Imam v Life (China) Company Limited
[2023] QCA 19
•17 February 2023
SUPREME COURT OF QUEENSLAND
CITATION:
Imam v Life (China) Company Limited & Ors [2023] QCA 19
PARTIES:
RAAFAT IMAM
(appellant)
v
LIFE (CHINA) COMPANY LIMITED
(first respondent)
GUANGZHOU LIFE TRADING COMPANY LIMITED
(second respondent)
MAK SIU ON
(third respondent)FILE NO/S:
Appeal No 7264 of 2021
SC No 11921 of 2018DIVISION:
Court of Appeal
PROCEEDING:
General Civil Appeal
ORIGINATING COURT:
Supreme Court at Brisbane – [2021] QSC 124 (Callaghan J)DELIVERED ON:
17 February 2023
DELIVERED AT:
Brisbane
HEARING DATE:
18 July 2022
JUDGES:
Morrison and McMurdo JJA and Davis J
ORDER:
The appeal is dismissed with costs.
CATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – where in each of the years 2004 and 2005 the appellant and respondents executed a written contract whereby the appellant was to provide consultancy services to the respondents – where, after November 2010, neither side attempted to perform any aspect of the contracts – where the communications between the parties from at least the beginning of 2011, through June 2012, manifested an intention to abandon the contracts – where the appellant commenced a proceeding in November 2018 seeking damages for breach – whether the contracts were abandoned – whether the preservation of accrued rights can be consistent with a mutual release of future obligations – whether the proceeding was brought out of time
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where in each of the years 2004 and 2005 the appellant and respondents executed a written contract whereby the appellant was to provide consultancy services to the respondents – where in December 2016, the appellant commenced a proceeding in Hong Kong (“the Hong Kong proceeding”) seeking payment from the respondents of his fees and the provision of financial information under the contracts – where in December 2017 the appellant entered into a litigation funding agreement expressed to be conditional upon approval for that agreement by a court in Hong Kong – where that court refused to approve the funding agreement on jurisdictional grounds – where in this Court, the appellant argues that the respondents are obliged to indemnify him for costs incurred in the Hong Kong proceeding – whether the costs incurred in the Hong Kong proceeding could be said to be costs suffered as a result of a breach of the contracts by the respondents – whether the respondents are obliged to indemnify the appellant for the costs of the Hong Kong proceeding
Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79; [2014] VSCA 32, applied
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12, cited
Fazio v Fazio [2012] WASCA 72, applied
Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53, cited
Marminta Pty Ltd v French [2003] QCA 541, cited
Summers v The Commonwealth (1918) 25 CLR 144; [1918] HCA 33, cited
Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279, cited
Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361; [1936] HCA 6, citedCOUNSEL:
M M Stewart KC, with D E F Chesterman, for the appellant
G D Beacham KC, with D Tay, for the respondentsSOLICITORS:
McCullough Robertson for the appellant
Bartley Cohen for the respondents
MORRISON JA: The third respondent (Mak) wished to establish a fashion retail business in the People’s Republic of China and in Hong Kong. The appellant (Imam) had considerable experience and connections in that industry. By comparison, Mak was a complete novice.
Mak and Imam met when Mak was studying in Adelaide in the early 2000s. Because he lacked experience and connections in establishing a fashion business, he sought the assistance of Imam.
Mak incorporated the other respondents to the appeal[1] in order to conduct his business. Imam assisted Mak with aspects of establishing, and then running, the fashion business.
[1]Life (China) Company Limited and Guangzhou Life Trading Company Limited.
The business relationship between the parties was formalised in a written contract which had two editions. The first was in February 2004, and then the second was a varied agreement on 18 July 2005.
The genesis of Mak and Imam’s business relationship was aptly summarised by the learned primary judge:[2]
“[1] 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". He wanted to market such clothing in China. This was, given developments in the Chinese economy, a visionary goal.
[2]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.
[3]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.
[4]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 tum developed into a friendship. With Mr Imam's assistance Mr Mak established the "LIFE China" business, which was conducted through the corporate entities· of the first and second defendants.
[5]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.
[6]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. Mr Imam was a most valuable resource – the divide between the world of Italian fashion and the emerging Chinese economy was not bridged easily.”
[2]Imam v Life (China) Company Limited & Ors [2021] QSC 124 at [1]-[6]. Citations omitted.
Ultimately, the relationship between Mak and Imam broke down to the point where Imam was no longer providing consultancy services to the respondents. The essential background to that breakdown of relationship was summarised by the learned primary judge as follows:[3]
“[20]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. 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]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. 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. 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.
[22]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.”
[3]Reasons below at [20]-[22]. Citations omitted.
The primary judge was faced with a number of matters in issue, including whether the forms of agreement were executed, and whether the 2005 agreement was a variation or a new agreement. Those issues were resolved in Imam’s favour and are not the subject of challenge on appeal.
Issues on the appeal
The issues on the appeal, including those raised by the Notice of Contention, can be summarised as follows:
(a)the proper construction of the Varied Agreement, and specifically whether Imam was required to provide advice about “Purchasing Orders” in order to be entitled to the “Consultancy Fee”, which he had not done after about 2010;
(b)was the Varied Agreement abandoned by the parties by 26 May 2011, but in any event by 2 November 2012;
(c)did Imam repudiate the Varied Agreement, and if so, was the repudiation accepted by the respondents;
(d)is Mak liable to Imam pursuant to the Guarantee and Indemnity which he executed; and
(e)aspects of the assessment of the claim for damages.
Relevant provisions of the Consultancy Agreement
The Consultancy Agreement at the centre of the issues between the parties was that executed in July 2005. Of course, that was about seventeen months after the first Consultancy Agreement was executed, and seventeen months of the client operating the business and Imam providing the consultancy services. The fact that a similar agreement had been operational for seventeen months by the time this agreement was executed is part of the commercial background that should be taken into account when construing the terms of the Agreement.
Various terms were defined in the Consultancy Agreement, and relevantly included:
““Business” means procuring, marketing and sale of the stock through the Store or Stores.
“Client” means:
(a)LCCL and GLTCL; and
(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.
“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.
