MGB Sales (Australia) Pty Ltd v Otto Plastics Pty Ltd
[2000] VSC 263
•23 June 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL & EQUITY DIVISION | Not Restricted |
COMMERCIAL LIST
No. 2003 of 1999
F4977
| MGB SALES (AUSTRALIA) PTY LTD | Plaintiff |
| v | |
| OTTO PLASTICS PTY LTD | Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 1-4, 8-11, 15 May 2000 | |
DATE OF JUDGMENT: | 23 June 2000 | |
CASE MAY BE CITED AS: | MGB Sales (Australia) Pty Ltd v Otto Plastics Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 263 | |
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Contract - whether written distributorship agreement concluded – disputed clause as to list price – claims by distributor for damages under agreement.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff and first and second Defendants to counterclaim | Mr M. Clarke | Kahns Lawyers |
For the Defendant | Mr M. Sifris | Abbott Tout |
| For the third Defendant to counterclaim | Mr M. Galvin | T. McHenry |
HIS HONOUR:
In this proceeding the plaintiff (“MGB”) claims damages against the defendant (“Otto”) for breach of a number of terms of a distributorship agreement allegedly made between them in 1995.
Factual background
In about 1979 Peter de Oleveira (“de Oleveira”) started a business of the distribution and sale of mobile garbage bins (“bins”). The bins were and are made of plastic and manufactured by a moulding process. De Oleveira established a distribution network in Victoria for one of the manufacturers of bins, then known as BTR Nylex Ltd (“Nylex”). Nylex had at all relevant time two competitors in the manufacture of bins, the defendant Otto and Sulo MGB Australia Pty Ltd (“Sulo”), both companies being subsidiaries of German companies. Ross Francis Smith (“Smith”) joined de Oleveira in business in 1985. In 1991 de Oleveira and Smith, then operating the bin distribution business through MGB, approached Otto which had its head office in Brisbane and which had little or no share of the bin market in Victoria. It is common ground that in or about 1991 MGB and Otto agreed that MGB should have exclusive distribution rights in Victoria in respect of bins manufactured by Otto. The agreement was made orally between representatives of MGB and Otto. MGB’s territory was principally Victoria but also came to include South Australia, Tasmania, the ACT and “southern New South Wales”.
The agreement upon the territory covered by MGB’s exclusive distributorship was reached in or about 1992 at a meeting in Sydney between representatives of MGB and Otto. At that meeting a line was drawn on a map dividing New South Wales into two parts. The line was drawn from Nowra to Broken Hill. Otto retained the territory to the north of the line. The map was thereafter displayed on the wall in MGB’s offices in Melbourne and it was common ground that from about 1992 onwards the parties recognised that MGB’s exclusive distributorship covered the territory to which I have referred, including the area in New South Wales south of the line on the map. However, it would seem that the duration of this distributorship was not defined. From 1991 through to 1995 MGB spent approximately $4 million per annum in the purchase of bins from Otto. About half of that business related to “tenders” and the other half to “top-up” sales. In relation to tenders, the usual practice was that MGB would obtain a price per bin from Otto, add a margin for costs and for its profit and then MGB would quote its per bin price to a particular contractor. The contractor was normally at this stage competing with other contractors by tendering to a council or other local authority in the process of setting up a bin system for the collection of garbage. The competing contractors, in order to prepare their tenders, would be obtaining quotes from bin distributors or directly from the manufacturers. Frequently there would be pressure on MGB to reduce its price to gain the contract and in turn MGB would negotiate with Otto to reduce its price in order that MGB might gain the contract or obtain a reasonable margin for its costs and profit, or both. In Victoria, MGB’s main competitors were Nylex and Sulo who did not operate through distributors. In northern New South Wales and Queensland, Otto sold bins directly to contractors without the interposition of a distributor. Top-up sales were sales of additional bins to waste management contractors or local authorities in the years after the initial establishment and supply of a mobile garbage bin system in a particular area.
In or about April 1994 representatives of MGB and Otto met and discussed a number of matters. They agreed, as was confirmed in a fax dated 28 April 1994 from John Griffith, the then Deputy General Manager of Otto (“Griffith”), to Smith and de Oleveira, that Griffith should “draw up a Heads of Agreement document listing various points that would feature in a formal distribution agreement” and MGB “agreed to consider this document and that in principle [MGB was] prepared to enter into a formal distribution agreement with Otto…”. It was also agreed that the terms for payment of Otto by MGB were 30 days from date of statement and that MGB would provide directors’ guarantees. In a fax to MGB dated 6 June 1994, Griffith listed a number of points for discussion at a meeting fixed for 8 June 1994. Points to be considered for inclusion in heads of agreement covered such matters as a three year term, MGB not to sell competing products and Otto’s “standard conditions of sale to apply”. Although various points for an agreement may have been further discussed at a meeting on 8 June 1994, Griffith again wrote to de Oleveira on 3 August 1994 asking him for any points that he would like to see included in “a Heads of Agreement document, which would be the first step in our moves to enter into a full binding distribution agreement with you”.
On 24 August 1994 de Oleveira faxed to Alan Wilson, Otto’s new managing director (“Wilson”), a form of distribution agreement, with names deleted, which he had previously used with another party (“the 1994 draft”). On the 1994 draft, de Oleveira had written a note to Griffith “John. Work on this for a start”. On 16 September 1994, de Oleveira faxed to Griffith a further copy of the 1994 draft.
I interpolate that at around this time de Oleveira and Smith acquired a shelf company which commenced to carry on business under the name “One Stop Garbage Shop”, a name which they used on letterheads and elsewhere to refer to the group of companies which included MGB. No point was taken in relation to this aspect and the parties treated all relevant correspondence and conduct as emanating from MGB. Also, at around this time, MGB was complaining to Otto both of the lack of supply of bins which had forced it to buy 10,000 bins from opposition companies and also of Otto’s prices. A letter dated 8 September 1994 from MGB to Otto referred to these and a number of other matters including Otto’s “demands that we not buy from opposition companies, and only have Otto related products” and requested a meeting to discuss these matters and “our ongoing relationship”.
Nearly one year later, MGB was still requesting “draft contracts” in advance of a meeting arranged for 21 August 1995. The meeting of 21 August 1995 was held at MGB’s offices attended by Wilson and Aidan Rice, who was Otto’s sales manager (“Rice”), and de Oleveira and Smith. Two very similar draft agreements were in the hands of those present at the meeting. One draft (“the A draft”) had been produced by Rice of Otto and received by MGB prior to the meeting and the other draft (“the B draft”), whoever physically produced it, appears to have been prepared so as to contain a number of terms or amendments proposed by MGB. Clause 1 of both drafts contained definitions. The B draft contained and the A draft did not contain clause 1.1.5 which read as follows:
“List Price to the distributor means, wholesale price not offered to any retail buyer in the country, so as to protect the business of the distributor, and not less than 10% cheaper than retail prices which Otto Plastics and its competitors are aware of in the market place.”
