Paul Mitchell Systems (Australia) Pty Ltd v Paul Mitchell Systems Pte Ltd

[1995] FCA 573

C A T C H W O R D S

C O N T R A C T - trade practices - appeal against judgment - assessment of credibility of witnesses - demeanour evidence - power of appellate court to review first instance decision on conflicting testimony - hearsay - construction of contracts - whether implied terms - general contractual duty of co-operation - conduct of parties in determining costs - appeal allowed in part and otherwise dismissed.

Cheshire & Fifoot  Law of Contract 6th Australian Edition

Trade Practices Act 1974 s.52

B.P. Refinery Westernport Pty Ltd v. Shire of Hastings (1977) 52 ALJR 20
Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337
Poseidon Ltd v. Adelaide Petroleum N.L. (1991) 105 ALR 25
Devries v. Australian National Railways Commission (1992) 177 CLR 472
R. v. Earl of Banbury (1695) 90 ER 231
S.S. Hontestroom v. S.S. Sagaporack [1927] AC 37
Cummings v. Lewis (1993) 41 FCR 559

PAUL MITCHELL SYSTEMS (AUSTRALIA) PTY LTD v. PAUL MITCHELL SYSTEMS PTE. LTD and WALTER LAU LOKE LIM also known as LAU LOKE LIM and LOW LOKE LIM
WAG 158 of 1993

FRENCH, LEE and COOPER JJ.
PERTH
21 JULY 1995

IN THE FEDERAL COURT   )
OF AUSTRALIA                  )
WESTERN AUSTRALIA     )
DISTRICT REGISTRY         )
GENERAL DIVISION         )  No. WAG 158 of 1993

ON APPEAL from a decision of the
  Federal Court of Australia

B E T W E E N:                   PAUL MITCHELL SYSTEMS (AUSTRALIA)
  PTY LTD
  Appellant

and

PAUL MITCHELL SYSTEMS PTE LTD

First Respondent

and

WALTER LAU LOKE LIM also known as
  LAU LOKE LIM and LOW LOKE LIM

Second Respondent

MINUTE OF ORDER

JUDGES MAKING ORDER:  FRENCH, LEE AND COOPER JJ.
DATE OF ORDER:             21 JULY 1995
WHERE MADE:                 PERTH
THE COURT ORDERS THAT:

1. The appeal is allowed by substituting for the learned trial judge's answers to questions 3 and 4 the following:

   (i)Answer to Question 3 - No.

   (ii)Answer to Question 4 - No, but the agreement was varied by the letter dated 21 June 1990 in the terms set out in

that letter.

1. The appeal be otherwise dismissed.

2. The appellant pay two thirds of the respondents' costs of the appeal.

3. The parties have leave within fourteen (14) days to bring in a minute of any consequential orders that may be necessary.

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 158 of 1993

ON APPEAL from  a decision of

the Federal Court of Australia

B E T W E E N:  PAUL MITCHELL SYSTEMS (AUSTRALIA)
  PTY LTD

Appellant

and

PAUL MITCHELL SYSTEMS PTE. LTD

First Respondent

and

WALTER LAU LOKE LIM also known as
  LAU LOKE LIM and LOW LOKE LIM

Second Respondent

CORAM:     FRENCH, LEE AND COOPER JJ.
PLACE:       PERTH
DATE:         21 July 1995

REASONS FOR JUDGMENT

For the reasons expressed by Cooper J I agree that the appeal should be dismissed so far as it relates to questions 1 and 2.  I agree with the reasons and conclusions expressed by Lee J in relation to questions 3 and 4.  I agree also in the orders proposed by his Honour that the appeal be allowed by substituting for the learned primary Judge's answers to questions 3 and 4 the answers set out in his reasons, but that the appeal should otherwise be dismissed and the appellant pay two thirds of the respondents' costs of the appeal.  There should be leave to the parties within fourteen (14) days to bring in a minute of any further consequential orders that may be necessary.

I certify that this and the previous one
                  page is a true copy of the Reasons for Judgment
                  his Honour Justice French.

Associate:
                  Date:

IN THE FEDERAL COURT )
OF AUSTRALIA        )
WESTERN AUSTRALIA    )
DISTRICT REGISTRY    )
GENERAL DIVISION     )    NO.  WAG 158 OF 1993

ON APPEAL FROM A DECISION OF A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

B E T W E E N:           PAUL MITCHELL SYSTEMS (AUSTRALIA) PTY. LTD.

Appellant

and

PAUL MITCHELL SYSTEMS PTE. LTD.

First Respondent

and

WALTER LAU LOKE LIM ALSO KNOWN AS LAU LOKE LIM AND LOW LOKE LIM

Second Respondent

CORAM:    FRENCH, LEE, COOPER JJ.
DATE :    21 July 1995
PLACE:    PERTH

REASONS FOR JUDGMENT

LEE J:

I have had the advantage of reading the draft reasons prepared by Cooper J. and agree, for the reasons stated by his Honour, that the appellant has failed to show that the learned primary Judge erred in determining as he did the answers to questions 1, 2 and 5 of the preliminary issue and the order as to costs.  However, I take a different view in respect of the answers provided by the primary Judge to questions 3 and 4 notwithstanding that those questions relate to peripheral issues if the appellant fails in its appeal in

respect of the other questions.

I will deal first with question 4 which reads as follows:

"Was the distribution agreement made between the applicant (appellant) and the first respondent varied in June 1990 as pleaded in paragraph 10A of the re-amended statement of claim?"

The relevant pleadings in paras.10 and 10A of the re-amended statement of claim are set out in the reasons of Cooper J. and it is unnecessary to repeat them.

Paragraph 10A of the re-amended statement of claim was an alternative pleading, itself expressed in the alternative, namely, that the agreement made between the parties on 8 November 1989 was varied by an "oral agreement" made between the parties in June 1990 or was varied "by incorporation of a written term as pleaded in paragraph 10".

The pleading in para.10 did not, in terms, refer to variation of the agreement by a written term.  It pleaded that an oral agreement made in June 1990 was "formally confirmed" by letter dated 21 June 1990.  Irrespective of that deficiency in pleading the contents of the letter raised directly the question whether the agreement had been varied by that letter, an issue within the scope of the pleading in para.10A.

The learned trial Judge found, and the finding has not been shown to have been made in error, that in so far as question 4 related to the variation of the agreement by an oral agreement, no variation was made.  However, in providing the answer "No" to question 4, the primary Judge appears to have overlooked the further pleading in para.10A to the effect that the agreement between the parties was varied by a written term contained in a letter dated 21 June 1990.  Having regard to his Honour's opinion as to the effect of that letter, it may be thought that the answer to question 4 should have been qualified.  The relevant parts of his Honour's reasons read as follows:

"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 obtained 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 distributorship is automatic unless terminated by either party ...'

There is a world of difference between an indefinite extension of an agreement made for an initial 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 which would have had the same effect as the alleged representation which 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.

...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." [emphasis added]

The effect of the letter of 21 June 1990 was to replace a term, which term may have been construed as providing a right to renew a distributorship contract from year to year unless notice had been given terminating the contract at the end of that year, with a term which provided for automatic renewal of the contract from year to year unless notice terminating the contract had been given and to introduce additional terms which provided that renewal of the contract was to be conditional upon the first respondent remaining a "Regional Distributor" and upon the appellant complying with all requirements "of the Distributorship as may be set from time to time" by the first respondent for the appellant to perform.  On its face the letter of 21 June 1990 provided a substantive variation to the terms of the existing agreement.  The variation did not remove the right of either party to terminate the annual contract at the end of a current year and to that extent the effect of the variation was significantly less than the appellant had contended.  However, according to the facts found by his Honour set out above the negative answer to question 4 should have been qualified to
read as follows:

"No, but the agreement was varied by the letter dated 21 June 1990 in the terms set out in that letter."

