INSTALARM Security Pty Ltd v CIT Group (Australia) Pty Ltd - [2007] WADC 35

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: INSTALARM SECURITY PTY LTD -v- CIT GROUP (AUSTRALIA) PTY LTD [2007] WADC 35

CORAM: WISBEY DCJ

HEARD: 8, 9 & 10 AUGUST 2006

DELIVERED : 28 MARCH 2007

FILE NO/S: CIV 1872 of 2003

BETWEEN: INSTALARM SECURITY PTY LTD
Plaintiff
AND
CIT GROUP (AUSTRALIA) PTY LTD
Defendant

Catchwords:

Contract - Contract for sale of goods - Alleged breach of contract - Dispute as to terms of contract, particularly determination of purchase price - Turns on own facts

Legislation:

Nil

Result:

Claim dismissed

Representation:

Counsel:

Plaintiff: Mr A P Hershowitz
Defendant: Mr M N Solomon

Solicitors:

Plaintiff: Bruce Havilah & Associates
Defendant: Phillips Fox

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Nil

WISBEY DCJ: The plaintiff, a company engaged in the installation and maintenance of security systems, alleges that on or about 5 November 2002, Amalgamated Food and Poultry Pty Ltd (Red Rooster) entered into an agreement with it requiring the plaintiff to supply and install security alarm systems and digital close‑circuit television systems in various Red Rooster stores. Essentially the plaintiff asserts that the defendant agreed to purchase the security systems required by Red Rooster from it, whereupon Red Rooster entered into a rental agreement for the security systems with the defendant. The defendant was to pay to the plaintiff for the supply, installation and commission of the security systems, an amount calculated by the application of the usual finance industry formula, which took into account inter alia the present value of income payments received by the defendant from Red Rooster pursuant to the rental agreement. In calculating the amount due to the plaintiff pursuant to the formula, the applicable variables were:
(i)Regular monthly payments received by the defendant under the rental agreement for 40 stores ($10,530).
(ii)The period of time over which the rental payments were to be received (65 months).
(iii)The applicable compound interest rate per period (9 per cent).
(iv)Final payment to be received by the defendant at the end of the period by way of buyback (three per cent of the purchase price for the security systems).
The plaintiff alleges that in breach of the agreement, the defendant in utilising the formula to calculate the purchase price, applied an interest rate of 12.74 per cent in lieu of 9 per cent, and failed to apply a 3 per cent buyback.

