NCON Australia Ltd v Spotlight Pty Ltd [No 5]

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 8246 of 2009

NCON AUSTRALIA LIMITED (ARBN 099 019 851)	Plaintiff
v
SPOTLIGHT PTY LTD (ACN 005 180 861)	Defendant

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	15, 16, 17, 18, 21, 22, 23, 24, 25 and 28 February 2011, 1 and 2 March 2011
DATE OF JUDGMENT:	12 December 2012
CASE MAY BE CITED AS:	NCON Australia Ltd v Spotlight Pty Ltd
MEDIUM NEUTRAL CITATION:	[2012] VSC 604

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CONTRACT – Agreement for rental of chattels – Whether concluded agreement reached – Agreement required execution of master lease agreement and further individual leases – contract concluded – Whether agreement repudiated by lessor – Whether repudiation by the lessee – Assessment of damages – Damages not properly particularised or proved – Nominal damages awarded.

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APPEARANCES:	Counsel	Solicitors
For NCON	Dr R L Dean Dr M R Sharpe	Peter G Richards
For Spotlight	Mr R Garratt QC Ms R B Sion	Cornwall Stodart

TABLE OF CONTENTS

Introduction and summary............................................................................................................... 3

The people involved in the Spotlight transaction....................................................................... 4

The pleadings..................................................................................................................................... 6

The issues to be determined.......................................................................................................... 10

The background to NCON and the Smart Power control system........................................... 11

The formation of the agreements.................................................................................................. 12

Mr Chisholm..................................................................................................................................... 26

The demonstrations of the Yes box.............................................................................................. 28

The first demonstration............................................................................................................. 28
The second demonstration........................................................................................................ 28
The third demonstration........................................................................................................... 30
The fourth demonstration......................................................................................................... 33
Events after the demonstrations................................................................................................ 35

Principles for ascertaining whether a contract has been concluded....................................... 41

Did the parties enter into a single agreement constituted by the Services Agreement and the Rental Agreement?........................................................................................................................................ 42

Did the Rental Agreement constitute a binding contract between NCON and Spotlight? 43

The NCON rental program............................................................................................................. 44

Spotlight’s knowledge of and acceptance of the NCON rental program.............................. 46

Spotlight’s contentions.................................................................................................................... 49

The commencement of the lease................................................................................................... 52

Annexure C to MAFF....................................................................................................................... 52

Did NCON evince an intention to repudiate the agreement?................................................. 53

Was there a perceptible light loss?................................................................................................ 54

Clause 15 of the Services Agreement............................................................................................ 56

Conclusion......................................................................................................................................... 57

Damages introduction and summary........................................................................................... 57

Details of NCON’s claims for damages........................................................................................ 58

The 23 February particulars..................................................................................................... 63

Mr Reibel’s evidence in support of the 23 February 2011 particulars of damage................ 64

Mr Reibel’s calculation of loss of profit....................................................................................... 66

Tax calculation............................................................................................................................. 66

Valuing the Yes boxes................................................................................................................ 66

Loss of opportunity in relation to the Yes boxes........................................................................ 67

The relevant legal principles in calculating damages for breach of contract........................ 71

Spotlights’ submissions on damages........................................................................................... 77

Has NCON established its loss and damage?............................................................................. 78

NCON’s case...................................................................................................................................... 78

Assessing the requirements of a store..................................................................................... 79

Installing the Yes boxes in the store......................................................................................... 79

Certificate of safety..................................................................................................................... 80

Cost of manufacturing the Yes boxes....................................................................................... 80

Marketing costs........................................................................................................................... 80

Finance commission................................................................................................................... 80

Commission payable to Mr Reibel........................................................................................... 81

Payments mentioned in NCON’s Damages Submissions.................................................... 81

Royalties....................................................................................................................................... 81

Financing costs............................................................................................................................ 81

Evidence in support of the 23 February particulars of loss and damage.............................. 82

Paragraph 1 of the 23 February particulars............................................................................. 82

Paragraph 2 of the 23 February particulars............................................................................. 82

Paragraph 3 of the 23 February particulars............................................................................. 83

Paragraph 4 of the 23 February particulars............................................................................. 83

Paragraph 5 of the 23 February particulars............................................................................. 84

Paragraph 6 of the 23 February particulars............................................................................. 84

Paragraph 7 of the 23 February particulars............................................................................. 84

Deficiencies in the damages claim................................................................................................ 84

Costs of installing the Yes boxes................................................................................................... 84

How much would NCON have earned?...................................................................................... 84

Commission payable to Greenhouse Savings Group............................................................... 85

Commission payable to Mr Reibel............................................................................................... 86

Financing difficulties....................................................................................................................... 86

Further and alternative claim based on additional 5 year rental renewal............................. 86

Paragraph 9 of the 23 February particulars............................................................................. 86

Paragraphs 10, 11 and 12 of the 23 February particulars...................................................... 86

Paragraph 13 of the 23 February particulars........................................................................... 86

Paragraph 14 of the 23 February particulars........................................................................... 87

Paragraphs 15 and 16 of the 23 February particulars............................................................ 87

Paragraph 17 of the 23 February particulars........................................................................... 87

Deficiencies in the further five year claim................................................................................... 87

The option to renew.................................................................................................................... 87

Loss of opportunity.................................................................................................................... 87

Conclusion......................................................................................................................................... 88

HIS HONOUR:

Introduction and summary

The plaintiff (NCON) seeks damages from Spotlight (Spotlight) for the alleged breach of a Rental Agreement of electrical equipment called Yes boxes.

NCON has developed and markets a system for reducing power usage in commercial fluorescent lighting that it calls the Smart Power Control System for Lighting (the Smart Power control system). The central component of the system is an electrical device that NCON calls the Yes box. The box is connected to the switch board that provides power to fluorescent lights typically used in lighting retail stores. The power leads that run from the switch board to the fluorescent lights are rewired through the Yes box which is attached to the wall next to the switch board. When the lighting is switched on and the Yes box is in divert mode the power for the lights passes through a mechanism in the Yes box that reduces the voltage being drawn by the lights.

Fluorescent lights require 240 volts to start up, but can operate on a lesser voltage once started. The human eye automatically adjusts for changes in illumination perceived by the eye, such that a person will not perceive relatively large changes in illumination. When the Yes box is activated and the fluorescent lights have been started the Yes box reduces the voltage drawn from the power supply to operate the fluorescent lights. The fluorescent tubes will emit less light but NCON claims the human eye will not notice the reduction in light. NCON claims that Yes box is designed so that the reduction in the lighting being emitted by the fluorescent lights in the store will not be perceived by the people in the store as compared to when the Yes box is not activated. NCON says that this is achieved by the mechanism of the human eye that automatically makes adjustments for changes in illumination.

Spotlight conducts over 100 haberdashery and home ware stores in Australia. NCON alleges that in November 2007 Spotlight agreed to use NCON’s Yes boxes in their Australian stores under an arrangement whereby NCON would install the Yes boxes and Spotlight would rent them from NCON. NCON alleges that Spotlight agreed with NCON to rent Yes boxes for 106 stores. NCON alleges that Spotlight reneged on the Rental Agreement and sues Spotlight for damages.

Spotlight admits that it signed a Rental Agreement, but that the agreement was incomplete and does not constitute an enforceable contract. Spotlight says that if the Rental Agreement was enforceable, Spotlight also entered into a Services Agreement as part of the agreement with NCON that entitled it to terminate the agreement on 30 days’ notice. Spotlight alleges that if it breached an enforceable contract that NCON has failed to prove it suffered any quantifiable damage.

For the reasons set out below, I find that Spotlight made a binding agreement to rent Yes boxes for the use in 106 of its stores and has repudiated that agreement. I find that NCON accepted that repudiation and is entitled to damages. I find that NCON has not properly claimed or proved the damages it claims, and award nominal damages of $1.

The people involved in the Spotlight transaction

Mr Gregory Gill is a director and shareholder of NCON. He concentrates on the financial side of the business. He met with Mr Molini, the purchasing officer of Spotlight, and signed on behalf of NCON a Services Agreement with Spotlight and witnessed Mr Molini’s acceptance on behalf of Spotlight of the Rental Agreement.

Mr Derek Barnes is another director and shareholder of NCON. He concentrates on the technical side of the Yes boxes, and was involved in demonstrating the product to Mr Jim Chisholm of Spotlight, who was employed by Spotlight to review the NCON proposal after the Rental Agreement was allegedly made.

Mr Alan Tobin and Mr Steve Dale are the principals of a firm known as Greenhouse Savings Group. NCON gave Greenhouse Savings Group an exclusive agency to market the Yes box in Australia. They negotiated the rental and service agreements with Mr Molini and had extensive dealings with Spotlight officers.

Mr Tony Reibel is employed as an independent contractor by NCON to organise the leasing finance that is used by NCON under its leasing program. He dealt with Mr Dean Berry, the Spotlight finance officer, and others.

Mr Tim Gill (no relation of Mr Gregory Gill) is employed by NCON to organise the installation of Yes boxes in the premises of its customers. He was present at demonstrations of the product.

All these people gave evidence.

On the Spotlight side, Mr Molini was the purchasing officer of Spotlight who negotiated the rental and service agreements with Mr Tobin and Mr Dale. Mr Molini left Spotlight soon after the agreements were made in November 2007.

Mr Dean Berry was a finance officer at Spotlight. He was involved in the negotiations leading up to the agreements and dealt with Mr Reibel on the NCON Rental Agreement.

Ms Sharp was a solicitor employed by Spotlight as corporate counsel; she assisted Mr Molini in settling the terms of the Rental Agreement.

Mr Ari Bergman was another corporate counsel engaged by Spotlight. He gave the NCON deal to Ms Sharp to handle and had dealings with Mr Reibel.

Ms Lisa McLean and Mr Aaron Hoovey were involved in organising the rollout of the Yes boxes into the Spotlight stores, and dealt with Mr Tobin and Mr Dale.

Mr Jim Chisholm was employed by Spotlight after the Rental Agreement was signed in November 2007. He played a central role in rejecting the installation of the Yes boxes into Spotlight stores.

Mr Porter was the general manager of business development and the immediate superior to Mr Jim Chisholm. He met with the NCON team and gave instructions to Mr Chisholm about the NCON proposal.

Mr Carter was the CEO of Spotlight and gave instructions to Mr Chisholm to cease pursuing the NCON proposal.

Ms Smith was a solicitor at Cornwall Stodart who was engaged by Spotlight on the NCON proposal.

Mr Zac Freid was a director of Spotlight who introduced Mr Molini to Mr Dale and who was involved in discussions after the agreement was reached.

Ms Julie Birch is an employee of the Spotlight Frankston store and was present at least one of the demonstrations of the Yes box.

