Insight Oceania Pty Ltd v Philips Electronics Australia Ltd
[2008] NSWSC 710
•23 July 2008
CITATION: Insight Oceania Pty Ltd v Philips Electronics Australia Ltd [2008] NSWSC 710 HEARING DATE(S): 26 & 27 March 2008; 10, 11, 12, 16, 17, 18, 19 & 20 June 2008
JUDGMENT DATE :
23 July 2008JURISDICTION: Equity - Commercial List JUDGMENT OF: Bergin J DECISION: Defendant not entitled to rely upon notices of termination CATCHWORDS: [CONTRACT] - Exclusive Distributorship Agreement for Plaintiff to distribute Defendant's nuclear medical equipment in Australia and New Zealand - automatic renewal of Agreement for period of 12 months to 31 December 2008 unless parties failed to reach written agreement in respect of Plaintiff's sales goal for 2008 - whether parties reached agreement in writing in respect of Plaintiff's sales goal - whether Plaintiff entitled to place order on Defendant for certain Products - whether Plaintiff was required to have a 'binding written commitment" from customer prior to placing order on Defendant - whether Plaintiff achieved its sales goal for 2007 - [IMPLIED TERMS] - whether implied term to co-operate and/or implied term to act in good faith in discussions in relation to Plaintiff's 2008 sales goal - whether breach of Agreement - [TERMINATION] - whether Defendant entitled to give notice to Plaintiff terminating agreement on basis of the parties' failure to reach agreement in writing as to Plaintiff's sales goal for 2008 - whether Defendant entitled to terminate Agreement on basis that Plaintiff fail to achieve its sales goal for 2007 - [WORDS & PHRASES] - "discussions", "negotiate", "binding written commitment" CATEGORY: Principal judgment CASES CITED: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Australian Hotel Association (NSW) v TAB Limited [2006] NSWSC 293
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Butt v M'Donald (1896) 7 QLJ 68
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Council of the City of Sydney v Goldspar Australia Pty Ltd (2006) 230 ALR 437
Empress Towers Ltd v Bank of Nova Scotia (1991) 50 B.C.L.R. 126
Hart v MacDonald (1910) 10 CLR 417
Jalun Pool Supplies Pty Ltd v Onga Pty Ltd [1999] SASC 20
Mackay v Dick (1881) 6 App. Cas. 251
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2005) Aust Contract Reports 90-213
Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 230 ALR 56
Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 117 ALR 393PARTIES: Insight Oceania Pty Ltd (Plaintiff)
Philips Electronics Australia Ltd (Defendant)FILE NUMBER(S): SC 50241 of 2007 COUNSEL: CRC Newlinds SC/P Silver (Plaintiff)
IM Jackman SC/MR Elliott (Defendant)SOLICITORS: Johnson Winter & Slattery (Plaintiff)
Deacons (Defendant)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST
BERGIN J
23 JULY 2008
50241/2007 INSIGHT OCEANIA PTY LIMITED V PHILIPS ELECTRONICS AUSTRALIA LIMITED
JUDGMENT
1 On 24 November 2004 the plaintiff, Insight Oceania Pty Limited, entered into an agreement with Philips Medical Systems Australasia Pty Limited (PMSA), a division of the defendant, Philips Electronics Australia Limited, pursuant to which the plaintiff was appointed as PMSA’s exclusive distributor of certain diagnostic medical imaging products in Australia and New Zealand (the 2004 Agreement). On 4 April 2005 PMSA assigned its rights and obligations under the 2004 Agreement to the defendant. On 16 June 2006 the parties amended the 2004 Agreement by a Deed of amendment (the Agreement). I will refer to the 2004 Agreement as amended by the 2006 Deed of amendment as “the Agreement”.
2 This litigation arises out of the defendant’s purported termination of the Agreement by Notices of Termination dated 18 December 2007 (the 2007 Notice) and 23 January 2008 (the 2008 Notice). The 2007 Notice purported to terminate the Agreement on the basis that the parties had not agreed in writing to a reasonably achievable sales goal for the calendar year 2008 referred to in clause 4.01 of the Agreement. The 2008 Notice purported to terminate the Agreement on the basis that the plaintiff had failed to meet its sales goal for the 2007 calendar year.
3 The plaintiff seeks declarations that the Notices are invalid and of no effect and an order that the defendant be restrained from terminating the Agreement on the basis of the Notices. The plaintiff also brought a claim for rectification of the Agreement. It also claims that the defendant engaged in unconscionable conduct within the meaning of s 51AC of the Trade Practices Act 1974 (Cth) (TPA) and misleading or deceptive conduct in contravention of s 52 of the TPA. The plaintiff seeks consequential relief under the TPA restraining the defendant from relying on the Notices; and an order disentitling the defendant from asserting that the 2007 Sales Goal was not achieved. There is also a claim for damages. The claims for rectification of the Agreement were abandoned on the second last day of the trial.
Positron Emission Tomography (PET)
4 Positron Emission Tomography (PET) is a nuclear medicine technology that has been used overseas for approximately 28 years mainly as a research tool. As at 2000 it was an emerging technology in a diagnostic role with major clinical applications in the areas of oncology, cardiology and neurology. In 1999 the Minister for Health and Aged Care asked the Department of Health and Aged Care (Diagnostics and Technology Branch) to conduct a national review of PET to determine its proper role in the Australian clinical environment. The report of that review described PET as follows:
PET is a nuclear medicine technology that uses short-lived radioisotopes to allow the noninvasive diagnostic imaging of metabolic processes – and the disturbance of these processes by disease – in the living organism.
In contrast with imaging modalities such as computed tomography (CT) and magnetic resonance imaging (MRI), which primarily provide information about anatomical structure, PET can image and quantify biochemical and/or physiological function. This information is potentially valuable because functional changes caused by disease are frequently detectable before any structural abnormalities become evident.
FDG is taken up preferentially by tissues that use glucose as their main energy source: malignant tumours and their metastases; myocardial cells; and neural tissue. Because of its efficacy in imaging glucose metabolism, the major clinical applications of FDG PET are in oncology, cardiology and neurology, with around 80% of PET examinations in Australia currently being performed in oncology.The radioisotopes used in PET are produced in cyclotrons. The most commonly used in clinical PET is fluorine-18 (18F), labelled to fluorodeoxyglucose to produce 18F – FDG, commonly referred to as FDG. This altered glucose molecule behaves sufficiently like normal glucose to participate in, and allow the imaging of, glucose metabolism.
5 In March 1997 limited Medicare Benefits Schedule funding became available for the evaluation of PET. That funding was limited to the PET units at the Royal Prince Alfred Hospital (RPAH) in Sydney and Austin and Repatriation Medical Centre in Victoria (the Austin), to enable the development of an evidence base for PET in relation to its impact on a limited range of indications in oncology, neurology and cardiology. By mid-1999 the arrangement had failed to produce the level of evidence required to satisfy the requirements of the Commonwealth Government’s evidence-based approach to funding for health services.
