Paul Mitchell Systems (Australia) P/L v Paul Mitchell Systems P/L
[1993] FCA 788
•29 Oct 1993
JUDGMENT No. ...... ........ , 7 8 8 J .,,D,,,,, 93 mm,
IN THE FEDERAL COURT OF AUSTRALIA ) WESTERN AUSTRALIA DISTRICT REGISTRY ) GENERAL DIVISION ) No. WAG 123 of 1991
PAUL MITCHELL SYSTEMS
(AUSTRALIA) PTY LTD
L L
- and -
PAUL MITCHELL SYSTEMS PTE
LTD
Flrst Respondent
rEDERAL COURT OF WALTER LAU LOKE LIM also AUSTRALIA
PRINCIPAL known as LAU LOKE LIM and
LOW LOKE LIM
Second Respondent
AND BETWEEN: PAUL MITCHELL SYSTEMS PTE
LTD
Cross-Claimant
- and -
PAUL MITCHELL SYSTEMS
(AUSTRALIA) PTY LTD
Cross-Respondent
Coram: Olney J. Place : Melbourne (Heard in Perth) Date: 29 October 1993.
the applicant and the first respondent in or about Question 1: Did the distribution agreement made between November 1989 contain a term to the effect of that pleaded in paragraph 8 of the re-amended statement of clalm? Questlon 2: Was there a collateral agreement made between the applicant and the first respondent as pleaded in paragraph 8 of the re-amended statement of claim? Question 3: Did the distribution agreement made between the applicant and the first respondent contain any terms to the effect of those pleaded in paragraph 10, 15, 16 and 17 of the amended defence of the respondents dated 23
October 1992. If so, which terms did it contain?
MINUTE OF ORDERS
THE COURT ORDERS THAT:
1. The separate questions which by order made on 3 May 1993 were ordered to be decided separately and before all other questions arising in these proceedings are answered as follows:
Yes. The distribution agreement contained:
(a) a partly express and partly implied term
as pleaded in paragraph 10 of the amended defence;
(b) an implied term as pleaded in paragraph 17.1 of the amended defence.
Question 4: Was the distribution agreement made between
PMSA and PMS varied in June 1990 as pleaded in paragraph
10A of the re-amended statement of clalm?
Question 5: Were representations made as pleaded in
paragraph 7 and/or 9 of the re-amended statement of
claim?
NO
2. The respondents' costs of and incidental to the trial of
the separate questions be paid by the applicant.
NOTE: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) WESTERN AUSTRALIA DISTRICT REGISTRY ) GENERAL DIVISION ) No. WAG 123 of 1991
PAUL MITCHELL SYSTEMS
(AUSTRALIA) PTY LTD
Applicant
- and -
PAUL MITCHELL SYSTEMS PTE
LTD
First Respondent
WALTER LAU LOKE LIM also
known as LAU LOKE LIM and
LOW LOKE LIM
Second Respondent
AND BETWEEN: PAUL MITCHELL SYSTEMS PTE
LTD
Cross-Claimant
- and -
PAUL MITCHELL SYSTEMS
(AUSTRALIA) PTY LTD
Cross-Respondent
Coram: Olney J. Place: Melbourne (Heard in Perth) Date: 29 October 1993
REASONS FOR JUDGMENT
THE PROCEEDINGS
The applicant seeks damages against the first respondent for breach of contract and against the first and second respondents for contravention of s 52 of the Trade Practices Act 1974 and in addition, certain declaratory relief.
Several discrete issues have been raised on the pleadings and by consent of the parties the Court ordered pursuant to 0. 29 r. 2 of the Federal Court Rules that they be decided separately and before all other questions arising in the proceedings. It is in relation to those separate questions that the Court is presently concerned.
BACKGROUND
At the relevant time the first respondent (hereafter PMS) was the distributor in an area including Australia and New Zealand of Paul Mitchell hair care products manufactured and distributed worldwide by an Amerlcan company John Paul Mltchell Systems Inc (JPMS). In November 1989, PMS appointed the applicant as the exclusive distributor of Paul Mitchell products for Australia and New Zealand. The appointment was in writing and expressed to be for a term of one year and renewable on a yearly basis unless terminated by either party. The applicant says (and the respondents deny) that PMS and the second respondent (Lau) represented to and agreed with it that subject only to the conditions of the appointment, the
appointment would not be terminated and would be automatically renewed. In June 1990, at Sea World Resort Nara in Queensland, Lau and certain directors of the applicant had a discussion concerning the terms of the distribution agreement and on 21 June 1990, Lau, on behalf of PMS, wrote to the applicant concerning the matter. The exact nature of the discussions and the effect of the letter are matters about which the parties are in
serlous disagreement. By letter dated 9 October 1991 PMS gave notice to the applicant that it did not intend to renew the distributorship agreement after the expiration of the then current year on 12
November 19 9 1. The applicant replied by letter dated 11 October 1991 alleging repudiation which it accepted and purported to terminate the agreement.
THE SEPARATE OUESTIONS To enable a proper understanding to be had of the issues raised by the separate questions, it is necessary first that the relevant paragraphs of the pleadings be set out. They are as follows:
Re-amended statement of claim
6. By a written ~nstrument dated 8 November 1989, the First Respondent appointed the Applicant and the Appllcant accepted
Australia and New Zealand for a term of one year from 13 appointment as the exclusrve distrrbutor of the Products for November 1989 and renewable on a yearly basis. The Appllcant was induced to enter ~ n t o the agreement by the representation pleaded in paragraph 7.
7. On or about 7 November 1989, the First Respondent by the Second Respondent, represented to and agreed with the Applrcant that, subject only to the condltlons to be performed and observed by the Applicant contamed in the agreement of 8 November 1989, the appointment of the Applicant would not be terminated and would be automatically renewed.
PARTICULARS
The representatlon was made orally to Aron Srmms, a director of the Appllcant, who was in Australia and speaking by telephone to the Second Respondent, who was in Bangkok, Thailand.
8. The representatlon pleaded in paragraph 7 became a term of the appointment of the Appllcant by the First Respondent or, alternatively, formed the basrs of a collateral agreement between the Applrcant and the First Respondent.
At a meeting held at Sea World Nara Resort in Queensland Australra in early June 1990 attended by directors of the Applrcant, sub-distrrbutors and consultants appo~nted by the Applrcant and the Second Respondent and Eva Lau (a director of the Frrst Respondent), the Frrst Respondent by the Second Respondent:-
(a) Repeated both to the Applicant and others at the meetrng the representatrons pleaded in paragraph 7 and confirmed the agreement therein pleaded; and (b) Agreed to formally confirm the agreement in wrrtrng. In pursuance of the agreement pleaded in paragraph 9 (b), the First Respondent, by letter dated 21 June 1990 slgned by the Second Respondent, formally confirmed automatrc renewal of the appointment of the Applicant sublect to there berng no breach of the conditions ln the letter of 8 November 1989 and complrance with requrrements of the distrlbutorship from time to time set by the First Respondent.
