Innovative Landscape Supplies Pty Ltd v Spachoice Pty Ltd
[2024] VCC 1636
•22 October 2024
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| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-20-05709
| Innovative Landscape Supplies Pty Ltd (ACN 123 390 125) | Plaintiff |
| v | |
| Spachoice Pty Ltd (ACN 614 315 570) | Defendant |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 -10 May 2024, written submissions dated 7 June and 5 and 26 July 2024 | |
DATE OF JUDGMENT: | 22 October 2024 | |
CASE MAY BE CITED AS: | Innovative Landscape Supplies Pty Ltd v Spachoice Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 1636 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT – ESTOPPEL
Catchwords: whether the parties entered into an agreement in the terms alleged – whether the defendant made representations upon which the plaintiff relied on to its detriment – whether the plaintiff terminated the agreement – whether the plaintiff is entitled to recover debt and damages – whether the plaintiff is entitled to equitable compensation on the basis of an estoppel
Cases Cited:Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Touma v Highfields Australia Pty Ltd [2024] NSWCA 160; Jones v Dunkel (1959) 101 CLR 298; Brad Teal Pty Ltd v EVR Group Pty Ltd [2024] VCC 485; Energy World Corporation Ltd v Maurice Hayes and Associates Pty Ltd [2007] FCAFC 34; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | L P Wirth | RJ Legal Pty Ltd |
| For the Defendant | R A Harris | Rostron Carlyle Rojas Lawyers |
HER HONOUR:
Introduction
1The plaintiff (“ILS”) claims that it entered into a contract or arrangement with the defendant (“Spachoice”) whereby it would operate a showroom of Spachoice’s swim spas in consideration for the margin between Spachoice’s wholesale price and the retail price and other costs (“the profit-sharing agreement”), which was to run a minimum of 5 years. ILS alleges that, within a year, Spachoice denied that it was bound by such a contract or arrangement and ILS sought to terminate the agreement. ILS now seeks to recover debt and damages, alternatively, equitable compensation on the basis of estoppel. Spachoice disputes these allegations.
2In my judgment, Spachoice’s November 2019 hybrid agreement grounds are made out with a minimum term of 4 June 2020 and, thereafter, an implied term that the agreement was terminable at will by the parties. My reasons in respect of each ground are set out below.
3Accordingly, I order that there is judgment for the plaintiff in the proceeding. I will invite the parties to prepare draft orders to give effect to these reasons and will determine any issue concerning the timetable for the trial on quantum and costs on the papers.
4The proceeding was not reached on 20 November 2023 and was listed as a priority. The plaintiff’s quantum expert, Mr Greg Blashki, director of Pitcher Partners Corporate Pty Ltd, was unavailable to give evidence during the scheduled trial dates. A joint experts report was due to be filed by 26 April 2024 but had not been provided by the parties. Further, an objections hearing in relation to inspection of subpoenaed documents in relation to quantum was adjourned to 25 June 2024. As a result, the matter proceeded on the basis of liability only.
5The issues for determination are as follows:
(a) What was the effect of the discussions between the parties, in particular Mr Dean Jordan and Mr Gaoxiang “Ivan” Lai, in mid-2019?
(b) By those discussions, did the parties enter into an agreement in the terms alleged?
(c) Alternatively, did Spachoice make representations upon which ILS relied to its detriment, and is Spachoice estopped from resiling from them?
(d) If Spachoice repudiated the agreement, or unconscionably resiled from its representations, is ILS entitled to damages or equitable compensation?
Background facts
6Until 2019, ILS had been operating a spa stores business trading as “Just Spas Bayswater” located at 1/96 Canterbury Road, Bayswater North (“the Kilsyth store”). Spachoice operated a competing business at 3/200 Canterbury Road, Bayswater North (“the Bayswater store”). Spachoice is a subsidiary of a Chinese company, Guangdong Crystal Island Healthwise Co., Ltd (“Crystal Island”). Oasis Leisure Products Pty Ltd (“Oasis”) is a wholly owned subsidiary of Crystal Island.
7Dean Jordan was the sole director of ILS. He conducted an associated company with Mr Leonard van Hoof called NLRD Pty Ltd, which operated a business known as “Just Spas Essendon” (“the Essendon store”).
8Mr Jordan’s sister-in-law, Ms Lisa Mayer, operated a similar business in Hallam through Just Spas Bayside Pty Ltd (“the Hallam store”).
9In 2019, the “Just Spas” businesses were in the process of changing supplier to another brand called “Sapphire Spas”. In July 2019, Mr Adam Stone, an employee of Spachoice, contacted Mr Jordan and sought to use Spachoice as a supplier to ILS. Mr Jordan presented Spachoice with an opportunity to purchase the Kilsyth, Essendon and Hallam businesses.
10A series of meetings followed between Mr Stone, his supervisor, Ms Lisa Devenish, and later (in August 2019) with Mr Lai of Spachoice and Mr Jordan, Ms Mayer, and Mr van Hoof from mid to late July 2919.
11On 11 August 2019, Mr Lai met with Mr Jordan at a café on Graduate Road, Bundoora. ILS claims that what was discussed was, in substance, that instead of Spachoice purchasing three businesses, it would purchase only the Essendon and Hallam stores, and ILS would convert its Kilsyth store into a display of Spachoice’s range of swim spas. ILS contends that Spachoice was to pay ILS the profit of each sale. This is disputed by Spachoice.
The Witnesses
Dean Jordan
12Mr Jordan is the sole director of ILS.
13Mr Jordan had been in the spa business since around 2007. He had operated around 5 stores in that period.
14Mr Jordan’s evidence was not completely satisfactory, and he had difficulty explaining what was discussed clearly. There were gaps in his recollection, however, his memory lapses were generally explicable by the extensive effluxion of time involved with this case.
15Mr Jordan conceded that, in his email correspondence, he had made a number of errors such as referring to the month of “October” instead of “August” and the sum of “$30,000” instead of “$20,000”. These inconsistencies occurred at the relevant time. Further, as set out below, Mr Jordan gave contradictory evidence concerning his lack of understanding of what a tangible or intangible asset was, that the restraint of trade allowed him to sell Oasis products at the Kilsyth store for his own benefit and his subsequent claim that he could not operate the store as a retail store and the false Employment Separation Agreement prepared for his employee, Ms Zoe O’Connor and the reasons for her termination. Given the flux of time, his oral evidence was not very specific. In light of the gaps in Mr Jordan’s recollection, I cannot rely on his evidence absent other objective evidence.
16Mr Jordan said that he expanded the business of Just Spas as they did not have a great client presence. He explained the arrangement with Spa Industries Global Pty Ltd was a “stock to rock consignment stock agreement”. The Just Spas Retail Partnership Agreement dated 6 June 2017 was executed by Spa Industries Global Pty Ltd and Mr Jordan.
17Mr Jordan entered into a commercial lease for the premises on 5 June 2017 for a period of 3 years, with an option to renew for one further term of 2 years to be exercised by 4 March 2020. The rent was $4,166.00 per month (excluding GST) or $49,992.00 per annum.
18Mr Jordan said he was better at customer relations, as opposed to writing or emails.
19By email dated 2 March 2019 from Ms Sharon Tomlinson from Sapphire Spas, Business Development Executive, a competitor of Just Spas, communicated with Messrs van Hoof and Jordan. Mr Jordan liked their product and explored future possibilities together. Ms Mayer reached out to Ms Tomlinson to change suppliers because they had some issues with Just Spas’ warranties and the shift in the company meant they had some issues with the products being manufactured in China. The agreement was terminated on 15 September 2019. That would give a 15-day period to restock and refresh the fit out for new branding. Meanwhile, Sapphire Spas were manufactured in Pakenham.
20From March 2019, they negotiated with Sapphire Spas. On 18 July 2019, Ms Tomlinson wrote to Ms Mayer and Mr van Hoof about store models. By email dated 18 July 2019, Ms Mayer wrote to Ms Tomlinson and Mr Jordan with some examples of orders for floor stock. Mr Jordan had not made a decision about whether to sell to Spachoice or Sapphire. He said that the idea was that he would help Crystal Island break into the market. Mr Jordan conceded that, in August 2019, they still had time to go with another company such as Sapphire Spas, instead of Spachoice. Mr Jordan said they wanted to open up in the busy period with the new company in December 2019 to March 2020.
21The first contact with Spachoice was with Mr Stone.
22Mr Jordan received a message from Ms Devenish in July 2019, who wanted to speak about some numbers and figures about what Spachoice could offer. Mr Jordan had design work and retail pricing set with Sapphire Spas at the time. Mr Jordan and Ms Devenish discussed past sales that ILS had done, and the future. They wanted a feel for what the shops had done and the reasons for leaving Spa Industries. The future involved different options. Ms Devenish wanted some numbers in the way of sales so they could show a concept to those higher up.
23Mr Jordan had a discussion with his sister-in-law, Ms Mayer, and Mr van Hoof, who were “both on board with selling”.
24By email dated 27 July 2019, Ms Devenish wrote to Mr Jordan entitled “something to work with you over”. It set out an offer of being out of the business in 6 months for the sum of $300,000.00. The offer was for the three businesses. Ms Devenish and Mr Stone came to Mr Jordan’s Essendon store and discussed what the sales could be, and what Mr Jordan’s role could be. Mr Jordan trusted Ms Devenish and Mr Stone enough to draft up an offer on his behalf.
25Mr Jordan and Mr Stone had a coffee at the Hungry Fox cafe in Essendon Fields and discussed the takeover of the three stores. Mr Jordan said they were still moving forward with the idea. He gave the breakdown of the stores’ incomes. Mr Jordan said they were big in their marketplace and Mr Stone wanted that benefit.
26By email dated 27 July 2019, Mr Jordan wrote with a change to the amount sought to $480,000.00 after discussions with Ms Mayer and Mr van Hoof. Mr Jordan said that the collective did not intend to stay on in the business for too long if they were being bought out. They were happy to do a transition period. They spoke about the financial side and Mr Jordan said that they discussed business breakdown for the three stores with a deposit paid.
27By email dated 29 July 2019, Mr Lai wrote to Mr Jordan referring to a phone call earlier that day and advising that the Board accepted the price of $480,000.00 with a deposit of $50,000.00 (within 7 days of signing the letter of intent) and $100,000.00 (within 7 days of settlement) and the instalments over three years. In return, there would be joint co-operation between the stores and Spachoice, they would not complete and Mr Jordan and Mr van Hoof would continue to run the business and ensure it is profitable. Mr Jordan did not accept that Mr Lai raised with him that the Board was not interested in the Kilsyth store in the telephone call.
28In an email dated 29 July 2019, Mr Lai informed Mr Jordan that the Board had agreed to the sum of $480,000.00:
“Value: 480,000AU$,
Deposit: 50,000AU$ (within 7 business days after the letter of intent is signed).
Initial instalment: 100,000AU$ (within 7 business days after settlement)
Remaining balance will be divided into three equal instalments (110,000AU$),
paid in next three years when net profit is not less than 150,000AU$ every year.”
29Mr Lai noted in the email that, generally speaking, Spachoice would pay for the following:
“1. Fit out of store
2. Lease of store, so you can walk away three years later with minimum cost
3. Stock, free up your cash flow
4. Marketing
5. 150,000$ for sure + 330,000$ when business runs as expected + additional bonus when financial performance is more than expect.”
30Mr Jordan wanted to get out of the spa industry or change suppliers. Spachoice needed to grow their business. They only had the one shop in Bayswater. Their presence at the Spa Shows at the Melbourne Convention and Exhibition Centre was very small. Ms Mayer wanted to be bought out. She did not want to work for the purchaser otherwise she would prefer to have the business as her own, rather than have bonuses and commissions. They were also still in discussions with Sapphire Spas. Ms Mayer was in favour of Sapphire Spas. Mr Jordan said he was on the fence at the time.
31By email dated 30 July 2019 from Mr Jordan to Mr Lai and Ms Devenish, Mr Jordan was working through the sale details. Mr Jordan said he only had a few amendments. He said there was tinkering in respect of the deposit amount and initial instalment amount. The email, relevantly, stated that:
“The benefits of buying the 3 businesses with the fore mentioned conditions;
- Return of 150,000 AU$ plus in the first year but we will
- Convert 1,300,000 AU$ of spa sales to you from your competitor
- Have 3 Co-operators with 30 years combined experience to grow your market share”
32Mr Jordan said they opened up the Kilsyth store to compete with the Spachoice Bayswater store which was operating as “Sparight” pre-2019.