6 As at 2000 there were four established providers of PET services in Australia being at the RPAH in New South Wales; the Austin in Victoria; the Centre for PET at the PMCI in Victoria; and at the PET Centre at the Wesley Hospital in Queensland. At the time of the events giving rise to this litigation there were an additional nine established providers for PET services using dedicated PET technology being: Liverpool Hospital; Newcastle Hospital; St Vincent’s Hospital and Westmead Hospital in New South Wales; Peter MacCallum Cancer Institute and the Monash Medical Centre in Victoria; Royal Brisbane Hospital in Queensland; the St Charles Gairdner Hospital in Western Australia; and the Royal Adelaide Hospital in South Australia.
7 The complex arrangements between Commonwealth and State governments in relation to funding for capital works for the establishment of a PET centre and for access to Medical Benefits Schedule rebates has seen a fairly slow development of PET technology in Australia. Under the Health Insurance Act 1973 (Cth), the Minister for Health may determine that a health service not listed in the Medicare Benefits Schedule shall be treated as if it were so listed in certain specified circumstances and for specified statutory provisions.
8 On 6 December 2005 the then Minister for Health and Ageing made a Determination under the relevant section of the Health Insurance Act being Health Insurance (Positron Emission Tomography) Determination HS/07/05. That Determination remained in force until midnight on 31 October 2007. Clause 4(3) of the Determination was in the following terms:
(3) An accredited and comprehensive facility is a facility that:
- (a) is accredited by ANZAPNM as a site for advanced training in PET; and
- (b) provides from one location each of the following services (whether or not other services are also provided):
- (i) PET;
(ii) computed tomography;
(iii) x-ray;
(iv) diagnostic ultrasound;
(v) medical oncology;
(vi) surgical oncology;
(vii) radiation oncology; and
(viii) neurology, including neurosurgery.
(4) For paragraph (3)(b), the reference to one location means:
- (a) all or part of one building; or
- (b) if the services mentioned in paragraph (3)(b) are not rendered in the same building, only those facilities where public access between the buildings where the services are rendered is by way of a covered pedestrian walkway.
9 The Determination then specified the following PET health services that qualified for a Medicare Benefits Schedule rebate:
Schedule – Specified health services
| Item | Health Service | Fee for all States |
| 61523 | Whole body FDG PET study, performed for evaluation of a solitary pulmonary nodule, where the lesion is considered unsuitable for transthoracic fine needle aspiration biopsy, or for which an attempt at pathological characterisation has failed. (R) | $953.00 |
| 61529 | Whole body FDG PET study, performed for the staging of proven non-small cell lung cancer, where curative surgery or radiotherapy is planned. (R) | $953.00 |
| 61559 | FDG PET study of the brain, performed for the evaluation of refractory epilepsy, which is being evaluated for surgery. (R) | $918.00 |
10 Although in theory private practitioners could purchase a PET scanner and provide PET scanning services to members of the public who were willing to pay a private fee, the commercial reality is that there would not be enough patients who would be in a position to pay the private fee necessary to make the practice viable. The development of PET in Australia is dependent upon government funding both for capital works and for access to the Medicare Benefits Schedule rebates.
11 On 8 September 2007 the then Minister for Health issued a further determination being Health Insurance (Positron Emission Tomography) Determination HS/05/07 which remained in force until midnight on 30 June 2008. That Determination broke up the former definition of “accredited and comprehensive facility” into two definitions, “accredited site” and “comprehensive facility”. Those definitions were as follows:
accredited site is one that is accredited by ANZAPNM as a site for advanced training in PET
comprehensive facility means:
(b) buildings, where public access between the buildings is by way of a covered pedestrian walkway; where each of the following services is provided (whether or not other services are also provided)(a) a building or part of a building; or
- (i) PET:
(ii) computed tomography;
(iii) x-ray;
(iv) diagnostic ultrasound;
(v) medical oncology;
(vi) surgical oncology;
(vii) radiation oncology; and
(viii) neurology.
12 That Determination applied at an accredited site in a comprehensive facility (clause 5(1)(a)(iii)). The Schedule of Specified Health Services to that Determination remained the same as the previous Determination.
The parties
13 The plaintiff commenced operation in December 1998. The directors are John Walstab (managing director), Andrew McDonald and James Hewlett. Mr Walstab has a Certificate of Technology specialising in Electronic Instrumentation from Royal Melbourne Institute of Technology in Victoria. He has been the managing director of the plaintiff since 4 December 1998, responsible for the overall operations and financial performance of the business. Mr Walstab has worked in various management positions with a number of medical imaging suppliers. He was a Sales Manager for Advance Technology Laboratories (ATL), a subsidiary of the defendant, for the period 1990 to 1996 and General Manager for ATL in the period 1996 to 1999.
14 Mr McDonald has approximately 20 years experience in the nuclear medicine market. He holds a Diploma in Nuclear Medicine Technology from the Michener Institute, Toronto, Canada for which he obtained reciprocity when he migrated to Australia in 1990. He has routinely attended and presented at lectures and seminars in Nuclear Medicine and PET technology. His role with the plaintiff is in the marketing, sales and after sales support management of products that the plaintiff represents for the defendant. In this role Mr McDonald is responsible for setting sales targets, negotiating budgets with the defendant, approving marketing expenditures to support the defendant's products and managing the sales team selling the defendant’s products.
15 Mr Hewlett has a Bachelor of Science degree in Electronic Engineering from DeVry Institute of Technology in North America. He has also completed courses in Customer Communications, Sales Marketing and People Management and routinely attends lectures and seminars on Nuclear Medicine and PET, both locally and internationally. Mr Hewlett has been a director of the plaintiff since 2005. Prior to that he was an owner-manager of the plaintiff from the establishment of the company in 1998. He has had 18 years experience in the nuclear medicine and PET market, locally and internationally. His role with the plaintiff includes: over-viewing sales performance and management of the sales team; generating sales opportunities; negotiating sales agreements and terms; completing sales contracts; liaising with product suppliers; handling customer "issues and feedback"; monitoring product and product developments; and overseeing the company's financial performance and management of significant assets and liabilities.
16 The Philips Group is a multinational group of companies, which has its head office in the Netherlands. The Group develops, manufactures and services healthcare, lighting, office and other products. The operations of the Group are divided on a regional basis in West Europe, East Europe, the Americas and Asia-Pacific. Each regional office reports to the head office in the Netherlands. The defendant is responsible for operations in Australia and New Zealand. It is a wholly owned subsidiary of Royal Philips Electronics NV, a company incorporated in the Netherlands. It sells products manufactured within the Group and provides engineering support for those products in Australia and New Zealand. It reports to the Asia-Pacific regional office, which is a separate corporate entity registered in Singapore known as Philips Electronics Singapore Pte Ltd.
17 The personnel of the defendant involved in the events giving rise to this litigation are: Harry van Dyke, the CEO of the defendant; Eric Le Bail, General Manager of Sales and Marketing; Phillip Prather, Business Manager - Imaging Systems; Michael Paholski, Business Development Manager - Nuclear Medicine; and Ian Chalmers, Legal Counsel and Company Secretary. Alister Wayne Spittle, who is the CEO and Senior Vice-President of Philips Healthcare MCR APAC, was formerly the general manager of the defendant. He left that position in April 2006 to take up the role of General Manager and Vice President of Philips Medical Systems Asia Pacific in Hong Kong. He resided in Hong Kong until May 2006 and then transferred to Singapore in October 2007.
