McKenna Freight Lines Pty Ltd v Toll Holdings Ltd
[2005] WASC 57
MCKENNA FREIGHT LINES PTY LTD -v- TOLL HOLDINGS LTD & ANOR [2005] WASC 57
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 57 | |
| Case No: | CIV:2185/2002 | 14 - 17 FEBRUARY 2005 | |
| Coram: | COMMISSIONER SIOPIS SC | 13/04/05 | |
| 38 | Judgment Part: | 1 of 1 | |
| Result: | Damages awarded to plaintiff Action against first defendant dismissed Counterclaims dismissed | ||
| B | |||
| PDF Version |
| Parties: | MCKENNA FREIGHT LINES PTY LTD (ACN 064 791 715) TOLL HOLDINGS LTD (ACN 006 592 089) TOLL TRANSPORT PTY LTD (ACN 006 604 191) BRIAN JOSEPH MCKENNA MCKENNA NOMINEES PTY LTD |
Catchwords: | Contract for sale of business Implied terms Turns on its own facts |
Legislation: | Trade Practices Act (Cth) |
Case References: | Dare v Pulham (1982) 148 CLR 658 General Billposting Company Ltd v Atkinson [1909] AC 118 Jones v Dunkel (1959) 101 CLR 298 Kaufman v McGillicuddy (1914) 19 CLR 1 Said v Butt [1920] 3 KB 497 Secured Income Estate Ltd v St Martins Investments Ltd (1979) 144 CLR 596 Trego & Anor v Hunt [1896] AC 7 Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Byrne & Anor v Australian Airlines Ltd (1995) 185 CLR 410 Capital Investments Corporation Pty Ltd v Classic Trading Pty Ltd [2001] FCA 1385 Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 Henville v Walker (2001) 206 CLR 459 Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 Hivac Ltd v Parkroyal Scientific Instruments Ltd [1946] Ch 169 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 211 ALR 79 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 Murphy v Overton Investments Pty Ltd (2004) 204 ALR 26 Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110 Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254 Rock Refrigeration Ltd v Jones [1997] 1 All ER 1 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Thorby v Goldberg (1964) 112 CLR 597 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 211 ALR 342 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Wessex Dairies Ltd v Smith [1935] 2 KB 80 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
TOLL HOLDINGS LTD (ACN 006 592 089)
First Defendant
TOLL TRANSPORT PTY LTD (ACN 006 604 191)
Second Defendant
(BY ORIGINAL ACTION)
TOLL HOLDINGS LTD (ACN 006 592 089)
First Plaintiff
TOLL TRANSPORT PTY LTD (ACN 006 604 191)
Second Plaintiff
AND
MCKENNA FREIGHT LINES PTY LTD (ACN 064 791 715)
First Defendant
(Page 2)
- BRIAN JOSEPH MCKENNA
Second Defendant
MCKENNA NOMINEES PTY LTD
Third Defendant
(BY COUNTERCLAIM)
Catchwords:
Contract for sale of business - Implied terms - Turns on its own facts
Legislation:
Trade Practices Act (Cth)
Result:
Damages awarded to plaintiff
Action against first defendant dismissed
Counterclaims dismissed
Category: B
Representation:
Original Action
Counsel:
Plaintiff : Mr M H Zilko SC & Mr M Curwood
First Defendant : Mr C G Colvin SC
Second Defendant : Mr C G Colvin SC
Solicitors:
Plaintiff : Curwood & Co
First Defendant : Clayton Utz
Second Defendant : Clayton Utz
(Page 3)
Counterclaim
Counsel:
First Plaintiff : Mr C G Colvin SC
Second Plaintiff : Mr C G Colvin SC
First Defendant : Mr M H Zilko SC & Mr M Curwood
Second Defendant : Mr M H Zilko SC & Mr M Curwood
Third Defendant : Mr M H Zilko SC & Mr M Curwood
Solicitors:
First Plaintiff : Clayton Utz
Second Plaintiff : Clayton Utz
First Defendant : Curwood & Co
Second Defendant : Curwood & Co
Third Defendant : Curwood & Co
Case(s) referred to in judgment(s):
Dare v Pulham (1982) 148 CLR 658
General Billposting Company Ltd v Atkinson [1909] AC 118
Jones v Dunkel (1959) 101 CLR 298
Kaufman v McGillicuddy (1914) 19 CLR 1
Said v Butt [1920] 3 KB 497
Secured Income Estate Ltd v St Martins Investments Ltd (1979) 144 CLR 596
Trego & Anor v Hunt [1896] AC 7
Case(s) also cited:
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Byrne & Anor v Australian Airlines Ltd (1995) 185 CLR 410
Capital Investments Corporation Pty Ltd v Classic Trading Pty Ltd [2001] FCA 1385
Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382
(Page 4)
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1
Henville v Walker (2001) 206 CLR 459
Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503
Hivac Ltd v Parkroyal Scientific Instruments Ltd [1946] Ch 169
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 211 ALR 79
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Murphy v Overton Investments Pty Ltd (2004) 204 ALR 26
Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110
Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254
Rock Refrigeration Ltd v Jones [1997] 1 All ER 1
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289
Thorby v Goldberg (1964) 112 CLR 597
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 211 ALR 342
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429
Wessex Dairies Ltd v Smith [1935] 2 KB 80
(Page 5)
1 COMMISSIONER SIOPIS SC: In 2000 Mr Brian McKenna was the Managing Director and shareholder in a company called McKenna Freight Lines Pty Ltd. At that time McKenna Freight Lines Pty Ltd, the plaintiff in this case, had been operating for a number of years in Western Australia and was well regarded in the interstate transport industry. Mr McKenna had spent all his working life in the transport industry. In June 2000 Mr McKenna visited his doctor who had advised him that his health was not as good as it could be. Following the visit to his doctor, Mr McKenna decided to sell the business of the plaintiff in the hope of pursuing an ambition that he had cherished for some time of opening a golf shop in the Rockingham area.
2 In late September 2000 Mr McKenna met with Mr Kevin Welch who was a representative of what I will loosely refer to as the Toll Holdings group of companies. At this stage of the reasons, I refer to the defendants as the Toll companies because one of the issues in the case is to identify which of the companies within the Toll Holdings group contracted with the plaintiff.
3 The initial discussions with Mr Welch led to further meetings between Mr Welch, Mr Tattle and accountants engaged by Toll for the purposes of carrying out a due diligence exercise. At this time Mr Kevin Welch held the position of State Manager of Toll Express, a business owned and operated by the second defendant, and Mr Maurie Tattle held the position of General Manager of the Toll Express business nationally.
4 A meeting took place between Mr Tattle, Mr Welch and Mr McKenna in the first week of November 2000. There was a subsequent meeting between Mr McKenna and Mr Welch also in November 2000. It is common cause that as a result of conversations that occurred at each of those meetings an oral agreement was reached between Mr McKenna on the one hand and either the first defendant or the second defendant on the other hand, whereby the plaintiff agreed to sell its business other than the plant and equipment to one or other of the Toll companies. The agreement was not recorded in writing and this case has come about because the parties differ as to what the terms of the agreement were.
Background
5 It is common cause that it was a term of the said agreement that the business of the plaintiff should be transferred to the Toll Express business by 1 December 2000.
(Page 6)
6 During November 2000, Mr McKenna, on behalf of the plaintiff, started informing his customers of the agreement to sell his business to one of the Toll companies. At the end of November 2000 Mr McKenna terminated the employment of those employees of the plaintiff that were not going to be employed by the contracting Toll company.
7 Mr McKenna then relocated to the second defendant's premises from where the Toll Express business was conducted. The business of the plaintiff was effectively merged into the business of Toll Express.
8 Mr McKenna occupied an office next to the office of Mr John Arnold and Mr McKenna commenced providing services to assist in the integration of the plaintiff's business into that of the Toll Express business.
9 The second defendant established a special accounting code called a Representative Code or "Rep Code" to identify those customers of the plaintiff's business which had been transferred pursuant to the sale agreement. The Rep Code allocated was "666". The purpose for allocating this code was to ascertain and track the revenue which was generated by the former customers of the plaintiff, for the purposes of applying a formula whereby instalments of the purchase price would be paid to the plaintiff on a monthly basis. The formula was 6.7 per cent of the total monthly revenue generated by the former customers of the plaintiff.