33On 1 August 2019, Mr Lai responded to Ms Devenish and Mr Jordan with a letter of intent agreeing to adjust the deposit and initial payment from $150,000.00 to $180,000.00:
“In regard to your question this morning, the profit need to be 150,000AU$ in one full year for 150,000$, we need a firm guarantee of 150,000AU$ profit, but to me, it is about the same as what you suggested, when you make less, you use your money to fill the gap between actual profit and target profit, you then can have 150,000 from us.
For instance, if profit is 140,000AU$, you can always find a way to make up the rest 10,000AU$ by using your money, you then have 150,000$ back from Crystal Island / Spa choice.”
34Mr Jordan did not think that the email accurately relayed what had been discussed. The letter of intent was not in a form that he had seen before, so Mr Jordan thought an agreement needed to be drafted by Australian solicitors. Mr Jordan said that the letter of intent was only in respect of the Essendon and Hallam stores, and not the Kilsyth store, but Mr Jordan did not appreciate that at the time. He said that he did not understand it at that point, particularly that it only covered two stores and not three stores. Mr Jordan did not agree that this letter of intent reflected his conversation with Mr Lai. For example, Mr Jordan pointed that a new target of minimum revenue of $2m in any one year after the settlement date was inserted in clause 7.1 of the letter of intent. Mr Jordan claimed Spachoice was buying all three stores and there were ideas floating around between Ms Devenish and Mr Jordan for the Kilsyth store, and he and Mr van Hoof would be running the Hallam and Essendon stores. Mr Jordan’s main concern was the targets for the stores which he said were “not right”.
35Mr Jordan said that Mr van Hoof told him that “we have wasted enough time” and to go with Sapphire Spas. Ms Mayer said that they should go to an “Australian Solicitor” if they were to move forward with Spachoice. Mr Jordan was happy to keep trying with Spachoice because he thought it was a better option, but they needed solicitors involved.
36Mr Jordan called Ms Devenish on 2 August 2019 to discuss the email. He said that the deal was going “pear shaped” and it kept changing every day or every week. Ms Devenish said they should organise a meeting.
37Mr Jordan met Mr Lai for the first time on 8 August 2019 and went into a boardroom at their premises in Ringwood. Those present included Mr van Hoof, Ms Mayer, Mr Stone (who came in and out), Mr Furong Huang (Spachoice’s accountant) and Mr Lai. Mr Jordan said that he was there for about 3-4 hours. They discussed how ILS could help build the Spachoice business. Mr Jordan recalled Mr Lai did most of the talking. He spoke about the finances and how to meet targets and then getting a bonus of $100,000.00 or any of the three vendors opening more shops up and obtaining more profit over a longer period. The three of them would be employees but hitting bonuses and targets. Mr Jordan did not agree with the proposition that at that meeting they discussed the letter of intent. Mr Jordan said he wanted to discuss how the contracts would work.
38Mr Jordan gave inconsistent evidence about understanding what the terms of the letter of intent meant, particularly in relation to “tangible” and “intangible assets” contained in clause 5.1. He claimed that, at the time of reading the letter of intent, he did not understand those terms but now understands what they mean. However, on cross-examination it was apparent that he still did not understand those concepts and others, such as “pledge or security interests of whatever kind”, set out in those clauses. His evidence was not very specific and was given at a very high level and in vague terms. Mr Jordan did not present as a sophisticated person, and he was unable to explain the contract in clear and effective terms.
39Mr Jordan said that, in the discussions on 8 August 2019, they spoke of Ms Mayer leaving the business. Mr van Hoof and Mr Jordan talked about a time frame of working for 2 years in the Hallam and Essendon stores respectively. Mr Lai then said that they did not want the Kilsyth store. Mr Joran said that he was shocked and felt that he had wasted 3 hours. He described it as a “bomb shell”. He claimed he was about to walk away.
40Mr Jordan said that the proposed remuneration arrangement for the 2 years was a bonus situation if he and Mr van Hoof met the set targets. The target was about $1.5m and they would get their bonus through that system. There was an initial deposit and a management fee. The $480,000.00 was to be paid in stages: a deposit at signing the contract, then an instalment was paid on settlement and over the next year would be a target and the following year after that. Mr Jordan and Mr van Hoof did not get paid out upfront. However, Ms Mayer did get paid out as a lump sum.
41Mr Jordan said that there is not a reduction in the purchase price because they were keeping 2 managers and their market, even if they were buying 2 instead of 3 stores.
42Mr Jordan and Ms Mayer went to Nandos after the meeting and discussed how wrong the discussion had gone. They thought before the meeting they would be moving forward with Spachoice. On 8 August 2019, there was a missed call from Ms Devenish. Mr Jordan called Ms Devenish back and she said not to give up the deal. Ms Devenish called him and said that she was shocked that this situation happened, and she would try to talk to Mr Lai. Mr Jordan said if they could work something out, they were nearly there and they would consider that situation.
43Mr Jordan said that he sent a screen shot of a map of the Kilsyth store to Mr Lai on 9 August 2019 to show what Spachoice would miss out on. Mr Lai came to the Kilsyth store, and he saw how big the store was and the number of spas on the floor. Mr Lai said that they had no intention of taking on the Kilsyth store as it was too close to their Bayswater store. Mr Jordan said that all three stores were on offer to Spachoice. He understood that Mr Lai was offering only to purchase the two stores at that time.
44Mr Jordan told Mr Lai that he needed to come up with a concept or idea or they would be walking away. Mr Lai saw the showroom and what he was “missing out on” in passing up the Kilsyth store.
45Mr Lai said that he would go back and have a think about how it could work. Mr Jordan arranged to meet Mr Lai in Box Hill for lunch where Mr Lai was staying. They discussed the Kilsyth store. Mr Lai said that as long as Mr Jodan kept up the rent for the period in the Kilsyth store, they would have the store open. His idea was Mr Jordan would pay the rent and Mr Lai would put the swim spas on the floor and Spachoice would use it as their display area and bring the clients on site.
46Mr Jordan said that the other topic of conversation was the Essendon and Hallam stores and how they would operate and how Mr Jordan would be free of running the Kilsyth store and he would be running Essendon store so he could meet his targets. Mr Jordan arranged to meet with Mr Lai again in Bundoora. He said that he had to meet with Ms Mayer and Mr van Hoof. He said that the Kilsyth store would just be “ticking along”.
47By text message on 10 August 2019, Mr Jordan and Mr Lai were in contact about meeting at around 12 noon at Graduate Road in Bundoora. They had a 2-hour conversation about Mr Lai’s proposal on how the Essendon and Hallam stores could run. Mr Jordan claimed that Mr Lai said that the Kilsyth store have a lot of merit in his eyes, and he wanted to keep the buyout situation to grow with Crystal Island. When the Kilsyth store situation came up, Mr Lai offered to Mr Jordan that he keeps that store, as the Board felt it was too close to their Bayswater store. Mr Jordan did not accept that Mr Lai said they were not interested in buying the Kilsyth store. Mr Lai claimed that Mr Jordan was worried about the lease running on the premises. Mr Jordan said that he would find another supplier and run the business. Mr Jordan said it was not discussed that only the 2 stores would be sold, and he would be restrained from running the Kilsyth store. They did not discuss terminating the lease with the landlord or a release from the lease earlier.
48Mr Jordan accepted that, as an idea, he raised rebranding the Kilsyth store as a Spachoice store and Spachoice taking over the store as part of purchasing all three stores. It was put to Mr Jordan that Mr Lai claimed that it was not on the cards that they would purchase the Kilsyth store. Mr Jordan disagreed with that. It was put to Mr Jordan that Mr Lai says that Mr Jordan could use the Kilsyth store as a display store for a year until the lease ran out and how they could help him out, while they did not purchase the Kilsyth store. Mr Jordan did not accept that position.
49Mr Jordan then met with Mr Lai the following day at his hotel on 850 Whitehorse Road on 10 August 2019. They then went to lunch at a Chinese restaurant. Mr Jordan said that Mr Lai had come up with the concept for the Kilsyth store. Mr Jordan would still own the store and Spachoice would bring in their stock and customers into the store and he would get the difference between the retail and wholesale price. He accepted that the Spachoice Board would not buy the third store.
50Mr Jordan did not recall asking for more than $180,000.00 upfront from Mr Lai at the Chinese restaurant. Mr Jordan did not accept that he asked for more money for the deposit. He said he was comfortable with the three vendors getting $180,000.00.
51Mr Jordan said, if the Kilsyth store displayed Spachoice’s spas, he would be rewarded with the difference between the wholesale and retail price in the sales. If Mr Jordan kept the Kilsyth store open, Spachoice could use it and come and go as they wished. Mr Jordan said that Spachoice would be able to operate the Kilsyth store under its own banner and increase its market share. He said that the mechanics of being paid under this arrangement was monthly, once the spas were sold. Mr Jordan said that Spachoice would keep him in the loop by emailing some spreadsheets, or some other form of documentation, showing the payment of deposits made by people who had bought spas. He would then invoice Spachoice. Mr Jordan acknowledged that he could make sales himself too through ILS. He saw that as a benefit because he had “so many dealing with people over the years”. However, Mr Jordan said he would step away from the Kilsyth store and he would be running the Essendon store as its own standalone store.
52Mr Jordan said that Spachoice could display up to 15 swim spas in the Kilsyth store. They had 10-12 on the floor at a time and Spachoice could come and go, and he said that Spachoice had control over which spas were displayed. Mr Jordan said that they did not discuss ILS having a consignment like other stores. He said that he did not have to operate the Kilsyth store on the old consignment basis. Mr Jordan said that they both proposed the branding of the new store as “swim spa superstore”. He saw the arrangement as a long-term situation where ILS and Spachoice would work together for the branding of the new stores and to make Spachoice bigger. Mr Jordan said that they discussed Spachoice paying ILS $20,000.00 towards the shop fit out, the management side of the stores, and the restraint of trade. Mr Jordan said that the timeframe of the 5-year restraint was an open discussion as he saw it as a long-term thing and not a “fly-in fly-out” situation.
53Mr Jordan said that ILS would pay the rent and outgoings, and it would operate for a period as long as he kept paying the rent. Mr Lai claims there was no discussion raised around profit-sharing at the meetings on 10 and 11 August 2019. It was put to Mr Jordan that Mr Lai claims that was first raised on 26 November 2019 after the contracts of sale for the Hallam and Essendon stores were signed. It was put to Mr Jordan that Mr Lai claims what was discussed was the concept of rebranding the store and paying an amount of money to enable the rebranding and the payment upfront to the three vendors and the first instalment and that there was no discussion about profit-sharing at that stage. Mr Jordan disputed this.
54Mr Jordan said they discussed the concept of the Essendon management fee that was back charged to Spachoice which was made up of rent, wages, outgoings, and the business meeting target. Mr Jordan and Mr van Hoof were locked in for 2 years after the contracts of sale were signed and they were paid a salary on an hourly basis that varied.
55Mr Jordan said that he could make his own sales at the Kilsyth store as an incentive. It was his store, so he could continue to sell their Oasis Spa product, and he knew a lot of people. Those sales were Mr Jordan’s sales. He denied that he could still run the Kilsyth store as he was busy running the Essendon store. Mr Jordan further denied that he had an opportunity to run the store. Mr Jordan accepted there is no document that restrained him from operating the Kilsyth store. But as a matter of practicality, the Spachoice Bayswater store was 1.08km down the road. He owned the Kilsyth store and had the opportunity to make sales, but he did not operate it and Spachoice was free to come and use the Kilsyth store. Mr Jordan said Spachoice wanted to use it as their display centre themselves and he did not have a running control of the business, as his focus was running the Essendon store.
56Mr Jordan did not agree that he would be free to employ someone as a salesperson in the store as the agreement was not to have a staff member there. He said there was no point employing someone to sit around doing nothing and wait for Spachoice to bring a staff member and customer from the Bayswater store. Mr Jordan said ILS paid the rent and Spachoice would “look after the store”. He did not agree that he was free to run the store as a dealership. Mr Jordan did have a staff member, Ms O’Connor, employed at the Kilsyth store until January 2020 and he gave her eight weeks’ notice as she was “no longer needed in the store”.
