since 23 October 2018. These should be reflected in any calculation.[160] The relevant regions in which the stores operate/d have been adversely affected by major geopolitical and economic events such as protests in Hong Kong, the US-China trade dispute and Covid-19. If compensation was to be calculated fairly then it would be necessary for these events to be taken into account.
[159] Johnson v Perez (1988) 166 CLR 351.
[160] Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [30].
Answer (c)
The appropriate annual growth rate would be the one adopted by Mr Borrelli.[161] His inclusion of a greater sample of data[162] is a more robust approach than the less inclusive one adopted by Mr Poole.[163]
[161] T8-17 line 26 and T8-18 line 1.
[162] Borelli report at [67.1],[67.2].
[163] T8-18 line 9 and T8-19 line 4.
Answer (d)
The figure of 3%, derived from a consistent and reliable source,[164] should be adopted as the perpetual growth rate. The alternative forecast rates of inflation and GDP are not well sourced.[165] The appropriate rate should be closer to the forecasted inflation rate rather than the forecasted GDP rate, and the more conservative figure suggested by two experts should be adopted.
[164]Economic and Social Survey of Asia and The Pacific 2018 published by the United Nations in May 2018.
[165] Revised Poole Report, [44].
Answer (e)
The primary difference in the approaches of the experts involved the use of data from the USA as opposed to data form Hong Kong. USA data was said to be more reliable because historical data is available for a longer period of time.[166] However, despite this temporal deficit, the use of Hong Kong data in the calculation of the present value discount rate would be the preferred approach. Some of the stores are located in Hong Kong and other stores have a closer connection to the Hong Kong market than they do with the markets based in the USA.
[166] T8-65 lines 41-45; T8-67 lines 9-15.
Answer (f)
There is no basis for any conclusion that the plaintiff was involved in the setup of the “pop-up” store; he would not be entitled to Consultancy Fees flowing from its establishment. Additionally, the assumption that the IFC Mall Store which closed in October 2019 would reopen in Autumn/Winter 2021 / Spring/Summer 2022 should not, for a number of reasons, be included in calculations.
Quantum of Development Fees – Disagreements (a) to (e)
To allow for calculation of the Development Fees, there would be a need to address the points on which the experts disagree, these being:
(a) EBITDA (Earnings before interest, taxes, depreciation and amortisation – under this heading - the only dispute relates to a Macau Four Seasons “pop up” store);
(b) the EBITDA multiplier;
(c) the leasehold contingency discount;
(d) the supplier concentration discount; and
(e) the market value of the Stores at the Commencement date.
Disagreement (a)
As the plaintiff was not involved in the establishment of the “pop-up” store, not only would this preclude him from receiving Consultancy Fees said to derive from this store, it ought also preclude him from receiving Development Fees.
Disagreement (b)
As already indicated, Hong Kong data should be used in calculating any fees. It is more representative of the market in which the stores operate. As such, the EBITDA multiplier – which uses Hong Kong inputs – should be used in the calculation of Development Fees.
Disagreement (c)
The defendants accept use of the method endorsed by Mr Poole, and had it been necessary to decide, it would have been the appropriate approach.
Disagreement (d)
The supplier concentration discount of 60% would have been applied to the calculation of Development Fees – it affords at least some recognition to supplier concentration risk.[167]
[167]Mr Poole’s approach was to not apply any supplier concentration discount. A supplier concentration discount is required to reflect the reduction to the pool of potential buyers for a store due to the licensing requirements from suppliers, and a general reduction to bargaining power.
Disagreement (e)
The preference is for Mr Borelli’s approach of approximating the market values of stores at their respective commencement dates to the cost of inventory and fixtures in the relevant Stores. It reflects the spirit of Clause 6 and the extent to which trading has added value to the store.
Costs
The defendants have succeeded in resisting the plaintiff’s claim in its entirety and might therefore anticipate an award of costs in their favour. However, for reasons already identified, the situation is not as straightforward as that.
I shall receive further submissions on this issue from the parties.
