M and a Pharmachem Limited v Laderma Pty Ltd
[2013] NSWDC 253
•25 October 2013
District Court
New South Wales
Medium Neutral Citation: M & A Pharmachem Limited v Laderma Pty Ltd [2013] NSWDC 253 Hearing dates: 19 - 22 November 2012; 14 February, 1 April, 20 May 2013; submissions to 10 June 2013 Decision date: 25 October 2013 Before: Gibson DCJ Decision: (1) Judgment for the plaintiff for €99,607.44.
(2) Liberty to the parties to bring in Short Minutes of Order representing the mathematically agreed judgment sum and interest.
(3) Cross-claim dismissed.
(4) Defendants/cross-claimants to pay plaintiff/cross-defendant's costs of the proceedings.
(5) Liberty to apply in 28 days in relation to costs.
(6) Exhibits retained for 28 days.
Catchwords: CONTRACT - plaintiff and first defendant enter into distribution agreement which is terminated - plaintiff seeks return of 50% advance made for two orders cancelled after the distribution agreement ended - first defendant claims the plaintiff consented to the assignment of the contract to the second defendant, into whose bank account the moneys were paid - same bank account used successively by first and then second defendants - whether the plaintiff's contract was with the first or second defendant at the time of termination - whether moneys paid under a mistake of fact - whether the plaintiff consented to the assignment - express novation - implied novation - conventional estoppel - total failure of consideration - cross-claim for loss of profits - whether an obligation to provide an inventory of unsold goods was an implied term - whether plaintiff's failure to provide a complete inventory of unsold goods was a breach and/or resulted in loss - loss of opportunity claim - causation issues - judgment for plaintiff and cross-claim dismissed
PRACTICE AND PROCEDURE - applications to amend the pleadings by both parties - application by defendants to amend the defence and cross-claim during the hearing and during submissions refused.Legislation Cited: Civil Procedure Act 2005 (NSW), s 21
Conveyancing Act 1919 (NSW), s 12Cases Cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662
Baltic Shipping Company v Dillon (1993) 176 CLR 344
Belligen Shire Council v Colavon Pty Ltd [2012] NSWCA 34
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473
Fox v Percy (2003) 214 CLR 118
Grey v Australian Motorists & General Insurance Co Ltd [1976] 1 NSWLR 669
Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713, [2007] NSWSC 5
Owners - Strata Plan No 44999 v Premier Holdings Corp Pty Ltd [2012] NSWSC 171
Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40
Sydney South Western Area Health Service v MD [2009] NSWCA 702
University of Western Australia v Gray (2009) FCR 346
Upper Hunter County District Council v Australian Chilling and Freezing Co Pty Ltd (1969) 118 CLR 429
Van Lynn Developments v Pelias Construction Co Ltd [1969] 1 QB 607
Vickery v Woods (1952) 85 CLR 336 at 345
W F Harrison & Co Ltd v Burke [1956] 1 WLR 419
Wright v TNT Management Pty Ltd (t/as Comet Overnight Transport) (1989) 15 NSWLR 679
Yorkshire Water Services Ltd v Sun Alliance & London Insurance PLC [1997] 2 Lloyd's Rep 21Texts Cited: - Category: Principal judgment Parties: Plaintiff/Cross-Defendant: M & A Pharmachem Limited
First Defendant/Second Cross-Claimant: Laderma Pty Ltd (ACN 050 106 968)
Second Defendant/First Cross-Claimant: Laderma Health International Pty Ltd (formerly Laderma Trading Pty Ltd) (ACN 134 067 066)Representation: Plaintiff: Mr G A Sirtes SC / Mr A Combe
Defendants: Mr Miller SC / Mr D A Moujalli
Plaintiff: Kemp Strang
Defendants: Thomsons Lawyers
File Number(s): 2011/146530 Publication restriction: None
Judgment
The claim and the cross-claim in these proceedings
The plaintiff seeks repayment of the liquidated sum set out at paragraph 13 of the statement of claim filed on 5 May 2011(€99,607.44). That sum was a deposit paid by the plaintiff for two orders of the defendants' products, cancelled in March 2010, shortly before the distribution agreement pursuant to which the goods were ordered (entered into on 4 April 2007 with the first defendant) expired on 4 April 2010.
The plaintiff's claim against the first defendant is brought on the basis that the first defendant was the signatory to the distribution agreement entered into on 4 April 2007. The claim against the second defendant is brought, not because of a contractual relationship, but because the second defendant took control of the "Euro Account" (the name given in the pleadings to National Australia Bank Ltd account LADEREU01) into which the plaintiff banked its payments pursuant to the distribution agreement during that agreement's duration.
All of the products the subject of the two cancelled purchase orders were sold in the months following the expiry of the distribution agreement for a substantial profit (just under a 60% margin after expenses). On what basis, therefore, could the defendants retain the 50% deposit paid by the plaintiff towards the purchase of these goods? No claim is brought that the plaintiff wrongfully terminated the agreement, or cancelled the order in circumstances causing loss to the defendants. The answer to this question lies in the attempt of the defendants to commence a restructure of their company group prior to November 2008, without first notifying the plaintiff, their expectation that the plaintiff would agree to sign a deed of variation substituting the new company for the old. When the defendants failed to provide financial information to the plaintiff sufficient to persuade the plaintiff to execute the agreement, the plaintiffs refused to sign the variation deeds.
As the correspondence set out below demonstrates, in response to an email expressing concern about the financial structure of the first defendant, the first defendant sought the consent of the plaintiff to put all contracts for the purchase of products through the second defendant and to implement a new agreement. The plaintiff claimed that it never consented to the purported assignment (paragraphs 6-10 of the statement of claim) and has asserted in evidence that the changing of the name of the bank account holder and documentation was done, if not surreptitiously, with so little fanfare that the plaintiff's servants and agents never noticed that Laderma Pty Ltd ("Laderma") had been replaced by another company with the similar-sounding name of Laderma Trading Pty Ltd ("Laderma Trading").
When this distribution agreement was terminated on 4 April 2010, there was a credit to the plaintiff of €99,607.44 for delivery of goods pursuant to Orders 4478 and 4512. The quantum is not in dispute (paragraphs 12-14 of the statement of claim).
According to the plaintiff's pleadings, the first defendant initially advised the plaintiff on 13 April 2010 that it would hold these funds pending a re-purchase of products from the plaintiff by the first defendant. When this did not occur, the plaintiff issued a creditor's statutory demand to the first defendant requiring payment of the sum of €99,607.44. On 13 September 2010 the first defendant, Laderma, commenced proceedings in the Supreme Court of New South Wales seeking orders that the statutory demand be set aside on the basis that the payment made by the plaintiff to the Euro Account was not received by the first defendant but by the second defendant, Laderma Trading.