The evidence

Louie John Magro

Mr Magro is and was at all material times a director of the plaintiff. He stated that in 2002 he entered into discussions with one Frank Romano, a director of Red Rooster, which required an upgrade of security systems in its various stores, particularly in New South Wales. There were 255 stores requiring security upgrades. The discussions resulted in the execution of a document on 29 August 2002 (Exhibit 1 p 1) whereby the plaintiff agreed to install, commission and maintain security alarm and digital closed circuit television systems for each of the nominated stores. The agreement was conditional upon the provision of finance by a financier on terms acceptable to both parties, and provided that Red Rooster pay $61 per week plus GST per store for the supply and maintenance of the equipment.
Mr Magro stated that the plaintiff approached various financiers seeking finance for Red Rooster, and in particular contacted a Mr Braysich of Westminster Finance. The intention was to finance 255 sites throughout Australia, but the initial approach was to obtain finance for 64 or 65 sites in New South Wales. When asked how much was being sought by way of finance, Mr Magro said:
"What we normally do is we give the rental figure and the term, the variables, to the financier and they then tell us from that. They apply an interest rate and tell us exactly how much we are looking to get back."
The irrevocable authority dated 8 October 2002 (Exhibit 1 p 27) confirms that the plaintiff instructed Westminster to make application on behalf of itself and Red Rooster for rental finance for equipment to be supplied by the plaintiff to Red Rooster. There was some urgency concerning 17 of the New South Wales sites, and as a result approval was obtained on an urgent basis for a facility in the amount of $250,000, with a drawdown of $15,000 for each site, subject to Red Rooster executing a master rental agreement.
Mr Magro stated that the interest rate applied by the financier was critical in determining the amount that would eventually be paid to the plaintiff. He stated that an option to buy back the equipment at the end of the lease was essential to the plaintiff.
Mr Magro referred to a letter from Mr Towers, the defendant's State manager, to Mr Braysich of Westminster (Exhibit 1 p 30) confirming approval of finance in the sum of $250,000 with a drawdown of $15,000 per site, subject to the execution of a master rental agreement. It indicated that subject to the provision of further financial documentation establishing the fiscal integrity of Red Rooster, the defendant might be in a position to increase the facility to $900,000, being the initial amount requested. Mr Magro stated that Mr Braysich had earlier mentioned to him that in respect of the interest rate charged by the defendant there would be a premium on the initial advance of the order of 12.76 per cent. Absenting the facts responsible for the premium rate, Mr Magro expressed the view that anywhere between 7 and 9 per cent would be a fair market rate.
Mr Magro also referred to an email to himself from Mr Towers dated 1 November 2002 (Exhibit 1 p 33) confirming that at the expiration of the agreed leasing facility, the plaintiff would have "first option to purchase the equipment housed under the lease for an agreed rate of 3% of the initial invoice values".
Reference was made to a facsimile from the defendant's office assistant Sianne Smith to Mr Magro dated 27 November 2002 (Exhibit 1 p 53) in which the defendant confirmed that it had approved $500,000 finance for Red Rooster which could be drawn down at the rate of $268.68 per month, equating to $13,125 per store. Mr Magro stated that after receiving that facsimile he telephoned Mr Towers to ascertain the interest rate the defendant was applying to the second tranche, his intention being to get the lowest rate possible. Mr Towers agreed the defendant would provide the facility at an interest rate of 9 per cent. Mr Margo stated that he had obtained quotes from other financiers who had offered rates ranging between 7 to 9 per cent. During that discussion there was also agreement as to a 3 per cent buyback for a total of 60 stores.
On 4 December 2002 Mr Towers sent Mr Magro a facsimile (Exhibit 1 p 54) which confirmed a total financial package of $750,000 of which at that stage $250,000 had been drawn. The facsimile advised that the remaining $500,000 was available and "that the documents would be completed for $10,517 for this amount". Following the receipt of the facsimile, Mr Magro arranged for Albert Beltman, an employee of the plaintiff, to invoice the defendant.
On 14 January 2003 an email (Exhibit 1 p 56) was sent to Mr Magro, purportedly from Mr Towers, confirming a discussion that morning that "the payment for the remaining $500K is a total of $10,517 monthly and the applicable rate will be 9%". Several days later Mr Magro sent to the defendant by facsimile transmission a schedule of the stores in which the plaintiff had installed security equipment.
On 13 November 2002 the plaintiff forwarded the defendant two invoices and supporting documentation showing a total of $273,191.66 due to the plaintiff for the installation of security equipment; and on 6 December 2002 four invoices and supporting documentation showing a further amount due of $547,383.32. Each invoice was raised on a debit inclusive of GST of $13,684.58 per site. The defendant paid the invoiced amounts, the final payment of $547,383.32 being made on 29 January 2003. Mr Magro stated that the final four invoices which were forwarded by Mr Beltman, had been wrongly calculated. Having discovered the error Mr Magro made contact with Mr Towers by telephone and later by email dated 25 February 2003 (Exhibit 1 p 59) seeking certain information, and asserted that the defendant's email of 14 January 2003 was incorrect as a monthly payment of $10,517 was too high in respect of an advance of $500,000 at 9 per cent. He also sought confirmation of the "buyback" arrangement.
Mr Magro stated that in discussions between them Mr Towers admitted that there had been an agreed buyback provision in respect of the second tranche. On 12 March 2003 Mr Magro sent an email to Mr Towers purporting to confirm that in a conversation that day Mr Towers conceded that there was an agreed buyback, and an agreed interest rate of 9 per cent, for the second tranche. He stated in evidence that Mr Towers agreed to re‑calculate the amount owing, using an interest rate of 9 per cent.
Not having been able to reach agreement with the defendant, Mr Magro instructed solicitors Bruce Havilah & Associates, which firm sent a letter of demand to the defendant on 22 May 2003 (Exhibit 1 p 66).
In cross‑examination Mr Magro confirmed that Red Rooster re‑financed on more attractive terms some 18 months later. He agreed that it was Mr Braysich who negotiated with the defendant until the approval of lease finance for the first tranche; and that he did not have any dialogue with the defendant before he forwarded the irrevocable authority to Westminster Finance. When it was suggested to him that in dealings such as that in question the financial agreement was only between the financier and the borrower or end client, Mr Magro responded "no, the terms negotiated for the payment, terms are always negotiated between the broker or the finance company and ourselves, and then the agreement is struck between". He went on to state that the plaintiff was financed to install the systems. He stated that he went with Mr Towers to see Mr Romano on the occasion of the first tranche advance, but was not present when those gentlemen met concerning the second tranche. He indicated that in this particular leasing situation the lessee was never privy to the lump sum paid to the supplier of services (the plaintiff), and was only concerned with the amount of the monthly rental.
Mr Magro was referred to the plaintiff's invoice 12892 dated 13 November 2002 for $136,845.53 (Exhibit 1 p 68), and invoice 12879 for $136,845.83 (Exhibit 1 p 71), each, excluding GST, being for $124,405.30, a joint total of $248,810.60, reflecting the first tranche approval of $250,000. He agreed that in reality what happened was that the plaintiff having supplied the goods and services to Red Rooster invoiced the defendant which prepared equipment notices corresponding with the invoices, and upon Red Rooster signing the equipment notices, paid the plaintiff's account. Mr Magro emphasised that Red Rooster had no idea of the total amount of the defendant's financial facility approval, being concerned only with its monthly payment obligations under the master rental agreement.
Mr Magro agreed that by mid December 2002 an agreement was in place whereby Red Rooster paid the defendant $10,517 a month, but stated that so far as payment to the plaintiff for the supply the systems and services was concerned:
"there is a formula that is calculated between the term, the rental amount and the interest rate that determines the amount of value that we get paid from the financier and that's a key element so those terms are negotiated with the financier with absolutely nothing to do with AFP."
He asserted that the negotiation of the terms of the first tranche, particularly the interest rate, was between Westminster and the defendant; and on the second tranche between the plaintiff and the defendant.
Mr Magro agreed that he did not have any discussion with Red Rooster concerning the equipment notices that were issued under the master rental agreement in respect of the first tranche, but in respect of each tranche was involved in the formulation of the information appearing in the equipment notices. He stated that he was involved, on behalf of Red Rooster, in negotiating amendments to the master rental agreement. He agreed that it was possible that $750,000 was intended to be the limit of the defendant's obligations. He realised just after the final payment was made that a mistake had been made in the calculation of the amount due to the plaintiff, as it was only double that received for the first tranche, there being 20 stores financed by the first tranche and 40 by the second. He agreed that at the beginning of December 2002 he had been advised of finance approval for a further sum of $500,000, and of a monthly rental figure of $10,517.