57The restraint clause for the Essendon contract excluded the Kilsyth “swim spa super” store operated by the Vendor, only if and when that business sells products that are supplied by the purchaser. Mr Jordan accepted the restraint allowed him to sell Spachoice products. Mr Jordan could open another store after 2 years and sell Oasis products for 5 years of which 2 years he was working as management.
58By text message dated 12 August 2019, Mr Lai sent two options with screen shots of Excel spreadsheets. Mr Jordan responded to the text message and referred to reducing his $100,000.00 share “to help the situation” and that, with his wife’s help in running and working in the Kilsyth store, they would work towards gaining a profit. Mr Jordan said that he could see a great future together. He referred to the Board and said he was sorry if they could not see this. It was put to Mr Jordan that Mr Lai said the figure of $180,000.00 would “not do it”, and Mr Jordan wanted $260,000.00 upfront. Mr Jordan said that he did not remember the conversation. Mr Jordan said there were so many figures being floated around at that point.
59It was put to Mr Jordan that one option on the spreadsheet showed Mr Jordan running the Kilsyth store for a year himself. Mr Jordan said this was not something that had been discussed. The spreadsheet indicated there was a reduction in the price with a distribution of $60,000.00 to Mr Jordan, $100,000.00 to Ms Mayer and $20,000.00 to Mr van Hoof, with an instalment of the purchase price of $240,000.00. The spreadsheet allowed for a $20,000.00 payment to run the Kilsyth “swim spa mega store” for one year. Mr Jordan said this did not reflect what they had discussed the day before. The spreadsheet also set out a $120,000.00 performance bonus for the first year and then another performance bonus in the sum of $120,000.00 in the second year, which were triggered by sales of after-tax profit of $100,000.00 which would be split $50,000.00 to Mr van Hoof and $70,000.00 to Mr Jordan. Mr Jordan did not agree with the accuracy of these figures.
60Mr Jordan said the deal was still up in the air. Mr Jordan still had the “Just Spas” supply until 15 September 2019. Mr Lai’s evidence was the deal was to allow Mr Jordan to run the store until the lease for the Kilsyth store expired and after that Mr Jordan could decide what he wanted to do with the Kilsyth store. Mr Jordan disputed this.
61The second option set out in the spreadsheet would require a $110,000.00 net profit to trigger payment of a higher amount. Mr Jordan did not agree that the proposal was to try it for the period until the end of the lease. Mr Jordan’s evidence about the negotiations of the payment terms was chaotic and affected by his lapses in memory.
62Mr Jordan said that Mr Lai responded that he would talk further to the Board and see what can be done. He acknowledged that an increase of a $180,000.00 purchase price to $260,000.00 is a big jump to them. He was hopeful that they could work out the figures. Mr Jordan said that he would not hand out another company’s price list without any faith that they were actually moving forward.
63Mr Jordan wrote to Ms Devenish by text message on 12 August 2019 and said, “another day another curve ball…I am really sorry as it would have been so good doing this but I’ve said we are out”.
64Mr Lai sent a text message to Mr Jordan on 12 August 2019, advising that the Board was compromising with faith that they could do something bigger in the future. He requested a copy of the Sapphire Spas price to have “some vision” and to see what the retail and wholesale price for Sapphire Spas was. Mr Jordan said Spachoice wanted to get the pricing right as it would go into the management fee. Mr Jordan said that they were taking about how they could work together and keep working in bigger situations in the future. He said there was always an end game that they were going to be expanding in the future. Mr Jordan said he was reluctant to hand out another company’s price list without any faith that they were moving forward.
65The next day, on 13 August 2019, Mr Jordan met with Messrs Lai and Stone at the Ringwood warehouse. Mr Jordan said they brought Mr Stone up to speed on the last conversation. Mr Jordan claims that Mr Lai said that Mr Jordan would “get the difference between retail and wholesale” profit share, and said, “this is good for you” and “this is going to work, we are going to build”. Mr Jordan could not recall raising concerns about the prices being too high. Mr Jordan did not agree that he did not raise the issue of retail and wholesale prices at the meeting.
66Mr Jordan went to a solicitor prior to 13 October 2019 to get the contracts for the sale of Essendon and Hallam stores drafted in “Australian terms”. By email dated 14 October 2019, from Mr Jordan to Messrs Stone and Lai and his accountant, Mr Michael Jolley, he attached some alterations to a contract. There were continual changes to the contract between the parties’ solicitors. There were tax implications in the sale which had to be sorted.
67Messrs Stone and Jordan were making changes to the contract. Mr Lai responded by email on 13 October 2019 that the Board was very busy in the next few days. Mr Lai wrote that he felt that all business decisions had been made and “there is nothing to do with the board, all we need to do now is to put what was agreed on writing that works for both of us.”
68On 14 October 2019, Mr Jordan sent an email to Mr Jolley and asked him for an address for the meeting. He asked Mr Jolley to print off the contracts. Mr Stone attended the meeting and Mr Lai was available on WeChat. Mr Jordan said they worked through the accounting side to make the contract work in relation to tax exposure and how the management fees would run for the Essendon and Hallam stores. They also discussed the restraint periods. There was nothing discussed about the Kilsyth store. Mr Jordan said the restraint period could not work if he was to work in the Kilsyth store. Mr Lai agreed there needed to be a change to include the Kilsyth store in the restraint period. Mr Jolley made suggestions to reword the restraint clause. Mr Jordan wondered why the Kilsyth store was not included.
69On 16 October 2019, Mr Lai provides some sample restraints to Messrs Jordan and Stone and referred to the 5-year time frame. Mr Jordan said that the discussion at Mr Jolley’s house was around the 5-year period. Mr van Hoof’s concern was working outside the shop during the period if he did not “stick around”. Mr Jordan agreed that ultimately it was agreed that it would be a 5-year period.
70By email dated 20 October 2019, Mr Stone sent an email to Messrs Lai and Jordan attaching scanned copies of the documentation with notes and changes. Mr Jordan sat down with Mr Stone in Ringwood the day before. The handwriting in that draft contract includes the reference to the swim spa display centre in the 5-year restraint of trade clause.
71Mr Jordan sent an email in response on 20 October 2019, which relevantly states:
“I will talk to solicitor about this, swim spa super center as well as any new store under spachoice (open by Dean) shall be excluded, can you get company name and trading name (if applicable) and store address to me, solicitor may need them for relevant clause.”
72By email dated 14 November 2019, Mr Stone sent a draft email to send to Mr Lai to Mr Jordan, written on his behalf, stating that they needed to discuss the Kilsyth store now that the other two shops “are nearly completed”. The signs were going up on the Kilsyth store for the swim spa superstore. Mr Jordan had received swim spas from Spachoice’s warehouse, and they were being put into the showroom. Mr Jordan referred to the sum of $30,000.00 towards the shop fit out, which was a mistake. He said that he had not been paid for the Kilsyth store and there was a downturn while he waited for the rebranding to occur.
73By email dated 15 November 2019, Mr Lai sent an email to Mr Jordan about the Kilsyth store, and he corrected Mr Jordan about the amount of $20,000.00 and on both options in the Excel spreadsheets from August 2019, was payable to Mr Jordan to run the superstore for one year. Mr Jordan responded that it has been 2 months, and he had lost money on wages, electricity, rent and outgoings and also had no sales during the changeover period.
74On 17 November 2019, Mr Jordan acknowledged that the sum was $20,000.00 and noted there were no sales and no stock or signage with no customers coming in. Mr Jordan asked for an extra $10,000.00 towards the Kilsyth store to keep it afloat as he had “lost a large amount of money” waiting for Spachoice. Mr Jordan wrote that if he had known it would “be this way”, he would have closed the shop or rented it out or taken on another supplier, such as Spas Direct.
75By email dated 18 November 2019, Mr Lai responded that he did not feel that introducing other brands, especially Spa Direct, would improve Mr Jordan’s situation. He wrote:
“Melbourne is a large pools and swim spas market, when you present the idea of super swim spa center, we both feel that it will work. Our Bayswater store is a small store with maximum two swim spas, it is nothing close to your stores, I expect most swim spas sales will be done by your store.”
76Mr Jordan did not accept that the 18 November 2019 email meant that the Kilsyth store was to be a Spachoice dealership making all the sales. Mr Jordan said that he his “head space [was] pretty down”, he was waiting for the contracts to change over, and he had not sold anything through the Kilsyth store.
77The contracts of sale of business for the two businesses were executed on 25 November 2019 and did include the restraint of trade for 5 years with a carve out for the Kilsyth store.
78On 26 November 2019, Mr Jordan sent a text message to Mr Lai asking if he had time to meet to discuss the direction going forward. Mr Jordan said that he found out Mr Lai was in town and wanted a meeting. They discussed marketing, how to get people through the store, the next 6-month projections and expansion. Mr Jordan suggested, in relation to marketing, improving Facebook marketing, and internal signage in the store. Mr Lai said Mr Jordan should work with their marketing person. It was put to Mr Jordan that Mr Lai says the concept of referring to the Kilsyth store was raised at this 26 November meeting. Mr Jordan said it was raised in his previous email. Spachoice would still need to market for the Kilsyth store. Mr Jordan did not have the store as a retail store but a display store. It was put to Mr Jordan that Mr Lai says to assist Mr Jordan, he would direct customers to the Kilsyth store and if they purchased, they would pay Mr Jordan the difference between the wholesale and retail price. Mr Jordan says this was already discussed in August 2019.
79They discussed sales targets for the Essendon and Hallam stores. He discussed the previous sales and targets and wanting to build on those numbers.
80Mr Jordan at this time was spending most of his time in the Essendon shop. He was at the Kilsyth store once per week and he had a staff member, Ms O’Connor, in there who ran the store 5-6 days per week. She was the sales assistant until 23 January 2020. They had to let her go and gave her 8 weeks’ notice period commencing the day before signing the contract. Mr Jordan said that the Kilsyth store did not need a sales assistant after that period. They stated in the Centrelink form that she had to be let go from a non-performance point of view (which was not correct) and gave her termination because of the sales of the shop.
81Mr Jordan said that the rebranding of the Kilsyth store was completed in mid-January 2020.
82By invoice to Spachoice dated 19 December 2019, in the sum of $22,000.00, Mr Jordan invoiced Spachoice for the $20,000.00 contribution (plus GST).
83By email dated 19 December 2019, Mr Jordan asked Spachoice’s accountant, Mr Huang, to pay the invoice. Mr Jordan chased up Mr Lai by email dated 21 January 2020 to let Mr Huang pay the invoice.
84By text dated 22 January 2020, Mr Jordan was still chasing up the $22,000.00 payment with Mr Lai. Mr Lai said that it was under process and would need finance to get a signature from the Board and asked if Mr Jordan could wait 10 more days.
85Mr Jordan said that he did not exercise the option to renew the lease by 4 March 2020. He said he could not recall specifically why he did not renew the lease. Mr Jordan was busy working at the Essendon store, and he was asking Mr Stone and Mr Ryan Zhu Spachoice’s accountant, after January 2020 about sales at the Bayswater store.
86By tax invoice dated 28 March 2020 from NLRD Pty Ltd to Spachoice, NLRD Pty Ltd sought a sum of $97,313.38 for management fees for the period 1 December 2019 to 28 February 2020, running costs, chemicals and fit out for the Hallam and Essendon stores. Running costs included wages, insurance, rental costs, electricity, water, and rates. Similar invoices were rendered on 31 December 2020 in the sum of $24,234.54 and $30,919.53.
87By email dated 14 April 2020, Mr Jordan wrote to Mr Stone because COVID has hit and there was unrest in the industry. The shops would not be on track for the targets for the Essendon and Hallam contracts. Messrs Jordan and Mr van Hoof approached Ms Ginger Zeng, Mr Stone, Mr Lai and Mr Craig Peaker (National Sales Manager of Spachoice) asking for a halt in the November 2019 contract given the COVID situation. Mr Stone wrote the email on behalf of Mr Jordan to send to Mr Lai.
88On 28 April 2020, Mr Lai wrote a response to Mr Jordan’s email about the situation at the Kilsyth store in blue font. Mr Jordan said that the Kilsyth store as a support to the Bayswater store, would be getting more clients through their store and they would support the Kilsyth store to meet rent and have profit at the same time. Mr Lai said that if the Bayswater store brought customers to the Kilsyth store, and if the customer ended up buying at the Kilsyth store, then Mr Jordan would take retail profit and commission and Spachoice takes the wholesale profit.