Mr Chisholm, Ms Birch, and Mr Bergman gave evidence. The other Spotlight officers involved did not give evidence.

The pleadings

NCON alleges that on or about 27 November 2007, it and Spotlight entered into a written Rental Agreement contained in a document entitled “Lighting Systems Energy Reduction Proposal” dated 27 and 22 November 2007, whereby NCON agreed to rent to Spotlight NCON’s Smart Power control system for lighting at certain Spotlight’s retail store locations in consideration of monthly rental payments to be made to NCON for a period of five years upon certain terms and conditions.

Spotlight admits that it accepted NCON’s Lighting Systems Energy Reduction Proposal Number 02001070240, bearing the date 22 November 2007 in consideration of the parties entering into the Services Agreement.[1] Spotlight calls the executed Rental Agreement document the “Proposal”.
[1]‘Amended Defence to Amended Statement of Claim of 5 February 2011, [2B].

NCON alleges that on or about the 26 November 2007 in consideration of the parties separately entering into the Rental Agreement NCON and Spotlight entered into an agreement whereby NCON agreed to install the Smart Power control system or at Spotlight’s election procure the installation of the system with Spotlight’s nominated installing contractors in Spotlight’s specified retail stores (the Services Agreement) subject to and upon certain further terms and conditions.

NCON alleges that Services Agreement is partly oral and partly in writing. In so far as it is oral, NCON alleges it is contained in a discussion on or about 19 November 2007 at Spotlight’s premises in Market Street South Melbourne between Greg Gill (as agent and director for and on behalf of NCON) and Fabio Molini (Procurement Manager of Spotlight, with the actual or alternatively the ostensible authority of Spotlight), in which Molini said to Gill words to the effect that Spotlight’s standard terms and conditions utilized for services supplied to Spotlight must be used in any agreement in relation to the installation of the Smart Power control system in Spotlight’s retail outlets.

In so far as it is in writing NCON allege it is contained in a document entitled “Services Agreement” bearing the date 16 November 2007 and, on the title page, 20 November 2007, executed by NCON on the 19 November 2007 and by Spotlight on 26 November 2007.

Spotlight admits that on 26 November it executed the written Services Agreement. It otherwise denies NCON’s allegations concerning the Services Agreement.

In the alternative, NCON alleges that on or about 27 November 2007, it and Spotlight agreed to vary the terms of the Services Agreement by entering into the Rental Agreement. Spotlight denies that allegation.[2]
[2]Ibid, [3A].

In its defence, Spotlight says that the Services Agreement and the Proposal (what NCON calls the Rental Agreement) constituted an incomplete agreement which contemplated further agreement between the parties as to the number and model of items comprising the control system which Spotlight would purchase or lease and the terms of the purchase or lease, if and when NCON obtained finance for the sale or hire of such items to Spotlight.[3]
[3]Ibid.

NCON alleges that, in breach of the Rental Agreement, Spotlight has refused, omitted, or failed to perform any terms of the Rental Agreement.

NCON alleges that (by letter dated 14 May 2009) Spotlight evinced an intention not to be bound by the Rental Agreement and thereby repudiated it. It alleges it suffered loss and damage.

Spotlight, for its part, alleges that on 17 and 18 January 2008, NCON informed Spotlight that:

(a) obtaining credit approval was subject to Spotlight executing the “Master Hiring Agreement” intended to be thereby provided, but omitted and provided later that day in the form of documents referred to above;

(b) in any event the financier and its broker would have issues with clauses of the Services Agreement which needed to be solved, and NCON proposed that either Spotlight withdraw its requirement for the Services Agreement or Spotlight enter into an agreement with NCON acknowledging that NCON would be assigning its rights to rental payments to its financier or the broker free of any other obligations and without any right of set-off, counterclaim or defence on the part of Spotlight. Spotlight rely on an email of Mr Reibel to Mr Bergman of Spotlight of 18 January 2008 and the conversation between them of 17 January 2008 of like effect.[4]

[4]Ibid, [3B].

Spotlight alleges (in answer to the whole claim) that on 17 January 2008 Tony Reibel of NCON telephoned Ari Bergman of Spotlight and advised that NCON could not proceed with the Proposal given the Services Agreement; this position was repeated in the email of NCON to Spotlight of 18 January 2008 (referred to above). Spotlight alleges that the reason given was that NCON’s financiers did not accept the Services Agreement, and in order to progress any arrangement between NCON and Spotlight the Services Agreement had to be withdrawn or further agreements entered into.[5]
[5]Ibid, [6].

Spotlight says that (in the circumstances) NCON evinced an intention not to be bound by the Services Agreement and repudiated it. Spotlight alleges it accepted the repudiation and relies on the fact that Spotlight took no further step in furtherance of the alleged agreement and its contention by its letter of 14 May 2009 to NCON’s solicitors that the parties did not have a “deal”.[6]
[6]Ibid, [8].

Further and alternatively, Spotlight alleges that it was a term of the agreement constituted by the Proposal and the Services Agreement that NCON’s Smart Power control system would not result in any perceptible light loss.

Spotlight alleges that tests by NCON in Spotlights’ presence at a Lincraft store in Frankston in May 2008 identified a lux level loss of approximately 25 per cent. Spotlight alleges that, accordingly, NCON was in breach of the agreement constituted by the Proposal and the Services Agreement in that it could not deliver the control system without there being an accompanying perceptible loss of light.[7]
[7]Ibid, [11].

Spotlight says that it was entitled to elect not to proceed with the Services Agreement.

Further and in the alternative, Spotlight says that clause 15 of the Services Agreement provided that Spotlight could, at its discretion, give one months’ written notice to NCON to terminate the agreement and that, accordingly, if it has repudiated the Services Agreement, then NCON’s damages are limited to one month period by reason of clause 15 of the Services Agreement.

In its reply, NCON admits that on or about 18 January 2008 Tony Reibel had a conversation with Mr Bergman, but says that it was a term of the Rental Agreement that NCON would apply for a financial facility limit of $2.5 million on behalf of Spotlight. It says it applied for such a facility and the facility was approved.

As to the lux level, in substance NCON alleges that the loss of lux was 4.3 per cent, which is imperceptible.

As to the allegation concerning clause 15 (which allowed for the Services Agreement to be terminated on one month’s notice) NCON says that the clause has no effect and is severable from the Rental Agreement. Further, NCON says that to give effect to the clause would defeat the parties’ contractual intentions as evidenced by the terms and conditions of the Rental Agreement, and that therefore clause 15 was severable and ought to be disregarded and is of no force or effect.

Further, NCON says that clause 15 was only exercisable when the Services Agreement and Rental Agreement were no longer executory. In the premises, NCON says that Spotlight is precluded from relying upon clause 15 of the Services Agreement as the Services Agreement and the Rental Agreement, by their respective terms and according to their tenor, were executory for their respective terms.

A detailed claim for loss and damages of $1,494,556.72 has been submitted.[8]
[8]Particulars of Loss and Damage of 4 September 2009.

The issues to be determined

The issues are as follows

(a) Did the Rental Agreement constitute a binding contract between NCON and Spotlight?

(b) If so, was the Rental Agreement part of a single contract that included the Services Agreement?

(c) Was it a term of the Services Agreement that it applied to NCON’s obligation to install the Yes boxes in Spotlight stores but not to the agreement of Spotlight to rent the installed Yes boxes from NCON?

(d) If there was a contract between NCON and Spotlight constituted by both the Rental Agreement and the Services Agreement, did NCON evince an intention not to be bound by the Services Agreement and thereby repudiate the agreement?

(e) Could NCON deliver its Smart Power control system without there being an accompanying perceptible loss of light?

(f) If NCON was not able to do so, was Spotlight entitled not to proceed with the agreement constituted by both the Rental Agreement and the Services Agreement?

(g) If there was a contract between NCON and Spotlight constituted by both the Rental Agreement and the Services Agreement, did clause 14 of the Services Agreement permit Spotlight to terminate the agreement on one month’s notice?

The background to NCON and the Smart Power control system

Mr Gregory Gill, a director of NCON, gave evidence of the history of NCON and the development of the Yes box as follows. In 1996, Mr Gill took out a patent of a prototype of the Yes box that he developed with the assistance of electrical engineers. In 1998, Mr Gill formed a company called NCON Corporation to carry out research and development of the Yes box. NCON Corporation is essentially the owner of all of the technology worldwide. Patents have been granted in approximately thirty countries that account for 70 per cent of the world’s electricity consumption.

In 2001, NCON Australia Pty Ltd, the plaintiff in this proceeding, was formed. NCON remained dormant for many years and did not start trading until many years later. Meanwhile, NCON Corporation was trialling, proving, and testing the Yes box. In particular, NCON Corporation was seeking to improve the switch in the Yes box that alters the voltage output from the Yes box to the fluorescent lights.

Essentially, the Yes box is installed near the switchboard. The power coming out of the switchboard for the lighting circuits goes through the Yes box before going onto the lights. The basic premise of NCON Corporation’s Yes box technology is that fluorescent lamps, or in fact metal halide, which are the high bay ones that are in supermarkets and shops, all work on 240 volts. They require 240 volts to start but they don't need 240 volts to keep going. The Yes box contains a switch that switches the power going through the Yes box from 240 volts to 207 volts. NCON Corporation developed technology that allowed the switch to operate at half a millisecond rather than operating at two milliseconds (as previously). This improvement allowed NCON Corporation to take the product to the market place.

NCON was the entity that offered the Yes box in Australia. Initially, NCON sought to market the product itself. It had difficulty in doing so. In 2005, NCON approached two friends of Mr Gill who were experienced in marketing, Steve Dale and Alan Tobin, to assist NCON to market the product. They formed a company Greenhouse Savings Group. It became the exclusive sales agent for Australia of NCON.

NCON out sources engineering, manufacturing, installation and design. Everything is outsourced to minimise NCON’s overheads. Many millions of dollars have been sunk into developing the technology over many years. NCON and its owners were running out of funds when NCON engaged the Greenhouse Savings Group to market the Smart Power control system.

The formation of the agreements

As indicated above, the parties are in dispute as to whether or not one agreement or two were entered into by the parties, and whether or not the Rental Agreement constituted a binding contract. The parties agree, however, that two documents were signed. The first was a Services Agreement, prepared by Spotlight, and the second was the rental proposal, prepared by NCON, which Spotlight describes as the Proposal.

There is no issue that Mr Molini (the procurement manager for Spotlight) accepted the rental proposal at a meeting on 27 November 2007 between himself, Mr Tobin, and Mr Gill. I have described the rental proposal when accepted and signed by Mr Molini on behalf of Spotlight as the Rental Agreement. It is necessary to deal with the circumstances surrounding the execution of both these documents to resolve the issues concerning whether or not there were one or two agreements and the terms of the agreement(s).