Attachment 1 – Terms from the 2004 Consultancy Agreement
The 2004 agreement is covered by a page that is dated 6 January 2004[168] and is headed:
[168]It is accepted that the document was not signed on this date, but as already noted, I do not find it necessary to traverse all of the irregularities in the evidence about the production of this document.
“Consultancy Agreement”
Raafat Imam
Life (China) Company Limited
Guangzhou Life Trading Company Limited
…
Parties: Life (China) Company Limited
(“LCCL”)
and
Guangzhou Life Trading Company Limited
(“GLTCL”)and
Raafat Imam
(“Consultant”)
See below the reproduced clauses of the agreement as they read in the 2004 Consultancy Agreement:
Definitions
1.1In this Agreement except to the extent that the context otherwise requires:
…
“Business” means procuring, marketing and sale of the stock through the Store or Stores.
“Client” means:
(a) LCCL and GLTCL;[169] and
[169] Life (China) Company Limited and Guangzhou Life Trading Company Limited.
(b) Associates and such other persons as the Client may subsequently involve in the running of the Business or any Stores established in the Territory for which the Consultant is providing or is entitled to provide Consultancy Services under this Agreement,
and includes LCCL’s, GLTCL’s, and each Associate’s and other person’s successors and assigns.”
“Consultancy Services” means the services that the Consultant is to provide to the Client under clause 3, and includes related services reasonably required to enable the Consultant to carry out its obligations under this Agreement.
“Stock” means men's and women's fashion items of clothing and accessories that have been approved by the Consultant as appropriate for supply to and sale in the Business.
“Store” means the retail store or stores established by the Client for the purposes of carrying on the Business in the territory.
Consultancy Services
3.1 Consultancy Services
In accordance with the Consultant’s authority under sub-clause 3.3, the Consultant agrees to provide to the Client the following Consultancy Services in a manner that, in the reasonable opinion of the Consultant, best promotes and advances the Business:
(a)develop and use the Consultant’s current business relationships and any subsequently developed business relationships with the Suppliers during the term of this Agreement, including negotiating with Suppliers on behalf of the Client to obtain the supply of Stock and to obtain any authorisations or licences from the Suppliers necessary to enable the Client to be supplied with and sell the Stock;
(b)advise the Client in all matters regarding the Stock and the Business, including publicity, public relations and advertising, and the selection of appropriate clothing and accessory lines to become part of the Stock of the Business;
(c)assist the Client in establishing each Store and each Store's retail and wholesale operations, including:
(i) assisting with the design and fitout of the Store; and
(ii)assisting with the initial and ongoing training and supervision of Store staff;
(d)supervising the overall retail operations of the Business; and
(e)assist with the identification and establishment of further Stores in the Territory.
3.2 Non-exclusive Consultancy Services
(a)The parties acknowledge that the Consultancy Services are provided by the Consultant as an independent contractor.
(b)The Consultant is permitted to perform the same or similar services for other clients or devote time to other business activities provided that they do not prevent the performance of the Consultant's obligations under this Agreement.
3.3 Authority of Consultant
(a)The Client authorises the Consultant to approach the Suppliers on behalf' of the Client and to do all things necessary, including obtaining any authorisations or licences necessary to enable the Client to be supplied with and sell the Stock of the Suppliers in the Business.
(b)The Consultant will be entitled, after proper consultation with the Client, to be the agent of the Client in respect of any other matter reasonably necessary to carry out the Consultancy Services and develop and expand the Business in the Territory for the Client.
(c)The parties acknowledge that the Consultant will not advise or be required to advise the Client in relation to the day to day operations of the Business, which will be the Client's sole responsibility.
(d)Except as specifically provided in this Agreement, the Consultant has no authority to act for, or to create, or assume, any responsibility or obligation for, the Client.
…
4.3 Obligations of the Client
The Client agrees that it:
(a)may only use the Consultancy Services provided by the Consultant in any Stores established and operated in the Territory;
(b) must not act in any way that prejudices or would be likely to prejudice:
(i) the Consultant's relationship with the Suppliers; or
(ii)the goodwill and the value of each Store and the Business overall;
(c)must obtain the Consultant's approval for each new Store it wants to establish and operate in the Territory; and
(d)must not approach or in any way directly or indirectly communicate or otherwise deal with any Suppliers, except such approaches, communications or dealings as may be approved in writing by the Consultant from time to time.