89Mr Jordan accepted that this email is the first time he wrote about the arrangement that he says he struck in August 2019. There is point of difference as to how the commission would work between the parties. There was agreement about the difference between the wholesale and retail price. Mr Jordan understood that when he worked out profit, he looked at what he bought it for and what he sold it for, and he would compare “apples with apples” in relation to GST. The arrangement was in relation any sale of swim spas minus the accessories, commission and delivery at the Bayswater and Kilsyth stores. Mr Lai claims the share of the profit was only if a Spachoice person took a client to the Kilsyth store and if a sale was made there. Mr Jordan said that the arrangement was very clear.
90Mr Jordan conceded that the place of purchase would refer the client to the manufacturing company for warranty issues.
91By email dated 5 May 2020, Mr Jordan wrote to Mr Lai attaching invoices.
92By email dated 11 May 2020, Mr Jordan wrote to Spachoice deciding to close down the Kilsyth store unless he could get the pricing list by 12 May 2020, the next day. He was asking for better pricing as he was not accepting the prices that Spachoice was giving him. The lease was to be signed the next Thursday, so he needed to know if the shop was going to be viable. Mr Jordan had been asking for wholesale pricing for months so he could create the invoices. Mr Jordan said he had not received any funding apart from the $22,000.00 for signage. Mr Jordan said he could not renew the lease if the company was not paying him for what was due to him. Mr Jordan rejected the contention that the reference to an “independent shop” in his email meant he could run it as a “dealership”. He said that the dealerships had a different price list to an independent shop
93By email dated 11 May 2020, Mr Peaker wrote to Mr Jordan attaching the new pricing for the Swim Spa Super Store spreadsheet. Mr Jordan said he used the wholesale pricing to calculate the profit from the retail price. He said that if he did not get the pricing, he could not get paid. Mr Jordan said that he would have to close the Kilsyth store if he was not being paid as no money was coming in.
94By email dated 21 May 2020 from Mr Jordan to Mr Zhu, Mr Jordan sent an Excel spreadsheet of the sales of swim spas from 1 November 2019 to 1 February 2020 produced by Mr Zhu.
95By 27 May 2020, Mr Zhu sent Mr Jordan the Excel spreadsheet regarding sales related to the Kilsyth store together with the quote/tax invoice documents being the source documents for the spreadsheet. This was the first set of documentation given to Mr Jordan about the sales.
96On 1 June 2020, Mr Jordan emailed Mr Zhu asking for the Excel spreadsheet so he could create an invoice. Mr Zhu responded that the green highlights are the amounts to be invoiced, as the yellow ones had not been dispatched yet.
97Mr Jordan sent an invoice on 2 June 2020, in the sum of $28,394.50 and it was paid on 10 June 2020.
98On 30 June 2020, Mr Jordan generated an invoice to Spachoice in the sum of $6,770.57 but this was not paid.
99On 5 August 2020, Mr Jordan generated an invoice to Spachoice in the sum of $9,393.73 but this was not paid.
100On 17 July 2020, Mr Jordan renewed the lease from 5 June 2020 for period of one year. He dealt with his landlord, Ms Gab Bartolo, who said he needed to sign his lease. There was a delay because Mr Jordan was only just starting to see income for the Kilsyth store since November 2019 when they signed the contracts. He could see future profit, as there were about 150 spas that had not left the store yet. There as a rent reduction due to COVID from $54,071.40 to $27,035.64.
101By email dated 6 August 2020, Mr Zhu sent a spreadsheet in the same form as before attaching the quotes/tax invoices.
102On 24 August 2020, Mr Zhu wrote to Mr Jordan informing him that his manager “had a bit of an issue regarding the calculation for July’s commission”. Ms Shirley Liu, Chief Financial Officer of Spachoice, said they needed to deduct the freight charges and Mr Zhu changed the invoice total to exclude delivery cost and updated the accessories amount. Mr Jordan discussed this with Mr Zhu and did not have a problem with the delivery cost and he redid the invoice and sent it back.
103On 27 August 2020, Mr Jordan wrote to Mr Zhu about the invoices and Mr Zhu replied that his managers were having issues with payment for management fee and commission. Mr Zhu replied that he believed all the information was consistent with the agreement between Messrs Jordan and Lai.
104On 28 August 2020, Mr Zhu asked Ms Brenda Liao to contact Mr Jordan to discuss the issues with management fees and commission as a matter of urgency. Mr Jordan did not recall a telephone conversation with Ms Liao.
105By email dated 29 August 2020, Mr Lai wrote to Mr Jordan saying that he did not disclose to the Board the deal made between them, that if a Bayswater sales staff brought a customer to the Kilsyth store and a deal was made in the Kilsyth store, then the Kilsyth store received the retail profit and Spachoice kept the wholesale profit. Mr Lai informed Mr Jordan that his financial department looked into the details and the Board “disagreed with it entirely, as a result, our recent payment application is denied”. Mr Lai offered Mr Jordan a fixed rate of $200.00 per swim spa before GST. Mr Jordan said it was unsustainable for the Kilsyth store to be open. He had signed for a new lease and Spachoice now offered $200.00 per swim spa compared to receiving $3,000.00-$10,000.00 on some of the swim spas. Mr Jordan said it was another change that was not what had been discussed.
106Mr Lai’s email referred to a deal struck earlier in the year and not August or November 2019. Mr Jordan accepted that by directing people to the Kilsyth store would help sell more swim spas, but Mr Lai did not disclose the wholesale and retail profit arrangement to the Board. It was put to Mr Jordan that Mr Lai claims it was his understanding that either party could walk away from the arrangement at any time and there was no time frame. Mr Jordan did not agree with Mr Lai’s position. Mr Lai claims that he was ending the arrangement on 29 August 2020 because the Board did not like the situation.
107By email dated 8 September 2020, Mr Jordan wrote to Spachoice waiting on an update on how to proceed with the commissions. Messrs Stone and Zhu could not believe the situation. Mr Jordan said Mr Peaker did not know what was going on. Mr Jordan gave him context showing the previous transaction, emails, Excel spreadsheets and the calculations of the deal.
108Mr Jordan referred to a telephone discussion the week prior in which Mr Lai was apologising to him most of the time saying, “that he felt that it was his fault”. Mr Jordan said it did not matter whose fault it was, it had to be resolved quickly.
109On 10 September 2020, Mr Lai responded that they did not have any agreement of any type in writing or verbally that the retail profit of the swim spas sold in the Bayswater store would go through the Kilsyth store. He offered two options. Mr Jordan said the options were ludicrous as they were not sustainable for the Kilsyth store. He could not make his rent due. Mr Jordan acknowledged that there was an issue with the reference to the deal being done in “October” instead of “August”. Mr Jordan conceded this was an error in the email and he was instead referring to the August 2019 agreement.
110Mr Jordan responded to Mr Lai’s email stating that he would be calling his solicitor on Monday.
111On 14 September 2020, there was a telephone discussion with Mr Peaker, Mr Stone, Mr Lai, Ms Liao, Ms Zeng and Mr Jordan. Mr Jordan said they had to come up with a better deal and it was far away from the original deal. Ms Zeng said it was not a feasible option because they were not making money out of the deal. Mr Jordan said he would not make any money if they continued forward.
112By email dated 14 September 2020, Mr Jordan attached the Excel spreadsheet from Mr Zhu to Mr Peaker.
113By email dated 15 September 2020, Mr Jordan emailed Mr Peaker and Mr Stone attaching some email that shows the deal in place that for any swim spa sold at the Bayswater store, the profit was then invoiced from the Kilsyth store to the Bayswater store.
114By text messages dated 15 September 2020 from Mr Peaker to Mr Jordan, he noted there was no GST component on the swim spas and accessories and the total cost was “out”. The high and low recommended retail price (“RRP”) included GST but for the purposes of calculating the profit at the high and low RRP he used the RRP excluding GST so that it was consistent with the wholesale prices which were exclusive of GST. Mr Jordan said that prior to this there was no issue about GST.
115By email dated 18 September 2020 from Mr Peaker to Mr Jordan, he stated that the invoice contained spas sold through the Bayswater store and not the Kilsyth store and noted the issues with GST.
116By letter dated 17 November 2020, Mr Jordan’s solicitor wrote to Spachoice terminating the agreement. On the same date, Mr Jordan wrote to all staff that the Kilsyth store had closed as it is no longer viable to run the shop.
117Mr Jordan negotiated with Ms Bartolo to get out of the lease as he was breaking it. He said that he had to keep paying for a period, and then someone else took over the lease.
Adam Stone
118Mr Stone gave evidence for ILS. His memory lapses were generally explicable by the extensive effluxion of time involved with this case. Mr Stone gave limited evidence as he did not have a direct line to Mr Lai until Ms Devenish left the Victorian State Manager role at Spachoice in late 2019. Given the issues with Mr Stone’s memory, I am unable to rely on his evidence absent other objective evidence.
119Mr Stone works in national sales at Remco Pool Products. He was an employee of Spachoice from 2019 to the end October 2022. He started off in sales in Notting Hill and then became the Victorian State Manager. He was then based in Bayswater and then the Ringwood warehouse/head office/accounting area. The company had bought out the store at Bayswater which was a spa business.
120Mr Stone worked with Ms Devenish, who was a director and in charge of Spachoice in Australia. Mr Stone reported to her. Crystal Island was the parent of Spachoice and Oasis. He worked with Mr Lai, Ms Liao, the Oceania manager, and Ms Zeng, the European manager. Ms Devenish left Spachoice around last quarter of 2019 and Mr Stone filled her role.
121Mr Stone said that he met Mr Jordan when he heard “on the grapevine” that the store in Essendon was looking at changing suppliers. He made a phone call to the shop and Mr van Hoof was not around at the time. Mr Stone ended up speaking with Mr Jordan and he asked him if they could take them on as a dealer. Mr Jordan did not want to become a dealer, he wanted to be bought out.
122Mr Stone and Ms Devenish organised a meeting around mid-July 2019 at the Essendon store and discussed options for bringing them onboard or taking over the Essendon and Hallam stores.
123By email dated 22 July 2019 from Mr Stone to Mr Lai, Mr Stone said that he had been having further discussions with Mr Jordan. Mr Stone wrote about the Kilsyth store which was noted to be close to “us”, but he believed he had a solution for that store. Mr Stone said that bringing on three stores with one very close to their Bayswater store was not ideal because geographically there would be two stores selling the same product within 1 kilometre of each other. The Kilsyth store had one year left on the lease, and Mr Stone said it could become a “Spa Factory Seconds”. Mr Stone could not recall Mr Lai’s response to that option at that time.
124Mr Stone agreed it was not ideal to have two stores owned by the same distributor 1 kilometre apart. It was a concern, but the deal on the sale of the Hallam and Essendon stores would not go through without the Kilsyth store. Mr Stone said that the reference to one year left on the lease would suggest that, both parties see what happens with the store and consider the possibilities, including closing the store.
125Mr Stone noted that ILS was on the brink of signing with Sapphire Spas after leaving Just Spas. Unless they could act fast and secure the deal to have the three stores that circle around Melbourne to sell their spas, they would not be able to get them on board. Mr Stone noted that Mr Jordan did not want to become a dealer of Oasis spas.
126Mr Stone said that being a dealer means purchasing a spa at wholesale rate and selling at retail rate. Other responsibilities are they must run their own business. They are a separate business. The dealer also chooses what stock is on the floor.
127On 8 August 2019, Mr Stone said he was in and out of a meeting in the boardroom at the Ringwood office. Ms Devenish, Mr Haung, Mr Lai, Mr Jordan, Mr van Hoof and Ms Mayer attended the meeting. They were trying to come together on terms on how to get the three businesses on board. Mr Stone said it was a long meeting, but he could not remember how long. Mr Stone and Ms Devenish were the only ones running Spachoice, so he attended the meeting even though he was not in charge of negotiations.
128The main discussions were between Mr Jordan, Ms Devenish and Mr Lai and Ms Mayer and Mr van Hoof. Mr Lai mentioned something to Messrs Jordan and van Hoof and discussions halted. He said that Ms Devenish told him that Mr Lai was not interested in the Kilsyth store. Mr Stone was “dumbfounded”. He thought the opportunity to bring on the three stores was a great one and it was falling apart. Mr Stone thought the Kilsyth store could be used as factory seconds or a super store as there was no room at the Bayswater store to display the spas.