10 After he relocated to the premises of the second defendant, Mr McKenna was told by Mr Hunt, an employee of the second defendant, that in order to be paid the first monthly instalment of the purchase price an invoice headed up "Business Royalty Payment" should be prepared and submitted by him. Mr McKenna, in accordance with those instructions, submitted on behalf of the plaintiff, invoices in this manner for each month until the end of August 2001. He was paid a total of $83,077.87. After August 2001 the plaintiff did not submit any further invoices.
11 Mr McKenna attended the Toll Express business premises on a regular basis.
12 In April 2001, Mr McKenna advised Mr Welch that insofar as the formula of 6.7 per cent based on a turnover of $2.1 million was intended to generate over a 18 month period a total payment of $250,000 and the formula was wrong and that it needed to be adjusted to 7 per cent. Mr Welch accepted that position and the formula was adjusted.
(Page 7)
13 In June 2001, there were discussions between Mr Welch and Mr McKenna in relation to the payment of a consultancy fee. This led to the plaintiff submitting invoices on 1 August 2001 for $2500 and on 30 August 2001 for $2000, which were paid.
14 On 20 September 2001 Mr McKenna on behalf of the plaintiff sent a letter to Mr Welch which included the following:
"I am requesting a final payout of remaining monies that will enable myself to pursue my new career into the retail trade (Golf Shop). Financially at this point I am unable to commence.
During the handover period of nine (9) months I have been paid $83,077 leaving $166,923 as the balance of the agreed purchase price of $250,000. I am hoping for an amicable finish to our agreement then we can hopefully both move onto bigger and better futures. Could I please have your reply by September 28, 2001."
- The plaintiff did not receive the final payout Mr McKenna requested. Mr McKenna did not submit an invoice at the end of September 2001 for any payments. On 16 October 2001 Mr McKenna left the premises of Toll Express and moved to premises at another transport company. After 30 August 2001 the Toll contracting company made no further payments in discharge of the purchase price
15 On 9 November 2001 Mr McKenna caused a new company, McKenna Nominees Pty Ltd ("McKenna Nominees"), the third defendant by counterclaim, to be incorporated. McKenna Nominees commenced trading in the transport industry.
The pleadings
16 By reason of the uncertainty as to which Toll company the plaintiff contracted with, the plaintiff has bought the same alternative claims for damages breach of contract and damages under s 82 of the Trade Practices Act against each of the defendants. It has however brought an additional claim against the first defendant for damages for breach of a confidentiality agreement entered into prior to entry into the sale agreement. I will not in the overview of the pleadings repeat the alternative claims against each defendant but will refer to claim only against the first defendant.
(Page 8)
17 The plaintiff alleges that the oral agreement for the sale of the business was made in the first week of November 2000. Express terms of the sale agreement were that the first defendant would pay the plaintiff the purchase price of $250,000 over a period of 12 months, commencing on the date in which the plaintiff's business operations were transferred to the first defendant. The business operations would be transferred to the first defendant with effect from 1 December 2000 and after 1 December 2000 all the customers the plaintiff would be referred by it to the first defendant.
18 It is also alleged that it was a term of the sale agreement that the plaintiff would provide the services and expertise of Mr McKenna to the first defendant for such period as the parties agreed, to manage the handover of the plaintiff's business operations to the first defendant. The first defendant would pay the plaintiff a consultancy fee for the services to be provided by Mr McKenna.
19 It is alleged that it was an implied term of the sale agreement that the consultancy fee which the first defendant would pay to the plaintiff for Mr McKenna's services would be a reasonable fee taking into account Mr McKenna's "expertise and experience as an interstate road transport operator".
20 It is then alleged that in about the third week of November the terms of the sale agreement were expressly varied whereby the plaintiff agreed to extend the time for the payment of the purchase price from 12 months to 18 months from the date on which the plaintiff's business operations were transferred to the first defendant.
21 It is alleged that pursuant to the sale agreement, on 1 December 2000 the plaintiff terminated the employment of its employees and paid out all accrued employee entitlements, began referring all of its customers to the first defendant and ceased operating its business. It is also alleged that on that date Mr McKenna commenced working for the first defendant as a consultant on a full-time basis.
22 The plaintiff claims that in breach of the sale agreement and despite demand by the plaintiff, the first defendant has refused and failed to pay the plaintiff the whole of the purchase price of $250,000. The plaintiff claims damages being the difference between the amount which the contracting Toll company agreed to pay and the amount actually received by the plaintiff. It also claims damages of $100,000 being the difference between the amount which the plaintiff ought to have paid as a reasonable
(Page 9)
- sum for Mr McKenna's services which the plaintiff estimates to be $10,000 per calendar month and the amount which he was actually paid.
23 The plaintiff also pleads a cause of action for damages pursuant to s 82 of the Trade Practices Act founded on a breach of s 52 of the Trade Practices Act (Cth). It is alleged that in the first week of November 2000, Mr Tattle, on behalf of one or other of the Toll companies made the following oral representations to Mr McKenna in his capacity as a director of the plaintiff:
"(a) The [Toll company] was prepared to pay the plaintiff $250,000 for the plaintiff's business other than his plant and equipment which the [Toll company] was not interested in acquiring; and
(b) if the plaintiff provided services of McKenna as consultant, the plaintiff would be paid a consultancy fee for McKenna's services."
24 It is also alleged that by making the representations referred to above, the contracting Toll company also impliedly represented that the consultancy fee payable to the plaintiff for Mr McKenna's services would be a reasonable fee, having regard to Mr McKenna's expertise and experience as an interstate road transport operator. This representation is referred to in the statement of claim as the "implied representation". It is alleged that, induced by the representations and the implied representations and acting in reliance on them, the plaintiff ceased carrying on its business with effect from 30 November 2000 and thereafter referred all of its clients and contacts in the interstate transport business to the first defendant. It is then alleged that insofar as the representations and implied representations were made with respect to future matters the Toll company had no reasonable grounds for making them and as such they were misleading and deceptive "contrary to s 51A of the Trade Practices Act". The plaintiff then claims loss and damage caused by reason of the misleading and deceptive conduct.
25 The third cause of action which the plaintiff relies upon is a breach of a confidentiality agreement made between the plaintiff and the first defendant. It is alleged that by a written agreement dated 30 October 2000 the parties agreed that the plaintiff would provide to the first defendant information, documents and records relating to the plaintiff's past, existing or future business or strategic plans to enable the first defendant to investigate the feasibility of acquiring some or all of the
(Page 10)
- plaintiff's business. It is then alleged that in breach of the confidentiality agreement the first defendant has made use of the confidential information for purposes other than the permitted purpose, namely, the operation of the first defendant's own business transport interest. The plaintiff then claims damages in respect of the breach of the confidentiality agreement.
26 Each of the defendants has filed a defence and a counterclaim. Except in respect of the claim for breach of the confidentiality agreement (which is brought only against the first defendant), the defences and counterclaims effectively mirror one another. This arises because of the doubt as to which Toll company was the contracting party with the plaintiff. It emerges from the defences and counterclaims that the defendants admit that there was an oral agreement for the sale of the business, excluding the plant and equipment, but otherwise deny the terms of the oral agreement advanced by the plaintiff including the alleged term that the plaintiff would provide the services of Mr McKenna as a consultant. The defendants allege that the express terms of the sale agreement were that:
(a) the purchase price for the business was to be paid over 18 months by way of monthly instalments, each instalment to be calculated by reference to the percentage of the revenue in fact generated by the business during that period, such percentage figure being 6.7 per cent (and later, in fact, calculated at 7 per cent);
(b) the purchase of the business was to be a purchase of "goodwill of the business" in that it was, in effect, the purchase of the customer list of the plaintiff only and not of any of the plaintiff's other assets;
(c) the plaintiff would provide the services of Mr McKenna without further charge to manage the handing over of the business operations to the second defendant to ensure customer relations were maintained, and to otherwise assist the first defendant in taking over the business generally;
(d) the second defendant would employ two of the plaintiff's then employees;
(e) the complete transfer of the Business would take place on or before 1 December 2000 whereupon the plaintiff would completely cease operating the Business.
