Kingisland Meatworks and Cellars Pty Ltd v Piero Mastromanno and Bonjust Pty Ltd
[2012] VCC 25
•10 February 2012
| IN THE COUNTY COURT OF VICTORIA | Revised |
AT MELBOURNE
CIVIL DIVISION
Case No. CI-10-03795
| KINGISLAND MEATWORKS AND CELLARS PTY LTD ACN 082 518 143 | Plaintiff |
| v | |
| PIERO ANDREW MASTROMANNO and BONJUST PTY LTD ACN 076 529 649 | First Defendant Second Defendant |
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JUDGE: | Lewitan | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19, 20, 21, 22 and 27 September 2011 | |
DATE OF JUDGMENT: | 10 February 2012 | |
CASE MAY BE CITED AS: | Kingisland Meatworks and Cellars Pty Ltd v Piero Mastromanno and Bonjust Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 25 | |
REASONS FOR JUDGMENT
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Catchwords: contract, repudiation, destruction of documents, s89B of the Evidence (Miscellaneous Provisions Act) 1958.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. O’Connor | Dermenzies Lawyers |
| For the Defendant | Mr L.E.P. Magowan | Hicks, Oakley, Chessell, Williams |
HER HONOUR:
1 The plaintiff and the second defendant entered into an agreement at the end of 2006 for the sale of a butcher shop at 15 Railway Place Highett. The agreement was oral and to be implied. The oral agreement was constituted by a number of conversations between Alessandro Michael Mastromanno (Alex), the director of Kingisland Meatworks and Cellars Pty. Ltd. (Kingisland Meatworks and Cellars) and the first defendant, Piero Mastromanno (Piero), the director of the second defendant Bonjust Pty. Ltd. (Bonjust). The plaintiff claims that the defendants wrongfully repudiated the agreement in January 2008. The plaintiff claims that it accepted the repudiation by the defendants when it issued these proceedings on 27 August 2010. The plaintiff seeks damages for wrongful repudiation of the agreement.
2 The defendants allege that the plaintiff is not entitled to damages for wrongful repudiation because it was the plaintiff who repudiated the agreement. The defendants say that the second defendant accepted the plaintiff’s repudiation in January 2008. The dispute is essentially between two brothers.
Parties
3 Alex is a director of the plaintiff, King Island Meatworks and Cellars Pty. Ltd.[1]
[1]Transcript p 67, Exhibit 1.
4 Piero is a licensed butcher and director of the second defendant, Bonjust Pty. Ltd.[2] Bonjust is the trustee of the P. Mastromanno Family Trust.[3]
[2]Transcript p 194.
[3]Exhibit B.
5 Alex and Piero are brothers.
Background
6 On 17 November 2000 the business name, King Island Meatworks, was registered by a company owned by Alex, Calmena Pty. Ltd. On 1 March 2001 the business name was transferred to the plaintiff (formerly known as Total Vision Enterprises Australia Pty. Ltd.). Total Vision Enterprises Australia Pty. Ltd. ceased to be the owner of that business on 18 November 2003.[4]
[4]Exhibit 2.
7 After the plaintiff registered the business name, the plaintiff leased a shop at 15 Railway Place Highett (the Highett shop) in 2001. The plaintiff planned to sell King Island products through the Highett shop.
8 Twelve or eighteen months after the plaintiff opened the Highett shop, the plaintiff obtained a liquor licence[5]. Alex sold his car to obtain the funds to renovate the Highett shop which cost him about $20,000.[6] He wanted to make sure that he displayed the bottles of wine in a way that looked appealing to the customers when they entered the shop.[7] Initially he purchased all the retail products and most of his dairy produce from King Island.[8] The plaintiff then traded at the Highett shop under the banner “King Island Meatworks and Cellars (established 2001), the Steak & Wine Specialist.”[9] It sold meat, fine foods and alcohol.
[5]Transcript p 70.
[6]Transcript pp 68, 70
[7]Transcript p 70.
[8]Transcript p 69.
[9]Transcript p 70.
9 In mid 2002 there was a change of ownership of the abattoir at King Island. A company called Tasman Group Services Pty. Ltd. purchased the abattoir and stopped supplying meat to the plaintiff around that time.[10] The plaintiff continued to sell dairy products from King Island. By and large, after that point in time, the plaintiff was not stocking meat products from King Island.
[10]Transcript p 69.
10 The plaintiff acquired a shop in Church Street Brighton (the Brighton shop) in early 2003. The plaintiff shut the Brighton shop down for eight weeks for renovations. He engaged the people who designed and renovated the Highett shop to renovate the Brighton shop. He wanted the Brighton shop to look like the Highett shop. There was more room at the Brighton shop which enabled the plaintiff to put a little café at the front of it.[11] Upright units and deli units similar to those at Highett were installed and, apart from the café, the shops were identical.[12]
[11]Transcript p 71.
[12]Transcript p 71.
11 Within a short period of time, a lot of the processing of the products for sale was carried out at the Brighton shop as the plaintiff wanted to control the quality of the products emanating from both shops. In early 2004, Alex’s brother, Piero, came to work at Brighton as a manager.
12 On 18 November 2003 the business name, King Island Meatworks, owned by the plaintiff, lapsed.[13] The plaintiff did not know that he was required to renew the registration of a business name once it was registered and had no knowledge that the business name had lapsed at that time.
[13]Exhibit 2. Section 11 of the Business Names Act 1962 provides that a business name remains in force for a period of three years.
13 There were problems at the Highett shop in 2005 because cash was missing. While Piero stayed at the Brighton shop, Alex went to the Highett shop to tell the customers that he would shut the shop down. The Highett shop was closed for a period of six months in 2006. About 40 – 50 per cent of the customers from the Highett shop went to the Brighton shop.
14 The Highett shop was reopened later on in 2006 in a different format with a female manager. There was no butcher at the Highett shop and no butchering was done on site; the meat sold was pre-packaged and vacuum sealed. All meat was sourced from the Brighton shop and the manager of the Highett shop would come to Brighton to collect all products on a daily basis in the morning. The Highett shop was about seven to eight kilometres from the Brighton shop (about a ten minute drive).[14] Just before Christmas 2006, the manager gave notice. As staff was difficult to obtain and Alex was preoccupied because he was involved in bitter divorce proceedings, Alex decided to again close the Highett shop.[15] The Highett shop was closed with a sign redirecting the customers to the Brighton shop. The turnover at the Brighton shop increased.
[14]Transcript p 76.
[15]Transcript p 78.
15 At that stage, the plaintiff had plans to turn the Highett shop into a catering business in conjunction with the Brighton shop.[16]
[16]Transcript p 78.
The sale of the Highett shop
16 Alex said that in the late part of October 2006 Piero, who had at that stage been working for the plaintiff for three years, approached Alex and asked him whether Alex would sell the Highett shop to him. Alex said that Piero kept pestering him. Alex said that Piero had been looking around for shops and knew what was available and the prices of businesses for sale.[17] Alex said that he eventually caved in and told Piero that if he agreed to sell the Highett shop, there would have to be some pretty stringent terms and conditions.[18] Alex said that they had further discussions. They spoke about the importance of maintaining quality control given that Alex had built up a good reputation in the market place.[19] The plaintiff had won the award for the best gourmet sausages at the Royal Melbourne Show in 2004, an award for the business of the year in 2005 and an award for Victoria’s best sausages in 2006.
[17]Transcript p 79.
[18]Transcript p 79.
[19]Transcript p 80.
17 In cross-examination, Alex agreed that in discussions he had with Piero in March 2007 they agreed that Bonjust would purchase the Highett shop.[20]
[20]Transcript p 159.
The price
18 On one occasion Piero asked Alex “what about a price”? Alex told Piero that the shop owed him $130,000 and that he wanted at least half of that.[21] Piero said “no problem, $65,000.”
[21]Transcript p 80.
19 Piero said that he first started working for Alex in the Brighton shop in March 2003.[22] Piero said that the Highett shop was vacant at the end of 2006. Piero said that discussions in relation to the purchase of the Highett shop began in March 2007.[23] Piero said that he was in the market to start his own business. He was looking around in the marketplace to see what was available at the time.[24] He knew that Alex had a vacant shop and he asked Alex what his plans were in relation to the empty shop at Highett.[25] Piero asked Alex if he was interested in selling the Highett store to him.[26] Piero said that Alex offered to sell him the Highett shop for $55,000. Piero said that that was out of his budget and that his maximum offer was $50,000. Piero said that Alex accepted Piero’s offer of $50,000.[27]
[22]Transcript p 194.
[23]Transcript p 196.
[24]Transcript p 196.
[25]Transcript p 196.
[26]Transcript p 197.
[27]Transcript p 198.
Agreement to supply meat and sausages
20 On the following night Alex and Piero had dinner at Florentines to discuss how they would structure the terms and conditions of the agreement to sell the Highett shop. Alex said that they spoke once again about the importance of making sure that the shops were identical.[28] Alex told Piero that it was really important that the sausages, beef and lamb products were the same, like McDonalds.[29] When you go to McDonalds, a Big Mac tastes the same irrespective of where you go. Piero agreed.[30] They shook on it.
[28]Transcript p 80.
[29]Transcript p 81.
[30]Transcript p 81.
21 Alex and Piero agreed that the plaintiff would supply the products that did not incur labour at cost price plus 30 cents a kilo.[31]
[31]Transcript p 81.
22 Alex said that he and Piero worked out an average cost of the meat that would be used to make the sausages. They worked out the average cost of the premixes and the skins and they came up with a specific figure. The estimate of the price was pretty accurate. The plaintiff agreed to mark up the sausages in accordance with the terms of the agreement being 30 per cent of the cost price of the ingredients. Labour was involved in making the sausages and that resulted in the gourmet sausages (chicken, chipolatas, honey lamb, rosemary sausages) being valued at $8.50 per kilo and plain beef sausages at $7.50 per kilo, each with a built-in mark up of 30 per cent.[32]
[32]Transcript pp 95-96.
23 Alex said that Piero “absolutely agreed with that.”[33] It was mainly the sausage products that incurred the labour but the plaintiff also processed butterflied legs of lamb and other similar products.[34]
[33]Transcript p 81.
[34]Transcript p 82.
24 Piero said that he and Alex agreed that “instead of [Piero] putting on another butcher that Alex could provide [him] with some products that [he] could stock [his] store with and use him like a depot or a supplier, and pretty much use [Alex] like a depot, yeah, like to replenish [his] stock that [he] needed from day to day.”[35] Piero said that there was never a mention of a 30 per cent mark up on goods. It was all a negotiated price.[36]
[35]Transcript p 199.
[36]Transcript p 200.
25 In cross-examination Alex said that he and Piero agreed that all of the sausages and the majority of the lamb and beef were to come from Brighton.[37] Later in cross-examination Alex said: [38]
The original agreement when I spoke to Piero was that all the products were to come from the Brighton store. It was only later after more discussions with Piero that he asked me if it was okay if he ordered some products direct from the suppliers because it would be easier for him from a logistical point of view and I said I don’t have an issue with that. There weren’t many products and I said, yes, that’s fine, you can do that… and that is what happened.