10A. Alternatrvely to paragraph 8, the agreement pleaded in
paragraph 6 was varied:
(i)
by mcorporation of a wrrtten term as pleaded rn paragraph 10;
(ir) alternatively, by the oral agreement pleaded in paragraph 9(a).
Amended defence
2. In relatron to paragraph 6 of the Statement of Claim, the Respondents:
2.1
admit that by letter dated 8 November 1989 the First Respondent appointed the Applrcant and the Applicant accepted appointment as the exclusive distributor of the Products for Australia and New Zealand for a term of one year from November 1989 and renewable on a yearly basls ("the Apporntment");
2.2 deny that the terms of the apporntment are fully set out
rn that paragraph;2.3
seek leave to refer to the terms of the letter dated 8 November 1989 at the hearing as rf ~t was fully set out rn thrs defence;
2.4 otherwrse deny the allegations contamed rn that
paragraph.
3. The Respondents deny the allegatrons contained In paragraph 7 and paragraph 8 of the Statement of Clarm.
4. In relat~on to paragraph 9 of the Statement of Clarm the Respondents:
4.1
admrt that there was a meeting at Sea World Nara Resort rn Queensland, Australra in early June 1990 attended by drrectors of the Applicant, sub-drstributors and consultants appornted by the Applicant and the Second Respondent and Eva Lau (a director of the Frrst Respondent);
4.2
deny that the First Respondent by the Second Respondent repeated both to the Applicant and to others at the meetrng the representations pleaded in paragraph 7 of any of them or confrrmed the agreement pleaded in that paragraph1
4.3
admrt that the Flrst Respondent by the Second Respondent agreed to confrrm the agreement set out in the letter dated 8 November 1989 rn wrrtrng but deny that rt agreed to confrrm the Agreement pleaded in paragraph 7.
5. In relation to paragraph 10 of the Statement of Claim the Respondents:
5.1 admrt that the First Respondent sent a letter to the
Applicant dated 21 June 1990;5.2 seek leave to refer to the terms of the letter at the
hearing as rf rt was fully set out rn thrs Defence;5.3 otherwrse deny the allegations contained in that paragraph.
5A. The Respondents deny the allegatrons contained in paragraph 10A
of the Statement of Clarm.10.
Further, in answer to the whole of the Statement of Claim the Respondents say that, rt was a term of the Appointment that should there be a change in the drrectorshrp or share holding of the Applrcant or a change In the unrt holdrng of the trading trust for which the Applicant was trustee, the First Respondent would be notifred of such a change before the end of the drstributorshlp year rn whrch the change occurred and the Frrst Respondent would be entitled to termrnate the Appointment, the termrnatron to be effective at the end of the drstributorshrp year in which the change occurred, or, farlrng notifrcation. effectrve at the end of the drstrlbutorshrp year in whrch the First Respondent became aware of the changes.
15. (Not pressed). 16.
(Not pressed). 17.
The following, among others, were rmplied terms of the Agreement:
17.1 that the Applrcant would use rts best efforts to promote
and sell the Products rn Australia and New Zealand;17.2 (Not pressed). 17.3 (Not pressed). 17.4 (Not pressed). 17.5 (Not pressed).
PARTICULARS
The terms are to be rmplled from:
(a)
the nature and operation of the appointment of the Applicant as exclus~ve distributor of the Products in
Australia and New Zealand and the express terms pleaded
Ln t h ~ s Defence; (b) the exclusive nature of the relat~onship between the Applicant and the First Respondent; (c) the Applicant's awareness of the relat~onship between JPMS Inc and the First Respondent, as the Regional
Distr~butor of the Products.
Further or in the alternat~ve, the terms are implied Ln order to give business efficacy to the Agreement.
The separate questions ordered to be decided are:
1. Did the dlstribution agreement made between the applicant and the first respondent in or about November 1989 contain a term to the effect of that pleaded in paragraph
8 of the re-amended statement of claim?
2. Was there a collateral agreement made between the applicant and the first respondents pleaded in paragraph
8 of the re-amended statement of claim?
3.
Did the dlstribution agreement made between the applicant and the first respondent contain any terms to the effect of those pleaded in paragraph 10, 15, 16 and 17 of the amended defence of the respondents dated 23 October 1992
and, if so, which terms did it contain?
Was the distribution agreement made between the applicant and the first respondent varied in June 1990 as pleaded in paragraph 10A of the re-amended statement of claim?
5. Were representations made as pleaded in paragraphs 7 and/or 9 of the re-amended statement of claim?
At the trial of the separate questions the respondents indicated that they did not press the allegations made in paragraphs 15, 16 and 17 other than subparagraph 17.1.
The full texts of the letters dated 8 November 1989 and 21
June 1990 are as follows:
8 November 1989
Attn : Mr Ron Sulms
MeSSrS Paul Mltchell Systems (Aust) Pty Ltd
9th Floor Exchange House
68 St George's TerracePERTH
WESTERN AUSTRALIA 6000 AUSTRALIA. Dear Ron, T h ~ s rs to confirm our telephone conversation on 7th November whereby
we are agreeable to your appointment, subject to the undermenrioned condltlons, as exclusive dlstr~burors for Paul Mltchell products for Australia and New Zealand for an initlal perrod of one year effective 13th November 1989 and thereafter renewable on a yearly basls unless termmated by either party.
Thls appointment rs subject to the following conditions berng met and
malntalned: (a)
Payment for the first shipment wlll be received by us in Singapore not later than 13th November 1989.
(h)
The Paul Mltchell products sold are for strlct consumption in Australia and New Zealand and cannot in anyway be re-exported to any other country under any circumstances.
(C) The product is meant for re-sale through hairdressing and
beauty salons.
(d)
In the event Paul Mitchell products sold to you are found to be re-exported, your appointment as exclusive distributor for Paul Mrtchell products for Australia and New Zealand wlll rmmedrately be terminated and compensation equrvalent to US$250,000 wlll be paid to us.
(e)
Should there be a change of directorship or share holding of Paul Mltchell Systems Australia Pty Ltd, we reserve the right to termmate your exclusive dlstributorship of Paul Mitchell products for Australia and New Zealand such determination to be effectrve at the end of the distributorshrp year rn which the change occurs.
(f)
You wrll cease to use the name Paul Mrtchell Systems Australia Pty Ltd if requlred to do so by us. In this event no
compensation wrll be paid to you.
(g) You wrll cease to use the name Paul Mltchell systems Australra Pty Ltd should your distrrbutorshlp be terminated. In thrs event, you will hand over the name Paul Mrtchell Systems Australra Pty Ltd to us rmmedlately rn accordance to your local laws and you wrll not be entitled to any compensation whatsoever. Krndly confrrm acceptance of the above terms and conditions of your appointment as exclusrve distributor for Australra and New Zealand for the Paul Mitchell product line by srgnrng the duplicate copy of thrs letter and returnrng same to us.
We look forward to a lastrng and profitable relationshrp and thank you for your confidence m the Paul Mitchell product line.
Thank you.
Yours faithfully
PAUL MITCHELL SYSTEMS PTE LTD
We confrrm acceptance of the terms and condrtions stipulated above.