(Page 11)
27 It is then alleged that by reason of the subsequent conduct whereby Mr McKenna claimed monies in accordance with the 6.7 per cent formula Mr McKenna is estopped from denying that the terms of the agreement were other than as alleged by the first defendant, or, alternatively, has waived any right to assert the plaintiff is entitled to any or all of the further amounts. These defences were not pursued at trial and had they been I would have rejected them because of the evidence from Mr McKenna that he only filled in the invoices and claimed the instalments in that way because he was asked to use that method of claim by the contracting Toll company.
28 In relation to the allegation that there was an implied term that the consultancy fee would be a reasonable fee, the defendants say further that the only mention of any "consultancy" at or about the time of the making of agreement during discussions between Mr Welch and Mr Tattle and Mr McKenna was to the effect that if Mr McKenna was able to obtain contracts for the business in respect of previous projects Mr McKenna had an involvement with, namely, the Olympic Dam and the Woodside projects then, but not otherwise one of the Toll companies would seek to enter into an agreement with Mr McKenna or the plaintiff to pay a consultancy fee for the periods of time that Mr McKenna or the plaintiff would be assisting the first defendant upon such projects. The defendants go on to say that no such projects were obtained and accordingly no consultancy agreement was entered into or sought to be entered into.
29 In par 11 of the defence and counterclaim the defendants plead that a further term is to be implied into the sale agreement that in neither the plaintiff nor its agents, servants or directors and, in particular, by Mr McKenna would act in competition with the contracting Toll company and that the plaintiff would not either directly or indirectly attempt to appropriate or re-appropriate the business or customers of the business that had otherwise been transferred to the Toll company for so long as the plaintiff provided services to the Toll company. It is said that such a term was to be implied as a matter of fact or law.
30 In par 19 of the defence and counterclaim the defendants allege that it was an implied term of the sale agreement that the plaintiff would not, whether by itself or by its servants, agents or directors and in particular by Mr McKenna, cause or be engaged in any competition with the Toll company in respect to the customers that were customers of the business or otherwise in respect to the business and that the plaintiff would not whether directly or indirectly attempt to appropriate or re-appropriate the business or customers of the business that had otherwise been transferred
(Page 12)
- to the Toll company for a period of 18 months. This term is also said to be implied as a matter of fact or law.
31 The defendants then allege the plaintiff breached each of the implied terms pleaded at pars 11 and 19 of the defence and counterclaim by the following conduct of Mr McKenna. It is alleged that on about 9 November 2001, Mr McKenna caused the company McKenna Nominees Pty Ltd (ACN 098 702 222) ("McKenna Nominees") to be registered with its director as Mr McKenna and the shareholders as Mr McKenna and Mrs McKenna. It is said that thereafter Mr McKenna caused McKenna Nominees to conduct a business in direct competition with the second defendant, and in particular, to engage in the process of approaching and obtaining the business of the customers of the business that were otherwise to be transferred to the second defendant in accordance with the agreement. It is also alleged that Mr McKenna caused McKenna Nominees to offer its services to those customers in competition to the contracting Toll company and in breach of the terms of the sale agreement referred to above. It is also alleged that Mr McKenna personally "targeted" the customers which had been transferred pursuant to the sale agreement to the contracting Toll company. In the particulars provided for the allegation that Mr McKenna targeted the said customers, the Toll companies rely in essence on an inference based on the size of the revenues generated by McKenna Nominees in the first two months of operation, namely November 2001 and December 2001, and the subsequent accumulation of those customers after December 2001. It is pleaded that when approached by Mr Welch throughout October 2001 and November 2001 who informed Mr McKenna that his conduct represented a breach by the plaintiff of the sale agreement, Mr McKenna denied that any such conduct as described therein was taking place.
32 It is said that Mr McKenna performed those acts with the knowledge of the plaintiff and the plaintiff was thereby a knowing participant in those acts in that the plaintiff's knowledge of the identity of the customers of the business was used.
33 It was alleged that by reason of Mr McKenna's conduct referred to above the plaintiff, through and as directed by McKenna, breached the express and implied terms of the agreement and therefore:
"(a) has repudiated the agreement such repudiation being accepted by Welch's conversations with the plaintiff described above and by the cessation of payments to the plaintiff;
(Page 13)
- (b) is not entitled to any or any further or other payments from the first defendant;
(c) further and in the alternative, if which is denied, there was in existence an agreement to pay a consulting fee or any right by the plaintiff to claim a consultancy fee as alleged in the plaintiff's statement of claim, has acted contrary to or inconsistent with the terms of any such agreement a right to earn a consultancy fee and therefore:
(i) is in repudiatory breach of any such consultancy agreement;
(ii) alternatively, is not entitled to any or any further or other payments of the consultancy fee as such payments which constitute the plaintiff being unjustly enriched at the expense of the first defendant."
35 It is further alleged that upon entry into the agreement the contracting Toll company set up, with the knowledge and consent of the plaintiff and McKenna, an account that recorded income derived by the defendants from the business (the 666 Account).
36 It is then alleged that Mr McKenna's approaches to customers of the business listed in the 666 Account in the months prior to 9 November were made for the benefit of and on behalf of McKenna and as from 9 November McKenna Nominees. The plaintiffs by counterclaim rely on the same inferences of the approaches as pleaded and particularised in the defence. Each plaintiff by counterclaim then repeats the allegations of breach referred to in the defence, and says that by reason of those breaches the plaintiff by counterclaim has suffered loss and damage and
(Page 14)
- will continue to suffer loss and damage. In essence, the damage claimed is lost income from the loss of the business customers who were originally transferred under the sale agreement.
37 Each plaintiff by counterclaim then pleads a separate claim against Mr McKenna personally for inducing a breach of contract in relation to the activities described above. Further, the plaintiffs by counterclaim each claim against McKenna Nominees on the grounds that through Mr McKenna it was aware of the sale agreement between the plaintiff and the contracting Toll company and accordingly McKenna Nominees induced a breach of the sale agreement and interfered in contractual relations.
38 In the reply and defence to counterclaim, the defendants to the counterclaim, deny that the two implied terms alleged by the plaintiffs by counterclaim are to be implied into the sale agreement. The defendants to the counterclaim also allege that there has been a waiver of any breach of the sale agreement because the Toll companies had for a number of years provided work to McKenna Nominees after McKenna Nominees had started businesses in the transport industry.
39 Further, although not pleaded, in his opening, Senior Counsel for the plaintiff/defendants to the counterclaim indicated that the defendants to the counterclaim would also allege that the plaintiffs by counterclaim, were not entitled to rely upon any breaches of the implied terms as the contracting Toll company in failing to make the payments under the sale agreement repudiated the sale agreement. In his written outline of submissions Senior Counsel for the plaintiff/defendants to the counterclaim referred to the cases of General Billposting Company Ltd v Atkinson [1909] AC 118 and Kaufman v McGillicuddy (1914) 19 CLR 1 in support of this proposition.
40 No objection was taken by Senior Counsel for the defendants/plaintiffs by counterclaim to Senior Counsel for the plaintiff/defendants to the counterclaim opening on that basis.
41 The case then proceeded on the basis of the way in which Senior Counsel for the plaintiff/defendants by counterclaim had opened. In closing, Senior Counsel for the plaintiff/ defendants by counterclaim advanced argument in support of a defence founded on the repudiation of the sale agreement by the contracting Toll company. After Senior Counsel for the plaintiff/defendants by counterclaim concluded his closing address, Senior Counsel for the defendants/plaintiffs by
(Page 15)
- counterclaim sought to make something of the fact that the General Billposting point had not been specifically pleaded in the defence.
42 As the case had proceeded on the basis of the way in which Senior Counsel for the plaintiff/defendants by counterclaim had opened the case, it was not then open to Senior Counsel for the defendants/plaintiffs by counterclaim to object after the end of closing to the fact that that point had not specifically been pleaded.
43 Had Senior Counsel for the defendants/plaintiffs by counterclaim indicated his objection at the time of Senior Counsel for the plaintiff/defendants by counterclaim's opening, I would have granted the defendants by counterclaim leave to amend the defence to counterclaim as the amendment would have essentially raised a point of law. Accordingly, in my view, the defendants to the counterclaim are entitled to rely on that defence. (See Dare v Pulham (1982) 148 CLR 658).
Questions to be decided
44 In my view, the following questions arise for the resolution of this case:
(a) Who were the parties to the sale agreement?
(b) What were the terms of the sale agreement in relation to the price to be paid for the business?