129Mr Stone had discussions with Ms Devenish about how to save the deal. Ms Devenish was mainly dealing with Mr Lai. He could not recall speaking with Mr Lai at this time.
130Mr Stone had discussions with Mr Jordan at Ringwood after 8 August 2019. They discussed how they could move forward with the deal. Mr Jordan said he had spoken with Mr Lai, and they had spoken about setting up the “swim spa superstore” and it would be at the Kilsyth store. He said that the Bayswater store staff could take customers to the Kilsyth store and show them the spas on display and if any spas were sold, it would form profit (after the buy price and commission was removed) of the Kilsyth store.
131Mr Stone discussed the arrangement with Mr Lai on the phone. The Kilsyth store would have swim spas in it and the profit would then go to the Kilsyth store even though it was sold through Bayswater. Mr Stone liked the idea because it was better than his idea of a factory seconds outlet. He could see the potential for earnings and commission would be better. Mr Stone explained that he received a commission on any spa sold in Victoria.
132Mr Stone sent an email to Mr Jordan and Mr Lai on 20 October 2019, after they had gone through the documentation in the contract clause by clause. He said they needed to “nut out the contract” and “get the deal to move forward” as they were not getting anywhere.
133Mr Stone had separate meetings with Messrs Jordan and Lai about the contracts. He said that the initial deposit amounts, and restraint period were up for conversation.
134Mr Stone said that the “swimspa super store” at the Kilsyth store could not operate without the wording included in the restraint of trade clauses.
135On 20 October 2019, Mr Lai sent an email to Mr Stone with further changes to the contract.
136On 20 October 2019, Mr Lai sent an email to Mr Stone and noted in reference at item 8 of the contract, that he should speak with a solicitor about any new store under Spachoice operated by Mr Jordan being excluded from the restraint of trade clause.
137By email dated 14 November 2019, Mr Stone wrote to Mr Jordan setting out a draft email for Mr Jordan to send to Mr Lai, because Mr Jordan’s English and grammatical skills were not the best and he asked Mr Stone to write the email for him. Mr Jordan then sent the email to Mr Lai, noting that they needed to discuss the Kilsyth store now that the two other shops are nearly completed. Mr Stone said he was effectively taking dictation from Mr Jordan.
138It was put to Mr Stone that Mr Lai says only if a salesperson took a client to the Kilsyth store and they bought a swim spa or the sale had been concluded at the Kilsyth store, the arrangement was that ILS would get the difference between the wholesale and retail price. Mr Stone said that was told to him by Mr Lai further down the track. Mr Stone said that it was not what the original arrangement was. Mr Stone says his original understanding was that any swim spa sold at the Bayswater store, whether the client had been taken to the Kilsyth store or not, would form part of the profit for the Kilsyth store. Mr Stone said initially it was any swim spa sold at the Bayswater store, and then it changed to any salesperson introducing a customer to the Kilsyth store later on. Mr Stone said he spoke to Messrs Lai and Jordan after their meeting, but he was not sure which meeting it was.
139Mr Stone conceded that Mr Jordan was free to sell any Oasis product from the Kilsyth store, and he still owned the store and held the lease. Mr Stone said that Mr Jordan was not bound by the retail prices for the Kilsyth store, if he decided to sell swim spas. The Essendon and Hallam stores were different because their profits were added together to meet targets under the contracts. Under the Kilsyth store, Mr Jordan could have set whatever price he wanted.
140By email dated 15 November 2019, Mr Stone wrote to Mr Lai that he had been speaking about Mr Jordan who was concerned about his Kilsyth store. Mr Stone could not recall whether Mr Lai came to Melbourne in November 2019. However, Mr Lai came to the spa shows most times. Mr Lai contends that the retail price would have been set by the Kilsyth store if the swim spa super store was just a display store. Mr Stone said that Mr Jordan wanted the wholesale price list to work out his profit margin. The only price Mr Jordan knew at the time was the retail prices from the Essendon store.
141Mr Stone said that he had utility for the wholesale price list because there were different lists for different stores. Mr Stone needed to know exactly what Mr Jordan’s buy price would be, to understand the sales and for working out what the profit on each sale was for the Bayswater store and the Kilsyth store.
142Mr Stone said that Mr Jordan did make his own sales at the Kilsyth store. Mr Stone did not see the invoices go out as Mr Jordan would have invoiced out of his own system. Mr Jordan agreed that if he was selling a Spachoice swim spa to his own retail client, he would buy the swim spa wholesale from Spachoice.
143By email dated 14 April 2020, Mr Stone wrote an email on behalf of Mr Jordan because COVID was rampant, stating they could not sell spas at the time and the targets were “seriously concerning”. Mr Jordan was concerned about the targets that they had to meet because they could not reach their targets. The factory would not budge on any relief for the Essendon and Hallam stores. Mr Stone sent the email onto Mr Lai and the factory.
144On 30 April 2020, Mr Stone sent an email to Mr Lai in the following terms:
“I was under the impression that any swim spa that was sold out of 200 Canterbury Rd, Bayswater (Sparite) the profit would go to Swim Spa Store.
So i presume as payments have come in through the spachoice account - is it not easier for Deans store to invoice the difference of the wholesale rate and profit to Sopachoice [sic]?
That is what i thought was the deal you agreed upon.”
145Mr Stone said he had those impressions after Mr Lai and Mr Jordan had a meeting.
146On 1 May 2020, Mr Stone emailed Mr Jordan saying he had spoken to Mr Lai that:
“Predominantly any swim spas that have been sold and we have brought in customers to the showroom will qualify for this - as we do not have the room at Bayswater.”
147Mr Stone said that his second email was not meant to convey a change from the first email. Mr Stone said that the crux of the email is that any swim spa that had been sold would qualify for the commission deal with the Kilsyth store. He could not recall a discussion with Mr Lai as it was too long ago.
148By email dated 11 May 2020, Mr Jordan sent an email to Spachoice stating that he was not happy with the wholesale pricing supplied by the factory, and he asked for better pricing from Mr Stone. Mr Stone had no knowledge of Mr Jordan’s lease arrangements.
149Mr Stone said that Mr Peaker is from Queensland and is the Oasis General Manager, and he went on to become the national manager. Mr Stone received an email from Mr Peaker with the new pricing for the Kilsyth store on 11 May 2020. He could not recall why he was referring to the spreadsheet.
150By email dated 2 June 2020, Mr Zhu sent an email to Messrs Lai, Stone and Jordan with a tax invoice regarding Mr Jordan’s commission for spa sales. Mr Stone had input into the Excel spreadsheets. Messrs Zhu and Stone went through the Excel spreadsheets to make sure the sales were right and were sales from the Bayswater store and the customers had been to the Kilsyth store. They made sure all the details were correct. Mr Lai replied on 4 June 2020. That it all looked good and hoped to get more invoices like this.
151By email dated 6 August 2020 from Mr Zhu to Messrs Jordan and Stone, Mr Zhu send calculations for the next invoice. He had input the calculations into the Excel spreadsheet.
152By email dated 29 August 2020, Mr Lai sent an email to Messrs Stone, Jordan and others that there was a problem with the invoices. Mr Stone said he “could not believe” that they were denying the deal existed and had thought “everything was going fine”. They had discussed it in the emails set out above.
153Mr Stone said he then had a conversation with Mr Jordan about the proposal to fix a rate of $280.00 before GST to future relevant transaction. He said that Mr Jordan was not very happy and “there was a lot of swearing.”
154On 4 September 2020, Ms Liao took over from Mr Lai and she wrote to Mr Stone regarding the Kilsyth store, the payment terms, if they brought all customers to the Kilsyth stores, and asking for any good solutions for the case. Mr Stone said his relationship with Ms Liao was not the best. Mr Stone went through the list of 14 models to determine if the customer visited the Kilsyth store. Mr Stone said there was no register as such of customers being taken to the Kilsyth store.
155By email dated 8 September 2020, Mr Jordan wrote to Mr Lai, Ms Liao, Mr Peaker, Ms Zeng, and Mr Stone and referred to a WeChat call about the pricing issues and the changing of the deal. Mr Jordan was not very happy. He could not recall the gist, but the two parties did not agree.
156Mr Stone wrote an email to Ms Liao, Ms Zeng and Mr Lai on 10 September 2020 regarding the Kilsyth store with lots of issues put on the table regarding how it could work, such as staff and marketing, and that the store not being run well. There was no assistance in Victoria, and he was working “stupid” hours. He could not recall the WeChat conversation mentioned.
157On 14 September 2020, Messrs Stone, Lai and Jordan had a discussion trying to work out the issues.
158Mr Stone explained that Spachoice built the swim spas and the “landed cost”, being the cost of the manufacture together with shipping and other costs associated with acquisition, is different to the “wholesale price”. The cost from the factory and the margin on wholesale, was the profit that Spachoice could obtain. The difference between the wholesale and retail price was the profit ILS could obtain on the sales of the swim spas from Bayswater.
159Mr Stone said it was an awesome opportunity for all companies and it was a positive. He could see Spachoice expanding and growing momentum for the company.
Gab Bartolo
160Ms Bartolo presented as a careful, considered witness who was ready to make appropriate concessions. There is no reason to doubt that her evidence reflected her genuine recollection of the matters discussed.
161Ms Bartolo is a senior commercial property manager with Cameron, a commercial real estate agency. She organises commercial leases on behalf of landlords. One of those properties is the Kilsyth store premises.
162Ms Bartolo said if the tenant has the original head lease, once that initial term is coming to an end, if there is a further option on the lease, she will contact the tenant to determine if they want to take up the option. There might be some back and forth if the tenant wishes to vary the option put to them, whether that is in relation to the length of the term and/or rental figure until the landlord and tenant come to an agreement. Ms Bartolo said she tries to get the best rental for the landlord as they are the client.
163Ms Bartolo said she had the carriage of the renewal on the Kilsyth store premises. She put forward a recommendation to the landlord that ILS tenant was a good tenant and, given it was during uncertain times being COVID, they also worked with the tenant on the rental side to keep all parties happy. Ms Bartolo had no issues with ILS as a tenant.
164The deed of renewal and variation had an option of renewal for a further term of one year. The last date for the option to renew was 4 March 2021. ILS was still at the premises at that date. ILS left the premises in 2021. Ms Bartolo said if ILS sought to renew or propose to vary the lease to have a longer term, while the tenant was still in occupation, she had no basis to not recommend to the landlord that that be done.
165Ms Bartolo said that after ILS left the Kilsyth store premises, the landlord rented the premises out to CSELKO Hub Pty Ltd on 3 May 2021 for term of five years.
166Ms Bartolo was not aware that ILS had closed the Kilsyth store on 17 November 2020. She said that they would have wanted to find out the reason why they were not operating. If it was a concern to Cameron, they would have let the landlord know. She agreed it was of interest to the landlord to have a shop that is open as opposed to a shop that was closed. She said the original lease with ILS was for three years from 5 June 2017 to 5 June 2020.
167Ms Bartolo said there was option for a term of renewal on 4 March 2020 and that option was not taken up on 4 March 2020 by ILS. Ms Bartolo did not recall personally contacting Mr Jordan to follow up on the renewal, but she said someone in her agency, in the leasing and rental team, would have contacted him prior to the option date expiring pursuant to their usual practice. Ms Bartolo did not recall contacting Mr Jordan about why he had not actioned the option date. The option had expired under the initial lease. The lease comes to an end should they not take up that option.
168Ms Bartolo was not involved in the negotiations of the deed of renewal and variation of lease. She said that she initially received emails from ILS about reduced rent because of COVID which she sent to the rental team, who handled it from there.
169Ms Bartolo received the initial proposal of renewal and variation and delegated it to others in the office. Ms Bartolo formulated a recommendation to the landlord through a live spreadsheet for upcoming renewals and options. She said their property managers go through the list, and they check it over and make comments for the leasing team about recommendations and the team then takes on the feedback. Ms Bartolo said, that being the property manager of the premises, she dealt with the tenant and advised to the leasing team if the tenant was suitable or not. The leasing team would then speak with the landlord.
Richard Imberger
170Mr Imberger presented as a careful, considered witness who was ready to make appropriate concessions. I accept Mr Imberger as a witness of truth who gave evidence with the intention of assisting the Court to the best of his ability. His memory lapses were generally explicable by the extensive effluxion of time involved with this case. There is no reason to doubt that his evidence reflected his genuine recollection of the matters discussed.