[37]Transcript p 143.
[38]Transcript p 146.
The licence fee
26 Piero suggested that he would take 80 per cent of the business of the Highett shop and that Alex would keep 20 per cent of the business. Under that agreement, the plaintiff would pay Piero a management fee of $2000 per week.[39]
[39]Transcript p 82.
27 Alex said that another option could be that they would have a “La Porchetta” type agreement. Under that agreement Piero would pay the plaintiff a weekly licence fee of $500. For that fee, Piero would be entitled to use the plaintiff’s name, the signage and the fact that the plaintiff had won awards for the best sausages in Victoria. The Highett shop was a carbon copy of the Brighton shop. The plaintiff and the defendants would advertise together and they would have the exact same products. Piero would buy all of the sausage products from the Brighton shop. Piero said “absolutely I agree with that.”[40]
[40]Transcript p 82.
28 Piero said that there was a “name fee” of $500 per week to use the name ‘King Island Meatworks’.[41] According to Piero, Alex said that if he did not use the name King Island Meatworks, the shop at Highett would not work.[42] “What was discussed is that we could jointly advertise together and promote our businesses together as one and that we could both use the name under the one banner.”[43] There were never any discussions about payment of the fee or how it would be paid.[44]
[41]Transcript pp 198 – 199.
[42]Transcript p 199.
[43]Transcript p 199.
[44]Transcript p 199.
29 In cross-examination Piero said that it was not a weekly fee, it was a name fee. He agreed that he could use the same signage. He agreed that he could advertise the fact that awards were won. He agreed that there was a discussion about joint advertising. He agreed that they would advertise jointly and that they would share the weekly advertising fee of $500.[45] Piero also agreed that Alex waived the first three months of the agreement.[46] Piero understood that the deal was open ended and neither of them was planning on going anywhere in a hurry.[47]
[45]Transcript p 240
[46]Transcript pp 241-242.
[47]Transcript p201.
30 Alex said that he agreed to give Piero a three month grace period on the payment of the licence fee for the first three months of the contract. After the first three months, Piero would start paying $500 per week. After the first year, the licence fee would increase by 10 per cent on each anniversary of the commencement of the agreement. Alex said that he knew that a 10 per cent increase after 12 months was very minimal and Piero would be able to afford that. Alex said that the weekly fee would be capped at $750 after five years which would give them a minimum five year agreement and they would take it from there.[48] Alex said that Piero agreed with that.
[48]Transcript p 93.
Five year term
31 The plaintiff submitted that the term of the agreement was to be five years. Alex’s evidence was that he told Piero that he would give him a three month grace period and after the first three months Piero could start paying the $500.
After the first year we’d go up by 10 per cent because I knew having been in that shop myself I knew that 10 per cent increase after 12 months, after the first 12 months was very minimal and he’d be able to afford that. And I said, I said to Piero that we’ll cap it at $750 which will give us a minimum five year agreement and then we’ll go from there….He agreed with that, he said he agreed with that.[49]
[49]Transcript p 93.
32 The defendant submitted that the agreement was terminable at will.
33 In cross-examination Alex was asked “I put to you that there was never any deal that this agreement would be five years.” Alex said “So do you think that I was going to give up 15/20 per cent of my customers from Brighton knowing that they were going to go to Highett and I wasn’t going to have a five year deal in place, is that what you think?”[50]
[50]Transcript p 138.
34 In cross-examination Piero was asked:
You are aware when the Highett shop closed that many customers from Highett went to the Brighton shop?...Was I aware?
Yes. You were working over that time when the Highett shop closed?...There possibly could have been some, yeah. I didn’t ask all the customers.
You were aware from serving customers that there was an increase in trade after the Highett shop closed at the Brighton shop?...Possibly was. I dare say there was.
You heard Alex Mastromanno’s evidence that it was 15 to 20 per cent. You wouldn’t dispute that?...Perhaps there was.[51]
[51]Transcript p 231.
35 On 3 January 2007, whilst these discussions were taking place, Tasman Group Services Pty Ltd registered the name King Island Meatworks.[52] Tasman Group Services Pty. Ltd. owned the abattoir in King Island.
[52]Exhibit 14.
Joint advertising
36 Alex and Piero agreed that there was to be joint advertising and promotion of the shops under the name King Island Meatworks or King Island Meatworks & Cellars and Piero would reimburse the plaintiff for half of the costs of that expenditure.
Transfer of liquor licence
37 Alex and Piero agreed that the plaintiff would transfer the existing liquor licence at Highett to the second defendant.
Transfer of the lease of the Highett shop
38 The plaintiff agreed to transfer the lease of the Highett shop to the second defendant.
No written agreement
39 After work one night Alex said to Piero that he thought that they should go to a solicitor to get a contract in place. Piero turned to Alex and said “What for? I’m not going to gip you.”[53]
[53]Transcript p 95.
Compliance with the terms of the agreement
40 The second defendant commenced trading from the Highett shop using a very similar fit-out to the Brighton shop on 28 May 2007. After Piero commenced trading, he regularly attended the plaintiff’s premises to access stock. Piero would come every morning and take the stock. Alex trusted Piero to set out the stock he had taken, how many kilos and what the price was.[54] At the end of every week or two weeks, a reconciliation was prepared and moneys were paid once a fortnight in accordance with that reconciliation.[55]
[54]Transcript pp 96 – 97.
[55]Exhibit 3.
41 Alex said that he had retained the originals of those documents. He said that just after his divorce he had a nervous breakdown because he was asked to discover more and more documents. Alex said that he got every bit of paperwork that he had, put the papers in boxes and sent them to the solicitor who represented him in the divorce proceedings. At the conclusion of the divorce proceedings, Alex told his solicitor to throw the papers in the dumpmaster. “I never want to see them again”.
Transfer of liquor licence
42 On 2 July 2007 a letter was forwarded to the manager, Liquor Licensing, at 113 Exhibition Street Melbourne confirming that settlement had been finalised between Alex Mastramanno as director of Total Vision Enterprises Australia Pty. Ltd. (transferor) and Piero Mastromanno as director of Bonjust Pty. Ltd. (transferee).[56] By letter dated 27 July 2007, the Director of Liquor Licensing confirmed the transfer of the liquor licence at “King Island Meatworks, 16 Railway Parade, Highett” to Bonjust Pty. Ltd.[57]
[56]Exhibit D.
[57]Exhibit E.
Payment of purchase price
43 Piero gave Alex a cheque for $50,000 on 13 June 2007.[58] Alex looked at the cheque and said “It is only $50,000, we agreed on $65,000.” Piero said “what are you worried about, you are going to make it up anyway”. Alex said that he took and banked the cheque in good faith.
[58]Exhibit J.
44 Piero denied that Alex said that the cheque was only $50,000 and not $65,000 as they had agreed.[59]
[59]Transcript p 250.
Signage
45 After the second defendant commenced trading, Alex won another Sausage King award. Alex told Piero “Look, Piero, we have won a Sausage King award again so get a sign made up and just hang it up underneath the existing sign saying ‘winner sausage king competition, voted Victoria’s best sausages’. Piero had a sign made up and put that underneath the awning that was already there.
Payment of $500 licence fee
46 Towards the end of July 2007 (and after Piero had traded for three months), Piero telephoned Alex and said “[l]ook, Alex, business is not very good, I cannot afford to pay you the $500 a week.” Alex told Piero that he would make a payment of $6400 for his daughter’s school fees out of the joint account he had with Piero which would cover the licence fee for the next 13 weeks. That would cover the payment of $500 until December 2007. On 31 July 2007 a cheque for $6410 was drawn in favour of Firbank from the joint account held by Alex and Piero.[60]
[60]Exhibit 6.
Purchase of sausages and meats
47 Piero referred to the product purchase orders which he prepared from 26 June 2007 until 19 January 2008.[61] He said that he would document the products he obtained from the plaintiff’s shop on a daily basis recording the weight and the price. Piero said that he would add up the price of the products every fortnight, hand the sheet over to Alex and pay him a cheque which was written on the Bonjust bank account.
[61]Exhibit 3.
48 When asked “how did you determine the price?” Piero said that the price of value added, that involved labour, would be negotiated. Anything in a box that was unopened or things that did not involve labour would incur a 20 cents a kilo fee. In cross-examination Piero was taken to paragraph six of the letter written by his solicitor, Michael Beasley which did not refer to a 20 cent handling fee.[62]
[62]Exhibit 11, transcript p 267.
Joint advertising
49 After Piero started trading at the Highett shop, joint advertisements were placed in the Bayside Leader every week. Copies of the advertisements placed on 12 June 2007, 24 July 2007, 21 August 2007, 8 September 2007, 16 October 2007, 27 November 2007 and 4 December 2007 were tendered.[63] Those advertisements were headed “King island meatworks and cellars” The advertisements stated “winner of the 2006 Victorian Sausage King Award” and “Voted Victoria’s Best Sausages”. The advertisements placed in June, July, August, September and October 2007 gave the address of “king island meatworks and cellars” as “39a Church St. Brighton” and also “16 Railway Parade, Highett (opposite Railway station) NOW REOPENED.” The advertisements placed in November and December 2007 advertised that the meats were available at Church St, Brighton or 16 Railway Parade, Highett.[64] Alex and Piero shared the cost of the advertisements.
[63]Exhibit 4, transcript p 101.
[64]Exhibit 4.
50 Alex said that they also prepared a magnetic cooking chart which Alex and Piero gave out to customers for Christmas.[65] The cooking chart contained the addresses of the shops at Brighton and Highett.
[65]Exhibit 5.
51 Piero said that most of the recipes and ideas for the sausages were his idea and that is why they won all the awards. Piero said that he gave the recipes to Alex.[66] However these allegations were not put to Alex in cross-examination.
[66]Transcript pp 210 -211.
52 Piero said that he won awards for his sausages at the regional heats of the 2008 and 2009 Victorian Sausage King Competition.[67]
[67]Exhibit L.
Advertisement of business name King Island Meatworks on eBay
53 Alex said that he was aware that the abattoir in King Island had been purchased in September 2007 by a Brazilian company called Swift; one of the largest meat wholesaling companies in the world. He listed the King Island Meatworks business name and the internet domain names, “kingislandmeats.com. au” and “kingislandmeatworks.com.au” for sale on eBay for two and a half million dollars[68]. The advertisement cost him $50.
[68]Transcript p 105; exhibit 7.
54 Alex is still the owner of the domain names “kingislandmeats.com.au” and “kingislandmeatworks.com.au” on the internet.
55 Piero said that he became aware of this advertisement on eBay a few days before 26 September 2007 (the print date of the document on the bottom right hand corner). [69] The “end time” stated in the advertisement was 2 October 2007 10:53;06 AEST (5 days 20 hours). He said that he did not mention it to Alex straight away because he did not know what to do.
[69]Transcript p 253.
