Loremo Pty Limited v A1 Chemicals Pty Ltd

[2015] NSWDC 159

District Court

New South Wales

Medium Neutral Citation:	Loremo Pty Limited v A1 Chemicals Pty Ltd [2015] NSWDC 159
Hearing dates:	11 and 12 June 2015
Date of orders:	19 June 2015
Decision date:	19 June 2015
Jurisdiction:	Civil
Before:	Balla DCJ
Decision:	1. Judgment for the plaintiffs in the sum of $216,920.50 2. Publish Reasons. 3. Defendant to pay plaintiffs' costs of the proceedings.
Catchwords:	Restraint of Trade
Legislation Cited:	Restraints of Trade Act 1976
Cases Cited:	Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Noack [2004] NSWSC 347 Properties Northside Pty Ltd t/as Raine & Horne Manly/Freshwater v Pickering [2015] NSWSC 310 (at [46, 47] Gates v City Mutual Life Assurance Society Ltd 91986) 160 CLR 1 at [11-12].
Category:	Principal judgment
Parties:	Loremo Pty Limited (First Plaintiff) Hampic Pty Limited (Second Plaintiff) A1 Chemicals Pty Ltd (Defendant)
Representation:	Counsel: Mr J. S. Zmood with Mr S. Spadijer (Plaintiffs)    Mr D.C. Eardley (Defendant)   Solicitors: Baron + Associates (Plaintiffs) Mercantile Legal Services (Defendant)
File Number(s):	2013/310377

Judgment

1. Loremo Pty Limited and Hampic Pty Limited are the plaintiffs. They say that in December 2007 they entered into a Deed of Settlement and Release with the defendant, A1 Chemicals Pty Limited. They say the defendant has breached the Deed and seek damages.

Background – the parties

2. The plaintiffs work together. Loremo is the manufacturer and importer of a range of industrial chemicals for use in commercial and domestic applications. Those chemicals, under the brand name Cyndan, are sold to customers throughout Australia by distribution agents. Hampic provides a range of support services to the distribution agents such as warehousing, invoicing, factoring, secretarial and sales training.

3. A1 is in the same business and is in competition with the plaintiffs. It was founded in 1999 by former distribution agents of the plaintiffs.

Background - the proceedings in the Federal Court of Australia

4. Mr Russell was a former distribution agent of the first plaintiff. The plaintiffs claimed, in the Federal Court, that he had gone to work with A1 as a distribution agent and that A1 had, through Mr Russell, obtained without consent, and used, confidential information, including information in customer lists and customer cards, to procure customers of Hampic and Loremo.

5. The Federal Court proceedings resolved and consent Orders were made on 17 December 2007. As part of the settlement the parties including both plaintiffs and A1 signed a Deed of Settlement & Release dated 21 December 2007.

Background – these proceedings

6. The plaintiffs say that A1 breached the Deed by its later dealings with another of its distribution agents Neil Piper and/or Twin Distributors Pty Limited. Mr Piper is one of the two directors and shareholders of Twin.

Relevant clauses in the Deed

7. Definitions

“Cyndan Distributor” means a distributor of Loremo’s products pursuant to a distribution agreement with Loremo.

Settlement

2.2.1 A1 agrees that it will not employ, appoint or supply any person, company or other entity who or which has been a Cyndan Distributor for at least one (1) year after that person, company or other entity has ceased to be a Cyndan Distributor.

2.2.2 A1 further agrees not to employ, appoint or supply any person, company or other entity who or which has at any time prior to the twelve (12) months referred to in clause 2.2.1 been a Cyndan Distributor without Loremo's prior written consent which consent will not be unreasonably withheld.

The evidence

8. The following people gave evidence:

1. Mr Snounou is the sole director and chief executive of each plaintiff. He has been a director of each company since 30 April 2009. Loremo trades as Cyndan Manufacturing and Hampic trades as Cyndan Chemicals.