I will refer to the above version of clause 1.1.5 as the first version. This version was proposed by MGB. Rice gave evidence that at the meeting there was quite a lot of discussion about this definition of list price. According to Wilson, he and Rice said that they could not agree to supply at prices 10% cheaper than Otto’s competitors because the clause was unworkable, if competitors were aware of it they could drive down the prices and they did not know their competitor’s prices and they had different products. They suggested as an alternative that they could agree to supply products at prices 10% cheaper than Otto’s retail prices. I am satisfied that changes in the wording of clause 1.1.5 were then discussed which led Rice to write them on the B draft so that the second version read as follows:
“List price to the distributor means, wholesale price not offered to any retail buyer in the Territory, so as to protect the business of the distributor, and not less than 10% cheaper than retail prices which Otto Plastics would offer in the market place.” (Substituted words emphasised.)
Rice testified and I accept that at the conclusion of the discussion and after he (Rice) had written those words down, Wilson said words to the effect: “No, no, no… it’s too open… this clause needs resolution”. Rice then wrote in the margin next to clause 1.1.5 on his copy of the B draft the words “Needs Resolution” which appear on the copy in evidence. Both drafts contain a number of written amendments and also ticks placed against clauses discussed in respect of which agreement was reached.
Another copy of the B draft in evidence (MGB’s copy) which contains, unaltered, the first version of clause 1.1.5 has the same words written in the margin “needs resolution” in the handwriting of de Oleveira.
I am satisfied that by the conclusion of the meeting on 21 August 1995, although there was agreement on most of the terms contained in the draft documents, there was no consensus at all concerning clause 1.1.5. MGB had not moved from its adherence to the first version while Otto, which had suggested the second version, was unhappy with the wording of it. The only consensus was that the clause needed “resolution”.
Rice testified, and I accept his evidence, that he left the meeting with a sheet bearing a few handwritten notes which were recorded by him during the meeting and which noted matters where there was disagreement or where amendment was required. The first item was: “1.1.5 Needs Resolution”. The second item, which indicates the process contemplated at the end of the meeting, was: “2.6 Redraft completely. Combine agreement A [and] B”.
Rice took the A draft and the B draft away from the meeting and prepared a new draft document (“the Rice draft”). He did this by using the A draft as the primary precedent and made notes on it to indicate where specific provisions from the B draft should be inserted. For example, by reference to the B draft, the second version of clause 1.1.5 was inserted.
Other relevant provisions contained in the Rice draft were:
“…
Whereas:
A.Otto Plastics Pty Ltd designs manufactures and wishes to market two wheel and four wheel mobile garbage bins and other associated products hereinafter defined as ‘the Products’.
B.The Distributor is desirous of being appointed by Otto Plastics Pty Ltd to distribute the Products within the Territory as hereinafter defined.
C.It has been agreed between the parties hereto that Otto Plastics Pty Ltd shall appoint the Distributor as the sole distributor of the Products within the Territory on the terms and conditions set out hereinafter.
D.It is understood by both parties that MGB Sales has the market share it enjoys in this area: and MGB Sales is only restricted to this area with regard to OTTO Plastics product.
Now it is Hereby Agreed as Follows:
Section 1 : Definitions and Interpretation
1.1In this agreement the following words and phrases shall have the meanings set out opposite thereto:
1.1.1.‘Products’ means Otto two wheel and four wheel mobile garbage bins and other associated waste collection products manufactured by Otto Plastics Pty Ltd…
1.1.2.‘Territory’ means the areas of Victoria, South Australia, Australian Capital Territory, Tasmania and New South Wales as per attached map.
1.1.3.‘Sale Contract’ means each agreement entered into by the Distributor with any of its customers for the supply of any product for the time being comprised in the Products.
1.1.4.‘Prime Price’ in respect of a product supplied by Otto Plastics Pty Ltd to the Distributor hereunder means the list price for the time being of that product F.I.S.
1.1.5.‘List Price’ to the distributor means, wholesale price not offered to any retail buyer in the ‘Territory’, so as to protect the business of the distributor, and not less than 10% cheaper than retail prices which Otto Plastics would offer in the market place.
…
Section 2 : Appointment of Distributor
2.1Otto Plastics Pty Ltd hereby grants to the Distributor the exclusive right during the continuance of this agreement to purchase the Products from Otto Plastics Pty Ltd for resale in the Territory subject to the terms and conditions hereinafter appearing.
2.2Subject to the provisions of the next succeeding sub-clause and to the provisions of Clause 6 hereof, the period during which this agreement shall be in force shall be for a period of 5 years from 1 September 1995 to 31 December 1999 and hereafter for periods of three years if agreed to by the parties.
2.3This agreement may be terminated at any time by either party giving to the other party six months notice in writing and it is agreed that termination of the agreement pursuant to this clause shall not entitle either party to claim compensation for such termination from the other party.
2.4Where in order to enable the Distributor to maintain in respect of the Products adequate sales coverage in the Territory the appointment by the Distributor of agents or sub-Distributors is desirable, the Distributor shall be entitled with the previous consent in writing of Otto Plastics Pty Ltd to make such appointment but only on such terms as Otto Plastics Pty Ltd shall in writing approve and the Distributor shall at all times be responsible for the acts deeds or omissions of all persons firms or companies so appointed in respect of selling the Products and Otto Plastics is aware of by annex (B) of our indentured distributors at time of this agreement.
…
2.6The Distributor may not buy, sell, manufacture or distribute within the Territory any products that compete with the Product without prior written agreement except for products exclusive to the distributor agreed and listed prior to signing the agreement.
2.7In the event that Otto Plastics agree in writing that they are unable to produce/supply within reasonable time frame, the Distributor will have the right to purchase the products out side of this agreement.
Section 3 : Duties of Distributor
3.1The Distributor hereby undertakes and agrees with Otto Plastics Pty Ltd that it will at all times during the continuance in force of this agreement observe and perform the terms and conditions set out in this agreement and in particular.
3.1.1will use at all times its best endeavours to promote and extend sales of the Products throughout the Territory and work diligently to obtain orders therefor by means of personal visits to and correspondence with such purchases and by advertising. Advertising and promotion costs will be borne 50% by Otto Plastics (Pty) Ltd and 50% by MGB Sales Australia Pty Ltd. All advertising and promotion activities must be approved by Otto Plastics (Pty) Ltd prior to any expense being incurred or commitments being made.
3.1.2will not either directly or through any agent or sub-Distributor sell any of the Products outside the Territory or knowingly or having reason to believe that it would be so resold sell the Products to any person within the Territory with a view to its resale outside the Territory;
…
Section 4 : Sale of Product to the Distributor
4.1Orders by the Distributor for the Products shall be made to Otto Plastics Pty Ltd at 22 Boron Street, Sumner Park, Qld or to such other address as may subsequently be notified by Otto Plastics Pty Ltd and Otto Plastics Pty Ltd shall sell the Products to the Distributor in accordance with such orders at the full list price as shown in Otto Plastics Pty Ltd then current distributor price list. Otto Plastics Pty Ltd shall have the right to amend such price list from time to time by giving to the Distributor not less than one months written notice thereof.
4.2Subject to Clause 4.3 and 4.5 hereof, all Products sold by Otto Plastics Pty Ltd to the Distributor on any account whatsoever shall be deemed to be sold on the terms and conditions of sale set out in the Second Schedule hereto so far as they are not inconsistent with the terms of this agreement.
4.3The Distributor agrees to make payment by way of direct deposit into the bank account nominated by Otto Plastics Pty Ltd of the purchase price of all deliveries of the Products made hereunder by Otto Plastics Pty Ltd to the Distributor within 30 days from the end of the month in which the deliveries took place unless previous arrangement has been made with Otto Plastics Pty Ltd.