As mentioned above, Mr Tobin and Mr Dale had taken over the exclusive right to market the Yes box in Australia. Through Zac Freid (a contact that Mr Dale had at Spotlight), Mr Tobin and Mr Dale were introduced to Mr Fabio Molini, the procurement manager or purchasing officer of Spotlight. Spotlight is a privately-owned company based in Melbourne that conducts about 160 retail stores throughout Australia selling home ware and haberdashery products.

On 21 June 2007, Mr Tobin and Mr Dale met with Mr Molini at Spotlight’s offices. They described the Yes box and its benefits to Mr Molini and offered to do an obligation - and cost - free report for him in relation to three of Spotlight’s stores . They said that they would then be able to assess what was possible to be achieved using the Yes box and be able to project the likely savings on electricity and the overall cost to Spotlight. Mr Molini agreed to NCON preparing the report and they agreed to report the Bayswater, Brunswick, and Essendon stores. Messrs Tobin and Dale also left with Mr Molini a report by Western Power and a report by Energy Australia on the performance of the Yes box.

About ten days later, NCON provided Mr Molini with the report on the three stores that indicated the savings that Spotlight could make over five years. A further report (dated 18 July 2007) was given to Mr Molini on the three stores that made projections of savings by Spotlight that could be made nationally if the Yes box was used in approximately 90 stores.

Mr Tobin said that he had about five or six meetings with Mr Molini. He said that Mr Molini was informed that Spotlight could either buy or rent the Yes box units. As to the rental option, Mr Molini was informed that Spotlight could rent under a facility that NCON could offer or Spotlight could “get their own financing.” As will be discussed below, Mr Reibel, the general manager of sales and rental finance for NCON, gave evidence that NCON’s rental program would be at less cost to Spotlight than what Spotlight could achieve if NCON’s rental program was not utilised. Mr Tobin said that the five year rental option under the NCON rental program was discussed with Mr Molini.

On 8 August 2007, Mr Dale informed Mr Molini by email that NCON could do a three year rental, however, he said the cost would be higher than five years, so it would not be economically prudent for Spotlight to engage in a three year rental arrangement. On 3 September 2007, Mr Tobin informed Mr Reibel by email that Mr Molini has asked about the impact of a three year rental versus a five year rental. Later that day, Mr Tobin provided the information to Mr Molini by email.

Mr Tobin said that he negotiated with Mr Molini a further discount on the pricing of the boxes. On 25 September 2007, Mr Tobin supplied revised costings for Spotlight and offered a 15 per cent discount on the capital equipment based on the units being put into 88 or more Spotlight stores.

Mr Tobin said that a lighting systems energy reduction proposal for Spotlight stores was made to Spotlight in about early November 2007. Such a proposal (dated 26 October 2007) was produced from the files of Spotlight. It contains a note by Ms Sharp (the Spotlight in house solicitor) that Mr Molini gave it to her on 15 November 2007 and that he wanted it reviewed by mid next week. The proposal also contains Ms Sharp’s comments on the terms.

Mr Tobin said that there then followed several phone calls and discussions. Mr Tobin said that sometime in early November, Mr Molini informed Mr Tobin on the telephone that Mr Molini had board approval on the proposal and that they should get together. Mr Tobin said that Mr Molini told Mr Tobin that there were some aspects of the proposal that Mr Molini wanted to fine-tune. Mr Tobin said that Mr Molini told him that Mr Molini wanted to deal with moving a box from one store to a new store and some “mechanics”.

Mr Tobin said that Mr Molini also told him that because NCON was going to be controlling the electricians who would be going into their stores, NCON would be required to sign a standard Services Agreement. Mr Tobin said that Mr Molini told him that cleaners and pretty well anybody that goes into the store was required to sign a standard Services Agreement. Mr Tobin asked Mr Molini to send him the Services Agreement. Mr Tobin said that he does not recall how he received the Services Agreement, but he did. Mr Tobin identified the document Mr Molini sent him as the Services Agreement. Mr Tobin said that once he received the Services Agreement, he sent it on to NCON.

Mr Tobin said that he met with Mr Molini on or about 19 November 2007 to go over the rental proposal and the Services Agreement. The date of the meeting may have been after 19 November 2007, as Mr Molini refers to Mr Tobin and Mr Dale dropping off the documents on 20 November 2007 in an email Mr Molini sent to Mr Tobin and Mr Dale (with a copy to Ms Sharp, the Spotlight solicitor dealing with NCON’s proposal) on 21 November 2007 (in which Mr Molini says that he has reviewed the documents and that several points that needed to be deleted or clarified).

On 22 November 2007, Mr Tobin responded to Mr Molini’s queries raised in his email of 21 November 2007. The rental proposal of 26 October 2007 provided that “rental payments are monthly in arrears”. In his email of 21 November 2007, Mr Molini said rental payments should read “30 days”. Mr Tobin replied in his email of 22 November 2007: “rental payments – the authority to proceed now reads “on 30 day terms” to align itself with your service agreement.” He went on to say “Please note that the monthly rental payment will, in accordance with your requirements, take effect 30 days from the signing of each agreement – which will be in stages and only after you have approved each stage as being installed and operating correctly – on a monthly basis.” In my view, this and the rental proposal itself establishes that Spotlight had opted to take the Yes boxes under NCON’s rental program.

Mr Tobin said that the meeting with Mr Molini was the penultimate meeting before the agreements were signed. Mr Tobin said that Mr Molini had some questions about the rental proposal. At the meeting, Mr Tobin said that he told Mr Molini that NCON had some concerns over the inconsistency in the terms of the Services Agreement providing for a 30 day termination period and the requirements of the rental proposal. Mr Tobin said that Mr Molini replied with words to the effect, “Don’t worry about it, mate, that’s not a problem, I’ll fix all that and move forward”. Mr Tobin was asked whether he said anything further about the issue and Mr Tobin said “it was really a side issue in - in our mind and his. And it really related to the electricians, the actual logistics of installing the equipment in the store, which was separate to the supply agreement, which was to buy and get the boxes in the first place.” Mr Tobin said that he believed that Mr Dale was at the meeting. Mr Dale gave evidence that he did not recall being at the meeting.

Mr Tobin said that after his meeting with Mr Molini, he met with Mr Gill. Mr Tobin said that he told Mr Gill what Mr Molini had said about the supposed inconsistency between the Services Agreement and the rental proposal.

Mr Gill said that on about 19 November 2007, Mr Tobin brought to Mr Gill a proposed Services Agreement between NCON and Spotlight. Mr Gill said that he signed that agreement on behalf of NCON. At the time he signed the agreement, Mr Gill said that he had some concerns about its terms. Mr Gill said that the signed document was not delivered to Spotlight until Mr Gill attended the meeting on 27 November 2007 at Spotlight.

On or about 27 November 2007, Mr Gill (in the company of Mr Tobin) attended a meeting with Mr Molini at Spotlight’s offices in Market Street, South Melbourne. At the meeting, Mr Gill asked Mr Molini why NCON was signing the Services Agreement and how that had an effect on anything at all. Mr Molini explained to Mr Gill that this was the normal, standard practice of Spotlight. Mr Gill said that Mr Molini told him at that meeting that the document (the Services Agreement) was handed out to many people who do work for Spotlight such as cleaners and other kinds of people who do work for Spotlight. Mr Molini said that “seeing as you will be installing these boxes on our premises, then we would need you to sign on behalf of all of your electricians, et cetera, will comply with our Services Agreement”. Mr Gill said he told Mr Molini that he had been told that was the purpose of the Services Agreement, and that he wanted to hear what he had been told from Mr Molini.

Mr Gill said that he and Mr Molini had a friendly discussion about the Rental Agreement and how Mr Gill was excited that Mr Molini would be signing it. Mr Gill said that he said to Mr Molini “it’s good that you’ve got approval to do - to sign off on this as procurement manager and he made it quite clear, he said, “Yes, I have board approval for this, which I’ve finally been able to get”.

Mr Tobin said that he had bound the Services Agreement together with the rental proposal using a spiral binding and took them in that form to the meeting with Mr Molini.

Mr Molini informed Mr Gill and Mr Tobin that he required a couple of changes to the rental proposal. Mr Molini made the amendments and Mr Gill initialled the amendments.

At that meeting, Mr Molini signed Spotlight’s acceptance of the rental proposal on behalf of Spotlight. The particular page that he signed was headed “Acceptance of proposal” and continues “Spotlight Group accepts this proposal Number 020010710240 for the supply of NCON’s Yes boxes for the sites listed below or in the attached schedule”. The rental proposal prepared on behalf of NCON did not make provision for NCON to sign. Mr Tobin witnessed Mr Molini’s signature and Mr Gill signed or initialled the hand written amendments.

Mr Tony Reibel was also involved in the negotiations with Spotlight. He is and was at the relevant time the General Manager, Sales and Rental Finance with respect to NCON. He is and was employed on a contract basis. Mr Reibel was responsible for arranging finance to set up the Rental Agreement.

Mr Reibel said that in the middle of 2007, he was informed that negotiations were going on between Spotlight and NCON. Mr Reibel said that he supplied to Mr Tobin and Mr Dale the rental figures on a five year basis to use in their negotiations with Mr Molini. On 3 September 2007, Mr Tobin informed Mr Reibel by email that Mr Molini had asked about the impact of a three year rental versus a five year rental. Mr Tobin observed in the email that this would probably negate the financial benefits of the exercise but asked Mr Reibel to work out the actual figures. Mr Reibel said that he could not find any electronic record of sending the information that was sought and assumed he telephoned the figures through to Mr Dale or Mr Tobin.

Mr Reibel said that later in 2007, he attended a meeting at Spotlight’s offices in South Melbourne with Mr Dale and Mr Tobin from NCON, and Mr Molini and an unidentified woman from Spotlight. Mr Reibel said that at that meeting Spotlight mentioned that they may look at getting or arranging their own finance. I infer, therefore, that this meeting was before the rental proposal was accepted.

Mr Reibel said that during the negotiations, he had made contact with Mr Dean Berry, a Spotlight employee in Spotlight’s administration who handled finance. Mr Reibel said that he spoke with Mr Berry, informing him he needed certain financial information about Spotlight so that Mr Reibel would be able to apply for finance. Mr Reibel said that Mr Berry told him that Spotlight did not like giving out information to third parties. Mr Reibel said that the third party he had in mind was SME Commercial Finance (SME), who were the lending managers for Society General who were to be the ultimate financier. Mr Reibel said that he told Mr Dean that he would arrange for a non-disclosure agreement for him to sign. It is possible to generally date that discussion, as on 9 November 2007 Mr Reibel sent to Mr Berry by email “a copy of the Non Disclosure Agreement as requested”.