The defendant's position, as set out in its defence of 4 August 2011, is that the first defendant assigned its rights under the distribution agreement to the second defendant, Laderma Trading, on 15 January 2009, and that the plaintiff was given notice of this assignment by emails dated 10 and 17 November 2008, by a draft deed of variation in about March 2009, and by a further draft deed of variation in May 2009. The plaintiff did not sign these deeds, but continued to place orders in accordance with the distribution agreement, which the defendants say constitutes acceptance of their conduct. Alternatively, the plaintiff and second defendant entered into an agreement ("the novated agreement"), in terms of which the second defendant granted the plaintiff the right to sell the Flexitol range of products on the same terms as under the distribution agreement. The dates given for that novated agreement vary, in the pleadings and in the submissions, but the date finally selected by the defendants in their closing submissions appears to be 4 December 2008.
The plaintiff has filed a Reply setting out that no modification of the distribution agreement was possible unless it was in writing and signed by both parties and that no such modification or variation occurred.
The defendant brought a cross-claim for additional freight charges of $78,127.80 and a claim for loss of profit and loss of sales from "the terminated order" which was given a preliminary estimate in the cross-claim filed on 4 August 2011 of £492,000 (UK). In written submissions the freight claim was reduced to $66,102.38. Economic loss of £374,835.97 was claimed for loss of opportunity to purchase unsold goods in the possession of the plaintiffs. Very little was said about the loss of profit and loss of sales from "the terminated order" after Mr Sher's evidence that these goods were in fact sold at what Mr Sirtes SC, throughout the trial, referred to as a "big fat profit".
The defendants' defence and cross-claim were the subject of a series of attempts to amend during the hearing. This added substantial complexity to what had originally been a straightforward claim for money paid for purchase of goods, in circumstances where the distribution agreement had come to an end and there were outstanding transactions.
The complications caused by these applications to amend both the defence and cross-claim not only caused the proceedings to be adjourned, but added confusion and uncertainty as to the basis upon which the defence and cross-claim were pleaded. Dealing with a claim where the defence and cross-claim change during the hearing is not an unexpected or difficult problem in trial management. The real difficulty in the present case was not only that fresh defences were put before the Court, but also that there were changes to the factual substratum of these claims. The delay this caused was considerable, as it required several adjournments of the proceedings.
I shall first set out the factual basis upon which the claim and cross-claim are brought, and then identify the issues for determination, the parties' arguments and the relevant facts in relation to these issues.
The creation of the 4 April 2007 agreement
In his affidavit of 2 August 2012, Mr Gatenby provides an outline of the circumstances in which he was approached by Steven Sher, a director of the first defendant, in early 2007. Mr Sher's affidavit of 19 June 2012 tells a similar story of discussion of a number of amendments and drafts. In particular, there was discussion about the form of clause 8.2(iv) (affidavit of Mr Sher paragraph 19 and following, affidavit of Mr Gatenby paragraph 15 and following). The parties executed a distribution agreement on 4 April 2007.
The distribution agreement
This was a trading activity between parties who had endeavoured to set everything out in writing, in circumstances where any amendments had to be agreed to by a specific procedure. The provisions may be summarised as follows:
(1) The contracting parties are Laderma Pty Ltd (ACN 050 106 968), the first defendant, and the plaintiff.
(2) The commencement date was the date of execution of the agreement (clause 1.1) for a period of 3 years (clause 2.2) to be automatically renewed for the succeeding 1-year period providing the parties agreed.
(3) The contract expressly excluded products currently distributed by Taurean Health Pty Ltd (clause 1 definition of "products").
(4) The terms and conditions of sale set out in paragraph 3 were as follows:
"3: Terms and Conditions of Sale
3.1 Purchase Orders
(a) The Distributor shall purchase the Products by means of written purchase orders, which shall be subject only to the terms and conditions of this Agreement, and shall include full details of the Products required and the delivery details.
(b) In the event of a conflict arising between the terms and conditions contained in this Agreement and any other agreement or arrangement between the parties, the provisions of this Agreement shall prevail.
3.2 Minimum Quantities
Subject to the provisions of this Agreement, the Distributor shall purchase such quantity of the Products from Laderma as set out in Schedule 2.
3.3 Prices
The Distributor shall purchase the Products at the prices set forth from time to time by Laderma. All prices are expressed C&F UK and shall be payable in Euros and subject to any applicable taxation thereon. Prices shall be subject to change, on notice by Laderma to the Distributor.
3.4 Payment
(a) The Distributor shall pay 50% of the purchase price for the Products to Laderma upon placement of order and the remaining 50% of the purchase price upon receipt of the goods, at the Distributor's premises.
(b) The Distributor shall, at its expense, obtain any and all such approvals from the banking and other governmental authorities of the Territory as may be necessary to guarantee payment of all amounts due hereunder to Laderma.
(c) Payment shall be made into an account stipulated by Laderma to the Distributor in writing.
(d) Interest at the rate of 1.5% (one and a half percent) per month shall be paid by the Distributor on all the moneys which the Distributor fails to pay Laderma on due date, such interest to be calculated from due date for payment to date on which payment is actually received by Laderma, both days inclusive.
3.5 Reservation of Ownership
Laderma reserves title in the Products until paid for in full by the Distributor. Laderma hereby authorises the Distributor to transfer title to the Products in the ordinary course of its business, provided that in such case, the Distributor hereby assigns in advance to Laderma any proceeds from the sale of such Products if not already paid by the Distributor.
3.6 Delivery
(a) Laderma shall deliver the Products C&F UK.
(b) Delivery occurs when the Products are made available for collection at the address designated by Laderma at which point the Distributor accepts all risk of loss.
(c) The Distributor shall be obliged to inspect all Products upon delivery and shall endorse the delivery note as to any missing or damaged Products. No claims for missing Products shall be valid unless the delivery note has been endorsed as aforesaid and unless, in addition, the Distributor notifies Laderma in writing within 10 (ten) business days of the delivery of the Products furnishing full details in regard thereto. Any damaged Products shall be held for collection by Laderma for a period of 60 days after which they will be disposed of by the Distributor and any costs of disposal will be payable by Laderma. The Distributor shall bear the onus of proving that upon delivery, any Products are missing or that the Distributor's order was not complied with.
(d) If Laderma is unable to deliver the Products to the Distributor due to any act or omission on the part of the Distributor, it shall be entitled to charge the Distributor for all expenses incurred in connection therewith, including without limitation, the storage of the Products."
(5) The obligations of the distributor were set out in paragraph 5. This is relevant to the cross-claim, as are clauses 4.2 (limitation of liability), 5.2 (reporting requirements) and 8.2 (right of parties on termination). These are set out in more detail below.
(6) Clause 5.8 provided an indemnification.