4.4The Distributor shall at all times during the continuance of this agreement maintain an adequate stock of each of the Products for the time being comprised in the Products for display and demonstration purpose and to enable the Distributor to satisfy all orders received for the Products.
4.5Otto Plastics Pty Ltd warrants that the Product manufactured by it is and will be for a period of 5 years from the date of manufacture free from faulty workmanship and materials. The five year period referred to herein shall be the ‘Guarantee Period’ referred to in Clause 10 of the Second Schedule hereto.
4.6By mutual agreement commission, at rates agreed from time to time, is to be paid by Otto Plastics Pty Ltd to the Distributor for products sold by Otto Plastics Pty Ltd into the Distributors Territory.
…
Section 6 : Termination
6.1In the event of:
6.1.1the appointment of a receiver over the whole or any part of the undertaking property or assets of the Distributor; or
6.1.2the Distributor ceasing to carry on business;
6.1.3the Distributor or Otto Plastics Pty Ltd committing a breach of any of the terms or conditions of this agreement which is not capable of remedy;
6.1.4Otto Plastics Pty Ltd or the Distributor committing a breach of any of the material obligations or terms of its part herein contained to be observed or performed and, being a breach capable of remedy, which the party in breach shall not remedy or commence to remedy within 30 days of notice given to it by the other party requiring such breach to be remedied.
then and in any case Otto Plastics Pty Ltd may give the Distributor (and in the case of clause 6.1.3 and 6.1.4) the Distributor may give to Otto Plastics Pty Ltd notice in writing to terminate this agreement at the expiration of seven days from the date of the service of such notice. Upon the expiration of that notice this agreement shall terminate but without prejudice to the rights and liabilities which may have accrued to either party at the date of such termination.”
Rice gave his draft to Griffith. By a memorandum dated 31 August 1995 (which was not shown to Rice), Griffith conveyed the following message to Smith and de Oleveira:
“Enclosed please find a new draft copy of the Distribution Agreement reflecting changes discussed with Alan Wilson and Aidan Rice at their recent meeting with yourselves.
Please let me know if you are now happy with the document as I would like to get it run past the lawyers so they can knock it into its final shape and form.
Please let us have a schedule of any products that you would like to be listed as part of this agreement, in terms of clause 2.6. Please also let me have a schedule of your existing distributors as per clause 2.4.
Should you have any queries, please do not hesitate to contact me.”
Griffith was, prior to his departure in or about September 1995, the company secretary and finance manager of Otto. Otto did not receive any written reply from MGB to Griffith’s memorandum of 31 August 1995 nor did MGB send the schedules requested by that memorandum.
Smith deposed, by his witness statement, in a single sentence, that “I also recall that subsequent to the said letter of 31 August, 1995 I spoke with John Griffith and said that the final draft distribution agreement was in order”. In examination in chief, Smith said that in response Griffith said “he was going to attend to it” but that Griffith left Otto within a few weeks of that conversation. In cross-examination, Smith said that Griffith had telephoned MGB looking for de Oleveira but spoke to Smith instead, that Griffith “asked about the distribution agreement” and that he (Smith) said: “Yes, it’s fine”.
The cross-examination then proceeded as follows:
“Do you recall his words as best you can recall, what did he say, as best you can recall?---In terms of what he said exactly, I don’t know. But he said, obviously, ‘Did you get the’---
No, not obviously. Do the best you can?---I don't know. I don't want you to reconstruct what you think he said.
If you can't remember, say so, otherwise please do the best you can; what did he say?---Well, he said, ‘Did you get the final copy of the agreement?’ I said, ‘Yes, we did.’ ‘Have you looked at it?’ I said, ‘Yes, we have.’ He said, ‘Is everything okay?’ I said, ‘Everything’s fine.’ He said, ‘Okay, I’ll attend to it.”
In the Further and Better Particulars of the plaintiff’s amended statement of claim dated 23 December 1999, the relevant particulars covering this conversation were framed as follows: “discussions in subsequent conversations after 3 August 1995 between Ross Smith on behalf of MGB and John Griffith on behalf of Otto to the effect that the draft agreement was in order”. However, I note that no reference was made to these conversations in the original statement of claim or in any particulars prior to 23 December 1999 nor was any such conversation referred to in an affidavit of Smith sworn on 25 March 1999 which gave a quite different and concededly incorrect account of the relevant events in 1995 when the distribution agreement was allegedly made.
Griffith said that he had no recollection of such a conversation. Griffith’s evidence to this effect was put in by Otto by unsworn witness statement (by consent) on the agreed basis that it was conceded by Otto that, if cross-examined, Griffith would have had to agree that this conversation could have occurred although he did not remember it. However, I am not satisfied that this conversation did occur, at least in the terms deposed to by Smith. I found the unsatisfactory way in which Smith came to give and gave evidence about this conversation to be unpersuasive and, on the whole of the evidence, I am not satisfied that Smith said to Griffith that the Rice draft was “in order” or “fine” or that Griffith said that he would “attend to it”.
It would seem that Rice, who was unaware of the contents of Griffith’s memorandum, did not know whether there had been any subsequent developments in relation to the distribution agreement, because in or about October or November 1995, in a telephone conversation with Smith, Rice asked Smith whether they (MGB) had signed the agreement. Rice testified and I accept that Smith replied: “No, and I don’t think we ever will”. Smith denied saying that but, whether he did or not, it is curious, if he had already told Griffith that the agreement was in order and if Griffith had said that he would attend to it, that Smith did not mention this to Rice on this occasion or follow it up with Otto in any way.
Counsel for MGB submitted that Rice’s question showed that agreement had been reached in August 1995 and merely awaited signature. I do not accept that submission because I consider that Rice was ignorant of any developments since handing his draft to Griffith and merely wished to know whether the process had reached finality.
The primary issue
MGB sues upon a distributorship agreement made in or about September 1995 the particulars of which are alleged to be as follows:
“The distribution agreement was partly in writing, partly oral and partly implied.
Insofar as it was in writing it was constituted by:
(a)a final draft distribution agreement typed by Otto and sent by Otto to MGB under cover of a memorandum dated 31 October, 1995. A copy of the final draft distribution agreement is in the possession of MGB’s solicitors and may be inspected by prior agreement;
(b)two draft distribution agreements, each typed by Otto, containing handwritten amendments agreed to during meetings held between the parties.
Insofar as it was oral, it was constituted by:
A.a meeting held on 21 August, 1995 at the offices of MGB in Essendon and attended by Ross Smith and Peter de Oleveira on behalf of MGB and by Alan Wilson and Aidan Rice on behalf of Otto to resolve outstanding issues concerning the wording of various clauses, including clause 1.1.5, clause 3.1.2, clause 3.1.4, recital D, clause 4.3, clause 4.6, clause 6.1.5, clause 6.2 and clause 6.4. MGB’s representatives cannot recall precisely the discussions at the meeting about each clause, save to say that handwritten amendments were made to the draft marked ‘A’ and the draft marked ‘B’ during the meeting and the final draft receive under cover of the memorandum dated 31 August, 1995 reflected the amendments agreed upon, and at the end of the meeting on 21 August, 1995 there were no outstanding matters left unresolved;
B.discussions in subsequent conversations after 31 August, 1995 between Ross Smith on behalf of MGB and John Griffith on behalf of Otto to the effect that the draft agreement was in order.