Frank Oreste Romano

Mr Romano is the managing director of Amalgamated Food and Poultry Pty Ltd trading as Red Rooster. He stated that on acquisition of the Red Rooster stores in May 2002 he approached Mr Magro seeking to upgrade the store security systems, and entered into an agreement with the plaintiff on 30 August 2002 (Exhibit 1 p 6‑17). Clause 3.1 of the agreement made it conditional on the obtaining of finance, and he stated that his understanding was that the clause related to financial arrangements between the plaintiff and the financier. He did not have any part in the negotiations leading up to the provision of finance save to supply documentation indicating Red Rooster's financial position. He did not, nor did he instruct anyone to engage Mr Braysich of Westminster to make an approach for finance on behalf of Red Rooster. He met Mr Towers, the State manager of the defendant, on the day of the signing of the master rental agreement, although conceding that he might have had one or two phone conversations with Mr Towers when the defendant was seeking information to establish Red Rooster's financial position. He stated that it was Red Rooster's desire to have the option to buy the plant and equipment at the end of the lease, or enter into further rental arrangements.
Mr Romano's attention was directed to the equipment notice (Exhibit 1 p 41) and he stated that he did not have anything to do with the provision of the details contained in the notice. He had no knowledge of the financial arrangements (if any) between the plaintiff and the defendant, his only concern being the monthly rental payment of $10.517 payable by Red Rooster to the defendant. Red Rooster did not participate in negotiating the interest rate applicable under the financial arrangement.
In cross‑examination Mr Romano's attention was directed to the irrevocable authority dated 8 October 2002 (Exhibit 1 p27) and agreed that it appeared to indicate that Westminster was engaged to arrange finance to enable Red Rooster to acquire goods and services from the plaintiff. He stated:
"My arrangements were ISS with the security and I would have been paying them the rental payments or anywhere they directed me to under the agreement. The application wasn't mine. It was ISS's application for finance."
If he had wanted to arrange finance, he would have used the company's bankers, at rates that the company was comfortable with.
Mr Romano stated that the company's secretary Gary Kift, and himself, initialled the amendments to the master rental agreement, signifying Red Rooster's approval. He agreed that the equipment notices, one of which appears as Exhibit 1 p 41 constituted an offer to rent the equipment therein identified, and created Red Rooster's liability to make the monthly payments. He agreed that Red Rooster's only concern with the defendant was that its obligation to pay rent was fixed at $10,517 a month.

Albert Christiaan Johan Beltman

Mr Beltman was at all material times employed by the plaintiff as administration manager controlling the debtor's ledgers, following up overdue accounts, and other senior office tasks. He commenced employment in October/November 2002. In mid to late January 2003 before leaving for a meeting Mr Magro requested him to take a call from Mr Towers who would provide him with a figure to invoice the defendant. Mr Beltman subsequently spoke with Mr Towers and his recollection was that Mr Towers advised that finance had been approved for approximately $500,000 which related to 40 stores. He stated that the invoices dated 6 December 2002 (Exhibit 1 p 75‑82) were prepared by him, and related to the 40 stores the subject of the second tranche. Although the invoices are dated 6 December 2002, Mr Beltman was confident that his discussion with Mr Towers occurred in January 2003, and that the invoice date was the result of a cut and paste exercise where he had not changed the date. Mr Beltman's attention was then drawn to a facsimile dated 6 December 2002 (Exhibit 1 p 55) which refers to the invoices, and he agreed that his recollection of the date of the discussion with Mr Towers must have been incorrect. Mr Towers provided the dollar figure for the invoices, and the requirement to list 40 stores. Upon Mr Magro's return, Mr Beltman confirmed with him that he had received a telephone call from Mr Towers and prepared and forwarded invoices. Some weeks later Mr Magro questioned the correctness of the invoices.

Jeremy Thomas Braysich

Mr Braysich was at the relevant time a finance broker with Westminster Finance, having commenced employment with that entity in January 1997. Finance calculations and arrangement of finance generally in the financial industry accounted for 99 per cent of his work. Prior to 2002 he had done work with Mr Magro representing the plaintiff, organising rental finance for its clients who required security systems.
In or about September/October 2002 Mr Magro approached Mr Braysich seeking rental finance of the order of approximately $900,000 for a retail chain. Mr Braysich told him that market rates at the time were approximately 8.5 per cent to 9 per cent. His recollection was that he forwarded an email to Mr Magro identifying the rates charged by several financiers, being of the order referred to above. His attention was drawn to an email dated 16 September 2002 (Exhibit 1 p 18) which he forwarded to Mr Magro identifying proposals from the National Australia Bank and GE Commercial. The capital value amounts varied because of the proposed interest rate, the higher capital amount corresponding with the lower interest rate, demonstrating that the final payout figure to the supplier was influenced by the interest rate. He agreed that it was quite common for him to deal with the supplier and the financier. He further confirmed that there was some urgency about arranging finance for Red Rooster. He stated that his discussions with the defendant dealt only with the amount of the monthly payment (rent) that the plaintiff had apparently agreed with Red Rooster, and there was no discussion about any buyback entitlement.
Mr Braysich recalled that Mr Magro originally requested finance of the order of $900,000.
Mr Braysich's attention was drawn to his facsimile to Mr Magro dated 11 November 2002 (Exhibit 1 p 52) and he stated that it was directed to Mr Magro, not Red Rooster, because the amount financed was irrelevant to Red Rooster; and that under usual financial arrangements such as this, the lessee was never advised of the capital amount financed, it being a matter between the supplier and the financier based on the invoice value of the goods. He claimed that the interest rate was never disclosed in the rental agreement. Mr Braysich was not involved in negotiations concerning the second tranche.
Mr Braysich's attention was directed to a document (Exhibit 1 p 65) and stated that the handwritten calculations were made by him during a discussion with Mr Magro. Using a 9 per cent interest rate over a 65 month term in respect of the second tranche he worked out a capital value financed (excluding GST) of $543,528 as distinct from $497,621.20 being the amount actually paid, leaving a shortfall of $45,907.