(c) What, if any, were the terms in relation to the plaintiff providing Mr McKenna's services as a consultant?
(d) Did the sale agreement contain the implied terms pleaded as pars 11 and 16 of the defence?
(e) Was the contracting Toll defendant justified in terminating the sale agreement and discontinuing payments under the sale agreement?
(g) Is the contracting Toll defendant entitled to succeed on the counterclaim?
(h) Is the contracting Toll defendant liable for damages under section 82 of the Trade Practices Act (Cth)?
(i) Is the contracting Toll defendant liable for damages for breach of the confidentiality agreement?
(Page 16)
- (j) If the plaintiff is entitled to damages, what are the damages?
The witnesses
45 Mr Brian McKenna, a director of the plaintiff and of McKenna Nominees, the third defendant to the counterclaim gave evidence. Mr McKenna was a man who had not received a full formal education, having left school at the age of 14. Further, Mr McKenna also struck me as a man who was inarticulate and was at times confused. It took him some time on occasions to fully understand the gist of the question that was being asked. There were unsatisfactory elements of Mr McKenna's evidence. I refer here particularly to the confusing evidence which he gave in relation to the compiling of the customer list during the period from the end of October 2001 to December 2001. However, his demeanour during cross-examination was satisfactory. Despite some unsatisfactory features of Mr McKenna's evidence, I generally accept the evidence of Mr McKenna.
46 Mr John Arnold also gave viva voce evidence as part of the plaintiff's case. Mr Arnold is a consultant with Toll Express the business which is operated by the second defendant. He worked in the Toll Express business during the time that the plaintiff provided Mr McKenna's services to the second defendant. He said he had the office next to Mr McKenna and that as a general rule Mr McKenna worked at those premises between seven to eight hours per day. I accept the evidence of this witness.
47 Further viva voce evidence was given by Mr Mark Maurice Barnden and Mr John William Shuit. Each of these persons has a beneficial interest in the business conducted by McKenna Nominees and each gave evidence as to the circumstances in which he was came to invest in that business. I accept the evidence of these two witnesses.
48 Witness statements were tendered by the plaintiff from Mr Roy Perron, a transport consultant, Natasha Frahm, an administration officer who had worked for the plaintiff and later for McKenna Nominees, Mr Glen Alan McLeod and Mr Michael Porter, each of whom were in 2001, employees of Oilfields and General Transport Pty Ltd, one of the plaintiff's customers that were transferred to the contracting Toll company pursuant to the sale agreement.
49 As part of the defendants' case, evidence was given by Mr Kevin Paul Welch, Mr Maurice John Tattle and Mr Bruce Robert Hunt.
(Page 17)
50 Mr Welch is and was at the material time the State Manager of the business known as "Toll Express (WA)" which is the business owned and operated by the second defendant. I was not impressed by Mr Welch as a witness.
51 In cross-examination Mr Welch denied that there was any agreement that Mr McKenna would be given a management role at the contracting Toll company after the transfer of the business. He was then confronted with a draft letter which he had settled for Mr McKenna to send to the customers of the plaintiff in November 2000 advising of the transfer of the business from the plaintiff to the second defendant. It was intended that the letter was to be signed by Mr McKenna and sent to the plaintiff's customers. The letter contained this statement to "I have taken a Management role with Toll Express and will continue to supervise your transport requirements" – a statement inconsistent with the previous answer given by the witness. Mr Welch then said that the statement in the letter was false and had been inserted because he was concerned that in the absence of that statement the customers might not come across to Toll Express. He said that he was prepared to further the defendants' interests by publishing a dishonest letter. I infer that from this answer that Mr Welch would resort to dishonest conduct to further the defendants' interests.
52 Mr Welch also conceded in cross-examination that he and Mr Tattle had consulted with each other in the presence of a solicitor in relation to the preparation of the case for court. The fact of there having been this collaboration causes me to approach the evidence of these two witnesses with some degree of caution.
53 Further, Mr Welch was prepared to give evidence deprecating the number of hours which Mr McKenna spent a the Toll premises, but it emerged in cross examination that he did not work in the same building as McKenna and he had no reliable basis to asses the number of hours Mr McKenna spent working. Mr Welch was very uncomfortable during cross-examination and his demeanour was unimpressive.
54 I was also not impressed by Mr Tattle as a witness. I was not impressed by his answers to the questions as to whether he had previously discussed the sequence of events and relevant conversations in this case with Mr Welch. Mr Tattle initially denied having consulted with Mr Welch in relation to preparation for the case, but when pressed on the issue finally conceded that he may have done so.
(Page 18)
55 Further, in cross-examination Mr Tattle also emphatically and indignantly denied that he had even represented that Mr McKenna was to be given a management role with Toll. It is only when he was confronted with a letter which he signed which contained that statement that he finally conceded that he had signed a letter to that effect. He accepted that on his case the statement contained in the letter was misleading. The demeanour of Mr Tattle was also unimpressive and he too was uncomfortable under cross-examination.
56 In general I prefer the evidence of Mr McKenna to the evidence of Mr Tattle and Mr Welch.
57 Mr Hunt, an employee of the second defendant who is the Commercial Manager of the Toll Express (WA), also gave evidence. I accept the evidence of Mr Hunt.
58 I now turn to deal with each of the issues which are raised in the case:
Which was the proper contracting party?
59 In my view, the balance of the evidence favours the position that the contracting party that entered into the sale agreement with the plaintiff was the second defendant, Toll Transport Pty Ltd. It was the second defendant that carried on the business of Toll Express and Mr Welch was an officer of the second defendant. Mr Tattle was the General Manager of the Toll Express business. The business of the plaintiff was to be transferred to and merged with the business of Toll Express. I find therefore, that the sale agreement was made between the plaintiff and the second defendant. I will proceed on the basis of that finding.
What did the parties agree in relation to the terms of the price?
60 The plaintiff's case in relation to this issue was that an agreement had been reached during a meeting between Mr Tattle and Mr McKenna held at the depot in the first week of November 2002 in a conversation between Mr Tattle on behalf of the second defendant and Mr McKenna on behalf of the plaintiff. Mr McKenna said that the terms that were agreed were that the second defendant would pay a price of $250,000 payable over 12 months for the business, excluding the plant and equipment.
61 The evidence of Mr McKenna is that at the meeting with Mr Tattle the following conversation took place:
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- "Mr Tattle said:
'We are prepared to offer you $250,000. Would you be prepared to accept that?'
Mr McKenna said:
'Yes, I will accept that.'
Mr Tattle then said:
'Would you take that over a 12 month period and come over to work with us to enable a smooth transition. We will pay you a consultancy fee.'
Mr McKenna said:
'Yes. That's acceptable because its gives me some time to close all of [the plaintiff's] transactions and sell the equipment.'
Mr Tattle said 'Brian, I understand that you started this, it's your baby and if you come and work for use for 10 to 12 months it gives you time to sort everything out and to keep all of the customers happy in that period. That time also gives us a chance to get the customers slowly used to not talking to you but to a Toll person. How long will it take to wind up all of the McKenna work so that we can get you over and we can start looking after you with a consultancy fee?'
I said 'A month or two.' He said 'Good'. I then said 'It's a deal then.' I stood up and shook hands with Mr Tattle."
62 Mr McKenna says that there was a subsequent meeting at which Mr Welch proposed that the price be paid by way of instalments over 18 months with the monthly amount payable to constitute 6.7 per cent of the monthly revenue earned by the former customers of the plaintiff. Mr McKenna's case is that the agreement to take the price over the period of 18 months did not affect the basic agreement that the price to be paid was to be $250,000.
63 The case advanced on behalf of the second defendant was that no concluded agreement was made to pay $250,000 over 12 months at the meeting with Mr Tattle, Mr Welch and Mr McKenna in the first week of November.
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64 The evidence-in-chief of Mr Welch is that he went back to see Mr McKenna in the following week, either 7 or 8 November, to discuss the purchase of the business and he says at that meeting Mr McKenna agreed that there would be no fixed price for the purchase of the business but that Mr McKenna would receive whatever the final sum was that derived from the application of a formula of 6.7 per cent to the revenue stream generated by the former customers of the plaintiff at the end of 18 months. Mr Welch says that he explained to Mr McKenna that this would mean that Mr McKenna could receive less than $250,000 for the business but it could also mean that he could receive more if the customers generated such a turnover which, on the application of the formula, rendered over the 18 month period a sum in excess of $250,000.