…
5.2 Consultancy Fee
The Consultancy Fee is payable by the Client to the Consultant in respect of each Store for which the Consultant provides or is entitled to provide the Consultancy Services under this Agreement.
…
5.4 Payment of Fees and Expenses
The Client agrees to pay to the Consultant on a monthly basis by the twentieth (20th) day of each month such fees and reimbursable expenses as are required under this Agreement into the consultant’s bank account or in such other manner as the Consultant may direct in writing from time to time.
Sale of Stores and Development Fees
6.1 Pre-sale requirements
The Client agrees that:
(a) a Store must not be sold without the approval of the sale and the sale contract by the Consultant (which approval will not be unreasonably withheld);
(b)it will notify the Consultant as soon as reasonably practicable before the intended sale of any Store (and, in any event, at least fourteen (14) days prior to the proposed signing of the sale contract), and provide the Consultant with all information and documents, including a copy of the proposed sale contract and the financial and trading statements and other accounting and business records of the Store, necessary to enable the Consultant to determine or verify:
(i) the suitability of the prospective buyer to own and operate the Store; and
(ii) the Consultant' s likely entitlement to the Development Fee;
(c)each sale contract must contain covenants requiring the buyer to enter into a Consultancy Agreement with the Consultant. The new Consultancy Agreement or other agreements that the Consultant may require the buyer to enter into may contain different terms and conditions, rights and obligations and fees and charges to this Agreement, at the Consultant's discretion; and
(d)it will provide a copy of each sale contract to the Consultant as soon as reasonably practicable after signing.
6.2 Development Fee for each Store Sold
For each Store sold by the Client during the term of this Agreement the Consultant will be entitled to be paid the Development Fee:
(a)calculated as an amount equivalent to 50% of the growth in value of the goodwill of the Store being sold ("Goodwill Growth") in accordance with sub-Clause 6.4 of this Agreement;
(b)based on the Goodwill Growth being calculated from the date the Store commenced trading to the date of sale of the Store; and
(c)paid to the Consultant on settlement of the sale of the Store to which the Development Fee relates, or within five (5) business days of settlement of the sale (if the Consultant in the Consultant's absolute discretion agrees to that later date).
6.3 Development Fee on Termination of Agreement
The Development Fee payable by the Client to the Consultant for each Store in existence on termination of this Agreement as provided for in sub-clause 9.3 will be:
(a)calculated as an amount equivalent to the Goodwill Growth requirement in sub-clause 6.2(a)(i);
(b)based on the Goodwill Growth being calculated from the date the Store commenced trading to the date of termination of this Agreement; and
(c)paid to the Consultant within twenty-eight (28) days of the date of termination.
6.4 Valuation of the Development Fee
(a)The parties agree that the Goodwill Growth for each Store either being sold (as provided for in sub-clause 6.2) or in existence on termination of this Agreement (as provided for in sub-clause 6.3) will be valued under this sub-clause 6.4.
(b)The Goodwill Growth is to be valued and determined on the market value of the Store as agreed by the parties, based on generally accepted accounting principles applicable to the Territory, taking account of the following matters (without limitation):
(i)assuming that a reasonable time is available in which to obtain a sale of the Store in the open market and for that purpose 120 days will be deemed a reasonable time; and
(ii)having regard to the following factors (in addition to other factors which the parties agree should reasonably be taken into account) based on the best information available at the time:
(A)The prospects of the Business being conducted at the Store;
(B)the value, at a specified capitalisation rate appropriate to the Business being conducted at the Store, of the estimated future maintainable earnings of the Store;
(C)the yield which an open-market investor could reasonably require in an acquisition of the Store; and
(D)the net tangible assets of the Store as disclosed in the last audited accounts of the Store.