Mr Braysich produced a written report dated 25 July 2005 (Exhibit 4), based on an acceptance of factual material provided by Mr Magro, and applying a formula generally applicable in the rental finance industry.
In cross‑examination Mr Braysich agreed that if in respect of the second tranche there had been a finance approval limit of $500,000 and a non‑variable interest rate of 9 per cent, the monthly rental payments would have been less.
Mr Braysich was directed to a document on his file which referred to an application for finance being made by Amalgamated Food and Poultry Pty Ltd trading as Red Rooster which did not refer to the plaintiff. He was referred to a memo dated 8 October 2002 (Exhibit 3) which he forwarded to Mr Towers, and agreed that the second last paragraph on the first page noted that the application was for Red Rooster as the borrowing entity. He confirmed that all the supporting financial documentation related to Red Rooster.
Mr Braysich required the irrevocable authority to be signed by the plaintiff before advising approval of finance, to guarantee that Westminster would receive its commission. He stated that the defendant was the only financier to respond positively to his enquiry for finance, and that in the first instance it was only prepared to agree a limit of $250,000.
Mr Braysich was referred to two equipment notices dated 20 November 2002 (Exhibit 5.1 and 5.2) and agreed that they had been signed on behalf of Red Rooster, and that following execution by Red Rooster and subject to the defendant's approval (the defendant having in fact prepared the equipment notices), the advance of finance was concluded. Each equipment notice was for $124,405.30 making a total of $248,810.60, effectively the draw down of the $250,000 the subject of the first tranche.
Mr Braysich agreed that if in the calculations in his report there had been an upper limit of $500,000 and the other variables remained constant, the monthly payments required to be met by Red Rooster under the rental agreement would necessarily reduce. He agreed that his calculations had not taken into account a specified number of stores.

