PA Putney Finance Australia Pty Limited v Aalders

[2022] NSWSC 607

Supreme Court

New South Wales

Medium Neutral Citation:

PA Putney Finance Australia Pty Limited v Aalders [2022] NSWSC 607

Hearing dates:

16-19, 22-23 March and 7 June 2021

Decision date:

17 May 2022

Jurisdiction:

Equity

Before:

Lindsay J

Decision:

Subject to submissions as to prejudgment interest and costs, judgment is to be entered in favour of the second plaintiff limited to the amount of $260,037.20

Catchwords:

CONTRACTS – Construction of Terms of Settlement – Claim on covenant for indemnity upheld – Other claims, for loss of opportunity damages, dismissed

Legislation Cited:

Civil Procedure Act 2005 NSW

Limitation Act 1969 NSW

Cases Cited:

Aalders v PA Putney Finance Australia Pty Limited (formerly Anzax Finance Australia Pty Ltd) and Ors [2011] NSWSC 756

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64

Delta Pty Ltd v Mechanical and Construction Insurance Pty Ltd [2019] 3 QDR 438

Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1

Howe v Teefy (1927) 27 SR (NSW) 301

Larking v Great Western (Nepean) Gravel Ltd (in Liq) (1940) 64 CLR 221

Prosperity Advisors Pty Ltd v Secure Enterprises Pty Ltd [2012] NSWCA 192

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

Robinson v Harman (1848) 154 ER 363

Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Wenham v Ella (1972) 127 CLR 454

Category:

Principal judgment

Parties:

First Plaintiff: PA Putney Finance Australia Pty Limited ACN 096896267
Second Plaintiff: PA Putney Custodians Pty Limited ACN 090612187
Third Plaintiff: PA Putney Finance Pty Limited ACN 090612141
First Defendant: Adrian Emile Francois Aalders
Second Defendant: Alders Finance Pty Limited ACN 065675318

Representation:

Counsel:
Plaintiffs: DR Pritchard SC and A MacAuley
Defendants: PA Horobin

Solicitors:
Plaintiffs: Farrar Lawyers
Defendants: Cordato Partners Lawyers

File Number(s):

2018/00375030

Judgment

INTRODUCTION

1. In proceedings commenced by a statement of claim filed on 5 December 2018, the plaintiffs seek to enforce against the defendants’ rights said to arise from clauses 6 and 9 of a contract dated 15 July 2010 styled “Confidential Terms of Settlement”.

2. The plaintiffs’ current statement of claim is a document styled “Second Further Amended Statement of Claim” filed on 8 June 2021. That pleading was filed pursuant to leave granted on the last day of the final hearing (7 June 2021) for the purpose of meeting an objection by the defendants to the form of the plaintiffs’ “Further Amended Statement of Claim” filed on 24 February 2020. The amendment was not opposed by the defendants (transcript page 485). It had the effect of removing from contention a “pleading point” earlier taken by the defendants.

3. As recorded in a formal notation made by the Court on 7 June 2021, the parties agree that the “Further Amended Defence” filed by the defendants on 17 March 2020 operates to join issue with the plaintiffs’ Second Further Amended Statement of Claim.

4. Significance attaches to the date of commencement of the proceedings (5 December 2018) because the defendants rely on a defence based upon sections 14 and 63 of the Limitation Act 1969 NSW to allege that the causes of action relied upon by the plaintiffs were extinguished before commencement of the proceedings. That said, the operative pleadings comprise the plaintiffs’ Second Further Amended Statement of Claim filed on 8 June 2021; the defendants’ Further Amended Defence filed on 17 March 2027; and the plaintiffs’ Reply filed on 17 April 2020.

5. These proceedings are an iteration of a long running, bitter contest between two brothers, Paul and Adrian Aalders, arising from termination of a business relationship which, in one form or another, occupied the period between 2001 and 2009 or thereabouts.

6. On 2 February 2010, Adrian commenced proceedings in this Court (numbered 2010/29032) against Anzax Finance Australia Pty Ltd (the first plaintiff in the current proceedings, now named PA Putney Finance Australia Pty Ltd), Paul and Paul’s wife, Suzanne. On the sixth and final day of a hearing of those proceedings before Palmer J (on 15 July 2010), the proceedings were settled on terms set forth in the Confidential Terms of Settlement.

7. The brothers, and associated parties, quickly fell into a dispute about the proper construction and operation of the Confidential Terms of Settlement. On an application under section 73 of the Civil Procedure Act 2005 NSW, Ward J (as her Honour then was) determined several questions of construction of the Confidential Terms of Settlement on 20 July 2011. Her Honour’s reasons for judgment are published as Aalders v PA Putney Finance Australia Pty Limited (formerly Anzax Finance Australia Pty Ltd) and Ors [2011] NSWSC 756.

8. The full text of the Confidential Terms of Settlement are reproduced in those Reasons at [11].

A QUESTION OF PARTIES

9. For convenience, the main combatants in these proceedings are respectively described as “Paul” and “Adrian”.

10. Paul is the principal of the three plaintiff companies but he is not himself, personally, named as a party in the proceedings. He is the sole director (and ultimate shareholder) of each of the plaintiffs.

11. The first plaintiff, PA Putney Finance Australia Pty Limited (sometimes referred to as “Finance Australia”) was known as Anzax Finance Australia Pty Ltd between 23 May 2001 and 22 December 2010.

12. The second plaintiff, PA Putney Custodians Pty Limited (sometimes referred to as “Custodians”) was known as Anzax Custodians Pty Ltd between 19 November 1999 and 5 July 2010.

13. The third plaintiff, PA Putney Finance Pty Limited (sometimes referred to as “Putney Finance”), was known as Anzax Finance Pty Ltd between 19 November 1999 and 5 July 2010.

14. Adrian is the first defendant in the proceedings. His company, Alders Finance Pty Ltd (sometimes referred to as “Alders Finance”) is the second defendant. He is the sole director of the second defendant.

15. The parties to the Confidential Terms of Settlement are:

1. On Paul’s side:

1. Paul;

2. Paul’s wife, Suzanne;

3. The first plaintiff, “Finance Australia”; and

4. The second plaintiff, “Custodians”.

2. On Adrian’s side:

1. Adrian, the first defendant; and

2. “Alders Finance”, the second defendant.

16. The third plaintiff, “Putney Finance”, was not named as a party in the Confidential Terms of Settlement. In my view, its joinder in these proceedings is a formality designed to forestall any effective challenge to the standing or entitlements of the second plaintiff. By the form of their statement of claim the plaintiffs opened the door to an unnecessary debate about rights of the second plaintiff (as a trustee) and the third plaintiff (as a beneficiary) as between themselves. The second plaintiff transacted business as a trustee on behalf of beneficiaries (in the present proceedings, relevantly, the third plaintiff) to which it was accountable for losses and on whose behalf it will hold any funds recoverable in these proceedings against the defendants. It is not open to the defendants to avoid the consequences of a breach of a contract with the trustee by a contention that, as between trustee and beneficiary, the trust document governing their relationship limits or excludes the trustee’s personal liability to account to the beneficiary for a breach of duty.