(Sgnd) Walter Lau (Sgnd) Ron Simms Walter Lau PAUL MITCHELL SYSTEMS Director AUSTRALIA PTY LTD. 21 June 1990 Attn. Mr Terry Solomon Paul Mitchell Systems (Australia) Pty Ltd
9th Floor Exchange House
68 St George's Terrace
Perth
Western Australia 6000Australra
Dear Terry Thls rs to confrrm our agreement that yearly renewal of your distributorship is automatrc unless terminated by erther party and so long as Paul Mrtchell Systems Pte Ltd (Srngapore) is Regional Distributor and Paul Mitchell Systems (Australra) Pty Ltd complies with all requrrements of the Distrrbutorshrp as may be set from trme to trme by Paul Mitchell Systems Pte Ltd (Singapore) which Paul Mltchell Systems (Australra) Pty Ltd rs to perform and provrded there is no breach of any of the condrtrons as stated rn our letter dated 8th November 1989.
Yours srncerely
PAUL MITCHELL SYSTEMS PTE LTD
(Sgnd) Walter Lau
Walter Lau
Managmg Director.
THE PARTIES
The applicant is a company lncorporated in Western Australia and sues as trustee of the Paul Mitchell Systems (Australia) Unlt Trust.
The directors of the applicant include Aron Simms (Simms) who normally resides in Queensland and Terry Howard Solomon (Terry Solomon) who at all relevant times was a legal practitioner practising in Perth as a partner in the firm of Solomon
Brothers. He also followed other business pursuits.
Another partner in Solomon Brothers, Gregory Howard Solomon (Greg Solomon) is referred to in the evidence. Both Terry and Greg Solomon are directors of, and have a financial interest in, Kingstream Consolidated Limited, the holding company for the Kingstream Group of Companies, one of which is a shareholder in the applicant.
PMS is a company incorporated in the Republic of Singapore.
Lau is a director of PMS as is his wife Eva Lau.
THE TRIAL
The trial of the separate questions occupied eight hearing days. The evidence-in-chief of the witnesses was, for the most part, by way of written statement filed and served in advance of the hearing. Further limited evidence-in-chief
was given orally. For the applicant evidence was given by Simms, Terry Solomon and Greg Solomon. Lau was the only
witness called for the respondents. With the exception of Greg Solomon, each of the witnesses was cross-examined at length. In addition to the oral evidence and exhibits put in during the course of testimony, the parties submitted by agreement a bundle of several hundred documents. Final submissions by counsel were made both orally and in writing.
THE ISSUE OF CREDIBILITY
The issues ralsed in the pleadings relevant to the separate
questions are for the most part dependent upon questions of
fact. The applicant has pleaded that on 7 November 1989 an
oral representation was made to Simms by Lau in a telephone
conversation and that the representation became a term of the
agreement or alternatively formed the basis of a collateral
contract. The respondents deny that the representation was
made. The onus is upon the applicant to establish that the
representation was made.
Further, the applicant pleads that in June 1990 Lau repeated the alleged representation, and agreed to confirm the agreement pleaded in paragraph 7 which it is said was done by the letter of 21 June 1990. Again, this is denied by the respondents.
Unless the applicant is able to prove the alleged representation and/or its repetition as pleaded in paragraphs
7 and 9(a) of this re-amended statement of claims there is no
basis for its case in relation to questions 1, 2, 4 and 5.
As the evidence of the witnesses of the opposing parties on the critical questions of fact is, for the most part, completely irreconcilable, the credibility of the witnesses has been a major pre-occupation of counsel during the trial and in the subsequent extensive written submissions. Each would have it that his opponent's witnesses are thoroughly unworthy of belief whilst his own witnesses' evidence should be accepted without hesitation. In my view the trial was unnecessarily prolonged by what appears to me to have been an obsession on the part of counsel to test credit on a multitude of largely irrelevant issues.
For my own part I found that (wlth the exception of Greg Solomon) the evidence of the witnesses on both sides was not
entirely satisfactory. The credibility of Slmms and Terry
Solomon was considerably undermined by the fact that quite significant parts of their respective written statements were expressed in identical terms. There was a degree of ambivalence in Terry Solomon's explanation as to how this came about and I am left with the impression that his evidence and that of Simms was the result of them having in advance reached an agreed position as to what should be said in the statements. My impression of Terry Solomon was that he was
nothing if not con£ ident . He is a person of experience in legal and commercial affairs and one prone to make extensive use of facsimile machines to convey messages to those with whom he does business. It is therefore not without significance that in respect of what is probably the issue most central to the case (to which reference will be made later) he did not make any effort to convey to the opposite party what is said to be the applicant's understanding of the agreement reached.
In a number of details Lau's evidence was shown to be inaccurate but my general impression of him was of a capable and precise businessman. The matters about which his evidence was Inaccurate were unrelated to the major issues and on the whole he impressed me as a witness of truth.
Notwithstanding these general observations concerning the witnesses, I do not find it either necessary or helpful to pursue each and every issue raised by counsel and express a
witnesses. Indeed, I find it necessary only to deal with conclusion as to the general credit worthiness of the those issues of fact which are relevant to the questions before the Court for determination. In so doing, I am influenced more by objective facts rather than by what has been said about them, although in a couple of instances it will be necessary to express a view as to whether I believe one witness' version of an event in preference to the opposite version.
THE EARLY NEGOTIATIONS In about October 1988 Simms and Lau had a discussion in Singapore concerning the distribution of Paul Mitchell products. The two had known each other for some years, and Simms says that the relationship between them was as if they were brothers. Lau disputes this description of them relationship but I do not think anything turns on that issue. Whether it was at thls first discussion or later does not appear from the evidence, but there is no doubt that soon after this meeting some form of understanding had been reached and in the latter part of 1988 Simms and his business associate, Terry Solomon, were actively involved in pursuing the ldea that a company in which they were both interested would become the Australian and New Zealand distributor of Paul Mitchell products.
It is common cause that JPMS had a policy of distributing its products only through hairdressing salons. This was a policy
which it enforced rigorously against its distributors to the extent that where it was found that stock had been supplied to retall outlets other than hairdressing salons JPMS required the distributor from whom the stock had been obtained to purchase same from the retailer, at retail prices. And this was so even if the stock had been supplied to the ultimate retailer by a third party. The term diversion is used to describe the circumstances whereby stock is diverted from its lntended destination in hairdressing salons to other retail establishments. The policy of the ~merican company concerning diversion was explained to Simms by Lau at their meeting in October 1988. Lau had a serious concern that in appointing a distributor he should select a person upon whom he could rely not to divert stock.
One of the matters requiring attention at an early stage was the drafting of an agreement with PMS granting the distribution rlghts. This was a task that Terry Solomon as a lawyer set about attending to and on 22 March 1989 he forwarded a draft document to Lau. In hls covering fax message Solomon said, inter alia:
It (i .e. t h e d r a f t ) w i l l s t i l l need a d d ~ t l o n s t o cover a minimum
per iod of opera t ion p l u s territory granted.
The draft contained no provision relating to either of the matters referred to.