(7) Clause 8, the termination clause, must be set out in full:
"8: Termination
8.1 Termination
This Agreement may be terminated prior to expiration of the initial or any renewal term, by written notice to the other party as follows:
(a) By either party, in the event of the other failing:
(i) to perform any of its obligations and failing to remedy such failure within 30 (thirty) calendar days after receiving written demand;
(ii) to make any payment in terms of this Agreement on due date and persists in such failure for a period of 3 (three) days after the date of written notice by the aggrieved party requiring the defaulting party to effect such payment.
(b) By Laderma, effective immediately:
(i) if the Distributor commits an act which is or would be an act of insolvency, or if a receiver, receiver and a manager, liquidator, administrator, trustee or similar official is appointed over its assets or business; or
(ii) if the Distributor enters into or proposes to enter into an arrangement, composition, or compromise with its creditors or any class of them, or there is declared by a competent court or authority, a moratorium on the payment of indebtedness by either party or other suspension of payment generally; or
(iii) if the Distributor ceases to carry on business; or
(iv) if there shall occur any change in the ownership or control of the Distributor, if the new owners are associated in any way with any competing Products; or
(v) if any law or regulation shall be adopted or in effect in the Territory that would restrict the termination rights of Laderma or otherwise invalidate any provision hereof; or
(vi) in terms of clause 2.2(b).
8.2 Rights of Parties on Termination
(a) The following provisions shall immediately apply on the termination or expiration of this Agreement:
(i) The Distributor shall cease all sales of the Products subject to clause 8.2(a)(iv).
(ii) All indebtedness of the Distributor to Laderma shall become immediately due and payable without further notice or demand, which is hereby expressly waived, and Laderma shall be entitled to reimbursement for all legal fees as provided herein that may be incurred in collecting or enforcing payment of such obligations.
(iii) The Distributor shall:
(A) remove from its property and immediately discontinue all use, directly or indirectly, of Intellectual Property Rights, or of any word, title, name, expression, trademark, design, or marking that, in the opinion of Laderma, is confusing or similar thereto regardless of whether or not such name has been registered by the Distributor.
(B) transfer and assign to Laderma any domain names registered by the Distributor that relate to the Products;
(iv) Laderma shall have no obligation to repurchase or to credit the Distributor for Products in its inventory or received on or after the date of termination of this Agreement, Laderma may at its discretion however repurchase from the Distributor, at the then current prices less any applicable and then current discounts or at the net prices paid by the Distributor to Laderma, whichever is the lower, any or all Saleable Products purchased by the Distributor from Laderma. All Products that are not Saleable Products shall be valued at nil. The Distributor agrees and undertakes to ship such repurchased Products to Laderma or to a designated third party, as stipulated by Laderma to the Distributor in writing. All shipment and ancillary costs and expenses relating to such repurchase shall be paid for by Laderma Ltd. Any Saleable Products that Laderma elects not to repurchase must be sold or destroyed by the Distributor within 120 days of termination or expiration of this Agreement and the Distributor must certify to Laderma in writing that it has either been sold or destroyed.
(v) The obligations of the Distributor under clauses 3, 4, 6, 7, 8, 9, 10 and 11 shall survive the termination or non-renewal of this Agreement for any reason. It is expressly agreed that the expiration of this Agreement shall not affect such of the provisions of this Agreement as expressly provide that they will operate after any such expiration or termination or which of necessity must continue to have effect after such expiration or termination, notwithstanding that the clauses themselves do not expressly provide for this.
(vi) Laderma shall be entitled, for transitional purposes, prior to the expiration of this Agreement, to appoint the Distributor's successor (if any) and allow such successor to make himself known as Laderma's distributor with effect from the date of expiration of this Agreement and be able to commence distributing the Products in the Territory from 6 (six) weeks prior to the expiration or termination of this Agreement. Laderma will ensure that such appointment is merely for the purposes of achieving a fluid transition and for the successor to make itself known to the trade. The successor is not to take orders for the Products during this transition period to expiration date.
(vii) The Distributor shall, upon Laderma's request, do all things necessary to transfer all registrations, licenses, permits, approvals and any other authorisations required for the importation, promotion, marketing, sale and distribution of the Products in the Territory, to Laderma or its authorised nominee."
(8) Clause 11.1 contained an "Entire Agreement" clause which is of central importance to these proceedings:
"11.1 Entire Agreement
This Agreement represents the entire agreement between the parties and supersedes all prior discussions, agreements, and understandings between them. No modification or variation of this Agreement or any terms hereof will be effective unless in writing and signed by both parties."
(9) Clause 11.5 contained a "Non Assignment" clause as follows:
"The Distributor shall not sell, assign, delegate or otherwise transfer any of its rights or obligations hereunder without the prior written consent of Laderma."
The clauses relevant to the Cross-Claim are:
(1) Clause 4.2 Limitation of Liability provides:
"4.2 Limitation of Liability
(a) Neither party shall be liable to the other for any consequential, incidental, indirect, economic or punitive damages (including damages for loss of business profits, goodwill, business interruption, loss of business information, and the like) arising out of the use, distribution or inability to use or distribute the Products even if Laderma has been advised of the possibility of such damage.
(b) In no event shall Laderma's liability under this Agreement or any transaction contemplated by this Agreement exceed the purchase price for the Products in question. The Distributor hereby releases Laderma from all obligations, liability, claims or demands in excess of the limitation."
(2) Clause 5, concerning the obligations of the distributor, included an inventory clause at 5(e) as follows:
"(e) The Distributor shall maintain an adequate inventory of current sales material and samples in an efficient and effective manner to promote the sale of the Products in the Territory."
(3) The reporting requirements at paragraphs (c) and (d) provided as follows:
"(c) The Distributor shall provide Laderma with Product and market information, which it may reasonably require, from time to time.
(d) The Distributor shall maintain for a period of 5 (five) years complete and accurate records of all Products sold or on hand and shall keep information on each batch of Products sold to Distributor in order to enable recall of specific batches."
(4) The rights of the parties on termination, which are set out above, contain clause 8.2(iv) and (v), both of which are relevant to the Cross-Claim.
The parties commence trading
On 24 October 2007 the agreement between the first defendant ("Laderma") and Taurean came to an end (affidavit of Mr Sher, paragraph 34) and the first defendant appointed Pharmachem as the exclusive distributor of Flexitol products in the United Kingdom. Laderma recovered the Flexitol products, which Taurean had in stock (affidavit of Mr Sher, paragraph 36). The parties continued to do business without incident until Mr Riding sent an email on 8 November 2008 expressing concern about the financial structure of Laderma, seeking further financial information about it and its company group. It was in the course of the response to this letter that Mr Sher first intimated that a company restructure following the death of his father meant that a new company, Laderma Trading Pty Ltd ("Laderma Trading", the second defendant in these proceedings) would be taking the place of Laderma. These emails are central to the subsequent events in these proceedings.