Immediately after the rental proposal was accepted by Spotlight, on 28 November 2007, Mr Reibel asked Mr Berry (who he had been dealing with since at least early November) to forward to him certain financial information so he could get the appropriate approvals to establish the “Master Rental facility which will be $2.5 million as per the authority to proceed finalised yesterday with Fabio”.

Mr Reibel said he did not recall whether at the time he had any discussions with Mr Berry about the mechanics of the payment of the rent to SME. He was shown the Master Hiring Agreement (MHA) forms and the direct debit forms sent to Mr Bergman on 18 January 2008 and asked did he know whether they were forwarded sometime in November or were they forwarded later. Mr Reibel said he could not recall exactly when they were forwarded to Spotlight but that he had sent the direct debit request form to Mr Barry. Mr Reibel said that the direct debit request form was in the name of SME and not in the name NCON. He said that to pre-empt Mr Berry asking questions about it, he told Mr Berry that Societe General was the ultimate financier. Mr Reibel was then asked: “All right. But at that stage you can’t tell whether you’d sent him such a form or not?” and he replied: “I can’t – I don’t recall when I sent it, no”.

Mr Reibel was asked whether he had any other discussions with Mr Barry. He replied:

Ah, the only discussions that I had with Dean Berry were basically about getting the finance organised and referring it through to Societe Generale because he didn’t really want to give the information directly to me.

On 18 January 2008, Mr Reibel informed Mr Ari Bergman, an in-house solicitor for Spotlight, by email that he had previously provided to Spotlight a copy of the MHA. Under cross-examination, Mr Reibel admitted that he could not find any record that the documents sent to Mr Bergman on 18 January had been sent to Spotlight before they were sent to Mr Bergman on 18 January 2008.

It is convenient at this point to explain the NCON rental program and how it worked. The NCON rental program involved finance being approved for the rental of a certain quantum of Yes boxes. In this case the value was agreed at $2,500,000 in the accepted rental proposal. Under the accepted rental proposal, Spotlight was required to enter into an agreement called the Master Asset Finance Facility (MFFA). The MFFA is also known as the master hiring agreement; that is the MHA. The MFFA is referred to in the accepted rental proposal although the proposal did not spell out the essential elements of the NCON rental program. Under the MFFA, Spotlight agreed to sign individual Rental Agreements for the Yes boxes as they were installed. The form of the Rental Agreement was part of the MFFA. The Rental Agreement set out the location of the Yes boxes and a description of the goods. The accepted rental proposal provided that the rental payments began 30 days after installation. The agreed rental stream was assigned to Societe Generale who in exchange paid a lesser sum than the agreed price of the Yes boxes to NCON. Under the accepted proposal, the obligation imposed on Spotlight was to sign the MFFA document and the MFFA document set out the further obligations of Spotlight with respect to the installed Yes boxes. As the accepted rental proposal provided, Spotlight was to sign a direct debit form for the rental payments that were to be paid.

I find, on the balance of probabilities, that when Mr Molini accepted the rental proposal on 27 November 2007, Spotlight was aware of the mechanics of the NCON rental program. That is an inference that I draw from the evidence that Mr Molini signed up to the rental proposal]and that he had sought information on the difference between a five year financing and a three year term. Spotlight called no evidence from Mr Berry, Mr Molini, or Ms Sharpe to seek to rebut that inference.

Mr Reibel said that Spotlight, was not prepared to release its financial information directly to either NCON or SME. He said that being a private company, Spotlight was fairly sensitive about the information that went out. Mr Reibel said that Spotlight was prepared to talk to directly to Richard Hearne at Société Générale, who he believed was their general manager or manager of their credit division. Mr Reibel said that he arranged for that to be done.

In mid December 2007, Mr Tobin and Mr Dale met with Lisa McLean, project team leader and Aaron Hovey, project co-ordinator, of Spotlight to discuss the installation of the Yes boxes in the Spotlight stores. Mr Dale said that Mr Molini introduced Ms McLean and Mr Hovey to him. Mr Dale said that Mr Molini wanted to introduce them to him to make sure that the rollout for the following year ran smoothly, as they would be taking over his role. Mr Tobin said that Ms McLean was very enamoured with the greenhouse component of the NCON product in reducing power consumption. Mr Tobin said that Ms McLean told him that Spotlight was always trying to attract quality people to their organisation and that students had shown a lot more interest in the greenhouse responsibilities of the corporation than they had previously. He said that they also conversed about the fact that there were not any courses where you could learn about greenhouse savings and what they were, and that the tertiary institutions needed to catch up with the sentiment of the public at large. Mr Dale also referred to Ms McLean’s enthusiasm for the Yes box.

On 17 January 2008, Mr Reibel was informed by email by Mr Trevor Phillips (who Mr Reibel said was his contact at SME) that the rental facility for Spotlight had been approved by Societe Generale. By the same email, Mr Phillips asked Mr Reibel for a copy of all documentation between Spotlight and NCON to be reviewed. On 17 January 2008 , Mr Reibel sent to Mr Phillips the signed Spotlight offer document. Mr Reibel says he subsequently received an email from Mr Phillips raising concerns about the agreements. The essential terms of the email are as follows. Mr Phillips said:

As you know, SME/SG have signed-off on the form of NCON’s Proposal and this particular Spotlight Proposal conforms. However, the introduction of the umbrella Services Agreement appears to link-in the Proposal, and by extension, the Rental Agreement to the extent that they constitute one agreement.
The Services Agreement clearly places a number obligations on NCON which, if not performed, can result (amongst other things) in Spotlight:
- appointing a substitute Contractor and set-off any costs of doing so against monies payable to NCON (clause 4).
- terminating the agreement for no reason or upon breach by NCON or upon certain other events (clause 15)
- setting-off any damage or loss suffered by Spotlight due to any breach by NCON (clause 19.2).
In addition (amongst other things):
- Spotlight can assign the agreement without the consent from NCON. However, NCON cannot assign without consent from Spotlight (clause 20).
...
I can fully understand the reason for Spotlight seeking a Services Agreement but unfortunately as it stands we would not be able to proceed with any receivables purchases based on this documentation.
To get an informed opinion we would need to refer the documentation to SG’s legal counsel but I have no doubt he would have the same reservations.

After receiving the email, Mr Reibel said that he discussed it with Mr Phillips, who repeated his reservations about the agreements. Mr Reibel said that he told Mr Phillips that he did not believe that there was a conflict between the two. Mr Reibel said that he told Mr Phillips that he did not see how a services agreement could possibly be construed to override a legal document such as a master hiring agreement Mr Reibel said that in his opinion Mr Phillips was being overly cautious, and unnecessarily so.

Mr Reibel said that on 17 January 2007 he took these concerns to Mr Bergman, corporate counsel of Spotlight and confirmed that finance had been approved in principle. Mr Bergman agreed that on Thursday 17^th he received a telephone call from Mr Reibel, where Mr Reibel explained that Spotlight and NCON had an agreement in place, that under that agreement finance arrangements were required, and that a services agreement with Spotlight had also been entered into. Mr Bergman said that Mr Reibel told him that the financier Societe Generale had some issues with a services agreement in place with NCON. Mr Bergman said that Mr Reibel started to explain various options to resolve the issue that the financer had with the Services Agreement, and that he asked Mr Reibel to email him the information and that he would consider it. As requested by Mr Bergman, Mr Reibel expressed his concerns to Mr Bergman in an email the next day on 18 January 2008. The email refers to the earlier conversation with Mr Bergman. In the email, after explaining the Yes boxes, Mr Reibel explained to Mr Bergman the workings of the contractual relationship between Spotlight and NCON. Mr Reibel said:

The Yes boxes are to be provided under a rental contract with NCON being the owner of the assets. NCON then on sells the rental stream to SME Commercial Finance Pty Ltd (SME) which in this case is underwritten by the French Investment Bank Societe Generale (SG). The day to day management of the financing facility is handled by SME.
NCON/SME have submitted Spotlight’s financials to SG and (SG did require some additional information which was provided direct to SG by Dean Berry) have obtained an in principle approval for $2.5 million line of credit which will cover current known requirements.
Credit approvals are subject to the Customer acknowledging and accepting the formal Proposal in its approved form as presented by NCON (or its representative) and obviously execution of the Master Hiring Agreement. The proposal document is contained within the attachment file.
Had Spotlight confirmed acceptance of both the Proposal and the Master Hiring Agreement (I am taking Spotlight’s acceptance of the MHA as a given as we had previously provided a copy to you at your request) without the addition of an overriding Services Agreement we would be OK, unfortunately the Services Agreement contains clauses that SME and SG will have an issue with.

Mr Reibel then included an extract from Mr Phillips email quoted above. He then continued:
As is noted above SME understand the reasoning for the Services Agreement. Unfortunately in this instance its effect is to negate the formal Proposal and MHA. As you said this morning the Services Agreement is used for all suppliers and all types of services, from this I assumed you may have meant it was probably not interned to be used for this type of rental arrangement.
Given the above following are some of my thoughts as to how we can progress this with the minimum amount of time delay as well as removing the cost factor of having to get SG’s legal input and potential amendments to the contract.
Option One: Spotlight are comfortable with and have accepted the formal Proposal and the previously supplied MHA (which is a standard rental contract) so the question is, is there really a need for the Services Contract?
If it isn’t really necessary and Spotlight’s requirement for the Services Agreement was withdrawn then we are approved and ready to go.
Option Two: If Spotlight believes it necessary to retain the Services Agreement, perhaps a solution would be for Spotlight to enter into an agreement with NCON acknowledging that NCON will be assigning their rights to the rental payments to SME/SG but such assignment will not include any of NCON’s other obligations under the Services Agreement.
Spotlight will agree to make the rental payments to SME/SG pursuant to the requirements and conditions of the MHA and that SME/SG will not assume any of NCON’s obligations. Furthermore Spotlight would acknowledge it will pursue any claims pursuant to the Services Agreement solely against NCON without any right if set-off counterclaim, defence etc.
Again, this is a non-legal suggestion however we are obligated to refer any arrangements, other than the standard approval procedures already agreed to with, to SG and their legal department,. If this was to be the case I would assume that at best we may need to have some minor amendments made to the MHA, e.g. additional clause(s) relation to payment commitments, and this will probably result in additional costs.
I trust the above gives you enough information with any additional queries you have being able to be resolved over the phone (best to contact me on mobile 0418 982 789), alternatively please let me know if you believe a face to face meeting would be more productive.
I look forward to finding a quick and mutually acceptable solution. It would also be appreciated if you could confirm receipt of this email by return, many thanks in advance and kind regards.

Mr Reibel said that in his conversation with Mr Bergman, Mr Bergman basically agreed with his view that a services agreement was not required with the Rental Agreement and he did not see why there would be a services agreement required to be attributed to an MHA (which was the MAAF) or a rental contract. Under cross-examination, Mr Bergman denied that he said he was surprised that the Rental Agreement required a services agreement.