56 After two months, in November 2007, Piero conducted a search of the business name “King Island Meatworks” on the internet. Piero became aware that the registration of the business name had lapsed. [70] Piero said:
I did a little bit of my own investigations and looked up Consumer Affairs website and typed in King Island and saw that there was a King Island Meatworks name up there that had once belonged to Alex Mastromanno that had lapsed and sort of did some further investigations on the internet and saw that Tasman Meat Groups had now acquired that name which sort of led me into looking for another King Island name. …I found out that I was paying $500 a week for a business name that [Alex] did not own.[71]
…
What did you do? I kept trading under the same banner, King Island Meatworks and Cellars, kept paying Alex $500 a week….At this stage I was not going to take any action.[72]
[70]Transcript p 213.
[71]Transcript p 214
[72]Transcript p 215.
57 In cross-examination Piero agreed that he then started to look at what other King Island-related name he could call his shop and on 10 January 2008 Bonjust registered the business name “King Island Steak & Wine Company”.[73] After Piero had secured the business name, Piero went to see Alex.[74] At that stage he had already decided that he was going to part company with Alex “because [Alex] tried to sell his name on eBay.”[75] In cross-examination Piero said that he spoke to Alex a couple of months after September about the internet ad. Piero said that Alex was quite happy saying “Yeah, if I can pull it off, why not”.[76]
[73]Transcript p 254, exhibit M.
[74]Transcript pp 254-255.
[75]Transcript p 255.
[76]Transcript p 255.
58 In December 2007 Piero paid the plaintiff the $500 fee as part of his purchase of product.[77] Alex said that it was described as a “name fee” but it should have been described as the licensing fee.[78] Piero said that when he presented Alex with that cheque, Alex asked him to make the payment of the $500 fee in cash. Piero said that that frustrated him because he could not claim that payment as a business expense.[79] Alex denied this allegation and said “I just wanted them to be paid, whether it was cash or by cheque I really didn’t care.”[80] In cross-examination Piero said that he never told Alex that he needed a receipt after he paid Alex in cash.[81]
[77]Exhibit 3, p245.
[78]Transcript p 107.
[79]Transcript p 215.
[80]Transcript p 153.
[81]Transcript pp 253 , 256.
59 In the first week of January 2008, Alex rang Piero and said that he had not paid the licensing fee.[82] At that stage there were fees outstanding for approximately six weeks.
[82]Transcript pp 108 – 109.
60 After registering the business name, Piero came to see Alex on 13 January 2008, gave him $3000 and said effectively “you don’t own the business name and therefore I am not going to pay you any more.” In cross-examination Alex said that on 13 January 2008 Piero decided to terminate the contract.[83]
[83]Transcript p 131.
61 On that day Piero told Alex that he had found out about the eBay scenario. Alex told Piero that he did not understand what his concerns were. Alex said that “we have a verbal contract, we have an agreement. Just because you do not agree with something, just because I do something does not mean you can go back on your contract. You just can’t do that”.
62 Alex said that Piero told him that “[he] found out Tasman Meats are going to take legal action against us because we are called King Island Meatworks and you don’t own the naming rights.” At that stage Alex was still under the impression that the business name “King Island Meatworks” was registered in the plaintiff’s name. A couple of days later Alex found out that the registration of the business name ‘King Island Meatworks’ in the plaintiff’s name had lapsed.
63 Piero said that in mid January 2008 he received a fax from the Brighton Newsagency saying that the plaintiff had registered a company name, King Island Meatworks and Cellars Pty Ltd. On 20 February 2008 Alex changed the name of the plaintiff from Total Vision Enterprises Pty. Ltd. to King Island Meatworks & Cellars Pty Ltd.[84] Alex then called Piero soon after that fax. Alex said “I do own the business name now, what’s your problem”? Piero said “you did not believe at the start when I told you that your business name had lapsed. You never gave me a chance to renegotiate the deal with you. I now have my own trading name. It’s too little too late” and said “You’re not the type of man that I want to continue doing business with …because of the way you treated me that day.”[85]
[84]Exhibit 8.
[85]Transcript p 216.
64 Alex said that once he hung up the telephone, he got all his paperwork for the company and drove to Highett and said “Look, Piero, this will alleviate your concerns over the Catalfamo issue”.[86] Piero turned around and said “Well, I’m not giving you anything.” [87]
[86]Catalfamo was the owner of Tasman Group Services Pty. Ltd. (See above paragraph 35)
[87]Transcript p 111.
65 Piero gave the following answers when cross-examined about why he terminated the agreement:
Mr Mastromanno, you gave evidence in your evidence-in-chief to having a discussion about the business name with Alex Mastromanno and you said you told him that he didn’t own the business name but he wouldn’t listen to you and didn’t believe you?...That’s correct.
That was the reason you gave in your evidence for really saying I can no longer deal with this person, is that right?...Sorry, say that again.
The reason you said no, I am no longer doing any business with you because you wouldn’t listen to me when I told you you don’t own the business name?...Yes.
That was the reason you said the deal’s off?...Because he doesn’t own the business name.
And because he wouldn’t listen to you?...Well, he didn’t believe me.
He didn’t believe you?...No.
You said in your evidence that he didn’t believe me, it’s too little too late?...Yeah.
You’re not the sort of person I want to do business with because of the way you treated me? …Yeah. He wasn’t a man of integrity.
He’s not a man of integrity because he’s not listening to you with regard to the business name, is that right?...And he also said that I’m trying to screw him, which was never the case. I was there to sort it out.
Well, you weren’t there – you had already registered your business name. You were there to tell him you’re no longer paying him any more fees?...Well, I had to have a business name didn’t I?
So if you had a business name you would have been happy to continue with the agreement, is that right?...Say that again, sorry.
If you had the business name you would have been happy to proceed with the agreement?...If he had the business name, yes.
So when he turns up and speaks to you and shows you the- has the company name, presumably you would have been happy to proceed, continue on with the agreement?...No. It was through the…
[Objection taken by defendants counsel]
So when he came to you and the company name was King Island Meatworks and Cellars Pty Ltd presumably that allayed your concerns?...He registered that as a company name.
So why didn’t you continue on with the deal after then?...Because when we made the deal or name fee deal he didn’t own the King Island name.
So the fact that he had a company name called Kingisland Meatworks and Cellars Pty Ltd, you didn’t think that helped you at all, is that right?...It was later on in the piece and I didn’t agree with it.
What didn’t you agree with?...That he had a trading name, it lapsed, he was charging me $500 a week for the name and then decides that he could go and register a company name in February and then start charging me again.
Yes, so you had the company name, the same name?...No, it was different…
Except with Pty Ltd next to it?...No, it was different.
So what’s the differences?...Cellars.
So the difference is it was “and Cellars”, is that right?...Yes, that was the difference.
And Cellars is up on the awning on your shop in Highett isn’t it?...Well, “and Cellars”.
That was the faded writing on the Highett building, King Island Meatworks and Cellars, established 2001, that’s correct isn’t it?...That’s what was on his.
That was on the Highett building?...Yeah. It was weathered and faded, yes.
So that’s precisely the trading name except for the fact that Pty Ltd is next to it?...Yes.
All the customers in the area knew the name?...I’d assume so.
Because you had a good reputation in the area of Brighton and Highett?...When the Brighton shop, or when the Highett shop was open, yes, I’d say so.
So what do you mean by that? What, did the reputation go down at some stage?...Well, it was different set ups, different people managing stores.
Restricting ourselves to February 08, 2008, when he tells you here’s the company name, what was your concern at that stage?...The $500 a week in cash.
So it wasn’t the name per se, it was the fact that it had to be in cash?...Yeah, it was in cash.
Alex gave evidence that when he asked you and discussed it with you and you said what’s concerning you, and he showed you the name of the company, you said “Well, I’m not giving you anything”? …He didn’t believe me at the start nor did he give me the chance to negotiate anything or discuss anything strategically planning going forward.
But that’s exactly what he was doing wasn’t it when he was coming to you, showing you the company search?...No , we never.
And asking you what was concerning you?...We never sat down and spoke.
Why didn’t you speak to him then?...Because he didn’t want a bar of it.
He was showing you the name and you’re telling him I’m not giving you anything?...He wasn’t discussing it properly with me.
Did you ask him to discuss it with you properly at that stage?...He never had a bar of it, he never wanted to discuss it. I was happy to sit down and discuss it further.
Why do you think he was showing that he changed the name of his company from Total Vision to King Island Meatworks and Cellars?...To prove a point.
And to discuss it with you presumably?...No. He didn’t want to have a bar of it when I wanted to talk about it.
Do you agree that you told him you’re not giving him anything? …He didn’t own the name when we did the deal. This is when we did the deal.
I’m talking about when he comes to you with the company name King Island Meatworks and Cellars?...No.
You told him at that stage, well, I’m not giving you anything?...That’s when I found out he didn’t own the registered business name.
You had known that for a long time at that stage, you’d known that for four months at that stage?...Yes.
He’s coming to you to say, well, I own the company name so what are you worried about?...What, in February?
Yes?...Well, it was too little too late. When I wanted…
Because you had already set up at that stage hadn’t you?...Well, he never wanted to have a bar of it.
So your main gripe was that he didn’t listen to you when you told him his registered name had lapsed?...He didn’t want to know about it. He thought business names don’t lapse. So he was 100 per cent confident in his mind that he had nothing to worry.
After that time you commenced advertising under the name King Island Steak and Wine Company?...After which time?
After this discussion in February 08?...After this discussion, yes.
You didn’t immediately change the awnings on your shop?...Not immediately.
Your ads came under King Island Steak and Wine Company?...Yes.
What was the slogan?...Specialising in top quality King Island produce.[88]
[88]Transcript pp 258 -262.
66 However the reason stated in the letter dated 19 January 2009 by Piero’s solicitor, Michael Beasley, as to why Piero said that he decided to terminate the agreement is different from the reasons Piero gave for the repudiation of the agreement. In that letter Michael Beasley stated:
(13)Given the market Pierre was trying to attract, and the link between his business and King Island meat, Alex’s inability to supply King Island meat resulted in Pierre cancelling his verbal supply agreement with Alex. [89]
[89]Exhibit 11, p 56.
67 Although Piero stated in cross-examination that Alex was tricking and misleading his customers into believing that they were getting King Island meat, Piero in fact registered his company name as King Island.[90]
[90]Transcript p 271.
68 In cross-examination Piero was asked:
You were under no illusions whatsoever when you took over the Highett shop that meat was not coming from King Island. That’s the case isn’t it?...There was no meat coming from King Island but we were tricking our customers into believing so.[91]
[91]Transcript p 273.
69 In cross-examination Piero was asked:
When you registered your business name on 10 January 2008, King Island Steak and Wine Company, you had no way of knowing whether you’d be able to access any meat from King Island?...It was a possibility that yes, I could access meat from King Island but there wasn’t a lot of it available.[92]
[92]Transcript p 278.