Paul Michael Towers

Mr Towers was at the relevant time the defendant's State manager, having been involved in equipment financing for about 15 years. His recollection was that he commenced employment with the defendant somewhere around 2000. Addressing the present matter, he stated that Mr Braysich contacted him sometime late in 2002 seeking finance for a client, and he responded, although traditionally the defendant did not deal with brokers. Mr Towers subsequently received Mr Braysich's memo of 8 October 2002 (Exhibit 3). Although this was a one off broker initiated deal, he had handled hundreds of master rentals. A master rental agreement was a facility that was put in place where there was an end client that had multiple requirements and draw downs for equipment. The end client would typically have a requirement for equipment taken progressively over a period, and the master rental agreement provided for a pre‑approved financial limit and permitted multiple draw downs to occur until the limit was reached. The defendant's involvement was generated either by a vendor introducing the end client, or a direct approach from the end client. Any contractual arrangement was always with the end client.
With a vendor approach the position was that the vendor would indicate to the defendant that it required a fixed sum for the goods to be supplied, and enquire what sort of financial arrangements with the purchaser (end client) would achieve that result. He stated that typically an end client would indicate it required equipment from the supplier and the defendant would then contact the supplier for invoices as requested by the end client. Upon receipt of the invoices the defendant would prepare an equipment notice, and would make payment upon its acceptance by the end client. He stated that the defendant was a self‑funded financier, and as a consequence the capacity of the supplier to provide suitable equipment to the end client so that it would be able to meet its financial obligations, was important. The defendant's only interest was whether Red Rooster could repay the $500,000, and it was not interested in how many stores were serviced by the plaintiff. He stated that he had not seen the irrevocable authority (Exhibit 1 p 27) until shortly before trial.
Mr Towers was referred to his letter of approval to Mr Braysich (Exhibit 1 p30) and stated that the reference to $15,000 per site simply reflected information provided rather than a calculation generated by the defendant. He was referred to the credit application (Exhibit 6) containing the approval notation "recommended B Hardie $250K max 9.10.02" which he described as a standard application and assessment document. Following acceptance, the letter of 17 October 2002 giving formal approval was generated. He stated that as was the defendant's practice, it sent out the general terms and conditions associated with the master rental document to the end client (Red Rooster) which reviewed them and requested some changes, which were approved. Following approval of a credit facility of $250,000 and the execution of the master rental agreement by Red Rooster, the defendant sought invoices, as nominated by Red Rooster, from the plaintiff. Each draw down was the subject of an equipment notice which was prepared by the defendant using the information in the plaintiff's invoices.
Mr Towers confirmed that the figure $3,006.04 appearing under the total rent column in the credit application, corresponded with a similar entry in the equipment notice, the rental figure on the equipment notice being the result of Mr Hardie's internal calculations in the credit application. He pointed out that in respect of the first tranche there were two draw downs, each for 50 per cent of the agreed credit of $250,000. He stated that information such as the cost of funds and GTR (gross term return) recorded in the credit application were for internal purposes, and that information was not supplied to the end client or supplier.
Mr Towers was referred to his email dated 1 November 2002 (Exhibit 1 p 33) making reference to a 3 per cent buyback, and pointed out that at the end of the leasing agreement the defendant remained the owner of the leased property. One of the acceptable ways of then disposing of it was to enter into what he described as a first right of refusal with the original supplier. He distinguished this from a buyback which he suggested was a firm commitment by the defendant to sell to the supplier, whereas a first right of refusal was simply an option that was given in the event that the end client did not wish to extend the lease and the property became available for sale.
When asked to explain the procedure following the defendant receiving an equipment notice signed by the end client, Mr Towers stated:
"Brian Hardie would check that the goods have been installed to the end client's satisfaction. He would then arrange for a first payment of the monthly payment to be received from, in this case Amalgamated Fast Foods. Only then will we release payment to supplier that's raised the invoices to us. That's fairly common practice."
Mr Towers attention was drawn to the facsimile from Sianne Smith (an office junior with the defendant) to Mr Magro dated 27 November 2002 (Exhibit 1 p 53) confirming approval for $500,000 which he said was meant to indicate an agreement to advance a further $250,000 over and above the first tranche. Because of the error, Mr Corduroy of the defendant, begrudgingly agreed to $500,000 advance (in addition to the first tranche) as an absolute maximum. Following that concession, Mr Towers forwarded a facsimile dated 4 December 2002 to Mr Magro (Exhibit 1 p 54) confirming the additional amount and advising that documentation would be completed to provide for monthly rental payments of $10,517. He stated that the monthly rental figure of $10,517 would have resulted from the internal calculations pertaining to the credit application, including the cost of funds.
Mr Towers stated that the only discussion he had with Mr Magro about interest rates was that the second tranche would be at a lesser rate than the first as a consequence of the size of the transaction.
On 6 December 2002 the defendant received a facsimile from Albert Beltman on behalf of the plaintiff forwarding four invoices "for the call‑up of $497,621.20 plus GST". Mr Towers could not recall having a conversation with Mr Beltman about the invoices, stating that any discussions would have been with Brian Hardie.
Mr Tower's attention was drawn to an email sent on 14 January 2003 from his email address to Mr Magro (Exhibit 1 p 56) in which reference is made to an applicable interest rate of 9 per cent. Mr Towers stated that he had not sent the email, and supposed that it was sent by Sianne Smith. He stated that he would have instructed her to send an email confirming details of the advance but that he did not give any instructions concerning any interest rate. The defendant would not have written a deal at 9 per cent as it would not have been within its pricing charter.
Mr Towers tendered the credit application for the final advance (Exhibit 8).
Mr Towers attention was directed to an email forwarded to him by Mr Magro on 25 February 2003 (Exhibit 1 p 59) which made reference, inter alia, to the fact that a monthly payment of $10,517 "appears to be far too high for a payment of $500,000 at 9%", and to an alleged verbally agreed buyback. Mr Towers noted that the email was sent about a month after the defendant had paid the plaintiff's invoices, and denied there had been agreement about an interest rate of 9 per cent. The defendant never offered a buyback, but had offered a first right of refusal in respect of the property the subject of the first tranche. Mr Towers stated that if the deal had been done at 9 per cent, with the credit limit as determined and approved, the end result would have been that Red Rooster would have paid less than $10,517 per month.
In cross‑examination Mr Towers agreed that it was usual to document the terms of an agreement. He stated that he was paid a commission based on volume written, irrespective of the financial structure of the particular deals, and was adamant as to that position. He denied that the higher the interest rate on a deal, the more commission he received.
Mr Towers stated that his first interaction with Mr Magro was when he met Frank Romano to sign up the master rental agreement; although he qualified that to say that was their first personal contact but there may have been earlier correspondence between them. He denied that negotiations leading up to the finalisation of the master rental agreement, including such things as the charge per store and the limit of finance, took place with Mr Magro. The defendant was not provided with the heads of agreement (Exhibit 1 p 1) or the agreement (Exhibit 1 p 6) prior to considering the application for finance. His attention was drawn to the equipment notice related to the second tranche (Exhibit 1 p 41) and confirmed his earlier evidence that the monthly rental payment of $10,517 would have been worked out internally by Brian Hardie and had nothing to do with any agreement between the plaintiff and Red Rooster. His attention was drawn to the fact that in par 3.2 of the deed of agreement between the plaintiff and Red Rooster the amount of rental to be paid per store was $1,057 per month, which it was suggested was the same figure arrived at by the defendant, but he maintained the position that the defendant arrived at the monthly rental figure as a result of its internal calculations. His attention was then drawn to equipment notices (Exhibit 5.1 and 5.2) in the second tranche, showing fixed monthly nett rental payments of $2,679.70 and $2,789.94 which worked back to $61 per week per store, again in line with the plaintiff's agreement with Red Rooster.
Mr Towers was directed to his email dated 1 November 2002 (Exhibit 1 p 33) making reference to the plaintiff having a first option to purchase the leased equipment for 3 per cent of the initial invoice values, which was subsequent to the first approval on 17 October 2002. He accepted that the 3 per cent "buyback" had been requested by Mr Magro.
Mr Towers was referred to the approval letter of 17 October (Exhibit 1 p 30) and the reference to a separate drawn down for each site of $15,000. He stated that the drawdown figure of $15,000, referred to again in the email from Mr Braysich dated 21 October 2002 (Exhibit 1 p 32), was not a figure that originated from the defendant; and disputed that the figures agreed upon between the plaintiff and Red Rooster were directly relevant to working out how much would ultimately be paid.
In respect of the interest charged, Mr Towers stated that the general position in finance was that the higher the amount borrowed, the lower the rate. There was no discussion on the rate of interest applicable in respect of the second tranche save for a concession that because a higher capital amount was involved, the rate would be less. When asked where the figure $317.41 for each site referred to in the approval letter of 17 October came from, Mr Towers said that it would probably have resulted from Brian Hardie's calculations.
Mr Towers stated that some time between 27 November 2002 when confirmation of a facility of $500,000 was forwarded to Mr Magro, and 4 December when Mr Corduroy approved a $500,000 facility additional to the first tranche, there would have been communication concerning the misapprehension. The draw down figure of $263.63 per month referred to in the defendant's facsimile of 27 November 2002 was a result of internal pricing procedure.
Mr Towers was referred to his facsimile of 4 December 2002 to Mr Magro confirming the credit facility of $750,000, and it was suggested to him that its contents were consistent with him having had earlier discussions with Mr Magro. It was put to him that there had been discussions concerning interest rates and he responded:
"Well, once again I don't recall the conversation. I'll concede that I said that the rate that we would charge or use on the higher deal would be less than on the first, but I would strenuously disagree that Lou would – in fact he wouldn't have been able to work out what the interest rate was on the first tranche."
His recollection of the conversation was not clear, but he may have mentioned a lower rate on the second tranche simply because there was a larger capital amount. He denied that Mr Magro was requesting a lower rate, or that he would have mentioned a rate of 9 per cent, because it would not have been possible to do a deal at that rate. He stated that it was possible that he might have offered a 3 per cent first option of purchase in respect of the second tranche but could not recall it.
The email of 14 January 2003 came from Mr Towers computer and he stated that he probably requested Sianne Smith to confirm the basis of the deal. He did not dictate the message, nor did he later check that which had been sent. He agreed that he would have spoken to Mr Magro on the morning it was sent. He denied that he mentioned interest rates or the amount of the monthly payment, to Ms Smith. When asked about the rates that applied in respect of the first tranche, he mentioned 16 and 14 per cent. He agreed that it was possible that Mr Magro might have contacted him on four or five occasions requesting information concerning the terms of the finance prior to forwarding him the email on 25 February 2003.
The plaintiff's invoices raised for the security systems supplied to Red Rooster in the second tranche were paid by a direct banking credit made on 29 January 2003, a copy of the bank deposit being forwarded to the plaintiff the following day.
Dealing again with the "buyback", Mr Towers stated "I'm saying that my view on this is that the email that was sent regarding the first tranche Lou took as being in place to the second tranche and a given and it wasn't given on the second tranche".
When it was put to Mr Towers that there was nothing to prevent a supplier being paid more than the approved credit limit for the end client, he was adamant that he could not go above the approval limit. It was put to him that in respect of the first tranche the plaintiff in fact received more than the $250,000 facility limit, and he responded that the invoices received from the plaintiff were for approximately $248,000 excluding GST, and the defendant did not finance the GST component in a rental agreement.
Mr Towers accepted that there was a separate arrangement between the plaintiff and the defendant for the supply of goods under invoice, although stating that it was subject to Red Rooster's requirements. He emphasised that rentals were based on ex‑GST figures. He agreed that based upon Mr Braysich's formula, and using an interest rate of 9 per cent, the plaintiff would have received more than in fact it did, but emphasised that it was subject to an upper limit. He was referred to the final credit application form (Exhibit 8) which appeared to be dated 21 January 2003, six weeks after there had been approval for a further $500,000 and basically stated that it simply came into existence when all the procedural requirements had been addressed. It was put to him that it was created six weeks after the event because a dispute had arisen and the defendant desired to give the impression that the position was documented, which he denied. Mr Towers corrected his earlier evidence about his commission entitlements, stating that in or about 2003 there was a direct link between the profit the defendant made on the transaction, and the commission payable. As I understood his evidence he was saying up until the beginning of 2003 his commission was calculated on the profit margin per deal.