171Mr Imberger is the director of Oppenweiler Properties Pty Ltd as trustee for RII Superannuation Fund which is the registered proprietor of the Kilsyth store premises. He engaged Cameron to lease his property. Cameron would find a tenant and run the proposal past him. If he was happy with the tenant, Cameron would negotiate the lease, and he would sign it.
172In July 2020, he signed a renewal and variation of lease with ILS for the Kilsyth store premises. He said that Cameron sent a copy of the lease to him to sign. He did not have a lengthy discussion with Cameron. He said that if everything was “ok” he would sign it. Mr Imberger was given details of what the tenant wanted and recommendations from Cameron about what deal could be done. If he was happy with it, he signed it. Mr Imberger said he was happy with what was proposed by Cameron for the variation of the lease for one year with an option to renew for a further year.
173The last date to exercise came up in March 2021. As at that date, he said that if ILS asked to the option, he would have agreed to it. If ILS asked for a longer term of the lease, he also would have accepted it.
174Mr Imberger conceded that the amount of rental that the tenant was prepared to pay would be a relevant consideration in deciding whether to renew the lease. Mr Imberger said that Cameron suggested the market rates and what was negotiated and agreed to in the lease.
175Mr Imberger did not know that ILS had closed the Kilsyth store on 17 November 2020.
Gaoxiang Lai
176Mr Lai is the sales director of Crystal Island. He was appointed a director of Spachoice on 15 November 2020. English is not Mr Lai’s first language. Mr Lai became involved in dealings with the ILS around July 2019.
177Mr Lai generally presented as a careful, considered witness who was ready to make appropriate concessions. There were some gaps in his recollection, however, his memory lapses were generally explicable by the extensive effluxion of time involved with this case. English is Mr Lai’s second language, and it became clear that he was not privy to the nuances of the English language such as the word “merit” and references to “shifting the goal posts”. This resulted in confusion as to the terms used. I accept Mr Lai as a witness of truth who gave evidence with the intention of assisting the Court to the best of his ability. His evidence was consistent, and he gave evidence against his own interest, such as his failure to obtain Board approval when he negotiated the November 2019 Agreement.
178I generally found the account of Mr Lai to be cohesive, plausible and consistent with the objective documentation, to the extent there is any. Although not a perfect witness, I have generally preferred the account of Mr Lai over that of Mr Jordan, particularly as to the events leading up to August and November 2019.
179After receipt of the email dated 22 July 2019 from Mr Stone in relation to his discussions with Mr Jordan about the opportunity to grow the business, Mr Lai said that there was hardly any chance to consider developing Mr Jordan as a dealer rather than taking over the business as ILS was considering other opportunities with suppliers.
180Mr Lai said that at this stage, the only retail outlet that Spachoice had at the time was at Bayswater. They had just set up their head office and warehouse in Ringwood. Mr Lai said that he understood Mr Stone was suggesting purchasing the three businesses, as Mr Jordan was not giving Oasis an opportunity as a dealer. However, Mr Lai said that “as a salesperson we can always create some opportunity”. As a result of the email, Mr Lai called Mr Stone and went through the email with him. Mr Lai said that the spa factory seconds option for the Kilsyth store was not his first choice. He told Mr Stone that he needed to talk with the Board and get advice.
181When Mr Lai referred to the Board, he spoke to Mr Zhi “Ken” He, as he was effectively “the owner” and made the decisions. Mr Lai said there are three members on the Board, comprising Mr He, the President, Mr Tan, the Vice President, and Ms Shirley Liu, the Chief Financial Officer. Mr Lai said they tasked him to negotiate with Mr Jordan, with limits on the price, being $480,000.00 and to do what they say. Mr Lais said that counterproposals involving a business like this would need him to go back to the Board.
182On 27 July 2019, Ms Devenish sent Mr Jordan’s email to Messrs Stone and Lai. Mr Lai said that it was not Spachoice’s first choice to buy the Kilsyth store. Mr Lai said that the $300,000.00 figure in the offer came from the Board. The Board gave Mr Lai the figure and he passed it onto Ms Devenish as a purchase price to negotiate for the two businesses. The Board decided that they did not need the Kilsyth store as it was too close to their Bayswater store, and it did not make sense to own two stores in the same location. Mr Lai said that the Essendon and Hallam stores were in great locations which formed a triangle around Melbourne.
183Mr Jordan said that $300,000.00 figure was not enough for Mr Jordan, and they required the sum of $480,000.00 with a deposit of $150,000.00 within a 30-day settlement and the remaining balance of $330,000.00 in six months. Mr Lai discussed this with the Board and sought more instructions from them. Mr Lai gave Mr Jordan a call and told him they were only interested in two stores.
184By email dated 29 July 2019, Mr Lai wrote to Mr Jordan following a phone call. Mr Lai said this was the first time they spoke to each other, and they introduced themselves to each other and Mr Lai explained his experience in the spa industry. During that conversation, Mr Lai said that he told Mr Jordan that the Board was not interested in the Kilsyth store as it was too close to the Bayswater store, so he wanted to put it aside and deal with the other two stores first. Mr Lai would then talk to the Board about a counteroffer for purchasing the two stores.
185In the email, Mr Lai stated that that the Board would accept the purchase price of $480,000.00 with a $50,000.00 deposit within 7 business days after the letter of intent was signed, and an initial instalment of $100,00.00 within 7 days after settlement. If the profit was not less than $150,000.00 every year, they would then receive a performance bonus of $110,000.00. If they could not achieve the target after the third year, they would not receive the balance. Mr Lai conceded that he did not write about only two businesses in the email. He said that he had already set aside the Bayswater store in the email. He said that he only wrote what was agreed in the email.
186Mr Lai did not refer to Ms Mayer in the email at that stage. He only referred to Mr Jordan and Mr van Hoof. He could not recall why. Mr Lai said that if the total net profit reached $200,000.00 in the first year, then they were $50,000.00 more than the target and ILS would get $40,000.00 and Spachoice would get $10,000.00 in an 80/20 split of the profits.
187Mr Lai agreed that he did not discuss the Kilsyth store during the phone call that followed the 29 July 2019 email. Mr Lai did not agree that Mr Jordan could not operate the Kilsyth store and run Essendon store at the same time. Mr Lai said they could find a way. Mr Lai agreed that Mr Jordan did not want to become a Spachoice dealer and wanted to sell the three businesses. Mr Lai did not agree that a dealer always takes goods on consignment. Mr Lai agreed usually you would have a dealership contract. Mr Lai said that a contract is the best scenario with dealers. He said that not all Spachoice dealers have contracts because they are not satisfied with all the terms in the agreement.
453As I have stated above, I accept Mr Lai’s evidence that this is when the profit-sharing agreement first arose. This agreement makes considerably more commercial sense than the agreement which Mr Jordan says was struck in August 2019. Mr Lai had acknowledged in a previous email that he could not store all types of spas (notably swim spas) in the Bayswater store because there was no room, therefore, the Bayswater store salesperson would send customers where a swim spa was not on display in the Bayswater store to the Kilsyth store. It is common ground between the parties that if the sale was completed at the Kilsyth store, then it would be rewarded with the difference between the wholesale and the retail. Spachoice would receive the wholesale price. Mr Lai also mentioned that commission on the sale would need to be paid to the Bayswater store salesperson because they too were instrumental in the completion of the sale and set the sale in motion.
454The dispute is whether the profit-sharing agreement extended beyond the sale of swim spas completed at the Kilsyth store either from a walk-in customer or a referral from Baywater. ILS pleads as part of its case for the “Agreement” in August 2019, that:
“Spachoice would pay to ILS commission on Spachoice’s sales of swim spas calculated as the difference between the retail and wholesale prices with costs associated with sale at its store in Bayswater, such as delivery, subtracted from that amount".
455That is, that the sale of all swim spas from the Bayswater store fell within the agreement. Spachoice does not admit the allegation. In my view, as set out above, the August 2019 agreement comprised the payment of the $20,000.00, the rebrand and the display store and the balance of the terms came later in November. However, ILS has only been able to prove that it was solely customers taken to the Kilsyth store by a Bayswater store salesperson and the sale was then completed at the Kilsyth store or back at the Bayswater store, that comprises the profit-share agreement.
456My finding is supported by the fact that all three critical witnesses, in relation to the profit-share agreement, gave unclear and conflicting oral evidence as to their recollections in respect of the terms of the alleged agreement. The crux of the arrangement appears to be around supporting the Kilsyth store until the lease expired, and the Bayswater store would direct customers to the Kilsyth store and if the customers purchased the swim spa, ILS would obtain the retail profit. Much of the evidence did not descend into details as to what would then qualify as part of the arrangement, in particular, what would happen if the salesperson had taken a customer to the Kilsyth store and then concluded the sale at the Bayswater store.
457Even the documentary material is less than clear. By email dated 30 April 2020, Mr Jordan said that:
“We then agreed that all sales for swim spas go through this shop from the showroom down the road and the leads as well. All sales would be transferred over and this would keep the shop alive.”
458Mr Lai responds that “as support, we discussed and agreed that Spachoice will direct as many swim spa sales and leads to Kilsyth store as possible…”.
459Mr Stone then summarised his understanding of the agreement in his email dated 30 April 2020 at 3.27pm:
“I was under the impression that any swim spa that was sold out of [Spachoice’s Bayswater store] the profit would go to [the Display Store].
So i presume as payments have come in through the spachoice account – is it not easier for Deans store to invoice the difference of the wholesale rate and profit to [Spachoice]?”
460However, Mr Stone qualifies his understanding of the commission deal in his email dated 1 May 2020 to state that “predominantly any swim spas that have been sold and [Bayswater has] brought in customers to the showroom qualify for this”. Mr Jordan did not respond to Mr Stone’s email to challenge the restriction on the profit-sharing agreement set out in the 1 May 2020 email. I infer that this is also evidence of Mr Jordan’s understanding of the profit-sharing agreement at that time.
461Mr Jordan gave evidence that ILS was entitled to the retail margin (subject to transport and sales commission) on all swim spa sales that Spachoice made. Mr Lai asserts that only those customers who had been taken to the “swimspa superstore” would qualify. I infer from this that it also includes customers who were taken to the Kilsyth store by a Bayswater salesperson and the sale was completed in the Bayswater store.
462Given:
(a) Mr Lai’s offer to direct as many swim spa leads and sales to the Kilsyth store as possible;
(b) references to both Kilsyth and Bayswater stores supporting and supplementing each other and sharing traffic, so that it was possible that a customer in Bayswater could also go to Kilsyth;
(c) when Spachoice was marketing for the Bayswater store it would also include the Kilsyth store, together with;
(d) Mr Stone’s evidence that predominantly any swim spas sold would have been brought through the Kilsyth store as the Baywater store did not have many spas displayed;
may have formed the foundation for Mr Jordan’s subsequent confusion that the arrangement included all sales concluded at the Bayswater store as opposed to the necessary requirement for a causal connection with the Kilsyth store. It is also clear that Mr Stone did not have any internal procedures in place for accounting and Mr Jordan to readily identify and calculate sales that qualified under the profit-sharing agreement. Mr Lai assumed that such processes would have been put in place by others.
463The requirement for a causal connection between the Bayswater and Kilsyth stores is apparent from the following matters:
(a) Mr Jordan’s evidence in chief of the discussions on 10 August 2019 and 11 August 2019 about sales occurring through the Kilsyth store, while on 13 August 2019 he links sales to when a customer attends the Kilsyth store;
(b) Mr Stone’s evidence in chief to the effect that there needed to be a connection with the Kilsyth store; and
(c) It makes no commercial sense that Spachoice would extend the agreement to all sales from the Bayswater store.
464In my view, the November 2019 hybrid agreement is to be inferred from the conversations and communications between the parties on 26 and 27 November 2019 in accordance with the principes sets out in Hardingham[5]. I refer to my analysis of Hardingham[6] in Brad Teal Pty Ltd v EVR Group Pty Ltd.[7] In particular, I rely on the observations of Kiefel CJ and Gageler J in relation to inferring terms (as opposed to implying terms) as follows:
(a) where terms of an agreement have not been articulated by the parties, it is necessary to have regard to the parties’ words and conduct in identifying what a reasonable person would conclude were the terms of the agreement.[8]
(b) the Court must consider the evidence and find the relevant express terms.[9]
(c) the legal process for “inference” requires the terms sought to be both “obvious” and “necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case”[10] (being 2 of the 5 criteria set out in BP Refinery[11] for the test for implication).