On 2 May 1989 Solomon sent Lau a fax enclosing a further copy of the same draft and requested a response. There were several exchanges of fax messages between Solomon and Lau on 2 and 3 May 1989. One subject matter had to do with Lau's insistence that the Australian distributor be an Australian company; another was a requirement that a bond be provided as security against diversion. The question of the minimum period of the operation of the distributorship was raised by Lau in his fax to Solomon on 3 May 1989 when he asked:
What is mlnlmum period of operat ion you requl re . P lease advlse.
Solomon replied by fax on 5 May 1989. After dealing with the questlon of the proposed bond he said:
. . . lt 1s very hard t o say what is t h e minimum perlod of opera t ion which we should requl re . From our dlscussrons and from our surge
l n t o t h e market p lace , w e be l l eve it w l l l t a k e a mlnlmum of 1 2 months
t o establish a business of any s lgn i f l cance . It w r l l probably then t a k e another 12 months t o g e t t h e busmess i n t o " f u l l gear". I f t h a t rs t h e case, even a 5 year mlnlmum period of operation would provlde only 3 years of what could be c a l l e d r e t u r n on t h e f i r s t 2
years mvestment. Accordingly, w e would l i k e t o t h l n k t h a t we could
ask f o r a m~nimum period of operatron of 7 years with a r l g h t t o
renew of e l t h e r 3, 5 o r 7 years , depending upon t h e p o l ~ c r e s of Paul Mitchel l .
On 29 September 1989 Solomon faxed Lau a further draft
agreement. On thls occasion the draft provided for a minimum
period of operation in these terms:
Subject only t o proven d e f a u l t by t h e D i s t r i b u t o r and p r l o r
te rminat ion i n accordance with t h e terms of t h l s Agreement, t h e t e r m
s h a l l contlnue f o r a mlnmum of 5 years commencing 1 October 1989 and
t h e r e a f t e r u n t l l t h e expiration of not l e s s than 12 months w r i t t e n
no t rce of cessation glven by e i t h e r pa r ty t o t h e o ther .
Solomon sent Lau a further draft on 6 October 1989. This version dlffered from that sent on 29 September 1989 only insofar as it contained an additional paragraph making
provision for the directors to guarantee the performance of
the paragraph prohibiting diversion. In a fax message sent
on 16 October 1989 and again on 19 October 1989, Simms requested Lau to advise Solomon of his comments concerning the draft. On 27 October 1989 Solomon wrote to Lau by fax, inter alla:
Dear Walter
AUSTRALASIAN AGENCY
1. Auencv Aareement
I should be grateful lf you would fax me your comments on the draft agency agreement by late today.
As you know, I w11l arrive In Singapore on Saturday per QF7 arrrving 17: 40 hours. I should llke to sign off on the agreement with you Monday next.
It rs really eesentlal that the agreement be finalised before
the first sh~pment. As I understand from Ron that you have been able to get the f~rst shipment ready early, possibly for next week, it is a very urgent matter to flnalise the agreement.
Accordingly, I look forward to your comments by fax.
And again on the same day he wrote:
Dear Walter
URGENT
AUSTRALASIAN AGENCY
Further to my facsmile this morning and our telephone discussion, I confrrm that you wlll try to send me detailed comments on the agency agreement by facsimile today. I suggest that you cover the Issue as to payment for the first container load of goods by inserting into the draft agency agreement a provision that the agreement shall commence forthwith upon recelpt by you of the balance of purchase prlce of the f~rst contamer load rather than to try and change the flrst order at this last stage.
As I mentioned to you, we are a publrc company and it is not practrcable for us to arrange payment w~thout the agency agreement belng flrst concluded. That IS because the whole busrness relies
upon the agency agreement and our audltors would rnsist upon us following that procedure. I am grateful that you understand t h ~ s aspect and that accordingly you w ~ l l hold the departure of the f~rst shlpment for 1-2 weeks dur~ng whlch tune all of these small technical paper work matters can be rapidly completed and we can then commence
business w ~ t h all ma]or matters properly Ln place. Klnd regards.
Yours sincerely
(Sgnd) Terry H. Solomon
(Terry H. Solomon)
On or about 31 October 1989 or 1 November 1989, in Singapore, Solomon met with Lau, Eva Lau and two solicitors (being
partners in the firm of Allen & Gledhill who acted for Lau) and discussed the proposed distribution agreement. On 1 November 1989 Lau forwarded an entirely new draft, comprising some 19 pages of typing which had been prepared by his own solicitors. (The earlier Solomon drafts had run to no more
than four pages). The new draft provided for a fixed term of five years. Solomon suggested a number of amendments and these were conveyed to Lau and his solicltors. On 6 November 1989 Lau sent Simms a further draft for approval. No change was proposed to the fixed five year term. At about 10.28
hours (Perth tlme) on 7 November 1989, Simms sent to Lau's Singapore fax number a message confirming receipt of the draft and advising that some amendments were being prepared. He also requested that he be advised when Lau arrived at his office so that he could discuss some matters with him by telephone. At about 11.19 hours (Perth time) on the same day Simms again faxed Lau's Singapore office, sending a three page letter setting out particulars of the further amendments being sought. At the foot of the latter document, Simms wrote by
hand :
Walter,
Please advise when you are in the office so I can phone you re my earher fax.
Ron
No specific response was ever made to these last proposed amendments.
THE LETTER OF 8 NOVEMBER 1989
It is common cause that Lau was in Bangkok on 7 November 1989. Simms says that after 11.30 hours (Perth time) Lau telephoned him (in perth) from Bangkok and expressed some disapproval of the involvement of "the Solomons" in the distributorship. He says Lau complained about the length of time being taken to settle the agreement and that the document was too long. He said he considered it to be a problem having lawyers involved. According to Slmms' statement the following exchange then occurred:
I told Walter that he must understand that Terry Solomon was simply attempting to protect the proposed Australian and New Zealand
distrrbutor. Walter agaln said to me:
"Let's s~mpllfy thlngs and do it on one or two pages".
He then sald:
"You have my guarantee that I will never do anything wrong by
you as we are lrke a family. We can agree on a lot w~thout wrlting lt down. I am not going to do anythlng wrong by you and I know you wrll not do anything wrong by me".
Lau sent Simms a fax enclosing a handwritten draft letter in substantially the same terms as the letter of 8 November 1989 at 13.43 hours Bangkok time (i.e. 14.43 hours Perth time).
The covering note from Lau to Simms said:
This rs the draft of the letter we spoke about. Please call me here rn Bangkok immediately after reading it. I'm waltlng. Thanks. Tel 662 - 236 7768
662 - 236 8042
Simms says he telephoned Lau upon receipt of the draft letter
and told him that the one year term was inadequate. In his statement, Simms describes Lau's response thus:
He told me that, so long as the condltlons in the letter and part~cularly the most rmportant condrtron concerning diversron of stock was observed, PMSA's appointment would not be terminated and would be automatically renewed on a permanent basls.
Simms' statement is silent as to whether any amendments to the draft were discussed but at 15.51 hours (Perth time) Simms faxed to Lau the following letter:
Dear Walter
Thank you for your draft letter agreement. I have had it typed up and the only changes are the date (13/11/89) in the first paragraph and clause (a), and the extra words in clause (e).