Mr Reibel said that he did not have concerns about the matters raised by Mr Phillips as there were any number of other financiers or other alternatives they had for doing the finance on the deal. He said that he had been told by Mr Gill that Mr Molini had said NCON need not worry about the Services Agreement and he too did not see it as an impediment to the accepted rental proposal proceeding. Mr Reibel said that Mr Bergman told him he was going to refer the issue Ms Liz Sharp, corporate counsel of Spotlight, and that it would be forwarded to Cornwall Stodart for review.

Mr Bergman said he referred it to Ms Sharpe, who was the in house solicitor handling the accepted rental proposal. Mr Reibel said that after he sent the email of 18 January 2008 to Mr Bergman, he received no communication from him that Spotlight treated NCON as repudiating the accepted rental proposal. Mr Reibel subsequently followed up the issue with Nicole Stevens-Warton at Cornwall Stodart, asking her when they would have an answer.

On 13 February 2008, Mr Tobin emailed Ms Sharp thanking her for an update. She responded by saying: “As discussed, the board will have to reconsider the proposal in light of the MHA being first provided to us by Tony[9] only recently and the inconsistencies between it and our service agreement becoming apparent”. On Tuesday 22 February 2008, Mr Tobin asked Ms Sharp by email whether there was any progress with regard to the NCON arrangement. Ms Sharp responded later on 22 February 2008, apologizing for not getting back to Mr Tobin and informing him that Spotlight had to get someone else on board since Mr Molini left, and she would follow up with that person today to see how he was going with it.
[9]A reference to Mr Reibel, I assume.

On 28 February 2008, Mr Tobin attended a further meeting this time chaired by Mr McLean in Mr Molini’s office. Mr Molini was not present and had left Spotlight. Mr Reibel said that on this occasion Ms McLean was more aggressive than she had been at the previous meeting and queried why Mr Molini had not bought the units rather than rent them. Mr Tobin said that at that meeting Spotlight was given a letter of introduction for Lisa McLean and Aaron Hovey to sign, introducing NCON to the store managers. Following the meeting, Mr Tobin sent an email to Lisa McLean and Aaron Hovey reiterating what had been discussed at the meeting and elaborating on the options available of either purchasing or renting.

On 6 March, Messrs Tobin, Reibel, and Dale met with Mr Graham Porter of Spotlight. Mr Tobin said that Mr Porter said that Mr Molini did not have board approval to accept the rental proposal. Mr Porter said that they had employed Mr Jim Chisholm to put more order around the contracts and procurement processes that they had in place at Spotlight. After the meeting, Mr Tobin emailed Ms Sharp confirming a meeting with her and Mr Chisholm on 20 March 2008. On 17 March 2008, Mr Porter altered the meeting to 27 March 2008 in an email addressed to Ms Sharp, Mr Dale, Mr Tobin, Nicole Stevens-Warton of Cornwall Stodart, Jim Chisholm and Mr Reibel, saying this would give Mr Chisholm a chance to get up to speed with the proposal. Mr Tobin responded saying he would be interstate but that Steve Dale, Tony Reibel and Derek Barnes from NCON would attend. Mr Tobin said in the email:

Further to our last meeting – and in the interests of time – I was wondering if you had had the chance to confirm whether Spotlight can provide us with an official purchase order confirming the rollout will proceed even if the final decision on the payment method, i.e. either rental or outright purchase, hasn’t been made.

Mr Chisholm

Apart from Mr Bergman (corporate counsel for Spotlight), Mr Chisholm was the only Spotlight executive involved with the proposal who was called to give evidence. Those not called included Mr Molini, Mr Berry, Ms Sharpe, Mr Porter, Ms McLean, and Mr Hoovey. Mr Chisholm said that he was not aware that Mr Molini had accepted the rental proposal on behalf of Spotlight until after the litigation had commenced.

Mr Chisholm said he commenced employment with Spotlight on 17 March 2008. He said that Mr Porter (the general manager of business development) gave him the task of reviewing the Yes box proposal. Mr Chisholm said that he was to examine the viability of the rent versus buy options and to validate that the proposal actually worked.

Mr Dale attended the meeting with Mr Chisholm on 27 March 2008 with Mr Barnes and Mr Reibel. Mr Dale said that Mr Potter and a female Spotlight solicitor, who I take to be Ms Sharp, also attended. Mr Chisholm says that Mr Porter also attended and introduced him to the NCON people. Mr Dale says that Mr Chisholm asserted that there was no contract in place as the board had not sanctioned the contract. Mr Dale says that Mr Reibel claimed an agreement had been signed.

On the following day, 28 March 2008, Mr Chisholm emailed Mr Porter re NCON proposal:

Graham,
This is getting quite interesting !
I spoke to Steve Dale on several queries. He will confirm and send data on Monday on likely second 5 yr term pricing. Although on contract says subject to market interest rates he tell me prob is approx 40% less than first term rental costs. As they have recovered much of cost already. That would change the rent V buy equation.

There were some inconsistencies in data and when he can sit with same docs as me in front of him we will sort out. On Monday I will get updated spreadsheet showing for buy the ROI $ over years and the payback in years. And for rent the nett annual return. Will also have some data from independent source on actual loss of light , supposed to be 0.4%. They had quoted “imperceptible loss” but of course we never witnesses a demo.
So seems best to wait til Monday ? we will have best data to put in front of finance guys then, and with delay in board meeting takes heat off too.

Mr Chisholm said the reference to 0.4% might have been a typing mistake and it was supposed to be 4.3 per cent.

Mr Chisholm said he had received a copy of the proposal at or before the meeting on 27 March 2008. This was an amended version of the proposal dated 28 February 2008. It was unsigned. Mr Chisholm said that he had noted the reference to “imperceptible loss of light” in the technology section of the proposal and said that he needed to understand what that meant.

On 28 March 2008, Mr Reibel sent Mr Chisholm the reports from Western Power and Energy Australia as he had promised Mr Chisholm. On 1 April 2008, Mr Reibel sent Mr Chisholm a lease versus buy analysis as promised by Mr Reibel. On 3 April 2008, Mr Reibel sent Mr Chisholm some amended analysis as discussed. In it, he confirms the average cost of equipment capital is $19,890 and installation of $2,067 making a total average cost per store of $21,957. For 90 stores that gives a total cost of $1,976,130. He also told Mr Chisholm that Mr Barnes would contact him to arrange a suitable date for a site visit. Shortly thereafter, on 8 April 2008, Mr Barnes spoke to Mr Chisholm about a site inspection and followed up with an email confirming a site visit in Ringwood to “cover off on lighting output and the difference between Save and Bypass readings”. This referred to the second demonstration of the Yes box conducted by NCON for Spotlight (discussed below).

The demonstrations of the Yes box

Both parties agree there were three demonstrations of the Yes box that Mr Chisholm attended. There was disagreement as to where the first two were held, but eventually Spotlight agreed with NCON that the first was held at Times Printing in Sunshine, the second at the manufacturing plant where the Yes boxes were manufactured at 15 Eugene Street, Ringwood, and the third at the Lincraft store at Frankston. Both parties agree that an employee of Spotlight, Julie Birch, conducted a fourth test at the Lincraft Store at Frankston, although there is a dispute as to who attended on behalf of NCON.

The first demonstration

Mr Barnes gave evidence. He is a director and shareholder of NCON. He said that his expertise lay in the technical side of the Yes box system. He said that he attended the demonstration on behalf of NCON at the Times Printing building in Sunshine in early April 2008. He said that his diary recorded Mr Dale was present, but Mr Dale said that he did not attend the first demonstration. Mr Chisholm says that Mr Barnes and either Mr Tobin or Mr Dale attended the first demonstration he attended. Mr Barnes says that Mr Chisholm asked to give a demonstration in a more controlled environment. Mr Barnes says there was a certain level of ambient light present.

Mr Chisholm gave evidence that the office building at Sunshine had “open windows with a lot of natural light coming in”. Mr Chisholm gave evidence that he recalled the light meter to have recorded a 20-25% loss of light and that given the ”exceptional amount of natural light coming in which only favoured the product, I thought this was a very poor performance and it alarmed me”. He said that he expressed his concern to the NCON people.

The second demonstration

By email dated 7 April 2008, and in follow-up to a conversation earlier that day, Mr Barnes wrote to Mr Chisholm in an email:

Dear Jim
Further to our conversation this morning, I have organized a 2:00PM time in Ringwood to cover off on lighting output and the difference between Save and Bypass readings. I intend to demonstrate the absolute light drop in lumen output on individual lamps as would normally be experienced in day to day operations.
I believe that it is difficult to provide a definitive result in an uncontrolled area. Results, even across similar “areas” will yield differing outcomes. As already discussed, a trained eye will notice a >10% drop while and [sic] untrained eye >15% drop. I hope tomorrow to provide you with your comfort zone in this regard to the extent that, at the lamp, losses are not visually discernible albeit measurable with a meter.
Look forward to meeting with you tomorrow.
Address: 15 Eugene Tce Ringwood
Time 2:00PM’.

By email dated 8 April 2008 at 12:22pm, Chisholm wrote:

Sounds good Derek. Appreciate your cooperation and patience in this matter. I would certainly like to take the necessary reassurance away to enable further discussions. See you there!

Mr Barnes and Mr Dale attended on behalf of NCON at the demonstration at the factory at 15 Eugene Terrace, Ringwood on 8 April 2008. Mr Barnes said that a light meter was put below a fluorescent light. Mr Barnes said that the light was covered with a cardboard shroud light. Mr Barnes said that Mr Chisholm tended to shrug it off and wanted another demonstration.

When asked whether the test successful in demonstrating the YES Box, Mr Dale answered: “Absolutely.”

Mr Chisholm gave evidence that he considered the demonstration to be a failure because:

I didn’t understand what they were trying to prove to me and I didn’t understand how this proves that, you know, Spotlight retail environment - that our customers would not have their - their ability to see our product compromised. It was kind of a technical and it was above my head in - in terms of being very technical.

Mr Chisholm said that he told Mr Dale and Mr Barnes that the demonstration did not satisfy his concerns, and:

It did not show me, um, that the naked eye could not see a perceptible loss in the change - a loss of light in the change from on and off mode using the product. It was a demonstration about science but it didn't prove to me what I needed to see.

Mr Chisholm gave evidence that ultimately he said to Mr Dale and Mr Barnes that he needed to see the technology operate in a retail environment similar to the Spotlight’s retail stores.

The third demonstration

There is a dispute as to when the third demonstration took place. Messrs Tobin, Dale and Tim Gill attended on behalf of NCON. Mr Chisholm and Ms Birch contend Ms Birch attended. All three NCON representatives deny she was present.