2. Mr Ormsby. He is one of the two directors of A1.

3. Mr Piper.

Issues

9. The proceedings raise the following issues:

1. A1 says the Deed does not apply

10. By reason of the definition of “Cyndan Distributor” the plaintiffs must show that Twin, before starting its relationship with A1, had been a distributor of Loremo’s products pursuant to a distribution agreement with Loremo.

11. It is unclear whether A1 denies that there was any agreement at all with Mr Piper and/or Twin. Counsel for the defendant did submit that there “needs to be a meeting of the minds. There needs to be certainty as to subject matter. There needs to be consideration that passes from one to the other. There needs to be certainty … the plaintiff has not established, on the balance of probability, that it was indeed Loremo with whom Twin Distributors ever contracted with”.

12. Accordingly the first issue is whether there was any agreement at all between the plaintiffs and Mr Piper and/or Twin.

13. I take into account the following:

1. There is conflicting evidence as to whether there was any written agreement between the plaintiffs and Mr Piper and/or Twin.

Mr Piper, in his personal capacity, started his relationship with the plaintiffs in March 1990. The owners of the business in 1990 later sold the plaintiff companies to Mr Snounou in 2009. There is no evidence from those owners as to the relationship between the plaintiffs and Mr Piper and/or Twin.

Mr Piper says that his arrangement with the plaintiffs was wholly oral. However, there are emails in evidence written by Mr Piper which refer to his having a written agreement with the plaintiffs. For example in an email dated 31 August 2011 he said to the plaintiffs (when he was discussing the plaintiffs having retained a sales person to work in the same geographic area as Mr Piper) “I realise things have changed, but from my memory, as a distributor for Cyndan, the policy that we signed was for territories that had boundaries, we had rules, ethics and instructions that we were to sell under.”

Mr Snounou said that there had been a written agreement between the plaintiffs (entered into by the previous owners) which was held in the archives of the previous owners.

There is evidence that other distribution agents had entered into written agreements.

I do not consider it necessary to arrive at a finding in relation to this issue but simply to note a conflict in the evidence.

2. Mr Piper said that he had a conversation with the previous owners in March 1990 when they agreed he would contact prospective customers with a view to forming a business relationship, he would operate as a sole trader or register a company, he would refer the customers to the plaintiffs at his discretion, the customers would place their orders with the plaintiffs and pay the plaintiffs and he would receive a commission. In February 2006 Mr Piper caused Twin to be registered and it then took over his relationship with the plaintiffs.

3. Mr Piper and later Twin were allocated the Southern Highlands and Illawarra region in which to exclusively market the plaintiffs’ products (other than for a short period when an employee of the plaintiffs worked in the area).

4. Mr Piper and later Twin were paid by commission only. They would submit monthly invoices for sales commissions which were paid by Hampic.

5. Between 1 July 2011 and September 2012 Mr Piper made sales totalling $171,685.34.

14. It is not necessary for me to decide the precise terms of any agreement between the plaintiffs and Mr Piper and/or Twin. I am satisfied that the above matters establish that there was an agreement between the plaintiffs and Mr Piper initially and later an agreement between the plaintiffs and Twin.

15. The relevant party to the agreement at the time the plaintiffs and A1 signed the Deed was Twin and not Mr Piper personally.

1. A1 says that if it did have an agreement with Twin it was not one which fell within the terms of the Deed

16. This submission turns on the definition of “Cyndan Distributor” in the Deed. Twin will only be a Cyndan Distributor if it was a distributor of Loremo’s products pursuant to a distribution agreement with Loremo.

17. Counsel for the defendant submitted there was insufficient evidence to arrive at this finding and suggested that Twin was not a distributor but a commission agent as it referred customers to the plaintiffs for which it received a commission.

18. I take into account the following:

1. Mr Piper said in his affidavit that he did not enter into a distribution agreement with the plaintiffs and added that he was not aware of what a distribution agreement was. In cross examination however he did not dispute being a distributor.

In cross examination he was asked:

“In that role, not the last couple of years but before that you would attend the annual conferences with the other distributors, wouldn't you?