Construction of the contract as varied by that letter would remain an issue to be determined at trial.

I turn now to question 3 which, as argued before the primary Judge, was as follows:

"Did the distribution agreement made between the applicant and the first respondent contain any terms to the effect of those pleaded in paragraphs 10 and 17.1 of the amended defence of the respondents dated 23 October 1992 and, if so, which terms did it contain?"

Perhaps, on reflection, it may be said that it was inappropriate to extract such a question for answer as a preliminary issue when construction of the express terms of the agreement, and the scope of those terms, had not been determined.  The learned primary Judge found that the agreement between the parties contained the implied terms pleaded in paras.10 and 17.1 of the amended defence.  His Honour was satisfied that all conditions necessary for the implication of contractual terms had been fulfilled.  (See:  B.P. Refinery Westernport Pty. Ltd. v. Shire of Hastings (1994) 180 CLR 266 pp 282-283; Codelfa Construction Pty. Ltd. v. State Rail Authority of New South Wales (1982) 149 C.L.R. 337 per Mason J. (Stephen and Wilson JJ. concurring) at 346-352, per Brennan J. at 404.)

A term cannot be implied for the purpose of removing an element of uncertainty from, or making more effective, the bargain the parties have made.  A term is implied to give effect to the intention of the parties as is disclosed by, or is required to be presumed from, the circumstances in which the bargain was made.

The express terms of the agreement were set out in the letter dated 8 November 1989.  One of the terms reads as follows:

"Should there be a change of directorship or shareholding of Paul Mitchell Systems Australia Pty. Ltd. (sic) we reserve the right to terminate your exclusive distributorship of Paul Mitchell products for Australia and New Zealand, such termination to be effective at the end of the distributorship year on which the change occurs."

In para.10 of the amended defence it was pleaded that there was a further implied term to the following effect:

"Should there be a change in the directorship or shareholding of the appellant or a change in the unit holding of the trading trust for which the appellant was trustee the first respondent would be notified of such a change before the end of the distributorship year in which the change occurred and...be entitled to terminate the appointment...effective at the end of the distributorship year in which the change occurred or, failing notification, effective at the end of the distributorship year in which the
first respondent became aware of the changes."

In so far as the implied term pleaded in para.10 of the amended defence contends that there was an obligation on the appellant to notify a change in directorship or shareholding of the appellant, it is not made obvious by the material before his Honour that such a term is necessary to give business efficacy to the contract, an essential criterion for the implication of an additional term in a contract.

Changes in directorship or shareholding in the appellant are a matter of public record pursuant to Australian company or corporations law and there was nothing before his Honour to show that the contract would be stillborn or stultified unless a term was implied obliging the appellant to give notice of such changes.

Where it is pleaded that the contract contained an implied term which required the appellant to give notice of any changes in the unit holding of the trading trust for which the appellant was trustee and which entitled the first respondent to terminate the agreement upon notification of such a change, it is not obvious that such a term is necessary to give business efficacy to the contract or that the inclusion of such a term was so obviously the intent of both parties that it went without saying.  The persons who controlled the appellant, and who were the natural persons with whom the respondent dealt, were the shareholders and directors of the appellant.  The express term referred to above dealt with any change in that control by permitting the first respondent to decline to renew the contract.  The identity of the beneficiaries of the unit trust for whom the appellant, as trustee, carried on business as a distributor was irrelevant to the contract between the appellant and the first respondent.  The unit holders could not control the appellant or divert the stock supplied to the appellant as distributor.

For those reasons I am unable to agree that a term as pleaded in para.10 of the amended defence is an implied term of the contract.

Paragraph 17.1 of the amended defence pleaded that a term as follows was to be implied also:

"that Paul Mitchell Systems (Australia) Pty. Ltd. would use its best efforts to promote and sell the Products in Australia and New Zealand."

The express terms of the contract made between the parties permitted either party to terminate the contract at the end of an annual term of the contract, without reliance upon breach, or non-performance, of obligations.  In those circumstances the need to imply a "best endeavour" clause as pleaded in para.17.1 is not obvious.  The contract grants the appellant the right to distribute products provided by the first respondent and in doing so the appellant will be carrying on business as a distributor.  The contract is of limited duration and the grantor may decide not to continue the contractual relationship.  If the business conducted by the appellant fails to generate the level of demand for products supplied by the first respondent, as expected or required by the first respondent, the first respondent may decline to renew the contract.  Such circumstances display no requirement, or necessity, to imply a term in the form pleaded.  If such a term were implied it would be directed to the manner of conduct of the appellant's business and not to the prevention of frustration of the contract or to better securing the intended cooperation of the parties to allow one party to meet a condition to which the contract is subject.  (See:  Poseidon Ltd. v. Adelaide Petroleum N.L. (1991) 105 A.L.R. 25 at 45.)

Furthermore, variation of the agreement by the letter dated 21 June 1990 inserted an express term which required the appellant to meet performance requirements as set from time to time by the first respondent, and left no room for the implication of a term in the form pleaded in order     to give business efficacy to the contract.

For those reasons the answer to question 3 should have been "No".
         I would allow the appeal in part by substituting for the learned primary Judge's answers to questions 3 and 4 the answers set out above but would otherwise dismiss the appeal and order that the appellant pay two-thirds of the respondents' costs of the appeal.

I certify that this and the preceding 9 pages are a true copy of the Reasons for Judgment of his Honour Justice Lee.

Associate:
          Date:

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
  No. WAG 158 of 1993

On appeal from the Federal Court of Australia in
  Proceedings numbered WAG 123 of 1991

BETWEEN:

PAULMITCHELL SYSTEMS (AUSTRALIA) PTY. LTD.

Appellant

AND:  PAUL MITCHELL SYSTEMS PTE. LTD.

First Respondent

AND:  WALTER LAU LOKE LIM also known as

LAU LOKE LIM and LOW LOKE LIM

Second Respondent

CORAM:         French, Lee and Cooper JJ.

PLACE:           Perth

DATE:             21 July 1995

REASONS FOR JUDGMENT

Cooper J.

Introduction

This is an appeal from a judgment of Olney J. delivered in Melbourne on 29 October and 9 December, 1993.  The matter had proceeded before Olney J. on the basis that, pursuant to O.29 r.2 of the Federal Court Rules and by consent of the parties, several questions raised by the pleadings were to be decided separately and before all other questions arising in the proceedings. It was a common understanding of the parties that if the separate questions were answered in the respondents' favour, the applicants' (appellant's) claims against the first respondent for breach of contract, against the first and second respondent for contravention of s.52 of the Trade Practices Act 1974 and for
certain declaratory relief would be dismissed and an order made in the terms of paragraph 1 of the prayer for relief contained in the first respondent's amended cross-claim.  Namely :-

"An order requiring the First Respondent to take all necessary steps to transfer the name Paul Mitchell Systems (Australia) Pty Ltd to a company nominated by the Cross-Claimant."

Olney J. decided the separate questions favourably to the respondents and the appellant has appealed from the whole of his Honour's judgment, including his Honour's further judgment and reasons delivered on 9 December, 1993.

The first respondent ("PMS") was, at all relevant times, the distributor in an area including Australia and New Zealand of a range of hair care products manufactured and distributed worldwide by John Paul Mitchell Systems Inc. ("JPMS"), an American company.  The first respondent was incorporated in the Republic of Singapore and Mr. Lau, the second respondent, was at the relevant times a director of it.