Insofar as it was implied, it was implied by the conduct of the parties including:
(i)Otto’s Summons dated 25 January, 1999 and filed in Proceeding No.50004 of 1999 in the Supreme Court of New South Wales (‘the New South Wales proceeding’);
(ii)a letter from Otto’s solicitors Abbott Tout dated 4 February, 1999;
(iii)paragraphs 5-18 of the Affidavit of Aidan Rice sworn on 1 April, 1999 and filed on behalf of Otto in the New South Wales proceeding;
(iv)paragraph 31 of the Affidavit of Stephen Davies sworn on 31 March, 1999 and filed in the New South Wales proceeding;
(v)the notice of breach of distribution agreement drafted by Otto’s solicitors at Otto’s request on 6 January, 1999;
(vi)the notice of breach of distribution agreement issued by Otto on 9 February, 1999;
(vii)the notice of breach of distribution agreement issued by Otto on 7 June, 1999;
(viii)MGB’s compliance with the terms of the draft distribution agreement and in particular in relation to the restraint of trade provisions restraining MGB from purchasing stock from alternative suppliers except in the limited circumstances therein provided;
(ix)Otto’s payment of $300,000.00 to MGB for breach of the exclusivity provisions of the distribution agreement when Otto supplied BFI with its products;
(x)Otto’s payment of $4,000.00 to MGB for breach of the exclusivity provisions of the distribution agreement when Otto supplied Nylex with its products.”
MGB submitted firstly that the parties reached a binding agreement on 21 August 1995 the terms of which were embodied in the Rice draft forwarded to MGB by Otto on 31 August 1995. I do not accept that submission. In my opinion the parties did not intend to be bound by a written document until it was executed. This is evidenced by the contents of the communications by Griffith of Otto to MGB dated 28 April 1994 and 3 August 1994 and is emphasised by the contents of Griffith’s memorandum dated 31 August 1995. Not only am I not satisfied that anything was said between the parties at the meeting on 21 August 1995 to indicate that they intended to be then and there bound or had reached a final agreement but, contrary to particular A of the oral part of the pleaded agreement, I am satisfied that there were outstanding matters left unresolved at the conclusion of the meeting on 21 August 1995. For example, clause 2.6 was to be redrafted. Importantly, clause 1.1.5 was not agreed, as I have already outlined.
MGB submitted, in the alternative, that the Rice draft was an offer sent on 31 August 1995 which was accepted by MGB in the subsequent alleged conversation between Smith and Griffith. I reject that submission. In my opinion, it is clear from the terms of Griffith’s memorandum of 31 August 1995 that it was not an offer capable of acceptance but only one more step in the process of reaching an agreement. In any event, contrary to particular B of the oral part of the pleaded agreement, I am not satisfied that Smith and Griffith agreed that the Rice draft was in order (if this is what particular B is intended to convey) nor am I satisfied that Smith on behalf of MGB told Griffith that it was in order, as I have already indicated.
Thirdly, as I understand it, MGB relied on certain conduct of Otto or of the parties after 1995 as constituting an admission by Otto that, or as showing that, an agreement had been made or adopted in 1995 in terms of the Rice draft, alternatively, as giving rise to an estoppel which prevented Otto from denying the existence of an agreement in terms of the Rice draft.
It is necessary therefore to consider the conduct of the parties after 1995.
(a) Credit notes for “breach of exclusivity”
Clause 4.6 of the Rice draft provided: “By mutual agreement commission, at rates agreed upon from time to time, is to be paid by Otto… to [MGB] for products sold by Otto… into [MGB’S] Territory”.
MGB contended that from January 1996 to April 1999 Otto had given MGB credit notes for various breaches of exclusivity, or perhaps more accurately, commission at agreed rates pursuant to clause 4.6, for bins sold by Otto into MGB’s territory, and that this showed that the Rice draft represented the terms agreed or adopted by the parties as their distribution agreement. However, on Smith’s own evidence, the payment of commission by Otto to MGB for bins sold by Otto into MGB’s territory pre-dated the 21 August 1995 meeting:
“Can I ask you about the position in relation to credit notes. You have made a claim – I don't want to go into the topic in full now but I want to ask you one question. You have made a claim for breach of exclusivity and you are seeking credits in respect of bins supplied in your exclusive area; correct?---Yes.
And there’s schedules that have been prepared that are directed to that point. I suggest to you that it was always the practice before 1995 for Otto to give credits to MGB when product was sold within MGB’s area; correct?---I’d have to look at the credit notes, I don't know.
What you do know is that it’s not a matter that arose out of the distribution agreement but it antedated it?---I would say so, yes.”
For example, in May 1992, Plasticap Otto Pty Ltd, a company related to Otto with the same Queensland address and telephone and fax numbers as Otto, sent a memorandum to MGB (with copies to Griffith, Rice and others) stating:
“…BFI purchase their requirements direct from Otto Plastics, Brisbane… In accordance with our policy, distributors will receive $1 per… bin sold to BFI.”
Further, in a letter dated 14 July 1998 from MGB to Otto Plastics (NSW) Pty Ltd, Smith stated:
“…with regard to sale of product to Nylex, I believe this comes under the same understanding that we have with Otto with regard to BFI, SOLO etc., and therefore claim $1 per bin on the last 4,000 bodies delivered last month into our area.”
That $1 per bin was and remained the established rate of commission seems to be confirmed by the credit notes comprised in Schedule C of the Court Book (part of Exhibit “A”).
Having regard to the foregoing, I am not satisfied that Otto’s practice of allowing commission for bins sold in MGB’s territory is referable to clause 4.6 of the Rice draft or to any agreement made in 1995. I also note that there was no evidence that rates of commission were negotiated from time to time as contemplated by clause 4.6.
(b) Letter from Abbott Tout dated 8 November 1996
By letter dated 8 November 1996 from Abbott Tout, the then solicitors for Otto, to Otto, for the attention of Wilson, Otto’s solicitors enclosed a number of draft documents including a draft Distribution Agreement and a “Notice of Termination of the Original Distribution Agreement” and said: ”Please advise us regarding the status of this matter and if the current Distribution Agreement with MGB is to be terminated and the enclosed documents are to be executed once they are finalised.” They then went on to refer to “changes in the Enclosed Distribution Agreement from the Original Distribution Agreement…”. MGB submitted that the inference should be drawn, having regard to the contents of that letter, that Otto had instructed its solicitors that the Rice draft represented the then current distribution agreement existing between Otto and MGB.
When Wilson was asked about the Abbott Tout letter in cross-examination, the following exchange occurred:
“The original distribution agreement referred to in there, I suggest to you, was the one of 31 August?---We wouldn’t have terminated it because we hadn’t formalised it.
Is it a reference to that agreement?---It would be to terminate the distributorship.
It does say ‘original distribution agreement’. Is that a reference to the agreement of 31 August 1995 or some other agreement?---I don’t know of any other agreement, so I would---
So it must be 31 August 1995?---I believe so.
It is a reference to that agreement?---That is the only agreement that there was.
And that was in accordance with your instructions as set out at the beginning of that letter, the drafting of that termination notice, among other documents?---Yes.”
I will consider the above material in combination with the items which follow.