Could you please sLgn the letter and fax me a copy at Solomon Brothers as soon as possible (and send me the orlginal by post Ln due course). We will arrange for the payment for the balance of the cost of the flrst shipment to be sent to you tomorrow.
Thanks for your help.
Regards
Ron Slmms.
Accompanying thls letter was a typed copy of Lau's handwritten draft to which three amendments had been made. Lau responded
by fax timed at 15.54 hours (Bangkok time). He said, inter alia:
The amended draft letter agreement is OK - No problems. W111 retype on my letterhead and slgn and wlll fax it to you early tomorrow morning.
The letter of 8 November 1989 which is set out earlier in these reasons differs from the typed letter sent by Simms to Lau on 7 November 1989 only to the extent that the penultimate paragraph was added by Lau before it was signed and dispatched by him on 8 November 1989. Simms duly countersigned the letter as requested and returned it to Lau.
Lau's version of the events of 7 November 1989 differs from Simms'. He says he did not see Simms' two faxes sent to his Singapore office at 10.28 hours and 11.19 hours respectively (Perth time) on 7 November 1989 until he returned from Bangkok. He did however receive a telephone call in Bangkok from Simms and had a conversation with him, whlch he records in his statement (paragraph 42) in the following terms:
The telephone conversation on 7 November 1989 with Aron Srmms was ln words to the following effect:
Aron Srmms sald: "Hello Walter, have you read my fax today on the
changes required for the agreement?"
I sa~d: "No, Ron, I have not seen it. What 1s rt about?"
Aron Simms sard: "Its about changes we want to the agreement." I sard: "I'll have to check with my lawyers. He said:
"Walter this agreement 1s becoming too technical, we can't seem to agree on the wordrng, especially on the $100,000 bond and the directors' personal guarantee of $250,000 - can't we work out a simple agreement statrng only the maln pornts. The drrectors want a five year term and can you drop the bond requirement".
"I am only prepared to drop the bond and guarantee requirement if the agreement is year-to-year. Thls wrll protect me in the event of any unforeseen problems with the drstributorship. It's only farr".
He sard: "That's farr". I said: "Okay. I will draft a quick letter and send it to you in Perth for your comments".
According to his statement at the conclusion of the telephone conversation he drafted a letter which he sent by fax to Perth for Simms' comments. Later, he received a fax from Simms suggesting some minor amendments to the draft. These amendments were acceptable and he faxed Simms a short handwritten note which he identifies as that referred to above as being sent at 15.54 hours (Bangkok time). Lau did not recall a second telephone call. On 8 November 1989 he had the letter typed on PMS letterhead, signed it on behalf of PMS and faxed it to Smms for execution on behalf of the
applicant. It was faxed back duly executed on the same day.
THE ALLEGED REPRESENTATION
There are a number of points of contention between the parties concerning the events of 7 November 1989. These include whether there were one or two telephone conversations between Simms and Lau; whether the original call was made by Simms or by Lau; whether the suggestion to adopt a simplified form of agreement was made by Lau or Simms; and whether Simms' or Lau's version of what was said is the more accurate.
A number of conclusions can be reached from the objective evldence and from evidence which is not contested. First,
Lau was in Bangkok on 7 November 1989. Clearly Simms did not know this to be so early in the day when he sent two faxes to Lau's Singapore office. He was however advised later that
Lau would not be in until 9 November 1989. There is nothing in any of the documents to indicate that he was told that Lau was in Bangkok or that he could be contacted there on any particular telephone number. Second, Simms and Lau spoke by telephone before Lau sent the original handwritten draft letter to Simms in Perth. The covering note, and the draft
itself, refer to such a conversation. Third, all of the
communications between Lau and Simms on that day occurred while Simms was at the offices of Solomon Brothers where he was in contact with and receiving advice from both Terry and Greg Solomon. The amendments made to the handwritten draft which are referred to in Simms' fax sent at 15.51 hours (Perth time) were made by Terry Solomon. Fourth, irrespective of who first made the suggestion, the decision to abandon the formal and lengthy draft agreement in favour of the letter agreement was by mutual agreement. There is no suggestion that either party raised any protest against that decision.
It is highly probable that Lau's Singapore office would have at least notified him in Bangkok of Simms' two faxes early on 7 November 1989. The tone of Simms' message was one of urgency and although there is no reason to doubt Lau's evidence that he did not see or read the proposed amendments forwarded with the second fax until he returned to Singapore,
it seems likely that he would have been made aware of the fact
that the applicant was pressing for further amendments.
Given the ease of communication via fax and the frequency that it was availed of by the parties, the absence of any record of Lau's Singapore office having advised Simms of Lau's whereabouts in Bangkok suggests that he was not so advised and from that I conclude that the probability is that the telephone conversation which took place between Simms and Lau prior to the handwritten draft letter being sent to Simms was initiated by Lau rather than by Simms. It is also probable that both Slmms and Lau were by that stage somewhat fed up
with the inablllty of their respective lawyers to conclude an agreement in circumstances in which the parties were as one as to the malor terms of the arrangement that had been agreed to.
In my opinion nothing turns upon the question as to whether one or two telephone conversations took place that day nor as to who initiated the original calls. Nor indeed, does it matter why the short form of agreement was adopted or who suggested it. The applicant's case depends upon Simms' assertion that in the context of Simms' objection to Lau's insistence on a one year term, Lau said that so long as the conditions of the letter were observed, the applicant's appointment would be automatically renewed on a permanent basis. Simms says he conveyed this statement to Terry and Greg Solomon.
The conduct of the parties on 7 November 1989 is inconsistent with the proposition that Lau had agreed to terms different from those contained in the draft letter. Factors which lead
me to this conclusion are these: Terry Solomon as the applicant's lawyer had been engaged for about a year in trying to formulate a satisfactory distributorship agreement. At a very early stage he raised with Lau the need to agree on the term for which the agreement would operate. Lau asked him what term he wanted. Ultimately a five year term was included in the draft documents without protest on either side. Even as late as the evening of 6 November 1989 and the morning of 7 November 1989 the applicant's lawyers were
actively engaged in considering the latest draft from Lau's lawyers and suggested amendments to it, but not to the paragraph relating to the five year term. Later in the day, Lau suggested an initial term of one year renewable on a yearly basls unless terminated by either party. Even assuming that Simms protested to Lau as he claims concerning the inadequacy of the one year term, it is inconceivable that if Lau had made the sort of statement clalmed by Simms, it would not have been incorporated into the draft. Other amendments of a minor nature were made by Terry Solomon, one of which made specific reference to "the distributorshlp year in which the change occurs". No reason has been suggested why the written agreement should not express the actual agreement the parties had reached. Nor was any record made either by way of file note or by exchange of correspondence referring to what Simms claims was said to him by Lau. In particular, it could be expected that a lawyer and businessman of Terry Solomon's acumen would have made some record of what Simms says he told him of his conversation with Lau. But no such record was
made. All of the objective evidence suggests that Lau did not make the representation claimed by Simms. I accept Lau's
evidence of his conversation with Simms. I find that on the balance of probabilities no representation was made as pleaded in paragraph 7 of the re-amended statement of claim.