70 In cross-examination Piero agreed that he nevertheless registered the name King Island Steak and Wine Company,and that it was similar to Alex’s name,[93] and that is why he adopted it [94]. Piero then placed advertisements in the local newspapers under the name “King Island Steak & Wine Co” on 10, 17 and 24 June 2008[95] and “KI -King Island Steak & Wine Co” in August 2010[96], stating that “offers only available at Highett”. Piero agreed that the reason he differentiated himself from Brighton in the advertisements was to ensure that customers who read those advertisements would go to his shop and not to the Brighton shop.
[93]Transcript p 279.
[94]Transcript p 280.
[95]Exhibit 9.
[96]Exhibit 16.
Defendant’s conduct after purported termination on 13 January 2008
71 Alex said that he let it go for a while because he was not in the right frame of mind to start dealing with solicitors again. However Piero continued to trade and started to advertise.[97] The advertisements were very similar to the advertisements Alex placed in relation to the Brighton shop. The advertisements stated that “until you have tasted our award winning sausages you haven’t tasted anything like it.” Alex said that the defendant had no award winning sausages at that stage. The advertisements carried the Highett address and stated that the offers were only available at Highett and not at the Brighton store.[98] Piero called the business “King Island Steak and Wine Co” which was very similar to the plaintiff’s name, “Kingisland Meatworks & Cellars Pty. Ltd.” Alex said that Piero was still trying to pass himself off as being associated with the Brighton store, which was the mother store.[99]
[97]Advertisements placed by the defendant on 10, 17 and 24 June 2008 -Exhibit 9.
[98]Transcript p 112.
[99]Transcript p 112 -113.
72 In cross-examination Piero agreed that Alex had asked him to place the signage on top of the Highett shop “Winner of the Victorian Sausage King, best sausage in Victoria” which he did.[100] He said that he engaged a customer who was a sign writer to put up the sign. Alex said that he used to drive past the Highett store about once a fortnight and Piero had not changed anything; he retained the same awnings and signs on the Highett shop.[101]
[100]Transcript p 250.
[101]Transcript p 113.
73 Alex instructed a solicitor, Mr Benjamin Zylberszpic, to forward a letter to Piero on 28 November 2008.[102] In that letter Mr Zylberszpic stated:
[102]Exhibit 10.
Further, the above amount of $6,500 was to be taken to cover the period of your payments to the end of November, and thereafter you were to recommence paying the $500 per week. You made a payment of $3,000 in cash and $500 by cheque which covered 7 weeks and which took the payments up to the 13th January 2008. You then stopped making further payments. Since that time you have continued to trade using the above company name and logo which is emblazoned on the canvas awning at the front of the shop at Highett, and which name is in the same advertisement under “King Island Meatworks” as that of my client in the current on-line White Pages and thereby taken advantage of the agreement, without making the licence payments to my client for the right to do so.
It is quite clear that you have accepted and partly performed the agreement between yourself and my client and as a result you are now estopped from denying that the agreement exists.
Accordingly, I am instructed that you are indebted to my client for the unpaid licence fees of $500 per week for a period of 11 weeks from the 14th January 2008 to the end of March 2008 (a total of $5,500), and thereafter the unpaid licence fees in the sum of $550 per week for a period of 34 weeks to date (a total of $18,700) and continuing, as the licence fee was to increase to that amount from the beginning of April 2008. These unpaid amounts total $23,100.
If the above amount is not paid within seven days from the date hereof, my client will take proceedings to seek that the above arrears are paid forthwith, and the agreement between you and my client be specifically performed, namely that you recommence purchasing products from my client immediately, and pay the ongoing licence fees.
Alternatively my client reserves the right to seek and allege that as a result of your breach of the agreement, you pay damages to my client which will consist of the licence fees that have not been paid, the loss of profits to date which have been incurred by my client, the future loss of profits my client will suffer as the result of you not purchasing any further products from him for the minimum period of the Agreement being 5 years, and an order seeking that you remove all references to my client’s company or products that appears on letterheads, advertising material, trade journals, internet, yellow pages and white pages and the like and that you disassociate yourself from any association with his company.
74 On 19 January 2009, Michael Beasley, as solicitor for Piero, forwarded a reply to Mr Zylberszpic. [103] In paragraph 5 of that letter, Mr Beasley stated:
(5) There was a verbal agreement, initiated by your client, where Pierre could buy processed meats and more importantly, King Island meat, from Alex, for $500 a week plus the net landed gross cost of any such items.
[103]Exhibit 11.
75 References to the King Island Steak and Wine Company were made in the Melbourne Weekly on 20 July 2011[104]; on the internet on 7 June 2011 and 23 August 2011 [105]. An advertisement was published in the Bayside Leader in August 2010 under the name “KI King Island Steak & Wine Co” stating “offers only available at Highett”[106]. The defendants placed an advertisement on the internet headed “KI The Steak and Wine Co” on 23 August 2011 again stating that the “OFFERS ONLY AVAILABLE AT HIGHETT”.[107] The defendants placed advertisements in the Smart Saver catalogue in May 2011 and the catalogue dated 10 September – 1 October 2011[108] under the name “KI – The Steak & Wine Co” again stating “OFFERS ONLY AVAILABLE AT HIGHETT”.
[104]Exhibit 18.
[105]Exhibit 19.
[106]Exhibit 16.
[107]Exhibit 20.
[108]Exhibits 21 and 22.
76 In cross-examination Piero admitted that in the advertisements placed on the internet he is still promoted as “King Island Steak and Wine Company” and that the business was still listed as “the King Island Steak and Wine Company” in the yellow pages.[109]
[109]Exhibit 17.
Assessment of witnesses
77 Before stating the facts, it is necessary to make some observations about the credibility of the witnesses.
78 Alex presented as a straightforward and honest person. I am satisfied that in respect of the discussions he had with Piero and what he did in relation to the sale of the Highett shop, he was doing his best to tell the Court the truth.
79 In a number of respects I was not impressed with Piero as a witness. He was evasive and argumentative when answering questions in cross-examination. He was a witness who, in effect, would say what he thought would assist his case as opposed to a witness who was endeavouring at all times to give a truthful and accurate account of the facts.
80 Generally I prefer the evidence of Alex to that of Piero particularly in relation to the discussions about the terms of the agreement for the sale of the Highett shop.
Terms of the agreement
Purchase price
81 I accept Alex’s evidence that Piero agreed to pay Alex the sum of $65,000 to purchase the Highett shop which included fixtures and fittings. The agreement was between the plaintiff and Bonjust. Alex conceded in evidence that he later agreed to accept a cheque from Bonjust for $50,000 on the basis that the plaintiff would make up the difference and that Piero “was not going to gip him”.
Length of the agreement
82 I accept Alex’s evidence that he and Piero agreed that the weekly fee would be capped at $750 after five years which would give them a minimum five year agreement and they would take it from there.[110]
[110]Transcript p 93.
83 Counsel for the plaintiff, Mr O’Connor, submitted that the term that the agreement was for five years was specifically agreed, but if it was not specifically agreed, it was implied from the oral discussion between Alex and Piero that the weekly fee would be capped at $750 after five years which would give them a minimum five year agreement.
84 Counsel for the defendant, Mr Magowan, referred to the plaintiff’s pleadings and submitted that the plaintiff did not allege that it was an express term of the agreement that the agreement was for a minimum of five years. The amended statement of claim filed by the plaintiff on 15 July 2011 (the amended statement of claim) alleges that this was an implied term.
85 In Banque Commerciale S.A. (in liq) v Akhil Holdings Ltd. [111] Dawson J said:
But modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties…cases are determined on the evidence, not the pleadings.
[111](1990) 169 CLR 279 at 296-297.
86 Similarly in State Government Commission v Sharpe[112] Millhouse J stated that “[t]he day has well passed when decisions are based on the state of the pleadings, irrespective of the facts or justice.”
[112](1996) 126 FLR 341 at 344.
87 Mr Magowan referred to Hospital Products Ltd. v United States Surgical Corporation [113] and submitted that it was not reasonably necessary for the agreement to have a five year limitation on it. The defendant submitted that the contract was determinable at will. There is simply no reason why the agreement could not be ended at will and without notice. This is a simple supply agreement. Bonjust had a number of other suppliers. It could change suppliers without proving notice (which it did). Bonjust could produce its own “award winning sausages.”
[113](1984) 156 CLR 41.
88 In BP Refinery (Westenport) Pty. Ltd. v Shire of Hastings[114] (BP Refinery) the Privy Council specified five conditions which must be satisfied before a court would imply a term into the sign licence agreement.
[114](1977) 180 CLR 266, 283.
(1) It must be reasonable and equitable;
(2)It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3)It must be so obvious that “it goes without saying”;
(4)It must be capable of clear expression;
(5)It must not contradict any express term of the contract.
89 In Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd[115] Crennan J considered the application of the conditions stated in BP Refinery to cases where there is no formal contract. Crennan J stated:
Where, as in the present case, there is no formal contract concluded between the parties a more flexible approach to the question of implying terms is warranted than that laid down in BP Refinery at CLR 283: see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 121; Hawkins v Clayton (1988) 164 CLR 539 at 573; Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422-3. In this kind of case all that is necessary is to show that the term to be implied is necessary for the reasonable or effective operation of the contract in all the circumstances.
[115](2005) 225 FLR 57.
90 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[116] Mason J referred to the “factual matrix” of a contract. I find that the factual matrix of the agreement between the plaintiff and the second defendant included the following:
[116](1982) 149 CLR 337
1. Piero approached Alex to sell the Highett shop. Piero’s evidence was that Alex did not want to sell the Highett shop.[117]
[117]Transcript p 197.
2. The agreement provided for the payment of licence fees for some time. The plaintiff waived its entitlement to receive licence fees for the first three months and received no payments over that period of time.
3. Alex agreed to forego the payment of $15,000 of the purchase price on the basis that he would make the money up on the deal.
4. The parties anticipated that the agreement would go on for a long time into the future.[118]
[118]Transcript pp 241-242.
5. Alex had built up significant goodwill in the business. Piero conceded that the plaintiff had a very good reputation in the marketplace. Piero obtained the benefit of that reputation by virtue of the agreement.
6. I accept Alex’s evidence that he did not want to sell because he had significant uses for the Highett shop and he could have made money out of the site itself. He had plans to carry out catering at the Highett shop in conjunction with the Brighton shop.
7. The plaintiff has lost customers he would have had who went to the Highett shop after it was taken over by Piero. Some people from the Highett shop went to the Brighton shop when the Highett shop was closed. Alex said that he would lose 15 to 20 per cent of the customers at the Brighton shop if Piero reopened the Highett shop.
91 Having considered the whole of the evidence and the submissions made by counsel, I find that there was an express oral term agreed between Alex and Piero that the agreement was for a minimum of five years.
92 In the alternative, I am satisfied that it is reasonable to imply a term that the agreement was for a minimum term of five years.
Agreement to supply meat and sausages
93 I accept Alex’s evidence that he and Piero agreed that Piero would purchase all of the sausages and the majority of the lamb and beef from the Brighton shop.[119] Alex later agreed that Bonjust would order some of the meat products directly from other suppliers. [120]
[119]Transcript p 143.