(d) the Court must have regard to the circumstances disclosed by the evidence of what was the parties’ bargain.[12]
(e) the Court must take into account what might be considered to be the mutual understanding on which the parties dealt.[13]
(f) an agreement and its terms may be inferred from the acts and conduct of the parties, including the absence of their words. In light of surrounding circumstances, that absence may evidence a tacit understanding.[14]
(g) the tacit understanding between the parties may be understood to have been evident to the agencies, in light of what was taken to be part of the mutual understanding on which the parties conducted their contractual relationships.[15]
[5]Hardingham.
[6]Hardingham.
[7] [2024] VCC 485 at [201]-[204] (“Brad Teal”).
[8] Ibid at [15].
[9] Ibid at [16].
[10] Ibid at [19]-[20] citing Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at [422].
[11]BP Refinery at [40].
[12] Brad Teal at [22].
[13] Ibid at [27].
[14] Ibid at [30].
[15] Ibid.
465The circumstances are that by email dated 26 November 2019 from Mr Jordan to Mr Lai, Mr Jordan asked for time to meet about the direction moving forward. The Essendon and Hallam contracts were signed by this stage. Mr Jordan said to Mr Lai that he was having trouble with getting customers at his Kilsyth store. Mr Lai said they would refer customers to the “superstore” and Mr Jordan would get the commission on those. I accept Mr Lai’s evidence that there was no profit-sharing arrangement for every single swim spa sold at the Bayswater and Kilsyth stores for 5 years – the same time frame as the restraint period. I will deal with this in more detail below. If there was an agreement in that form, Mr Jordan would record it in a text message, email or his solicitors preparing the sale contract to document the arrangement. Even in the 30 April 2020 emails, there is no reference to a 5-year term.
466I accept Mr Lai’s evidence that the parties did not discuss what would happen if the parties went back to the Bayswater store to conclude the sale after being taken to the Kilsyth store to view the display swim spas. In my view, the tacit understanding between the parties in the absence of words used is that the profit-sharing agreement extended to these sales. Spachoice used the display centre and had crystalised its sale at its Bayswater store after using the Kilsyth store as a marketing tool. Taking into consideration the words and conduct of the parties in the present case, when judged in light of what the parties knew, in my view would lead a reasonable person to conclude were the terms of the contract between them included the November 2019 hybrid agreement.[16]
[16] Ibid at [42].
467I am not persuaded that the paying of the 19 December 2019 invoice proves that Mr Lai had approved and was complying with the alleged August 2019 agreement. Mr Lai gave evidence that first, around this time he was changing positions within Spachoice, and second, he was not responsible for and had no direct oversight of the payment of like invoices. This makes sense given his senior position in the company. It is also not inconceivable that, given that there was some semblance of a profit-sharing agreement on foot (the November 2019 hybrid agreement), that invoices for profit margins that did not completely comply with this agreement but instead complied with the alleged August agreement could have been approved. Additionally, it is possible that not all invoices in a large national company would be scrutinised closely, and some could be processed and slip through the cracks without a forensic analysis of what they were for. In essence, I accept that these invoices were mistakenly paid by Spachoice insofar as they cover sales that fall outside of the November 2019 hybrid agreement.
468On 30 April 2020, Mr Lai set out the terms of the November agreement as Spachoice alleges, as follows:
“As support, we discussed and agreed that spachoice will direct as many swim spas sales and leads to Kilsyth store as possible, it also benefits spachoice, as Bayswater store only have enough room for one or two swim spas, which is far not good enough, Kilsyth store is a perfect supplement. You also agreed that you allow spachoice sales people to bring customer to Kilsyth store, if customer end up buying swim spas in Kilsyth:
You take retail profit .and pay commission to our sales people, Spachoice takes wholesales profit”.
469Mr Lai, in an email dated 29 August 2020, refers to the fact that the deal had supposedly been struck in “early 2020” instead of November 2019. In my view, Mr Lai’s memory in relation to the details such as the timing of the making of the profit-sharing agreement and its qualifications was affected by the flux of time and the fact that he was not overseeing the day-to-day operations of the stores.
470Relying on Mr Stone’s emails dated 30 April and 1 May 2020, I accept Spachoice’s submission they need to be read together to be understood, and that the 1 May 2019 email clarifies the 30 April 2019 email. Taken together, these emails reflect the November 2019 hybrid agreement, whereby the profit-sharing agreement only relates to sales that are taken from the Bayswater store to the Kilsyth store and concluded at the Kilsyth store or the Bayswater store.
471For the forgoing reasons, I find that the parties entered into a profit-sharing agreement in accordance with the November 2019 hybrid agreement.
Events and emails post 11 May 2020
472For reasons that I have already stated, I accept that Mr Lai did not check the veracity of “Invoice no. 5275” in the sense he was not verifying whether it related to sales under the November 2019 hybrid agreement, all he did was check the calculation. It is acknowledged by Spachoice that it will need to be determined at a quantum Trial whether the sales in this invoice were caught by the November 2019 hybrid agreement.
473In his evidence, Mr Lai admitted that had not sought Board approval for the November 2019 hybrid agreement. Mr Lai mentioned this explicitly in his 29 August 2020 email and noted that the Board wished to vary the agreement because they were displeased with its terms.
474I agree with Spachoice that the 4 September 2020 and 10 September 2020 emails sent by Mr Stone differentiate between customers brought to Kilsyth stores and those who were not. Therefore, these emails support the existence of the November 2019 hybrid agreement and not the August 2019 iteration of the profit-sharing agreement concerning the situation where the Bayswater store salesperson brought a customer into the Kilsyth store.
475I am not persuaded that Mr Jordan’s reference in his email on 10 September 2020 that “the deal was done in October 2019 not April 2020…’” is an admission on Mr Jordan’s part that the deal was done at a point in time after August 2019, I accept that this was likely an error as Mr Jordan’s emails frequently contained mistakes, see for example the reference to $30,000.00 instead of $20,000.00 set out above.
476I accept Spachoice’s submission it was a telling admission that in his 10 September 2020 email, Mr Jordan omitted what he later claimed to be a term of the August 2019 profit-sharing agreement that it was to be for 5 years or the term of the restraint period. As upset as Mr Jordan was at the time of writing this email, he would likely have mentioned that he considered Spachoice would remain bound for 5 years under the Agreement, but this was not mentioned.
Minimum term
477As a starting point, determining whether a term can be implied into a contract depends upon whether the conditions outlined in BP Refinery are present.[17] The conditions are as follows:
“(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”[18]
[17] See also Brad Teal at [197]-[200].
[18]BP Refinery at [40].
478I do not consider that in this case there was an implied term that the profit-sharing agreement would run for a term of 5 years in line with the restraint of trade period outlined in the Essendon contract. This is because I have not found the BP Refinery[19] conditions have been met in relation to the alleged implied term.
[19] Ibid.
479Of the conditions in BP Refinery,[20] I find that the second and third conditions are absent, in that I do not consider that the 5-year minimum term gives business efficacy to the contract such that any agreement is not effective without it, and I also do not agree that the alleged minimum terms it so obvious that “it goes without saying”.
[20] Ibid.
480I do not agree with ILS that the agreement would only be “commercially workable” with the 5-year minimum term. ILS submits that it would be exposed to an intolerable amount of risk if it committed to the agreement without the alleged minimum term, because it had already agreed to closing their wider business to comply with the restraint of trade and were, therefore, obligated to maintaining the lease to derive income given that this was the only store they were allowed to trade from. Additionally, ILS was exposing itself to liabilities to third parties (particularly ILS’s landlord).
481This submission is built upon a flawed understanding of the profit-sharing agreement. Throughout negotiations, Spachoice had consistently stated that they did not want to purchase the Kilsyth store. The November 2019 hybrid profit-sharing agreement was a workaround to try and lighten the financial burden that ILS had from being stuck under and bound to continue to run the store until the end of its lease that they also did not want. This assistance was what made the wider acquisition deal tenable, and, therefore, it was the limited help offered by Spachoice to ILS that gave business efficacy to the contract. On the evidence before the Court, as set out above, Messrs Lai and Jordan did not have a discussion about the period any profit-sharing agreement was to run for. However, what was on both of their minds was the fact that ILS had one year to run on its lease and had to pay rent and outgoings in respect of the premises.
482The evidence that weighs against a finding that the parties contemplated a 5-year terms is that, at the time of the discussions on 11 and 13 August 2019, the length and extent of any restraint in the Essendon agreement was far from settled. In this regard the letter of intent sent on 12 August 2019 had a restraint period of 7 years, compared to the 10 years in the letter of intent sent on 1 August 2019 which had 10 years. In my view, a minimum term which mirrors the period of Mr Jordan’s restraint, conflates the restraint period under the Contracts of Sale of Businesses with the separate profit-sharing arrangement which pertained to the Kilsyth store. The restraints were a natural course of the sale of the Essendon and Hallam stores. An implied term of a 5-year minimum term is not any more obvious in light of Mr Lai’s discussions with Mr Jordan which centred around the fact that ILS had one year to run on the lease.
483Because the length of the profit-sharing agreement was not discussed, l find that it is necessary for the reasonable or effective operation of the agreement to imply a term that the agreement post 4 June 2020 was terminable at will. I accept Spachoice’s submissions that the present case is analogous to the findings in Energy World Corporation Ltd v Maurice Hayes and Associates Pty Ltd[21], where the Court implied a term that the contracts was terminable at will in relation services provided after the express expiry day of an agreement.
[21] [2007] FCAFC 34 at [29]-[30] (“Energy World”).
484In the case before me, Mr Lai gave evidence that he knew that Mr Jordan had about a year left on the lease on the Kilsyth store. In the July 2019 meetings, it was raised that Mr Jordan had a lease, but Mr Jordan did not mention the time left on the lease at that time. Mr Lai said Spachoice would support Mr Jordan until his lease expired. Mr Jordan maintained the lease and gave Spachoice access to the premises and display the swim spas. In the 12 August 2019 Excel spreadsheets, the payment of the $20,000.00 was for ILS to run the Kilsyth store for one year. Both parties knew that Mr Jordan had a lease running until 4 June 2020 and at the end of that time he could do what he wanted. He did not need to renew the lease. During that period his store would be a display store.
485ILS’s evidence in relation to the length of the agreement is as follows:
a)On 10 August 2019, it was agreed that, as long as Mr Jordan paid the rent, they would keep the store going, and then after the contract was signed, the Bayswater store would bring customers to the Kilsyth store and he would get the different between wholesale and retail;
b)On 11 August 2019, if Mr Jordan kept the lease ticking over and the store operational, Bayswater would bring customers there and use the Kilsyth store as much as possible; and
c)On 13 August 2019, Mr Jordan agreed in cross-examination that what was told to Mr Stone on that date was the same deal as was conveyed on 11 August 2019. His evidence-in-chief was to the effect that Mr Lai told him as long as ILS kept up its lease on that property this would go in the same period of time as the management regulations in that restraint period.
486In my view, taking into account the full range of circumstances that existed at the time of the profit-sharing agreement, the evidence of witnesses as to words written or spoken by the parties (including the knowledge of relevant matters at the time of the agreement) and the apparent logic of events,[22] any meeting of minds centred around the duration of the lease which was to expire on 4 June 2020. As such, there is an implied term that the agreement was for a fixed term, until the lease expired on 4 June 2020 and thereafter was terminable at will.[23]
[22] Ibid at [46].
[23] Ibid at [29]-[30].
487It was not Spachoice’s problem that ILS was at risk of the agreement being cancelled at any point in time after 4 June 2020, as any sale that was shared and sent to the Kilsyth store would be of benefit to ILS. It must also be noted that ILS was bound to the lease regardless of any profit-sharing agreement, as it was already on foot. It follows that it was also not Spachoice’s problem if the store became commercially untenable, and ILS was forced to break the lease or if it sought to extend the lease beyond 4 June 2020.
488I further agree with Spachoice’s submission that Mr Jordan’s email on 11 May 2020 to Messrs Peaker, Lai, Stone and Ms Liao indicates that Mr Jordan considered the Kilsyth store to be a Spachoice “dealership”. Mr Jordan refers to his own operations at the Kilsyth store when he said the following:
“I’m not going to waist [sic] more money on a shop with a manufacture that doesn’t want to work with there dealers and just screw then where they can.”