THE LETTER OF 21 JUNE 1989
In June 1990 Simms and others associated with the applicant, including Terry Solomon, Lau and Eva Lau attended the Australian Hair Expo at the Mirage Hotel on the Queensland Gold Coast.
On the evening of Monday 11 June 1990 at the Sea World Nara Resort where the Laus, Solomon and Simms were all staying, Lau, Solomon and Simms met in the hotel lounge and discussed the distribution agreement. According to Simms he said to
Lau :
The agreement that we have is not good enough for us to approach prospectrve investors.
In his evidence he went on to explain:
The promlse what (sic) he made to me verbally,was not good enough for the investors. We were talking to a few people at the time that were interested in investing money rn PMSA and also we were talklng to Customs Credit - how do you call it, oh, I can't thrnk of the
r~ght word. (T.235)
Simms says that they discussed the terms that he wanted and Lau sald "That's all right, I agree with that". Sunms identified the terms he was seeking as:
The terms that we wanted is to put out that we are permanently - we are the permanent distributors for Australia and New Zealand and the only way that he could cancel it is diversron. (T.236)
Solomon then said he would go to his room and draft an agreement and on his return produced a handwritten document on Sea World Nara Resort note paper in the following terms:
To: Paul Mitchell Systems (Australia) Pty Ltd, Australia ("PMSA") Paul Mitchell Systems Pte Ltd,S~ngapore ("PMS") confirms your exclus~ve Paul Mltchell Products Distributorshlp w1t.h the following change:
The term of the D~str~butorship is now extended on an ~ndef~nite basis to the extent that it shall contlnue so long as PMS IS Reglonal D~stributor and PMSA complies w ~ t h all
requirements of the D~stributorship wh~ch PMSA is to perform.
PMS per:
(Walter Lau, Director)
PMSA accepts the above
PMSA per:
(Ron S~mms, Director)
It is said that Lau then looked at the document and said "Yes, that's exactly what we've agreed upon". When Simms asked him to initial the document Lau said "No, I would rather take it back to Singapore and re-write it in my own words on my letterhead and send it back to you".
On 15 June 1990 Solomon sent the following fax to Lau:
Dear Walter,
Grateful if you can fax to me as soon as possible:I) Manuals, Posters, open/closed signs, F011 Packs, Capes, Tonsorial ArtIst etc etc.
(L=) Draft of your proposed letter confirming distr~bution rights, as d~scussed in Brisbane.
(SIC)
Best regards
Terry.
and on the same day Lau faxed Solomon:
Dear Terry
The following LS the suggested draft:
"This IS to confirm our agreement that yearly renewal of your dlstributorshrp rs automatic unless termmated by either party and so long as PMS 1s Regional Dlstrlbutor and PMSA complles wlth all requrrements of the Dlstributorship as may be set from time to tune by PMS whrch PMSA is to perform and provided there is no breach of any of the condrtions as stated ln our letter dd 8/11/89".
Best Regards
Walter
Solomon replied to Lau by fax on 18 June 1990 when he wrote, inter alia:
Your suggested draft is acceptable.
Grateful if you would fax to me a signed versron and forward orig~nal
by post.
3. Please forward price llst for promotional items ASAP.
Best regards
Terry
Simms later received by fax a copy of the letter of 21 June
1990. He says that on receipt he discussed it at first with Solomon and then with Lau.
His evidence in relation to the
latter conversation was:
I rang up Walter. He was very cheerful at the trme, as always, and I said, "Walter, this is not exactly what we have agreed. He
said,"Look, thrs rs just about what we have agreed. I want it to stay that way, but you have my undertaking that nothrng wlll happen.
Never at any stage am I gomg to take the distrlbutorshrp away from
you unless you dlvert stock."
Simms' statement refers to the "Hair Expo" held in June 1990. Terry Solomon's statement contains evidence in identical terms with the exception that the words "which I attended" at the end of the first sentence quoted below do not appear in Simms' statement. The following appears in Solomon's statement (at paragraph 23):
Over the period of the Queen's birthday weekend ln Queensland ln June 1990 the annual convention of hairdressers known as "Hair Expo" organised by Messrs Wynn-Holscher was held, which I attended. This
convention was held at the Mirage Hotel on the Gold Coast. PMSA held a cocktail party at the Mlrage Hotel as part of the convention.
The cocktall party was for hairdressers attending the conventron who
selected that event to attend out of many events during the
convent lon. At the same tlme, at the request of the varrous new
state distributors, PMSA consrdered it approprrate that all state
dlstrlbutors should be given the opportunity to get together wlth
PMSA personnel at the Gold Coast and to discuss many issues ofbusrness and promot~on in full detail around the table. Several of
these meetings were ln fact held over the per~od of operation of PMSA and detarled minutes were kept on each occasion. At the tlme of the conventlon at the Gold Coast in June 1990, Walter Lau and his wife Eva Lau also attended. The PMSA personnel stayed at the Nara Resort on the Gold Coast and Walter and Eva Lau also stayed at the Nara Resort. The Nara Resort is very close by to the Mirage Hotel so that commuting to convention activities was very simple. At the same time the Nara Resort Hotel had small meeting facilities
available so that the Paul Mltchell contingent could meet ln prlvate
whllst the conventlon proceeded nearby at the Mlrage Hotel.
Several state distributors had enquired of me as to the general intentrons of Walter Lau and the extent to whlch he could be relled upon to support PMSA and lts State Distributors. Accordrngly during
the meetlng with the State sub-distr~butors at the Nara Resort on 12 June 1990 (in respect to whlch minutes were prepared and are A177), Walter Lau confirmed to the meeting that the apporntment of PMSA as ongoing dlstrrbutor for Australia and New Zealand could be relled upon and that state distributors could expand then busrnesses with confidence. Walter Lau adv~sed the meeting that lt was world-wide policy of Paul Mitchell Systems Inc of the United States that once a
distributor was appointed rt should only be changed if that was
absolutely necessary. Such crrcumstances very seldom occurred and were extreme circumstances. Even if the most unllkely event occurred and PMSA were to find ltself In such extreme crrcumstances then Walter Lau would still respect the positron of the sub- dlstrlbutors rn each state. Walter then sald that even if & lost
his reglonal distributorshlp, JPMS Inc in the USA would stlll respect
the posltion of PMSA and all of its State Distrrbutors.
Solomon also gave oral evidence-in-chief concerning events at
Nara during the Hair Expo. The following extracts from pp
358 to 362 of the transcript detall his evidence relating to
his dealings with Lau during the period of the Expo:
... I indrcated to Mr Lau that it was necessary for us to ralse
further moneys into the company to fund its workrng capltal and its
expansron into the various states.
Is this on the Saturday?---Yes. But the Saturday was just an rntroduction of thls issue that rn order - I sard to h ~ m that ln order to achreve this, I believe we needed further clarification and restatement of the existing dlstrlbution arrangement because we were gorng out to outsrde investors.