(c)Should the parties not agree on the valuation of the Goodwill Growth under sub-clause 6.4(b) above, then the matter will be determined in accordance with sub-clause 10.4 of this Agreement.
…
Business Accounts
8.1 Accounting records
(a)Within seven (7) days of the end of each month both during the term of this Agreement and after termination of this Agreement or any period during which the Client or its Associates receive payment arising out of the Business, the Client will render a written statement of account to the Consultant setting out details of the Gross Sales received in respect of each Store during the preceding month.
(b)The Client will also prepare quarterly profit and loss statements and such other reports and information as are reasonably required by the Consultant from time to time to enable the Consultant to verify the Gross Sales and the fees payable to the Consultant for each Store, and the Client agrees to keep and maintain, and agrees to ensure that its Associates keep and maintain, separate accounting and financial records for each Store for this purpose.
8.2Inspection of Accounting Records
The Client agrees that the Consultant is entitled to inspect and audit the accounts, and the financial and corporate governance records of the Business and each Store and the Client agrees to allow, and agrees to ensure that its Associates allow, the Consultant upon reasonable notice to the Client access to these accounts and records, including for the purpose of:
(a) determining whether a default exists under clause 9; and
(b)determining and verifying the Consultancy Fees and Development Fees payable to the Consultant under this Agreement.
Termination
9.1 Termination by agreement
This Agreement may be terminated by written agreement between the parties.
9.2 Termination by default
Any wilful or substantial breach of this Agreement by the Client will entitle the Consultant to immediately terminate this Agreement, and in addition to any other rights the Consultant may have at law or in equity, the Consultant will be entitled to recover from the Client any amounts then due to the Consultant as fees or reimbursable expenses that would otherwise be due to the Consultant under this Agreement.
9.3 Payment of Development Fee on Termination
On termination of this Agreement for any reason whatsoever, the Consultant will be entitled to be paid the Development Fee calculated in accordance with sub-clauses 6.3 and 6.4 in respect of each and every Store in existence as at the date of termination.
…
10.2 Directors Guarantee
If the consultant requires it, each Officer of the Client or its Associates must execute a Guarantee in the form attached as Annexure A to this Agreement.
…
10.7Governing law
This Agreement is taken to be made in the State of Queensland, Australia and its construction, interpretation and enforcement is governed by the laws applying in the State of Queensland, Australia. The parties to this Agreement unconditionally and irrevocably submit to the non-exclusive jurisdiction of the Courts of the State of Queensland, Australia and all Courts of Appeal therefrom. The parties to this Agreement waive any rights they have to object to any action being brought in those Courts, to claim that the action has been brought in an inconvenient forum, or to claim that those Courts do not have jurisdiction.”
Attachment 2 – Terms from the 2005 Varied Consultancy Agreement
“…
“Other Stock” means Stock not supplied by Ittierre S.p.A.
“Purchasing Order” means an order for Other Stock whether or not the order is placed by the Consultant with a Supplier.”
“5.2 Consultancy Fee
The Consultancy Fee is payable by the Client to the Consultant in respect of each Store for which the Consultant provides or is entitled to provide the Consultancy Services under this Agreement:
(a) for Stock supplied by Ittierre S.P.A.:
(i) in an amount equivalent to 10% of the Gross Sales of Stock supplied by Ittierre S.P.A. of each Store;
(ii) on a monthly basis, ill accordance with the accounting requirements in sub-clause 8.1; and
(iii) notwithstanding the termination of the Agreement.
(b) for Other Stock:
(i)in an amount equivalent to 10% of the Purchasing Order for Other Stock of each Store;
(ii)within 7 days of the Consultant advising the Purchasing Order has been placed; and
(iii) notwithstanding the termination of the Agreement.
…
5.4 Payment of Fees and Expenses
The Client agrees to pay into the Consultant's bank account or in such other manner as the Consultant may direct in writing from time to time:
(a) for Other Stock within 7 days of the Consultant advising the Purchasing Order has been placed; and
(b) for all other fees and reimbursable expenses as are required under this Agreement on a monthly basis by the twentieth (20th) day of each month.
2
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