THE BROTHERS’ BUSINESS IN BROAD OUTLINE

17. In broad outline, before the brothers fell out the business conducted by Paul and Adrian together was a financing business which permitted a customer to lease (hire) from the business a motor vehicle, or other equipment, acquired by the business at the request of the customer.

18. The general modus operandi of the business involved the following features:

1. The first plaintiff (Finance Australia) purchased a vehicle or other equipment intended ultimately to be leased to a customer. It generally funded its purchase by borrowing from St George Bank on security of the chattel concerned.

2. Having acquired the chattel, the first plaintiff (Finance Australia) leased it to the customer of the business on terms set forth in a “rental agreement”, a chattel lease or hire agreement by another name.

3. The rental agreement provided that there was a minimum term (that is, duration) for the lease, but that the obligation of the customer to pay rent would continue thereafter until the rental agreement came to an end, for example, by return of the chattel to the first plaintiff, by a negotiated sale of the chattel to the customer by the first plaintiff or by a renegotiated arrangement.

4. The minimum term was generally of a duration sufficient to permit the first plaintiff, from rent receipts, to repay its loan from St George Bank, principal and interest.

5. Sometimes, the second plaintiff (Custodians), acting in a trustee capacity, financed the purchase of a chattel from funds provided by third party beneficiaries (related entities), without borrowing from St George Bank or any other financier. The third plaintiff is such a beneficiary.

6. The role of the first and second plaintiffs was to purchase a chattel nominated by a customer and to cause it to be delivered into the possession of the customer on the terms set forth in a rental agreement.

7. The role of the second defendant (Alders Finance) was principally that of a broker, dealing with customers who wanted to acquire a chattel by way of a lease arrangement.

19. Key features of a standard rental agreement of the business were the following:

1. The lessor retained title to the leased chattel, as owner, unless and until another arrangement was made.

2. Unless expressly determined, the lease for which a rental agreement provided continued beyond the minimum term, with an ongoing obligation in the customer to pay rent.

3. No rental agreement, in terms, entitled a customer to acquire ownership of the leased chattel.

20. The standard rental agreement was an agreement for hire of a chattel, not a hire purchase agreement. It did not, in terms, include an option in favour of the customer for purchase of the chattel, the critical feature that distinguishes a hire purchase agreement from a hire agreement.

21. On the contrary, a standard term required a customer to acknowledge the lessor’s ownership and to disclaim any entitlement to purchase the chattel the subject of a rental agreement. That term, clause 18, was in the following terms (with editorial adaptation):

“18. Ownership of equipment

The Renter [the customer lessee] acknowledges that, upon entering into the [Rental] Agreement The Equipment belongs to the Owner [the first or second plaintiff as lessor]. The Renter acknowledges that nothing herein contained shall confer on the Renter any property or interest in or to the Equipment and it is agreed that no agreement or representation has been made which will entitle the Renter to acquire the Equipment at a later date. The Owner retains sole ownership of and title to the Equipment at all times and does not purport at any time during or after the term of the Agreement to sell the Equipment to the Renter.”

22. This term was at all times well known to both Paul and Adrian in the conduct of their business.

23. Characterisation of a rental agreement as an agreement for the hire of a chattel, rather than as a hire purchase agreement, had commercial significance. Rental payments made by a customer under a hire agreement might entitle the customer to a deduction against income tax, but payments under a hire purchase agreement might be regarded by the Commissioner of Taxation as instalments for the purchase of a chattel (a capital outlay rather than a revenue expense) and, accordingly, the Commissioner might not allow the customer the benefit of a tax deduction.

24. The Commissioner’s Taxation Ruling No IT28 included the following paragraphs:

“[7]   … [In] determining the application of income tax legislation to this class of transaction, it was necessary to decide whether the payments were lease rentals or whether they were, in substance, consideration for the sale of the goods purported to be leased. In the latter case, of course, the payments would be outgoings of a capital nature which would not be deductible for income tax purposes.

[8]   Among the relevant factors which would determine this question are the following:

1. The existence of any agreement, express or implied, and whether in the lease agreement or in subsidiary documents or correspondence, under which the property in the goods would pass from the lessor for to the lessee; and

2. The degree of relativity between the ‘appraisal value’ or ‘residual value’ - by reference to which the amount of lease rentals was frequently determined – and the reasonable commercial value of the goods at the expiry date of the lease.”

25. This taxation ruling lies at the heart of much of the disputation between Paul and Adrian in relation to the plaintiffs’ claims under clause 6 of the Confidential Terms of Settlement.

26. As between the brothers, Paul’s work was essentially that of a financier, working in the back room; Adrian was essentially the broker, the salesman working with customers.

27. Paul has a Bachelor of Commerce degree (majoring in finance) and has practised as an accountant. He is clinical, studious, intense and perhaps a little pedantic in nature. Adrian has a Bachelor of Horticultural Science degree, with no formal training in accounting or finance. He is more outgoing in nature than Paul, and less concerned about matters of detail.

28. Paul viewed as an important profit centre for him (more particularly, the plaintiffs) the “inertia rent” paid by a customer who continued paying rent after expiry of the minimum term identified in the customer’s rental agreement. Another important profit centre, from the perspective of Paul, was the possibility of the lessor taking possession of a chattel and selling it upon the termination of a rental agreement, or writing fresh business with a customer premised on the lessor’s ownership of the chattel.

29. In tension with Paul’s perspective, Adrian attached importance to securing a customer’s entry into a rental agreement because, upon the customer’s entry into a rental agreement, he (more particularly, the second defendant) acquired an entitlement to a brokerage fee.

30. Putting the point neutrally, it seems that in a number of cases customers were, or may have been, induced to enter into a rental agreement by a “pre-contractual” representation, by or on behalf of “the business”, that the chattel the subject of the rental agreement, could, at the election of the customer, be acquired by the customer, at the end of the minimum term, for a payment equal to 10% of the initial cost or original purchase price of the chattel.

31. In substance, Paul alleges that Adrian made such representations routinely, orally and without any authority to do so. In substance, Adrian alleges that any such representations made by him were made with the knowledge and authority of Paul, and that Paul himself made such representations.

32. The parties’ competing contentions about these “pre-contractual representations” were in play at the time the Confidential Terms of Settlement were executed.

TERMS OF THE CONFIDENTIAL TERMS OF SETTLEMENT IN DISPUTE

33. The object of the Confidential Terms of Settlement was to provide a regime which permitted Paul and Adrian to go their separate ways. Thus, for example, Paul agreed to pay Adrian the sum of $400,000; Adrian agreed that he was no longer a director or shareholder of the first plaintiff (Finance Australia). The second defendant (Alders Finance) was granted an option to acquire identified chattels.