65 I find that during the meeting in the first week in November between Mr McKenna and Mr Tattle a firm price of $250,000 was agreed. During cross-examination Mr Tattle said:
"You offered to purchase this business for $250,000 after you knew that Mr McKenna wanted a bottom line of 300 and you based that on the fact that you weren't taking the plant. That was the position, wasn't it?-----Correct.
You offered 250,000 and he accepted?---Yes."
66 In re-examination Mr Tattle appeared to say that that when he answered the question in cross examination he was reporting what had been told to him by Mr Welch as what happened at a subsequent meeting between Mr Welch and Mr McKenna. I reject that explanation. I place much greater weight on the spontaneity of the answer which was given in cross-examination.
67 As to the second meeting between Mr Welch and Mr McKenna, I find that whilst Mr McKenna reluctantly agreed to the application of the formula over 18 months, he did not agree that this would result in any downward variation of the purchase price of $250,000 which he regarded as fixed. During cross-examination Mr McKenna refused to accept that his agreement to the implementation of the formula amounted to an agreement to vary the fixed price of $250,000. In cross-examination, Mr McKenna said:
"Yes, and he explained that the amount to be paid to you would be determined by how much was received by Toll for work done for the McKenna Freight Line customers?---That would be the payment system.
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- And he explained that to you, didn't he?---As I said, he worked out this payment system over the 18 months of 2.1 million based on 18 months on a 6.7 per cent revenue raised.
He explained to you, didn't he, that the amount to be paid would change if the amount of money that was earned from clients of McKenna Freight Lines by Toll changed, didn't he?---No."
- Later, Mr McKenna said:
"And the logic of that makes it clear that if the turnover went down you would be paid less?---The logic of that, yes
And you understood that at the time?---Yes.
If the turnover went down the percentage would work, the 6.7 per cent would be applied to the turnover, and you would get less than $250,000. You knew that, didn't you?---No, I did not know that."
"Just tell me what the agreement was when you say you made it on or about 16 November, Mr Welch - 6.7 per cent of what?---We didn't make the agreement on 16 November.
What date did you make it?---On about 7 or 8 November.
On or about 7 or 8 November what do you say the agreement was?---The agreement was to pay 250,000 over 18 months."
- Later whilst being cross-examined on the letter from Mr McKenna dated 20 September 2001, Mr Welch said:
"During the handover period of nine months I have been paid $83,077, leaving $166,923 as the balance of the agreed purchase price of $250,000. That was wrong too, wasn't it?
That was wrong too, wasn't it? There was no agreed purchase price of $250,000?---No. There was an agreed purchase price of 250,000, yes."
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- between Mr Welch and Mr McKenna there was no agreement to vary the purchase price to an uncertain amount, but that Mr McKenna did agree to the receipt of instalment payments over an 18 month period, by the application of the formula referred to. The consequence of this is that if the amount generated by the application of the formula failed to produce a total sum of $250,000 by the end of the 18 month period, the second defendant would owe the balance of the $250,000 as a debt.
What, if any, were the terms in relation to the terms pursuant to which the plaintiff would provide the services of Mr McKenna as a consultant?
70 It is common cause that Mr Tattle told Mr McKenna that the second defendant would require that the plaintiff to provide his services to assist in the transition of the customers from the plaintiff to the second defendant. Where the parties differ is whether there was an agreement that there was to be a consultancy arrangement and whether the plaintiff was to be paid for the provision of Mr McKenna's services.
71 Mr Tattle in his evidence says that he recalls saying it was vital that Mr McKenna come over to the business for a period of three months to oversee the handover and that this would be an important part of the deal that the plaintiff would provide the services of Mr McKenna without charge.
72 Mr Tattle also said that: "There was never any discussion of a 12 month consultancy, nor any discussion of an additional fee for Mr McKenna assistance during the handover period". The only mention of "consultancy" was in the context of saying that there was a prospect of entering into one if Mr McKenna brought in new work for the Olympic Dam and Woodside projects. Mr Welch was present at the meeting and his evidence is to like effect.
73 There are two contemporaneous documents called "Board Recommendations" written by Mr Welch which refer to Mr McKenna providing consulting services. One document states "Brian McKenna will act in the capacity of consultant for Toll Express Perth - in a full time capacity initially to oversee the transition then part time thereafter in a maintenance role".
74 There is also the letter sent by the second defendant to the former customers of the plaintiff at the time of the transfer which was signed by Mr Tattle which states that "Brian has accepted an ongoing position with Toll Express Perth where he will continue an active management role". These documents are inconsistent with the second defendant's position
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- that the only mention of consultancy during the discussions was in relation to the Olympic Dam and Woodside projects. However, I accept Senior Counsel for the defendants' argument that the terms of these documents are not inconsistent with Mr McKenna's services being provided without charge.
75 In November 2000 Mr McKenna received a telephone call from Mr Welch saying that he would be receiving a letter form Mr Ludecke in relation to the sale of the business but that he should destroy the letter because it was wrong. Mr McKenna did not destroy the letter. This letter contained the following statements:
"Thank you for the opportunity in allowing Maurie Tattle and Kevin Welch to take a closer look at the business. ...
Subject to satisfactory due diligence, Toll will offer a consultancy role to you to stay with the business of one hundred and twenty five thousand dollars per annum. Consideration includes Toll acquiring and retaining the customers of [the plaintiff] ... "
76 The letter was signed by Mr John Ludecke. Mr Ludecke was a director of the second defendant and was the person to whom Mr Tattle reported.
77 This letter is dated 7 November 2000 and would therefore have been have been written no more than three working days after the conversations between Mr McKenna and Mr Tattle and Mr Welch. As Mr Ludecke was not present at the meeting the letter could only have been written by him based on information reported to him by Mr Tattle or Mr Welch. This letter is also inconsistent with the evidence of Mr Tattle and Mr Welch that the only mention of consultancy was in relation to the possibility of entering into that relationship if Mr McKenna brought in new work related to the two projects mentioned. And it is also inconsistent with evidence that the discussions were to the effect that the services to be provided by Mr McKenna were not to be remunerated. Thus, although the letter misdescribes the agreement, it lends support to Mr McKenna's version that the agreement was that his services were to be remunerated and it undermines the version of the discussions deposed to by Mr Tattle and Mr Welch.
78 Mr Ludecke was not called give evidence as to the circumstances in which he came to write this letter. No explanation was given for the failure of Mr Ludecke to give evidence on this issue. I, accordingly, infer
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- that the evidence which Mr Ludecke would have given if called would not have assisted the defendants' case (Jones v Dunkel (1959) 101 CLR 298).
79 I prefer the version of Mr McKenna and find that here was an agreement made at the meeting between Mr Tattle, Mr Welch and Mr McKenna in early November 2001 that the plaintiff was to provide the services of Mr McKenna to provide consultancy services for a fee.
80 Senior Counsel for the defendants argued that the subsequent conduct of the plaintiff and Mr McKenna was not consistent with the existence of an agreement to be paid a fee for providing consultancy services because he did not complain about the failure to formalise arrangements for the payment of the fee earlier. In fact the evidence of Mr McKenna on this is that he did informally from time to time ask Mr Welch when the arrangements would be made for the payment of the consultancy fee and that Mr Welch advised him that it would be attended to. An email written by Mr Welch in June 2001 recognises Mr McKenna's accommodating nature (as was also evident in the witness box) and the fact that he did not complain more vigorously earlier than he did is explicable on this basis, and on the basis that he was still trying to come to terms with the operation of the formula. Ultimately in June 2001 an arrangement was made for the payment of the consultancy fee and payments were made by the second defendant to the plaintiff. The more important fact is that ultimately the second defendant did start making payments of a consultancy fee in circumstances which are inconsistent with the second defendant's version, namely, that this would only occur if new work came form the two projects.
81 As to the question of whether there was an agreement as to the term of the consultancy, I find that there was no agreement to there being a twelve month term. At times during his cross-examination Mr McKenna said that Mr Tattle had said that the handover period would be for twelve months and the consultancy would be for a period of 12 months. However, Mr McKenna later said in cross-examination that he accepted that his evidence that the consultancy was for 12 months was based on an assumption that because the payment was spread over 12 months, the consultancy would also be over 12 months. I find that here was no agreement as to the term of the consultancy.