18 Mr Paholski is the manager responsible for nuclear medicine imaging systems for Australia and New Zealand and health care informatics, being medical imaging archive and patient information systems. He commenced work in that position in January 2007. He holds a graduate certificate in business management from the University of Tasmania. Mr Prather accepted that both Mr Hewlett and Mr McDonald had many years of experience in the nuclear medicine market in Australia and that he had "very little experience" in the Australian PET marketplace (tr 261). Indeed he accepted he was a comparative “babe in the woods”.
19 Mr Paholski's position in relation to the respective expertise of those within the plaintiff was more reticent. He gave the following evidence (tr 426-427):
Q. … You aren’t, even now, an expert on the market for PET technology in Australia, are you?
A. No, I don't class myself as an expert.
Q. But you would accept, would you not, that at all times in October 2007 Mr McDonald from Insight did have such expertise?
A. Mr McDonald certainly has experience, yes.
Q. And he would be an acknowledged expert, in your mind, in the field of the market for PET technology in Australia?
A. He certainly has a lot of experience, yes.
Q. He would be an acknowledged expert in your opinion, wouldn't he?
A. He has a lot of experience, yes.
Q. Mr Hewlett also has and had in 2007 a lot of experience?
A. I don't directly know of Mr Hewlett's experience.
Q. But you would certainly defer to his opinion in relation to the market for PET technology in 2007, wouldn't you?
A. I would listen to his opinion.
Q. And if his opinion differed from yours generally, you would defer to his, would you not?
A. No.
Q. Now, what about Mr McDonald? If his opinion differed from yours in relation to the market for PET technology in October 2007, would you not defer to his opinion?
A. No
Q. Even though he's got - had then enormously more experience than you?
A. Yes
…
Q. Now, in relation to Mr Hewlett, you did think that he had considerable experience in the PET market in Australia as at 2007?
A. I had no basis to make a judgment on that.
Q. He certainly had more than you; you knew that, didn't you?Q. Did you ever ask him?
A. No.
A. Yes.
- The Agreements
20 In 1999 the plaintiff commenced distributing medical diagnostic equipment pursuant to a five-year agreement with ADAC Laboratories California (ADAC). Prior to the end of the term of that agreement, the defendant acquired ADAC and subsequently entered into the Agreement with the plaintiff. The defendant was authorised to market and distribute in Australia and New Zealand certain medical products that were manufactured and/or sold by its related companies. The products that the defendant authorised the plaintiff to distribute exclusively in Australia and New Zealand were described in the Agreement as follows (cl 1.03):
“PRODUCTS” mean the following lines of products including all modifications, revisions and enhancements thereto, but excluding any portions thereof, if any, as to which PMSA is prohibited from granting the distribution rights described herein: Nuclear Medicine Gamma Cameras and related Computer Systems (collectively, “Nuclear Products”), Positron Emission Tomography Systems (collectively, “PET Products”) and Radiation Therapy Planning Systems (collectively, “RTP Products”) or any pre-clinical product associated with the products described above.
21 The Agreement (that is, the 2004 Agreement as amended by the Deed of amendment in June 2006) included the following:
1.02 “Measurement Period” shall mean each twelve month period beginning January 1 and ending December 31 during the term of this AGREEMENT.
2.01 APPOINTMENT…
- PMSA hereby appoints DISTRIBUTOR as its exclusive distributor of the PRODUCTS in the TERRITORY, and DISTRIBUTOR hereby accepts such appointment. For purposes hereof, the term “exclusive” means that PMSA or its related companies will not; other than as provided in clause 2.02 (i) sell PRODUCTS directly into the TERRITORY or; (ii) sell PRODUCTS to any third party whom PMSA knows intend to sell into the TERRITORY or; (iii) assign distribution rights with respect to the TERRITORY to any other third party. PMSA shall refer to DISTRIBUTOR all inquiries and orders for PRODUCTS that PMSA receives directly from customers in the TERRITORY. DISTRIBUTOR may distribute the PRODUCTS through its sub-distributors or other resellers in the TERRITORY, subject to PMSA’s prior written consent.
2.02 Subject to DISTRIBUTOR providing prior written consent which shall not be unreasonably withheld, nothing contained in this Agreement shall prevent PMSA from supplying the PRODUCTS directly to a customer in the Territory in response to a request for quotation (or tender) for a bundle of products which include the PRODUCTS. In such cases PMSA will pay DISTRIBUTOR 15% of the usual transfer price for the PRODUCT and DISTRIBUTOR shall still remain responsible for installation and warranty support. Should a customer request a service contract from PMSA directly the DISTRIBUTOR will, upon PMSA's request, reasonably cooperate with PMSA to provide back to back service on behalf of PMSA where DISTRIBUTOR will perform the service to the customer on commercial terms with PMSA;
…
3.02 Subject to DISTRIBUTOR’s compliance with its obligations hereunder, this AGREEMENT shall continue in full force and effect for the term set forth in Appendix A (the “Term”). This AGREEMENT shall be automatically renewed for additional one-year periods (each such 12-month period, a “Term”) provided that if DISTRIBUTOR fails to meet the SALES GOAL for a Term PMSA shall be entitled to terminate this agreement by giving 90 days written notice to DISTRIBUTOR. Such notice must be given not later than 28th February in the year following the Term in which the SALES GOAL was not met. In determining whether a SALES GOAL has been met consideration will be given to the total sales target rather than the individual modality targets;
…
4.01 DISTRIBUTOR agrees to use its best efforts to sell, or procure sales contracts for, the PRODUCTS in the TERRITORY. During the Term, DISTRIBUTOR agrees to sell or procure sales contracts for such number of PRODUCTS as enable DISTRIBUTOR to meet or exceed the sales goals agreed by the parties for each Term (the “SALES GOAL”). The SALES GOAL for the period to 31 December, 2006 is set forth in Appendix A hereto. No later than 1st November, in any Term the parties shall commence discussions to set the appropriate SALES GOAL for the following Term. If the parties agree in writing to a SALES GOAL for the following Term, such agreed SALES GOAL shall be the SALES GOAL for such Term. If the parties have not agreed in writing to a reasonably achievable SALES GOAL for the following term by 15th December in any Term Philips may elect to terminate this agreement by giving 90 days written notice to Insight provided such notice is given before 31 December in the year in question;
5. DUTIES OF DISTRIBUTOR…
- In addition to all other duties herein set forth, DISTRIBUTOR shall have the following material obligations under this AGREEMENT:
5.01 Solicitation of Orders Etc.
- DISTRIBUTOR shall use its best efforts to solicit orders for and sell PRODUCTS to customers in the TERRITORY, shall not engage in the manufacture, promotion, and/or sale of any products that are competitive with the PRODUCTS, and shall not, directly or indirectly, be employed by or become associated in any capacity with any person, firm or corporation competing with or setting up to compete with PMSA in the manufacture or sale of similar products in the TERRITORY.
5.02 Prompt Payment
- DISTRIBUTOR shall promptly comply with all the terms and conditions of sale described hereunder, including without limitation, prompt payment of the purchase price for the PRODUCTS and any spare parts sold to DISTRIBUTOR by PMSA. Unless otherwise agreed in advance in writing by PMSA, payment for all PRODUCTS and spare parts shall be made by means and on terms and conditions as more fully set forth in Appendix A .