The emails of 8 and 10 November 2008
At all relevant times Mr Sher was the sole director of both Laderma and Laderma Trading. Prior to 8 November 2008, the plaintiff and its servants and agents did not know of Laderma Trading's existence.
On 8 November 2008, Mr Riding sent an email to Mr Sher seeking, inter alia, financial and structural information about Laderma, because the level of financial outlay was too high:
"Steven, prior to your visit to the UK in December please can you consider the following points which we would like to address at our meeting:
1. The level of financial outlay / exposure in terms of deposits paid when orders are placed is too high to replicate next year so we need to work together to see how this can be reduced.
2. There are two ways to do this, namely a reduction in the amount of the deposit paid when the order is placed and a reduction in the lead time between order and despatch of the goods.
3. We would like to explore the possibilities under both of these headings, possibly by working more closely with your suppliers and yourselves on the subject of forecast orders. We would be willing to commit to a certain level of packaging etc provided we were given an assurance by you that we would be able to take delivery of, and sell, any product that needed to be packaged in such materials.
4. When the amount of stock that we have to hold because of the lead time on deliveries is taken into account our total investment in the Laderma range, including payments on account exceeded £1 million last year which is clearly too high a burden for us to bear in the future particularly when it appears to us that we are bearing the bulk if not all of the cashflow burden. There must [sic] a way in which your suppliers (and Laderma) can take a greater share of the cashflow impact. We would like to discuss this with you in an open and honest way to try and come up with a compromise that suits both parties.
5. I am not sure that this is possible via e-mail but we could at least set the ball roiling before your visit with a view to reaching agreement when we are all face to face. On this subject please could you let us have a copy of your most recent accounts to enable us to ascertain the financial strength of your company. Please could you also confirm the structure of your operations if more than one company is involved. We are of course more than happy to reciprocate with any financials you may require.
6. I must stress that we are committed to maintaining and indeed building on the success we have had to date with the Flexitol range of products so please do not take this e-mail in a negative way, we are merely seeking to spread the risk of financing this growing range of products between all the stakeholders in the supply chain (whilst guaranteeing that we will take delivery of any stock specifically manufactured for M&A).
I look forward to hearing from you in due course." [Emphasis added].
There is no suggestion that the plaintiff had been told of the existence of Laderma Trading prior to this email. Mr Riding (who was not called to give evidence, a matter of significance, according to the defendants) is referring to "Laderma products", calling the company "Laderma" and asking "your company" (i.e. the first defendant) to provide information about its financial strength because of concerns about the "cashflow impact". He specifically asks for confirmation of the structure of Laderma's operations "if more than one company is involved".
Mr Sher replied on 10 November 2008. In this email, he makes the first reference to a change in the company structure to replace Laderma with Laderma Trading:
"We are as always open to assisting you but it is important you understand the context within which we are working.
Our terms with most of our distributors are 100% upfront payment, hence we have already provided you with a better arrangement. One of the issues it appears with the level of investment you have in inventory is that over 40% of your current investment in inventory are sitting in 3 products being skin oil, and the two prescription items, both of which have achieved far less sales volume than was originally projected by M&A. We have assisted M&A during the year with various pricing/margin issues, and due to concerns mentioned previously by Steve/Mike are currently working on ways to reduce lead times which involves us investing in and holding selected items of packaging and raw materials on hand, subject to binding forecasts from yourselves. Lead times should be reduced to approximately half of what they are currently on this basis which will cut your required funding requirements moving forward, with payments term to remain as is. We expect this to be effective during 1st 1/4 of 2009.
We trust this addresses your concerns and once inventory levels of 3 sku's [sic] mentioned above deplete, that this will also assist.
As a private company we do not release financial information of the nature suggested. Whilst we do not doubt the commitment M&A have been making to the Flexitol brand, it would make us more comfortable to understand what level of investment you have in-mind moving forward. On a separate note we still do not have a contract in place between our companies that covers all items being distributed. Due to the passing of my father a few months ago, who was a shareholder in Laderma P/L we have been advised to set up a new entity Laderma Trading P/L through which all contracts will be entered into for the Flexitol product range. Our suggestion is that we put forward a new agreement covering all items to be effective 1 Dec 2008. We await your comments re above before putting forward a draft agreement for your review." [Emphasis added]
It is not in dispute that this somewhat offhand reference to a new company, described as "on a separate note" at the end of a long email, is the first time Laderma gave any notice of a change in its structure. What is in dispute is whether the plaintiff, in the same informal way, agreed to deal with this "new entity" in an email of 4 December 2008 (or at the other times referred to in the defence). This requires analysis of the correspondence between the parties from that date.
Correspondence from 15 November to 4 December 2008
On 15 November 2008, Mr Riding wrote again to Mr Sher. It is helpful to set out the whole email, because it indicates the degree to which this proposal for a new company structure was actually discussed (or even considered important) by the plaintiff's executives:
"Steven, thank you for your response to my request for you to consider ways in which M&A can reduce the level of investment in inventory for the Flexitol range. I note what you say about the reduction in lead times and that would indeed be a great help. What we need to agree on is a definite lead time which would allow us to plan our stock levels more accurately to reduce the amount of stock we hold. If these reduced lead times are agreed then we would expect any late deliveries which would cause an out of Stock situation to occur to be partially air freighted at your expense to preserve the integrity of supply to our larger customers. I would expect that this cost could be passed on to your suppliers if they fail to meet the production deadlines.
We are quite happy to guarantee to purchase any stock manufactured in our packaging within the range of our forecast purchases but we do need to revisit the Agreement on the subject of termination provisions. The current clause gives M&A the right to continue to sell the products within a 150 day period post termination but we need to add a further provision that allows 150 days from termination or receipt of stock whichever is the later.
We are still not convinced that payment up front of 50% on order and 50% on delivery is a fair apportionment of the cashflow impact of stocking a large range of products such as this particularly when one considers that the profit share for Laderma (which now includes 25% of the Taurean share) is effectively paid up front before we even sell a single tube never mind collect the money for the sale. We would like to discuss some arrangement for at least deferring payment of the extra profit share element of the purchase price for an agreed period .
The reason we asked for some financial information about Laderma P/L is that we are effectively lending your company the amount of the up front deposits without any guarantee that these funds will be used to purchase goods for M&A . In view of the amounts involved it is normal business practice to satisfy oneself about the financial stability of a supplier to whom one is advancing considerable sums of money . Please could I ask you to reconsider this request - we do not need to see any profit figures -just the balance sheet and confirmation that the accounts have been audited or prepared by an independent firm of accountants. We would not be happy with any proposal to change our agreement to a new company which would presumably have no assets if the deposits were to be paid to this newco [sic]. We would however be prepared to place orders with newco but pay the deposits to the existing company (subject to seeing some financial statements as requested)." [Emphasis added]
Mr Sher replied to Mr Riding's email on 16 November 2008 saying the following:
"We are becoming concerned re M&A's position both from a potential cash flow funding ability and commitment to invest into the Flexitol business moving forward.