(c) Trussell’s memorandum of 31 January 1997
In a memorandum from Mr P. Trussell, the financial controller of Otto, to MGB dated 31 January 1997, Trussell said: “…The fact remains that monies are outstanding and we need to collect the same in accordance with the MGB sales distribution agreement…”. I note that Trussell joined Otto in September 1995.
(d) Davies’ fax of 6 November 1998
By fax dated 6 November 1998, Mr S. Davies, the then National Sales Manager of Otto, advised MGB of a price rise in relation to top-up bins, saying: “In the case of MGB sales, I understand that we have to give 30 days written notice and so new prices will take effect 7 December 1998.” The reference to 30 days is a reference to clause 4.1 of the Rice draft. This fax was sent in the following circumstances as appears from Davies’ evidence. I note that Davies did not join Otto until December 1997.
Davies deposed that:
“When I commenced at Otto I was not aware that there was any written distribution agreement between Otto and MGB. In all my negotiations with MGB each tender was negotiated and priced on a separate quotation basis. On such occasions I made an assessment of the job, its complexities and risk profile, the quantities involved, and Otto’s productive capacity, and after discussion with Alan Wilson, and if necessary other persons, a price was submitted to MGB. There was frequent discussion between myself and representatives of MGB in relation to the prices submitted by Otto. I was often told by Mr Smith that Otto’s prices were too high. On none of these occasions did the representatives of MGB make any reference to clause 1.1.5 or any other clause of any written distribution agreement. This is notwithstanding that during this period MGB was from time to time unsuccessful in tendering for various Council business which is likely to have signified that the other tenderers had tendered at a lower price or at least a price within a range of 10% of the price submitted by MGB.
I first saw a written distribution agreement between Otto and MGB in November 1998. I was certainly aware of the standard terms and conditions which are printed on the back of all of Otto’s invoices. On or about 1 November 1998 I telephoned Mr Smith and said to him words to the effect:
‘Ross, you are about to get a fax from me indicating a price rise.’
Ross Smith said to me words to the effect:
‘When does the increase take effect from?’
I said words to the effect:
‘From 1 November.’
Ross Smith said words to the effect:
‘You need to have a look at our agreement. You are required to give sixty days notice of any price increase.’
I said words to the effect:
‘I will check it out.’
After this conversation I made enquiries of the Brisbane office of Otto and on or about 5 November 1998 I received a facsimile of that date from Janelle Saverin of Otto in Brisbane enclosing a copy of a distribution agreement between MGB and Otto… I looked at the distribution agreement and in particular section 4.1. On or about 5 or 6 November 1998 I telephoned Ross Smith and said to him words to the effect:
‘I have checked it out. The agreement says we have to give one month’s written notice.’
Ross Smith said words to the effect:
‘Yes, fair enough.’
Following that conversation I sent a fax dated 6 November 1998 to Ross Smith…”
The abovementioned fax to Davies from Janell Saverin, who was Trussell’s secretary, stated: “Following please find copy of Distribution Agreement between MGB Sales & Otto for your information.” The document provided contained the same terms as the Rice draft (although it was not the same and probably an earlier print – see the spelling error corrected in handwriting in clause 4.6).
(e)Letter from Abbott Tout dated 6 January 1999 and summons dated 25 January 1999
By letter dated 6 January 1999, Abbott Tout wrote to MGB stating:
“Distribution Agreement with Otto Plastics Pty Limited (‘OTTO”)
We act on behalf of Otto Plastics Pty Limited (‘Otto’).
We have reviewed your Distribution Agreement with Otto (‘the Agreement’).
We note that Clause 4.3 of the Agreement which deals with payments to be made by you to Otto and provides:
‘The Distributor agrees to make payment by way of direct deposit into the bank account nominated by Otto Plastics Pty Limited of the purchase price of all deliveries of the Products made hereunder by Otto Plastics Pty Limited to the Distributor within 30 days from the end of the month in which the deliveries took place unless previous arrangement has been made with Otto Plastics Pty Limited.’
We have been advised that you are in breach of this obligation and, in fact, that you have breached this obligation ‘on many occasions in the past’.
In particular, we have been advised by Otto that the amount of $1,743,172.71 was due and payable by you in accordance with the above Clause 4.3 as at 31 December 1998.
In accordance with Clause 6.1.4 of the Agreement, we enclose a Notice of Breach of Agreement.
We have been instructed by Otto that unless the amount of $1,743,172.71 is deposited by you into their account by 12 pm on 8 January 1999, we are to commence proceedings for the recovery of outstanding amount.”
The accompanying Notice of Breach signed by Trussell stated:
“Otto Plastics Pty Limited (ACN 005 788 345) (‘Otto’) hereby serves you with Notice of Breach in relation to Clause 4.3 of your Distribution Agreement with Otto.
Clause 4.3 of that Agreement provides that:
‘The Distributor agrees to make payment by way of direct deposit into the bank account nominated by Otto Plastics Pty Limited of this purchase price of all deliveries of the Products made hereunder by Otto Plastics Pty Limited to the Distributor within 30 days from the end of the month in which the deliveries took place unless previous arrangement has been made with Otto Plastics Pty Limited.’
Otto claims that, in breach of that Clause, you failed to pay the amount of $1,743,172.71 to Otto by 31 December 1998.”
Otto instituted proceedings against MGB in the Supreme Court of New South Wales by summons dated 25 January 1999 claiming the sum of $2,605,185.31. Paragraph 3 of the summons alleged that: “In or about June 1996 [Otto] and [MGB] entered into a Distribution Agreement whereby [Otto] appointed [MGB] as a distributor of… mobile garbage bins…” The particulars of the agreement given under paragraph 3 in the summons were:
“The agreement was partly in writing and partly implied. In so far as the agreement was in writing it was contained in a document entitled ‘Distribution Agreement’ prepared by the defendant, submitted to the plaintiff but not executed by the parties. In so far as it was implied, such implication arises from the fact that at all material times the plaintiff and the defendant have conducted their trading relationship in accordance with the terms and conditions set out in the Distribution Agreement.”
I would infer from Abbott Tout’s letter dated 8 November 1996 (item (b) above) that the solicitors had been instructed by Wilson that there was a “distribution agreement” between the parties but I am not able to conclude that he specifically instructed them that the Rice draft was or contained that agreement or merely supplied it to them for drafting and other purposes. The letter suggests to me that the solicitors were unsure of the position. In any event, if Wilson had, by November 1996, come to believe that the Rice draft had been agreed between the parties his belief was, I consider, shown by the evidence on the balance of probabilities to have been mistaken. Of course, it is true that most (but not all) of the matters subsequently recorded in the Rice draft had been the subject of consensus at the meeting on 21 August 1995 and therefore it is not surprising that Wilson would have had recourse to that document.
The statement in Trussell’s memorandum of 31 January 1997 (item (c) above) is equivocal but, in the light of the later fax in November 1998 from his secretary to Davies, it would seem that Trussell also believed, mistakenly, that the Rice draft had been agreed between the parties.
Turning to the circumstances leading to Davies’ fax of 6 November 1998, item (d) above, I make a number of observations. I would infer that Trussell provided his secretary, Janell Saverin, with the draft distribution agreement in the belief that the agreement was an operative document – hence the reference in his earlier memorandum of 31 January 1997 to “the MGB Sales distribution agreement”. That was, as I have found, a mistaken belief. However, the parties appear on this occasion to have treated clause 4.1 as requiring notice of price increases by Otto. I note that clause 4.1 refers to the amendment of Otto’s current distributor price list on one month’s written notice. It is curious, to say the least, that Smith did not on this occasion refer to clause 1.1.5 if he believed that it had been agreed as a constraint upon what was treated as Otto’s unfettered power to increase its prices.