[120]Transcript p 146.
94 I accept Alex’s evidence that Piero agreed to pay Alex $8.50 per kilo for gourmet sausages and $7.50 per kilo for plain beef sausages.
95 I find that it was a term of the agreement that the second defendant would purchase all of the sausages from the Brighton shop. I find that it was a term of the agreement that the plaintiff would supply the products that did not incur labour at cost price plus 30 cents a kilo. I further find that it was a term of the agreement that the second defendant would pay the products that incurred labour at cost price plus 30 per cent of the cost price of the ingredients.
$500 licence fee
96 I accept Alex’s evidence that Piero agreed to pay the plaintiff a licence fee of $500 per week which was to be increased by 10 per cent each year for the duration of the agreement, to be capped at $750 after five years.
97 I do not accept the defendant’s submission that the $500 was for naming rights only.I find that it was a term of the agreement that the second defendant would pay a weekly licence fee of $500. For that fee, the second defendant would be entitled to use the plaintiff’s name, the plaintiff’s signage, the ability to advertise the Highett shop together with the Brighton shop and to claim that the sausages sold at the Highett shop had won awards for the best sausages in Victoria.
98 The agreement was performed by the parties for seven months.
Did the plaintiff repudiate the agreement?
99 Mr Magowan submitted that there were three terms of the agreement:
(a) that the contracting party was Bonjust;
(b) that the purchase price for the Highett business was $50,000 (including fixtures, fittings, signage etc); and
(c) that $500 per week would be paid by the defendant for the use of “King Island Meatworks” business name and that the plaintiff owned the business name.
100 Mr Magowan referred to paragraph 9(b) of the amended defence and submitted that there were further terms of the agreement that :
(a) the plaintiff had a legal right to use the name “King Island Meatworks”;
(b) the plaintiff owned the business name “King Island Meatworks”; and
(c) the stock supplied was meat from King Island and/or that the plaintiff was entitled to sell the stock as “King Island” meats.
101 Mr Magowan then submitted that the plaintiff committed substantial breaches which amounted to a repudiation of the contract. Mr Magowan submitted that the breaches were:
(a) the plaintiff contracted to provide something it did not and could not provide.
(b) the plaintiff then tried to sell the business name that it did not own
(a) The plaintiff contracted to provide something it did not and could not provide
102 Mr Magowan referred to s.5 of the Business Names Act 1962 which prohibits a person in the State of Victoria from carrying on a business within the State under a business name unless the business name is registered. Corporations using their corporate names are exempt from registration and may use their corporate names if they are duly registered under the Corporations Act 2001.[121]
[121]S.601DD(2) Corporations Act 2001.
103 In response to Mr Magowan’s submission, Mr O’Connor referred to Shargrate Pty Ltd v Au Domain Administration Ltd[122]. In paragraph 29 of that case Sackville J stated that:
The purpose of s5 of the Business Names Act is to protect the public by compelling persons who do not carry on their businesses under their own names to register and thus provide a means whereby their identity and whereabouts can be readily ascertained: Corporate Affairs Commission v Bradley [1973] 1 NSWLR 382, at 389, per Sheppard J. A related purpose is to ensure that persons dealing with a business have an opportunity to know with whom they are dealing and, in particular, whether they are dealing with an individual or corporation the office-bearers of which are ordinarily not liable for the corporation's debts.
[122][2002] FCA 657.
104 Mr O’Connor submitted that the whole purpose of the Business Names Act is to compel registration so that the public know who they are dealing with. Registration does not create an entitlement to use a name. He referred to paragraph 27.9 in Gillies on Business Law[123] which states that “[t]he legislation does not create a monopoly right to use a name for trading purposes”. Registering a business name does not give the registered person ownership of the business name. A person establishes ownership of a business name by trading in that name. The defendants have been labouring under a misconception that registration of a business name equals ownership; and it does not.
[123]Peter Gillies, Business Law (2004).
105 The plaintiff submitted that it is not correct to say that the plaintiff did not have a right to use the name King Island Meats just because Alex did not know that he had to renew the registration of that name. The plaintiff had traded under the name of King Island Meats for ten years and had established a reputation in the marketplace under that name. There was no evidence that anyone has asserted ownership rights over and above the plaintiff’s right to use that name.
106 The defendants alleged that they accepted the repudiation of the agreement by the plaintiff on 13 January 2008. Mr Magowan submitted that thereafter Bonjust was entitled to trade under the business name “King Island Steak and Wine Co” because it owned the business name.[124]
[124]Exhibit 1.
107 I do not accept Mr Magowan’s submission. The registration of a business name does not confer proprietary rights. In this case the plaintiff had developed goodwill and reputation in the name King Island Meatworks. In my view the plaintiff did not repudiate the agreement because Alex had failed to renew the registration of King Island Meatworks as a business name. The failure to renew registration did not mean that the plaintiff was not entitled to trade under the name Kingisland Meatworks and Cellars. Similarly the registration by Bonjust of “King Island Steak and Wine Co” [125] as a business name did not mean that the plaintiff was not entitled to trade as Kingisland Meatworks and Cellars. It was open for the plaintiff to contend that as the plaintiff had developed the goodwill and reputation in that name, Bonjust should not be permitted to trade under the deceptively similar name of “King Island Meatworks” which it registered on 10 January 2008. In any event the plaintiff changed its name to Kingisland Meatworks & Cellars Pty. Ltd. and thereafter had a right to trade under that name without registering that name under the Business Names Act 1962.[126]
[125]Exhibit M.
[126]Exhibit 1.
108 Furthermore it is important to note that s5(5)of the Business Names Act 1962 provides that :
(5)Notwithstanding anything in this Act a contravention of or failure to comply with any provision thereof shall not operate to avoid any agreement transaction act or matter.
109 In the words of Lord Wright in Ross T Smyth & Co v T D Bailey Son & Co
It must not be forgotten that repudiation of a contract is a serious matter, not to be lightly found or inferred.[127]
[127][1940} 3 All ER 60.
110 In the alternative Mr Magowan submitted that Bonjust had a right to terminate the contract because the plaintiff did not own the very asset upon which the contract was based. Mr Magowan submitted that that was a fundamental breach of the agreement which could not be remedied. I do not accept Mr Magowan’s submission. It is based on the misconception that registration of a business name confers a proprietary right. The reason why business names are registered is not to ensure exclusivity to the name but to ensure that consumers and businesses know who they are trading with, and can identify the registrant of the business name.
(b) The advertisement on eBay
111 The defendant submitted that the plaintiff repudiated the agreement because it advertised the “King Island Meatworks” business name and its accompanying domain names “Kingislandmeats.com.au” and “kingislandmeatworks.com.au” for sale on eBay.
112 The plaintiff made the following submissions. First it was only an advertisement. Second the plaintiff did not sign a contract. Third the plaintiff was entitled to attract interest and then it would potentially negotiate with any interested parties taking into account the defendants’ rights. Any buyer is going to perform due diligence and determine what they are in fact buying. The plaintiff cannot sell something that is not subject to the existing rights of other parties. The advertisement requested any bidder to contact the seller through eBay “if you are interested in bidding as only serious bidders will be accepted and bidders that are unable to be contacted will be removed from the auction.” The advertisement contemplated communication and contractual negotiations with potential buyers. The end time for the advertisement on eBay was 2 October 2007.[128]
[128]Exhibit 7.
113 Mr O’Connor submitted that Lord Coleridge CJ formulated the test in Freeth v Burr[129] as being:
Whether the acts or conduct amount to an intimation of an intention to abandon and altogether to refuse performance of the contract. Such an “intimation” will be established if the words or conduct of the promisor make it quite plain that the promisor will not perform.
[129](1874) LR 9 CP 208, 213.
114 The plaintiff sought to distinguish the facts in this case from the facts in Carr v BerrimanPt Ltd[130]. In that case a building owner announced that he had engaged another contractor to carry out a large part of the works to be done by another contractor. In that case the building owner was saying that he was not going to use the contractor to perform the contractual obligations. That is not the case here. The advertisement does not state that there will be a sale without lawful regard to the interests of the defendant.
[130](1953) 89 CLR 327.
115 Mr O’Connor also referred to the evidence given by Piero and the reasons he gave for deciding to walk away from the agreement. In evidence in chief Piero stated:
Mr Magowan: What did you do? I paid him $3000 in cash until January 13 because he demanded cash without a receipt so I couldn’t claim it as a business expense, which was never part of the deal.
Did you have a conversation with him when you gave him the $3000 in cash? -- Yeah, I did have a conversation with him and by that stage there I - - -
Her Honour: What was said? --- I said to him that his business name had lapsed and then he turned around to me, "What are you talking about". He said, "Business names don't lapse, what do you mean". I said, "Well, your business name's lapsed for King Island Meatworks". He then turned around and said, "Bullshit, business names don't lapse". I said, "Alex, your business names have lapsed". He never gave me a chance to renegotiate a deal, never gave me a chance to talk - - -
Just say what was said, "What was said, "You're trying to screw me".
Who said that? --- Alex told me, "Bullshit, you're trying to screw me, business names don't lapse". He then walked away and I walked out of the shop. Several weeks later he presented himself at the Highett shop with an ABN extract saying King Island Meatworks and Cellars and he said, "There you go, see, I do own the name". So I looked at this ABN extract and it was an ABN extract, it wasn't a business name. Further - he must have done further investigations and on February - I think it would have been mid January I received a fax from the Brighton Newsagency saying that he had registered a company name, King Island Meatworks and Cellars Pty Ltd by fax from the Brighton Newsagency. He then called me soon after that fax. He then said to me, "I do own the business name now, what's your problem". I then turned - this is by phone, I spoke to him and said, "You didn't believe at the start when I told you that your business name had lapsed. You never gave me a chance to renegotiate the deal with you. I now have my own trading name. It's too little too late", and said, "You're not the type of man that I want to continue doing business with because you don't show any - you're not a man of integrity and you're not the type of person that I want to be involved with because of the way you treated me that day", then I gave him the $3000 cash. Soon after problems began.
MR MAGOWAN: If I can stop you there, you mentioned you said you've got your own business name? --- Yes.
…
HER HONOUR: What is your business name, King Island Steak & Wine Company?[131] --- That was my business name. That was your business name? --- That was at the time.[132]
[131]Exhibit M.
[132]Transcript pp 215 – 217.
116 The reason that Piero gave for terminating the agreement was that he was annoyed that his brother did not listen to him about the fact that the business name was not registered. At the time that Piero confronted Alex on 10 January 2008, Piero did not mention the eBay advertisement; it was not a relevant consideration. This was some four months after the business name had been advertised on eBay. Piero said that he was annoyed about the loss of the registration of the business name and he registered his own business name in response to that.