You did not respond to my question in my last email as to the level of investment M&A intend making available to invest in the Flexitol business moving forward?
Whist we are open to making attempts to try to assist you which we already have in motion, we are not open to rework our arrangement to the extent you are suggesting.
We are committing to invest in packaging to reduce lead times. This is not just a cash flow issue but also an additional expense as we need to warehouse packaging and pay double shipping costs when packaging is eventually required by our manufacturers. Our concerns relate to risks associated with your changing forecasts - for example Nov "binding" forecasts were in many cases halved in PO's provided. Whilst we're not chasing for these extra orders now, this is an example of where we are exposed to additional costs of holding packaging for extended periods of time and running into issues with our manufacturers who have committed to specific raw materials and opened up manufacturing slots/capacities for us. Our suppliers will not commit to cover costs due to delays - unfortunately we have negotiated the best pricing with them we can to be competitive and they will not assume risk if equipment breaks down, raw materials fail testing etc. This is something that is a risk managed by our distributors in every market and needs to continue to be the case.
In terms of risk you refer to paying upfront with no guarantee that we will manufacture product. Pls bear in mind this exposure is limited to possibly 50% of 1-2 orders at any one time and is offset by our exposure whereby we are holding packaging without guarantee that it will be taken, then shipping orders to you without payment or guarantee of payment of the balance of the 50% owing. If you were to quantify this risk, we do not see this as significant in the broader scheme of the business in the UK, and once again I refer to my opening sentences of this email which we view as the main issue at hand here.
We are restructuring due to my father passing away and future dealings will be with a newco. If you are uncomfortable with this, we can consider working on an LC basis, but quite frankly we think this is unnecessary and once again in quantifying risks involved am not sure this is a major issue.
We need some direction from you in next few days as to our concerns and as to how we move head from here." [Emphasis added]
Mr Riding replied on the same day saying:
"... If you moving the trade to a newco [sic] then please can you confirm what capital this company will start off with so that we can take a view on whether or not we wish to use letters of credit in the future..." [Emphasis added].
Following this email, Mr Sher replied by saying:
"It is important we get this cleared up before my visit through a combination of emails and telechats where necessary.
The purpose of my visit is to focus on 2009 planning and discuss a strong pipeline of exciting opportunities.
We would envisage from early next year subject to 4 month binding forecasts from M+A that we would be able to reduce manufacturing lead times to 4 weeks and possibly less. Suggest you use 4 weeks for your calculations, and that you then outline any areas of "risk" you perceive [sic] which we can try to address if possible. Pls [sic] could you get back to us early this week." [Emphasis added].
On 17 November 2008, Mr Riding sent the following email to Mr Sher:
"Steven, I have asked Steve McGowan to rework our forecast ordering and stockholding requirements based on the 4 week lead time which I am sure will make a sizeable difference to our cashflow - thank you.
The only other area for us to resolve is how we can get some comfort over the up front payments to a company (ie Laderma) about who we have no financial data or Credit Report - please see my earlier comments for the reasons why i think this is a reasonable request. I accept that the risk to M&A will be reduced if the lead times are reduced but we are still at risk to the extent that deposits paid by us to Laderma are not passed on to the manufacturers in the event of Laderma (or the newco) going into liquidation (possibly through no fault of your own - these thing do happen and it is my job to identify and then try to limit the risk to M&A). I will be in the office all day on Monday from 9.00 to 5.30 so if you think we can resolve this by talking through this issue please call me." [Emphasis added]
Mr Sher replied on the same day, on 17 November 2008, as follows:
"For your information the newco is buying all assets and liabilities from Laderma, so it's not an entity that has nothing. Please also bear in mind that the Flexitol brand has substantial value and by us not supplying product/fulfilling orders, we risk damaging this brand which makes no sense at all.
In terms of risk, if you offset deposits paid 4 weeks in advance of production by M&A, against 6-8 week lead times for shipping and clearance whilst we wait for the balance, as well as the packaging we are needing to hold ongoing, then risk from our perspective is higher for us if you decide not to pay, decide to discontinue Flexitol distribution and/or have cash flows issues of your own etc. I am currently in the US, we can try arrange a call if above is unclear, but I am jam packed with meetings etc and due to fly out Wed so email would be best for now. Will await any further comments from you via email, and any further input once Steve has reworked the numbers." [Emphasis added].
On 23 November 2008, Mr Sher sent another email to Mr Riding as follows:
"We have not heard anything further to our email below and in relation to Steve's recalculations with revised lead times?
I also attach a letter from our bank which we requested per your email and which hopefully gives you the comfort you need."
Did the documents that were attached provide that comfort? Mr Riding replied to Mr Sher on 4 December 2008 as follows:
"Steven, I have now had a chance to review the revised order schedule prepared by Steve McGowan based on the revised order lead times set out in your e-mail dated 17 November and I can confirm that these are acceptable from a risk / cashflow point of view (thank you also for the letter from your bank which is of some comfort although disappointingly still some way short of a set of accounts that would have hopefully cleared up once and for all our concerns about the overall financial strength of Laderma. Nevertheless we accept that our exposure is limited in practice to any deposits not passed on where production has not started which makes it an acceptable risk so I do not propose to pursue this matter any further).
Hopefully this clears any remaining issues regarding logistics and leaves you free to focus on 2009 with Mike and Steve when you visit next week." [Emphasis added]
The defendants submit (written submissions, 4 June 2013) that this email was saying yes to the proposal. The defendants submit this proves that Mr Riding's email of 15 November 2008 (where he said "we would not be happy with any proposal to change our agreement to a new company") was not the last word on the subject, that the emails exchanged after 15 November contradict the claim that the plaintiff was not prepared to trade with a "newco", and that it is clear from Mr Riding's email of 16 and 17 November 2008 that he contemplated Pharmachem trading with the "newco". Why else, it is submitted, could he be making the risk analysis referred to in the emails of 16 and 17 November 2008? The defendants argue that it is "clear from Mr Riding's email of 4 December 2008 that his queries in relation to the proposal to set up Laderma Trading as the contracting party had been resolved" (submissions, 4 June 2013, paragraph 2.3).