The appellant, Paul Mitchell Systems (Australia) Pty. Ltd. ("PMSA") is a company incorporated in Western Australia and which brings these proceedings as trustee of the Paul Mitchell Systems (Australia) Unit Trust.

On or about 8 November, 1989 PMS appointed the appellant to be the exclusive distributor for Australia and New Zealand of the Paul Mitchell product range.  The appointment was made in a letter dated 8 November, 1989 sent by Mr. Lau to a Mr. Simms, a director of the appellant :-

"8 November 1989

Attn:Mr Ron Simms

Messrs Paul Mitchell Systems (Aust) Pty Ltd

9th Floor Exchange House

68 St George's Terrace

PERTH

WESTERN AUSTRALIA   6000

AUSTRALIA.

Dear Ron,

This is to confirm our telephone conversation on 7th November whereby we are agreeable to your appointment, subject to the undermentioned conditions, as exclusive distributors for Paul Mitchell products for Australia and New Zealand for an initial period of one year effective 13th November 1989 and thereafter renewable on a yearly basis unless terminated by either party.

This appointment is subject to the following conditions being met and maintained:

(a)Payment for the first shipment will be received by us in Singapore not later than 13th November 1989.

(b)The Paul Mitchell products sold are for strict 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 Mitchell products for Australia and New Zealand will immediately be terminated and compensation equivalent to US$250,000 will be paid to us.

(e)Should there be a change of directorship or share holding of Paul Mitchell Systems Australia Pty Ltd, we reserve the right to terminate your exclusive distributorship of Paul Mitchell products for Australia and New Zealand such determination to be effective at the end of the distributorship year in which the change occurs.

(f)You will cease to use the name Paul Mitchell Systems Australia Pty Ltd if required to do so by us.  In this event no compensation will be paid to you.

(g)You will cease to use the name Paul Mitchell Systems Australia Pty Ltd should your distributorship be terminated.  In this event, you will hand over the name Paul Mitchell Systems Australia Pty Ltd to us immediately in accordance to your local laws and you will not be entitled to any compensation whatsoever.

Kindly confirm acceptance of the above terms and conditions of your appointment as exclusive distributor for Australia and New Zealand for the Paul Mitchell product line by signing the duplicate copy of this letter and returning same to us.

We look forward to a lasting and profitable relationship and thank you for your confidence in the Paul Mitchell product line.

Thank you.

Yours faithfully  We confirm acceptance

PAUL MITCHELL SYSTEMS PTE LTDof the terms and conditions stipulated above.

(Sgnd)Walter Lau  (Sgnd) Ron Simms

Walter LauPAUL MITCHELL SYSTEMS

DirectorAUSTRALIA PTY LTD."

It was the term of the appointment, expressed to be for one year renewable yearly unless terminated by either party, which formed the first issue in dispute between the parties.  The appellant contended that PMS and Lau represented to and agreed with the appellant that, subject only to the conditions of the appointment, the appointment would not be terminated and would be automatically renewed.  This was denied by the respondents.

The parties were also at odds as to the exact nature of discussions which took place in June, 1990 at the Sea World Nara Resort on the Gold Coast between Mr. Lau and directors of the appellant concerning the distribution agreement, and as to the effect of a letter dated 21 June, 1990 sent by Mr. Lau to the appellant concerning the
term of the distributorship agreement :-

"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  6000

Australia

Dear Terry

This is to confirm our agreement that yearly renewal of your distributorship is automatic unless terminated by either party and so long as Paul Mitchell Systems Pte Ltd (Singapore) is Regional Distributor and Paul Mitchell Systems (Australia) Pty Ltd complies with all requirements of the Distributorship as may be set from time to time by Paul Mitchell Systems Pte Ltd (Singapore) which Paul Mitchell Systems (Australia) Pty Ltd is to perform and provided there is no breach of any of the conditions as stated in our letter dated 8th November 1989.

Yours sincerely

PAUL MITCHELL SYSTEMS PTE LTD

(Sgnd)Walter Lau

Walter Lau

Managing Director."

On 9 October, 1991 PMS gave notice by letter to the appellant that its exclusive distributorship agreement would not be renewed after the end of the term which expired on 12 November, 1991.  The appellant, in a letter dated 11 October, 1991, alleged repudiation which it accepted and purported to terminate the agreement.

THE SEPARATE QUESTIONS
Question 1

Did 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 pleaded in paragraph 8 of the re-amended statement of claim?

Relevantly the appellant pleaded :-

"6.By a written instrument dated 8 November 1989, the First Respondent appointed the Applicant and the Applicant accepted appointment as the exclusive distributor of the Products for Australia and New Zealand for a term of one year from 13 November 1989 and renewable on a yearly basis.  The Applicant was induced to enter into 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 Applicant that, subject only to the conditions to be performed and observed by the Applicant contained in the agreement of 8 November 1989, the appointment of the Applicant would not be terminated and would be automatically renewed.

PARTICULARS

The representation was made orally to Aron Simms, a director of the Applicant, who was in Australia and speaking by telephone to the Second Respondent, who was in Bangkok, Thailand.

8.The representation pleaded in paragraph 7 became a term of the appointment of the Applicant by the First Respondent or, alternatively, formed the basis of a collateral agreement between the Applicant and the First Respondent."

Question 3

Did the distribution agreement made between the applicant and the first respondent contain any terms to the effect of those pleaded in paragraphs 10, 15, 16 and 17 of the amended defence of the respondents dated 23 October, 1992 and, if so, which terms did it contain?

As far as is relevant the amended defence contained the following:-

"10.Further, in answer to the whole of the Statement of Claim the Respondents say that, it was a term of the Appointment that should there be a change in the directorship or share holding of the Applicant or a change in the unitholding of the trading trust for which the Applicant was trustee, the First Respondent would be notified of such a change before the end of the distributorship year in which the change occurred and the First Respondent would be entitled to terminate the Appointment, the termination to be effective at the end of the distributorship year in which the change occurred, or, failing notification, effective at the end of the distributorship year in which the First Respondent became aware of the changes.

15.(Not pressed).

16.(Not pressed).

17.The following, among others, were implied terms of the Agreement:

17.1that the Applicant would use its best efforts to promote and sell the Products in 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 implied from:

(a)The nature and operation of the appointment of the Applicant as exclusive distributor of the Products in Australia and New Zealand and the express terms pleaded in this Defence;

(b)the exclusive nature of the relationship between the Applicant and the First Respondent;

(c)the Applicant's awareness of the relationship between JPMS Inc and the First Respondent, as the Regional Distributor of the Products.

Further or in the alternative, the terms are implied in order to give business efficacy to the Agreement."

Question 4

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?

Question 5

Were representations made as pleaded in paragraphs 7 and/or 9 of the re-amended statement of claim?

The re-amended statement of claim contained the following :-

"9.At a meeting held at Sea World Nara Resort in Queensland Australia in early June 1990 attended by directors of the Applicant, sub-distributors and consultants appointed by the Applicant and the Second Respondent and Eva Lau (a director of the First Respondent), the First Respondent by the Second Respondent:-

(a)Repeated both to the Applicant and others at the meeting the representations pleaded in paragraph 7 and confirmed the agreement therein pleaded;  and

(b)Agreed to formally confirm the agreement in writing.

10.In pursuance of the agreement pleaded in paragraph 9(b), the First Respondent, by letter dated 21 June 1990 signed by the Second Respondent, formally confirmed automatic renewal of the appointment of the Applicant subject to there being no breach of the conditions in the letter of 8 November 1989 and compliance with requirements of the distributorship from time to time set by the First Respondent.