Brian Leonard Hardie

Mr Hardie is the defendant's sales co‑ordinator for Western Australia, that position involving the preparation of credit applications for submission to head office in Sydney. He stated that he made an initial assessment and recommendation to the head office. Once a rental agreement was entered into he would request invoices from which he would prepare the equipment notice detailing the equipment supplied. He recalled the Red Rooster deal, and stated there was nothing unusual about it. He stated that in this particular transaction he would have requested the invoices from Albert Beltman. It may not have been necessary to contact Mr Beltman, but if it had become necessary it would have been simply to request invoices.
Mr Hardie confirmed that there was an initial approval for $250,000 in October 2002 and approval for a further $500,000 in December 2002. His attention was drawn to the credit application dated 8 October 2002 (Exhibit 6.1) which he described as a basic credit application prepared for all transactions. The typed information on the application was material he prepared to get it approved. All handwriting on the form, except for Mark Corduroy's approval note, was his. He stated that after he completed the application it was despatched to head office for approval. The information and figures on the left hand side of the form were written in on the settlement date, because they were subject to daily fluctuation. The equipment notices were prepared on the basis of the application and invoices received. He agreed that Exhibit 6.3 related to the approval of a further $250,000 which lead to confusion, and that the final $500,000 was in fact the subject of Exhibit 6.4. He stated that the notation on Exhibit 6.4 "absolute max subject all terms of earlier $500K" meant what it said, and there was no possibility of going back to head office for anymore money. He stated that there was no discretion to pay the supplier more than the amount approved. He was unable to explain why the further credit application (Exhibit 8) was completed, but observed that it had a notation "original application cited". He speculated that it might have been that when the original application was transmitted it had not reproduced clearly and he was requested to do it again. Mr Hardie stated that he did not have any dealings with the plaintiff save for requesting invoices, and described himself as "the back office boy".