I agree that the terms of the 4 December 2008 email could not be clearer, if seen in the context of the correspondence as a whole. Mr Riding's emails about the "risk analysis" in fact predate the notification of the "newco", and the "risk analysis" in his emails of 16 and 17 November 2008 consists of raising issues in response to Mr Sher's requests. Mr Riding's conclusions about the proposal may be seen in the 4 December 2008 reference to the letter from the bank as "still some way short", and a set of accounts was still sought (it should be noted that this request also predated the advice of a "newco"). Most importantly, the plaintiff not only refused to sign the two deeds of variation sent to them in 2009, but also continued to call the company they were trading with "Laderma" and to repel attempts by Mr Sher to raise the proposed "newco" take over during their discussions and emails about this subject.
Corporate conduct after 4 December 2008
The next question is what to make of the words in italics in the email set out in the paragraph above. The key to this lies in the conduct of the parties from that time. It is in this regard that the defendants submit that the failure to call Mr Riding, Mr Armstrong and/or Mr McGowan (written submissions 4 June 2013) are relevant. As is set out in the section on credit below, this is a submission that I reject.
Did the defendants commence to act as if the plaintiff was prepared to deal with the "newco"? Notwithstanding the plaintiff's correspondence, and the failure to sign the successive deeds of variation, from this time onwards, emails from "Laderma Trading Pty Ltd" commenced to be sent as if the "newco" was indeed trading in the place of Laderma.
However, the changes to the trading patterns between the parties were very subtle. The address, website and telephone and fax numbers remained the same; essentially, only the word "Trading" was inserted. No change was made to any of the existing banking accounts, and the plaintiff's personnel continued to conduct business in the same way, as did the personnel employed by the defendants. The plaintiff continued to refer only to "Laderma" in all its dealings (up until termination of the contract) and, significantly in my view, was never corrected about this practice by the defendants. Funds continued to be deposited in the same account, without any complaints or concerns by the defendants as to the banking documentation (which neither side tendered; nor was any packaging, with changed names for the products, tendered).
The defendants' written submissions (paragraph 4.2) summarise the relationship between the parties over the next fifteen months as follows:
(a) Pharmachem paid amounts stated in POAs and invoices issued by Laderma Trading.
(b) Pharmachem continued to make payments into the same bank account, although that bank account now had the name Laderma Trading.
(c) Pharmachem took delivery of products from Laderma Trading. However, there appears to have been no change in the delivery methods, any more than the banking methods, beyond this additional word in the name of the defendants.
(d) Pharmachem sent claims for credit on account of advertising and promotion costs. There is no evidence that these were addressed to Laderma Trading, but Laderma Trading processed these adjustments.
(e) Pharmachem received the benefit of credit given by Laderma Trading on account of advertising and promotion costs.
In other words, the parties continued trading as before, but with the word "Trading" appearing in the name of the party with which the plaintiff was carrying on business.
Correspondence after 4 December 2008
While these parties continued to trade as before, what correspondence were the directors of the companies exchanging? The defendants draw my attention to a series of emails and faxes which they submit shows recognition of the existence of the "newco", and acceptance that this is the company that they accepted they were dealing with.
On 6 February 2009, Ms Gaikwad of "Laderma Trading Pty Ltd" sent an email to Mr McGowan (which was also sent to Mr Riding) saying:
"We have reviewed the A&P claim submitted by M&A and the total claim that you would be receiving is EU 108,976.22. However whilst calculating this figure the following pointers have been considered."
This email is the first of a series handed up by Mr Miller during submissions to illustrate that changes were made to the existing trading arrangement which were referred to in the emails and discussions about the "newco" (and that these changes were accepted by the plaintiff). This change essentially consists of the fact that these emails have a "footer" at the end of the email showing the reference "Laderma Trading Pty Ltd" as being the company (as is the case with the banking and delivery arrangements, the company address remained the same).
The next email Mr Miller pointed to is one dated 10 February 2009, which Mr Riding sent in reply to the plaintiff's email of 6 February 2009:
"Pramita, I am please to agree your summary below - please can you advise which order you want to set off the balancing credit note of EU 6936.20 against?"
"Pramita" regularly dealt with the transfer of products before and after Laderma Trading came into existence. The defendants submit that this reply to an email with a footer saying "Laderma Trading" is further evidence of email exchanges showing acceptance of the changes.
On 23 February 2009, Mr Badler from "Laderma Trading Pty Ltd" (see footer of the email) sent an email to Mr Pessagno in the following terms:
"From: Delon Badler [[email protected]]
Sent: 23 February 2009 07:38
To: Gerard Pessagno
Cc: Philip Riding; Steven Sher; Pramita Gaikwad; Steve McGowan
Subject: M&A Invoices & Updated Deposit Schedule
Hi Gerard
Attached please find the relevant documents for a Shipment that has been packed for M&A. I have also attached a copy of the updated Deposit schedule, where you will be able to trace the deposits that have been applied to the various invoices.
Upon arrival of this container, the net amount owing for all these attached invoices amounts to €47,189.56. There is a credit on your account from the recent A&P claim of €6,936.20 that needs to be deducted off this, so that the net amount payable upon arrival of this container is €40,253.36
Pls could you confirm that you are in agreement with all the invoices and amounts relating to these documents. If you have any queries, please feel free to let me know.
Kind regards
Delon Badler
GM Finance & Operations
Laderma Trading Pty Ltd
205 Victoria Street
Beaconsfield NSW 2015
Australia" [Emphasis added]
The defendants, in their closing submissions, specifically drew my attention to the highlighted portions. They did not refer to the email address "laderma.com.au", previously used by Laderma, and which appears to have been simply taken over by Laderma Trading. The address "Laderma Trading Pty Ltd" appears in the "footer" at the end of the email, but this is not part of the email address. I was not shown any emails with "Laderma Trading" in their address, or any different email address. Like the banking and ordering systems, the same transaction methods as were in place before December 2008 were still in place after that date.
An email in similar terms was sent by Mr Badler to Mr Pessagno on 19 March 2009 as follows:
"From: Delon Badler
Sent: Thursday, 19 March 2009 4:19 PM
To: 'Gerard Pessagno'
Cc: 'Philip Riding'; Steven Sher; Pramita Gaikwad; Steve McGowan
Subject: M&A Invoices & Updated Deposit Schedule
Hi Gerard
Attached please find the relevant documents for a Shipment that has been packed for M&A. 1 have also attached a copy of the updated Deposit schedule, where you will be able to trace the deposits that have been applied to the various invoices.
Upon arrival of this container, the total net amount owing for these attached invoices amounts to €49,134.88.
Pls could you confirm that you are in agreement with all the invoices and amounts relating to these documents, If you have any queries, please feel free to let me know.
Kind regards
Delon Badler
GM Finance & Operations
Laderma Trading Pty Ltd
205 Victoria Street
Beaconsfield NSW 2015
Australia" [Emphasis added]
The defendants submit that this is an indication of willingness of the plaintiff to deal with Laderma Trading.
