Raestreet P/L v the Farmers' Shop P/L & Anor No. Scgrg-93-1532 Judgment No. S6753

RAESTREET PTY LTD v THE FARMERS’ SHOP PTY LTD

Civil
Duggan J

The plaintiff’s action against the defendant is based on a contract in writing entered into between the plaintiff and the defendant on 11th March 1993. The plaintiff company, Raestreet Pty Ltd (Raestreet), is under the effective control of Mr Trevor Lloyd (Lloyd). The directors and shareholders are Trevor Lloyd and Roberta Lloyd who each hold one fully paid share.

The defendant company, The Farmers’ Shop Pty Ltd (Farmers’ Shop), is a trading company utilised by the South Australian Farmers’ Federation (SAFF) as a trading company to further commercial enterprises in which it might become involved. The contract provides for the appointment of Lloyd in his capacity as an employee of Raestreet as the negotiator and representative for Farmers’ Shop in commodity training in which that company might become involved. The contract refers to an “initial contract term” of 15 weeks from 11th March 1993 to 24th June 1993 and other provisions provide for an extension of that period to a total term of five years.

Farmers’ Shop purported to terminate the contract on 23rd July 1993 because of what it claimed was “a fundamental breach” of the agreement. Farmers’ Shop claimed that it was entitled to take this action because of the allegedly unauthorised appointment by Lloyd of an agent to represent Farmers’ Shop interests in the United States of America. The plaintiff claims that the defendant had no right to terminate the contract and that, as a consequence, the plaintiff is entitled to payment of the total of the retainers to which it would have been entitled under the contract if it had run its course. The amount claimed is $401,000. There is an alternative cause of action based on estoppel. The amount claimed pursuant to this course of action is the same as that sought for breach of contract.

The pleadings give rise to three main issues:

Farmers’ Shop claims that it was induced to enter into the contract as a result of a series of misrepresentations made by Lloyd concerning his experience, success and honesty in business. It also claims that Lloyd failed to reveal to the defendant that, prior to entering into the contract, he had been convicted of a series of serious fraud offences for which he was sentenced to imprisonment for a period of three and a half years.

It was argued on behalf of Farmers’ Shop that the contract had not been extended beyond the initial period of 15 weeks. However the plaintiff claims that the contract was extended and, alternatively, that by reason of certain facts pleaded in the amended statement of claim the defendant is estopped from asserting that the option to continue the contract beyond 15 weeks had not been exercised.

Farmers’ Shop claims that Lloyd acted beyond his authority in appointing an agent to represent Farmers’ Shop in the United States of America and that even if the contract had been extended, this action breached a fundamental term of the agreement, thus entitling Farmers’ Shop to terminate the agreement as it had purported to do on 23rd July 1993.

In order to discuss these issues it is necessary to refer in more detail to some of the background circumstances. According to Lloyd he has been involved in the textile industry for many years and has had extensive overseas business experience. He said in evidence that in late 1992 he paid particular interest to a series of articles in “The Advertiser” newspaper dealing with the rural crisis. It was stated in one of the articles that Mr Tim Scholz, president of SAFF, advocated involvement by primary producers in the manufacture and sale of goods produced from their own products. This involved becoming part of the process which added value to food and fibre products. Lloyd contacted Scholz and advised him that he may be able to assist. He provided references and eventually a meeting was arranged between Scholz and Lloyd. The meeting took place in early October 1992.

At the meeting Lloyd gave further details of his overseas trade experience and there was some conversation in general terms as to the manner in which he might assist the interests represented by Scholz. Scholz expressed some interest and it was agreed that Lloyd would prepare some further explanation of his ideas in writing. Subsequently Lloyd provided Scholz with his ideas in a memorandum (P10).

The stated aim of the proposal as expressed in the memorandum was “to create a co-operative or corporation to seek out the appropriate markets for Australian farmers, sell those products direct to the buyers, with added value, and control the production to gain a higher return for the producers of the base materials”. The document then went on to explain the method by which this aim might be achieved. It suggested the selection of an appropriate vehicle as the operator and the hiring of persons suitably qualified to commence the project. It assumed that the first product marketed in this way would be wool. It proposed that surveys of overseas markets would be conducted and that markets in highly populated areas such as the United States of America would be identified. Investigations would also take place with a view to involving the primary producers in adding value to their own products and the viability of manufacturing overseas would be investigated.