“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.”
The consultancy services themselves were the subject of clause 3.1 in the Agreement, which relevantly provided:
“3. Consultancy Services
3.1Consultancy 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.”
As in the first agreement, the parties agreed that the consultancy services would be provided on a non-exclusive basis, with Imam to be classified as an independent contractor. Clause 3.2 provided:
“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.”
Clause 3.3 dealt with the authority of Imam, acting as consultant. Thus, clause 3.3 made provision in respect of Imam’s authority in the following terms:
“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.”
The Agreement made provision for the obligations of Imam as consultant on the one hand, and the obligations of the client on the other. Thus, clauses 4.2 and 4.3 provided as follows:
“4.2 Obligations of the Consultant
The Consultant agrees that he must provide the Consultancy Services in a manner that, in his reasonable opinion, best promotes and advances the Business.
4.3Obligations 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.”
At the heart of the issues between the parties before the primary judge, and on this appeal, was the question of the proper construction of the consultancy fees. The Agreement first made provision in relation to the payment of fees, in clause 5.1:
“5.1 Payment of Fees
As consideration for the Consultant providing the Consultancy Services, the Client agrees to pay to the Consultant:
(a)the Consultancy Fee, calculated in accordance with sub-clause 5.2 of this Agreement; and
(b)the Development Fee, calculated in accordance with sub-clauses 6.2, 6.3 and 6.4 of this Agreement.”
Clause 5.2 then made specific provision in relation to the Consultancy Fees, and in a way which was materially different from the same provision in the 2004 agreement. Whereas previously all stock had attracted a consultancy fee at 10 per cent of gross sales, the 2005 agreement drew a distinction between stocks supplied by Ittierre SPA, and “Other Stock”. It did so in the following way:
“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, in 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.”
The payment of the fees was the subject of a separate clause, itself the subject of considerable attention upon the appeal. It provided:
“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.”
A separate agreement was made in respect of the earning of a development fee in the event of a sale of a store. As will be seen, a store could not be sold without the approval of Imam, both of the sale and the sale contract, and such a sale contract had to contain covenants requiring the buyer to enter into a consultancy agreement with Imam. Thus, clauses 6.1 and 6.2 provided as follows:
“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.
6.2Development 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).”
The parties agreed that the consultant might receive a development fee, payable at the time the contract was terminated, and that, in the event that happened, an agreed method of valuing the “Goodwill Growth”, upon which the development fee depended, was separately identified. Thus, clauses 6.3 and 6.4 of the Consultancy Agreement provided as follows:
“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.
6.4Valuation 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.”
The pivotal nature of Imam as a consultant to the business can be seen in clause 7.1 which deals with the determination of stock by the consultant:
“7.1 Stock Determined by Consultant
During the term of this Agreement, the Consultant will determine the nature and brands of the Stock to be supplied to the Business.”
The parties also agreed that certain statements of account would be kept and either supplied to the consultant by the client, or the subject of a right of access by the consultant. Thus, clauses 8.1 and 8.2 provided as follows:
“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.”
The question of termination of the Consultancy Agreement and entitlements thereon were dealt with in clause 9:
“9.1 Termination by agreement
This Agreement may be terminated by written agreement between the parties.
9.2Termination 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.
9.3Payment 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.”
Clause 10.2 provided for the execution of a guarantee by the client or its associates:
“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.
I pause to note that clause 10.2 was left in the Agreement in the form in which it appeared in the 2004 agreement. As well, one has to note that, by the time the 2005 Consultancy Agreement was executed, the 2004 agreement had been in place and operating for some seventeen months, and was the subject of a guarantee executed by Mak.
Finally, clause 10.7 provided that the State of Queensland was the state in which the Agreement was made, and that the Agreement was to be governed by the laws applicable in Queensland.
Proper construction of the Agreement
Mr Stewart KC, appearing for Imam, contended that the nature of the relationship created by the Varied Agreement was one close to that of a joint venture, notwithstanding that, in a contractual sense, it was a contract of consultant and client. He pointed to several features which, it was contended, supported that approach. The first was that Imam was not paid an hourly fee or a success fee, but rather his payment was directly linked to the performance or success of the stores conducted by the business.
Secondly, the respondents had to obtain Imam’s approval for each new store they wanted to establish and operate, and could not sell them without his approval. Correspondingly, the respondents were prohibited from participating or assisting any similar business.
Thirdly, clause 4.3(b)(ii) obliged the respondents not to act in any way that prejudiced the goodwill and value of each store, and the business overall. This was submitted to be an express recognition of Imam’s economic interest in the respondents’ stores and business, atypical of the usual consultant and client type of relationship.
Fourthly, Mr Stewart referred to the manner in which the consultancy services were to be provided, specifically that they were not to be determined by the client, but rather by the consultant.
Fifthly, it was said that the obligations to cooperate and use best endeavours to ensure the business was successful, and to be just and faithful in dealings, were consistent with a long term, joint venture relationship. In my view, it does not assist to attempt to categorise the relationship in that way. The parties regulated their relationship by a written agreement which was undoubtedly created in a commercial context. It is the proper construction of that agreement which will determine the obligations and rights of each of the parties.
I pause to note that, in these reasons, I intend, for convenience only, to refer to the principals as Imam and Mak, and the corporate respondents collectively as Life China, unless the circumstances require individual identification.
Proper construction – Consultancy Fee
Imam’s contention on appeal was that the proper construction of clauses 5.1 and 5.2 was that the Consultancy Fee was payable by Life China to Imam “on a deferred basis for the Consultancy Services he had earlier provided … and even if he was no longer actively providing the Consultancy Services, including after the termination of the Varied Agreement”.[4]
[4]Appellant’s Outline, paragraph [21].
The two recitals to the Agreement are couched in terms which indicate an ongoing relationship between Imam and Life China. Recital A records that “the Client wishes to operate the Business within the Territory”. The term “Client” is defined to mean Life China and Guangzhou Life Trading, but also other entities that may be subsequently involved in the running of the business or any stores established in the Territory. The wording of that part of the definition of “Client” is relevant to the construction of clauses 5.1 and 5.2. Subparagraph (b) provides:
“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.”