On 27 April 2009, Mr McGowan sent an email to Mr Sher saying:
"Could you arrange payment of the outstanding amount of €49,134.88"
The defendants submit that this is further indication of willingness of the plaintiff to deal with Laderma Trading.
On 28 April 2009 at 8:05pm, Mr Sher from "Laderma Trading P/L" sent the following email to Mr McGowan as follows:
"Hi Steve,
Our margins are pretty tight but in the interests of trying to get this product established we are prepared to supply you at the price suggested.
We do need to limit investment Into this line as a result of reduced margins - pls outline what you have in mind in terms of spend -we would suggest limiting to 10% of purchases on a 50/50 matched spend basis - is this workable?
We believe winter is the huge lip balm season in the UK. If you are going to be needing to place decent qty orders we'll need adequate lead time to get tubes produced which is up to 12 weeks dependent on qty.
Await your thoughts/suggestions.
Regards,
Steven Sher
Managing Director
Laderma Trading P/L
205 Victoria Street,
Beaconsfield, NSW,
Australia 2015" [Emphasis added]
That email is also significant, the defendants submit, because it shows an acceptance of the price changes that were under discussion at the same time that Laderma Trading had been put forward as the new trading partner. Later, on 28 April 2009, Mr Sher (again with a footer of "Laderma Trading P/L") sent another email to Mr McGowan as follows:
"Hi Steve,
We will most likely need to do an averaging of pricing whereby we ensure you get the pricing you need from Boots, but we continue to sell to you at existing pricing for other retailers as we are otherwise eroding our margins too much. Lets get Boots on board if possible on the understanding that we will get you the pricing you need for their requirements. We are hoping for some decent volume runs to try to achieve larger batch sizes to offset some of our margin erosion on this line.
Regards,
Steven Sher
Managing Director
Laderma Trading P/L
205 Victoria Street,
Beaconsfield, NSW,
Australia 2015" [Emphasis added]
This email shows the reference to both Laderma Trading and changes to pricing.
On 13 May 2009, Mr Badler from "Laderma Trading Pty Ltd" sent the following email to Mr Pessagno:
"Hi Gerard
Attached please find the relevant documents for a Shipment that is being packed this week for M&A. I have also attached a copy of the updated Deposit schedule, where you will be able to trace the deposits that have been applied to the various invoices.
Upon arrival of this container, the total net amount owing for these attached invoices amounts to €36,639.65.
Pls could you confirm that you are in agreement with all the invoices and amounts relating to these documents. If you have any queries, please feel free to let me know.
Kind regards
Delon Badler
GM Finance & Operations
Laderma Trading Pty Ltd
205 Victoria Street
Beaconsfield NSW 2015
Australia" [Emphasis added].
Mr Miller identified this letter, in the course of submissions, as further evidence of willingness to trade on new terms with the new company.
On 22 May 2009, Ms Gaikwad from "Laderma Trading Pty Ltd" sent an email to Mr Pessagno saying:
"The following goods have been picked up by M&A from our UK Bristol Warehouse. And the amount due for this shipment is EU 1559.17.
...
Could you please arrange for the payment of this amount into the Brands Worldwide UK Ltd account. Attaching the account details for your reference:
[account details]" [Emphasis added]
Mr Miller submitted that this email was significant for the same reasons. Brands Warehouse was a warehouse used by the first defendant, and later the second defendant, to store their products in the United Kingdom.
On 26 May 2009, Mr Badler sent an email, which does not contain an email footer, to Mr Pessagno as follows:
"Hi Gerard
We have not yet received this payment at Barclays. Pls could you confirm whether the transfer has been made?
Kind regards
Delon"
Mr Miller submitted that this email confirmed the plaintiff was paying Laderma Trading (although acknowledging this was at the same bank, and banking account, as Laderma). Similarly, as to airfreight, on 27 May 2009, Mr Badler from "Laderma Trading Pty Ltd" sent the following email to Mr Pessagno:
"Hi Gerard
Attached please find the relevant documents for an airfreight shipment that is being flown this week to M&A. I have also attached a copy of the updated Deposit schedule, where you will be able to trace the deposit that has been applied to this invoice.
Upon arrival of this airfreight, the total net amount owing for this invoices amounts to €33,537.86.
Pls could you confirm that you are in agreement with the amounts relating to these documents, if you have any queries, please feel free to let me know.
Kind regards
Delon Badler
GM Finance & Operations
Laderma Trading Pty Ltd
205 Victoria Street
Beaconsfield NSW 2015 Australia" [Emphasis added]
On 3 June 2009 Mr Badler of "Laderma Trading Pty Ltd" sent the following email to Mr Pessagno:
"Hi Gerard
We have been notified by our freight forwarder that the airfreight referred to below has been delivered. Pls could you arrange for payment of the outstanding balance.
Kind regards
Delon Badler
GM Finance & Operations
Laderma Trading Pty Ltd
205 Victoria Street
Beaconsfiefd NSW 2015
Australia" [Emphasis added].
On 3 and 9 June 2009 Mr Badler of "Laderma Trading Pty Ltd" sent similar emails to Mr Pessagno. The 9 June email (without any Laderma Trading footer) was as follows:
"Hi Gerard
We have yet to receive payment for Invoice 211 that was delivered to your warehouse a week ago. I also sent you an email about this last week Thursday but have yet to receive a response. Pls could you get back to me ASAP so that we can close this invoice out.
Kind regards
Delon" [Emphasis added].
Who did the plaintiff think it was dealing with when it received these emails from "Laderma Trading Pty Ltd", when it had an agreement with Laderma? Was there agreement between the parties that, notwithstanding the unsatisfactory nature of the banking information, and the plaintiff's failure to sign the deed it was sent, that it might as well continue trading?
Some insight may be gleaned from other correspondence between Mr Sher and Mr Riding which was occurring at approximately the same time as these emails and letters were being exchanged between the companies' employees. That correspondence was not included in the defendants' submissions, although it is more directly relevant to the question of whether the plaintiff was willing to deal with Laderma Trading.
First, there was a significant gap between the December 2008 email, and any step taken by the defendants to regularise their trading arrangements to replace the first defendant with the second. The reasons for this were not explained.
On Monday 25 May 2009 Mr Sher sent an email, without any prior instigation, as follows:
"Steve,
As discussed previously we need to get an updated contract in place to cover new products, change of company and our arrangement on an ongoing basis.
We have previously sent you a deed of variation which outlined our agreed terms of working together. The only outstanding item in this document which had not yet been agreed upon was the performance criteria, and we assume this is because performance requirements were beyond what you were comfortable committing to in light of your inventory holdings?