Lloyd said that a further meeting with Scholz and the economic adviser to SAFF, Mr Chris Pritchard, took place on 23rd October 1992. According to Lloyd he also met Mr Graham Blight, the president of the National Farmers’ Federation (NFF) at either this meeting or at a subsequent meeting with Scholz on 11th November 1992. NFF is the federal body with which SAFF is affiliated. Further meetings took place and Lloyd’s earlier written proposal was supplemented with a further memorandum.

It was at this point that Lloyd was invited to go to Canberra to explain the proposal to representatives of NFF. This meeting took place on 24th November 1992. Scholz attended along with Mr Blight and Mr Ceramidas who was secretary of Farmwide Pty Ltd (Farmwide), a company incorporated by NFF to enable it to engage in commercial activity thus performing a role similar to that carried out by Farmers’ Shop on behalf of SAFF. Lloyd said that he was told by Blight in Canberra that Lloyd’s “numbers” had been checked by the accounting firm of Price Waterhouse and that they had been commented on favourably by that firm. Lloyd said that mention was made at the meeting that SAFF would not be able to fund the project by itself. He also said that there was talk of the national organisation becoming involved in due course.

While these general discussions were taking place Lloyd made some enquiries about an international textile fair of which he had some knowledge and which was held periodically in Los Angeles. The fair is known as Calmart and Lloyd brought it to the attention of Scholz and the SAFF Board, suggesting that SAFF should become an exhibitor. There was some delay in SAFF considering their position on this proposal and Lloyd raised this with Scholz who replied by fax stressing that he had no authority to commit the organisation without Executive and Finance Committee (EFC) approval.

In late 1992 and early 1993 Lloyd also made enquiries about woollen mills in Poland. If SAFF were to become involved in the manufacture overseas of textiles made from Australian wool then a means of manufacture would have to be found and Lloyd began investigating the possibility that factories might be available in Poland for this purpose. The initial contact was made through the Polish Consul-General’s office in Sydney.

As early as October 1992 Lloyd pressed Scholz to formally retain Raestreet in order to facilitate the project which he had suggested to SAFF. On 22nd October 1992 he sent Scholz a “letter of agreement” which set out the terms of the suggested agreement. Provision was made at the foot of the document for SAFF to execute it as an agreement, but Scholz advised that it was too early in negotiations to formalise the arrangement in this manner.

However, as I have already pointed out, a written agreement between Raestreet and Farmers’ Shop was entered into on 11th March 1993. It was signed by Scholz as a director of Farmers’ Shop and Mr Michael Deare as secretary. At that time Deare was also SAFF’s chief executive officer. I will refer to the document in more detail at a later stage but, as I have pointed out above, the effect of the agreement was to appoint Raestreet and, in particular, Lloyd as a negotiator and representative for Farmers’ Shop.

Misrepresentation and Non-Disclosure

It is convenient to deal first with the defendant’s claim that it was entitled to terminate the contract on the ground that the defendant was induced to enter into it as a result of misrepresentation by Lloyd and his failure to disclose material facts. It is pleaded that in making the representations and concealing material facts Lloyd and the plaintiff engaged in conduct which was misleading or deceptive contrary to s52 of the Trade Practices Act 1974 (Commonwealth). It is also pleaded that the conduct was contrary to ss58 and 59 of the Fair Trading Act 1987 and s7 of the Misrepresentation Act 1971.

Details of the alleged misrepresentations and non-disclosure are set out in the following paragraphs of the defence:

“8..... The Defendant further says that the Defendant was induced to enter into a Contract of Agency with the Plaintiff in reliance on representations (“the representations”) from Trevor Lloyd, as agent, and employee of the Plaintiff and a person who appeared to exercise control over the Plaintiff who represented to Tim Scholz who was authorised by the Defendant to negotiate the contractual terms with the Plaintiff and Trevor Lloyd that:
(i).... he had worked in Asia in trade and commerce continuously since the early 1970’s through to 1991 or 1992;
(ii)... for a number of those years he had been based in Hong Kong working for himself and for other companies;
(iii).. he could speak fluent Chinese which allowed him to negotiate directly with Chinese businessmen in their own language;
(iv)... as a result of his many years in the Asian region he had made sufficient money to enable him to retire from active business in the Asian region and return to Adelaide to undertake other business ventures;
(v).... he was a well respected honest and trustworthy businessman with a substantial deal of expertise in the export and import of goods from Australia including the textile industry.
9...... Trevor Lloyd concealed from Tim Scholz and the Defendant company material facts (“the material facts”) as to his background namely -
(a).... that he was previously sentenced to three and a half (3½) years jail by the Central District Criminal Court on or about the 10th day of May 1983;
(b).... that he was jailed as a result of being convicted on 9 counts of having, between January 20th and June 17th, 1981, with intent to defraud, obtained from A.G.C. (Factors) Limited a total of $121,583.62 by falsely pretending that 5 other companies, including Myer Sydney Limited and Myer Melbourne Limited had incurred debts totalling $120,726.00 with his company Milburn Fashions Pty Ltd;
(c).... in addition the District Court took into account 18 similar counts involving more than $163,000.00 and dated back to December 1979;
(d).... that at least one company which Trevor Lloyd had controlled, Milburn Fashions Pty Ltd had gone into receivership and subsequently liquidation as a result of poor management;
(e).... Trevor Lloyd had been terminated as an agent of the AMP;
(f).... Trevor Lloyd had been involved in a partnership with Ransom Consolidated Pty Ltd in 1981 which had a Receiver and Manager appointed to it;
(g).... Trevor Lloyd had an outstanding judgment debt owing to a former partner, Mr Malachy Ward and had been the subject of a Notice of Bankruptcy in relation to that judgment;
(h).... Trevor Lloyd had been a partner in a business - Sino Australia Trade Consultants which partnership was dissolved.”

.................. Scholz gave evidence that Lloyd came to see him in October 1992 in order to discuss the articles which had appeared in the newspaper dealing with the rural crisis. According to Scholz, Lloyd told him that he had a great deal of experience in importing and exporting commodities and suggested that he could be of assistance. Scholz continued:

“AHe, in that initial meeting, came from a point of view of saying that he had wide experience in this whole area. He said to me that in fact he had been in Asia, predominantly Hong Kong for the past twenty years and was involved in a number of companies and businesses over there, and spent a period of time in the commodity broking wholesale industry. Had a great number of contacts, and it was on the basis of that experience he presented himself.
QDid you, at that stage, quiz him about his background?
AYes, I did. I was interested, that was one of the most significant points about the first meeting, in that he said he had practical hands-on experience for the past twenty years, and in fact had only just returned to Australia.
QDid you ask him about the circumstances of his return to Australia?
AYes. I said why had he come back to Australia, and his response was that he had always intended to come back to Australia, but he made a pact with his wife that he would either retire back to Australia when he reached a certain age, or when he had made enough money to be financially stable, comfortable in retirement.
QDid he tell you which one brought him back, which of those?
AYes, I asked the question, and he said that he had come back to Australia before he had reached the designated age.
QAnd did he say anything on the topic of whether or not he reached his financial target?
AYes, he said that was the reason he came back; he had reached the financial target other than the age, which would have been the limiting factor, following the agreement with his wife.
QDid he convey any words to you to convey the impression about whether or not he was successful?
AYes, and that was a part of the process of coming back to Australia, having been very successful.”

Scholz was asked whether Lloyd said anything about Chinese languages and the following evidence was given:

“A.... Yes, there was an area of interest to me. I have a sister-in-law who is Chinese. Amongst the discussion he talked a lot about the requirement to keep face in Asia, and something that Australians didn’t understand. That it was vital to have credibility, and to be a person of your word. He said that he spoke two Chinese languages of two dialects of Chinese fluently, and that had been a huge help in his work over the past 20 years, enabled him to converse on home territory.
Q...... In terms of you mentioned his contacts in Asia, and him telling you about that, did he discuss the nature of his business relationships with people in Asia?
A...... During the discussion we talked about the companies he had worked with and for, and the business partners that he had had, not in detail, but just business partnerships he had had over that period of time.
Q...... Did he say words to you on the topic of his own integrity?
A...... Yes, that was the thrust of really the first meeting.
Q...... Can you say the gist of the words that were said?
A...... Yes, when we were discussing the need to keep face he talked about the need for honesty and integrity as part of being a credible business operator, and -
Q...... And what did he say to you, if anything, about his integrity?
A...... That he was a businessman of total integrity which ensured his success.
Q...... Are you able to tell us the words that he used to provide that gist to you?
A...... Repeated over and over were the need to keep face, the need to provide that trust. A great deal of time talking about trust required between, the need for trust.
Q...... In terms of his ability to do that did he say words about the kind of person he was?
AYes, and said to me that it’s on that basis he’s coming to see me because anything less would not be successful.
QLess than what?
AIf there wasn’t that trust, credibility about him, well then the proposal, anything that he put up would not be successful.”