10A.Alternatively to paragraph 8, the agreement pleaded in paragraph 6 was varied:

(i)by incorporation of a written term as pleaded in paragraph 10;

(ii)alternatively, by the oral agreement pleaded in paragraph 9(a)."

Questions 1 and 2
  Questions 1 and 2 are related and can conveniently be dealt with together.

In relation to these questions, the onus was on the appellant to establish that the oral representation alleged by it (and denied by the respondents) to have been made by Mr. Lau to Mr. Simms in a telephone conversation on 7 November, 1989 was in fact made and became a term of the agreement, or alternatively, formed the basis of a collateral agreement between the parties.

Olney J. resolved questions 1 and 2, and the first part of question 5 by finding that the alleged representation was not made.  In doing so, his Honour made findings of fact and general observations concerning the witnesses.  The appellant, in extensive grounds of appeal and written submissions and by counsel has challenged many of his Honour's findings of fact and the observations concerning the witnesses.

In relation to the issue of credibility, Olney J. stated :-

"The issues raised on the pleadings relevant to the separate questions are for the most part dependent upon questions of fact."

His Honour went on to say :-

"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 (with the exception of Greg Solomon) the evidence of the witnesses on both sides was not entirely satisfactory.  The credibility of Simms 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 confident.  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 conclusion as to the general credit worthiness of the witnesses.  Indeed, I find it necessary only to deal with 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."

His Honour then set out the negotiations between the parties forming the background to the critical events of 7 and 8 November, 1989.  In light of the issues raised by the appellants in their appeal, it is necessary to have an understanding of the course of dealings between the parties between October, 1988 and November, 1989.

In October, 1988 Simms and Lau met in Singapore and discussed the distribution of Paul Mitchell products.  Olney J. found that nothing turned on the disputed
closeness of the relationship between the two men.  At or soon after the October, 1988 meeting, some form of understanding was reached and there followed more than 12 months of negotiation between Lau on behalf of PMS and Simms and his business partner Terry Solomon on behalf of PMSA, in which both addressed the terms that they considered crucial to any agreement.

Lau's concerns related to JPMS's policy of distributing its products only through hair-dressing salons, which was vigorously enforced against its distributors.  It was of primary importance to Lau that the distributor he appointed could be relied upon not to divert stock.  Where stock was found to have been diverted from its intended destination in hairdressing salons to other retail outlets, JPMS required the distributor from whom the stock had been obtained to buy the stock back from the retailer at retail prices, even if the stock had been supplied to the retailer by a third party.  It is not disputed that JPMS's policy concerning diversion was explained to Simms by Lau at the October, 1988 meeting.

PMSA's concerns related primarily to the minimum period of the operation of the distributorship.

Negotiations as to the form of the distributorship agreement began on 22 March, 1989, when a draft agreement prepared by Terry Solomon was faxed to Lau, and proceeded through a series of facsimile transmissions between the parties.

On 2-3 May, 1989 there was an exchange of faxes between Lau and Terry
Solomon whereby Lau insisted that the Australian distributor be an Australian company, and required that a bond of US$250,000.00 or a personal guarantee by directors of the company to the equivalent amount be provided as security against diversion.

In a fax to Terry Solomon on 3 May, 1989 Lau raised the question of the minimum term of the distributorship agreement.  Solomon replied by fax on 5 May, 1989 that PMSA considered that it would take them 2 years to "get the business into `full gear'" and requested a minimum period of operation of 7 years with a right to renew of 3, 5 or 7 years.  A further draft was faxed by Solomon to Lau on 29 September, 1989 whereby the period of operation was expressed to be for a minimum of 5 years, thereafter terminable by either party on 12 months written notice.  Such period was to be subject only to proven default by the distributor and prior termination in accordance with the terms of the agreement.

On 6 October, 1989 Solomon faxed a further draft to Lau differing only by the addition of a clause providing for the directors to guarantee the performance of the paragraph prohibiting diversion.

Simms, on 16 and 19 October and Solomon on 27 October faxed Lau requesting comments on this draft.  Solomon's faxes refer to the urgency with which PMSA sought to finalise the distributorship agreement.  PMSA had wanted the first shipment of Paul Mitchell products to arrive in Australia so that the important pre-Christmas market could be exploited.

Terry Solomon met with Lau, Lau's wife (also a director of PMS) and Lau's solicitors, in Singapore, on 31 October or 1 November and discussed the proposed agreement.  On 1 November, Lau sent an entirely new draft, comprising some 19 pages, which provided for a fixed term of 5 years.  A further draft, sent by Lau to Simms on 6 November, also provided for a fixed 5 year term.

At 10:28 and 11:19 (Perth time) on 7 November, 1989 Simms faxed Lau's Singapore office confirming receipt of the draft, seeking further amendments and requesting that Lau telephone Simms to discuss the amendments sought.  No specific response was made to these last proposed amendments.

Whilst it is not in dispute that Lau was in Bangkok on 7 November, 1989, the accounts of the parties as to what occurred following Simms' faxes of that morning (Perth time) are irreconcilable.

According to Simms, Lau rang him at 11:30 (Perth time) complaining about the involvement of lawyers and seeking to simplify the agreement into "one or two pages".  Lau faxed to Simms, at 14:43 (Perth time) a handwritten draft in substantially the same terms as the letter of 8 November (ie. an initial term of one year, renewable yearly unless terminated).  The fax contained Lau's Bangkok telephone number and a request that Simms ring Lau immediately upon reading the draft.

Simms says he telephoned Lau and told him that the one year term was inadequate and in response, Lau made the representation contended for by the appellant.

At 14:51 (Perth time) Simms faxed Lau a typed copy of Lau's handwritten draft to which three amendments, not the subject of dispute, had been made.  Lau expressed his satisfaction with this amended draft by fax shortly after.  The letter of 8 November, 1989 is relevantly the same as this amended draft.

In Lau's version of the events of 7 November, Simms telephoned him in Bangkok stating that the directors of PMSA wanted a five year term and no bond requirement.  Lau says Simms agreed to Lau's offer to drop the bond requirement if the agreement was year to year and that this was reflected in the handwritten letter faxed to Simms in Perth.  Lau did not recall a second telephone call.

Olney J. set out a number of conclusions said to be drawn from the objective evidence and from evidence which was not contested, before going on to say :-

"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 basis 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 claimed 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 distributorship 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."

Thus, Olney J. found that the contract as finally agreed was as acknowledged by PMSA in the letter of 8 November, 1989, such acknowledgment having occurred after one or two telephone conversations between Lau and Simms.  His Honour found that it was inconceivable that there was any agreement that the term of the distributorship be indefinite, subject only to termination for breach.

Having so found, his Honour answered Questions 1 and 2 in the negative.

It was submitted for the appellant that Olney J. had erred in finding the alleged representation was not made by Lau.  Mr. Solomon of counsel referred the court to a large body of evidence relating to the negotiations leading up to 7 November, 1989 and the events of that day which, it was submitted, supported the contention that the representation was made.  This evidence was not considered to be relevant by Olney J. with the result that, it was submitted, his Honour's findings were incorrect.

Counsel for the appellant further submitted that as Olney J. had expressly resiled from deciding the case to any significant degree on the basis of witness demeanour, the Full Court was in as good a position as his Honour had been at trial to weigh up the probabilities for itself.

Alternatively, it was submitted if this was a case where witness demeanour had been important, it is appropriate for the Full Court to interfere applying the test formulated by Brennan, Gaudron and McHugh JJ in Devries v. Australian National Railways Commission (1992) 177 CLR 472 at 479.

In any event, it was submitted, the Full Court should review all of the evidence and come to its own conclusions in relation to the negotiations prior to, and the events of, 7 November, 1989.