Thus, the definition of “Client” expressly includes any stores for which Imam “is providing or is entitled to provide” the consultancy services. The words “or is entitled to provide” must be given some meaning. They are different from what is comprehended by the phrase “is providing”. I shall return to this aspect later when considering clause 5.2.
Recital B records that Imam “has agreed to provide the Consultancy Services to assist the Client in establishing Stores and running the Business...”. The definition of “Client” extends that concept to person/s who might be subsequently involved in running the business or any stores.
The definition of “Stores”, as well as “Business”, also comprehends events in the future, because the definition of “Store” means those stores established by the client, which, as can be seen above, includes entitlements brought in the future as those that the client “may subsequently involve in running the business and any stores”.
Clause 5.1 provides that the consultancy fee is payable “[a]s consideration for the consultant providing the consultancy services”. That necessarily directs attention to clause 3.1, because “Consultancy Services” is defined to mean “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”.
The nature of the consultancy services provides context within which the entitlement to payment must be analysed. In that respect, there are a number of factors in clause 3.1 that may be noted.
First, clause 3.1 expressly provides that Imam was to provide the identified consultancy services “in a manner that, in the reasonable opinion of [Imam], best promotes and advances the Business”. The parties therefore left it to Imam to make the judgment as to how the consultancy services might best promote and advance the business. Reference to the consultancy services themselves supports the conclusion that Imam was to exercise a judgment rather than to simply apply identified steps or actions.
Secondly, clause 3.1(a) identified one service, namely to “develop and use [Imam’s] current business relationships and any subsequently developed business relationships … including negotiating with Suppliers … to obtain the supply of Stock...”. Clause 3.1(a) included the development and use of “any subsequently developed business relationships...”. The use of those words plainly looked to the future, and in my view, emphasised the fact that, not only was the relationship between Imam and all the respondents an ongoing one, the consultancy services included matters which would only arise in the future. To that end, clause 3.1(a) contemplated a situation where Imam may not be providing consultancy service by way of using business relationship X, because business relationship X is one that did not currently exist, but might exist in the future. The parties thereby contemplated, in my respectful view, that there may be situations where Imam was not providing consultancy services, but nonetheless the obligation and rights flowing from the requirement to provide them continued, as did the entitlement to fees.
Thirdly, clause 3.1(a) included, as part of the consultancy services, Imam’s negotiations with suppliers “to obtain the supply of Stock...”. The definition of “Stock” was “men’s and women’s fashion items of clothing and accessories that have been approved by [Imam] as appropriate for supply to and sale in the Business”. Given that clause 3.1(a) contemplated relationships with suppliers that might only arise in the future, that necessarily means that the negotiation with suppliers for the supply of stock contemplated stock that would only exist in the future. That serves to reinforce the conclusion that the parties contemplated that, just because there were no negotiations at a particular point in time, or no supply of stock from a particular supplier at a point in time, did not mean that there was no entitlement to fees. The particular relationship leading to a successful negotiation with a supplier, where that supplier might not exist at the moment, is a powerful factor indicating, in my view, that the contract contemplated a relationship between Imam and all the respondents which would evolve over time.
Fourthly, clause 3.1(b) provided that one of the consultancy services was that Imam would “advise the Client in all matters regarding the Stock … including publicity, public relations and advertising, and the selection of appropriate clothing and accessory lines to become part of the Stock of the Business”. As pointed out above, the stock referred to might be stock that only exists in the future, though still within the life of the Consultancy Agreement. Thus, it must be, in my view, that clause 3.1(b) contemplates advice that might only be given in the future, in respect of stock that might only exist in the future.
That conclusion is reinforced by the fact that “Supplier” is defined to mean “the industry and supply contacts of [Imam] which provide or may in future provide Stock or Other Stock to the Business through [Imam] providing the Consultancy Services during the term of this Agreement”.
The contract therefore contemplates consultancy services that have been provided at any particular point in time, as well as those yet to be provided in the future. The permutations concerning business relationships, suppliers, supply contacts, and stock are many. For example, it may be that, at any particular point, Imam knew of a supplier, but had not yet approached that supplier in order to provide stock to the business. Alternatively, it may be that, at a particular point in time during the life of the Consultancy Agreement, Imam developed a relationship with a new supplier that led to the supply of stock.
Fifthly, clause 3.1(c) provides that one of the consultancy services is to “assist the Client in establishing each Store and each Store’s retail and wholesale operations...”. The clause plainly contemplates that there might be more than one store, as does the definition of “Store”. There is nothing in those provisions which would suggest that all of the stores had to be established at one point in time, for example at the start of the Consultancy Agreement, rather than progressively established over time. So much is also evident from clause 3.1(e), which identifies one consultancy service as being able to “assist with the identification and establishment of further Stores...”.
It is therefore the case that the context in which one construes clauses 5.1 and 5.2 is that the relationship between the consultant and the client is ambulatory, extending into the future during the course of the Agreement, and comprehending the consultancy services, suppliers, stores, and stocks which, at any particular point in time, do not yet exist.
Clause 5.1(a) provides that the consultancy fee is paid “[a]s consideration for the Consultant providing the Consultancy Services...”. Thus, the consultancy fee is in respect of services provided, and yet to be provided, during the course of the Agreement. However, clause 5.1(a) provides that the fee is to be “calculated in accordance with sub-clause 5.2...”. Thus, the opening lines of clause 5.1 contain the obligation to pay, whereas the words in clause 5.1(a) focus on how the payment is to be calculated.
One then turns to the relevant parts of clause 5.2, which provides that the Consultancy Fee is payable “in respect of each Store for which the Consultant provides or is entitled to provide the Consultancy Services under this Agreement”.
As noted above, as “Store” is one which the parties to this agreement contemplated would include one which only existed in the future. Where that is the case, unless the consultancy services are those to assist in establishing a store,[5] or assisting in the identification and establishment of a store,[6] there might be no relevant consultancy service being provided at a particular point in time.
[5]Clause 3.1(c).
[6]Clause 3.1(e).