117 The plaintiff submitted that Piero’s evidence shows conclusively that Piero did not repudiate the agreement on the basis of the eBay advertisement. However it is not necessary to specify the ground for termination so long as the defendants had grounds available to terminate the agreement.[133]
[133]Becker Group Ltd v Motion Picture Co of Australia Ltd [2004] FCA 630, [92].
118 The plaintiff submitted that, in any event, the defendants continued to perform the agreement after the plaintiff placed the eBay advertisement on the internet and were not entitled to terminate the agreement on that ground. Legally the defendants sat on it for four months.
119 In his final submissions, Mr Magowan submitted that the plaintiff was not entitled to rely on any election by the defendants to affirm the agreement after the agreement had been repudiated. Mr Magowan referred to paragraph 12 of the amended statement of claim which provides that:
12In breach of the agreement:
(a)On or about 13 January 2008 the first and/or second defendant evinced an intention not to be bound by the agreement.
PARTICULARS
On or about 13 January 2008 the first defendant in a face to face conversation with Alex Mastromanno for the plaintiff after paying the plaintiff $3,000 for past licence fees said words to the effect “you don’t own the business name so I’m not paying you any more.”
120 Paragraph 12 (a) of the amended defence provides:
(a)as to paragraph 12(a) the [defendants] refer to paragraph 11A and say that it was the plaintiff who breached and repudiated any agreement (which is denied) by virtue of the matters alleged, and that the second defendant, alternatively first defendant accepted the repudiated [sic] on or about January 2008.
121 Mr Magowan relied on Order 13.07.1 of the County Court Civil Procedure Rules 2008 which provides that a party shall plead specifically any fact or matter which makes any claim or defence of the opposite party not maintainable. Mr Magowan submitted that the plaintiff had not pleaded (presumably in reply to the amended defence) that the defendants had lost the right to repudiate the contract because they had elected, by their actions, to affirm the contract. He referred to Davis v Dougall[134] .
[134](1889) 15 VLR 424.
122 I do not accept Mr Magowan’s submission. In Ravinder Rohini Pty Ltd v Krizaic[135] Wilcox J, with whom Davies and Miles JJ agreed, stated:
The purpose of pleadings is to disclose the facts upon which a party relies. If a pleading discloses facts, proved at the trial, which entitle a party to succeed, it does not matter that the pleader did not realise that those facts disclosed a cause of action or defence other than the one to which they were directed.
[135](1991) 30 FCR 300; see also Green v Somerville (1979) 27 ALR 351, 362.
123 In paragraph 11 of the amended statement of claim the plaintiff pleads:
In accordance with the agreement:
(d)the first and/or second defendant ordered stock from the plaintiff from May 2007 to 13 January 2008.
(e)the plaintiff advertised both the Brighton shop and the Highett shop:
(i) under the name ‘King Island Meatworks’ and/or ‘King Island Meatworks and Cellars”.
(ii)using the slogans “the steak & wine specialist’ and/or ‘the steak, wine & sausage specialist”, and
(iii)referring to the awards won by the plaintiff for making sausages;
(f)the plaintiff supplied sausages, lamb products and beef products to the first and/or second defendant;
(g)the first and/or second defendant paid the plaintiff the $500 weekly fee for the period up to 13 January 2008.
124 In paragraph 12 (e) of the amended statement of claim the plaintiffs claim that:
(e)the first and/or second defendant continued to use the trade names and the plaintiff’s slogans, awards, symbols, displays and products pivotal to the goodwill of the plaintiff’s business by continuing to display the sign “King Island Meatworks and Cellars (est 2001) on the front of the Highett shop.
Election
125 Mr Magowan submitted that the defendants were entitled to consider their own position after the plaintiff had repudiated the contract by placing the ad on eBay. He referred to Champtaloup v Thomas[136] which was a contract for the sale of land. It was alleged that the purchasers, by sending requisitions, had unequivocally affirmed the contract and thereby lost their right of rescission. The Court of Appeal set out the following propositions in relation to the constituents of an election to affirm a contract:
1.Election is not a matter of intention. “It is an effect which the law annexes to conduct which would be justifiable only if an election had been made one way or the other”. Tropical Traders Ltd v Goonan[137].
2.The party confronted with a choice is not bound to elect at once. He may keep the question open as long as he does not affirm, and the delay does not cause prejudice. Tropical Traders Ltd v Goonan[138]; Sargent v ASL Developments Ltd.[139]
3.If a party, aware that he must make a choice, exercises rights under the contract, he is held to have elected to affirm. This is because he has acted adversely to the other party, and induced him to believe that performance of the contract is insisted upon. Sargent v ASL Developments Ltd.[140]
[136][1976] 2 NSWLR 264
[137](1964) 111 CLR 41,55.
[138](1964) 111 CLR 41,55.
[139](1974) 131 CLR 634, 656.
[140](1974) 131 CLR 634, 658.
126 Mr Magowan referred to paragraph 20 of the judgment of Young J in Christiansen v Klepac[141] :
Miss Lane is correct in her submissions that the mere fact that a person does an act, which he or she does because the contract is on foot, does not necessarily amount to an election to keep the contract on foot.
[141][2001] NSWSC 385.
127 However Young J also said that “election to affirm may be gathered from a series of acts put together and it is not conclusive that any of the acts were of themselves trivial.”[142] Young J concluded that essentially the matter is a question of fact. “Has the defendant, by his actions, shown an intention unequivocally to confirm the contract?” [143]
[142][2001] NSWSC 385, [22].
[143][2001]NSWSC 385, [23].
128 Mr Magowan submitted that in order for the conduct to amount to an affirmation of the contract, the conduct must be clear and unequivocal. He submitted that it was necessary to balance the conduct which is said to amount to confirmation (payment of $500, continuing to order meat, use of the plaintiff’s name) with the evidence of the defendants that they were considering their position as they were legally entitled to do.
129 Mr Magowan submitted that notwithstanding the fact that the defendants had acted in accordance with the contract, they did not act in a manner which assumed the existence of the contract because they did not act adversely to the interest of the plaintiff. He referred to the following passage in Champtaloup v Thomas[144] :
First, in the cases in which the matter has been determined by pointing to the exercise of a right, the right which was exercised has been one as to which it was clear that an exercise of it was “adverse to” the other party. Acceptance of rent: Matthews v Smallwood [1910] 1 Ch 777, and the insistence upon the continued performance of the contract according to its terms: Turner v Labafox International Pty Ltd [145] are clearly such.
[144][1976] 2 NSWLR 264, 276.
[145](1974) 131 CLR 660, 663, 668, 669.
130 I do not accept the defendants’ submission. In late September 2007 Piero had knowledge of the circumstances which he claims gave rise to a right to repudiate the contract. The defendants chose to affirm the contract by:
(a) continuing to display the plaintiff’s slogans, awards, symbols, displays and products pivotal to the goodwill of the plaintiff’s business by continuing to display the sign “King Island Meatworks and Cellars (est 2001)” on the front of the Highett shop;
(b) continuing to purchase sausages exclusively from the plaintiff and other stock[146]. Bonjust purchased sausages, butter-flied legs of lamb, corned beef and other products from the plaintiff on 3, 5, 9, 12 , 16, 19, 23, 26, 27 and 29 October 2007; on 2, 5, 9, 16, 20, 22 and 28 of November 2007; on 4, 6, 13, 17, 19, 20, 22, 24, 28 and 31 December 2007 and on 6, 12 and 19 January 2008;[147]
[146]Piero’s evidence in cross-examination p 236.
[147]Exhibit 3.
(c) attending the Brighton shop to collect the stock;
(d) preparing the product list and paying for the stock;
(e) Bonjust making the following payments by cheque to the plaintiff after September 2007:
Date Cheque Number Amount
8 October 2007 000122 $4244.60
15 October 2007 000130 $4304.90
7 November 2007 000154 $4311.20
26 November 2007 000183 $4857.80
6 December 2007 000196 $4642.05
27 December 2007 000228 $4747.65
11 January 2008 000250 $7326.20
22 January 2008 000261 $6101.05
(f) continuing to place weekly advertisements together with the plaintiff in relation to both shops under the name King Island Meatworks using the the slogans, the Steak & Wine Specialist and/or the Steak, Wine & Sausage Specialist and referring to the awards won by the plaintiff for making sausages. Bonjust continued to pay half of the weekly fee for the advertisements;
(g) continuing to incur and pay the weekly licence fee; and
(h) on 6 December 2007, the defendant writing the words “name fee” “$500” on the product purchase order[148] and Bonjust agreeing to pay that amount to the plaintiff.
[148]Exhibit 3
131 The detriment suffered by the plaintiff was that these steps taken by the defendants, pursuant to the agreement, meant that the defendants were able to attract customers away from the Brighton shop thereby affecting the income generated by the plaintiff at the Brighton shop.
132 I accept Mr O’Connor’s submission that even after January 2008 the defendant still blowed hot and cold. Whilst Bonjust disavowed the obligatory side of the agreement and refused to pay the licence fee or source the sausages from the plaintiff, the defendantscontinued to retain the benefits it obtained under the agreement by trading under a very similar name, and by using the same or very similar slogan. It continued to have the banner displayed on the front of the Highett shop which adverts to the prize the plaintiff had won in terms of the Sausage King. The defendants did not say that this is a new business such as “Piero’s meats” and continued to benefit from the joint good will.
A party to a contract cannot approbate and reprobate
133 In Wendt v Bruce[149] Bruce entered into a contract to sell Wendt some land. Settlement in respect of the sale was to be made on 1 March 1928 when Bruce was to hand to the purchaser a duly executed transfer of the land. At the same time, a share farming agreement was entered into between the parties whereby Bruce agreed to Wendt cropping for wheat, during 1927, part of the land sold, and the crop harvested was to be divided equally. Wendt entered into possession of the land under this agreement and farmed the land. However settlement of the sale of the property was not effected on the due date. Wendt said that he treated the contract as at an end but he remained in possession of the land and harvested the crop which he planted in 1928. Gavan Duffy CJ and Starke J stated:
Now, a man who has his option whether he will affirm a particular act or contract must either elect to affirm or to disaffirm it altogether; he cannot adopt that part which is for his own benefit, and reject the rest: he cannot blow hot and cold. And the election once made is finally made.
[149][1931] 45 CLR 245, 253.
134 Dixon J said:
But.. the party not in default cannot himself exercise rights which he possesses only if the contract continues on foot and, after he has done so, treat the contract as nevertheless discharged by default. The law enables him to choose between rights; and that choice is exercised, whatever he may desire, when he proceeds to do what he could only lawfully do in virtue of one of the two sets of rights between which he may elect. ‘whether he intended it or not, if he has done an unequivocal act – I mean an act which would be justifiable if he had elected one way and would not be justifiable if he had elected the other way – the fact of his having done that unequivocal act to the knowledge of the persons concerned is an election.’[150]
[150](1931 45 CLR 245, 257.
135 Mr O’ Connor also referred to CSS Investments Pty Limited v Lopiron Pty Limited [151].
Those steps were all steps which amounted to an election to affirm the agreement at a time when, on the terms of the agreement, CSS had the right the rescind. Again, the principle applies that a party to a contract may not approbate and reprobate and, having chosen to affirm the contract, CSS will not be permitted to rescind.