The authorities relating to the powers and obligations of appellate courts hearing appeals from findings of fact by a single judge have been reviewed on numerous occasions (See for example - Paterson v. Paterson (1953) 89 CLR 212 at 219 et seq; Warren v. Coombes (1979) 142 CLR 531 at 537 et seq; Westpac Banking Corporation v. Spice (1990) ATPR 41-024 per Wilcox and Burchett JJ) and the principles to be applied are now well established.

Certainly, the attitude of appellate courts to appeals on questions of fact has softened since Lord Holt LCJ in R. v. Earl of Banbury (1695) 90 ER 231, speaking before the Judicature Act of the jurisdiction of the House of Lords exercised by writ of
error, said :-

"All causes generally consist more of matters of fact, than of law, and it is beneath the dignity of their Lordships to be troubled with matters of fact."

The authorities make it clear that a distinction exists between an appeal on a question of fact which depends on a view taken of conflicting testimony, and an appeal which depends on inferences from uncontroverted or undisputed facts.

In respect of the latter, the principle was succinctly stated by Gibbs ACJ, Jacobs and Murphy JJ in Warren v. Coombes at 555 where their Honours said :-

"... In general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which having been disputed, are established by the findings of the trial judge.  In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it."

Where the question of fact depends on a view taken of conflicting testimony, the position is different :-

"Of course, there is jurisdiction to retry the case on the shorthand note, including in such retrial the appreciation of the relative values of the witnesses ...

None the less, not to have seen the witness puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the High Court ought not to take the responsibility of reversing conclusions so arrived at, merely on their own comparisons and criticisms of the witnesses and their own view of the probabilities of the case.  The course of the trial and the whole substance of the judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it.  If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge's conclusions of fact,
should, as I understand the decisions, be let alone."

(S.S. Hontestroom v. S.S. Sagaporack [1927] AC 37 at 47 per Lord Sumner.)

This passage has been cited with approval in the High Court (see Abalos v. Australian Postal Commission (1988) 171 CLR 167 at 178; Brunskill v. Sovereign Marine and General Insurance Co. Limited (1986) 62 ALR 53 at 56; Warren v. Coombes at 537;  Paterson v. Paterson at 222) and in Devries v. Australian Railways Commission at 479, Brennan, Gaudron and McHugh JJ. summarised the authorities on this point, with all the shifts in emphasis to accommodate the differing key features of particular cases, in the following way :-

"More than once in recent years, this court has pointed out that a finding of fact by a trial judge, based on the credibility of the witness, is not to be set aside because an appellate court thinks the probabilities of the case are against - even strongly against - that finding of fact.  If the trial judge's finding depends to any substantial degree on the credibility of the witnesses, the finding must stand unless it can be shown the trial judge `has failed to use or has palpably misused his advantage' or has acted on evidence which was `inconsistent with facts incontrovertibly established by the evidence' or which was `glaringly improbable'".

It is impossible to accept the contention that the present case is one where the findings of the trial judge were not based to any significant degree on the credibility or demeanour of the witnesses.  Olney J. was presented with two accounts of crucial events, each of which would have led his Honour to reach a different conclusion and resolved the conflict by preferring one version of relevant events over the other.

Whilst his Honour did expressly refrain from making a finding as to the general credit-worthiness of the witnesses, this restraint was based on the view that the issues of credit raised by counsel were for the most part irrelevant.  His Honour considered that testing the credibility of the witnesses was "an obsession on the part of counsel" which had unnecessarily prolonged the trial and, did "not find it either necessary or helpful to pursue each and every issue raised by counsel and express a conclusion as to the general credit-worthiness of the witnesses."

Nonetheless, Olney J. preferred Lau's version of the events of 7 November, 1989 over the version put forward by Simms and Solomon and it cannot be said that this preference was not based to a significant degree on his Honour's assessment of the witnesses having seen and heard them over eight hearing days.  To adopt the words of Lord Sumner in S.S. Hontestroom v. S.S. Sagaporack at 45 :-

"It is quite impossible, to my mind, that the [trial judge], whether he said much or little about it in his judgment, could have failed to appreciate the weight of the Sagaporack's criticism on this evidence.  How could he fail to appreciate the weight of the contention, that the witnesses who spoke to a manoeuvre, on which their preliminary act was silent, could not be trustworthy?  Consider who the counsel were, who opposed the Hontestroom;  consider how the witnesses had been cross-examined, obviously in the hope that they would improve upon their evidence until they had palpably overdone it.  Could there be any issue more specially fit than this for the determination of a trial judge?"

(Emphasis added)

This is not a case where the influence of witness credibility or demeanour has not played a significant part, nor is it a case where such influence was subtle or difficult to discern (cf:  the statements of McHugh J. in Abalos v. Australian Postal Commission at 179 and in Jones v. Hyde (1989) 63 ALJR 349 at 351-2). Olney J., when faced with conflicting testimony preferred one version over the other and clearly did so on the basis that his Honour considered Lau, despite some proven inaccuracies in his evidence, which were noted by his Honour, to be a more credible witness than Solomon or Simms.

Consequently, the Full Court is not in as good a position as the trial judge to weigh up the probabilities of the case and it is not appropriate for the Full Court to interfere with Olney J.'s findings of fact, unless the "test" formulated by the majority in Devries is satisfied.

It cannot be said that Olney J. "failed to use or palpably misused his advantage" nor that his Honour "acted on evidence which was inconsistent with the facts incontrovertibly established by the evidence".  Indeed, counsel for the appellant concentrated on seeking to show that Lau's evidence in relation to the relevant events was "glaringly improbable".

Whilst the Full Court may well take a different view of the probabilities of the case than the trial judge were a re-examination of all the evidence referred to for the appellant to be undertaken, that possibility of itself, is not sufficient to justify interference with the findings of the trial judge.  There is as much evidence in support of Lau's version of the critical events as there is in support of any alternative version and it cannot therefore be said that Olney J., having accepted Lau's account, acted on evidence which was "glaringly improbable" and it is not, in my view, either necessary or productive to examine the evidence in fine detail in an attempt to show that the trial judge has "slipped up".

It was further submitted for the appellant that the trial judge erred in not allowing T. Solomon and G. Solomon to give evidence of what was done prior to the making of the (alleged) second telephone call to Lau on 7 November, 1989 and of what Simms told them of what Lau had said during the telephone call.  Counsel for the appellant submitted that this evidence was hearsay, but was within the res gestae was relevant and probative and should have been admitted at trial.  Mr. Solomon of counsel referred the Court to Ratten v. R. [1972] AC 378 at 390; R. v. Andrews [1987] 1 AC 281 at 300-1; Walton v. R. (1989) 166 CLR 283 at 295, 304, and contended that the res or event was the making of the agreement - the accepting of the draft document on 7 November, 1989.

Assuming (without deciding) that the evidence ought to have been admitted, there is nothing to suggest that its admission and consideration would have persuaded the trial judge that Lau's account of the events of 7 November, 1989 should have been rejected in favour of the account given by Simms and T. Solomon.  I return to the passage cited earlier from the reasons of Olney J. :-

"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 basis 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 claimed 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 distributorship 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."

The trial judge, having had the advantage of seeing and hearing the witnesses give evidence viva voce, simply preferred the evidence of one of them over the others and it is not possible, in my view, to argue that the evidence of T. & G. Solomon as to any second telephone call would have altered the conclusions reached by the trial judge as to the pivotal facts and events of this case.  While it may be correct to say that the evidence ought to have been admitted, it does not follow that the findings of fact of the trial judge ought to be disturbed nor that his Honour's entire judgment on this point is affected.