A. Yes.

Q. Being a senior distributor, you were expected to attend, weren't you?

A. It was compulsory”.

2. In emails Mr Piper has described himself as a distributor.

In his email to the plaintiffs dated 13 May 2010 he was complaining about not having received some commissions and he said:

“… As this has not happened before in the 20 years I have been distributing Cyndan products…All orders in the past were allocated to a distributor’s area as well as having the distributor’s name and company on the invoice preventing this from happening”.

In a later email dated 1 October 2010 complaining about the effect a new system was having on the payment of commissions Mr Piper said:

“As well, we as distributors have been informed that we will not be paid our commission if we do not have a wholesale in by 9am on the Monday morning.”

In an email to the plaintiffs dated 18 November 2010 Mr Piper said:

"If I am the only distributor that this is happening to, I must ask why me?"

There are other emails in evidence in similar language.

3. Mr Snounou described Mr Piper as one of the plaintiffs’ longest serving distribution agents at the time of his resignation in 2012.

4. The Macquarie Dictionary definition of “distributor” is “someone or something that distributes”. I am satisfied that Twin, by approaching customers and taking orders for the supply and delivery of the plaintiffs’ chemicals was acting as a distributor.

19. Counsel for the defendant submitted that the products were being distributed by Loremo because the chemicals were manufactured, distributed, sold and invoiced by the plaintiffs. In those circumstances, he said, Mr Piper and/or Twin could not have entered into a distribution agreement. I do not accept this submission – the evidence shows that distribution agents were sent by the plaintiffs to market the plaintiffs’ products. The fact that they were physically delivered by the plaintiffs is not determinative of the characterisation of their arrangement.

20. I am satisfied that there was a distribution agreement between the plaintiffs and Twin and that Twin was a “Cyndan Distributor” for the purposes of the Deed.

1. A1 says that even if Twin was a “Cyndan Distributor”, 2.2.1 does not apply because A1 did not “employ, appoint or supply” Twin

21. It is common ground that A1 did not employ Twin.

22. The plaintiffs rely on the Macquarie Dictionary definitions of “appoint" and “supply”. The terms are not defined in the Deed.

23. “Appoint” is defined in the dictionary as “to nominate or assign to a position or to perform a function”.

24. Mr Piper first spoke with Mr Campbell a director of A1 in August 2012. Mr Piper told Mr Campbell that he was looking for work and asked whether there was an area he could work in for them. Mr Campbell said that they did not have areas or territories but that there was no one working in the South Coast. He invited Mr Piper to the A1 commission agent conference. Mr Piper said that he did attend the conference and after the conference he became a distributor of A1.

25. Mr Ormsby said that in September 2012 A1 had entered into an agreement with Mr Piper pursuant to which Mr Piper might forward orders to A1 and in relation to which A1 would pay Mr Piper a commission on the sales generated by the orders. A1 initially dealt with Mr Piper and later with Twin. Documents in evidence show that A1 was dealing with Twin by 11 September 2012.

26. I am satisfied that this amounts to an appointment of Twin no later than 11 September 2012 and that 2.2.1 and 2.2.2 apply.

Summary of my findings

27. I have accordingly found that by 11 September 2012 A1 had appointed Twin.

28. By 2.2.1 A1 had agreed it would not do so for at least one (1) year after Twin had ceased to be a Cyndan Distributor. In fact A1 did so just before Twin ceased being a Cyndan Distributor. The provision has accordingly been breached by A1.

29. In 2.2.2 A1 further agreed not to appoint any company which had at any time prior to the twelve (12) months referred to in clause 2.2.1 been a Cyndan Distributor without Loremo's prior written consent which consent would not be unreasonably withheld. A1 does not suggest it sought the plaintiffs’ consent. There is no evidence of A1 seeking such consent. That provision has been breached.

Restraint of trade

30. A1 says that even if there has been a breach, the provisions should be set aside as a restraint of trade.

Restraints of Trade Act 1976

31. This was not pressed.

Common law

Does the doctrine apply?