Smith deposed that earlier, in or about June 1998, in the course of a conversation with Davies in relation to Otto’s price for bins to be used for a tender to the West Torrens council, Smith had said to Davies: “The other day I pulled out our distribution agreement and while I was reading through it, the effect of clause 1.1.5 became apparent to me. Do you know that you are meant to be quoting 10% less than our competitors in selling bins to us under clause 1.1.5 of our distribution agreement?” Smith deposed that Davies replied: “No, I am not aware of all the terms of our distribution agreement…”. Davies had no recollection of this conversation. Davies deposed that the first time he became aware that MGB contended that there was an agreement with Otto in those terms (or any terms) governing the price of bins was at a meeting with Smith in January 1999. I prefer Davies’ evidence. I am not satisfied that such a conversation occurred in June 1998 but whether Smith’s first reference to clause 1.1.5 in communication with Otto was in June 1998 or in January 1999, it is significant that the substance of the clause he mentioned was the first version put forward by MGB in August 1995 and not the second version which MGB now alleges was the version agreed at the 21 August 1995 meeting. Moreover, I note that the statement of claim in this proceeding pleaded, before an amendment earlier this year, the first rather than the second version of clause 1.1.5.
MGB’s conduct since August 1995 in relation to clause 1.1.5 strongly points to the absence of any agreement in relation to the second version and displays what I consider to have been a belated and opportunistic reliance upon the first version of that clause.
By January 1999 (see item (e) above), it is clear that Otto had adopted the stance that the Rice draft did constitute the “Distribution Agreement” between Otto and MGB, at least from about June 1996. In my view, this was a misconception.
Before reaching any conclusion on this part of the case it is necessary to consider one further aspect of the conduct of the parties. MGB relied upon Otto’s continuing conduct of granting discounts and compensation for defective bins or other defaults in the supply of bins as evidencing the operation of clause 4.5 of the Rice draft under which Otto warranted that its products would be for a period of five years from the date of manufacture free from faulty workmanship and materials. However, I cannot discern any difference in Otto’s conduct prior to August 1995 and after that time. In or about November 1993, in relation to the Nunawading council contract, Otto agreed shortly after delivery of bins not only to replace a number of defective bins but also to pay $5 per bin compensation for the costs involved in changing over the bins. There were occasions after August 1995, again shortly after delivery of bins, when Otto gave a discount to meet various complaints about its bins (for example, Hobson’s Bay council) or paid costs and compensation (for example, Nillumbik council) but I do not consider that this proves an adherence to or adoption of clause 4.5 of the Rice draft. Rather, I am satisfied on the evidence that Otto throughout adopted the commonsense business policy that it would support its product and avoid disputes and that it would offer such discount or reasonable compensation as was necessary to satisfy or at least pacify any distributor and/or waste-management contractor and/or local authority which had a bona fide complaint.
Looking at the evidence as a whole, I consider that MGB and Otto conducted themselves in their business relationship from about 1992 until proceedings were instituted in 1999 on the same basis. There was no change in that conduct after August 1995 other than by the reference to the agreement in relation to notice of price increases in November 1998 and the later reliance upon it when notice of breach was given. With the exception of the notice of price increases, I perceive no change in business conduct as between the parties after August 1995. In my opinion, the conduct of Otto since August 1995 is not an admission that an agreement was made in terms of the Rice draft. Nor do I think that the mutual conduct of the parties since August 1995 shows that the pleaded agreement was made or adopted. Further, I do not consider that MGB altered its position on the faith that an agreement in terms of the Rice draft had been entered into by it in August 1995. Nor do I think that Otto is estopped from denying that the Rice draft constituted the agreement between the parties. In particular, Otto is not estopped from denying that the second version of clause 1.1.5. formed part of any distribution agreement because I am satisfied that MGB never believed that it did or acted as if it did. MGB submitted that Otto had by its conduct induced MGB not only to believe or assume that the Rice draft was an operative and binding agreement but also had thereby induced MGB to comply therewith by not purchasing bins in competition with Otto and by not operating outside its agreed territory. I repeat that I do not accept that MGB believed or assumed that the Rice draft was an operative or binding agreement. Nor am I satisfied that MGB’s said conduct was based upon any such belief or assumption or that MGB had altered its conduct in that regard.
Clause 1.1.5
A principal claim by MGB based on the terms of the Rice draft is for damages for Otto’s alleged failure from 1995 to 1999 to offer bin prices to MGB in compliance with the definition of “List Price” contained in clause 1.1.5 of the Rice draft.
If, contrary to my above conclusions, the correct position is that the parties in August 1995 or thereafter agreed in, or generally adopted, the terms of the Rice draft as their agreement, I do not think that Otto was ever relevantly bound by clause 1.1.5 to offer to MGB a price for bins not less than 10% cheaper than retail prices which Otto would offer in the market place. That is so for a number of reasons.
First, as a matter of construction, I do not think that the Rice draft imposed upon Otto any obligation to offer prices at the “List Price” as defined by clause 1.1.5. MGB did not contend that clause 1.1.5 of itself imposed such an obligation. Both parties relied upon clause 4.1 which provided that “orders by [MGB] for the Products shall be made to Otto at [a specified address] and [Otto] shall sell the Products to [MGB] in accordance with such orders at the full list price as shown in [Otto’s] then current distributor price list”.
MGB submitted that the “full list price” in the operative clause, clause 4.1, was the “List Price” referred to in the definition clause, clause 1.1.5, and that the distributor list price had to comply with clause 1.1.5. Otto rejected this and submitted that the “full list price” in clause 4.1 referred to that which appeared on Otto’s “current distributor price list” to the extent that such a list existed and was applicable and that otherwise clause 4.1 was inoperative and that in any event clause 1.1.5 was inoperative because it simply contained a definition not picked up elsewhere in the agreement.
I am satisfied that from at least late 1995 onwards, if not earlier, Otto had a series of price lists for internal use with the following format. As at 1 January 1996, there was an internal price list which served a number of purposes. The first page of the list dealt with “top up business” and listed the price charged per bin of various sizes based on a “full truck load”. Different prices were listed on this page in relation to MGB, other named distributors, various named contractors and others. The second page was a retail price list for sales “ex works”, not referring to distributors, with per bin prices reducing as the quantity increased. Other pages of the price list are irrelevant for present purposes. There was a similar price list printed as at 10 December 1996. There was in evidence an Otto price list marked “effective 1/8/98” which although in slightly different format was for present purposes and in substance the same. I note however that that price list had a number of “rules” printed on the contents page the fourth of which was: “These prices supersede any previous prices and all other price lists must be destroyed“, a rule which probably explains why very few price lists were discovered. I am satisfied that similar lists did exist from late 1995 onwards.