In cross‑examination Mr Hardie stated that the interest rate was obtained from what was called a rate card which changed with any change in the cost of funds. He did not accept that the interest rate was fixed on an evaluation of risk, although that was taken into account in a small way. The item GTR in the credit application was Gross True Rate and reflected the cost of funds and margin. It was calculated using a formula which took into account the total rent and residual value, and the approval limit had nothing to do with the interest rate applied. He stated that the different GTR figure on Exhibit 6.1 and Exhibit 6.2 was explicable because there was a different total rental. The nett rental figure of $10,517 appearing on Exhibit 8 was obtained from a calculation given to him by Mr Towers, but Mr Hardie conceded that he was not sure as the transaction had taken place approximately four years prior to trial. Mr Hardie stated that when he prepared credit applications, he sometimes calculated the nett rental, and sometimes it was a figure given to him. In this case he could not say which. When he had to calculate the nett rental it was computer generated using a formula which included the invoice cost, the GTR and the residual value. When it was put to him that he had calculated the nett rental by taking information from the agreement between the plaintiff and Red Rooster (Exhibit 1 p 6) he stated that he had not seen that document.
Mr Hardie denied that exhibit 8 was prepared to reflect what Mr Towers and he had decided was going to be represented to the plaintiff. He denied that the nett GTR was sometimes a rate agreed between the parties, stating that with a rental agreement the interest component was irrelevant as the lessee was never aware of the interest rate. He had never been privy to a situation where the supplier of goods was concerned to know the interest rate. When Mr Hardie was directed to the email dated 14 January 2003 (Exhibit 1 p56) he stated that he had never seen it before, and if he had have seen it before it was sent it would not have gone out because it was obviously a mistake as the defendant did not transact at 9 per cent. He later corrected his evidence to admit that occasionally it did. He could not recall speaking to Albert Beltman about invoices. His attention was drawn to the reference to "software 20,000" in Exhibit 6.4 and the reference to "software nil" in Exhibit 8 and his explanation was that there was a realisation that the software had no value.

Sianne Stacey Smith

Ms Smith thought that she was employed by the defendant for four or five months in 2003 as a receptionist/office junior. Her only involvement in transactions was to transcript data from paperwork onto computer. Whilst employed she had her own computer station and laptop. Her attention was drawn to the email of 14 January 2003 (Exhibit 1 p56) which she stated she had never seen before. She denied that Mr Towers had ever asked her to send an email on his behalf. She stated that it was three years ago and she had no recollection of ever sending an email from Mr Towers email address, and as she had her own computer there was no reason why she would.
In cross‑examination Ms Smith stated that she would not have used Mr Towers computer to send an email without him being present. By reference to documentation it was pointed out to her that she commenced employment in November 2002 rather than 2003, and she agreed that it terminated in unfortunate circumstances.

CONCLUSIONS

The plaintiff must establish on the balance of probabilities the terms of the alleged agreement. It pleads that the agreement is constituted by writing, (being the facsimile from the defendant to it dated 4 December 2002; and an email from the defendant to it dated 14 January 2003); and oral discussions between Mr Magro and Mr Towers on unspecified occasions during December 2002 and January 2003. There can be no dispute as to the content of the written material, but there is considerable disputation as to the alleged verbal discussions.
In par 4 of the defence the defendant denies that it entered into an agreement with the plaintiff on the terms alleged, and contrary to the position that it appeared to take at trial the pleading does not dispute that the plaintiff and the defendant in fact entered into an agreement. It can be observed from par 24 of the defence that the defendant (perhaps begrudgingly) accepts that it agreed to purchase from the plaintiff equipment nominated by Red Rooster, which equipment was to become the subject of the master rental agreement dated 5 November 2002 (Exhibit 1 p 35) between the defendant as owner and Red Rooster as "renter" of the chattels. In par 26 of the defence the defendant admits that the plaintiff sold to it security systems which were installed in the Red Rooster stores. Clearly the defendant had to purchase the security systems to enable it to enter into the master rent agreement, and it acquired them from the plaintiff. The issue is the amount the defendant was contractually bound to pay the plaintiff
The principal difficulty in resolving this controversy is that in a practical sense the plaintiff was dealing with Red Rooster, the defendant's involvement as financier being a condition precedent to facilitating the dealing. The financial facility provided by the defendant to Red Rooster was essentially one financial accommodation negotiated in two parts. The first tranche as it has been called, negotiated by Mr Braysich of Westminster Finance on behalf of the plaintiff for the benefit of Red Rooster, was in the sum of $250,000; and the second tranche negotiated by Mr Magro directly with the defendant was in the sum of $500,000; making the total financial accommodation available to Red Rooster $750,000. In determining the agreement reached between the plaintiff and the defendant in respect of the second tranche it is therefore necessary to have regard to the total transaction.
Mr Towers, the state manager of the defendant, gave notification of formal approval for the first tranche by letter to Mr Braysich dated 17 October 2002 (Exhibit 1 p 30), which relevantly said:
"We have pleasure in confirming the approval of $250,000 relevant to surveillance equipment for the NSW stores."
Mr Braysich forwarded the approval to the plaintiff by facsimile dated 18 October 2002 (Exhibit 1 p 31), and on 21 October 2002 in an email to Mr Towers (Exhibit 1 p 32) stated: "If this is the case then your approval for $250,000 ex GST will fund 20 stores at $12,439 with a total funded of $248,780 ex GST". A clear acknowledgment that $250,000 was the full extent of the available finance. Confirmation of the plaintiff's understanding of that fact is that on 13 November 2002 it forwarded to the defendant tax invoices (Exhibit 1 p 68 – 73) showing that it expected to be paid and was in fact paid $248,810.60 excluding GST for the security systems installed by it.
By email dated 1 November 2002 (Exhibit 1 p 33) Mr Towers advised Mr Magro that:
"at the expiration of the Amalgamated Food leasing arrangement Intersecurity will have first option to purchase the equipment housed under the lease for an agreed rate of 3% of the initial invoice values."
Clearly that signifies an understanding that the plaintiff would have the right to exercise an option to purchase the equipment at the expiration of the leasing arrangement.
The first of the documents on which the plaintiff relies contractually in its pleading is the facsimile letter from Mr Towers to Mr Magro dated 4 December 2002 relating to the second tranche which relevantly states:
"I hereby confirm that we have granted Amalgamated Food and Poultry an approval limit of $750,000 for security equipment supplied by Intersecurity.
As you know we have paid and drawn down $250,000 of this amount.
You have indicated that you wish to draw the remaining $500,000 in December 2002 and I can advise that documents would be completed for $10,517 for this amount.
I have arranged with Frank to complete the remaining forms later this week and so now require your advice on which stores to include in the appendix's that we will ask Frank to sign off on. If you could please ask Bert to complete your invoices ASAP and fax them to me on 9481 4561 it would be appreciated.
Please do not hesitate to call me should you have any questions on the numbers listed below."
Not only was there no query concerning what had been indicated until after payment of the plaintiff's invoices by the defendant on 29 January 2003, but on 6 December 2002 Mr Beltman sent by facsimile to the defendant "the four invoices for the call‑up of $497,621.20 plus GST". The plaintiff did not take steps to countermand or correct those invoices before payment on 29 January 2003. Although it was suggested by Mr Magro and Mr Beltman that the invoices were based on information provided to Mr Beltman by Mr Towers, I am not satisfied that was the position.