32. Counsel for the defendant submitted that the Deed is an unfair restriction on trade.

33. Counsel for the plaintiffs submitted that the Deed represented a genuine compromise of the Federal Court proceedings between the parties and should not be re-opened. In relation to this issue I find the following:

1. There were drafts of the proposed Deed circulated before the final wording was settled.

2. Both parties were legally represented.

3. Mr Ormsby participated in the discussions leading up to settlement. He understood that if A1 signed the Deed it would need to obtain Loremo’s consent before retaining a commission agent who had worked with Loremo.

4. There was no suggestion by counsel for the defendant that there was any inequality of bargaining power or that the Deed was not a bona fide compromise of their dispute.

34. I accept the submission made by counsel for the plaintiffs. In Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Noack [2004] NSWSC 347 Nicholas J held:

“50   In particular, for the Defendant the public policy argument was as follows (p 68):

1.   There is a public policy in favour of settlement of disputes in litigation.

2.   There is a public policy in favour of the disposal of disputes whether by way of judicial or arbitral decision or by way of settlement inter partes being treated as final.

3.   There is a public interest in resisting the re-opening or re-litigating of issues apparently resolved by judgment, award or inter partes settlement.

4.   As a reformulation of points 1-3, where disputes have arisen and those disputes have been disposed of by means of an inter partes settlement, public policy favours giving effect to that settlement and to refusing to allow a party thereto to resurrect issues whether identical or similar to those which the settlement had been intended to lay to rest …

55   In this case the Deed records the bona fide compromise of several serious and complex disputes which adversely affected the conduct and operations of the Union and generated division and ill will among a number of its senior officials at least within the South Australian branch… The parties were legally represented during the course of negotiations and were assisted by the involvement of the Hon. J Riordon. The agreement was entered into freely. There was no inequality of bargaining power. The restraint under clause 4 was an important component of the settlement and was conditional upon the Defendant’s resignation and upon payment by the Union of the monies provided in clause 3, both of which happened shortly after the execution of the Deed on 28 October 1999.

56   It seems to me that these circumstances attract the application of the public policy as explained by Parker J in Panayiotou upon analysis of Binder and Colchester. I accept the submissions of Mr Condon for the Union.

57   Accordingly, in my opinion, there is no public interest or policy of the kind which underlies the common law doctrine of restraint of trade which would justify the Defendant’s claim to have an essential component of this compromise declared unenforceable. Put another way, the settlement as incorporated in the Deed is one of the types of contract to which Lord Wilberforce referred in Esso (p 322) where he said: “There will be types of contract as to which the law should be prepared to say with some confidence that they do not enter into the field of restraint of trade at all”. In this case, the public interest is served by upholding the Deed and, in particular, the restraint under clause 4.”

35. I am satisfied that this reasoning applies in this case and that the settlement as set out in the Deed is outside of the restraint of trade doctrine.

In the alternative, is the restraint reasonable?

36. It is not necessary for me to consider what the outcome would have been if the restraint of doctrine did apply. However I would indicate that, if it had been necessary for me to do so, I would have found the following.

37. The relevant principle is:

“The restraint of trade doctrine renders covenants in restraint of trade unenforceable except to the extent that they are reasonable. They are reasonable if they afford no more protection than is reasonably necessary to protect the interests of the party in whose favour they are imposed and if they are reasonable having regard to the interests of the public.

Although the doctrine is a doctrine of public policy, that public policy has two aspects. One involves balancing the competing interests of the parties to the restraint. In that sense, it is a balance between an individual liberty and a right to protect by contract the legitimate interests of the person seeking to impose the restraint. … The other involves balancing the public interest “in every person’s carrying on his trade freely” (to use the words of Lord Macnaghten in Nordenfelt at 565) against the legitimate interests of the person seeking to impose the restraint. Properties Northside Pty Ltd t/as Raine & Horne Manly/Freshwater v Pickering [2015] NSWSC 310 (at [46, 47]).”

Is the restraint reasonable in the interests of the contracting parties?

38. Counsel for the plaintiffs submitted that the following matters were relevant to determining the reasonability of the restraint:

1. The restraint was not hastily drafted. It was the outcome of negotiation between the parties.

The evidence establishes that this is what occurred. Mr Ormsby understood that one of the two purposes of the Deed was to address the issue of the plaintiffs’ distribution agents leaving the plaintiffs and coming to work with A1. He also confirmed that several drafts of the Deed had been exchanged before the parties had agreed on the final wording. I accept that these matters are relevant to the issue of reasonableness. I also take into account that the parties were legally represented when negotiating the terms of the Deed.