The focus of clause 5.2 is on a consultancy fee payable in respect of a store for which Imam “provides or is entitled to provide” consultancy services. The plain words of that clause contemplate that a fee might be earned in respect of a store, even though no consultancy service is currently being provided. The words “is entitled to provide” must be given some meaning. They stand in contrast to the word “provides”, which bears the meaning of services actually provided at some point. In context, the words “is entitled to provide” must connote services which Imam was entitled to provide but which had not yet been actually provided.
Clause 5.2 provides that the consultancy fee is to be calculated in three relevant ways. The first is that it is in respect of each store for which Imam provides, or is entitled to provide, the services. The second is that for stock supplied by Ittierre S.p.A., where the fee is calculated as ten percent of gross sales of stock supplied by Ittierre. The third is that, for stock which is not Ittierre stock—in other words, “Other Stock”—the fee is calculated at ten per cent of the purchasing orders for such stock.
Different provisions also apply as to when the payment has to be made. For Ittierre stock, it is on a monthly basis, in accordance with the accounting requirements in clause 8.1. For stock which is not Ittierre stock, namely “Other Stock”, payment is to be within seven days of Imam advising that the purchasing order has been placed.
In each case, namely for Ittierre stock and “Other Stock”, the fee is payable “notwithstanding the termination of the Agreement”.[7]
[7]Clause 5.2(a)(iii) in respect of Ittierre stock; clause 5.2(b)(iii) in respect of Other Stock.
The stock which underpins the payment of the consultancy fee is stock which is determined by Imam. So much is plain from clause 7, which relevantly provides:
“7.1 Stock Determined by Consultant
During the term of this Agreement, the Consultant will determine the nature and brands of the Stock to be supplied to the Business.
7.2Non-exclusive Supply
(a)the Client acknowledges that some of the Suppliers of the Stock may cease to make or supply certain Stock to the Client or may otherwise only supply the Client on an non-exclusive basis.
(b)the Client acknowledges and accepts that some of the Suppliers of the Stock may supply or distribute Stock to other retailers, wholesalers or distributors within the Territory and outside the Territory.
7.3Alternative Supply of Stock
If, during the term of this Agreement the Consultant is unable to negotiate for the supply of any or all of the Stock or a particular brand or label to the Client, the Consultant will use its best endeavours to obtain and the Client will accept the supply of substitute Stock of the same kind and quality (as far as is reasonably possible) as the Stock that was unable to be supplied.”
The obligation of Imam under clause 7.1 is consistent with the obligation to provide consultancy services in the nature of negotiating with suppliers for the supply of stock,[8] and to select appropriate clothing and accessory lines to become part of the stock.[9]
[8]Clause 3.1(a).
[9]Clause 3.1(b).
Those provisions reveal that, for any of Life China’s stores, the stock will be stock which has been selected by Imam in terms of its nature, brand, and appropriateness, and subject to negotiation by Imam for supply. In that way, the supply of the consultancy services by Imam has a direct connection with the stock in any particular store.
However, that does not mean that, under the Consultancy Agreement, Imam must select stock every year. It must have been within the contemplation of the parties that Imam might select various lines of stock from brand X, and negotiate supply over a period of years. In that way, the actual supply of consultancy services would occur when the stock was selected and the supply negotiated, but then cease during the period of actual supply by the supplier. In other words, the parties must have contemplated that there would be periods where it was likely that Imam would be called upon to provide no consultancy services in respect of the selection of stock, yet nonetheless selected stock was being supplied and sold. In that scenario, Imam would still be entitled to consultancy fees because they are calculated on the basis of a percentage of gross sales (in the case of Ittierre) or a percentage of purchasing orders (in respect of other stock).
In such a situation, Imam would have provided the consultancy services. That situation would therefore not be caught by the phrase “is entitled to provide” in clause 5.2.
Yet another scenario is within the scope of the Consultancy Agreement. It may be the case that Imam has provided consultancy services in respect of store X, and stock has been ordered for store X in accordance with Imam’s selections and negotiation. At the same time, store Y has been selected and approved as part of the business, but has no stock. Consider the scenario that Life China moved some of the stock delivered to store X over to store Y, and sold it from there. In that scenario, store Y would be one where Imam had not provided consultancy services in terms of selection of the stock, but nonetheless it was a store in respect of which he was entitled to provide such consultancy services. In that scenario, it seems to me that consultancy fees would nonetheless be payable in respect of store Y on the stock that was ordered for it or sold at it, because, within the meaning of clause 5.2, Imam was “entitled to provide” consultancy services in respect of that store.
There are two provisions in the Agreement where the parties referred to consultancy services which Imam “is entitled to provide”. The first is in the definition of “Client”, where reference is made to “any Stores established in the Territory for which the Consultant is providing or is entitled to provide Consultancy Services under this Agreement”. The second is in the opening words of clause 5.2, which refers to “each Store for which the Consultant provides or is entitled to provide the Consultancy Services under this Agreement”.
Each of those clauses use words which link the provision of consultancy services, or the entitlement to provide consultancy services, to stores rather than the business in a general sense. There is no relevant difference between the phrase “any Stores” in the definition of client, and “each Store” in clause 5.2.
Clauses 3.1(c) and (e) provide that some of the consultancy services which Imam agreed to provide were to:
(i)assist in the establishment of each store, and each stores retail and wholesale operations; and
(ii)assist with the identification and establishment of further stores.
There is no separate consultancy fee that might be earned by those activities, as distinct from those which concern negotiating with suppliers to obtain the supply of stock, advising in respect of stock, and selecting clothing and accessories lines to become part of stock.[10]
[10]See clauses 3.1(a) and (b).
Clause 5.1(a) provides that, in consideration of Imam providing the consultancy services, Life China agreed to pay the consultancy fee, calculated in accordance with clause 5.2. The consultancy fee under clause 5.2 is calculated by reference to stock sold (in the case of Ittierre stock) and stock purchased (in the case of other stock). In each case, the stock referred to is the stock of “each store”.
As noted above, the Agreement contemplates a relationship where Imam selects and determines the stock,[11] and assists in negotiating supply,[12] but does not actually place any of the orders by which stock is obtained, nor take part in the sales.