34. The clauses of the Confidential Terms of Settlement of particular concern in these proceedings (clauses 6 and 9) are in the following terms (with editorial adaptation and emphasis added):

“[6]   Adrian Aalders [the first defendant] and Alders Finance [the second defendant] agree to indemnify Paul Aalders, Sue Aalders, Anzax Finance Australia [the first plaintiff] and Anzax Custodians [the second plaintiff] (with such indemnity to be embodied in a written agreement) from any past, present or future liability (including any liability for legal costs) to any person, body or entity in respect of, concerning or arising out of the representations made by Adrian Aalders [the first defendant] to customers of Anzax Finance Australia [the first plaintiff] and Anzax Custodians [the second plaintiff] that they may purchase the vehicles the subject of rental agreements at 10% of the initial cost or original purchase price. The indemnity is to extend to any past, present or future liability, whether or not the facts or law giving rise to such actual or potential liability are known at the date of execution of the indemnity. …

[9](i)   Subject to (ii) below, Adrian Aalders [the first defendant] and Alders Finance [the second defendant] undertake not to provide finance for, enter into agreements or seek to upgrade or refinance customers with equipment rental agreements until 31 December 2012.

[9](ii)   Adrian Aalders [the first defendant] agrees to refer any Anzax Finance Australia or Anzax Custodians’ [the first or second plaintiffs’] customers (past or present) with rental agreements for equipment to Paul Aalders excluding any customers on [an attached list]. Paul Aalders agrees to refer to any Anzax Finance Australia or Anzax Custodians’ [the first and second plaintiffs’] customers (as set out on [an] attached schedule) with rental agreements for motor vehicles to Adrian.”

35. These clauses reflect Paul’s intention to focus on equipment rental agreements, and Adrian’s intention to focus on rental agreements for motor vehicles.

GENERAL PRINCIPLES IN CONSTRUCTION OF THE CONFIDENTIAL TERMS OF SETTLEMENT

36. In her judgment of 20 July 2011 ([2011] NSWSC 756 at [47]-[52]), Ward J summarised general principles applicable to construction of the Confidential Terms of Settlement as a contract. In the present proceedings no submission has been made to the effect that that summary is not apt. Accordingly, I adopt her Honour’s treatment of the topic.

37. I draw attention, particularly, to the following, convenient summary of the law found in the judgment of the High Court of Australia in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]:

“This Court, in Pacific Carriers Ltd v BNP Paribas [2004] 218 CLR 451, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas [2004] 218 CLR 451 at 461-462 [22].”

38. At paragraph [151] of her judgment, and in answer to Question 6 in paragraph [161] of her judgment, Ward J observed that there was no need for a “written agreement”, such as that contemplated by clause 6 of the Confidential Terms of Settlement, because the Confidential Terms of Settlement were themselves binding as a contract. The parties’ conduct of the current proceedings is consistent with those observations. An application by the plaintiffs for an order that the promise of “a written agreement” contained in clause 6 be specifically performed was not pressed.

38. The different natures of clauses 6 and 9 of the Confidential Terms of Settlement focus attention on different facets of the law of contract.

39. Clause 6 focuses attention on the nature of a contract of indemnity. Clause 9 focuses attention on the assessment of damages for a loss of opportunity. Each clause requires separate consideration in determination of when a cause of action accrues for the purpose of an application of sections 14 and 63 of the Limitation Act 1969.

40. As a general proposition, in the assessment of damages for a breach of contract the law aims to place the innocent party, so far as money can do it, in the same situation, with respect to damages, as if the contract had been performed: Robinson v Harman (1848) 154 ER 363 at 365; Wenham v Ella (1972) 127 CLR 454 at 460.

41. That an assessment of damages may be difficult to quantify is no bar to recovery: Howe v Teefy (1927) 27 SR (NSW) 301; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411-412; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83.

42. Compensatory damages are recoverable for loss of an opportunity. The value of a lost opportunity is to be determined according to the degree of probability of the opportunity materialising. This does not relieve a plaintiff from the obligation to prove, on the balance of probabilities, that he or she has sustained some loss or damage or that such damage was caused by the defendant: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355. Damages cannot be awarded if the likelihood of the lost opportunity is so low as to be considered speculative: Prosperity Advisors Pty Ltd v Secure Enterprises Pty Ltd [2012] NSWCA 192 at [73]-[79].

43. Subject to the terms of the particular contract, a contractual promise to indemnify a promisee for all amounts that the promisee may become legally liable to pay to a third party (a liability indemnity clause) is to be interpreted as an indemnity in respect of a legal liability ascertained by judgment, award, or settlement or agreement between the promisee and the third party: Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 25-26. No cause of action on the indemnity arises until liability to the third party is established.

44. A contractual promise to indemnify a person from liability to a third party can be invoked each and every time that such a liability is established and ascertained: Delta Pty Ltd v Mechanical and Construction Insurance Pty Ltd [2019] 3 QDR 438 at [148]. Only when a liability is established and ascertained does any right under the promise of indemnity arise.

CONSTRUCTION OF CLAUSES 6 AND 9

46. I make the following findings about construction of clause 6 of the Confidential Terms of Settlement:

1. By clause 6, Adrian and Alders Finance (the defendants) agreed to indemnify Paul, his wife Sue, Finance Australia (the first plaintiff) and Custodians (the second plaintiff) against loss. It does not, in terms, speak of an indemnity “against loss”. More cryptically, it speaks of an indemnity “from … liability to a third party” in respect of, concerning or arising out of a pre-contractual 10% purchase representation. Read as a whole, in the context of the Confidential Terms of Settlement as a whole, clause 6, in my opinion, provides for an indemnity against loss arising from a customer’s entry into a rental agreement relying upon a pre-contractual 10% purchase representation.

2. The loss the subject of indemnification was a loss from any past, present or future liability (including any liability for legal costs) to any person, body or entity in respect of, concerning or arising out of representations made by Adrian to customers of the first and second plaintiffs.

3. The representations the subject of the indemnity were representations, made to a customer before entry into a rental agreement, that a customer “may” (that is, “could”, in the sense of being entitled to) purchase the vehicle the subject of a rental agreement at 10% of the initial cost or original purchase price of the vehicle (for convenience, here described as a “pre-contractual 10% purchase representation”).

4. The expression “initial cost or original purchase price” referred to the cost to the lessor (the first plaintiff or the second plaintiff) of acquisition of the leased vehicle.

5. The indemnity was agreed “to extend to past, present or future liability, whether or not the facts or law giving rise to such actual or potential liability [were] known at the date of execution” of the Settlement Agreement.

6. The indemnity did not cease to operate if (as Adrian alleges and Paul denies) there was a systematic practice of making pre-contractual 10% purchase representations that was approved by Paul. The terms of clause 6 are not so limited, either expressly or by implication.

7. Accrual of a cause of action under clause 6 was not contingent upon a demand being made by the parties entitled to the benefit of the clause. Nothing in the text of the clause justifies a finding to the contrary. Nor are there grounds for implication of a term to that effect.

8. A claim for indemnification by the first or second plaintiffs does not require joinder in the proceedings of Paul or his wife because the defendants’ promise of an indemnity was made to Paul, Sue and the first and second plaintiffs jointly and severally.

47. I agree with the observation of Ward J, in paragraph [144] of her judgment, that a liability for costs the subject of indemnification includes costs incurred in the defence of an allegation by a customer that a pre-contractual purchase representation had been made to the customer, even though the customer’s claim might not have proceeded to a final judgment, provided that there is a basis upon which to conclude that there had been a pre-contractual purchase representation by Adrian. I also agree with her Honour’s associated observation that there might be an issue in some circumstances as to whether, if the reason a customer’s claim did not proceed to judgment was because a settlement reached with a customer was on objectively unreasonable terms. By clause 6, the defendants provided an indemnity for legal liability ascertained by judgment, award or an objectively reasonable settlement between an indemnified party and a customer who claimed the benefit of a pre-contractual 10% purchase representation.