2. The restraint was to protect the plaintiffs' legitimate business interests from A1 hiring a distributor which had become the public face of the plaintiffs with the concomitant ability to entice away customers, immediately, for the benefit of A1.

The Federal Court proceedings had been instituted as a consequence of Mr Russell having moved from the plaintiffs to A1.

The evidence also establishes that this had occurred on other occasions. Mr Ormsby agreed that over the 20 years A1 had been trading, about 7 or 8 Loremo distribution agents had come to work for A1.

Mr Ormsby agreed that a distribution agent who already had recurring sales from an existing base of customers was a far, far better commission agent than someone who had not previously worked as a salesman.

The evidence also establishes that 29 customers who bought their chemicals from the plaintiffs through Twin started to buy their chemicals from A1 when after Twin’s appointment.

I accept that the plaintiffs have shown that the restraint was to protect the plaintiffs’ legitimate business interests and that this is relevant to the issue of reasonableness.

3. The terms of the restraint are not broad.

Counsel for the defendant asked me to find that the terms are too broad. He submitted that the restraint prevents Mr Piper and/or Twin from earning income in an industry with no compensation or benefit. Mr Piper and Twin are precluded from earning income because of an alleged third party agreement to which he is not a party, in another sense Mr Piper and Twin are discriminated against by operation of the deed.

The difficulty with this submission is that Mr Piper and/or Twin are not parties to the Deed. Clearly they remain free to work as distribution agents (or in any other capacity) with anyone other than A1.

I accept the submission made by counsel for the plaintiffs. Clauses 2.2.1 and 2.2.2 are only designed to prevent one direct competitor from being privy to sensitive customer data relating to business connections and pricing information.

4. There is an issue as to whether the restraints are too broad because they are not limited in time.

Counsel for the defendant submitted that the Deed operates in perpetuity. I agree that in one sense it does because the restrictions operate from the date on which the distribution agent ceases to be a Cyndan Distributor (2.2.1). However the restraint only then operates for 12 months. 2.2.2 applies to anyone who has been a Cyndan Distributor.

Counsel for the plaintiffs submitted that the period of the restraint of one year in 2.2.1 is reasonable, and perhaps too modest given the wealth of customer information and confidential pricing information (the relevant proprietary interest) that Twin was privy to over 22 years working for the plaintiffs, 14 of which involving distributing chemicals in one geographically confined area. 2.2.2 was not too broad because it contained the possibility of a waiver of the one year limitation period which shows the plaintiffs were prepared to reduce that time limit in circumstances where it would be appropriate to do so.

39. I accept the submissions of counsel for the plaintiffs.

40. Counsel for the defendant submitted that the Deed did not operate to restrict trade but to restrict employment because there was no causative connection that the employment would either increase or decrease the sales of the plaintiffs. However the evidence is to the contrary and shows that the loss of a distribution agent to A1 could result in financial loss to the plaintiffs. This occurred when Twin was appointed by A1. Twenty nine customers of the plaintiffs, referred to in these proceedings as the relevant customers, were located within Twin’s geographical area and had been supplied with the plaintiffs’ chemicals through Twin as the distribution agent up until around 27 September 2012. After Twin was appointed by A1, they bought all or most of their chemicals from A1. Mr Snounou said that Twin’s departure had a major impact on the plaintiffs’ sales.