[11]Clauses 3.1 and 7.1.
[12]Clause 3.1.
Further, given that the evidence established that at least some of the stock was selected on a seasonal basis, the Agreement contemplated the situation where a new store might be developed and opened with the assistance of Imam, but was filled with stock that was the subject of decisions made prior to the store opening, and perhaps prior to the store being selected. In other words, the line of stock may have been approved and determined at a point before the new store was contemplated or opened, but Life China chose to put already approved lines into that store. On that basis, the Agreement contemplated that Imam might not be making approvals or determinations of stock specifically for the new store, and therefore, in that respect, was not providing those particular consultancy services for that store. However, that store would be one in respect of which clause 5.2 applied, namely it was a store in respect of which Imam “is entitled to provide the consultancy services”.
In context, it seems to me that the phrase “is providing”, in the definition of “Client”, is the same as “provides” when used in clause 5.2. In each case, it is distinguished from the situation where Imam “is entitled to provide” consultancy services.
One other provision provides assistance in resolving the meaning intended by the parties when they used the phrase “provides or is entitled to provide” in clause 5.2. That comes from the definition of “Stock”, which, as noted above, means “fashion items of clothing and accessories that have been approved the Consultant as appropriate for supply to and sale in the Business”.
When the definition of “Stock” is included in clause 5.2(a), the opening words of that sub-paragraph then read:
“For 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, and supplied by Ittierre.”
It is apparent, in my view, that the relevant stock supplied by Ittierre, for which a fee is payable, does not require that the individual item sold be one which has been ordered by Imam. To qualify as “Stock”, the item merely needs to be an item of clothing and accessories that has been approved by Imam, and which is supplied by Ittierre. It may be that Imam has not only approved particular items, but negotiated with Ittierre “to obtain supply of Stock” in accordance with clause 3.1(a). It may also be that that stock has been one instance where Imam has determined “the nature and brands” under clause 7.1. However, none of those matters require that the particular Ittierre stock sold in a shop be an item of stock that has actually been ordered by Imam, as opposed to having been ordered by Life China as part of the business after the items have been approved or determined by Imam.
One can see that the parties probably intended that result, given the way in which the business might be expected to operate. Imam may very well approve a particular line of clothing or accessories, thus determining the nature and brands of the stock, but not actually order any of it himself. Having carried out his particular aspect of the consultancy services, the ordering from time to time might very well be expected to be done by Life China as part of the normal business operations. In that respect, Imam will have provided consultancy services in respect of stock which is yet to be ordered and yet to be sold.
Therefore, at any particular time, Imam might not be providing consultancy services for a particular store, but the store remains one where Imam “is entitled to provide” consultancy services.
That construction gives a meaning to the Agreement which is one that a reasonable businessperson would have given it.[13]
[13]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [47].
In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,[14] the High Court said:[15]
“[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
[48]Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
[49]However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
[50]Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
[51]Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.”
[14](2015) 256 CLR 104.
[15]French CJ, Nettle and Gordon JJ. Citations omitted.
The same construction applies to the reference to “Other Stock” in clause 5.2(b). The term “Other Stock” simply means stock not supplied by Ittierre. That still means items of clothing and accessories that have been approved by Imam as appropriate for supply to, and sale in, the business. In precisely the same way as for Ittierre stock, as long as the “Other Stock” has been approved or determined by Imam, it does not matter that the actual purchase orders were not made by Imam. In the same way, provided the particular lines and items of other stock were ones approved or determined by Imam, then their continued sale later in time attracts a consultancy fee even though the particular consultancy services were provided at an earlier point in time. As long as the “Other Stock” is purchased for a particular store, that store is one in respect of which Imam “is entitled to provide” consultancy services.
Relevance of the accounting records
Clause 5.2(b) provides that the consultancy fee is payable on a monthly basis “in accordance with the accounting requirements in sub-clause 8.1”. In turn, clause 8.1 requires Life China to do two things:
(a)within 7 days of the end of each month, render a written statement to Imam setting out the details of gross sales in respect of each store during the preceding month; and
(b)prepare a quarterly profit and loss statement, and other reports and information as might be reasonably required to verify the gross sales and “the fees payable to the consultant for each store”; for that purpose, Life China agreed to maintain separate accounting and financial records for each store.
The commercial sense of clause 8.1 is plain. The parties agreed to a mechanism by which Imam would be informed of monthly gross sales, and given access to accounting records by which the fees could be verified. Support for that conclusion is found in clause 8.2, under which Imam was entitled to inspect and audit the accounts for each store, expressly for the purpose of determining and verifying the consultancy fees.
In respect of “Other Stock”, the consultancy fee was not paid as percentage of gross sales. It was to be calculated “in an amount equivalent to 10% of the purchasing order for other stock of each store”. The requirement was for the consultancy fee to be paid “within 7 days of the consultant advising the Purchasing Order has been placed”.
It was contended below that, on its proper construction, clause 5.2(b) required that Imam place the purchasing orders. In my respectful view, that is not the proper construction.
As noted above, the obligation on Imam was to approve items of clothing and accessories as appropriate for supply and sale, and determine the nature and brands of the stock to be supplied. Apart from negotiating towards supply, there was no requirement under the Agreement obliging Imam to actually place orders, either for Ittierre or other stock. Once again, the provisions of clauses 8.1 and 8.2 reveal the true commercial purpose behind the payment provision in clause 5.2(b). Under clause 8.1, monthly records of the gross sales for each store had to be kept, and profit and loss statements or other records produced so that Imam could verify “the fees payable … for each store”. For that purpose, under clause 8.1(b), the respondents had to keep separate accounting and financial records for each store. Those records could be inspected by Imam under clause 8.2, precisely for the purpose of determining and verifying the consultancy fees.
It is, in my view, plain that the parties contemplated that the accounting records maintained under clauses 8.1 and 8.2 would be sufficient to enable Imam to discern what purchasing orders had been placed, and therefore be in a position to advise of that fact for the purposes of clause 5.2(b).