Once it is established that the findings of fact of the trial judge are not to be disturbed, it is unnecessary to deal with the appellant's submissions relating to partly
written and partly oral agreements and the parol evidence rule.  If the alleged representation was not made, that is the end of the matter in relation to those questions.  Having found that the representation was not made, then the answers to questions 1, 2 and the first part of 5 are correct and cannot be disturbed.

Question 4
  In June, 1990 Lau and representatives of the appellant (including Simms and Terry Solomon) met at the Seaworld Nara Resort in Queensland and discussed the distributorship agreement.  A letter dated 21 June, 1990 (set out above) was sent by Lau to the appellant.  The exact nature of the discussions and the effect of the letter are and were the subject of dispute between the parties.

There is conflict between the evidence of Simms and Solomon on the one hand and of Lau on the other as to what was said at the Nara Resort meeting and the context and meaning of Lau's letter of 21 June.  It is necessary to examine the evidence relied upon and the conclusions reached by the trial judge.

It was submitted for the appellant that the exact date, place and circumstances of the meeting which took place at the Nara Resort are important, in that if 11 June is accepted as the date of the meeting, Lau's credibility is adversely affected as Lau gave evidence that the meeting took place on 12 June.  In my view, in the context of this case and the unsatisfactory nature of the evidence of all the witnesses, as noted by the trial judge, the only issues of significance in relation to the events of June, 1990 are whether the alleged representation was repeated (or made) and whether the letter of 21
June confirmed the alleged oral term or varied the distributorship agreement.

On either Monday 11 or Tuesday 12 June, 1990, Lau, Solomon and Simms met in the lounge of the Nara Resort Hotel and discussed the distribution agreement.  According to Simms, Lau agreed to the proposition that a term be included in the agreement to the effect that PMSA were the permanent distributors of Paul Mitchell Products for Australia and New Zealand subject only to cancellation for diversion.

Solomon then produced a document in his own hand on Seaworld Nara Resort stationery :-

"To:Paul Mitchell Systems (Australia) Pty Ltd, Australia ("PMSA")

Paul Mitchell Systems Pte Ltd, Singapore ("PMS") confirms your exclusive Paul Mitchell Products Distributorship with the following change:

The term of the Distributorship is now extended on an indefinite basis to the extent that it shall continue so long as PMS is Regional Distributor and PMSA complies with all requirements of the Distributorship which PMSA is to perform.

PMS per:

(Walter Lau, Director)

PMSA Accepts the above

PMSA per:

(Ron Simms, Director)"

Simms says that Lau agreed that the document was exactly what was agreed upon but did not sign it, preferring to take it back to Singapore to be re-written on Lau's letterhead.

After further exchange of faxes, Lau faxed the letter of 21 June, 1990 to PMSA.  Simms gave evidence that upon receipt of a copy of the letter, he discussed it with Solomon and then telephoned Lau.  Simms' evidence in relation to the telephone conversation with Lau was :-

"I rang up Walter.  He was very cheerful at the time, as always, and I said, `Walter, this is not exactly what we have agreed.  He said, `Look, this is just about what we have agreed.  I want it to stay that way, but you have my undertaking that nothing will happen.  Never at any stage am I going to take the distributorship away from you unless you divert stock."

The trial judge noted that Terry Solomon's statement was in identical terms to Simms' statement and set out the relevant part of Solomon's statement.  His Honour also extracted large portions of Solomon's oral evidence-in-chief concerning the events at Nara Resort.  Solomon's and Simms' evidence, in essence was that Lau had :-

"... Confirmed to the meeting that the appointment of PMSA as ongoing distributor for Australia and New Zealand could be relied upon ...

... Advised the meeting that it was world-wide policy of Paul Mitchell Systems Inc of the United States that once the distributor was appointed it should only be changed if that was absolutely necessary.  Such circumstances very seldom occurred and were extreme circumstances.  Even if the most unlikely event occurred and PMSA were to find itself in such extreme circumstances then Walter Lau would still respect the position of the sub-distributors in each state.  Walter then said that even if he lost his regional distributorship, JPMS Inc in the USA would still respect the position of PMSA and all of its state distributors."

Solomon's oral evidence-in-chief which relates to the document prepared by him on Nara Resort stationery is to the same effect as Simms' version set out above, namely, that on the evening of Monday 11 June Lau, Simms and Solomon met and
discussed the distributorship agreement, Solomon went away and prepared the hand-written document, and Lau agreed with that document but wanted to take it back to Singapore and re-state it in his (Lau's) own words on his (Lau's) letterhead.

Lau's evidence as to the events at the Nara Resort differs significantly from that of Simms and Solomon.  According to Lau, Simms approached him in the lobby of the hotel on Tuesday June 12 following a meeting with sub-distributors and handed him the handwritten document produced by Solomon.  Lau says that he told Simms that he would not sign the document as he was not prepared to give PMSA an indefinite distributorship and told Simms that he (Lau) would correct the letter and send it back.  According to Lau, Simms agreed to this and when Solomon approached them soon after, Solomon also agreed that Lau would correct the draft letter and send it back to PMSA.

The trial judge assumed that the evidence of Simms and Solomon concerning Lau's statements to the state distributor's meeting was accurate and found that there was "nothing in the 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."

His Honour continued :-

"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 obtained 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 distributorship is automatic unless terminated by either party ...'

There is a world of difference between an indefinite extension of an agreement made for an initial 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 which would have had the same effect as the alleged representation which 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 Simms' 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 claim were not made as pleaded."

The appellant attacked the findings of Olney J. on a number of grounds.  The primary ground was that his Honour had decided the case on a narrow pleadings point.  Counsel for the appellant submitted that his Honour had decided the case based only on the terms pleaded in paragraph 9 of the re-amended statement of claim but it was clear from the particulars and how the case was conducted that PMSA's case was not limited to the terms pleaded in that paragraph.  Mr. Solomon of counsel also contended that the evidence of the events up to and including the meeting at the Nara Resort in June of 1990 shows that Solomon's document was intended to replace the partly oral part of the November, 1989 agreement and that Lau's statement that he would re-state the document in his own words could not be construed as an outright rejection of the proposal in the document.  It was further submitted that as his Honour had accepted Solomon and Simms' evidence as to when the Nara Resort meeting occurred and rejected Lau's on that point, that his Honour's reliance on Lau's evidence both written and oral, was called into question.

There was argument before the Full Court that the Court ought to investigate the exact nature of the contractual relationship between the parties and as such, resolve the ambiguity in their letter of 21 June, 1990 which, it was contended for by the appellant, is apparent when that letter is construed with the letter of 8 November, 1989.  Counsel for the appellant made reference to a number of cases relating to the construction of contracts where there is ambiguity and submitted that the court should resolve the ambiguity by application of the contra proforentum rule in favour of the appellant.

In my view the above submissions for the appellant are irrelevant to the questions before the Full Court.  The court has before it five separate questions stated as preliminary issues in the matter, and the only role for the Full Court is to investigate the answers given to the separate questions by the trial judge.

It is clear from the separate questions, the pleadings and the judgment of the trial judge that the key to questions 1, 2, 4 and 5 is the representation alleged to have been made by Lau on 7 November, 1989 and repeated in June, 1990. 

In relation to the representation alleged to have been made at the Nara Resort meeting in June, 1990, the question again becomes one of whether the trial judge was influenced by the credibility and/or the demeanour of the witnesses in making his findings as to the events at that meeting.  As was the case upon investigation of the evidence relating to the events of 7 November, 1989, the trial judge was presented with conflicting testimony as to what occurred between the parties in June, 1990.  His Honour has clearly preferred the evidence of Lau, in preference to that of Simms and Solomon, as it relates to the issues that his Honour found to be important in answering the relevant separate questions. 