82 If follows, that the legal conclusions which flow from these factual findings is that there was an agreement that the plaintiff would make available to the second defendant, the services of Mr McKenna which
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- would be terminable by either party at reasonable notice for a reasonable fee.
Were the terms pleaded at pars 11 and 16 of the defence?
83 I turn firstly to the term which was pleaded at par 11 of the defence and counterclaim.
84 The second defendant says that there ought to be an implied term that neither the plaintiff nor its agents, servants or directors and, in particular, by Mr McKenna act in competition with the second defendant and that the plaintiff would not either directly or indirectly attempt to appropriate or re-appropriate the business or customers of the business that had otherwise been transferred to the second defendant for so long as the plaintiff provided services to the second defendant.
85 It is then said that the term is to be implied as a matter of fact in order to give business efficacy to the agreement. Alternatively, the term is to be implied as a matter of law by reason of duties of fidelity and loyalty owed by the plaintiff to the defendant arising from the agreement.
86 It is firstly necessary to consider what the terms of the sale agreement were in order to determine whether any such term as pleaded by the defendants could be implied. I have found that the terms of the sale agreement in relation to the consultancy were that the plaintiff would provide Mr McKenna's services to would act as a consultant to assist the second defendant in the transition of the business from the plaintiff to the second defendant. Secondly, that there was no agreement as to duration; and, thirdly, that the plaintiff would be entitled to a reasonable fee in respect of the provision of Mr McKenna's services. There was no agreement as to the number of hours to be worked, although it transpired that Mr McKenna worked almost full time.
87 There are two limbs to the terms that is sought to be implied – a non-competition limb and a non-appropriation limb. I deal firstly with the non-competition limb. In the case of Trego & Anor v Hunt [1896] AC 7, the House of Lords held that where the goodwill of a business is sold the vendor does not by reason only of that sale and in the absence of any stipulation to the contrary, impose upon himself any obligation not to carry on a competing business. The question therefore is whether a non-competition limb of term should be implied in the sale agreement by reason only that the sale agreement contained terms for the provision of consultancy services in order to give business efficacy to the agreement. In my view, a consultancy relationship differs from an employee
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- relationship. The employment relationship has at its core the provision of services to one employer, whereas it is a premise of a consultancy relationship that a consultant will be able to provide services to more than one client in the industry in which the consultant provides services – even if one or more of the clients may indeed be competitors of each other. In my view it is not necessary to imply a non – competition clause into a consultancy agreement to give it business efficacy.
88 It was also argued that the term should also be implied as an incident of the duty and loyalty that was owed by the plaintiff through Mr McKenna. As I have mentioned above there is a distinction between a consultancy relationship and an employee relationship. In the employee relationship the employee has one employer and has an undivided duty of loyalty to that employer during the term of the employment contract. That is not the position of a consultant. The consultant's relationship does not, on the face of it, without more, attract the same requirements of undivided loyalty as does an employee relationship. Senior Counsel for the defendants did not cite any cases to me supporting the proposition that there was to be implied into a consultancy contract as a matter of law a non-competition term. Accordingly, I hold that there is not to be implied into the sale agreement on the grounds of the consultancy element of the agreement, a term which precluded the plaintiff from engaging in activities competitive with the second defendant during the time that the plaintiff provided the services of Mr McKenna. Further, no such term can arise from the fact that Mr McKenna said he intended to open a golf shop.
89 I now deal with the second limb of the term contended for, namely, the non appropriation term. In the case of Trego & Anor v Hunt (supra) the House of Lords held that there was to be implied, as a matter of law, a term which precluded the seller of the goodwill of the business form soliciting the custom of the customers of the business of the seller had sold. The basis for the implication of the term is that a party cannot derogate form his or her grant. In my view, such a term would also be implied into the sale agreement on the grounds that it is necessary to give business efficacy to the consultancy relationship. It must be implied that a consultant would not solicit the customers of the party that has engaged him as a consultant where the very purpose for which the consultant was engaged was to facilitate the transition of the business from the plaintiff to the second defendant. Accordingly, I hold that there was an implied term to the effect that the plaintiff would not solicit the custom of the customers during the period of its engagement.
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90 I now turn to whether there was an implied term in the sale agreement to the effect pleaded in par 19 of the defence and counterclaim.
91 This term also contains two limbs, namely that the defendant would not compete with the second defendant and would not appropriate or seek to re-appropriate the customers of the business which had been transferred to the second defendant for a period of eighteen months. This 18 month time limit coincides with the period during which the instalments of the purchase price for the business were to be paid.
92 Senior Counsel for the defendants argued that the term was to be implied as a matter of law, alternatively, pursuant to the principle referred to in the case of Secured Income Estate Ltd v St Martins Investments Ltd (1979) 144 CLR 596, that a contracting party cannot do anything which deprives the other party of the benefit of the agreement.
93 The extent of the implied term which is incorporated as a matter of law into an agreement for the sale of a business pursuant to which the goodwill of the business is sold has been dealt with in the House of Lords' decision of Trego & Anor v Hunt (supra). As mentioned above, in that case the House of Lords held that where the goodwill of a business is sold the vendor does not by reason only of that sale and in the absence of any stipulation to the contrary, impose upon himself any obligation not to carry on a competing business. However, there was, as a matter of law, an implied term that the vendor would not solicit custom from the customers of the business which he has sold.
94 I find that the term pleaded at par 19 of the defence and counterclaim cannot in those terms be implied into the sale agreement. I find however that there was an implied term of the sale agreement precluding the plaintiff from soliciting the custom of those customers which it has transferred to the second defendant.
Was the second defendant justified in terminating the sale agreement and refusing to pay the price?
95 It is common cause that the second defendant ceased making payment of instalments of the purchase price after paying the invoice of the plaintiff for the month of August 2001.
96 The evidence of the circumstances of the second defendant's decision not to make any further payments of the instalments of the purchase price came from Mr Hunt and Mr Welch.
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97 Mr Hunt, who is employed as a Commercial Manager in the Toll Express (WA) business of the second defendant, said that in about late September 2001 Mr Welch told Mr Hunt that Mr McKenna had set up business in competition with Toll Express and to stop making payments to the plaintiff. He said that he did as instructed and the last payment made to Mr McKenna was in respect of the last week of August 2001.
98 He said that after making the last payment to Mr McKenna on 31 August 2001 he did not receive any further invoices from Mr McKenna or any demands for payments of money whatsoever.
99 Mr Welch was asked about this in cross-examination:
"Then you instructed Hunt to stop making payments to McKenna Freight Lines, didn't you, at about that time?---No. That was after I - after Brian had left the business and he had started - well, I'd heard that he had started up a new business.
Whatever it was, you instructed Hunt to stop payment?---Yes, I did, yes.
You agree with that. No doubt about it, is there?---No.
And from that day he has never had another penny, or his company has never had another penny, has it?---That's correct.
And what, did you consider yourself discharged from further responsibility then, once he started up? It was the end of the deal?---Yes."
100 Mr Welch in his evidence-in-chief puts the date at which he gave that instruction as a short period after Mr McKenna's last day at Toll Express which would have been shortly after 16 October 2001. In respect of the difference between the two witnesses as to the date I prefer the evidence of Mr Hunt.
101 The second defendant justifies the decision not to keep making payments of the instalments as a manifestation of its decision to accept the repudiation of the sale agreement by the plaintiff and to terminate the sale agreement.
102 The conduct which the plaintiff alleged to constitute the repudiation of the sale agreement is pleaded at pars 20 and 21 of the defence and counterclaim. In essence it is alleged that through the conduct of Mr McKenna the plaintiff breached the sale agreement. At par 20 of the
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- defence and counterclaim, the second defendant pleads that after 9 November 2001 Mr McKenna caused the company, McKenna Nominees Pty Ltd, to be registered with its directors as McKenna and shareholders as Mr McKenna and Mrs McKenna. Thereafter and after 9 November 2001 Mr McKenna caused McKenna Nominees to conduct a business in direct competition and, in particular, to engage in the process of approaching and obtaining business of the customers of the business that were otherwise transferred to the first defendant in accordance with the agreement. It is also alleged that personally, and for and on behalf of the plaintiff, Mr McKenna targeted the business customers in the months prior to 9 November 2001.