[151](1987) 76 ALR 463, 480.
136 Even if the advertisement to sell the business name of King Island Meatworks on eBay constituted an anticipatory breach of the agreement, Bonjust has by its conduct failed to treat the placing of the advertisement as a repudiation. In this case Bonjust cannot, after electing to continue, rely on the repudiation to terminate or avoid performance of its obligations.[152]
[152]Bowes v Chaleyer (1923) 32 CLR 159.
137 In Foran v Wight [153] Mason CJ stated:
A failure by the innocent party to treat an anticipatory breach of an essential term as a repudiation and to terminate the contract has the effect of leaving the contract on foot, in which event it remains in force for the benefit of both parties, just as it would if the anticipatory breach had never occurred …The parties then remain bound by the contract and the repudiating party may rely on any supervening circumstance which justifies his non-performance of the contract when the time for performance arrives. Bowes v Chaleyer.[154]
[153](1989) 168 CLR 385, 395-396.
[154](1923) 32 CLR 159.
Damages
138 In paragraph 13 of the amended statement of claim dated 20 July 2011, the plaintiff claims “loss of profit to [the] plaintiff on stock purchased by the defendant from other suppliers in the period from 13 January 2008 to date…”[155] The defendants deny the plaintiff’s claim[156] and submit that “the Court ought [to] exclude the plaintiff’s loss of profit claim (ie, the particulars (“TBA”) to para[graph] 13 of the statement of claim) pursuant to s89B(2) of the Evidence (Miscellaneous Provisions Act) 1958” or in the alternative the Court should draw an adverse inference.
[155]Amended Statement of Claim dated 20 July 2011, paragraph 13.
[156]Defence to Amended Statement of Claim dated 3 August 2010, paragraph 13.
139 The plaintiff bears the onus of establishing that a profit would have been earned.[157] The entitlement to damages for loss of profit is discussed in the ninth edition of Cheshire and Fifoot’s Law of Contract.[158]
Many business contracts are undertakings by one party to provide goods, services or other benefits to another party in return for payment by the other. Where breach consists of or results in the loss by the other party of payments that would have been received, damages may be claimed for loss of the amount by which receipts would have exceeded expenditure.
[157]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 80.
[158]N C Seddon and MP Ellinghaus, Law of Contract, 2008, 9th ed) , 1089 [23.13].
140 The plaintiff is entitled to the net profit which is defined as the difference by which gross receipts would have exceeded expenses. In the words of Mason CJ and Dawson J in Commonwealth v Amann Aviation Pty Ltd [159] :
Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.
[159](1991) 174 CLR 64 at 80.
141 During the course of the trial the plaintiff changed its claim for damages from loss of profit to loss of revenue. However in assessing the amount of damages the plaintiff would be entitled to claim for loss of revenue, the expenses involved in producing that revenue would have to be taken into account. As stated in paragraph 2-007 in McGregor on Damages [160]:
It should be noticed that in all these cases the claimant may not have performed his side of the contract or may have performed it only in part, and in those events account is taken, in making the assessment of damages, of the expense which the plaintiff has been saved by being relieved of the necessity of performance.
[160]Harvey McGregor, McGregor on Damages (18th ed, 2009), 39.
The evidence of John Walter Bertram
142 The plaintiff called John Walter Bertram (Bertram) to give expert evidence. Bertram has been a public accountant for 35 years. He sold his accounting business three years ago and now continues to practice on a part time basis.
143 Bertram was asked whether he had an association with Alex. He said that they were neighbours many years ago and then became casual friends. Bertram sees Alex once every two or three months.[161]
[161]Transcript p 170.
144 Bertram said that he was advised by Alex that there was an agreement to supply sausages and other products to the Highett business for a period of five years from 26 June 2007 to 25 June 2012.
145 Bertram was told that the terms of the supply arrangement were that the Brighton shop would supply sausages, lamb products and beef products to the Highett shop:
· At cost plus 30 cents per kilogram for stock supplied which did not involve labour or preparation (category A).
· At cost plus 30 per cent for stock supplied which involved labour or preparation (category B).
146 Bertram was taken to a marked-up copy of the product purchase orders. Alex gave him instructions as to which products came under Category A and B.[162] He and Alex then highlighted the products accordingly. Bertram then prepared a sheet setting out which products fell under Category A and which products fell under Category B.[163] The products listed under category “A” did not involve labour and the products listed under category “B” did involve labour.
[162]Transcript p 171.
[163]Transcript p 171; Exhibits 12 and 15.
147 Bertram examined the product purchase sheets from 27 June 2007 to 19 January 2008 (26 weeks). He provided calculations based upon the full 26 week period of product purchases and projected that there should be a conservative 10 per cent annual increase of business by the Highett store. He factored a 10 per cent increase each year in his calculations. Bertram said that he made the best forecast he could with the information he had.
148 Bertram concluded that as a consequence of the calculations he made using the product purchase sheets supplied to him, the total loss of profit incurred by the plaintiff was $54,507.
149 In cross-examination, Bertram agreed that the more information one had, the better the report was going to be for the client. He said that he was very limited with the information he had been given.[164] For example, Bertram was not given the financial documents of the plaintiff (including the profit and loss statements and annual tax returns). Bertram was asked in cross-examination whether something like the company financials would have been of assistance to him in preparing the report. Bertram’s response was:
Really when you are looking at these sort of figures it would be a great help to have as much as you can possibly obtain to give the client the best possible, well, in your own professional opinion, the opinion will the business survive, will the business make profit, how is the business going, so the more information you have got the better outcome or the better the report is going to be for the client.[165]
[164]Transcript p 178.
[165]Transcript p 178.
150 Bertram said that if he had the plaintiff’s financials, he would have been in a position to draw further conclusions.[166] He said that he was provided with one set of figures and he had “to make an assumption on those figures where the future lies, what the profitability – not the profitability but the growth.”[167]
[166]Transcript p 171.
[167]Transcript p 180.
151 In his final submissions, Mr O’Connor said that although the plaintiff claims damages for loss of profit, the claim in damages is a claim for the loss of a bargain. Mr O’Connor submitted that the parties had got together and they had determined what the input costs were and on that basis they worked out what the mark up fee should be.
152 Mr O’Connor referred to the following statement by Sheppard, Morling and Wilcox JJ in Enzed Holdings Ltd. v Wynthea Pty. Ltd.[168] that :
The principle is clear. If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved. Furthermore, if actual damage is suffered, the award must be for more than nominal damages. .. We emphasize, however, that the principle applies only when the court finds that loss or damage has occurred. It is not enough for a plaintiff merely to show wrongful conduct by the defendant.
[168](1984) 57 ALR 167, 183.
153 The defendants submitted that the plaintiff had not proved its loss of profit claim and that its claim must fail. Mr Magowan referred to the following passage in McGregor on Damages[169] :
A claimant claiming damages must prove his case. To justify an award of substantial damages he must satisfy the court both as to the fact of damage and as to its amount. If he satisfies the court of neither, his action will fail, or at the most he will be awarded nominal damages where a right has been infringed. If the fact of damage is shown but no evidence is given as to its amount so that it is virtually impossible to assess damages, this will generally permit only the award of nominal damages…
[169]Harvey McGregor, Mcgregor on Damages (18th ed., 2009) 325-326.
154 I am not satisfied that the plaintiff has proved any compensable loss resulting from loss of profit or loss of bargain. The plaintiff relied on the evidence of Bertram. Bertram was asked to determine the “loss of profit” sustained by the plaintiff. However Bertram did not express an opinion about loss of profits. Bertram was given a list of products and applied a formula to determine how much revenue had been lost. Bertram was not given sufficient information to determine whether the figures supplied provided an accurate estimate of the cost of the products. Bertram was not given any of the financial statements of the plaintiff or the relevant income tax returns which would have enabled him to determine whether the plaintiff would have incurred any costs in supplying the sausages and other products to the plaintiff. I accept Mr Magowan’s submission that relevant financial documents were not supplied to Bertram to enable Bertram to make an informed view on loss of profit. Bertram has applied a mathematical formula. Whilst that evidence may be admissible, the evidence does not establish a loss of profit.
155 The defendants applied for discovery of the financial statements of the plaintiff and the income tax returns so that they could test the claim for loss of profit. The plaintiff tied its case for an assessment of damages for loss of profit (or revenue) to a method which required justification by evidence. That evidence was not provided.
156 I do not accept Mr O’Connor’s submission that the loss should be characterised as a loss of revenue or loss of bargain. Further there is no evidence to enable the Court to calculate the expenses involved in manufacturing the sausages or supplying the meat. Accordingly the Court is unable to assess the amount of the revenue which has been lost.
157 In the circumstances of this case, which include the fact that the defendants sought discovery of the financial statements of the plaintiff and the plaintiff’s refusal to discover those financial documents, the Court should not be required to speculate and make its own assessment of the damages (if any) suffered by the plaintiff for loss of profit, or loss of revenue or loss of bargain.
158 In his written submissions Mr O’Connor submitted that the plaintiff is entitled to damages of $54,506.59 based on Bertram’s report. I am not satisfied on a balance of probabilities that the plaintiff is entitled to damages of $54,506.59 based on Bertram’s report.[170]
Section 89B(2) of the Evidence (Miscellaneous Provisions Act) 1958
159 In the alternative, the defendants claim that the Court ought to exclude the plaintiff’s loss of profit of claim or draw an adverse inference pursuant to s 89B of the Evidence (Miscellaneous provisions Act) 1958.
160 The defendants submit that an order pursuant to s 89B is justified in light of the plaintiff’s admission that he has had, but no longer has, in his possession custody or power “[a]ll documents evidencing purchases by the Plaintiff for the period May 2007 to 13 January 2008 (including any purchases by cash) of sausages, lamb products and beef products such as purchase orders, tax invoices and statements.”[171] The plaintiff admits that these documents have been destroyed and/or disposed of.[172] The plaintiff gave evidence that the documents in question had been provided to his solicitors in family law proceedings and that:[173]
[171]Supplementary Affidavit of Documents of Alessandro Michael Mastromanno, dated 24 August 2011.
[172]Supplementary Affidavit of Documents of Alessandro Michael Mastromanno, dated 24 August 2011, transcript p 123.
[173]Supplementary Affidavit of Documents of Alessandro Michael Mastromanno, dated 24 August 2011, transcript 123.
(a) I believe all such documents were provided to my solicitors Westminster Lawyers in my family law proceedings with my ex-wife in or around March 2010 along with all business documents in my possession at that time.
(b) On or around October 2010 after the conclusion of my family law proceedings my solicitors asked me whether I wanted my documents returned however I advised the solicitors I did not want them and that they should destroy them.
(c) Due to the bitterness of my divorce and the associated family law proceedings I wanted to put all that behind me when those proceedings ended. As a result I didn’t want to see those family law documents and was happy for them to be destroyed.