There is one further matter to be noted about the consultancy fees in respect of “Other Stock”. Clause 5.1(a) provides that the consultancy fee is to be “calculated in accordance with sub-clause 5.2...”. Clause 5.2 does not determine whether or not a consultancy fee is to be paid, but merely how it is to be calculated and when it is to be paid. Thus, in the case of Ittierre stock, it is to be paid on a monthly basis,[16] and in the case of “Other Stock”, it is to be paid within 7 days of Imam advising the purchase order has been placed.[17] In the case of clause 5.2(b)(ii), the act of advising that a purchase order has been placed does not determine whether or not a consultancy fee is payable, but merely when that payment is to be made. As noted above, the way in which the Agreement was contemplated to operate was that purchasing orders would be placed by Life China as part of the operation of the business, but in respect of items of clothing and accessories that were approved or determined by Imam.
[16]Clause 5.2(a)(ii).
[17]Clause 5.2(b)(ii).
To reach the contrary conclusion, namely that, until there was advice that a purchasing order had been placed, there was no entitlement to a consultancy fee, would be to render that part of the Agreement a commercial nonsense. Under such a scenario, purchasing orders would have been placed to the certain knowledge of Life China (who placed them), with their existence and timing revealed in the accounting records kept under clause 8.1, and verifiable by access to the records under clause 8.2, yet no entitlement to the consultancy fee would arise until the advice was given. In my respectful view, that cannot be the commercial intention of business persons in this case.
Meaning of the phrase “notwithstanding the termination of the Agreement”
As can be noted from paragraph [16] above, clauses 5.2(a)(iii) and (b)(iii), dealing with Ittierre stock and Other Stock, include the phrase “notwithstanding the termination of the Agreement”.
Clause 5.1(a) provides that Life China agreed to pay Imam the consultancy fee “calculated in accordance with sub-clause 5.2...”. When one has regard to the terms of clause 5.2, there are only two provisions that determine the calculation:
(a)in respect of Ittierre stock, the calculation is 10% of gross sales for each store, that being a store for which Imam provides or is entitled to provide the consultancy services; and
(b)for Other Stock, the calculation is 10% of the purchasing order for each store, that being a store for which Imam provides or is entitled to provide the services.
The other provisions of clauses 5.2(a) and (b) do not govern the calculation of the fee, but rather the entitlement to payment. Thus, in the case of Ittierre stock, the remaining provisions are that the fee is payable on a monthly basis in accordance with the accounting requirements in clause 8.1, and notwithstanding the termination of the Agreement. In the case of Other Stock, it is payable within 7 days of Imam advising the purchase order has been placed, and notwithstanding the termination of the Agreement.
Once that is understood, the construction of the phrase “notwithstanding the termination of the Agreement” becomes clear. It is relevant to whether the fee is payable or not. Since the fee is payable as consideration for the provision of consultancy services, once consultancy services have been provided, the fee is then payable in respect of Ittierre stock and other stock related to those services, notwithstanding that the Agreement comes to an end.
Termination of the Agreement is governed under clause 9. Termination can occur by written agreement under clause 9.1, or as the consequence of a default under clause 9.2. Such a default is constituted only by a wilful or substantial breach of the Agreement by Life China, which produces a termination by Imam. Clause 9.2 provides that, in that circumstance, Imam “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”.
Clauses 9.1 and 9.2 deal with two instances under which the Agreement might be terminated. One is by agreement and the other by the client’s default. Those clauses do not purport to deal with termination by other means such as repudiation or abandonment.
However, whatever the means by which the Agreement is terminated, whatever fees have been earned to that point and are payable, are still payable notwithstanding the termination of the Agreement. That is the meaning that must be ascribed to that phrase in clause 5.2(a)(iii) and in clause 5.2(b)(iii).
Abandonment
The learned trial judge made a number of findings relevant to this issue. Some appear to be summaries of the position, as opposed to individual fact finding.
On or about 13 January 2011, Mr Imam emailed Mr Mak, saying that “I think it is time we settle our affairs” and that “[o]bviously we both don’t wish to continue our buss relationship.” The email continued:
“I don't like to leave things unsettled and in the Air.
Please send me 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 good bye.”
Mr Mak emailed in response: “We are not the one who intend to discontinue the business relationship”.
In an email of 26 May 2011, Mr Imam wrote:
“…I realise that we have been friends for a long time, and it is a pity that we don’t communicate any longer.
I have been very unhappy with several matters, and I am sure you are the same as well, so lets leave all that aside.
For the sake of all that we have done together, because we did a lot of good things together, lets stay friends and let the business pressures go their own way.
I have included for you the final account of the sale of the old stock.
So please take a moment of your time and lets finalise the business matters, we have between us, stay in touch and on a friendly bases [sic] ...”.
In response, Mr Mak emailed:
“We have tears in our eyes when we go through your words and all the memories we have in our mind.
… I remember very well what you once said ‘money is sinful’, and I totally agree with you especially in the fashion world. We surely want to settle it with you.
Rebecca and I are planning to have a long holiday break starting early next month. We will do some calculations and get back to you after we return.”
On 27 July 2011, Mr Imam emailed:
“…I wish you both a happy life, and successful business, Please if you can spare some time let’s finalise our buss.”
In response, Mr Mak emailed “You have my words we will settle it but please give me some more time.”
On 29 July 2011, Mr Imam emailed:
“I told you when we first started business, that one day you will stop Speaking to me because of money, and you did not think it was going to happen, our business relationship will come to an end, and may be when it does, we can Be good friends again, because we don’t have anything to argue about.”
On 7 June 2012, by an email to Mr Mak, Mr Imam asked for a meeting and suggested that the parties “grow up and let bygone be bygones”.
As the trial judge observed,[137] after November 2010 neither side attempted to perform, or called upon the other to perform, any aspect of the Agreement. By that the judge was referring to a further provision of Consultancy Services and the payment of the agreed remuneration for those services. Clearly Mr Imam was seeking payment for services which he had provided, but he had provided no services under the Agreement after June 2010, and on an objective view, after no later than the end of 2010, he evinced no intention of providing further services. At the same time, again on an objective view, the companies evinced no intention that he should provide any further services, pursuant to the Agreement or otherwise. On an objective view, the parties had no intention of further performing the Agreement.