There was therefore a “current distributor price list” in existence from time to time, within the meaning of clause 4.1, but it relevantly applied only to “top up sales”. In my opinion, if clause 4.1 was part of an enforceable agreement between Otto and MGB, it operated to pick up that list but only to that extent. The “full list prices” for top up sales for MGB would therefore have been whatever prices appeared next to MGB’s name in those price lists. On the other hand, in relation to “tenders”, it is clear that there was never any “current distributor price list” in existence setting out bin prices for MGB or any other distributor for the purpose of MGB putting in bids to waste management contractors who were about to tender to a local council or other authority. In my view, clause 1.1.5 was inoperative both in relation to “tenders” and also in relation to “top up sales”. As regards top up sales, the definition of “List Price” had no part to play in relation to the content of the “current distributor price list” under clause 4.1. As regards tenders, nothing in the Rice draft gave clause 1.1.5 force and effect in relation to prices not covered by a price list.
MGB’s case based upon clause 1.1.5 would in my opinion fail in any event for a significant reason strongly pressed by Otto in argument. The evidence clearly shows that throughout the relevant period every bin price which Otto charged to MGB for the purpose of a particular tender was the subject of a specific quotation sought by MGB and given by Otto. That initial quotation was often followed by negotiation and hard bargaining. The result was a price specifically agreed in each case by the parties on the faith of which the bins were supplied by Otto to MGB or at MGB’s direction. I accept Otto’s submission that the bins were supplied in each case pursuant to a specific agreement reached as to price, without any reference being made to clause 1.1.5 or to a written distribution agreement. If clause 1.1.5 was applicable at all, I consider that it was overridden by these subsequent agreements.
Clause 4.5
The other major claim by MGB is based upon clause 4.5 of the Rice draft which provided in substance that Otto warranted that its manufactured products would be for a period of five years from the date of manufacture free from faulty workmanship and materials. On the basis of alleged breaches of that warranty, MGB claimed certain damages.
Because I have found that the agreement pleaded by MGB has not been made out, this claim based upon clause 4.5 of the alleged agreement must necessarily fail (see paragraphs 6(ii) and 10 of the further amended statement of claim). The governing law under the Rice draft was provided to be that of New South Wales and MGB also alleged by paragraph 7 of the further amended statement of claim that by virtue of s.19 of the Sale of Goods Act (NSW) the pleaded agreement contained implied terms in substance that the goods would be of merchantable quality and reasonably fit for the purpose of garbage collection. However, no reliance at all was placed by MGB in argument upon these alleged implied terms and it is therefore unnecessary to consider Otto’s arguments in relation to this aspect of the pleaded claim. In any event, the finding that the pleaded agreement has not been made out is an answer to the claim.
I emphasise that it was abundantly plain throughout the trial that, if MGB failed to establish the pleaded agreement, the further amended statement of claim contained no alternative contractual basis upon which to rest MGB’s claim for damages in relation to defective bins and the like. Had any such alternative been pleaded, it would have been necessary to consider Otto’s arguments based upon the contents of its standard conditions of sale printed on the reverse of its invoices to MGB.
The claim for damages for defective goods
Notwithstanding the above conclusions, it is desirable to record some matters in relation to MGB’s claim for damages for defective goods and the like. A large part of this claim was abandoned. As finally presented, MGB’s claim for damages was as follows:
(i) Amount paid by MGB by way of settlement to MGB’s South Australian agent (“MGBSA”) arising from faulty goods supplied to NAWMA and the West Torrens Council.
$250,000
(ii) The faulty goods supplied by Otto to MGB on a number of separate jobs caused MGB to suffer a loss of reputation which in turn resulted in the loss by MGB of profit, or the loss of opportunity to make a profit, on four jobs, namely:
§ Port Adelaide/Enfield
§ Salisbury
§ Latrobe Valley
§ Yarra Ranges
In relation to the NAWMA (North Adelaide Waste Management Authority) and West Torrens jobs, Otto conceded the following facts:
“2,600 faulty lids (consumer instructions not properly attached) (West Torrens):
Recycle stickers not on inside of 5,719 bins;
Stickers not on 4,534 lids and 560 bins;
Axle holes were not in alignment;
Printing on the lids wiped off on 2,600 bins;
Recycling stickers were not put on the inside of the bin body on 1,200 of the bins in NAWMA (and West Torrens).”
The evidence showed that many bins were delivered with the axle holes not in alignment causing huge assembly problems (fixing of wheels) affecting some 60% of the bins for NAWMA and some 30% of the bins for West Torrens. Other problems in relation to West Torrens included large amounts of flashing left around the plastic, dividers in the bins that were too long preventing the lids from closing and some 2,500 or more lids that were too large. In relation to NAWMA, there were 500 140 litre bins which had walls which were “too thin”.
The South Australian agents for MGB, MGBSA (a company unrelated to MGB), began claiming damages from MGB in or about November 1998 shortly after the delivery of the bins for NAWMA and West Torrens. Further demands from the solicitors for MGBSA for ever-increasing amounts were made in the following year. The solicitors for the parties met in or about September 1999 and terms of settlement were entered into pursuant to which MGB allowed MGBSA the sum of $250,000. The claim which was so compromised was made up as follows (as appears from the recitals to the terms of settlement):
“Costs associated with contracts with agents hired to deliver bins including down time for time wasted in waiting to deliver bins as detailed in Annexure ‘A’ hereto: $72,861.35
Costs associated with swapping bins
5,000.00 Actual loss of sales from Pacific Waste Management
50,000.00 Loss of business reputation
60,000.00 Loss of profit – Initial supply of FIFTY THOUSAND (50,000) bins to Port Adelaide/Enfield Council (6.00 per bins)
300,000.00
Loss of profit on delivery of Port Adelaide/Enfield bins
50,000.00
Loss of future profit on ‘top [up] work’ and delivery of ‘top [up] work’
16,000.00
Legal fees and disbursements 5,000.00
TOTAL $558,861.35”
Without admitting liability, Otto conceded that the first-mentioned sum of $72,861.35 should be allowed as a set-off against its claim in this proceeding but contended that otherwise the settlement amount of $250,000 was unreasonable.
It is important to observe that out of the total sum of $558,861 claimed by MGBSA, three items totalling $366,000 related to the alleged loss of profit flowing from a different job for the “Port Adelaide/Enfield Council”.
Mr Brixton of MGBSA gave evidence that in about February 1999 he was informed orally by Geoff Johnson of “Cleanaway” (a waste management contractor) that MGBSA and MGB had won the contract for the supply of Otto bins to Cleanaway for the Port Adelaide/Enfield job. Mr Brixton then deposed as follows:
“We became so concerned about quality problems with [Otto’s] products, that eventually [MGB] agreed to source an alternate 140 litre sized bin and supplied a sample made by Icoplast. Port Adelaide/Enfield Council representatives were shown the Icoplast sample and approved it for supply. Unfortunately, at about the same time, Sulo reapproached Cleanaway with a much lower price on the bins and Cleanaway decided to break their contract with us for the bins and accept the lower Sulo price. [MGBSA] is about to initiate legal action against Cleanaway over approximately $300,000 of losses that we suffered as a result.”