48. I make the following findings about construction of clause 9 of the Confidential Terms of Settlement:

1. A claim by a party to the Confidential Terms of Settlement against one or both of the defendants, for damages for breach of the undertaking contained in clause 9(i) of the Confidential Terms of Settlement, requires proof by the claimant that:

1. between 15 July 2010 (the date of the Confidential Terms of Settlement) and 31 December 2012 (the date specified in clause 9(i)) the defendants jointly or severally provided finance for, or entered into, an agreement (whether a rental agreement or an agreement relating to finance) with a person;

2. that person was a past or present equipment rental customer of either the first or second plaintiffs; and

3. the customer was not included in the “list” or “schedule” attached to the Confidential Terms of Settlement.

2. In relation to clause 9(ii) of the Confidential Terms of Settlement:

1. The promisor was Adrian.

2. By his promise, Adrian was obliged to “refer” persons who were: (i) past or present customers of the first or second plaintiffs with rental agreements for equipment; and (ii) not on the “schedule” attached to the Confidential Terms of Settlement.

3. The obligation “to refer” arose if and when a customer approached Adrian to rent equipment. It did not (as the plaintiffs contend) attach to a rental agreement (in existence at the time the Confidential Terms of Settlement were executed on 15 July 2010) at the time the minimum term of the agreement expired. Clause 9(ii) does not, in terms, say that. There is no necessity to imply such a term to give business efficacy to the Confidential Terms of Settlement. Clause 9(ii) is directed to new business. The expiry of a minimum term did not, of itself, mark the end of a rental agreement because a customer could retain a leased chattel with a continuing obligation to pay rent. The plaintiffs’ construction of clause 9(ii) appears to have its origins in negotiations not reflected in the text of the clause.

4. Nor did clause 9(ii) give Paul any right, by assignment, either to acquire a rental agreement or the equipment the subject of a rental agreement at the time a minimum term expired. There is nothing of that nature in clause 9(ii), unlike the provisions of clause 4 of the Confidential Terms of Settlement which granted the second defendant various forms of option to purchase chattels by reference to whether or not the minimum term of a chattel had expired.

5. Adrian’s obligation “to refer” required him to invite customers to seek to rent (or to obtain finance for) their sought-after equipment from Paul.

6. I do not accept, as the plaintiffs contend, that Adrian’s obligation “to refer” customers to Paul included an (implied) obligation to notify Paul of each or any of his referrals. That is an obligation that goes beyond the express words of clause 9(ii) and is unnecessary to give business efficacy to the agreement.

7. Nor do I accept, as the plaintiffs contend, that the obligation to refer customers was a “continuing” obligation in the sense that “each day Adrian failed to refer a customer to Paul … constituted a separate breach of clause 9(ii)”. Adrian’s obligation “to refer” was an obligation to do a definite act, not an obligation to maintain a state of affairs, Larking v Great Western (Nepean) Gravel Ltd (in Liq) (1940) 64 CLR 221 at 236. To construe clause 9 as imposing on the parties reciprocal “continuing” obligations (of indefinite duration) “to refer” business to one another would be inconsistent with the object of the Confidential Terms of Settlement, designed to allow the parties to go their separate ways. In the absence of an express time stipulation for performance of the obligation to refer, performance of the obligation was required within a reasonable time of a customer’s approach to Adrian (Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 575-576) within a reasonable time of the parties’ entry into the Confidential Terms of Settlement. In the nature of the parties’ business, the obligation to refer, within that time frame, arose at the time of a customer’s approach to Adrian and it was breached if Adrian did not, immediately or as soon thereafter as may have been practicable, invite the customer to seek to rent (or to obtain finance for) the customer’s sought-after equipment from Paul.

8. In the context of the Confidential Terms of Settlement as a whole, the reference to “Paul” as a beneficiary of Adrian’s obligation to refer included his companies, the first and second plaintiffs (just as the reference to “Adrian” as the beneficiary of a corresponding “obligation to refer” assumed by Paul included his corporate identity).

9. The object of Adrian’s agreement “to refer” customers was to permit the first and second plaintiffs (controlled by Paul) to take up opportunities to transact business with customers of old.

3. None of the claims made by the plaintiffs under clause 9 of the Confidential Terms of Settlement relate to customers on the “list” or “schedule” attached to the document.

QUESTIONS OF CREDIT

49. As a general proposition, if the evidence of one of the brothers is to be preferred over the evidence of the other, in my opinion, the evidence of Paul is to be preferred over that of Adrian in relation to business practices (the focus particularly of the plaintiffs’ claims referrable to clause 6 of the Confidential Terms of Settlement); but, in assessing the probabilities of customers conducting business with Paul on a referral by Adrian (the focus particularly of the plaintiffs’ clause 9 claims) I attach force to the defendants’ contention that customers accustomed to the genial Adrian might well have been reluctant to deal with the clinical Paul.

50. Paul exhibited a close understanding of Taxation Ruling No IT28 and the importance of not making a pre-contractual representation of an entitlement in a customer to acquire leased chattels. His awareness of the standard term in rental agreements asserting the lessor’s ownership of a leased chattel was informed by his desire to earn “inertia rents” from customers who continued to retain a leased chattel after expiry of a minimum term. I do not count it against his credit that he admitted that, from time to time, in exceptional cases he made a pre-contractual 10% purchase representation allowing a customer to acquire a leased chattel at the end of the rental term. Such cases were, not part of a systemic practice (such as Adrian appears to have condoned) ostensibly enabling a customer engaged in business both to claim a tax deduction for “rental payments” and to claim an “entitlement” to purchase a chattel the subject of a “lease”.

51. Adrian was accustomed to making precontractual 10% purchase representations notwithstanding the standard term about ownership of a leased chattel in a rental agreement, and notwithstanding his knowledge of Taxation Ruling No IT28. He was cavalier in his approach to pre-contractual purchase representations to customers about an entitlement to acquire a leased chattel, a state of mind informed by his role as a broker. His motivation was to earn brokerage fees.

52. In their respective approaches to the formalities of entry into a chattel lease, both men were influenced by a very different perception of the opportunities for commercial gain respectively available to them.

THE SECOND PLAINTIFF’S CLAUSE 6 CLAIMS

53. The second plaintiff claims against the defendants an indemnity under clause 6 of the Confidential Terms of Settlement for liabilities incurred vis-a-vis customers who hired a vehicle from it on a representation by Adrian that the customer could purchase the vehicle at the end of the minimum term for a price equal to 10% of the initial cost or original purchase price of the vehicle.