By email dated 9 April 2008 Mr Dale wrote to Mr Chisholm:

Hi Jim
Thank you for taking the time out yesterday for more technical information on the lux prepared and discussed by Derek. As mentioned we are installing the units at Lincraft, Southland next Tuesday 15^th and we will keep you posted once they are operational. From that we are hoping you are totally confident in presenting to the Board this month as I gather then all the boxes will have been ticked to your satisfaction.
Speak soon…

By email dated 14 April 2008, Mr Chisholm wrote to Mr Dale:

Steve,
Next board meeting set for 30^th April, but notes/agenda etc reqd be in place by 18^th. So wont make that. I have meeting with CEO here 1:30 Thurs, so will have to take whatever time as reqd. Still shld be ok for 3pm with you guys as only ½ hr away.

By email dated 29 April 2008 Mr Chisholm wrote to Mr Dale:

I thought we were likely to meet up last week in Southland, is it planned for this week? I just want to plan my schedule, but pls [sic] don’t rush it if compromises success of demonstration, as this is 3rd shot and must be conclusive.

By email dated 30 April 2008, Mr Dale provided Mr Chisholm with the address of Lincraft (Frankston), and a note “See you at 11 on Friday”.

Spotlight contends the third demonstration took place on Friday 2 May 2008 at Lincraft in Frankston. Spotlight contends that Mr Chisholm and Julie Birch (who was the most recently employed employee of the Spotlight Frankston store) attended the demonstration with Messrs Tobin, Dale, and Gill.

Mr Chisholm and Ms Birch gave evidence that NCON’s light meter had flat batteries, whereas Messrs Tobin, Dale, and Gill gave evidence that they did not bring the light meter.

Mr Tobin said that the demonstration at Lincraft was organized because Mr Chisholm wanted to see the Yes Box “in action in a - in an environment as closely as possible resembling the Spotlight shopping environment. And at that point in time the nearest that we had to qualify that brief was the Lincraft store.”

Mr Tobin said he waited for Mr Chisholm to turn up for some two hours. While waiting for Mr Chisholm to arrive Mr Tobin noticed “the lighting itself was older or at the tail end of its lifetime.”

Mr Tobin said that:

When he [Mr Chisholm] initially arrived and walked in and had a look around, and we said that the system was on, his initial response was that, "This looks fine to me. Can we now have some testing with the unit turned off and the unit back on, off/on?" so that he could get a full understanding.
Who turned the system on and off?---Tim Gill went to the box.
When the system was turned on and off what did Jim Chisholm say, if anything?---I think he - he felt that the difference in light when it was changed over was more than he perhaps had expected. We told or I told him and others that the lamp life was a contributing factor to the fact that there was possibly discernability in terms of the difference. But you have to understand that in making that judgment we were looking at the lamps in the roof which is typically not what a shopper would do. So when I diverted my attention then to the shopping environment and the haberdashery and cottons and so forth I found that to be quite acceptable.

In response to a question from me, Mr Tobin gave evidence that:

When Mr Chisholm said he noticed a difference, did you observe whether he was looking up at the fluorescent lamps or was he looking at the stock on the benches?---At that stage up at the fluorescent lamps, at the lighting itself.

Mr Tobin said that Mr Chisholm was a little frustrated as they did not have a light meter with them. Under cross-examination, Mr Tobin agreed that in the course of the demonstration Mr Chisholm said to him something to the effect of: “Gee, that’s more than I expected.”

Mr Dale said that he attended the third demonstration with Mr Tobin and Mr Tim Gill. Mr Dale denied that a woman was present at the demonstration. He said that Mr Chisholm arrived about an hour late. Mr Dale said he noticed that the lights in the Lincraft store were fairly dark “because they were coming to the end of their life cycle, so they weren't the best of tubes that were in the store.” They needed to have them replaced, and Lincraft knew about that, but they were happy in terms of the - until that actually occurred, so Mr Dale said that Mr Tim Gill pointed out to Mr Chisholm the age of the tubes and said:

That the lights needed to be replaced. They were old lights, and so the demonstration will not give you the complete satisfaction that you were probably after. However, Lincraft are quite happy with the way that the units are operational in our store.

Mr Dale said that before the demonstration was performed, Mr Chisholm said to Mr Dale: “I couldn’t see any different in the store when he walked in.”

Mr Dale said that Mr Tim Gill performed the demonstration and that Mr Chisholm commented “That he could see a difference in the lux levels of the lights, when they went from bypass to save, or from out of save into bypass, he could see a difference in the lux levels.”

Mr Dale said that Mr Chisholm asked if they had a light meter and was told they did not. Mr Dale said that Mr Chisholm was quite annoyed and said: “You had three goes at this, and I think you’ve blown it.”

Mr Tim Gill said he attended the demonstration at Frankston with Mr Tobin and Mr Dale. He said that he could not recall a woman being there. Mr Tim Gill manually operated the Yes boxes. He did not observe Mr Chisholm’s reaction to him switching the Yes boxes off and on. He said that Mr Chisholm was “a bit annoyed” that they had not brought a light meter with them.

Mr Chisholm said as the lights were switched off and on he kept his eyes on product on the wall or on the shelves. He said he noticed a perceptible lightening and when it was turned off and a noticed a darkening when it was turned on.

The fourth demonstration

By email dated 6 May 2008, Mr Tim Gill wrote to Mr Chisholm:

Hi Jim
Confirming 10:00 Thursday 8/5/08 at Lincraft Frankston. Looking forward to meeting Julie Birch. My mobile is 0418 357 210.
Regards
Tim Gill.

By email dated 6 May 2008 at 5:05pm, Mr Chisholm wrote to the Spotlight (Frankston) store manager and Mr Tim Gill:

Alan,
Please pass this on to Julie Birch, and perhaps you could email Tim Gill to advise him of her mobile no.”
Thanks

Mr Chisholm gave evidence that the reason he sent the email to the Spotlight (Frankston) store manager was because Mr Birch did not have an email address of her own.

By email dated 6 May 2008, Mr Chisholm wrote to the Frankston Store Manager:

Alan,
Could you please advise Julie of following.
Tim is from NCON, they have provided Spotlight with an energy saving proposal where we either rent or buy the equipment that will reduce electricity consumption dramatically. But this also has an impact on the light intensity. They claim it is about 4%, and that is imperceptible to naked eye if under 12% loss (i.e. darker).
So we want them to demonstrate that in a place where they have installed these lights, the Lincraft store. They will put a light meter on the floor, in a place under lights but away from the door with the natural light. Julie must see what number it registered under both ‘normal’ light and also when they have switched to ‘save’ i.e. when the electricity saving is occurring. This is to happen in at least 2 places in the store. She needs to see and verify the numbers on the light meter as it sits on the floor, and record the numbers, and advise me in an email. Would also appreciate a call while she is there and when it is done so I can quickly calculate the result!
Thanks

By email dated 7 May 2008, Mr Chisholm wrote to Mr Tim Gill (and copied to the Spotlight Frankston Store Manager and Graham Porter):

Hi Tim
Julie’s phone number is 0409947767, she is aware of your details and will be there. I have explained what is reqd to her.
That there will be measurements in minimum two places, away from door so not compromised by natural light. Meter in fixed position, i.e. flat on ground below lights. Readings taken in normal as well as save mode. Record numbers she sees, and to advise me while still there. It need to be understood this is the 4^th and last shot at this Tim.

The demonstration took place at 10am on 8 May 2007, as scheduled. Ms Birch and Mr Tim Gill attended the Lincraft store at Frankston. Ms Birch said that she saw the numbers on the light meter box and wrote down numbers on a piece of paper, which she has since thrown out. Mr Tim Gill said that he recalled her writing the lux measurement on a scrap of paper.

By email dated Thursday 8 May 2008 at 10:27am, the Spotlight Frankston Store Manager wrote to Mr Chisholm:

Jim, Julie has been across to Lincraft for the lighting test and wants to ring you with the results. What is your contact no? Alan.

Mr Chisholm gave evidence that he received a phone call from Ms Birch after the test, and that Ms Birch told him the light meter readings that she recorded in various places with and without the Yes box turned on. Mr Chisholm said that he was able to calculate that there was a loss of lux of around 20%.

In cross-examination, Mr Tim Gill accepted that the readings showed a 25% drop in lux at one of the points at which a reading was taken.

Mr Chisholm gave evidence that on that afternoon, or the following day (9 May 2008), he spoke to Mr Dale or Mr Tobin and reported that the results were unsatisfactory. He also said that he reported his conclusion to Stephen Carter, Spotlight’s CEO, and was directed to stop pursuing the proposal because the Spotlight had lost interest in it.

Events after the demonstrations

NCON sought to provide a further demonstration to establish the effectiveness of the Yes boxes. On 12 May 2008, Mr Tobin emailed to Mr Chisholm:

Hi Jim
Steve and I have had a number of discussions and meetings with NCON since Friday to work out how we can move forward with you – quickly and simply (for all parties).
We have made them fully aware of our collective frustration in identifying a retail example of performance that would closely match the environs of a modern Spotlight retail environment.
We believe that we have come up with an excellent solution.
With your permission, NCON will, at its own risk and expense, install their equipment at your new store across the road from your existing offices in South Melbourne.
It will be installed without disruption to your retail activities – and will then be fully tested and independently measured for lux readings.
Once completed, we will notify you – and you will be able to see the results, first hand, at any time convenient to you – simply by walking across the road!
….

The reference to Friday was probably to Friday 9 May 2008, when Mr Chisholm said he spoke to Mr Dale of Mr Tobin.

In response to the proposed new demonstration, Mr Chisholm emailed Mr Tobin on 16 May 2008 as follows:

I want to carefully set out the parameters of a proposed demonstration before either party invests more time and energy. I need a little more time and will set this out next week for you..

This suggestion by Mr Chisholm that there might be a further demonstration does not fit easily with his evidence that he had received instructions from Mr Carter, the CEO of Spotlight, to stop pursuing the NCON proposal. Mr Tobin responded thanking Mr Chisholm for the “update.”

Mr Dale said that he contacted Mr Zac Freid at Spotlight and informed him that NCON had a contract with Spotlight and asking how NCON could move it forward. He asked Mr Freid to get Mr Chisholm to get back to Mr Dale.