[137]Judgment [141](l).
For the appellant, it is submitted that the judge erred in concluding that the Agreement was abandoned because his reasons showed that he was drawing conclusions about the parties’ actual intentions, rather than apparent intentions or an objective assessment from their conduct.[138] That criticism is fairly based. It is well established that “[t]he abandonment of a contract, in the sense of the mutual release of future obligations, being an inferred agreement, does not depend upon the subjective intention of the parties, but upon whether their conduct (both acts and omissions) viewed objectively manifests an intention to discharge the contract”, as Murphy JA said in Fazio v Fazio,[139] citing Summers v The Commonwealth,[140] Wallera Pty Ltd v CGM Investments Pty Ltd,[141] DTR Nominees Pty Ltd v Mona Homes Pty Ltd[142] and Marminta Pty Ltd v French.[143] Nevertheless, because the judge found both Mr Imam and Mr Mak to be unreliable witnesses, he ultimately reasoned by reference to the parties’ intentions to be inferred from their acts and omissions and any misstatement by the judge as to an actual rather than an apparent intention was inconsequential.
[138]Judgment [147].
[139][2012] WASCA 72 at [74].
[140](1918) 25 CLR 144 at 151-152.
[141][2003] FCAFC 279 at [2], [40], [57].
[142](1978) 138 CLR 423 at 434.
[143][2003] QCA 541 at [21]-[22].
In Fazio, Murphy JA referred to the abandonment of a contract, in the sense of the mutual release of future obligations. Similarly, in Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd,[144] Nettle and Beach JJA and McMillan AJA said:
“The consequences of the discharge of a contract by abandonment depend on the intention of the parties as manifested in the way that they have acted in relation to each other. According to ordinary contractual principles, the manifestation of such an intention may be express or implied. Where, however, a contract has been partly performed, it is not lightly to be supposed that parties intend to abandon accrued rights. Absent a clear indication to the contrary, it is to be inferred that the abandonment of a contract operates prospectively without prejudice to accrued entitlements.”[145]
[144](2014) 45 VR 79 at [19].
[145]Citing Summers v The Commonwealth at 151-2; DTR Nominees Pty Ltd v Mona Homes Pty Ltd at 434; Fitzgerald v Masters (1956) 95 CLR 420 at 432 and Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 at 369.
The appellant’s argument advances four suggested reasons why, on the evidence, there should have been no finding that the parties had abandoned the Agreement. The first is that Mr Imam had partially performed the Agreement with the consequence that, on the proper construction of cl 5.2 of the Agreement, he was entitled to receive an ongoing income from the conduct of the business. It is said that it was unlikely that he would have abandoned his right to receive that future income stream. As to that point, we accept that whilst the Agreement remained on foot, Mr Imam would have enjoyed a continuing remuneration that could be characterised as a reward for his past performance, and that this could have been a very large remuneration. Against that, and again on an objective view, Mr Imam had been paid nothing for many years and the emails demonstrated a practice of delay and obfuscation by the companies which could not have engendered confidence that he would be properly remunerated in any event.
Secondly, it is submitted that the effect of the email communications was that the contractual relationship would end only once Mr Imam had received the financial information necessary for him to properly calculate the fees owing to him. In other words, it is said, this was only an offer by him to bring the contract to a close. That characterisation of the communications cannot be accepted. The critical emails, dating from the beginning of 2011, occurred in the context where he had already ceased to provide the services which performance of the Agreement required of him.
Thirdly, it is submitted that the accounting which Mr Imam was requesting from the respondents was something to which Mr Imam was entitled only if the Agreement remained on foot. Therefore, it is said, his requests for that information were consistent only with Mr Imam insisting that the companies perform their obligations under the Agreement. This submission appears to misunderstand the respondents’ case, as upheld by the judge, which was that this was an abandonment of a contract operating prospectively and without prejudice to accrued entitlements. Mr Imam’s insistence upon the provision of information to which he had an accrued entitlement was not inconsistent with the abandonment of the contract.
Fourthly, it is submitted that Mr Imam’s conduct, in not providing any services after June 2010, was insignificant because the Agreement did not require those services to be provided by specified times or with any specified frequency. It is submitted that the manner of provision of those services was left entirely to Mr Imam’s reasonable judgment. Further, it is said, it is significant that this was a long term contract, with no specified end date, so that a period of inaction provided even less of an indication that the Agreement was abandoned. This submission cannot be accepted. We have referred to the services which the Agreement required of Mr Imam. It did not require services to be provided week by week, but the Agreement required the conscientious application of Mr Imam’s knowledge and experience on a continuous basis. By the time of his June 2012 email, Mr Imam had done nothing to perform his contract for two years.
In our opinion, the omissions of the parties in the non-performance of their contract, together with their communications with each other at least from the beginning of 2011 through June 2012, manifested an intention of the parties to abandon the Agreement with prospective effect, although without prejudice to accrued entitlements. The trial judge was correct to conclude that the contract was abandoned before 2 November 2012, which was the date that was six years prior to the commencement of the proceeding.
The abandonment of the Agreement may have engaged cl 9.3, which provided that on termination of the Agreement for any reason whatsoever, the Consultant would be entitled to be paid the Development Fee in respect of each and every Store in existence as at the date of termination. By cl 9.3, Mr Imam was entitled to be paid the Development Fee calculated in accordance with cl 6.3 and cl 6.4 in respect of every Store then in existence. The parties may have acted towards each other in a way which was inconsistent with the employment of that entitlement in the abandonment of the Agreement. The point need not be decided, because any Development Fee was to be paid within 28 days of the termination, which was well prior to 2 November 2012.
Those provisions concerned only the Development Fee. There was no corresponding provision for the Consultancy Fee. As the abandonment of the contract did not affect rights which had accrued, Mr Imam remained entitled to recover whatever Consultancy Fees had become payable to him. He remained entitled to the fee for such stock which had been supplied by Ittierre SPA and sold by the companies. Similarly, he remained entitled to a Fee for such Other Stock for which an order had been placed. Further, he remained entitled to the provision of such information, as to Gross Sales of Stock or Purchasing Orders as was necessary for the quantification of those unpaid fees to which he was then entitled.