54. The second plaintiff claims an indemnity in respect of rental agreements with four customers:

1. Wayne Black & Associates Pty Ltd;

2. Gordon Victor Bryan and Lisa Evelynne Bryan trading as Future Air Conditioning and Refrigeration;

3. Domenico Fortunato Raso trading as Domani Enterprises; and

4. Faripast Pty Ltd.

55. Having characterised clause 6 of the Confidential Terms of Settlement as a contractual promise to indemnify the first and second plaintiffs against loss, and having held that the promised indemnity was engaged each time a legal liability was ascertained by judgment, award, or settlement, or agreement, I also hold that none of the entitlements claimed by the second plaintiff by reference to clause 6 was extinguished by operation of sections 14 and 63 of the Limitation Act 1969 before the commencement of these proceedings. Each claimed entitlement crystallised after 5 December 2012, the cut-off date of six years preceding the commencement of the proceedings.

Wayne Black & Associates Pty Ltd

56. On 24 January 2005 the second plaintiff entered into a rental agreement with Wayne Black & Associates Pty Ltd for the rental of a “2000 Mitsubishi Pajero” motor vehicle. The agreement had a minimum term of 24 months, with quarterly rental instalments of $1,415.11. The amount financed was $9,120.98 plus GST, being the amount required to be paid by the second plaintiff in order to purchase the vehicle from an entity that had previously purchased the vehicle and rented it to Wayne Black & Associates Pty Ltd.

57. Prior to the second plaintiff’s entry into the rental agreement with Wayne Black & Associates Pty Ltd, Adrian represented to Mr Black (the representative of the company) that, at the end of a minimum term of the rental agreement, the vehicle could be purchased by the company for 10% of the purchase price (that is, for $912 plus GST).

58. That fact has been admitted by the defendants on the pleadings. It is confirmed by affidavits sworn by Mr Black in the 2010 proceedings and in proceedings in the Local Court of NSW between Wayne Black & Associates Pty Ltd and the second plaintiff. Mr Black’s evidence was that he relied upon Adrian’s representation in deciding to enter the rental agreement.

59. On 24 January 2007 the minimum term of the rental agreement expired. The vehicle was not at that time returned to the second plaintiff, with the effect that the rental agreement continued in operation and Wayne Black & Associates Pty Ltd continued to pay rent (without objection).

60. In February 2010 the second plaintiff sent a letter to Wayne Black & Associates Pty Ltd inviting it to renegotiate the rental agreement.

61. On 10 June 2010 Wayne Black & Associates Pty Ltd commenced proceedings in the Consumer Trader and Tenancy Tribunal (“the CTTT”) seeking the transfer of title to it of the motor vehicle. Those proceedings were ultimately dismissed for a want of jurisdiction.

62. In 2011 the second plaintiff commenced proceedings in the Local Court of NSW, in response to which, in January 2012, Wayne Black & Associates Pty Ltd filed a cross claim.

63. On 7 December 2012 (after the Limitation Act cut-off date of 5 December 2012) the Local Court delivered judgment in favour of Wayne Black & Associates Pty Ltd, supported by reasons which included findings to the effect that Adrian had made a pre-contractual 10% purchase representation; the representation was false and misleading; Wayne Black & Associates Pty Ltd had relied upon the representation (as well as a similar one made by a business associate, Mr Ken Brown) in entering into the rental agreement; and the representation was the sole cause of Wayne Black & Associates Pty Ltd’s entry into the rental agreement.

64. On 11 December 2012 orders were made in favour of Wayne Black & Associates Pty Ltd, which orders were followed by further orders made in 2013 concerning costs and a correction to the judgment in favour of the company. The ultimate result of the proceedings (recorded in orders made on 11 June 2013) was that:

1. Judgment was awarded against the second plaintiff in the sum of $8,507.30, plus costs on the cross claim of $2,126.80, together with interest of $174.11 ($10,808.21 in total); and

2. The second plaintiff was ordered to pay the customer’s costs on its claim, pursuant to which order the second plaintiff paid to Wayne Black & Associates Pty Ltd costs of $21,000.

65. The second plaintiff made demands upon Adrian for indemnification on 8 December 2012, 24 August 2013, 30 April 2014 and 24 November 2015.

66. In addition to the judgment debt (including costs) paid to Wayne Black & Associates Pty Ltd, the second plaintiff incurred the following losses consequent upon Adrian’s pre-contractual 10% purchase representation:

1. $18,151.45 owed to the second plaintiff by Wayne Black & Associates Pty Ltd which were unrecoverable by reason of the adverse determination of the Local Court proceedings, comprising the sum of:

1. outstanding rent up to the date of termination, $1,886.81;

2. rent otherwise payable during an obligatory notice period, $2,830.22;

3. the market value of the vehicle not returned by the customer, $8,300; and

4. the total interest accrued under the rental agreement up to the date of termination, $5,134.42.

2. $135.74, paid to a debt collecting agency;

3. $51,047.27, legal costs paid to solicitors for their representation in the CTTT proceedings and the Local Court proceedings; and

4. $74,614.42, further legal costs to another firm of solicitors for representation in the Local Court proceedings.

67. I accept the mathematical accuracy of the plaintiffs’ claims and their assessment of the market value of the vehicle not returned by the customer. I have given consideration to whether the costs incurred by the second plaintiff vis-à-vis its own solicitors should be moderated before being charged to the account of the defendants; but, on reflection, I have decided against that because, I accept, the costs claimed by the second plaintiff were in fact incurred and the terms of clause 6 justify a claim of full indemnity.

67. Having accepted the plaintiffs’ calculations, I find that the second plaintiff is entitled to an indemnity in the total sum of $175,757.09 referrable to Wayne Black & Associates Pty Ltd.

Future Air Conditioning and Refrigeration

69. On 15 February 2007 the second plaintiff entered into a rental agreement with Gordon Victor Bryan and Lisa Evelynne Bryan trading as Future Air Conditioning and Refrigeration in relation to a “2007 Toyota Hiace” motor vehicle. The agreement was for a minimum term of 48 months, with quarterly rental payments of $2,432.10.

70. Contemporaneous documents (including correspondence dated 11 December 2006 and 14 February 2007) evidence the fact that Adrian brokered the rental agreement. In an email dated 6 January 2010 Mr Bryan complained to Paul that, having been told by Adrian that his firm could purchase the vehicle for a 10% residual, he believed that the transaction was a hire purchase agreement.

71. On 1 February 2011 the Bryans defaulted on their obligations under the rental agreement, following which the second plaintiff endeavoured to recover monies outstanding under the rental agreement.

72. On 20 September 2013 the Bryans, through solicitors, disputed their liability with an assertion that they were entitled to equitable ownership of the vehicle upon payment of a 10% residual value “in accordance with previous arrangements between the parties”.

73. In December 2013 (after the Limitation Act cut-off date of 5 December 2012) the second plaintiff entered into a deed of settlement with the Bryans. It provided for the Bryans to pay $30,000 to the second plaintiff in satisfaction of all monies owing under the rental agreement. As a result, the second plaintiff wrote off $29,136.93, which it claims against the defendants (under clause 6 of the Confidential Terms of Settlement) as an indemnifiable loss.

74. I note, in passing, that Mr Bryan swore an affidavit in June 2020 in which he deposed that the pre-contractual 10% purchase representation made to him was made by Paul rather than Adrian. He resiled from that evidence in cross examination when taken to his email dated 6 January 2010.