103 Insofar as par 20 alleges that Mr McKenna caused McKenna Nominees to act in competition with the defendant, I have already found that that there was no implied term of the sale agreement that the plaintiff would not act in competition with the second defendant. It follows that Mr McKenna's conduct in acting in competition with the second defendant per se cannot amount to a breach of the sale agreement. Therefore, that conduct on the part of Mr McKenna cannot be relied upon as a basis to justify the second defendant's decision to stop making payments of the purchase price under the sale agreement and to terminate the sale agreement. In any event the actions by Mr McKenna, which are pleaded, took place after on or after 9 November 2001 which post dates the date on which the second defendant made the decision to discontinue the payments and thereby, on its case, lawfully to terminate the sale agreement
104 However, the defendants have also pleaded that Mr McKenna targeted the business customers in the months prior to 9 November 2001. The particulars of this allegation are to the effect that during that period Mr McKenna solicited the custom of customers of the business that the plaintiff had transferred to the second defendant under the sale agreement. The second defendant says that fact is to be inferred from the amount of business which McKenna Nominees did in the first two months of its operations compared to the next four months.
105 I have held that the sale agreement did contain an implied term that the plaintiff was precluded from soliciting the customers of the business that the plaintiff had transferred the second defendant. Accordingly, in so far as those allegations are made out, they are capable of comprising a breach of that implied term and as constituting a basis upon which the second defendant would be justified in deciding to stop the payments and thereby lawfully terminating the sale agreement.
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106 In closing submissions, Senior Counsel for the defendants on behalf of the second defendant argued that the court should infer that Mr McKenna had engaged in the solicitation of customers at a date prior to 9 November 2001. Senior Counsel for the defendants argued that such inference should be drawn because the new business did a substantial amount of work in the month of November and December 2001.
107 The revenue for November 2001 comprised $222,940 and for December $144,119. Each of these figures is substantially higher than the revenues earned in the next four months. Senior Counsel for the defendants argues that the inference to be drawn is that revenue in those sums could only have been generated in circumstances where Mr McKenna in the preceding months had solicited business from existing customers of the business which had been transferred pursuant to the sale agreement. He argues that revenues in these comparatively large amounts could not have been generated as the consequence of mere luck.
108 An examination of the trading figures for those two months reveals that for the month of November 2001 Oilfield and General Transport was responsible for $135,080 of the revenues and Jaylon Industries was responsible for $44,300, thus these two clients alone were responsible for $179,380 of the total revenues of $222,940 for the month. Likewise, in the month of December 2001, Oilfield and General Transport was responsible for $106,695 and Jaylon Industries was responsible for $18,900 of the revenues so that together these two clients were responsible for $125,795 of the $144,019 of revenue for the month of December.
109 The evidence at trial which I accept was that Jaylon Industries was a new customer and was not a customer of the plaintiff's business which had been transferred to the second defendant. Neither was Jaylon Industries a customer of the second defendant. It is common cause that Oilfields and General Transport Pty Ltd was a customer of the plaintiff that had been transferred to the second defendant pursuant to the sale agreement.
110 A witness statement from Mr Glen Alan McLeod was admitted into evidence. Mr McLeod is the Project Logistics Manager of Oilfield and General Transport Pty Ltd. Mr McLeod gave evidence that prior to November 2000 his company had sub-contracted most interstate cargo to the plaintiff. He said that in late 2000 Mr McKenna had told him that he had sold the business of the plaintiff to Toll. Mr McLeod said that for some time Toll had done Oilfield's work. He went on to say that Mr Kevin Welch described Oilfield's freight work as "ugly freight"
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- because it was not the type of freight that could be put on a pallet. Mr McLeod said that most of Oilfield's interstate transport loads are not capable of being transported except by the flat top semi trailers and he estimated that nine out of 10 loads from Oilfields are not suitable to be placed on a pallet. As to the service standards at Toll, Mr McLeod said:
"The service standards at Toll in the period that Oilfields used Toll were not good. If I looked at the matter in the context of a customer survey form and 1 was excellent and 5 was poor, in my view, Toll were at 5 - poor."
Mr McLeod said that Oilfields stopped using Toll because Oilfields were dissatisfied with the service levels.
111 Mr McLeod concludes his witness statement by saying that Mr McKenna left Toll in about October or November 2001 and that, after he left, Oilfields used Mr McKenna. He said the reason why they wanted to use Mr McKenna was his personal level of service.
112 Mr McLeod was not cross-examined on this statement.
113 There was also a witness statement form Mr Michael Porter who in 2001 was the Business Unit Manager of Oilfields and General Transport Pty Ltd, Mr Porter also gave evidence of the dissatisfaction of his company at the service levels of the second defendant. He also was not cross-examined.
114 I therefore accept the evidence of these two witnesses that the reason Oilfields stopped using the second defendant was a high level of dissatisfaction with the service provided by the second defendant.
115 In light of the fact that Jaylon was a new client and that Oilfields left the second defendant because of a high level of dissatisfaction with its service levels, and the major contribution of these two customers made to the levels of revenue of McKenna Nominees in the months of November 2001 and December 2001, I decline to draw the inference that the level of revenue in those months was attributable to the fact that Mr McKenna had solicited the custom of customers that had been transferred to the second defendant under the sale agreement. There was no evidence that Mr McKenna solicited any former customers of the plaintiff that were transferred to the second defendant in the months leading up to 9 November 2001.
116 I find that in the months leading up to 9 November 2001 Mr McKenna did not solicit customers of the business that the plaintiff
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- had transferred to the second defendant. It follows, therefore, that the plaintiff did not during that time breach the implied term not to solicit customers that I have found was part of the sale agreement.
117 It also follows that, and I find that, at the time that the second defendant made the decision to discontinue making further payments and thereby to terminate the sale agreement, there was not lawful justification for that action. Therefore, in determining as it did in late September 2001, no longer to perform its payment obligations under the sale agreement the second defendant repudiated the sale agreement as from that date.
Are the plaintiffs by counterclaim entitled to succeed under the counterclaim?
118 The operative plaintiff by counterclaim is the second plaintiff by counterclaim, in other words, the second defendant, which I have found to be the party that entered into the sale agreement with the plaintiff. Its case on the counterclaim is dependant on showing that the plaintiff/first defendant by counterclaim acted in breach of the sale agreement and that it suffered loss. The claims against the other defendants by counterclaim depend on the court making the finding that the first defendant by counterclaim/plaintiff breached the sale agreement. In discussing the counterclaim I will continue to refer to the plaintiff in the main action as the plaintiff and the second defendant in the main action as the second defendant.
119 I have found that from September 2001 the second defendant was no longer willing to perform a fundamental term of the sale agreement. I also find that after September 2001 it did not perform that obligation. I find that as a consequence of these acts of the second defendant, the plaintiff was relieved of the obligation not to solicit customers of the business it had transferred to the second defendant. The obligation not to solicit customers for any competitive business to be started by the plaintiff or Mr McKenna was an obligation that depended upon the continuing willingness to perform, and the performance of, the corresponding obligation on the part of the second defendant to pay the plaintiff for the sale of business. Once the second defendant repudiated the agreement and determined that it would no longer make any payments to the plaintiff for the business, the plaintiff was likewise released from any further obligation to abide by the terms of the sale agreement which were premised on the fact that the plaintiff would be paid for the business (General Billposting Company Ltd (supra), Kaufmann (supra)). Such a term would include the implied term not to solicit the customers of the business that had been transferred. The very reason the term is implied is
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- that it is founded on the premise that the seller will not take both the money and the customers – but this rationale is destroyed if the buyer is not willing to, and refuses to, pay the money.
120 An alternative analysis available on the evidence is that the plaintiff accepted the repudiatory conduct of the second defendant by not submitting any further invoices. In cross-examination Mr McKenna said that he started working on the customer list because the second defendant had not paid him.
121 Mr McKenna did, on behalf of McKenna Nominees, ultimately solicit customers of the business from customers that had been transferred to the second defendant.
122 This occurred on 10 December 2001. Mr McKenna prepared a letter with the assistance of his son on letterhead of McKenna Nominees Pty Ltd. The content of the letter reads:
"To Whom it May Concern
Just a short letter to inform you that I have just opened a new company, [sic] Concentrating on interstate road transport.
Kind regards.