Apparently Mr Dale had made some calls to Mr Chisholm, as on 16 June 2008 Mr Chisholm emailed Mr Dale:

Steve
Sorry wasn’t able to take either of yr [sic] recent calls. The energy reduction proposal has taken a back seat now, I have numerous projects to deal with currently, and wont [sic] be setting up an exercise in our store across the road at this time. I will contact you directly at the appropriate time.
Regds

On 30 June 2008 at 1.30 pm Mr Dale emailed Mr Chisholm (copied to Mr Freid and Mr Barnes):

Hi Jim
I spoke to Zac with the hope we can get together with your technical people and NCON to discuss how the Lux reading versus power saving won’t effect the ambience of the Spotlight stores. We are hoping this can be done shortly, as we are very keen to move forward.
Please let me know a time that suits…
Many thanks
Regards

At 1.52pm Mr Chisholm replied to Mr Dale:

Hi Steve,
Yes, I have discussed this with Zac, I am seeing one of our electrical contractors this week on this matter. I will be in touch.
Regds’

By email dated 7 July 2008, Dale wrote to Chisholm (copied to Freid and Tobin):

Hi Jim
As always its was great having a chat with you today, unfortunately it sounded like the chip monks on crack, as I could only decipher every third or fourth word. Yes the joys of modern technology!
We are certainly hoping that you may have something for us to get out teeth into, so I will wait with enthusiasm. Just to let you know we will be announcing very shortly through most media outlets (newspapers and television) in the next two weeks, that we have secured a major shopping centre chain.
We feel that our efforts and technology within this organization has been vindicated through there extensive research which gave us the contract. As soon as we are allowed to name this publicly I shall forward this onto you.

[40][1994] 1 VR 237.

[41]Ibid at 241 (citations omitted).

After reviewing many other cases on the issue, his Honour said:

There is no rigid dividing line between cases in which guesswork is permissible in assessing damages and cases in which it is not. The borderline between guesswork and rational assessment is itself indistinct, as is the line between evidence that is “precise” (the Permanite Case dictum) and evidence that is not. In Enzed Holdings Ltd v Wynthea Pty Ltd, (to which Tadgell J. has drawn my attention) the Full Federal Court thought the case to be one in which precise evidence of the loss was not obtainable, so that if the trial judge found that the plaintiffs had suffered some loss he must do his best to quantify the loss even if “a degree of speculation and guesswork” was involved.
Where the action is for damages for breach of contract and the plaintiff fails to prove any actual loss he may fall back on an award of nominal damages. (The plaintiff fails to prove actual loss for this purpose if he shows that he has suffered loss but fails to furnish material from which its amount may be arrived at.)[42]

[42]Ibid at 243 (citations omitted).

In my opinion, these authorities establish that the plaintiff is obliged to call such evidence as can be reasonably expected in the circumstances to establish the damages which the plaintiff claims. The Court’s obligation to estimate damage as best it can is only triggered where the circumstances are such that the plaintiff is unable to reasonably establish the damage. McGregor on Damages states that the word “reasonable” is the controlling one, and the standard of proof only demands evidence from which the existence of damage can be reasonably inferred and which provides adequate data.[43]
[43]18^th edition [8-002] at p 326.

In summary, I find that:

(a) in a breach of contract case, the plaintiff bears the onus of proving the loss and damage it suffers;

(b) where the plaintiff is able to reasonably prove the quantity of the loss and damage suffered the plaintiff must do so on the balance of probabilities and with as much precision as the subject matter permits; and

(c) if the circumstances of the plaintiff’s loss and damage are such that the plaintiff is unable to prove the quantity of its loss and damage, it will not be deprived of an award of damages as the court must do its best to fairly estimate the loss and damage suffered by the plaintiff.

Spotlights’ submissions on damages

Spotlight contends that in this case, NCON has sought to recover the profit it expected to make from the contract. Spotlight submits NCON purported to claim loss of profits but refrained from presenting a loss of profits claim. Spotlight argues that the 23 February particulars are a claim for lost gross revenue and not a loss of profit.

Spotlight contends that NCON has not presented evidence-in-chief to sustain a loss of profit claim. Spotlight says no evidence was given of NCON’s costs, and (in particular) of the cost of purchasing and installing the Yes boxes. Spotlight says that Mr Reibel did not know if any royalty was payable for the use of the technology. Spotlight says Mr Gill did not know what the cost the Yes boxes was. Spotlight contends that there were other costs to be borne, such as payments to Greenhouse Savings Group, to Mr Reibel’s company Ankara Pty Ltd, and to SME, but no calculation was made as to those costs.

Spotlight contends that there is no basis for assuming there was any loss of profit. Spotlight argues that NCON has not done what conceptually must be done to quantify damages for a breach of contract.

Spotlight argues that Mr Reibel conceded that NCON’s claim was for loss of revenue not for loss of profit. He calculated that the loss of profit would in fact be greater as shown in his Exhibit P50. Spotlight point out that the loss of profit calculation made by Mr Reibel includes a cost of goods of $1,070,520.50. Spotlight contends Mr Reibel conceded that he was not involved in assessing the costs of installing the Yes boxes. He said he was given those costs by Mr Greg Gill.

Spotlight objects to NCON seeking to convert the rental stream to a current value. Spotlight argues that there should be an allowance for vicissitudes, such as political and economic uncertainty.

Spotlight contends that a plaintiff claiming substantial damages for breach of contract will only recover them if precise evidence is available to be adduced, conformably with such evidence. Spotlight argues that if precise evidence is available but is not adduced the court does not conjecture.

Has NCON established its loss and damage?

Assuming that NCON is entitled to damages calculated on a loss of profit basis (despite its 23 February Particulars claim), the evidence establishes several categories of expense that would have been incurred, but no direct evidence was given that these were in fact all the categories of expense that would have been incurred, and in many respects insufficient evidence was led to prove the expense that would have been incurred in each category that was in fact identified.

NCON’s case

Mr Greg Gill was the first witness for NCON. He gave evidence that his responsibilities included the financial affairs of NCON. The only other officer of NCON to give evidence was Mr Barnes. He gave evidence chiefly of a technical nature on the aspects of the Yes box. Mr Reibel gave evidence to establish the value of the lost rental stream. He was not an officer of the company, but was retained to handle the financing transactions relating to the assignment of the leasing payments, and was not aware of the costs that would have been incurred in carrying out the Rental Agreement.

I have already set out the substance of Mr Gill’s evidence above. In his evidence-in-chief, Mr Gill did not seek to give any evidence of the loss and damage suffered by NCON. He gave no evidence of the expenses to be incurred by NCON in meeting its obligations under the Rental Agreement. He did, however, identify several categories of expense that might be incurred by NCON under the Rental Agreement. Importantly, he did not give evidence that these were an exhaustive list of categories of expense. It is, however, possible to infer from his evidence that other categories of expense may have been incurred. I now turn to these categories of expense.

Assessing the requirements of a store

I have set out Mr Gill’s evidence on this issue above. In substance, each store would be inspected and the load sizes and existing circuits established. NCON would determine what size boxes were needed and identify for the manufacturer the required models and the configuration within each model. The details would be prepared on paper and the order dispatched to the manufacturer. No estimate was made of these costs by NCON, unless they are in the installation costs.

Installing the Yes boxes in the store

No evidence was given of the cost of installing the Yes boxes in the stores. NCON’s Damages Submission states the amount was estimated to be $2,067 on average per store. Mr Gill did not give evidence of the installation costs themselves. Subsequently, during Mr Reibel’s evidence, Mr Reibel sought to verify NCON’s damages claim. Mr Reibel included a loss of profit calculation which was not part of NCON’s particulars of loss and damage. Mr Reibel included in that calculation the cost of installation and the cost of supplying the Yes boxes. Mr Reibel said in cross-examination that he got those figures from a document given to him by Mr Greg Gill. Mr Gill, however, did not refer to this document during his evidence and it was not produced or proved.

Certificate of safety

Mr Gill said that once the Yes boxes were installed they had to be commissioned and a certificate of safety issued and measurement of verification and savings performed in accordance with the International Protocol of Measurement Verification Performance. No estimate of these costs were given by NCON, unless these were included in the installation costs.

Cost of manufacturing the Yes boxes

Mr Gill said that the manufacturing of the Yes boxes would be contracted out to a manufacturer. Evidence concerning the demonstrations of the Yes boxes indicated that the manufacturer was in Ringwood. Mr Gill said that the manufacturer would give two months credit for the manufacture of the Yes boxes.

As canvassed above, Mr Gill was unable to say what the cost of manufacturing the Yes boxes would have been. He said that to the best of his knowledge the average of the four different models was $2,000, although later he said $2,200. He said that on average 1.7 boxes would be required per store. Using his figures the cost of manufacturing would be 1.7 x 106 x $2,200 = $396,440. Mr Reibel’s Exhibit P50 gives the cost as $1,070,520.50. NCON’s Damages Submissions gives the same figure. I am unable to reconcile the two.

Mr Gill confirmed that NCON did have a written record which showed “the cost of goods, cost of manufacture, rollout schedule, et cetera”, but it was not tendered in evidence.

Marketing costs

Mr Gill explained the outsourcing of the marketing to the Greenhouse Savings Group. I have already dealt with the lack of evidence on this issue.

Finance commission

I have already dealt with the inadequacy of the evidence on this issue (including the evidence of Mr Gill and Mr Reibel) and how I am unable to find how much commission would have been deducted.

Commission payable to Mr Reibel

I have already dealt with the inadequacy of the evidence on the commission payable to Mr Reibel or his company Akranda Pty Ltd.

Payments mentioned in NCON’s Damages Submissions

The Damages Submissions refers to the costs of office, maintenance, vicissitudes and the costs of the roll out by Mr Tim Gill. No evidence was given of these expenses.

Royalties

Spotlight contends that no evidence was led by NCON on whether a royalty was payable for use of the Yes box patented material. Mr Gill said that the intellectual property relating to the Yes box was held by NCON Incorporated. As canvassed above, he said many millions of dollars had been sunk into developing the technology over many years. He said “they” were running out of funds when NCON was incorporated. He referred to an investor in NCON Incorporated. The evidence suggests that royalties might have been paid. As mentioned above, NCON did not seek to prove the expenses it would incur under the Rental Agreement. There was no evidence either way about royalties.

Financing costs

Mr Gill said that NCON did not have any arrangements with a financier to provide the capital needed for the rollout of the Yes boxes in Spotlight stores in the first quarter of 2008. He said that NCON had arrangements with various friends, including himself, to provide loans into the company to support cash flow to carry the low points of the cash flow. He said none of these arrangements were documented, as they did not happen. Mr Gill said that he had sounded out possible sources of funds and had verbal arrangements. Under re-examination, Mr Gill said that there were several people involved one of whom was an original investor in NCON Incorporated. Mr Gill said one person had agreed with him that they would invest up to $250,000 on the back of any signed contract, and the other person had agreed up to $1 million on the back of any signed contract.

I can only infer from this that interest fees may have been payable for the loans Mr Gill. The balance sheet of NCON indicated that it did not have financial resources of its own to raise sums such as the $250,000 referred to by Mr Gill. No evidence was given of the financing costs, if any.