When cross-examined Lloyd agreed that he told Scholz he had worked in Asia in trade and commerce continuously from the early 1970’s through to 1991 or 1992. He also agreed that he told Scholz that, for a number of years, he had been based in Hong Kong working for himself and others. He denied saying that, as a result of his many years in the Asian region, he had made sufficient money to enable him to retire from active business in that region and to return to Adelaide to undertake other business ventures. He agreed that if he had said that it would not have been true.

Lloyd agreed that he told Scholz he was “a well respected honest and trustworthy businessman”. He also agreed that he told Scholz he had a substantial deal of expertise in the export and import of goods from and to Australia, including expertise in the textile industry. However he denied saying that he could speak fluent Chinese which allowed him to negotiate directly with Chinese businessmen in their own language. He said in evidence that he could not speak fluent Chinese and that he always used translators. He explained that his knowledge of the Chinese language was restricted to the correct forms of greeting in cantonese and mandarin.

I have reached the conclusion that Lloyd made all of the statements attributed to him by Scholz which I have just summarised. Apart from my assessment of the credibility of these two witnesses, I have been assisted by evidence from other witnesses concerning statements allegedly made by Lloyd. It is important to bear in mind that the statements forming the basis of the misrepresentations and misleading conduct alleged in the defence, are claimed to have been made to Scholz. However evidence of similar statements made to other witnesses has assisted me in deciding whether I should accept the accuracy of the evidence given by Scholz.

In particular, I accept the evidence that -

Lloyd told Mr Gordon, the New York businessman with whom he had dealings in May 1993, that he had been involved in trading in Hong Kong for some 15 years, that he had some knowledge of one of the Chinese dialects and that he had come out of retirement to take on this particular project as a “last hurrah”.

Lloyd gave the impression to Mr Starick, a senior office holder of SAFF, and other members of the EFC committee on 23rd February 1993 that he had been very successful in business.

During a discussion with Starick on 4th March 1993 Lloyd stated that his business in Hong Kong had now ceased and that he was semi-retired. The understanding Starick was given was that Lloyd was unable to continue with his business in Hong Kong because of the conditions of the contract whereby he sold the business. Starick was given the impression that Lloyd had been in Hong Kong for 16 or 17 years.

Lloyd told Mr Cheney, who was employed by SAFF, that he was financially independent as he had sold his business in Hong Kong. Lloyd said he spoke mandarin.

In September 1993 Lloyd told Mr Jeffrey Arney, chairman of a wheat growers’ association approached by Lloyd, that he resided in Hong Kong for 20 years and traded there during that period. Lloyd said he had reached his financial goals in Hong Kong and that he had decided to step down to a slower lifestyle in Adelaide. He said he was able to communicate in Chinese.

Lloyd indicated to Mr Gordon Ransom with whom he was doing business in 1981 that he could speak mandarin.

Lloyd told Mr John Truscott with whom he discussed doing business in 1986 that he could speak mandarin.

In late 1991 Lloyd told Mr Frederick Noteboom, an officer of Telecom with whom he was doing business, that he had set himself certain financial objectives in China, that he had achieved those objectives and that, as a result, he had returned to Australia.