…
5.07 Sales Reports
- Every four (4) weeks DISTRIBUTOR shall provide PMSA with a report on the expected sale and distribution of PRODUCTS and DISTRIBUTOR’s business activities concerning the promotion and distribution thereof, together with information on the market situation in the TERRITORY, including:
- (a) Names of active sales prospects and status of sales,
- (b) Government regulations affecting PRODUCTS,
- (c) Competitive products and competitor’s activities,
- (d) Prices at which PRODUCTS and components are sold to end-users,
- (e) Sales forecasts, including product type and expected purchase price, for the next four (4) calendar quarters, and
- (f) All available market data for the TERRITORY with regard to volume of similar products purchased within the TERRITORY and average selling price for same.
…
6.01 Shipment Terms6. TERMS AND CONDITIONS OF SALE
- PMSA shall sell PRODUCTS to DISTRIBUTOR DDP Sydney warehouse as that term is defined in Incoterms 2000.
6.02 Changes in Pricing
- Notwithstanding the provisions of Section 4 above, PMSA may upon written notice to DISTRIBUTOR change the prices and discount percentages set forth in such Section and Appendix B hereto. Any such change shall be effective thirty (30) days after the date of said notice to DISTRIBUTOR. In the event that DISTRIBUTOR has bona fide outstanding bids to its customers that would be affected by any price increase, PMSA will honor the previous price to DISTRIBUTOR for those bids for a period not to exceed ninety (90) days from the date of notice of the price increase.
6.03 Other Terms and Conditions
- All sales made by PMSA to DISTRIBUTOR shall be subject to the provisions of this AGREEMENT, and to the extent not inconsistent herewith, DISTRIBUTOR’s shipping and handling instructions. Any provision of any purchase order placed by DISTRIBUTOR that is inconsistent herewith or in addition hereto shall be null and void, unless specifically accepted by PMSA in writing (other than routine acknowledgment). PMSA will not be liable for any penalty clauses from customers accepted by DISTRIBUTOR unless PMSA has specifically agreed in writing to such clauses in advance.
6.05 Title and Risk of Loss
…
- Title to and risk of loss for each shipment of PRODUCTS and spare parts shall pass to DISTRIBUTOR upon delivery pursuant to Section 6.01.
6.06 Orders for Products
- (a) All DISTRIBUTOR orders for PRODUCTS shall refer to this AGREEMENT and state the required PRODUCTS, quantities, shipment dates, purchase prices, destination, carrying method, consignee at destination and other shipping instructions. Each order shall be subject to acceptance by PMSA, which shall not be unreasonably withheld, and shall be binding upon PMSA when accepted.
- (b) If the shipment date requested in a purchase order cannot be met, PMSA shall notify DISTRIBUTOR with the expected shipment date. DISTRIBUTOR may choose either to cancel the purchase order or accept PMSA’s proposed shipment date. Failure of DISTRIBUTOR to give such notice within ten (10) days of PMSA’s notice of the shipment date shall constitute acceptance by DISTRIBUTOR of the shipment date proposed by PMSA. DISTRIBUTOR’s purchase order will be processed in the same manner as an order placed by PMSA’s direct sales organization.
…
7. CHANGES IN PRODUCTS
7.01 PMSA may, at any time prior to acceptance of any order from DISTRIBUTOR, either add to, delete, modify or change any of the PRODUCTS pursuant to any updating, obsolescence, or other change in the PRODUCTS occurring within the ordinary course of PMSA’s business with or without notice to DISTRIBUTOR.
7.02 PMSA agrees to provide training for designated DISTRIBUTOR personnel at mutually agreed-upon rates (see price list(s) attached as Appendices E and F) and at DISTRIBUTOR’s expense where this becomes necessary due to changes made to PRODUCTS. DISTRIBUTOR’s personnel shall be required to sign appropriate confidentiality agreements with PMSA as a prerequisite to such training.
18. RELATIONSHIP OF PARTIES…
- The relationship of DISTRIBUTOR to PMSA hereunder is that of vendee and vendor. Nothing herein contained shall be deemed to create any agency, joint venture or partnership relationship between the parties hereto. It is understood and agreed that DISTRIBUTOR is not, by this AGREEMENT or anything herein contained, constituted or appointed the agent or representative of PMSA for any purpose whatsoever, nor shall anything herein contained be deemed or construed as granting to DISTRIBUTOR any right or authority to assume or create any obligation or responsibility, expressed or implied, for, in behalf of, or in the name of PMSA, or to bind PMSA in any way or manner whatsoever. DISTRIBUTOR shall do no act or make any statement inconsistent with this Article 18.
…
23. ENTIRE AGREEMENT
23.02 This AGREEMENT is the entire agreement between the parties and supersedes and shall be substituted for each and every prior and contemporaneous agreement with respect to distribution of PRODUCTS in the TERRITORY, whether written, oral or otherwise in effect between DISTRIBUTOR and either PMSA or any company related to PMSA.23.01 The making, execution and delivery of this AGREEMENT by DISTRIBUTOR have been induced by no representations, statements, warranties, or agreements other than those expressly set forth herein.
22 Although the 2006 the Deed of amendment did not expressly remove clause 23, the following clause 5 makes clear that the parties intended that it would replace clause 23:
5.1 The Agreement as amended by this Deed contains the entire agreement and understanding between the parties on everything connected with the subject matter of the Agreement. Each party has entered into this Deed without relying on the representation by any other party or any person purporting to represent that party.
5. Entire Agreement
23 By letters dated 24 January 2006 the defendant confirmed that the 2004 Agreement was "renewed for an additional one year term expiring on 31st December, 2006.” The Deed of amendment dated 16 June 2006 was effective from that date to 31 December 2006. There is no document from the defendant to the plaintiff stating that the Agreement had been "renewed" for an additional one year term to 31 December 2007. However on 30 November 2006 the parties signed a sales goal for 2007 "pursuant to article 4.01 of the agreement". There is no issue that the Agreement continued to 31 December 2007 notwithstanding the absence any express statement to that effect.
24 Appendix A to the 2004 Agreement included the following:
SALES GOAL FOR EACH PRODUCT LINE FOR CALENDAR YEAR 2005: SystemBooking QuantityAverage Value (USD)Total (USD) Nuclear Products: Skylight6 Unit418k2,508k Forte5 Unit270k1,350k RTP Products Pinnacle Server1 Unit197k197k Pinnacle Client6 Unit 40k240k PET Products: Gemini – 161 Unit1,650k1,650k
A “booking” is defined as a binding written commitment by a customer in the TERRITORY to purchase a PRODUCT.