Brian McKenna"
- Mr McKenna sent this document to customers that were on a customer list which included the names of customers who were customers that had been transferred to the second defendant pursuant to the sale agreement.
123 However, by the time this occurred the second defendant had not paid the plaintiff for three months and the second defendant had determined two months earlier that it would not pay the plaintiff any further money under the agreement. Accordingly, the plaintiff was no longer bound by the implied non-solicitation term which I have found existed. This conduct did not therefore amount to a breach of the sale agreement. Further, the evidence was that the working up of the customers started at the end of October 2001 - also after the date when the second defendant had determined no longer to perform the sale agreement.
124 It follows that there was no breach proved by the second defendant of the sale agreement and, consequently, the counterclaim against all three defendants must fail. I record that at trial Senior Counsel for the
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- defendants did not pursue the claim against Mr McKenna personally because of the authority of Said v Butt [1920] 3 KB 497 but reserved the second defendant's position to pursue this point and the claim if this case should go further.
125 My conclusion means that I do not have to deal with the defence of waiver which was raised by the defendants to the counterclaim. However, in case the case goes further, I find that the second defendant utilised the services McKenna Nominees from November 2001 and October 2004 and that the second defendant only stopped using McKenna Nominees because it was thought that to continue to do so would cause embarrassment to the defendants in these proceedings.
Is the second defendant liable for damages under s 82 of the Trade Practices Act (Cth)?
126 As set out above, the plaintiff relies effectively on the same statements made by the second defendant as it does as part of its contractual claim. These are oral representations made by Mr Tattle on behalf of the second defendant to pay the plaintiff $250,000 for the business less the plant and equipment; and that if the plaintiff provided the services of Mr McKenna as a consultant the plaintiff would be paid a consultancy fee.
127 The plaintiff calls in aid s 51A of the Trade Practices Act (Cth) which places the onus on the second defendant to show that there were reasonable grounds for the making of the statements.
128 Mr Colvin SC conceded that the second defendant would bear the onus under s 51A of the Trade Practices Act. He said that the second defendant's case was that no such statements were ever made and, therefore, in the event that the court were to find that the oral representations had been made the second defendant would not seek to support the making of the representations on the grounds that there were reasonable grounds for having made the representations.
129 As I have found that representations were made in the terms pleaded, it follows that the second defendant has failed to discharge the onus that the representations were made on reasonable grounds and it follows that the representations were misleading or deceptive in breach of s 52 of the Trade Practices Act (Cth). I find that in reliance on the representations the plaintiff transferred its business to the second defendant.
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130 The plaintiff claims damages under this head of claim as the difference between the amount that it received from the second defendant and the amount promised under the sale agreement, namely, $250,000. Senior Counsel for the defendants argued that to claim that amount as damages there would have to have been evidence that but for the making of the representations the plaintiff could and would have entered into another transaction pursuant to which it would have been paid the same amount. It is true that there was no evidence expressly addressed to that point. However, there was evidence that Mr McKenna was a well regarded operator in the interstate transport industry and there was evidence that at the time that it was considering whether to purchase the business, the second defendant held the view that there would be other parties in the transport industry that may ready to purchase the business of the plaintiff if the second defendant did not purchase it.
131 In cross-examination Mr Welch was referred to a memorandum he had written at the time of the sale agreement which contained the following sentence:
"If the owner does not sell to Toll, the likes of Perth Freight Lines, GKR and WA Freight Lines will be approached."
- The cross-examination continued:
"And they are competitors of Toll, aren't they --- Yes, they are.
And you said, 'This will have a detrimental effect on Toll Express given the tough competitive market conditions that are more prevalent in the end ports and the limited opportunities to gain Two and a half million dollars per annum from organic growth'?---That's correct.
You were anxious to buy McKenna Freight Lines before somebody else got it?---That's correct."
133 It follows that, subject to the claim for damages under the sale agreement, the plaintiff is entitled to damages under s 82 of the Trade
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- Practices Act (Cth) in the sum of the $166,922.21 between the difference between the amount that he would have received had he sold the business to a third party and the amount that he actually received for the business. Of course, any entitlement to damages under this claim is subject to the claim for damages under the contact and would be subsumed by an award of damages under the sale agreement.
Was there a breach of the confidentiality agreement?
134 As to the claim that the first defendant breached the confidentiality agreement, as a consequence of my early finding that it was the second defendant that contracted with the plaintiff, this claim fell away. But if I am wrong I agree with the submissions of Senior Counsel for the defendants that by reason of the entry into the sale agreement the second defendant became entitled to use the information, and in effect, the purpose of the confidentiality agreement was exhausted.
135 It follows that I hold that there was no breach of the terms of the confidentiality agreement.
What is the quantum of damages?
136 For the reasons which set out above I hold that the plaintiff is entitled to damages for breaches of the sale agreement. In that respect there two heads of claim.
137 Firstly, there is a claim for damages based on the breach of the term to pay the plaintiff the full purchase price of $250,000. As I understood the position the parties agreed that damages should be assessed on the basis of the difference between what the plaintiff would have received had the contract been performed and what the plaintiff actually received. I would, in any event, find that to be to appropriate measure. On the application of that measure the plaintiff is entitled to receive the amount of $166,922.21, being the sum derived from subtracting from the sum of $250,000 the sum of $83,077.79 being the total of the instalment payments which the plaintiff did receive from the second defendant. I, accordingly, award the plaintiff damages in the sum of $166,922.21 under that head of claim.
138 Secondly, there is the claim for damages based on the breach of the term to pay the plaintiff a reasonable sum in respect of the consultancy services. The plaintiff says that the sum of $100,000 would be a reasonable sum for the 10 month period that the plaintiff provided the services of Mr McKenna to the second defendant.
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139 There was a substantial disagreement between the parties on the proper way to assess the damages under this part of the claim. There was evidence from Mr Perron who is a senior consultant in the industry that the standard rate in 2000 and 2001 which he charged for a consultant was $165 per hour. He said that he knew Mr McKenna and that Mr McKenna enjoyed similar experience and standing in the industry as he did. He says he would have charged $165 per hour had he been asked to perform the services carried out by Mr McKenna. Mr Peron was not cross-examined. I accept his evidence. There was also evidence that the second defendant had paid Mr Ian King, also a senior consultant in the transport industry, $700 per day as a consultancy fee at around this time.
140 Senior Counsel for the defendants, however, argues that this is too simplistic an approach and what one must look at is the function that Mr McKenna was asked to perform and compare the rates which are paid to someone who might be called upon to perform those functions would have been paid.
141 I would reject the approach contended for by Senior Counsel for the defendants. At the time that the parties entered into the sale agreement the second defendant would of course have been aware of the seniority of Mr McKenna in the industry and it was his specific skill and expertise in relation to the customer base that he was bringing to the second defendant. The second defendant did not simply want someone who could perform liaison tasks in a general sense in the industry. They wanted Mr McKenna specifically to perform those tasks because of his unique skill and expertise, namely, familiarity with the customer base. Accordingly, I hold that the proper basis to assess the damages is the basis contended for by the plaintiff.
142 Mr McKenna said that he worked long hours - almost on a full time basis during the time that he was providing consultancy services. The evidence from Mr Arnold, which I accept, supports that. I, therefore, find that the appropriate rate of remuneration in assessing a "reasonable sum to be paid for the consultancy services" would have been $165 per hour.
143 The application of the rate of $165 per hour for a 35 hour working week would result in the payment of $5775 per week, and a payment of approximately $24,822.50 per month (ie x 4.3). The plaintiff claims $10,000 per month as being a reasonable sum. I find the claim of $10,000 per month to be a reasonable sum. The plaintiff claims this sum for 10 months. I find that that Mr McKenna did work for 10 months. Accordingly, I find that that the plaintiff was entitled to receive that sum.
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- The plaintiff has already received the sum of $4500 and so $4500 must be deducted from $100,000. I, accordingly, award the plaintiff the sum of $95,500 under this head of claim.
144 There is also the sum that I have referred to under the Trade Practices Act (Cth) but that of course is subsumed in the sum which I have awarded for the same loss unde the first head of the contract claim.
145 I, accordingly, award the plaintiff damages in the total sum of $262,422.21 to be paid by the second defendant.
146 The plaintiff will also be entitled to interest on the damages under the Supreme Court Act.
147 I dismiss the claim against the first defendant and I dismiss each of the counterclaims.
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