As stated earlier, it is not for an appellate court to disturb findings of fact made by a trial judge which are based to any significant degree on the credibility or demeanour of the witnesses unless it can be shown that the trial judge failed to use or palpably misused his advantage, or acted on evidence inconsistent with facts incontrovertibly established by the evidence or which was glaringly improbable.

In my view it cannot be said that the trial judge has erred in this way in reaching the conclusion that the alleged representation was not made nor repeated at the Nara Resort meeting in June, 1990. 

Lau's evidence, relied upon by the trial judge, cannot be said to be glaringly improbable.  Whilst it may be that the Full Court, if it investigated all the evidence which was before Olney J., might reach a different conclusion as to the relevant events of June, 1990, that of itself, is not enough to justify disturbing the trial judge's findings.  Olney J., having had the advantage of seeing the witnesses and hearing their testimony over eight hearing days, has reached the conclusion that the representation alleged to have been made was not in fact made.  His Honour reached this conclusion based on his view of the evidence as it was presented to him, which view was clearly influenced by his Honour's opinion of the credibility of the respective witnesses. 

There is nothing glaringly improbable about his Honour's finding that the letter of 21 June, 1990 indicates that Lau refused to agree to the proposal put by Solomon that the distributorship agreement be extended on an indefinite basis.  Nor is it glaringly improbable that Lau did not represent that the distributorship was to be indefinite subject only to breach. 

Once it is accepted that the alleged representation was not made, the appellant's case depends on the contention that the letter of 21 June, 1990 operates to vary the distributorship agreement such that the distributorship is indefinite, subject only to termination for breach of the agreement.

In my view the letter of 21 June, 1990 is not ambiguous, but is plain on its face as reflecting the limited temporal duration of the agreement.  The letter of 8 November, 1989 expressed the agreement to be for "An initial period of one year ... renewable on a yearly basis unless terminated by either party" and the letter of 21 June, 1990 "Confirm[s] our agreement that yearly renewal of your distributorship is automatic unless terminated by either party."  Both letters contemplate termination for breach of the agreement, this is not in dispute.

If the finding of the trial judge that Lau did not make the alleged representation is not to be disturbed, the only "agreement" that the letter of 21 June, 1990 can possibly "confirm" is the agreement embodied in the letter of 8 November, 1989.  Namely, an agreement of limited temporal duration.

The appellant has, in the conduct of its case, implicitly acknowledged that the letter does not amount to a variation of the distributorship agreement.  The evidence of the appellant's own witnesses is that the 21 June letter did not satisfy their desire for an indefinite extension of the agreement.  It is precisely for this reason that the appellant pleaded and argued that Lau had made some oral statement granting the indefinite extension.

Having found that the alleged representation was not made either on 7 November, 1989 or at the Nara Resort meeting in June, 1990, it follows that the 21 June letter is exactly what Lau said it was - a re-statement of the term of the distributorship agreement which provided for duration as it appeared in the letter of 8 November, 1989 -
and not a variation of the original agreement.

On the findings of his Honour, the answers to Question 4 and the second part of Question 5 are correct and no basis has been shown for setting them aside.

Question 3
  Question 3, relating to implied terms, is conveniently dealt with separately. 
  At trial, the respondents indicated that they did not press the allegations made in paragraphs 15, 16 and 17 of the amended defence, other than that made in paragraph 17.1.  This fact only has relevance in relation to the question of costs and will be dealt with under that heading.

There was argument before the Full Court that there was no right of appeal against the answers to Question 4 as there had been no formal order in relation to the answers to that question and that the appellant required a grant of leave by the court to argue its appeal on this point.  However, in light of concessions made by counsel for both sides and my opinion that his Honour's answers to the other questions ought not to be disturbed, nothing turns on a determination of his issue save perhaps on the question of costs.

Counsel for the respondents conceded that if the appellant was to succeed on the "main questions", the respondents would not oppose a grant of leave to appeal in respect of the implied terms.  Mr. Solomon of counsel for the appellant conceded in
argument that there would be no practical difference to the outcome of the case if the appellant succeeded on the implied terms point, but failed on all the others.

The trial judge found that the distributorship agreement contained a partly express and partly implied term as pleaded in paragraph 10 and an implied term as pleaded in paragraph 17.1 of the amended defence (relevantly set out earlier).

In relation to the implied term as pleaded in paragraph 10, his Honour found that for paragraph (e) of the letter of 8 November, 1989 (embodying the distributorship agreement) to have any effective operation at all, changes in the directorship or shareholding of the appellant and in the unit holding of the trading trust (of which the appellant was trustee) should be notified to PMS in the distributorship year in which the changes occurred.

His Honour was of the opinion that it would defeat the operation of paragraph (e) if the consequences of any change could be avoided by the failure of the appellant to notify PMS of such change.

Consequently, Olney J. held that the term pleaded in paragraph 10 of the amended defence satisfied the five criteria referred to by Mason J. in Codelfa Construction Pty. Ltd. v. State Rail Authority of New South Wales (1982) 149 CLR 337 at 345-9 and was to be implied as far as it was not expressed in paragraph (e) of the 8 November, 1989 agreement.

The appellant based its argument on this point on drawing a distinction between prior approval to a change and notification after a change.  The appellant submitted that the term which should have been implied was one requiring approval of changes and therefore, the right to terminate under paragraph (e) of the November, 1989 letter would only arise with respect to a change removing Simms as an executive director which was not approved.

In my opinion, the distinction sought to be drawn and the reason advanced for drawing it cannot be sustained by logical argument.  First, there is no practical or logical difference between prior approval and subsequent notification in the context of this case:  for a change to be approved by PMS it must be notified to them.  If a change were to be made after PMS had been notified and had not approved it, PMS would have a right to terminate the agreement in the distributorship year in which the unapproved change occurred.  Similarly, if a change occurred which was not notified to PMS, the failure to notify would activate PMS's right to terminate the agreement in that distributorship year.

As changes in the directorship or shareholding of the applicant [appellant] and in the unit holding of the trading trust "are matters which would be particularly within the knowledge of the applicant [appellant] and not within the knowledge of PMS or Lau", if a term of this nature is to be implied it is ineffective unless said term requires notification to PMS in the distributorship year in which the change occurs.

Second, it is a gross misstatement of the evidence to suggest that the reason for the inclusion of paragraph (e) in the 8 November, 1989 letter was to in some way
require PMS's approval for the removal of Simms as an executive director of the appellant or to in some way protect Simms' position as a principal in the arrangement. 

The basis for the inclusion of a term of this nature in the agreement was JPMS's overriding concern that stock supplied to distributors would not be diverted.  JPMS required extensive financial information relating to the proposed directors principals and related entities of the appellant for precisely this reason.  PMS and Lau were similarly concerned with the integrity and reliability of their proposed distributors.

In my view, the only difference between paragraph (e) of the letter of 8 November, 1989 and paragraph 10 of the amended defence is that the latter includes reference to the trading trust and provides for the logical position that PMS would not immediately or even promptly be aware of any changes.

The term pleaded in paragraph 10 of the amended defence satisfies the criteria set out by Mason J. in Codelfa Constructions Pty. Ltd. v. State Rail Authority of New South Wales.

I turn now to Olney J.'s finding in relation to the "best endeavours" clause pleaded in paragraph 17.1 of the amended defence.  His Honour held that the term was capable of clear expression and was not inconsistent with the express terms of the agreement.  His Honour was of the opinion that because of the exclusive nature of the distributorship, the parties were under mutual "best endeavour" obligations.  Without such obligations, either party could deprive the other of the benefit of the agreement and
for this reason, his Honour thought it was reasonable and equitable that the term as pleaded in paragraph 17.1 be implied.  His Honour was also of the opinion that the Codelfa criteria of business efficacy and obviousness were satisfied for the same reasons.