25 The letter of 24 January 2006 was in the following terms:
Re. Distribution Agreement dated 24th November, 2004
Pursuant to article 3.02 of the agreement the sales goals for the renewed term is as follows:We confirm that the distribution agreement between Philips and Insight dated 24th November, 2004 shall be renewed for an additional one year term expiring on 31st December, 2006
| Modality | System | Quantity | Average Unit Price (USD) | Total (USD) |
| PET/CT | Gemini GXL 6 | 3 | 1,176,659 | 3,529,977 |
| SPECT/CT | Precedence | 2 | 550,240 | 1,100,480 |
| VAR Angle SPECT | Forte | 6 | 186,450 | 1,118,700 |
| Skylight | 2 | 229,240 | 458,480 | |
| Cardio MD | 2 | 170,750 | 341,500 | |
| RTP | Pinnacle Server | 1 | 197,000 | 197,000 |
| Pinnacle Client | 6 | 40,000 | 240,000 | |
| 6,986,137 |
26 The Deed of amendment dated 16 June 2006 amended Appendix A as follows:
(8) Appendix A
- (a) Initial Term is amended by replacing “31 December 2005” with “31 December 2006”; and
- (b) the entire text under the heading “SALES GOAL FOR EACH PRODUCT LINE FOR CALENDAR YEAR 2005” – (including the table), up to but not including the heading “PAYMENT TERMS”, is replaced with:
“SALES GOAL FOR EACH PRODUCT LINE FOR CALENDAR YEAR 2006
| Modality | System | Units | Average Unit Price (US$) | Total (US$) |
| PET/CT | GEMINI GXL 6 | 1 | $1,275,000 | $1,275,000 |
| GEMINI GXL 16 | 1 | $1,475,000 | $1,475,000 | |
| SPECT/CT | Precedence | 0 | $ - | |
| Var. Angle SPECT | Forte | 3 | $ 260,000 | $ 780,000 |
| Skylight | 1 | $ 280,000 | $ 280,000 | |
| Cardio MD | 1 | $ 185,000 | $ 185,000 | |
| RTP | Pinnacle Server | 1 | $ 197,000 | $ 197,000 |
| Pinnacle Client | 6 | $ 40,000 | $ 240,000 | |
| Other | Other | $ 100,000 | ||
| Total | $4,532,000 |
A “booking” is defined as a binding written commitment by a customer in the TERRITORY to purchase a PRODUCT.”; and
27 The letter of 30 November 2006 was in the following terms:
Pursuant to article 4.01 of the agreement, the sales goals for the renewed term is as follows:
Re: Distribution Agreement dated 24th November, 2004 and Deed of Amendment dated April 2006
| Modality | System | Units | Average Unit Price (US$) | Total (US$) |
| PET/CT | GEMINI GXL 6 | 1 | $1,475,000 | $1,475,000 |
| GEMINI TF 16 | 1 | $1,900,000 | $1,900,000 | |
| SPECT/CT | Precedence | 1 | $ 748,000 | $ 748,000 |
| Var. Angle SPECT | Forte | 4 | $ 260,000 | $1,040,000 |
| Skylight | 0 | $ 280,000 | $ - | |
| Cardio MD | 2 | $ 185,000 | $ 370,000 | |
| RTP | Pinnacle Server | 1 | $ 197,000 | $ 197,000 |
| Pinnacle Client | 7 | $ 40,000 | $ 280,000 | |
| Total | $6,010,000 |
Should the Variable angle camera Brightview not available for delivery before July 2007, the targets shall be reduced by $520,000.
28 The plaintiff’s exclusive “TERRITORY” was Australia and New Zealand.
2007 Notice - Competing claims
29 The plaintiff claims that the defendant was obliged to act reasonably in exercising its entitlement to terminate the Agreement under clause 4.01. It was submitted that the defendant was not entitled to require agreement to a sales goal that was not reasonably achievable, particularly because of the important consequences for the plaintiff. The defendant submitted that all the defendant had to do was to "commence discussions", which, it was submitted, could be done unilaterally by promoting a particular figure to the plaintiff as a sales goal. It was submitted that thereafter if the parties did not agree in writing to a sales goal that obviously had to be reasonably achievable, the defendant was entitled to elect to terminate the Agreement.
30 The plaintiff claimed that the defendant put forward a figure that it knew was not reasonably achievable and refused, unreasonably, to budge from that figure. It was submitted that in those circumstances it was not entitled to elect to terminate the Agreement. It was submitted that a pre-requisite to such entitlement was engaging in a co-operative manner with the plaintiff to agree on what was reasonably achievable and that it failed to do so. Additionally it was submitted that the defendant was required to negotiate in good faith with the plaintiff to agree on what was reasonably achievable and it failed to do so. In those circumstances it is claimed that the defendant was not entitled to elect to terminate the Agreement. There are also claims that the defendant acted unconscionably and misled or deceived the plaintiff during the discussions in relation to the setting of the sales goal. It is claimed that such conduct disentitled the defendant from electing to terminate the Agreement.
31 There is an alternative claim that the plaintiff did agree in writing to a reasonably achievable sales goal. That claim is based on a letter dated 17 December 2007, the detail of which is referred to below, which includes the statement: "We can accept the 2008 sales goals with conditions based on market conditions". It will be necessary to analyse that statement in the surrounding circumstances of the final days and hours of the “discussions” in December 2007.
32 There is a real issue between the parties as to whether the sales goal proffered by the defendant was reasonably achievable. Indeed the plaintiff claimed that the defendant intentionally set a sales goal that it knew was not reasonably achievable for the purpose of ensuring that no agreement in writing would be reached by the required date so that it could terminate the Agreement. The plaintiff claimed that as early as May 2007 the defendant had considered the option of distributing its products directly to the market and that its conduct in the latter part of 2007 was aimed at achieving the termination of the Agreement so that it could sell the Products direct to the market.
33 The defendant claimed that it honestly believed that the 2008 sales goal it proffered to the plaintiff was reasonably achievable. It is therefore necessary to analyse the relevant background facts and circumstances leading up to the commencement of discussions in late 2007, the setting of the sales goal and the election to terminate the Agreement. The defendant's claim of honest belief in the sales goal is based in the main on the evidence of Mr Paholski and it will be necessary to review his consideration of various aspects of the market to reach his claimed belief that there would be what he described as a "PET surge" in 2008.
January 2007
34 In January 2007, Mr Paholski suggested to Mr Le Bail that he be considered for a dual role in operations management for Healthcare Informatics as well as nuclear medicine. Mr Paholski advised Mr Le Bail that he had experience in nuclear medicine and would like the opportunity to manage a distributor. The job description provided to Mr Paholski included the following:
Pivotal to the success of the incumbent is the close working relationship they develop with [the defendant's] distributor Insight Oceania, who are responsible for selling and servicing the equipment in the territory.
35 In correspondence with Mr Le Bail about the position, Mr Paholski said that he would "like to ensure the accountabilities are in line with the contract we have with Insight". He then asked: "For example are they obliged to share their funnel with us monthly?". Mr Le Bail's response was as follows:
The challenge will be for you to position yourself as a support to Insight and by being non-threatening talk them into being more integrated etc …
Regarding Insight, you're absolutely correct. By contract, they are supposed to give us a Business update on a quarterly basis only. It did not happen at all, that's why I want you and Shehaan to include them in the formal monthly follow-up for all distributors. If it ends-up being quarterly with them, it's OK as long as we formally follow up. Their adherence to this contractual obligation is a cause of termination we’ve never put ourselves into a position to use.