The first documentary indication of the plaintiff's concern with the defendant's nomination of an available capital sum of $500,000 and monthly rental payments of $10,517 in respect of the second tranche appears to be the email from Mr Magro to Mr Towers dated 25 February 2003 in which he stated "I advised yourself, Brian and your receptionist that I required answers to these questions prior to the second payment being made". I do not accept that was the position, particularly as in the course of his evidence Mr Magro made it clear that it was not until after payment that he concluded a mistake had been made in calculating the amount due to the plaintiff.
The second document relied upon by the plaintiff is the email from Mr Towers to Mr Magro dated 14 January 2003 which relevantly reads "To clarify our discussion this morning, the payment for the remaining 500k is a total of $10,517 monthly and the applicable rate will be 9%". That email confirms the information in the letter dated 4 December 2002, and in addition makes reference to an interest rate. I am satisfied that the email was sent by Mr Towers, and reject his evidence that it was sent by Ms Smith and that the reference to a 9 per cent interest was a result of her own initiative. I found Mr Towers evidence generally unsatisfactory.
So far as the oral evidence is concerned, Mr Magro stated that there were discussions between Mr Towers and himself concerning the interest rate applicable to the second tranche, and Mr Towers indicated that the defendant "would do it at 9%". There was also an agreed buyback of 3 per cent. That conversation is alleged to have taken place shortly before the letter dated 4 December 2002. Mr Magro's evidence was that there was a further discussion concerning an agreed interest rate on the morning of 14 January 2003.
Although in the statement of claim it is alleged that an express term of the agreement between the plaintiff and the defendant was that the defendant would apply the "usual financial industry formula" to determine the amount payable, the only evidence from Mr Magro concerning that aspect was when in discussing in cross‑examination the whole financial arrangement he stated:
"it worked that the terms – that the key elements in the – as will be shown later, there is a formula that is calculated between the term, the rental amount and the interest rate that determines the amount of value that we get paid from the financier and that's a key element so those terms are negotiated with the financier with absolutely nothing to do with AFP."
In evidence‑in‑chief, when asked how much was being sought by way of finance Mr Magro said:
"What we normally do is we give the rental figure and the term, the variables, to the financier and they tell us from that. They apply an interest rate and tell us exactly how much we are looking to get back."
Later, when discussing interest he said:
"the negotiation of those terms as well as the agreement for the interest rate, and all that was done on the second tranche between ourselves and CIT."
He did not specifically address a conversation with Mr Towers or anyone else on behalf of the defendant where application of the "usual financial industry formula" was discussed or agreed.
Mr Braysich adverted to the fact that there was a usual formula applicable in the finance industry to determine the present value of the amount financed, but did not refer to any discussion with the defendant concerning the application of any formula governing payment between the plaintiff and the defendant.
Mr Towers denied any such discussions.
The task of determining the precise terms of the agreement, when the parties chose not to reduce it to writing, is difficult. In my view, however, one thing is obvious. The defendant made it very clear, and it was recorded that the financial facility had a limit of $750,000 - $250,000 in respect of the first tranche; and $500,000 in respect of the second.
Mr Magro's evidence was that in financial arrangements such as this the lessee was never privy to the lump sum paid to the supplier of services by the financier, being only concerned with the amount of the monthly rental, and that Red Rooster had no idea of the limit of the defendant's financial facility approval. He agreed that it was possible that $750,000 was intended to be the limit of the defendant's obligations.
Mr Romano stated that his only interest was the amount of the monthly rental payment.
Mr Braysich expressed the view that the amount financed was irrelevant to Red Rooster, and said that the interest rate was never disclosed in a rental agreement.
I am satisfied that the defendant made it clear that the extent of its financial facility in respect of the second tranche was $500,000, and that its total financial contribution, if required and fully drawn by Red Rooster, was $750,000. I do not accept that it was contemplated at any time prior to 29 January 2003 that the amount payable by the defendant to the plaintiff for the supply of the security systems (excluding GST) could exceed the limit of the facility. It would not make commercial sense. That situation was or should have been clear to the plaintiff, particularly as it considered that the facility limit was not a matter of which Red Rooster was aware or concerned.
In the result the issues of the applicable interest rate, and the extent of the buy back arrangement, do not require further consideration.
The plaintiff's claim is dismissed.