However Mr Imam was not entitled to be paid a Consultancy Fee calculated on sales of Ittierre SPA Stock or purchases of Other Stock which occurred after the discharge of the contract.
If the Agreement was instead discharged by Mr Imam for the companies’ breach or repudiation, still Mr Imam would not have been entitled to ongoing payments of the Consultancy Fee calculated on subsequent sales or purchases by the Business. Rather, the loss of that further income would have been a factor in the quantification of Mr Imam’s damages for loss of the bargain, a cause of action which would have accrued on the discharge of the contract.
The appellant’s case is that, according to the terms of cl 5.2, Mr Imam remained entitled to an ongoing stream of Consultancy Fees based upon sales and purchases which postdated the termination of the contract. This argument relies upon the words in cl 5.2(a)(iii) and cl 5.2(b)(iii), “notwithstanding the termination of the Agreement”. That interpretation cannot be accepted. The Consultancy Fee was expressed to be payable in respect of each Store for which the Consultant “provides” or “is” entitled to provide the Consultancy Services. Obviously, once the Agreement was terminated, the Consultant neither provided nor was entitled to provide Consultancy Services. The present tense was used in cl 5.2 with the apparently intended effect, unsurprisingly, of entitling Mr Imam to a Consultancy Fee only whilst he was a Consultant. The words “notwithstanding the termination of the Agreement” were apparently intended to make it clear that Mr Imam would be entitled to a Consultancy Fee, notwithstanding the termination of the Agreement, for sales or purchases, as the case may be, which had occurred prior to the termination.
Consequently, no cause of action could have arisen in favour of Mr Imam against the companies at a later date than the discharge of the Agreement by its abandonment. As the Agreement was abandoned at least well before 2 November 2012, the proceeding was brought beyond the limitation period of six years when it was commenced on 2 November 2018.
In the same way, the proceeding which was then brought against Mr Mak was out of time. The obligations of Mr Mak, under the Deed of Guarantee and Indemnity which he executed in January 2004, were as follows. He guaranteed that the companies would duly perform their obligations under the 2004 agreement. As a primary obligation, he agreed to pay to Mr Imam any amount due and payable by the companies to the Consultant under the terms of that agreement which was not paid when due. Consequently, if his obligations under that Deed extended to the (2005) Agreement, his obligation to pay Consultancy Fees, Development Fees and expenses accrued simultaneously with that liability of the companies.
By cl 4 of the Deed, he agreed to indemnify and keep indemnified Mr Imam against all damages, costs, expense and losses of any kind which Mr Imam might suffer as a result of any breach by the companies. However that covenant could not have applied to Mr Imam’s entitlement to fees and expenses which were payable under the Agreement,[146] because Mr Mak’s obligation in respect of them would have been his primary obligation expressed in cl 3 of the Deed. Mr Imam’s entitlement to unpaid fees and expenses was not at the same time an entitlement to damages for breach of the Agreement.
[146]Assuming the Deed extended to the Agreement.
At the trial, it was submitted for Mr Imam that it was not demonstrated that any cause of action had accrued prior to 2 November 2012. That argument was largely based upon the contention, which we have rejected, that there was an ongoing entitlement to Consultancy Fees for sales and purchases which post-dated the termination of the Agreement. It was also submitted to the trial judge that there was an ongoing obligation to provide records of the business,[147] which seemed to be premised on the same argument of an ongoing entitlement to Consultancy Fees, but to the extent that there was an ongoing obligation to provide such information as was necessary to verify the Consultancy Fees for which there was an accrued entitlement, the plaintiff’s cause of action would have been to the fees as a debt payable under cl 5.2, without a parallel claim for damages for a failure to provide that information.
[147]Plaintiff’s written submissions at trial, paragraph 190 AR 354.
It was also submitted to the trial judge that amounts became payable under cll 6.2 and 6.3 for Development Fees after 2 November 2012. As we have explained, that cannot be accepted because the Development Fees became payable upon termination of the Agreement by the operation of cl 9.3.
In this Court, a further point is advanced for the appellant. It is submitted that Mr Imam became entitled to be indemnified for costs incurred in a proceeding brought in Hong Kong.
In December 2016, Mr Imam caused letters of demand to be sent to each of the respondents from a Hong Kong firm of solicitors, seeking payment of Consultancy Fees and the provision of financial information. The respondents requested a mediation under cl 10.5 of the Agreement, and a mediation was commenced before it was adjourned with no resumption. In December 2017, Mr Imam entered into a conditional litigation funding agreement, which was expressed to be conditional upon approval for that agreement by a court in Hong Kong. The application for approval was heard over two days in July 2018, and in the following month, judgment was delivered in which the court refused, on jurisdictional grounds, to approve the funding agreement. Being unable to pursue his case in Hong Kong without funding, Mr Imam discontinued the proceedings in September 2018.[148]
[148]Plaintiff’s written submissions at trial, paragraph 84 AR 318-319.
From those circumstances, it is submitted for the appellant that Mr Imam was entitled to be indemnified by Mr Mak for his costs and expenses in the proceedings in Hong Kong, and it is said that this entitlement arose only when the costs were incurred, so that the case against Mr Mak was not entirely statute barred.
That submission cannot be accepted. Mr Imam had no arguable case to be indemnified against those costs and expenses under the indemnity agreed to by Mr Mak, because they were not “damages, costs, expense and losses …[suffered] as a result of any breach of the Agreement by the [companies].” They were costs and expenses which were wastefully incurred from a misconception by Mr Imam (or his legal advisors) that a court in Hong Kong might approve his litigation funding agreement. In that Court’s view, it had no jurisdiction to do so. On no common sense view could these costs and expenses be said to have been caused by any breach of the Agreement.[149]
[149]cf Insurance Aust v Milton [2015] NSWSC 1392 at [35].
Consequently, no cause of action pleaded by Mr Imam arose within six years of the commencement of the proceeding against the respondents, including Mr Mak. That is sufficient to dispose of the appeal, without expressing a view about other arguments, including those raised by the Notice of Contention.
We would order that the appeal be dismissed with costs.
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