36 On 31 January 2007 Mr Le Bail advised the plaintiff that Mr Paholski would become Business Unit Manager - Nuclear Medicine as and from 29 January 2007. That advice stated that Mr Paholski would be a "great asset in assuring the interface between" the plaintiff and the defendant and that he would spend 50% of his working time in this role and 50% as the Operations Manager for Healthcare Informatics. The reference to a “funnel” was a reference to a document known as a “sales funnel” that Mr Paholski used in Healthcare Informatics to obtain information in relation to sales and proposed sales. The reference to Shehaan was to Shehaan Fernando, the then Channels/Consumables Division manager of the defendant. By this time the defendant had received a number of complaints about the plaintiff's performance. In January 2007 there was a meeting between Mr Le Bail, Mr Paholski and Mr van Dyke in which Mr van Dyke said to Mr Paholski:
Mike, there has been a lot of hearsay about Insight not performing. We want to have the agreement with Insight strictly enforced. We want everything documented and we want to know what is going on in the market. We are not sure that we are receiving accurate information from Insight about the market.
- February 2007
37 On 1 February 2007 Mr Le Bail and Mr Paholski met with Mr McDonald at the defendant's offices at North Ryde. During this conversation Mr Le Bail asked Mr McDonald to go through the "sales prospects". He asked him what was happening in the first quarter because the defendant had not received any orders from the plaintiff for 2007. Mr McDonald advised that the first quarter was "usually quiet". After this meeting Mr Paholski informed Mr Le Bail that he would adapt the sales funnel document as a template for Mr McDonald to use so that the defendant could get something in writing in relation to the plaintiff's sales and sales prospects. Mr van Dyke advised Mr Paholski that he needed "to make it clear that Insight need to meet their obligations".
March 2007
38 On 12 March 2007, Mr Paholski wrote to Mr Le Bail advising him that he had been reviewing the plaintiff's contract and had noted that there were areas where the plaintiff's responses to requests for critical business data had been "slow, incomplete or even non existent". Mr Paholski suggested the following:
At this meeting I propose that both as a funnel review and also to address any service and marketing support issues should occur.
In order to establish a better flow of communication between Philips and Insight I am proposing that we hold a meeting once a month.
39 Mr Paholski suggested a single point of contact between the plaintiff and the defendant before he started "pushing too hard". The pro-forma funnel document, enclosed with that e-mail to Mr Le Bail included the following:
USD AUD State End User Product order intake date required delivery date IVP end user price % buy % winComments / Issues
40 On 14 March 2007 Mr Paholski sent the pro-forma sales funnel to Mr McDonald with a proposal that they meet monthly to discuss the market position service support items. The covering e-mail included the following:
As we have discussed several times, Philips requires the regular reporting of sales forecast and market data information.
So far the responses to my requests have not been satisfactory in both the level of detail or the timeliness of the responses.
As just one consequence I am unable to negotiate improved pricing for the Brightview for the ANZ market as I can not support my case due to lack of data.
I would like to remind you that Insight has a contractual obligation to supply the following information every four weeks.If you are unable to furnish this data the price supplied to you previously will have to stand.
- (a) Names of active sales prospects and status of sales,
- (b) Government regulations affecting PRODUCTS,
- (c) Competitive products and competitor’s activities,
- (d) Prices at which PRODUCTS and components are sold to end-users,
- (e) Sales forecasts, including product type and expected purchase price, for the next four (4) calendar quarters, and
- (f) All available market data for the TERRITORY with regard to volume of similar products purchased within the TERRITORY and average selling price the same.
41 On 19 March 2007 Mr Paholski wrote to Mr McDonald in the following terms:
just a reminder that direct communication with the PMG is not allowed under the terms of your contract. Please do not put people in a position where they feel they are being rude but refusing to speak to you and your team.
42 This email apparently arose as a result of Mr McDonald contacting the Philips factory directly without notifying Mr Paholski of his intention to do so. Mr Paholski’s evidence was that this reminder was in relation to the plaintiff’s obligations under clause 5.11 of the Agreement that was introduced by the Deed of Amendment in 2006. It required the plaintiff to deal solely with the “nominated representatives” of the defendant in connection with all matters pertaining to the Agreement and the distribution of the products unless authorised otherwise by the defendant. That clause highlighted that the plaintiff was not to approach the defendant’s “supply centre” in connection with any matter without first notifying the defendant’s General Manager Sales & Marketing in writing. It seems to have been introduced as a result of the representatives of the plaintiff contacting the supply centre directly in circumstances where clients were complaining about the delay in the supply of spare parts and the like. It is clear that when Mr Paholski wrote to Mr McDonald on 19 March 2007 he was quite irritated, which is understandable in the circumstances.
43 In April 2007 a press release was issued by the New Zealand First Party in the following terms:
Bureaucracy Delaying Pet Scanning Decision
The snail-like progress of the case for PET scanning is another example of bureaucracy gone mad in the health system says New Zealand First’s health spokesperson Barbara Stewart.
“PET scans can save lives and refine treatment options thereby saving money at the same time. PET scanning has been available in Australia since 1992 where 20 million people have access to 12 PET scanners. New Zealand’s public health system has none. Cancer patients have to pay their own way to Australia or, if they are very lucky, their DHB pays for them.
“Somewhat belatedly the Cancer Treatment Working Party presented a report to the Ministry of Health on PET scanning in mid 2005, and the Ministry of Health eventually started drafting a proposal in March 2006. As detailed in the attached answer to a written question the proposal is slowly wending its way through the bureaucratic maze and is still some way from the finishing line.
“If a favourable decision is made there will still be a set up time – possibly years – during which time patients will either have to travel to Australia or continue to miss out on the benefits of advanced technology.
“The Minister of Health should be able to expedite the process. The word accountability again rears its ugly head. Cancer patients and their families deserve much better treatment than this and the buck stops with the Minister,” said Mrs Stewart.“We have a population of 4.1 million. At a minimum we could probably get by with two scanners. It beggars belief that decisions about lifesaving equipment can take so long to be processed.
44 The question referred to in that press release was a question for the Minister of Health, the Honourable P Hodgson, on 22 March 2007 included a request for information of the expected timeline until a final decision on the adoption of PET scanning. The Minister set out the history of the report and a working group and advised that chief executive officers of the National District Health Boards would consider the business case at a meeting on 25 June 2007 with a final decision expected in early July 2007.
45 On 17 April 2007 Mr van Dyke asked Mr Paholski to follow up an expression of dissatisfaction in relation to Philips products that had been purchased by the Monash Medical Centre in Clayton, Victoria. Mr Paholski and another member of the defendant’s staff met with the director of nuclear medicine of that institution in late April 2007. Mr Paholski reported to Mr van Dyke that the director had “strongly emphasised that Insight had greatly improved in the quality of service and sales support and on the whole he was very satisfied with them now”. Mr Paholski thought it was interesting that the director had attributed that improvement to Mr McDonald moving out of the sales management role. It is apparent that in that meeting Mr Paholski was advised that the plaintiff had blamed the defendant for delays in the supply of equipment. Mr Paholski advised Mr van Dyke that he thought it was an “easy option” for the plaintiff to blame the defendant for service and delivery issues and he thought it was “happening far too often”. He advised Mr van Dyke that he would discuss that matter with Mr McDonald the following weekend at the Australia and New Zealand Society of Nuclear Medicine (ANZSNM) scientific meeting.