Domenico Fortunato Raso trading as Domani Enterprises

75. On 20 February 2007 Mr D F Raso, trading as Domani Enterprises, entered into a rental agreement with the second plaintiff in relation to a “2004 Ford Courier PG Utility” motor vehicle. The minimum term of the agreement was 48 months, with quarterly rent of $1,574.11.

76. Contemporaneous documentation identifies Adrian as the person who brokered execution of the rental agreement. That evidence includes a letter dated 19 February 2007 sent by Adrian to Mr Raso.

77. On 21 March 2011 Mr Raso asserted by email that he had received legal advice to the effect that he had no further liability under the rental agreement because of an alleged “verbal agreement” that he would take ownership of the vehicle after payment was made at the end of the 48 month period “with no residual”. On 1 April 2011 he ceased making payments under the rental agreement.

78. In 2013 Mr Raso commenced proceedings in the CTTT. On 4 November 2013 (after the Limitation Act cut-off date of 5 December 2012) those proceedings were settled by the second plaintiff on terms by which the second plaintiff agreed to accept $8,000 in full and final settlement of all monies owed by Mr Raso under the rental agreement, that having the consequence that the second plaintiff wrote off $18,427.35 in outstanding rent. The second plaintiff claims that amount under clause 6 of the Confidential Terms of Settlement.

79. The settlement agreement between Mr Raso and the second plaintiff included a formal notation by the CTTT to the following effect:

“The Tribunal notes the agreement of the parties that the proceedings in the Tribunal arose from an allegation by the applicant [Mr Raso] that a representative of Alders Finance Pty Ltd [the second defendant] made representations to the applicant about the agreement between the applicant and Anzax Custodians Pty Ltd [the second plaintiff] regarding the terms of the agreement that were inconsistent with the written agreement dated 20-Feb-2007 in that there was an option to to [sic] purchase the vehicle at the end of the agreement period by payment by the applicant of 10% of the purchase price of the vehicle to the respondent [the second plaintiff] …”

80. Mr Raso was subpoenaed by the plaintiffs to give evidence at the hearing of the proceedings, but he refused to attend. Nothing turns on this as contemporaneous documentation confirms Adrian’s role as the maker of a pre-contractual 10% purchase representation to Mr Raso.

Faripast Pty Ltd

81. On 17 August 2007 Faripast Pty Ltd entered into a rental agreement with the second plaintiff in relation to a “2007 Holden Astra” motor vehicle. The minimum term of the agreement was 48 months, with quarterly rent of $2,600.40. The purchase price of the vehicle (including registration charges) was $29,229.55 plus GST.

82. Prior to execution of the rental agreement, on 14 August 2007 Adrian sent an email to Mr Bott (the representative of Faripast Pty Ltd) in terms that included the following:

“We confirm that if an offer of no less than $2,925 ex GST was made at the completion of the finance we would gladly accept it provided repayments for the term had been made. Title of the equipment would then pass upon cleared funds.”

83. Mr Bott gave evidence that he signed the rental agreement in reliance upon this assurance that he could buy out the vehicle at the specified figure. That figure reflected 10% of the purchase price of the vehicle.

84. On 17 August 2011 the minimum term of the rental agreement with Faripast Pty Ltd came to an end without the vehicle the subject of the agreement being returned to the second plaintiff.

85. On 20 October 2011, Mr Bott, on behalf of Faripast Pty Ltd, wrote to the second plaintiff an email that included observations to the following effect:

“Prior to signing the agreement, I had made it plain to Adrian that Faripast wished to purchase the vehicle at the end of the term of the Agreement. In particular, I sought clarification as to what the situation would be as at the end of the term of the Agreement. Importantly, I have cogent evidence that just one day before Faripast signed the Agreement, Adrian, acting as broker and agent for Anzax [the second plaintiff], wrote to me in clear terms confirming that at the end of the term, Faripast would be entitled to purchase the vehicle for $2,925 plus GST.”

86. This statement was verified by Mr Bott in his evidence.

87. Between 30 June 2013 and 31 May 2014 (after the Limitation Act cut-off date of 5 December 2012) the second plaintiff wrote off a total of $36,715.83 that would have been recoverable from Faripast Pty Ltd but for Adrian’s representation. The second plaintiff seeks to recover that amount under clause 6 of the Confidential Terms of Settlement. In my opinion it is entitled to do so because any debt owed by the customer was not simply written off as a “bad debt” but in consequence of the customer’s express reliance on a pre-contractual 10% purchase representation made by Adrian.

Quantification of the Second Plaintiff’s Clause 6 Claims

88. The claims made by the second plaintiff under clause 6 of the Confidential Terms of Settlement total $260,037.20. My determination is that they are entitled to that sum plus an allowance for pre-judgment interest under the Civil Procedure Act 2005 NSW, s 100.

Residual Issues

89. In reaching that conclusion, I reject two faintly argued contentions advanced by the defendants.

90. First, I do not accept that any form of estoppel arose against the plaintiffs from anything that occurred during the course of the Local Court proceedings involving Wayne Black & Associates Pty Ltd, culminating in the Court’s judgment of 7 December 2012 and subsequent consequential orders in favour of the company, or in the proceedings before Ward J that culminated in her Honour’s judgment of 20 July 2011. Nor do I accept that anything relating to those judgments rendered the plaintiffs’ commencement, and maintenance, of the present proceedings an abuse of process. The second plaintiff’s loss in the Local Court provided a foundation for the plaintiffs’ claims under clause 6 of the Confidential Terms of Settlement. The judgment of Ward J recognised the enforceability of clause 6 of the Confidential Terms of Settlement in relation to costs incurred in defence of proceedings brought in the Consumer, Trader and Tenancy Tribunal and otherwise focused attention on clause 4 of the Confidential Terms of Settlement and a separate issue (an obligation of Paul to pay Adrian the sum of $400,000 under clause 1 of the Confidential Terms of Settlement) not material to the present proceedings.

91. Secondly, I reject the defendants’ contention that conduct of Paul, in the plaintiffs’ assertion of contractual rights, should be characterised as “unconscionable” so as to attract equitable principles governing catching bargains. Adrian was in no sense at a special disadvantage vis-à-vis Paul. Paul did not take advantage of any vulnerability on the part of Adrian. The brothers enjoyed equal bargaining power and executed the Confidential Terms of Settlement with their eyes wide open.

THE PLAINTIFFS’ CLAIMS UNDER CLAUSE 9: METHODOLOGY

92. A major difficulty with the plaintiffs’ claims under clause 9 of the Confidential Terms of Settlement (upon an assumption of breaches) is in assessment of the plaintiffs’ claims for damages for lost opportunities to do business with identified customers.

93. The plaintiffs invite the Court to assess damages having regard to:

1. the cost price of equipment that was rented by the second defendant (or was the subject of finance arranged by the second defendant) to a customer in breach of clause 9 of the Confidential Terms of Settlement; and

2. the profit margin that the first or second plaintiffs had generated previously from equipment rented to the customer, derived by aggregating all prior income received from the customer from all previous rental agreements and subtracting from that figure the cost price of the equipment the subject of those rental agreements, expressing that margin as a percentage of the cost prices of the equipment.