41. Counsel for the defendant then submitted that the positive obligation on A1 to make inquiries to determine whether or not a person is a Cyndan Distributor makes the restraint unreasonable. In support of this proposition he relied on the evidence of Mr Ormsby who said he did not become aware of Twin until after A1 had started dealing with Mr Piper. This meant, he said, that at the time a business arrangement was put in place with Mr Piper, and ultimately Twin, A1 did not realise that Twin was subject to any distribution agreement. I do not accept this submission which is not consistent with the evidence. First of all the discussions between A1 and Mr Piper commenced in August 2012. Mr Piper recounted the first conversation he had with Mr Campbell in which he told Mr Campbell that he was “over working for Cyndan” and that he would not stay with Cyndan. Clearly Mr Campbell had been told something about Mr Piper’s relationship with the plaintiffs. There is no evidence of A1 having then made any further enquiries as to the relationship between Mr Piper and the plaintiffs. It is true that Mr Ormsby said that A1 only became aware that they would be dealing with Twin rather than Mr Piper later on. But this must have occurred before 11 September 2012 when Twin sent A1 an Order Form. At that time Twin was still placing orders with the plaintiffs. Their relationship ended on 26 or 27 September 2012. There is no evidence of A1 having made any enquiries between August 2012 and 26 September 2012 as to the relationship between Twin and the plaintiffs.

42. Accordingly A1 could reasonably have made enquiries as to whether there had been any relationship between Twin and the plaintiffs before Twin’s relationship with the plaintiffs ended. I decline to find that the requirement to make such an enquiry makes the restraint unreasonable.

43. If it had been necessary for me to do so I would have found the restraint reasonable in the interests of the contracting parties.

Is the restraint designed to protect a legitimate business?

44. Counsel for the plaintiffs submitted that the following factors were relevant to the finding that the restraint was designed to protect a legitimate business interest:

1. When the Deed was being it discussed it began as an expansive restraint, which was whittled down to only protect confidential customer and pricing information, information, which any distributor would encounter in the course of commercial dealings. While the fact the parties entered into a contract is not conclusive of its reasonableness, in ascertaining its reasonableness, the Courts gives considerable weight to what the parties have negotiated and embodied in their contract. Contracts freely agreed are meant to be observed and will not be cavalierly disregarded by the Courts.

2. The customers add value to the business which is deserving of protection. It is analogous to employer/employee restraint cases where courts have found it not unreasonable to impose a restriction on the post-employment freedom if an employee is privy to the sensitive commercial information in a market. This is especially so where the particular employee has, as against a particular client, become the human face of the business and the person who represents the business, or some aspect of the business, to the client. I accept that this is the case in relation to Twin.

3. The restraint does not apply to all of the employees of the plaintiffs but is directed to sensitive business information one would expect to be acquired by Cyndan Distributors in the course of distributing the chemicals.

4. In this case the parties had equal bargaining power. It would usually be appropriate to regard them as the best judges of what length of period of restraint is reasonable. The restraint gave the plaintiffs one year to build up a rapport with existing customers.

5. The restraint of trade clause allows for the possibility that the restraint can be waived. Accordingly there is no blanket prohibition.

45. I accept all of these submissions.

46. Counsel for the defendant submitted “if the clause operates to limit sales or loss of sales then this must be contra to public policy insofar as Mr Piper could only be involved in trade and commerce in circumstances where he continued to be associated with the plaintiffs, save as to a restriction of one year. Simply put, customers could only purchase products through referral of Mr Piper and his company if such referral generated sales for the plaintiff.” While the submission is a little hard to understand it does seem to focus on the effect on Mr Piper (and Twin). However, as I have already found, the restraint only impacts on their appointment by A1 and not by others.

47. Counsel for the defendant then submitted that as there was no distribution agreement for the purposes of the Deed, A1 could never be aware of an agreement that did not exist. However I have found there was such an agreement. I have already said that there is no evidence of A1 having made enquiries as to the relationship between Mr Piper and/or Twin and the plaintiffs.

48. If it had been necessary for me to do so, I would have found that the restraint was designed to protect a legitimate business interest.

Damages

49. Counsel for the defendant made a number of submissions which I cannot accept:

1. The evidence establishes that Mr Piper was always going to leave his relationship with the plaintiffs.

Firstly, I cannot see how this would be relevant, even if it had been established.

Secondly, there are in evidence a small number of emails sent in 2010 in which Mr Piper made some complaints which were dealt with in the replies sent by the plaintiffs. I do not see that this of any relevance in circumstances where the complaints were addressed and Mr Piper left two years later in September 2012. Mr Piper also says that in 2012 he applied for seven jobs in various fields but the applications were unsuccessful. I decline to find that this evidence supports the submission.