46 Mr van Dyke asked Mr Paholski to prepare “an overview of the nuclear medicine market” and the defendant’s position in the market. He asked Mr Paholski to put together a review that summarised the market and the defendant’s “opportunities and options”. Mr van Dyke instructed Mr Paholski that nothing “too detailed” was needed and that he just wanted a review that covered the business “as a whole including sales, marketing and customer service”. Mr van Dyke asked Mr Paholski whether he could have the report by the end of the month because he wanted to get an understanding of the business.
47 On 28 April 2007 Mr Paholski attended the ANZSNM meeting on the Commonwealth PET Data Collection Project. The data that was analysed at that session had been collected between 1 March 2003 and 15 April 2005. It was reported that the data unequivocally demonstrated the significant impact of PET on management and outcomes in patients with suspected recurrent colorectal cancer and that it was the preferred imaging technique in the management of patients with suspected recurrent ovarian cancer. Mr Paholski claimed that when he left the meeting he had the impression that there was a consensus within the medical community that PET was a superior diagnostic and imaging tool which could substantially change the way in which patients were medically treated, resulting in better outcomes for patients and more cost effective procedures for operators.
48 Mr Paholski did not make any mention in his statement of evidence of a discussion with Mr McDonald at this scientific meeting in relation to the matter of blaming the defendant for the delay in service and delivery of various parts. Mr McDonald dealt with the discussions he had with Mr Paholski at the scientific meeting in his statement of 2 June 2008. Mr McDonald agreed that at the time of the meeting there was a consensus in the Australian medical community on the clinical efficiency of PET scanning, however he claimed that this consensus arose many years prior to that meeting and that the information was not new. In a conversation with Mr Paholski at the meeting in relation to the information, Mr McDonald informed Mr Paholski that this information had been known for some time and that the reason the research was undertaken was that the Federal Government required the information to be validated locally.
May 2007
49 Mr Paholski gave evidence that during the ANZSNM meeting on 1 May 2007 he met with Young Chun Kim (Mr Young Chun), from the defendant’s associated company in Singapore to which the defendant reported, and Olivier van der Borght from IBA, a manufacturer of cyclotrons. Mr Paholski claimed that Mr van der Borght advised him that IBA was expecting three cyclotron orders in Australia for Adelaide, Nepean and the Brain and Mind Institute (BMRI) in 2007. Mr Paholski claimed that he understood from this meeting that there was an “increased chance” of PET and PET/CT activity in Australia associated with those three cyclotron orders. He also said that he was aware that the plaintiff was the distributor for IBA. On 3 May 2007 Mr Paholski reported by email to Mr Le Bail that:
At the ANZSNM meeting it was quite obvious Andrew has been sandbagging on several large opportunities.
- In a meeting with Olivier Van der Borght from IBA we learned that they expect 3 Cyclotron orders in Australia this year, Adelaide, Nepean and BMI?
- We can expect some PET activity to [be] associated with this but there is nothing in the funnel.
50 The plaintiff read an affidavit from Mr van der Borght sworn on 2 June 2008 without objection. Mr van der Borght was not required for cross-examination (tr 193). Mr van der Borght’s evidence was that he did not remember that he said the words attributed to him by Mr Paholski or any words to that effect at about the time of the ANZSNM meeting. He said that he understood that Mr Paholski’s reference to “Nepean” was a reference to the Nepean Hospital, however at the time of that meeting he had never heard of that hospital. His evidence was that BMRI was not a sales prospect for IBA until well after the ANZSNM meeting and did not come about until about August 2007. Mr van der Borght considered the Royal Adelaide Hospital, to which he understood Mr Paholski was referring in his description “Adelaide”, to be a longer term prospect which would not consider purchasing “for a long time to come”.
51 In early May 2007 Mr Paholski and Mr McDonald had a conversation in which Mr McDonald advised Mr Paholski that there was “movement in the New Zealand PET market and we need to get in there as soon as possible”. Mr McDonald advised Mr Paholski that the plaintiff was trying to influence the market at a high level and that it would like to hold a PET symposium in New Zealand.
52 In the period 6 to 9 May 2007 Mr Paholski attended the defendant’s Singapore Learning Centre for a nuclear medicine product training course. Mr McDonald was also present at that course. Mr Paholski, Mr McDonald and Mr Young Chun had a conversation to the following effect:
McDonald: I am concerned about the overlap between the BrightView and the Forte and would like to have some BrightView systems installed quickly in order to seed the market in Australia and New Zealand. Would you consider special pricing on the basis of a multi-unit commitment from Insight.
Young Chun: How many units are you talking about?
McDonald: About five.
Young Chun: What time frame?
McDonald: This year.
Young Chun: You would need to take delivery in 2007.
McDonald: Yes. I would be interested depending on the price.
Paholski: I will discuss this with Young Chun further, we will need to get approval for this from the factory.
McDonald: I also have some strong prospects for refurbished PET. The prices I’ve been seeing for this are not realistic. If I were to bundle up several refurbished systems would I be able to get a discount?
Young Chun: What systems would you be interested in?
McDonald: We would be looking for Allegros, a Gemini Dual and a Gemini 16.
McDonald: Okay.Young Chun: I’ll make enquiries about which systems we have in stock and discuss this further with Mike.
53 On 9 May 2007 Mr McDonald wrote to Mr Paholski by email in the following terms:
InSight would like to investigate the possibility of purchasing a demo/training Brightview system. We would use this system to allow local FSE training in Australia (perhaps this could also be useful for Ray) and customer demonstration. An add on value to this would be that it would allow us to deliver a system to customers much faster than the current lead time allows.
The likelihood is that we would only have this system for the first 6 to 12 months, unless the model proved successful for customer delivery timelines. In order for us to consider this we would need some strong pricing concessions as this would be taken up on our books.
If you have any questions or suggestions as to how we could make this more attractive to the PMG for a positive response please feel free to pass them on.Can you please see if you can start discussions with the PMG as to how strongly they would support this.
54 Mr Paholski gave evidence of the contents of an email, which is not included in the evidence, dated 12 May 2007, that he received from Mr McDonald. His evidence was that the email included the following:
As you know the NM market has moved strongly towards SPECT/CT and we would like to take advantage of the quoting opportunity as soon as possible to stem the slide of business towards our competitors.
55 On 15 May 2007 Mr Paholski wrote to Mr Le Bail attaching two documents; one entitled “Business Case Model – hostile change over”; and another entitled “Business Case Model - clean change over”. The email was in the following terms:
I have been working on these sheets for some time and now I am back in Sydney have had an opportunity to check my costing assumptions with Casey.
- Can you please do a sanity check before I pass them on to Harry?
- I would really appreciate some coaching with this.
- The hostile sheet assumes we terminate the agreement and Insight retains the CS business. The Clean change over assumes we take over the installed base.
56 The attachments with that email were excel spreadsheets and graphs. Mr Le Bail responded to Mr Paholski’s email on 16 May 2007 and Mr Paholski responded to Mr Le Bail’s email on the same day. The following is a combination of the two emails with Mr Le Bail’s comments in italics:
thanks, I really do appreciate the assistance.