94. The factual foundations for the plaintiffs’ claims for lost opportunity damages are laid out in detail in: (a) the affidavit of Paul sworn on 25 May 2020, incorporating primary documents exhibited to the affidavit; (b) the affidavit of Paul sworn on 17 March 2021; and (c) Exhibit 9, a draft affidavit dated 18 March 2021 prepared by Paul and verified in the witness box.

95. The plaintiffs supplemented their presentation of this evidence by detailed written submissions (MFI P13), including summaries of the pleadings (paragraphs 143 and 152), summaries of evidence (Schedules 2-8) and tables summarising claims and calculations of claims (paragraphs 147, 154 and 155).

96. I am satisfied that the plaintiffs’ claims (based upon their methodological assumptions) are arithmetically correct. The assumptions are, however, contestable, as are the plaintiffs’ allegations (in particular) of breaches of clause 9(ii).

97. Those assumptions include: (a) an assumption that their past transactions with particular customers, dealing with different equipment leases, provide a sound foundation for assessment of business that hypothetically could have been transacted by them had the customers been referred to them by Adrian; (b) an assumption that the profitability of hypothetical new business with particular customers would reflect the same, average percentage level of profitability of earlier business with those customers; and (c) an assumption that customers referred by Adrian to Paul would in fact transact business with Paul (through either the first or second plaintiffs).

98. The methodology applied by Paul in calculating a “Historical Profit Percentage” figure (based upon the plaintiffs’ earlier business with a customer) is summarised in paragraph 5 of his affidavit sworn 17 March 2021. It is sufficient to note that evidence without reproducing it in this judgment.

THE PLAINTIFFS’ CLAIMS UNDER BOTH CLAUSES 9(i) AND 9(ii)

99. The first and second plaintiffs claim that, in respect of four of their former customers, the defendants breached both clause 9(i) and clause 9(ii) of the Confidential Terms of Settlement by reason of entry into one or more equipment rental agreements, with the provision of finance, and by a failure to refer the customer(s) to Paul (in essence, the first and second plaintiffs) in the period between 15 July 2010 (the date of the Confidential Terms of Settlement) and 31 December 2012 (the date specified in clause 9(i) of the Confidential Terms of Settlement).

100. Those four customers are:

1. Beiersdorf Australia Limited.

2. Beverley Park Golf Club Limited.

3. Voodoo Digital Pty Ltd.

4. Martyn Gregory Beaton (as trustee for Beaton Family Trust) trading as MGB Production & Electrical Services.

101. The second defendant entered into five rental agreements with Beiersdorf Australia Ltd between 17 August 2010 and 1 August 2012. The value of the equipment thus financed by the second defendant totalled $182,250.26. To that figure the plaintiffs applied an Historical Profit Percentage of 64.002839% (based upon their prior dealings with the customer), grounding their claim to foregone profits totalling $116,645.34.

102. The second defendant entered into rental agreements with Beverley Park Golf Club Limited on 13 December 2010 and 2 August 2011. The equipment the subject of those agreements had a total value of $165,420. To that figure the plaintiffs applied an Historical Profit Percentage of 50.161865%, producing a calculation of total foregone profits of $82,977.75.

103. The second defendant entered into rental agreements with Voodoo Digital Pty Ltd on 23 February 2012 and 10 July 2012. The total value of the equipment the subject of those agreements was $92,359, to which the plaintiffs applied an Historical Profit Percentage of 43.211165%, resulting in a calculation of total foregone profits at $39,909.40.

104. The second defendant entered into rental agreements with the Beaton Family Trust on 9 July 2012, 26 July 2012 and 14 November 2012. The total value of equipment the subject of those agreements was $110,508.34, to which the plaintiffs applied an Historical Profit Percentage of 58.972450%, resulting in a calculation of foregone profits at $65,169.47.

105. The foregone profits claimed by the first and second plaintiffs by reference to the four customers said to be the subject of breaches by the defendants of both clauses 9(i) and 9(ii) totals $304,701.96.

106. In so far as the plaintiffs’ claim alleges a cause of action based upon a breach of clause 9(i) it must fail. That is because any cause of action arose, upon breach, when the second defendant entered into a proscribed rental agreement. Each and every one of the rental agreements alleged to have been entered into in breach of clause 9(i) was entered into before 5 December 2012, more than six years before the commencement of these proceedings on 5 December 2018, outside the six year limitation period prescribed by section 14 of the Limitation Act 1969. At the expiry of that period, any cause of action based on clause 9(i) was extinguished by operation of section 63 of the Act.

107. Characterisation of the second defendant’s conduct as a breach of clause 9(ii) does not assist the plaintiffs. That is because any “failure to refer” the customers with whom the second defendant entered proscribed rental agreements occurred at or about the time those agreements were entered into and the obligation “to refer” was not one that continued thereafter. Any breach of the second defendant’s obligation to refer occurred more than six years before the commencement of these proceedings and, accordingly, was extinguished before the proceedings were commenced.

THE PLAINTIFFS’ CLAIMS UNDER CLAUSE 9(ii) ALONE

108. The plaintiffs claim that, in respect of five of their former customers, the defendants breached clause 9(ii) of the Confidential Terms of Settlement by reason of failures on the part of the defendants to refer a customer to Paul at the end of the minimum term of a rental agreement of the customer with the second defendant that occurred after 15 July 2010 (the date of the Confidential Terms of Settlement).

109. My determination that clause 9(ii) did not impose on Adrian a continuing obligation “to refer” carries the consequence that, as the plaintiffs have framed their case, their claims for alleged breaches of clause 9(ii) must fail because, by operation of sections 14 and 63 of the Limitation Act 1969 NSW, they were extinguished before the commencement of these proceedings. That appears from the dates of expiry of minimum terms in the rental agreements by reference to which (as set out below) the plaintiffs claim damages. Each minimum term expired (and, on the plaintiffs’ case, the defendants breached clause 9(ii)) before 5 December 2012, more than six years before commencement of the proceedings.

110. I should nevertheless record that, in my opinion, the way the plaintiffs have framed their claim for damages under clause 9(ii) assumes, incorrectly, that the defendants were under an obligation “to refer” customers to Paul at the end of the minimum term of a rental agreement. On the construction I have given to clause 9(ii), these claims are misconceived.

111. Although I have accepted that the plaintiffs’ calculations of their alleged losses are arithmetically correct, the claims for damages made by reference to them are, in my opinion, too speculative to warrant an award of damages. The assumptions upon which calculations of “Historical Profit Percentages” have been made illustrate the speculative nature of the plaintiffs’ calculations, projecting estimates of large future profit from different past experience and assuming that customers would, with little resistance, transfer their business from Adrian to Paul.

112. For the record, the five customers in respect of whom the plaintiffs make clause 9(ii) claims are:

1. Borstal Holdings Pty Ltd, as trustee of the Atkinson & Vinden Unit Trust.

2. Beiersdorf Australia Ltd.

3. Voodoo Digital Pty Ltd.

4. Surveytalk Pty Ltd.

5. Armstrong Jones Management Pty Ltd.

113. In respect of these five customers the plaintiffs claim lost opportunity damages by reference to profits they calculate they could have earned had the defendants, upon the expiry of the minimum term of a customers’ rental agreement with the second defendant, referred the customer to Paul.