It was submitted by the appellant that the implied term as found by his Honour ought not to have been implied for various reasons.  It was submitted that the term, whilst appearing in previous drafts, did not appear in the final agreement (as evidenced by the letter of 8 November, 1989) and that there was no question of such term being agreed orally between the parties.  It was also submitted that the implied term was one which could be characterised as a positive obligation on the appellant to improve the distributorship.

In my opinion, in order to answer the submissions of the appellant, it is necessary to go no further than the following passage from Cheshire & Fifoots Law of Contract 6th Australian edition at paragraph 432 :-

"General duty of cooperation implied in every contract.  Although our courts have refrained from imposing expressly any general duty to act in good faith on contracting parties other than fiduciaries, a strong current of authority nevertheless establishes that no contract consists merely of its express terms, but that every contract contains by implication a fundamental commitment to mutual cooperation.  The following far-reaching principle has been endorsed by the High Court and applied with accelerating frequency:

It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his [or her] part to enable the other party to have the benefit of the contract.

An elegant balance is struck in this formula between breadth and confinement.  On the one hand the duty to cooperate arises in every contract.  On the other hand, the duty is limited to acts by reference to `the benefit of the contract', which can only be defined by due consideration of
the particular transaction, including its express terms.  The duty is further restricted to what is `necessary' for the realisation of benefit.

The following may be regarded as particularisations of the general rule that each party to a contract by implication agrees to do what is necessary to enable the other to have the benefit of the contract:

.....

Duty to act in accordance with contract objective.  In the absence of contrary agreement, each party to a contract must comply not merely with the letter of contract, but act with due regard for the objective to which the contract is directed.

.....

The duty to act with regard for the objective of the transaction is not confined to the supply of goods and services.  It requires generally that a contracting party must make all appropriate efforts to carry out the contract in the spirit in which it was made.  On this basis typical terms have for long been implied in many contracts which are designed to give effect to their established character, and which apply unless excluded by or inconsistent with the particular circumstances.  For example, in Hospital Products Ltd v United States Surgical Corporation (1984) 55 ALR 417 at 428, 485;  cf Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135 it was said that an exclusive distributorship agreement implied an obligation by the seller to use `best efforts' to supply the goods and by the buyer to use best efforts to promote their sale."

The objective of the distributorship agreement is easily defeated unless PMSA is under some form of "best endeavours" obligation.  Although not an issue raised by the separate questions, it is clear to my mind that the distributorship agreement would also contain an implied term that PMS and Lau use their best efforts to supply the Paul Mitchell products to PMSA.

Costs
  In supplementary reasons published on 9 December, 1993 Olney J. dealt with, inter alia, the question of costs of the proceedings in light of written submissions by
the parties presented subsequent to his Honour's initial judgment of 29 October.

His Honour agreed with the submission by the appellant that the respondent had put the appellant to unnecessary costs, including the allegations in paragraph 15, 16 and 17 (except 17.1) which were abandoned before trial.  However, his Honour was of the view that a nominal amount was involved and discounted by 2.5% the costs which would otherwise have been recoverable by the respondents to compensate the appellant for the costs thrown away.

In their grounds of appeal, in written submissions and in oral argument before the Full Court, the appellant sought to attack the findings of Olney J. in relation to costs.  It was submitted for the respondents that in order to argue an appeal from Olney J.'s order relating to costs, the appellant required a grant of leave from the Full Court which would not be granted having regard to the merits of the case.  I am not persuaded that having regard to the manner in which the case proceeded before his Honour and the final nature of the orders agreed by the parties, that the order for costs ought to be treated as interlocutory.  Where an order for costs is embodied in a final judgment, an appeal lies against the order for costs without leave:  Lombok Pty. Ltd. v. Supetina Pty. Ltd. (1987) 14 FCR 226 at 247.

In any event, to ultimately succeed on the issue of costs, the appellant must show that the trial judge's discretion as to costs miscarried.

The discretion of a trial judge in the making of costs orders is an
unqualified one save that the discretion must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation (Trade Practices Commission v. Nicholas Enterprises (1979) ATPR 40-41; (1979) 28 ALR 202).

In Cummings v. Lewis (1993) 41 FCR 559 at 603-604, I had occasion to examine the principles regulating the circumstances in which an appellate court may review the exercise of a judicial discretion in so far as those principles apply to an appeal against an order for costs, and concluded (at 604) :-

"The error made in the exercise of a discretion must be one that vitiates the original decision (Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 48).  Where there is no identifiable error of fact or positive law, the appellate court must be persuaded that the order stands outside the limits of a sound discretionary judgment before the appellate court will intervene (Norbis v Norbis (1986) 161 CLR 513 at 520)."

The conduct of a party at trial or in the manner in which a case is presented is a relevant circumstance which a trial judgment may take into account to reduce an award of costs or to order payment of the other party's costs:  Cummings v. Lewis at 603 and the cases cited there. 

It is clear from the supplementary reasons of Olney J. that his Honour embarked upon a careful consideration of the effect of the late abandonment of the allegations pleaded in paragraphs 15, 16 and the bulk of 17 and the effect that such abandonment had on the amount of unnecessary time, effort and cost to which the appellant was put.  This can be seen from his Honour's supplementary reasons on this point :-

"After considering the material advanced on behalf of the applicant it is my view that more than a merely  nominal amount is involved and that therefore I am of the view that some order should be made to compensate the applicant.  There is absolutely no reasonable basis upon which to order that any costs awarded to the applicant be taxed on an indemnity basis.  I agree with the respondents' solicitors in characterising the claim for indemnity as being extravagant.  I do not propose to canvass the arguments raised in relation to the various issues raised by the parties.  They are set out in detail in the submission.  My view is that it would be an extremely complex matter to identify the costs specifically referrable to the abandoned issues and that it would not be sensible to make an order which would inevitably give rise to a lengthy and costly taxation of costs.  Instead, I propose to order that the costs which would otherwise be recoverable by the respondents should be discounted to compensate the applicant for the costs thrown away.

I have had the advantage of hearing evidence in the matter over a period of several days and have a fair understanding of the case as pleaded.  I have also been able to peruse the documents filed by the parties over the course of the two years since the application was originally filed.  In addition, I have had the advantage of considering the written submissions  made by the parties.  I am of the view that the matters not pressed by the respondents were to a large extent connected with a related issue which was pressed and on which the respondents succeeded and that therefore the discount in favour of the applicant should only be small.  Doing the best I can, but with a degree of confidence that what I propose is a fair and reasonable result for both parties, I propose to order that the respondents recover from the applicants 97.5% of their taxed costs of the whole proceedings."

(Emphasis added)

In this light it is not possible to accede to the contention put for the appellant that the trial judge has misapplied the principle relating to costs or that the decision he reached was a decision that was not open to him.

Orders on the Appeal
  Having regard to the basis upon which the matter was determined before Olney J. as set out at the beginning of these reasons, and my decision as to the answers to the questions stated I would dismiss the appeal with costs.

I certify that this and the preceding forty (40) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.

Date: 21 July 1995

Associate

Counsel for the Appellant:              Mr. D.H. Solomon
Solicitors for the Appellant:    Messrs. Solomon Brothers

Counsel for the First and

Second Respondents:  Mr. Sperling Q.C. and Mr. J. Nicholas

Solicitors for the First and

Second Respondents:  Parker & Parker, as agents for Allen Allen & Hemsley

Date of Hearing:  22-23 March, 1994

Place of Hearing:  Perth

Date of Judgment:  21 July 1995