Right?---Mr Lau didn't wlsh to allocate tune to that on the Saturday
. . .
... I thlnk Mr Lau and I agreed rt was flagged for further drscussron
. . .
... On the Sunday night -once again, durrng the day mostly thingswere taken up wlth other matters and on the Sunday nrght we raised - I ralsed the issue wlth Mr Lau again in a prellmlnary fashion again indrcatrng that I wanted from him confirmation. And he I think was havrng to leave that night to go out to the casino with Mrs Lau, wrth hls wlfe. So we had I think again only a prellmlnary drscussron about thls matter ...
... The Monday night we discussed it rn more detall .
... Persons present were myself, Simms and Lau ...
. . . I sald we needed further assurance from hlm as to the meaning ofthe distribution agreement in order to go to outsrde investors. I sald to h ~ m that rt was very difficult to get frnance - a company llke PMSA - get finance rn the sense of banks who at that trme - and currently I'm sure- were not interested in that .. . I told hlm that factoring organrsatlons were berng drfflcult to convince because we had only state distributors and not a big run of indlvldual customers, and we had no alternative but to seek equlty finance for the company's expansion. ... I said that the formal of the agreement whlch we had from the November prevrous was not sufflclently clear on its face for me to feel happy to present it to investors. I needed to be able to show to lnvestors something better than that confirming the arrangements whrch were partly oral and partly written ... he sald that he was wllling to confirm the arrangement that the drstrrbution agreement was permanent ...
... I believe I suggested to him that there would have to be some
llmltatlons to permanence, and - - -
. . . - - - one, of course,ls the duration of his own ... ... His own dlstrlbution agreement. And he agreed with that, and I believe he then also said, "Well, permanent things can change", so he would want to see a reference to something like requrrements of the drstribution agreement rather than the specrflcs whrch were in the 7 November letter whrch we then had.
Rlght. And then what did you say?---There could be impositrons by the Amerrcans upon him, he sard.
Rlght. And what dld you say to what he said?---I had no problem wlth that. I sald "Okay" to that. And then what happened?---I said that I would go and write down this arrangement and brrng it back, and I left - as I recollect - I left Simms and Lau together, I went back to my own room, I took some of the notepaper from that part~cular hotel and I wrote out in my own hand a very short statement I provrded for srgnature by Srmms and Lau
All right. So you came back wrth two copies in your hand?---Yes. Then can you tell hls Honour as best you can who said what and exactly what happened?---I gave it to both of them. Simms was satisfied and - - -
Well, when you say "Simms was satlsfred" can you recall what he said rather than a conclusion about - - -?---Not his exact words but he
would have sald: I am happy wlth that, or words to that effect. All right. And can you remember the words Mr Lau sard?---Mr Lau sald that he agreed wrth that but that he wanted to take it back wlth hrm and re-state rt in his own words on hrs own letterhead.
Yes. Just taklng you back in that d~scusslon before you went away and wrote that out, when you were discussing the matter wlth Mr Lau you sard you mentioned you needed something that was partly oral, partly rn writing. Can you remember the words that were passed between you and Mr Lau and Mr Simms as to precisely - or were there any words about what the arrangement was at that time? Was that discussed between you in talkrng about what you needed?---I said to him, "It's fine between ourselves that we have these understandings" - that is to say, Sumns, Lau and myself and also Gregory Solomon - "that we have these understandrngs but when lt comes to going out to investors I have to grve" - - -
Drd you say what understand~ngs were you talkrng about - - -?---
Understandrng of permanence of the drstrlbutron arrangements.
Was that mentioned between you and Lau and Mr Simms at that tune when you were talking about that?---Yes, rt was conf~rmed.
Lau's evidence differs from that of Simms and Terry Solomon in a number of important respects. In his statement he says that following a meeting with sub-distributors Simms approached him alone in the lobby of the Nara Resort Hotel and handed him a letter which is identified as the document dated "June 1990" written by Terry Solomon on Sea World Nara Resort notepaper. Lau says that the following conversation took place between hlmself and Simms:
Aron said:
I am going to see my bankers. For confrdentrality reasons I do not want to show our bankers the original agreement between us. Can you sign this for me?
After readrng the document, I said:
I am not prepared to sign this agreement. This is not our agreement. I am not prepared to grve you an mdefrnrte drstributorship. I am only prepared to confirm the agreement set out in the letter of appointment dated 8 November 1989. That is, that the agreement is year to year unless terminated by elther party.
He said: But it's only for the bankers to view. I sard:
Sorry Ron, I won't do it. You can't expect me to give you an Indefinite distr~butorshrp. I am prepared to correct the letter and send ~t back to you,
He sa~d: Okay.
Lau's evidence is that at the conclusion of hls conversation with Simms, Terry Solomon approached them and a conversation to the following effect took place in his presence:
Aron Simms sa~d: Walter is prepared to correct our draft letter and
send it back to us.
Terry Solomon s a ~ d : Okay.
Lau says that the foregoing was the only conversation he had on the subject of the duration of the applicant's distributorship and that there were not other conversations on the toplc prior to or at the meeting at Nara.
Assuming for present purposes that what both Simms and Terry Solomon say in their respective statements concerning Lau's comments to the meeting of state distributors at the time of the Hair Expo is accurate, there is nothing in that evidence
which justifies a finding that Lau repeated the
representations pleaded in paragraph 7 of the re-amended
statement of claim and confirmed the agreement therein pleaded. Nor that he agreed to formally confirm the agreement in writing.
The document prepared by Terry Solomon at Nara in June 1990 is consistent only with an understanding that the original
distributor agreement was of limited temporal duration and required annual renewal. His proposal was to change the original agreement so that the term of the distributorship would be "now extended on an indefinite basis". But Lau refused to agree to the proposal. On any view of the evidence, the refusal of Lau to initial the document prepared by Solomon, and his expressed intention to re-state it in his own words, must indicate that Lau rejected Solomon's proposal. And the subsequent exchange of faxes in which Lau indicated what he intended, and by which he obtalned Solomon's express approval to the form of the letter indicates that the common understanding of the parties was that expressed in Lau's letter of 21 June 1990 when he confirmed to the applicant:
"... our agreement that yearly renewal of your dlstributorship 1s
automatic unless terminated by either party ..."
There is a world of difference between an indefinite extension of an agreement made for an lnitial term of one year and the automatic annual renewal of such an agreement unless terminated by either party.
At Nara, Solomon sought to have Lau agree to a variation whlch
would have had the same effect as the alleged representation
whlch is said to have either become a term of the agreement or
to have been the basis of a collateral agreement. In effect,
Solomon's proposal would have eliminated the express provision
for termination by either party. Lau's response was to not
accept Solomon's proposal, but rather to adopt a different
approach which preserved the right to terminate. In the face
of the exchange of faxes between Lau and Solomon on 15 and 18 June 1990, it cannot be said that the letter of 21 June 1990
does not express the consensus arrived at. In paragraph 10
of the re-amended statement of claim, the applicant mis-states the contents and effect of the letter of 21 June 1990 by omitting reference to the words "unless terminated by either party" . I reject Sunrns' evidence that after receiving the letter of 21 June 1990 he spoke to Lau (after getting advice from Solomon) and that Lau said the words quoted earlier. It is inconceivable that after Terry Solomon had expressly approved the form of letter being offered by Lau that the matter would again be the subject of dispute.