And
“I’ll wait and see what eventuated over the next couple of days to see what you do to save a dealer and treat them with the respect they deserve.”
489I accept Spachoice’s submission that Mr Jordan was aware and had agreed to exclusively deal in Spachoice products, and, therefore, understood that in practical terms he was their dealer. For the purposes of the profit-sharing agreement, the practical effect of being a dealer is that when Spachoice sells to one of its dealers, Spachoice earns the profit on landed and wholesale price and the dealer earns the margin on wholesale and retail. If Spachoice sells directly to the consumer it makes both the margins.
490Spachoice agrees that Mr Jordan was just a “dealer” and was not a person who had a locked in 5-year agreement. It is true that Mr Jordan was restrained from operating another spa business for 5 years, but he was able to run a shop for a period of time and the ability to walk away from the lease in a period of 12 months. Also, under the sale agreements, Messrs Jordan and van Hoof were still managers of the Hallam and Essendon stores for 2 years and were remunerated for doing so. This is relevant to the consideration of the period of the November 2019 hybrid agreement.
491It is true that, by the time the email was sent on 11 May 2020, the date for which an option was exercisable under the lease had already passed, being 4 March 2020. In my view, the email implies that ILS could have chosen to abandon the lease, and by extension terminate any profit-sharing agreement once the lease had expired. I note that it did neither and unilaterally chose to enter into a “Deed of Renewal and Variation of Lease” on 17 July 2020.
492The relevant extracts from Mr Jordan’s email are as follows:
“My lease is to be signed by Thursday so I need to know if the shop is going to be viable as in its present form it’s not.
Even with the pricing I’m still in a mind set to close it as this so far has not been a good experience with myself and my wife and we feel that it’s not going to get better”.
493I accept Spachoice’s submission that this email suggests that it was open to ILS to terminate the profit-sharing agreement after 4 June 2020 and, thereafter, at will in circumstances where there are no allegations that Spachoice was in breach of the agreement. This email evidences Mr Jordan’s belief that either party was free to part ways of the agreement at will after the expiry of the lease.
494I do not accept ILS’s submission that Mr Jordan’s email dated 11 May 2020 identified a breach which is the basis for his threatened termination. The breach which ILS alleges relates to Spachoice’s failure to give correct wholesale pricing. From the outset, even if this was considered a breach, this is not, in my view, the kind of breach that would justify termination in the Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd[24] sense, as it was ultimately rectified almost immediately with the provision of a simple email containing the pricing. This was the kind of issue that cooperating businesses frequently face and is a normal delay. Due to the minor nature of the breach, I also do not consider that it amounts to a failure to co-operate in the performance of the agreement or a failure to act in good faith. Additionally, I do not accept, as is submitted, that this alleged breach was the basis upon which Mr Jordan was threatening to terminate the lease. On a proper reading of the email, as outlined above, it indicates that the threat was derived from the unsatisfactory profit which Mr Jordan was able to derive from the Kilsyth store under the profit-sharing agreement.
[24] (2007) 233 CLR 115, at [138-139].
495I also do not accept that the delay in handing over pricing, amounts to a repudiation, for the same reasons as it is not a breach.
496In relation to ILS’s submission that post contractual conduct is admissible for the existence of a contract, but not for construction and interpretation, ILS relies on the case of Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[25] which does not support its position. The passages relied on by ILS explains that conduct (such as post-contractual conduct) can only be used to objectively imply contractual meaning, and not relying on the subjective intentions of the parties.
[25] (2004) 219 CLR 165, at [177-178].
497It follows that ILS was able to terminate the agreement at will post termination of the lease as Mr Jordan outlined in his 11 May 2020 email. As a result, so was Spachoice. It makes no commercial sense for the contract to contain a term in which ILS was able to terminate at will, but Spachoice was obligated to honour an agreement for the minimum term of 5 years.
498I agree with Spachoice’s submission that ILS’s “Deed of Renewal and Variation of Lease” would have included a term providing security of tenure for the 5-year minimum term, had ILS believed that it was locked in for a 5-year profit-sharing agreement. ILS would have been eager to keep the agreement on foot and would have wanted to make sure the lease remained in place so they could effectively profit-share with Spachoice.
499The issue then is who terminated the profit-sharing agreement. The relevant facts are as follows. On 24 August 2020, Mr Zhu wrote to Mr Jordan informing him that “Ms Liu [Liao] had a bit of issue this morning regarding the calculation for July’s commission.”
500On 27 August 2020, Mr Jordan wrote to Mr Zhu asking for an “ETA” on invoices now due for the swim spa shop.
501On 27 August 2020, Mr Jordan wrote:
“In regards to the commission, Ms Liao replied to me that Ms Liu is still having issues with the payment even though both Ivan and I replied her enquiries on Monday morning.
Ms Liao said [Crystal Island] will contact you to settle the payment for management fee and commission.”
502The following day, Mr Jordan participated in a conference call with multiple representatives of Spachoice, wherein Mr Lai denied the existence of the agreement. The next day, Mr Lai sent an email asserting that he had not taken his discussions with Mr Jordan about the Display Store and commissions to “the Board”, and, therefore, it was not approved.
503By email dated 29 August 2020, Mr Lai to Mr Jordan:
“Early this year we discussed about the way of letting our sales staff to bring customer to Kilsyth store when customer can not find suitable swim spas in Bayswater store, if a deal is made in Kilsyth store finally, Kilsyth store keeps retail profit and pay staff commission while Spa choice keep wholesale profit, I voted this thinking that this will help to sell more swim spas and without looking further, so I did not disclose this to the board.
This went well till our financial department look into details as well as our actual cost & return, the board is very surprised too [sic] see this and disagreed with it entirely, as a result, our recent payment application is denied.
I am truly sorry for the consequence, it was my fault, I wish I have reported this to the board…
We have further looked into this type of transaction, we want to set a fixed rate of 200AU$ (before GST) to future relevant transaction, whenever Spa Choice staff bring customer to Kilsyth store and close a deal without getting you involved in the sale, Spa Choice provide you 200$ bonus, associated cost such as staff wage, staff commission, product warranty, etc is on Spa choice. Vice versa, when Kilsyth staff brings customer to Bayswater and close a deal without getting Spa choice staff involved in the sale, you offer Spa choice 200$ (before GST) bonus, associated cost is on Kilsyth store.”
504This offer was incendiary to Mr Jordan with Mr Lai claiming that he did not have the authority to cut the deal. There is no defence that it was beyond his authority. The Board had a change of heart to what Mr Lai had done.
505Mr Stone was trying to work out the sales due to leads. There was no system recording sales that were the subject of leads. On 4 September 2020, Mr Stone said he could see arguments on both sides:
“As for a good solution - i don't think there will be!!! Either way there will be an unhappy party!!! I can see the arguments to both sides - but unfortunately if Dean continues to hold his ground and takes us to court - i cannot possibly see how we can win in a court of law. He is very upset that $200 was offered.”
506On 10 September 2020, Mr Lai wrote:
“I would like to stress that we do not have any agreement in any type either in writing or verbally, that retail profit of swim spas sold in Bayswater store shall go to Kilsyth.”
507He also suggested that a new deal could be struck involving commissions of $200.00 per sale. Mr Jordan felt that he was being “screwed over”.
508On 14 September 2020, there was a further conference call, wherein Mr Jordan insisted that Spachoice honour the agreement. This was followed by some correspondence between Messrs Jordan and Peaker, with the former providing evidence of the agreement, and the latter proposing a different agreement.
509On 17 November 2020, ILS terminated the agreement by an email from its solicitors.
510In my view, the Board did not like the deal that Messrs Lai and Jordan had agreed to, and it gave instructions to Mr Lai to seek to vary the terms. Its proposal of a payment of $200.00 per spa sold at the Kilsyth store was a token compared to the reward of the retail profit which could be up to $3,000.00 per spa and was uncommercial given Kilsyth’s lease and overheads. In refusing to pay the outstanding invoices pursuant to the November 2019 hybrid agreement, Spachoice was in breach of the agreement. By reneging on the agreement, Spachoice evinced an intention to not be bound by it and thereby repudiated the profit-sharing agreement. As the agreement was terminable at will, by its solicitor’s letter dated 17 November 2020, ILS accepted that repudiation and terminated the agreement.
511Taking into account the above matters, I find that the profit-sharing agreement contained an implied term that the agreement was terminable at will by either party after 4 June 2020. With regards to the application of the conditions from BP Refinery[26], I find as follows:
(a) It must be reasonable and equitable.
[26]BP Refinery.
512It was only reasonable and equitable that if Spachoice was obtaining the benefit of the display centre and its corresponding lease, then this should not be overtaken by a right to terminate at will prior to the minimum term of 4 June 2020.
(a) It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it.
513As outlined above, the business efficacy of the agreement was to establish an agreement which made the wider sale possible and overcame the impasse of the Kilsyth store, in light of the acquisition of the Essendon and Hallam stores. The November 2019 hybrid agreement did this, by entitling ILS to the profit margin for sales completed at their store that commenced at the Bayswater store and were concluded at both the Kilsyth and Bayswater stores, and, therefore, established a revenue stream to stave off the financial burden of being bound to the lease until 4 June 2020.
(a) It must be so obvious that “it goes without saying”.
514Given Mr Jordan’s willingness to part ways with the Kilsyth store, and his complaining over the burden of being stuck with the lease until 4 June 2020, “it goes without saying” that he ought to have been appreciative for the assistance offered by Spachoice under the profit-sharing agreement, and had no right to bind Spachoice to a 5 year term, when the premise was simply to assist ILS to reach the endpoint under its lease.
(a) It must be capable of clear expression.
515A terminable at will clause is prima facie capable of clear expression.
(a) It must not contradict any express term of the contract.
516A minimum term to 4 June 2020 and thereafter terminable at will clause does not contradict the term of the contract, as already stated, it reflects the intention which was to help ILS cover its outlays under the lease.
517Spachoice and ILS did enter into a profit-sharing agreement, but it was the November 2019 hybrid agreement and not the August 2019 agreement.
By those discussions, did the parties enter into an agreement in the terms alleged?
518ILS and Spachoice entered into an agreement on 26 November 2019. Pursuant to the November 2019 hybrid agreement, ILS was entitled to the retail profit (minus Spachoice salesperson commissions, accessories and delivery charges) in relation to sales of swim spas completed at the Kilsyth store (either from a walk-in customer or as a result of salesperson from the Bayswater store taking the customer to the Kilsyth store and completing the sale at the Kilsyth store), together with sales where the customer was taken to the Kilsyth store by a salesperson from the Bayswater store and the sale was completed back at the Bayswater store rather than the Kilsyth store.
519The terms of the agreement are as follows:
(a) the parties entered into the November 2019 hybrid agreement in the terms alleged above; and
(b) the minimum term of the November 2019 hybrid agreement was until the end of the lease due to expire on 4 June 2020, then such agreement was terminable by both parties at will.
Alternatively, did Spachoice make representations upon which ILS relied to its detriment, and is Spachoice estopped from resiling from them?
520As I did not find the profit-sharing agreement was made in August 2019, this issue falls away. Spachoice cannot be estopped from resiling from an agreement that did not exist.
If Spachoice repudiated the agreement, or unconscionably resiled from its representations, is ILS entitled to damages or equitable compensation?
521Upon termination of the profit-sharing agreement by ILS on 17 November 2020, Spachoice’s liabilities crystallised. The sales that might have been made until that date had the consequence that a debt for commission remains due and payable to ILS and Spachoice is liable to loss or damages suffered up to 17 November 2020. The amount is to be calculated at a separate trial on quantum, unless otherwise agreed.
Conclusion
522For the reasons set out above, the Court proposes to make the following declarations:
(a) The parties entered into the November 2019 hybrid agreement in the terms alleged above.
(b) The minimum term of the November 2019 hybrid agreement was until the end of the lease due to expire on 4 June 2020, then such agreement was terminable by both parties at will.
(c) ILS validly terminated the November 2019 hybrid agreement on 17 November 2020.
(d) ILS is entitled to commissions accrued until 17 November 2020.
(e) Any loss or damage suffered by ISL is suffered up to 17 November 2020.
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Certificate
I certify that these 129 pages are a true copy of the judgment of Her Honour Judge Burchell delivered on 22 October 2024.
Dated: 22 October 2024
Gideon Lipinski
Associate to Her Honour Judge Burchell
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