2. The plaintiffs failed to mitigate their loss by putting in place adequate procedures to retain the relevant customers.

In his affidavit Mr Snounou said that Mr Andrew Kelly had been appointed a Cyndan Distributor to replace Mr Piper. In cross examination he said that it was Mr Kelly’s company and not Mr Kelly. Counsel for the defendant submitted that, as Mr Kelly was also the Chief Executive Officer, he could not have performed both roles.

Mr Snounou explained that after Twin left the plaintiffs, Mr Kelly and other staff started to contact all of the customers which had been serviced by Twin, including the relevant customers, and found that while the plaintiffs had the names and addresses of the customers, other details had been retained by Mr Piper. This meant that the plaintiffs could, for example, contact the customers’ accounts departments, but they did not have the contact details of the purchasing officers. When the plaintiffs noticed that the customers were not responding they made freedom of information requests in relation to some of them and found out they were buying their chemicals from A1.

50. I decline to find that the evidence establishes that Mr Kelly could not have performed both roles or that the plaintiffs failed to mitigate their loss.

51. Counsel for the plaintiffs relied on the following evidence:

1. From 1 July 2011 to 30 September 2012 Twin made gross sales for the plaintiffs of $111,522.95 to the relevant customers.

2. In the two years after Twin left the plaintiffs from 26 September 2012 to 25 September 2014, gross sales to the relevant customers fell to $3,210.19.

3. From 1 September 2012 to 30 September 2013 Twin made gross sales for A1 of $101,900.48 to the relevant customers.

4. It was the oral evidence of Mr Snounou that the plaintiffs paid the distribution agents a 25% commission of the sales amount and that the plaintiffs overheads had been 15%, including production costs, raw materials and overheads. These figures have been constant over the years. The remainder, being 60%, was the plaintiffs’ gross profit.

5. Mr Snounou said that gross sales to the relevant customers since September 2014 have remained at around the same level.

52. Based on this evidence the plaintiffs sought damages of around $60,000 per annum from 27 September 2012 to date. The claim was put on two bases – either 60% of the amount paid to A1 (i.e. 60% of $101,900.48) per annum or 60% of the drop in sales revenue (i.e. 60% of $111,522.95 less actual receipts of $3,210.19).

53. The evidence is far from satisfactory. For example two of the figures (1 and 3 above) are an annual figure while the figure in 3 relates to two years. There is no evidence of the gross sales made by Twin on behalf of A1 to the relevant customers after 30 September 2013.

54. Counsel for the defendant submitted that it was inadequate for the plaintiffs to rely on the oral evidence of Mr Snounou in relation to the plaintiffs’ gross profit and not have in evidence the relevant primary documents. Counsel for the defendant submitted they should have tendered audited financial statements.

55. I do not accept this submission. Mr Snounou is the sole director and chief executive of both plaintiffs He has been a director of both companies since 2009. I consider that he is accordingly qualified to give this oral evidence. If A1 had obtained by way of subpoena or Notice to Produce whatever documents it considered relevant, that oral evidence could have been tested. It did not do so.

56. Next counsel for the defendant submitted that the plaintiffs’ loss could only be established by expert evidence. I would have been assisted by expert evidence. However I do not accept that the plaintiffs cannot establish their case without expert evidence.

57. In assessing damages the relevant principle is to place the plaintiffs in the position they would have been had the contract been performed (Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at [11-12)].

58. In this case I find this is calculated by reference to the actual loss of gross profits i.e. 60% of $111,522.95 less actual receipts of $1,605.10 (being half of $3,210.19) per annum to date. The level of sales achieved by A1 through Twin confirms that that the plaintiffs have lost sales in the order of $100,000 per annum.

59. I am unsure as to whether there is any claim for past interest. I will accordingly leave the calculation of damages, based on my findings, to the parties. If they cannot agree I will give them the opportunity make further submissions.

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Decision last updated: 12 August 2015