This evidence suggests that MGBSA’s loss of the Port Adelaide/Enfield job resulted from Sulo offering a lower bin price than that offered by MGBSA. Smith’s own minutes of a meeting in July 1999 between representatives of Cleanaway with Brixton and Smith show that Cleanaway also had concerns about the substitution of Icoplast for Otto bins and quality concerns about Icoplast bins and that it was Smith of MGB who stated that MGB was suing Otto in relation to faulty product and who was generally critical of Otto’s production quality. A letter from Cleanaway to Brixton dated 3 August 1999 suggests that the job was lost because Cleanaway preferred a proven manufacturer (Sulo) to a new manufacturer (Icoplast). The alleged loss did not result from any loss of reputation of MGB in relation to Otto bins nor did it result from any alleged breach of contract by Otto in relation to the NAWMA and West Torrens jobs. MGB had sufficient of the foregoing information at the time so that in my opinion MGB did not act reasonably vis-à-vis Otto in agreeing to a settlement of this size. After deducting the claim for $366,000 in relation to Port Adelaide/Enfield, the balance of $192,000 odd claimed by MGBSA against MGB does, I assume (although the evidence is not entirely clear), relate to losses allegedly flowing from the NAWMA and West Torrens jobs but it is substantially less than the settlement sum. Smith conceded that it was appropriate at the time to discount some of the constituents of this balance as well. I am therefore satisfied that, assuming Otto to be “liable”, the settlement between MGBSA and MGB of $250,000 was unreasonable vis-à-vis Otto at the time it was made and in the then known circumstances.
In relation to the claim concerning Salisbury, in or about March 1999 NAWMA required 35,000 240 litre bins for the Salisbury council (one of its constituents). MGBSA as agent for MGB offered to supply Otto bins to Cleanaway at $36.23 per bin but in mid-1999 MGBSA was unsuccessful in obtaining this job. Apart from Smith’s somewhat vague assertion that the reason for this lack of success “was that Cleanaway in South Australia had recognised the fact that we had problems with quality and other problems” there was no evidence of Cleanaway’s reasons and no evidence of Sulo’s winning price. The reference to “other problems” is perhaps a reference to the fact that by this time MGB was in disputation with Otto and, although still purchasing bins from Otto, was doing so only on a COD basis. Brixton testified that MGBSA was in the process of taking proceedings against Cleanaway in relation to this matter on the basis of an earlier letter of intent. I am not satisfied, having regard to the somewhat inadequate evidentiary material, that MGB lost profit or an opportunity to profit on this job by reason of any damage to its reputation in the industry as a result of Otto’s alleged breaches in relation to faulty products.
I turn to the Latrobe Valley and Yarra Ranges claims. Mr R.C. Dacey, who was called by MGB, has worked in the waste management industry for about 28 years. He was employed by Cleanaway until 1996. In 1997 he left that employment and formed his own consulting company, Valley Waste Pty Ltd. In or about April 1997, Dasma Pty Ltd retained Valley Waste as a consultant and obtained the waste management contract for the Latrobe Valley Council. Dacey told Smith in substance that he would not recommend MGB for the supply of Otto bins for that job at any price because of the very poor quality of Otto bins.
Dacey deposed that “[i]n 1996 and 1997 MGB… and Otto had developed a reputation in the industry of supplying poor quality products” and that “the reputation of MGB suffered by its connection with Otto products and this accelerated appreciably during 1997 and 1998… everybody thought Otto’s products were terrible and their record on delivery schedules poor”. There was a body of other evidence to the same or a similar effect. Dacey also referred to his awareness of problems experienced with Otto bins in relation to jobs for Heidelberg (1994) and Hobson’s Bay (1996).
Later in 1997 Dasma Valley Waste Pty Ltd, a company formed by Dacey and one Dyson, tendered for a waste management contract with the Yarra Ranges Council. This involved the supply of 48,000 bins and Dacey obtained prices from Nylex, Sulo and MGB. After winning the tender, Dacey went back to these suppliers “to haggle over prices”. He said that he decided not to proceed with Otto bins based upon his awareness of problems with those bins and further information which he was given by the Nylex representative about Otto’s problems in relation to a job in Nillumbik (1996-7).
Dacey did not dispute the obvious, especially in light of his company’s correspondence with the various bin suppliers (including MGB), namely, that price was a very significant factor in choosing a bin supplier for the Latrobe Valley and Yarra Ranges jobs, as with all such jobs. It is also clear from the evidence of Dyson that price and the ability to supply large quantities of bins on time were decisive factors in relation to these two jobs.
While I am not satisfied that MGB would have obtained either of these supply contracts absent its poor reputation in the industry in its capacity as a supplier of Otto bins, I am satisfied that MGB’s ability to compete for these contracts was hampered by such poor reputation.
In deference to the evidence led and arguments presented, I have stated my findings concerning losses claimed by MGB to the extent stated above, notwithstanding my primary conclusion that MGB has failed to establish the existence of the agreement sued upon and therefore the express term said to have been breached. In summary:
(i)the settlement amount between MGB and MGBSA was unreasonable vis-à-vis Otto primarily because (as was known at the time) the loss of the Port Adelaide/Enfield job was not caused by MGB’s poor reputation in the industry in relation to Otto products;
(ii)the direct claim in relation to Port Adelaide/Enfield fails for the same reason;
(iii)I am not satisfied that the loss of the Salisbury job was caused by MGB’s poor reputation;
(iv)I am not satisfied that the loss of the Latrobe Valley and Yarra Ranges jobs was caused by MGB’s poor reputation but I am satisfied that MGB’s ability to compete for those jobs was prejudiced by such reputation.
In the circumstances it is unnecessary to consider certain other issues which would have arisen had breach of the express term been established. Those issues include the following:
(a)To what extent (if any) did MGB’s loss of reputation in the industry in relation to Otto products result from breach of the express term? In that regard and without being exhaustive, a number of matters should briefly be noted. The Nunawading job (1993-4) pre-dated the alleged agreement and involved both defects of quality and late delivery. The Ringwood job (1994) also pre-dated the alleged agreement and involved defects of quality. The Nillumbik job (1996-7) involved a number of problems with the installation of transponders and the numbering of bins which may or may not have constituted a breach of the express term alleged but may (or may not) have constituted a breach of terms agreed specifically in relation to that job.
(b)Were the damages or any part of them as claimed by MGB too remote as Otto submitted?
(c)What further sum (if any) would MGB be entitled to recover from Otto in respect of MGB’s liability to MGBSA in relation to NAWMA and West Torrens?
Trade Practices Act
Causes of action were pleaded by MGB under s. 52 of the Trade Practices Act (see paragraphs 31-40 of the further amended statement of claim) but were barely referred to in argument let alone explained. It is sufficient to say that none of them were made out.
Conclusion
This proceeding was set down for trial on 16 November 1999 on all issues other than quantum. The quantum of Otto’s counterclaim for a debt exceeding $2M remains to be precisely established but, as I understand it, only a small amount is in dispute. Against that, Otto has conceded that two amounts should be set-off against its debt – the sum of $72,861.35 to which I have referred and the agreed further sum of $35,000 as commission for direct sales by Otto in MGB’s territory, a total of $107,861.35. MGB has failed to establish any liability of Otto which might lead to any further set-off against that debt.
No issue arises as to the validity of the guarantees executed by the second and third defendants to Otto’s counterclaim (Smith and De Oleveira). It remains only to establish the quantum of the debt guaranteed thereby.
The question of interest will be deferred to be dealt with along with the quantum on the counterclaim. I make no orders at this stage either on claim or counterclaim.
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CERTIFICATE
I certify that this and the 31 preceding pages are a true copy of the reasons for judgment of Mandie J of the Supreme Court of Victoria delivered on 23 June 2000.
DATED this 23rd day of June 2000.
__________________________
Chrissy Mavroudis
Associate to Justice Mandie
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