Eric,
1. Small comment but I guess it is unconsequential number wise: you included Gamma cameras in SPECT/CT line. Why no Pros in the hostile model? What’s different?I will answer your questions here to be complete,
- From information have at ANZSNM there is just about to be additional $100 Medicare rebate for CT attenuation corrected SPECT, this will all kill the low end SPECT market. (I am currently pushing the PMG for firm roadmap & pricing on Brightview SPECT/CT and discounts on Precedence in 4 public hospital prospect to protect out OIT this year)
2. There is no price erosion. We could assume it would be compensated GM-wise by the factory reducing IVPRs but top line should be impacted. If not included in the model, should be noted somewhere.No PROS is a typo, thanks I’ll fix that.
- Yes, there is also no modelling for CPI on service contracts, is not a fine detail model. I’ll note my other assumptions.
3. The overall profitability of the hostile model is based on being successful in selling more than one unit every year.
o What makes you sure we can achieve that with absolutely new sales force and knowing the fight we’ll get from Insight amongst their good customers. Do you have an absolute conviction it is achievable from your contacts with Monash, the Austin etc….
o Is there any other chance the market would develop from new rebate schemes?
- I assumed that we removed the right from Insight to sell all together, thinking both PMSA & Insight selling would be damaging in the market.
There is a potential for there to be a PET rebate in November, but I think this is dangerous to bet on. I also have a proposal to reestablish our contact with the Market using Anne for Level 2 applications – She would be trainer for Insight and introduce new product to the Marconi installed base.
4. Another chart representing the impact of additional commercial on the overall PMSA’s selling expense % should be presented. Please ask advice from Casey.
250 Although the actual sales goal for 2007 still included modalities and unit numbers, the express terms of clause 3.02, as amended in 2006, make it clear that in "determining whether the SALES GOAL has been met", the total dollar figure rather than the number of units was to considered.
251 The question is whether the parties intended to continue with the measurement of the plaintiff's sales goal by reference to the number of binding written commitments the plaintiff had from its customers, or some other measurement. There is nothing within the Agreement to suggest that it was some other measurement. During their relationship, the parties had proceeded on the basis that the plaintiff would place orders on the defendant to enable it to deliver the Products to the customer in a timely fashion. The evidence does not establish that in respect of each and every order the plaintiff placed on the defendant, it had a binding written commitment from a customer. However this has not been an issue prior to the 2007 sales goal and the parties have not had to look at the nature of the transactions until the transaction relating to RNSH at the end of 2007.
252 Although the express terms of the agreement developed in a most unsatisfactory manner in respect of the term "booking", I am satisfied having regard to the history between the parties and the commercial purpose of the Agreement, that is, the distribution of the defendant's product to customers, that the intention of the parties was that the plaintiff's sales goal would be measured by the “binding written commitments” the plaintiff received from customers in the particular year that was the subject of measurement. If that were not so, all the plaintiff would have to do would be to forward orders to the defendant at any time during the year for equipment that made up the total dollar amount of the sales goal. That would mean that the plaintiff would be able to stockpile equipment, a process that I am satisfied the parties did not intend.
253 The plaintiff made a further submission that, if it is the total dollar figure that has to be considered in determining whether the plaintiff's sales goal has been met, then the amount that should be considered is the amount at which the plaintiff sold the products to the customers, rather than the amount the plaintiff was obliged to pay the defendant for the products. There is no proper foundation for such a construction of the Agreement. The purpose of the commercial arrangement between these parties was for the distribution of the defendant's products to the customer. Part of that arrangement was an agreement that the plaintiff would achieve its sales goal by obtaining binding written commitments from customers in the marketplace. The defendant had no control over the price the plaintiff sold the product to its customers. The margin the plaintiff placed on the products for sale to its customers may have varied according to the commercial exigencies of the plaintiff's business. I am not satisfied that the parties intended that such an uncertain amount would be that which was to be considered in determining whether the plaintiff had achieved its sales goal. The plaintiff's submission in this regard cannot be accepted.
254 The next question is whether the plaintiff had a "binding written commitment" for the product the subject of the order. The first issue to be considered is the meaning of the expression "binding written commitment". The use of the word "commitment" instead of the word "agreement" seems to me to be of some importance. The meaning of “commit” in the context of this Agreement is to “pledge or bind (a person or an organization) to a certain course": The New Oxford Dictionary of English, (1998) Oxford University Press; or "to bind by pledge or assurance": The Macquarie Dictionary, Federation Edition (2001) The Macquarie Library.
255 The word "binding" in the expression "binding written commitment" seems superfluous from a technical definitional point of view, however it serves to emphasise that the parties intended that the measurement of the sales goal was to take into account something in writing from the customer that bound the customer to purchase certain products. It did not have to be a written purchase order, nor did it have to be a written contract for purchase, although of course each of those documents would qualify as a binding written commitment. So long as the plaintiff had something in writing by which the customer pledged or “committed” itself to purchase the product from the plaintiff, the plaintiff was entitled to have the dollar equivalent of the products that were the subject of the commitment considered when ascertaining whether its sales goal had been achieved.
256 The context in which the word "commitment" appears satisfies me that the parties used it intentionally to accommodate the way in which the nuclear medical equipment market operates. First of all the defendant must have product available or know that it has to manufacture the product to be available for the customer who has made a commitment to purchase it. From the customer's point of view there is a need to prepare a site for the installation of a PET machine including building works to accommodate the equipment. There needs to be advance planning and there may be different time frames from the date a party commits to purchasing product to the date the party places a formal purchase order for the product. The plaintiff did not have to wait for this latter event to place its order on the defendant.
257 The defendant submitted that the evidence establishes that there was no binding written commitment because Dr Roach did not have authority to bind the hospital. Dr Roach was addressing the topic of an “order”. Although the email from Dr Bailey was addressed to parties additional to the plaintiff, including the defendant, it advised the plaintiff that “we”, I am satisfied meaning RNSH, “have decided to purchase” the TF/64 PET/CT. I am satisfied that this communication was a pledge or a commitment by the customer to purchase the product. In all those circumstances the plaintiff was entitled to have the dollar equivalent of the “TF/64 time-of-flight PET/CT scanner” it placed on the defendant on 31 December 2007 taken into account in considering whether it had achieved its sales goal.
258 Mr Prather agreed in the evidence extracted above that he was aware that RNSH had acknowledged that it would proceed with the purchase. The commercially rational reason for the plaintiff to submit a purchase order was to take advantage of the price that was offered on the equipment that was to expire on 31 December 2007, but in any event it had a binding written commitment to purchase the product the subject of the order on the defendant. In my view the plaintiff was entitled to have the equivalent dollar figure considered in determining whether the sales goal had been achieved.
259 I am satisfied that the defendant is not entitled to rely upon the 2008 Notice because the plaintiff had achieved its sales goal for 2007.
260 The plaintiff is entitled to declarations and consequential orders that the defendant is not entitled to rely upon the 2007 and 2008 Notices. I am very conscious of the fact that the defendant no longer wishes to have the plaintiff as its distributor and notwithstanding an earlier unsuccessful attempt at mediation I wish to hear from the parties as to whether I should refer this matter to mediation prior to making final orders. I will also hear the parties on the issue of costs if they are unable to agree on a costs order. The matter is listed in the Motions List on 1 August 2008.
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