In paragraph 9 of the re-amended statement of claim the applicant asserts that at Nara in June 1990, Lau, on behalf of PMS repeated to the applicant and others present the representations pleaded in paragraph 7, confirmed the agreement pleaded in that paragraph and agreed to formally
confirm the agreement in writing. In paragraph 10, it is
alleged that the letter of 21 June 1990 was written in pursuance of the undertaking to confirm the agreement. It follows that on the pleadings the applicant accepts that the letter of 21 June 1990 expresses the agreement between the parties as to the period of operation of the distributorship agreement. It also follows that whatever may have been said by Lau at Nara, the effect of it could not have been other than expressed in the letter of 21 June 1990 and accordingly
the representations pleaded in paragraph 9 of the re-amended
statement of clalm were not made as pleaded.
CONSTRUCTION OF THE AGREEMENT
The separate questions ordered to be tried do not require the Court to embark upon the exercise of construing the agreement between the partles to determine whether or not it was open to PMS to terminate the agreement as PMS purported to do by its letter of 9 October 1991.
The issues identified in the separate questions are essentially factual. I have found on the evidence that neither in November 1989 nor in June 1990 did PMS, or Lau on its behalf, make the representations alleged to have been made. It must necessarily follow that the applicant has failed to make out its case in respect of the claim that the agreement of November 1989 contained a term to the effect pleaded in paragraph 8 of the re-amended statement of claim.
Similarly, there can have been no collateral agreement as
pleaded. Nor was the agreement varied in June 1990 in the manner pleaded in paragraph 10A of the re-amended statement of claims.
Questions 1, 2, 4 and 5 will be answered in the negative.
The precise nature of the contractual relationship between the parties is a matter yet to be determined. The Court was not called upon to determine all questions touching upon the liability of the parties in the proceedings and it would be inappropriate to embark upon such an exercise. In any event, due to the llmited nature of the separate questions referred for determination, any view expressed relating to the proper construction of the contract would not be bindlng upon a judge who may be called upon to resolve the remaining issues.
THE IMPLIED TERMS
I turn now to deal with the claims made by the respondents that the distribution agreement between the applicant and PMS contained terms to the effect of those pleaded in paragraphs 10 and 17.1 of the amended defence.
The paragraphs referred to have been set out in full earlier in these reasons and do not need to be repeated.
The term pleaded in paragraph 10 of the amended defence
differs from the provisions of paragraph (e) of the letter of 8 November 1989 only insofar as it contemplates that the right to terminate should arise in the event of a change in the unit holding of the trading trust for which the applicant was trustee and that provision be made for notice of all such changes to be given to PMS.
I am satisfied on the evldence that at the time the November 1989 agreement was negotiated, neither PMS nor Lau knew that the applicant was contracting in its capacity as trustee of a trading trust. I am also satisfled that it was the common understanding of the parties that PMS insisted upon having an overriding authority to determine who it was that it was dealing with. There can be no doubt that had Lau been made aware that the applicant was contracting in its capacity as trustee, he would have insisted upon, and the applicant would have agreed to, the express provisions of the agreement including reference to changes in the unit holding of the trading trust for which the applicant was trustee.
Changes in the directorship or shareholding of the applicant, and in the unit holding of the trading trust for which the applicant was trustee are matters which would be peculiarly within the knowledge of the applicant and not within the knowledge of PMS or Lau. It must follow of necessity for paragraph (e) to have any effective operation all such changes should be notified to PMS, and that such notification should be made within the distributorship year in which the changes
occur. Again, it would entirely defeat the operation of paragraph (e) if the consequences of any change could be avoided by the failure of the applicant to notify PMS of such change.
In my opinion, to the extent that the term pleaded in paragraph 10 of the amended defence is not expressed in paragraph (e) of the agreement of 8 November 1989, the terms
pleaded are to be implied. Those terms satisfy the five criteria referred to in the principles governing the implication of terms as stated by Mason J in Codelfa Constructions Ptv Ltd v State Rail Authoritv of New South Wales (1982) 149 CLR 337 at pp 345-349.
In paragraph 17.1 of the amended defence PMS asserts that it is an implied term of the agreement that the applicant would use its best efforts to promote and sell Paul Mitchell products in Australia and New Zealand.
Such a term is capable of clear expression and is not inconsistent with the express terms of the agreement.
The exclusive nature of the applicant's appointment as the Australian and New Zealand distributor of Paul Mitchell products ensured that PMS would not for the duration of the agreement be able to distribute the products through any other distributor. The nature of the relationship between the
parties imposed mutual obligations upon each other to do their honest best to further the objects of the agreement. If there were no such obligations then either party could at its whim deprive the other of the benefit of the agreement. For this reason, it is both reasonable and equitable that a term as pleaded in paragraph 17.1 be implied and that for the same reasons the Codelfa criteria of business efficacy and obviousness are satisfied.
CONCLUSION For the reasons set above, the separate questions should be answered as follows:
Question 1: Dld the distribution agreement made between the applicant and the first respondent in or about November 1989 contain a term to the effect of that pleaded in paragraph 8 of the re-amended statement of claim?
Question 2: Was there a collateral agreement made between the applicant and the first respondent as pleaded in paragraph 8 of the re-amended statement of claim?
Question 3: Did the distribution agreement made between the applicant and the first respondent contain any terms
to the effect of those pleaded in paragraph 10,15, 16 and
17 of the amended defence of the respondents dated 23
October 1992. If so, which terms dld it contain?
Yes. The distribution agreement contained:
(a)
a partly express and partly implied term as pleaded in paragraph 10 of the amended defence;
(b)
an implied term as pleaded in paragraph 17.1 of the amended defence.
Question 4: Was the distribution agreement made between PMSA and PMS varled in June 1990 as pleaded in paragraph 10A of the re-amended statement of claim?
Question 5: Were representations made as pleaded in paragraph 7 and/or 9 of the re-amended statement of claim?
COSTS
The decision of the Court supports entirely the case put by the respondents and in the ordinary course costs should follow
the event. Although the parties have not had the opportunity
to be heard on the question of costs, the result is so clear cut that it is obvlous that there are no circumstances which would justify any departure from the normal rule.
Accordingly, there will be an order that the applicant pays the respondents' costs of and incidental to the trial of the separate questions.
I certlfy that this and the
preceding 39 pages are a true copy of the Reasons for Judgment of the Honourable Mn Justice
Olney \ Associate:
U: 31 May 1991, 1 - 4 June 1993, 10 - 12 August 1993.
Place: Perth
Judament: (In Melbourne) 29 October 1993.
Mr D. Solomon (instructed by Solomon Brothers) appeared for the applicant.
Mr H. Sperling QC with Mr J. Nicholas (instructed by Parker &
Parker as agents for Allen Allen & Hemsley) appeared for the
respondents.
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