114. The plaintiffs advanced two alternative scenarios in support of their claim, embodied in two separate questions:

1. First, what profits could the first or second plaintiffs have earned had they entered into an agreement with the customer to supply upgraded equipment costing the same as the price of the equipment the subject of the rental agreement with the second defendant?

2. Secondly, what profits could the first or second plaintiffs have earned had they refinanced the existing rental agreement of the second defendant and simply collected inertia rent in respect of the existing equipment (and then sold the equipment upon termination of the rental agreement)?

The First Scenario: Equipment Upgrade

115. The second defendant entered a rental agreement with Borstal Holdings Pty Ltd on 20 February 2008. The minimum term for which it provided expired on 20 February 2012, more than six years before commencement of these proceedings on 5 December 2018. The equipment the subject of the rental agreement had a cost price of $46,970, against which the plaintiff supplied an Historical Profit Percentage of 113.163343%, resulting in foregone profits of $53,152.82.

116. The second defendant entered a rental agreement with Beiersdorf Australia Ltd on 30 April 2008. The minimum term for which it provided expired on 3 April 2011. The cost price of the equipment the subject of the rental agreement cost $116,188.82, against which the plaintiff supplied an Historical Profit Percentage of 64.002839%, resulting in foregone profits of $74,364.14.

115. On 10 December 2008 the second defendant entered into a rental agreement with Voodoo Digital Pty Ltd. The minimum term for which the agreement provided expired on 10 December 2010. The cost price of the equipment the subject of the rental agreement was $23,424.87, against which the plaintiffs applied an Historical Profit Percentage of 43.211165%, resulting in foregone profits of $10,122.16.

116. On 24 September 2008, the second defendant entered into a rental agreement with Voodoo Digital Pty Ltd. The minimum term for which the Agreement provided expired on 24 September 2011. The cost of the equipment the subject of the rental agreement was $41,800, against which the plaintiffs applied an Historical Profit Percentage of 43.211165%, resulting in foregone profits of $18,062.27.

117. On 15 July 2008 the second defendant entered into a rental agreement with Surveytalk Pty Ltd. The minimum term for which the agreement provided expired on 15 July 2011. The cost price of the equipment the subject of the rental agreement was $71,097.40, against which the plaintiffs applied an Historical Profit Percentage of 47.901802%, resulting in foregone profits of $34,056.94.

118. On 6 November 2008 the second defendant entered into a rental agreement with Surveytalk Pty Ltd. The minimum term for which the agreement provided expired on 6 November 2011. The cost price of the equipment the subject of the Agreement was $33,295.52, against which the plaintiffs applied an Historical Profit Percentage of 47.901802%, resulting in foregone profits of $15,949.15.

119. On 24 June 2008 the second defendant entered into a rental agreement with Armstrong Jones Management Pty Ltd. The minimum term for which the agreement provided expired on 24 June 2012. The cost price of the equipment the subject of the agreement was $128,667, against which the plaintiffs applied an Historical Profit Percentage of 149.267385%, resulting in foregone profits of $192,057.87.

120. The foregone profits claimed by the plaintiffs by reference to the five customers said be the subject of breaches by the defendants of clause 9(ii), on the first scenario, totalled, $397,765.35.

The Second Scenario: Inertia Rent and Sale Proceeds

123. The plaintiffs’ alternative scenario for calculation of the “foregone profits” of the first and second plaintiffs proceeds on an assumption that, had Adrian referred the five named customers to Paul at the end of the minimum term of their respective rental agreements with the second defendant, the first or second plaintiffs could have refinanced the existing rental agreement of the second defendant and simply collected inertia rent in respect of the existing equipment and, upon termination of the rental agreement, sold the equipment.

124. The formal details for calculations relating to the second scenario are the same as those relating to the first scenario; that is the date of the second defendant’s rental agreement with the customer, the date of expiry of the minimum term of that agreement; and the cost price of equipment the subject of the agreement.

125. The difference between the two sets of calculations is in the “Historical Profit Percentage” relating to experience of each customer with the payment of inertia rent and the sale proceeds of equipment at the termination of a rental agreement. With Borstal Holdings Pty Ltd, the plaintiffs apply an Historical Profit Percentage of 77.602998% to the cost price of equipment ($46,970) to claim foregone profits of $36,450.13.

126. For Beiersdorf Australia Ltd, the plaintiffs apply an Historical Profitable Percentage of 25.894224% to an equipment cost price of $116,188.82 to claim foregone profits of $30,086.19.

127. For Voodoo Digital Pty Ltd, the plaintiffs apply an Historical Profit Percentage of 24.221589% to the total cost price of equipment ($65,224.87, representing the sum of $23,424.87 and $41,800) to claim foregone profits of $15,798.50.

128. For Surveytalk Pty Ltd, the plaintiffs apply an Historical Profit Percentage of 27.718926% to a total cost price of equipment ($104,392.92, representing the sum of $71,097.40 and $33,295.62) to claim foregone profits of $28,936.

129. For Armstrong Jones Management Pty Ltd the plaintiffs apply an Historical Profit Percentage of 120.622167% to a cost price of equipment ($128,667) to claim foregone profits of $155,200.92.

130. The total “foregone profits” claimed by the plaintiffs on this second scenario is $266,472.34.

Factors Bearing Upon Discounting the Plaintiffs’ Claims

131. The plaintiffs accept that this figure might properly be the subject of an adjustment – they submit no more than 20% - to allow for the possibility that they might not have secured business on the rental agreements of the five customers had the defendants referred them to Paul.

132. In my opinion, a discount of the nature proposed by the plaintiffs would not do justice to what, on my findings, is the speculative character of the plaintiffs’ claims for loss of opportunity damages.

133. The plaintiffs also invite the Court to weigh in the balance in the calculation of their claims evidence that the second defendant continued to earn rent from each of the five named customers after the expiry of the minimum term of their respective rental agreements.

134. I am not satisfied that customers referred to Paul by Adrian would have acted on Adrian’s referral to the benefit of the plaintiffs. I incline to the view that customers of an ebullient Adrian could well have baulked at dealings with the clinical Paul. This is a factor, albeit only one factor, to be taken into account in characterisation of the plaintiffs’ claims as speculative.

Conclusion on Clause 9 Claims

135. For the reasons I have outlined (including, particularly, characterisation of the claims as extinguished by operation of sections 14 and 63 of the Limitation Act 1969 NSW), I decline to find in the plaintiffs any entitlement to damages for a breach, or breaches, of clause 9 of the Confidential Terms of Settlement.

CONCLUSION

136. For the reasons I have outlined, the second plaintiff is entitled to recover a judgment for $260,037.20 (plus an allowance for pre-judgment interest) on the plaintiffs’ claims under clause 6 of the Confidential Terms of Settlement, and the plaintiffs’ claims for damages under clause 9 of the Confidential Terms of Settlement must be dismissed.

137. Before making orders dispositive of the proceedings, I propose to allow the parties an opportunity to make submissions about the proper allowance to be made for pre-judgment interest and costs.

138. As presently advised, I am minded to award the second plaintiff pre-judgment interest calculated from the date upon which the proceedings were commenced (5 December 2018) and to order that each party pay or bear its or his own costs of the proceedings.

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Decision last updated: 17 May 2022