(d) Approximately three months ago Westminster Lawyers forwarded a further three boxes of my documents in the family law proceedings which documents I immediately placed in the dumpmaster. I did not examine the content of those three boxes of documents.
(e) I did not appreciate at the time of their destruction that those documents may have relevance in these proceedings.
161 As a result of the destruction of the subject documents, the defendants submit that they “cannot make a full defence in that they cannot test the term alleged at paragraph 9(h) [of the amended statement of claim] and the loss that flows from the alleged breach of that term”.[174] The defendants submit that the documents that were destroyed were significant to the defendants’ defence. The defendants brought an interlocutory application before the Court in relation to discovery of those documents. It was only in the wake of that application and consequent orders that the plaintiff revealed that the subject documents had been destroyed and/or disposed of.
[174]Outline of submissions in relation to admissibility of evidence prepared by Mr Magowan and dated 21 September 2011.
162 Section 89B of the Evidence (Miscellaneous Provisions) Act 1958 provides:
(1) If, in a civil proceeding, it appears to the court that –
(a) a document is unavailable; and
(b) no reproduction of the document is available in place of the original document; and
(c) the unavailability of the document is likely to cause unfairness to a party to the proceeding–
the court…may make any ruling or order that the court considers necessary to ensure fairness to all parties to the proceeding, having regard to the matters set out in section 89C.
(2) Without limiting subsection (1), a ruling or order may be –
(a) that an adverse inference will be drawn from the unavailability of the document;
…
(d) that all or part of a defence or statement of claim be struck out.
163 Section 89C of the Evidence (Miscellaneous Provisions) Act 1958 dictates three mandatory factors that the Court must have regard to before making an order under section 89B, namely:
(a) the circumstances in which the document became unavailable; and
(b) the impact of the unavailability of the document on the proceeding, including whether the unavailability of the document will adversely affect the ability of a party to prove its case or make a full defence; and
(c) any other matter that the court considers relevant.
164 Section 89A of the Evidence (Miscellaneous Provisions) Act 1958 sets out the meaning of unavailability of a document in the following terms:
For the purposes of this Division, a document is unavailable in a civil proceeding if –
(a) the document is, or has been but is no longer, in the possession, custody or power of a party to the civil proceeding; and
(b) the document has been destroyed, disposed of, lost, concealed or rendered illegible, undecipherable or incapable of identification (whether before or after the commencement of the proceeding).
165 Section 89F makes it clear that Division 9 of the Evidence (Miscellaneous Provisions) Act 1958 encompassing sections 89A to 89F inclusive, operates in addition to the Evidence Act 2008.
166 Spoliation of documents is not a new phenomenon and over the years courts have had to grapple with the issue of how best to remedy such an occurrence.
In The Ophelia[175], the Privy Council applied the doctrine of omnia praesumuntur contra spoliatorem with respect to destruction of documents in the following terms:[176]
If anyone by a deliberate act destroys a document which, according to what its contents may have been, would have told strongly either for him or against him, the strongest possible presumption arises that if it had been produced it would have told against him; and even if the document is destroyed by his own act, but under circumstances in which the intention to destroy evidence may fairly be considered rebutted, still he has to suffer. He is in the position that he is without the corroboration which might have been expected in his case.
[175][1916] 2 AC 206.
[176][1916] 2 AC 206 at [229-230] per Sir Arthur Channel.
167 The High Court cited the above statement with approval in Allen v Tobias[177].
[177](1958) 98 CLR 367.
168 Later in Katsilis v Broken Hill Pty. Co Ltd.[178], Barwick CJ discussed the consequences to a party which, with an understanding of the significance, deliberately destroys documents:[179]
Ordinarily, though a case is normally better tried on the evidence which is produced than on that which is not, it can properly be said that the failure of a party to give or produce evidence which, in the circumstances of the case, that party in its own interest would be expected to give or produce, warrants the conclusion that, if given or produced, the evidence would not support that party's case. Indeed, in some circumstances it might be inferred that it would support the opponent's case; but, if so, it must depend very much on the circumstances. But, in any case, the inference would depend upon some element of conscious repression or withholding of the evidence. The warrant for the inference must depend upon the deliberation with which the evidence is withheld and the appreciation or likely appreciation of the party of its significance in the case.
[178](1977) 18 ALR 181, 197.
[179]Cited with approval in Nicholson v Knaggs [2009] VSC 64 at [196].
169 In the English case of Landauer Ltd. v Comins & Co (a firm)[180], the Court affirmed the proposition that document destruction, even if inadvertent, is sufficient justification for striking out an action.[181]
[180](Landauer) Unreported, England and Wales Court of Appeal, Civil Division 14 May 1991.
[181]Landauer as cited in Australian Finance Group Ltd. v Accent Financial Group Pty. Ltd. [2005] FCA 66.
170 In the more recent case of McCabe v British Tobacco Australia Services Ltd.[182], Eames J struck out the defendant’s defence and entered judgment for the plaintiff after finding that the defendant’s policy of deliberately destroying relevant documents before the commencement of the proceeding had made the chance of a fair trial impossible.[183] In his reasons, Eames J emphasised the importance of adequate discovery to ensure a fair trial:[184]
Central to the conduct of a fair trial in civil litigation is the process of discovery of documents. That process is particularly important where documentary evidence is likely to be both voluminous and critical to the outcome of the case, and where access to documents is very much dependant on the approach adopted by one party and its advisors. For a fair trial to be assured in such circumstances the approach which that party must adopt may well conflict with its self-interest. The party which controls access to the documents must ensure that its opponent is not denied the opportunity to inspect and use relevant documents…
[182][2002] VSC 73.
[183]The decision was overturned by the Court of Appeal in British American Tobacco Australia Services Ltd v Cowell (representing the estate of McCabe (deceased) (2002) 7 VR 524, on the facts of the case and in particular on the finding by Eames J that the defendant had waived legal professional privilege with respect to the subject documents. The principle that a court can strike out a defence where evidence has been destroyed however remains.
[184][2002] VSC 73 at [384].
171 Division 9 of the Evidence (Miscellaneous Provisions) Act 1958 enumerates the powers of a court to make any order or ruling necessary to ensure a fair trial where a document is unavailable. However whether or not a ruling or order is made is left to the discretion of the Court, subject to a consideration of the factors set out in s 89C. In light of the discretionary nature of the Act, it is a worthwhile exercise to consider how other courts have used or declined to use their discretion in such situations.
172 In Alder v Khoo & Anor.[185], the Court of Appeal of Queensland upheld a decision by the Supreme Court of Queensland to reject the plaintiff’s application to strike out parts of the second defendant’s defence consequent on alleged non-disclosure due to destruction of discoverable documents. In that case, Dalton J found that “there [was] no evidence that any of the documents destroyed were destroyed other than innocently” and despite that “[t]here [was] no doubt that all of the documents which [were] destroyed were relevant to the issues raised on the pleadings…[Her Honour could not] see that the destruction of the [subject document was] of such significance that it [would] prejudice a fair trial being held in the matter.”[186] One critical factor that lead Her Honour to this conclusion was the existence of a multitude of other evidence which bore on the matters to which the destroyed documents related.[187] The plaintiff had failed to show that they were “materially disadvantaged by the loss or destructions of documents.”[188]
[185](‘Adler’) [2011] QCA 298.
[186][2011] QSC 126 at [18-19].
[187][2011] QSC 126 at [20].
[188][2011] QCA 298 at [15].
173 Similarly in Australian Finance Group Ltd v Accent Financial Group Pty Ltd. [189] the applicant applied for judgment by reason of the respondent’s consistent failure to comply with Court orders and its destruction of documents. Whilst accepting that “even inadvertent destruction of documents may be a proper foundation for striking out an action, [RD Nicholson J did] not consider that the discretion to so strike out should presently be exercised [in that case].”[190] The respondent claimed that documents had been destroyed as a matter of routine, based on a misunderstanding of the necessary period of retention requirements under the Corporations Act. His Honour concluded that “[he could not] see why that evidence should not be open to examination at trial and have such effect as its resulting weight (or lack of it) and credibility allows.”[191]
[189](‘Australian Finance Group’) [2005] FCA 66.
[190][2005] FCA 66 at [33].
[191][2005] FCA 66 at [33].
174 The facts of this case can however be distinguished from both Adler and Australian Finance Group. First, Alex admitted to destroying the subject documents after the proceedings had commenced. He gave evidence that he did not appreciate the relevance of the documents to this proceeding at the time that he destroyed the documents (or caused the documents to be destroyed). I accept this may have been the case. With the exception of the family law proceedings in which he had become embroiled, there is no evidence that Alex was familiar with court processes and procedures. He runs a relatively small, unsophisticated operation and gave evidence of being a man of limited education. However it is unnecessary to make a final finding on whether or not the documents were intentionally or innocently destroyed. The case law makes it clear that it is the effect of the destruction of documents that is most relevant, not the intention. The crucial issue is that the documents are no longer in existence, and the defendants’ were never privy to their contents.
175 Second, the destroyed documents are critical to both the plaintiff being able to quantify its claim for lost profits and consequently to the defendants being able to defend the claim for loss of profits as set out in paragraph 13 of the amended statement of claim. The plaintiff relied on the figures provided by Bertram which gave an estimate of lost revenue based on an assumed formula. Without having access to these documents, the defendants could not test the amounts. Without access to these documents, quantifying the claimed loss of profits or loss of revenue is purely speculative. Furthermore the plaintiff has failed and refused to discover other financial documents which are relevant to the issue of the alleged damages or loss sustained by the plaintiff. Unlike Adler, there is not an abundance of other documents in existence which bear on the plaintiff’s loss of profit claim. Therefore, in order to ensure fairness to the defendants, I find it necessary to accede to the defendants’ submission and order that the Court ought to exclude the plaintiff’s claim for loss of profit as set out in paragraph 13 of the amended statement of claim.
Conclusion
176 The plaintiff has provided the following particulars of the damages for the non-payment of licence fees pursuant to the agreement:
Weekly fee for period 13 January 2008 to 26 May 2008 $9500.00
(19 weeks at $500.00 per week)
Weekly fee for period 27 May 2008 to 26 May 2009 $28,600.00
(52 weeks at $550.00 per week)
Weekly fee for period 27 May 2009 to 26 May 2010 $31,200.00
(52 weeks at $600.00 per week)
Weekly fee for period 27 May 2010 to 26 May 2011 $33,800.00
(52 weeks at $650.00 per week)
Weekly fee for period 27 May 2011 to 26 May 2012 $36,400.00
(52 weeks at $700 per week)
Total $139,500
177 The plaintiff is entitled to damages of $139,500 for the non-payment of licence fees pursuant to the agreement.
178 I will hear from the parties as to the precise form of final orders including costs.
Certificate
I certify that this and the preceding 51 pages are a true and correct copy of the reasons for judgment of Her Honour Judge Lewitan, of the County Court of Victoria, delivered on 10 February 2012.
Dated the 10th day of February 2012
Kimberley Moran
Associate to Her Honour Judge Lewitan
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