Evidence in support of the 23 February particulars of loss and damage

I now turn to the evidence in support of that claim. The damages claim was explained in part by Mr Reibel. Neither Mr Gill or Mr Barnes (the two officers of NCON who gave evidence) sought to explain the damages claim in any detail. As discussed, in his evidence Mr Reibel produced a document explaining the damages claim which was marked as Exhibit P50. Under cross-examination, Mr Reibel said that he had been given a document by Mr Greg Gill from which he was able to calculate the costs of the goods, including installation in the three nominated sites.

I shall deal with each paragraph of the 23 February Particulars.

Paragraph 1 of the 23 February particulars

NCON took the agreed rental rates from the Rental Agreement for three of the Yes boxes. These were the Yes boxes that NCON had recommended be used in the three Spotlight stores they had analysed and reported on in their presentation report to Spotlight of 18 July 2007. In that report, NCON sets out the Yes boxes required for each of the Bayswater, Brunswick and Essendon stores. Only the boxes 1210, 3420, and 3630 were used.

Paragraph 2 of the 23 February particulars

The 23 February particulars allege the weighted average cost of supply and installation of Yes boxes in the three surveyed stores was $21,957. What was called the cost of supply was made up of two figures: the cost of equipment per store of $19,890 and the cost of installation per store of $2067, making a total of $21,957. This calculation is given in paragraphs 1-5 of the Damages Submission, but was not given in evidence.

The damages submission refers to CB85. This page was not tendered but the page also appears as part of exhibit P18 at p 65 of the Court Book. The table shows 11 Yes boxes were required for the three sample stores at Bayswater, Essendon and Brunswick that were used in the written presentation given to Mr Molini in September 2007. The average number of Yes boxes using this sample was 3.7 per store.

Paragraph 3 of the Damages Submission refers to the “Total price of the Boxes (Equipment for three stores)”. The figures then given for each of Bayswater, Brunswick and Essendon is calculated by multiplying the number and type of Yes boxes required by the relevant price of the Yes box provided in the proposal as the price for which Spotlight could buy the Yes box or the price that would be used in calculating the rental to be paid by Spotlight if it chose the rental option.

The Damage Submission refers to “cost of installation”. NCON says that the “cost of equipment” was calculated on the weighted average of the equipment values set out in the Rental Agreement, that is the cost of the Yes box to Spotlight, not the cost to NCON to supply the Yes box. No evidence was given as to the cost of installation, said to be $2,067 on average per store.[44]
[44]Damages Submission, [5].

Paragraph 3 of the 23 February particulars

This paragraph alleges that the weighted average of the above rentals, based on the weighted average store cost, was $396.97 per month.

The explanation of this calculation is in paragraphs 7 and 8 of the Damages Submission. As can be seen, the calculation is based on a 3.25% interest rate. Mr Reibel says that was the rate told to Spotlight. The calculation gives the monthly payments on total capital of $2,237,442 reducing to zero over 60 months at a rate of 3.25%.

Paragraph 4 of the 23 February particulars

This paragraph alleges total repayments over 60 months of $2,2524,729.20. The calculation is explained in paragraphs 8 and 9 of the Damages Submission.

Paragraph 5 of the 23 February particulars

This paragraph gives the calculation of the present value of the rental stream. The calculation is explained in paragraph 11 of the Damages Submission. In substance the present value of the rental stream is discounted to its present value using a rate of 9% to give what NCON would receive from Societie Generale, being $2,027,078.71.

Paragraph 6 of the 23 February particulars

This paragraph alleges that NCON retains ownership of the Yes boxes.

Paragraph 7 of the 23 February particulars

It alleges that NCON claims the sum for a five year rental period of $2,027,078.71. This corresponds with paragraph 11 of the Damages Submissions.

Deficiencies in the damages claim

Assuming for present purposes that the 23 February particulars provide the correct formula for calculating NCON’s loss and damage (an assumption Spotlight disputes) there are certain costs and commissions payable from the rental which have not been included in the calculation, nor has their absence been explained.

Costs of installing the Yes boxes

Mr Reibel’s Exhibit P50 states that the costs of goods sold would have been $1,070,520.50. He said he was told by NCON that that would be the cost. The cost of goods sold includes the cost of installation. This is asserted to be $2,067 on average per store. I accept the installation would have cost something. The raw material may be in the tables supplied to Spotlight by NCON, however, no witness explained to me how that sum was calculated. Accordingly, I have no evidence to enable me to make a proper allowance for the cost of installing the Yes boxes.

How much would NCON have earned?

NCON’s case is that it would have received the present value of the rental stream. In his evidence, Mr Reibel said that NCON would receive the discounted sum under the rental program.

As to the calculation of the sum, Mr Reibel gave evidence that Societe General had approved the finance for the Spotlight rental at a margin of 1.5%. He said this meant a margin of 1.5% over Societe General’s cost of funds. Mr Reibel said that 9% was the market rate at the time for a commercial loan. This would imply Societe General’s cost of funds was 7.5% at the time. There was no evidence that Societe General’s costs of funds were 7.5% at the time the Rental Agreement was made or during the time the Yes boxes would be installed in Spotlight’s stores.

Under cross-examination, Mr Gill gave evidence that if the rental stream was assigned to Societe General, Societe General would pay SME as the broker and then SME would in turn pay NCON a lesser figure than was paid by Societe General to SME. Mr Gill did not give evidence of how much would be deducted. Mr Reibel said that he could not say exactly how much commission SME was to receive, but it was 3 or 4% of the moneys “received on a discounted – the amount of moneys banked by NCON”. Accordingly, I am unable to find how much commission would have been deducted.

Commission payable to Greenhouse Savings Group

Mr Gill said in evidence-in-chief that the Greenhouse Marketing Group (GSG) had exclusive marketing rights of the Yes box in Australia. He said the company was entitled to 10% of the sale price of the goods whether the goods were sold or rented. Under cross-examination, Mr Tobin said that GSG received a commission based on the cost of the units but not on the installation costs. I understand the reference to cost of the units is the cost to Spotlight, in other words the sale price. Mr Tobin said the commission was never paid. NCON did not calculate this sum or take it into account in its particulars of damage. The Damages Submission makes certain deductions and additions to the damages calculation for cost of goods installed, fees payable to GSG, Mr Reibel, and SME but does not identify the amount payable to GSG.

Commission payable to Mr Reibel

Evidence was given that payments would be due to Mr Reibel of 2% commission. Mr Reibel says it was 2% commission of the total rent. Mr Gill says it was 2% of the amount of money raised in finance. These may be different amounts as the total rent of $2,524, 729.20 exceeds the finance if the finance is the $2.5 million said to be raised as finance less the commission payable to SME. No evidence was given of the actual amount that would have been payable to Mr Reibel or his company Akranda Pty Ltd.

Financing difficulties

As discussed above, NCON did not obtain financing for the leasing. Mr Reibel accepted that the obstacles raised by Mr Phillips and relayed by Mr Reibel to Spotlight were never removed. He said twice that “we never got a chance to finalise negotiations”. Accordingly, any assessment of damages should take into account that the finance condition may not have been satisfied by NCON and the Rental Agreement may not have proceeded.

Further and alternative claim based on additional 5 year rental renewal

I will now deal with the further and alternate claim based on a further five year rental.

Paragraph 9 of the 23 February particulars

This paragraph claims under the above heading that it was agreed with NCON that, should Spotlight wish to extend the rental for a further period of five years, the monthly payment would be calculated at 66.7% of the original rental figure.

Paragraphs 10, 11 and 12 of the 23 February particulars

These paragraphs calculate the total rentals received over 60 months at $1,683,236.96. Paragraph 12 of the 23 February particulars alleges that this figure equates to a present value of $1,351,453.41 in five years time. I take this is the amount NCON would receive if it “sold” the rental stream to Societe General.

Paragraph 13 of the 23 February particulars

This paragraph alleges that converted to today’s present value the figure becomes $863,172.89.[45]
[45]This figure does not correspond to the figure in exhibit P50 and the Damages Submissions which is $878,351.97.

Paragraph 14 of the 23 February particulars

This paragraph asserts that the total loss for two five year terms is thus $2,890,251.60.[46]
[46]Exhibit P50 and the Damages Submission give the equivalent figure as $2,905,430.68.

Paragraphs 15 and 16 of the 23 February particulars

These paragraphs explain that $2,890,251,60 is made up of the first five year loss income figure of $2,027,078.71 and $863,172.89.

Paragraph 17 of the 23 February particulars

This paragraph claims in the alternative loss and damage of $2,890,251.60.

Deficiencies in the further five year claim
The option to renew

In its final submissions, NCON did not identify where the evidence was to support the assertion Spotlight and NCON had agreed to a rate of 66.7%. Mr Reibel states that it was agreed with Spotlight that should Spotlight wish to extend the rental (which he said was highly probable), NCON would reduce the second term rental to being two thirds (or 66.7%) of the original rental figure. Mr Reibel did not give evidence that he negotiated this term. The Rental Agreement said the option was at market interest rates. Mr Jim Chisholm reported to Mr Porter in an email of 28 March 2008 that Mr Dale had told him in relation to the second five year term that, although the contract says subject to market interest rates, the rate probably is approximately 40% less than the first term rental costs.

Loss of opportunity

Assertions were made from the Bar Table and by Mr Reibel that it would prove attractive to Spotlight to exercise an option for a further five years. The 23 February particulars assumed there was a 100% chance of renewal for a further term of five years.

There was some evidence that it was in the interests of Spotlight to renew the lease of the Yes boxes. No evidence was given of any person actually exercising an option to re-lease the Yes boxes.

Spotlight were not satisfied with the product. Mr Chisholm was of the view that the Yes box did not perform as was claimed by NCON. Thus it is possible that the lease would not have been renewed. On the other hand, once it was installed, the evidence suggests that it would have saved considerable electricity costs and Spotlight may well have decided to exercise the option.

Conclusion

I have reached the unfortunate conclusion that NCON has not properly proved its loss and damages. An estimate by me would be only a guess. The law does not permit me to make a guess where, as here, evidence could have been given of the anticipated costs that NCON would have incurred in meeting its obligations under the Rental Agreement. I accept that the evidence would only have been an estimate as the costs were not in fact incurred. For the reasons given above, I find that a reasonably precise estimate of the loss and damage suffered by NCON could have been given and proved. It was not.

When my concerns about the damages claim by NCON were raised with NCON, it provided the Damages Submission but did not seek to amend its 23 February particulars or lead further evidence in support of the Damages Submission. Whether or not NCON would have been permitted to do so is another matter.

A subsequent application by NCON to reopen the case and tender further evidence on damages was allowed by me but disallowed by the Court of Appeal. In September 2012, the Court of Appeal ordered that matter be decided where the evidence stood when the trial concluded on 2 March 2011.

Accordingly, there will be judgment for the plaintiff. I award nominal damages of $1. I will hear the parties on costs.

[2012] VSC 604

12 December 2012