As such we have redrafted a deed of variation to the existing agreement as attached, which is in line with what was originally agreed, but now also incorporates further products agreed to, and the assignment of the original agreement from Laderma to Laderma Trading due to the passing of my father. For purposes of the rest of 2009 we intend to use your forecasted purchases (please provide update through to end Dec 09), which allow us to progress towards the end of the year without any unrealistic expectations. This is challenging considering your level of inventory and hence reduced sales levels, as from our perspective 2009 purchases by you are well below what we would have envisaged.
The agreement then allows performance criteria to be agreed upon for 2010 onwards, we will remove current 2010 performance criteria from this schedule, and replace with agreed 2010 numbers once we have a clearer understanding of the actual 2009 numbers and as inventory numbers are brought in line with requirements. We will aim to finalise these details to [sic] by 31 Oct 09.
Pls review and let us have any comments you may have as we would like to execute this agreement asap." [Emphasis added].
The previous discussion was the December 2008 discussion. Attached to this was a revised deed between Laderma Pty Ltd, M&A Pharmachem Ltd and Laderma Trading Pty Ltd.
There was no reply, and nothing further happened until Mr Sher sent a lengthy email (on Wednesday, 9 September 2009), dealing with a wide variety of issues including monthly reports, marketing, inventory requirements, the ordering process, new products, distribution opportunities. On the second-last page of this document, Mr Sher put the following proposition, under the heading "Contract":
"Contract
A revised draft contract has been sitting with Philip for much of the yr? We need to look at putting this [sic] hopefully can finalise by the time I visit?" [Emphasis added].
"Much of the year" was something of an overstatement, since Mr Sher had done nothing between March (when the first deed was sent) and May 2009. Mr Sher's hope that his second attempt to have the new agreement, replacing the first defendant with the second, agreed to and signed by the plaintiff did not, however, meet with any response.
Months went past. On Monday, 12 October Mr Sher sent another email listing many of the same issues such as inventory planning, new products and the like, and underneath the heading: "Contract" This time, there was no text underneath this subheading at all. There appeared only a simple question mark, like this: "?" [Emphasis added].
This entire email came back with feedback in red added to each of Mr Sher's comments in the email (set out as the response to his questions), outlining what was to be discussed. The relevant entry beside the question mark for "Contract" stated: "MG will discuss with Philip." [Emphasis added]. That suggests that there was to be some discussion about the proposal to replace Laderma with Laderma Trading. Whatever was discussed, the defendants do no submit that anything was agreed to or signed in October 2009.
The email of 4 November 2009 in reply was similarly brief. Under the heading "Contract", Mr Sher had simply the word "Mike??" [Emphasis added]. Once again, the defendants do not claim that this resulted in an the signing of any agreement in November 2009 or any other conversation or indication of willingness as at this date to agree to these changes.
The issue of amendment of the defence and cross-claim was raised during the hearing (T 122), although not in the context of advertising costs. When counsel for the defendant conceded that the defence and cross-claim did not refer to a variation of the contract, he sought leave to amend. The issue of variation never featured in the plaintiff's case; the plaintiff's case was that there was only one contract, and that contract came to an end on 4 April 2010. In this respect, Mr O'Donald's affidavit, which states "if [the plaintiff's] contention is accepted by this Court, that the distribution agreement...was never varied" misses the point. The plaintiff has never claimed the contract was varied.
Nor does a proposed new claim of mistake by the defendants relate in any way to the amendment to plead mistake by the plaintiff on the day of the hearing. The mistake pleas by the parties relate to entirely different matters.
In addition, at a time when the defendants were considering an amendment to during the hearing, there was no thought of these additional claims, and Mr Miller agreed that these issues had not been considered at the end of the hearing, when all that was sought was leave to tender any additional documents (which was later agreed to be unnecessary: T 356) and cross-examine Mr Gatenby (which never occurred).
The defendants made some concessions about the payment of costs, essentially in relation to the cost of the plaintiff having to bring witnesses from the United Kingdom (T 383). However, even if costs had been proffered for the hearing thrown away, the circumstances in which a court will dislocate a hearing in order to permit a litigant to bring an entirely new case, especially where the evidence in that case was complete, would have to be compelling.
Bringing the application caused significant delay to the hearing. The hearing had to be adjourned until Monday 1 April 2013, then to 20 May 2013, and further submissions were then provided in June 2013. This led to further difficulties because of my leave and circuit commitments.
In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [102], Gummow, Hayne, Crennan, Kiefel and Bell JJ examined the requirement for proffering an explanation when there is delay in applying for amendment:
"[102] The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment."
The High Court's requirement for an explanation is a significant recognition that applications to amend brought with little or no notice, particularly where such an application is made shortly before or during a trial, may be brought as a trial tactic. The party bringing the application benefits whether the application is successful or unsuccessful, because the appeal process requires the finding of errors of law by the trial judge, rather than appellate examination of the merits of the case, and the search for errors may overshadow what those merits are. Some of the academic articles on this subject refer to late applications to amend, as well as the sudden discovery of material of significance when the hearing is over, issues not raised at the trial and complaints of bias as potentially distracting the court from examination of the factual issues in the trial (see, for example, "Appeal by Ambush" and other articles in the 2011 issue of the Thurgood Marshall Law Review, which devoted an entire volume to the issue of "trial by ambush"). Recent decisions of the NSW Court of Appeal such as Sydney South Western Area Health Service v MD [2009] NSWCA 702; Belligen Shire Council v Colavon Pty Ltd [2012] NSWCA 34) have similarly endorsed these principles.
At the time I heard the application I had not had the advantage of reading the parties' submissions as to the merits of the cross-claim. Mr Miller's "nil-all draw" estimate that the proposed amendments would be the equivalent of the plaintiff's claim was puzzling at the time, given the size of the cross-claim. Having now had the benefit of the parties' submissions as to the cross-claim, particularly concerning the abandonment of the loss of opportunity for the "terminated order" resales, I am satisfied that the cross-claim as pleaded contained claims that were weak, and must have been known to be so by the defendants and those who advised them. Not only was the cross-claim wholly contingent upon the implication of a term into the contract (in circumstances where the implication of such a term was inconsistent with express terms), but there were significant problems with causation and quantum.
Accordingly, although it did not play a part in my consideration at the time, the futility of the "terminated order" claim, and the weakness of the remaining claim in relation to causation are factors that should militate against the granting of liberty to amend.
Orders
(1) Judgment for the plaintiff for €99,607.44.
(2) Liberty to the parties to bring in Short Minutes of Order representing the mathematically agreed judgment sum and interest.
(3) Cross-claim dismissed.
(4) Defendants/cross-claimants to pay plaintiff/cross-defendant's costs of the proceedings.
(5) Liberty to apply in 28 days in relation to costs.
(6) Exhibits retained for 28 days.
**********
Decision last updated: 03 February 2014
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