I return then to the representations which I have found were made to Scholz. When asked about the statements made by Lloyd as to his background, expertise and integrity and the relevance which they had to the contract between Raestreet and Farmers’ Shop, Scholz said that they were central to his signing the documents. He made it clear that if Lloyd did not have the “successful business profile” which had been portrayed to him, he would not have signed the contract on behalf of Farmers’ Shop. I have no hesitation in accepting Scholz’ assertion in this respect. If Lloyd’s services were retained through Raestreet he would be representing a high profile farming body in a new and expensive project. Much depended upon choosing the right type of person and some sort of assessment process was essential. Lloyd, for his part, was asking the defendant to place heavy reliance on his representations as to his background. He well knew the importance of this assessment and the extent to which reliance was being placed on his statements. It is of some significance that the contract which he prepared contained the following recital:

“5.1.. It is agreed that the FARMERS have entered into this agreement with RAESTREET to acquire the exclusive services of its employee Trevor Lloyd, the FARMERS having satisfied itself that the experience, skills, contacts, associates, records and background of RAESTREET and its employee Trevor Lloyd are of sufficient merit to warrant this agreement and its implementation.”

What then is the true position in relation to these aspects of Lloyd’s background which he mentioned to Scholz? Lloyd’s former wife, Rosalind Backler, was called by the defendant to give evidence. Her truthfulness as a witness was not challenged by the plaintiff. Mrs Backler said she married Lloyd in July 1969. At that time his name was Milburn. They were divorced in 1978. She said they lived together until the date of the divorce. According to Mrs Backler, she and Lloyd went to Thailand on a holiday in 1973. She purchased a caftan in a tourist shop. When she wore the caftan in Australia it attracted attention. At that time she was a fashion agent and she and Lloyd decided to import similar caftans into Australia. At that stage he was not working in the fashion industry but was selling chemicals for a local company. Mrs Backler said that, although Lloyd did not work in the fashion business at that time, he assisted her with advice and locating appropriate premises.

In the course of his evidence Lloyd said that from 1971 through to late 1976 he and his wife manufactured their own product in Thailand. Mrs Backler said she had no recollection of any financial interest in a company in Thailand. When Lloyd’s assertion that they had advanced a loan of $10,000 to a manufacturing company in Thailand was put to her, she said that was a lot of money and she thinks she would have remembered that investment. She said she had no memory of it. She said she is certain she did not incur any part of a debt of $10,000 to be used for any purpose in the business.

In his evidence Lloyd said that the business in which he was involved with his wife built up to a point where they were selling 30,000 garments per week. Mrs Backler said the business reached nothing like that size. According to her that figure more likely represented the total for the whole season rather than for one week.

When giving evidence-in-chief Lloyd said that he and his wife opened up an operation in the United States which produced a turnover of about $750,000 per year. According to Mrs Backler’s evidence the business operated for only 18 months and, although she cannot remember the turnover figure, she said they never made a profit. They had to send money over to keep the business going. She said “We were always propping it up”. She said that they had a dispute with customs about the duty to be paid on the garments and, although they won the dispute, the American project was closed down.

Mrs Backler gave evidence of where they lived in South Australia. She said their first dwelling was a unit which was purchased for $14,000. The purchase price was paid by Lloyd’s mother. The unit was sold for $37,000. The next house at Birksgate was purchased for $90,000 and it was subject to a mortgage of $40,000. Mrs Backler also gave evidence of the property settlement which took place at the time of the divorce. She said she transferred her interest in the business to Lloyd for a dollar. She said the business was not in good shape at that time. She said they had plenty of good will, but in order to revive the business it would have meant starting again. She agreed, however, that the business was successful until the difficulty with customs. She said that during the time she was with Lloyd they did not import very much from Hong Kong.

On 10th May 1983 Lloyd was sentenced to imprisonment for three years and six months for fraud offences. The offences, including various similar offences which were taken into account for sentencing purposes, were committed between 7th December 1979 and 17th June 1981. Lloyd said the offences occurred after a number of waterside workers strikes which impeded the release of imported goods. His company was wound up and he was released from prison on parole in January 1984.

Upon his release from prison he changed his name from Milburn to Lloyd. He obtained work as an insurance agent for the AMP Society. His agency was terminated in 1989 when it was alleged by AMP that he was representing to a foreign company that he was a director of AMP. When cross-examined about this Lloyd said he could not recall the details of the incident.

Lloyd remarried in 1989 and his second wife was called to give evidence by the plaintiff. She agreed in cross-examination that from 1990 to 1993 she and Lloyd were on and off unemployment benefits. She said that Lloyd was on unemployment benefits for the financial year up to the time of the signing of the contract with Farmers’ Shop.

It also transpired during cross-examination that Lloyd had judgment recorded against him in February 1992 for the sum of $117,000 in relation to his business dealings and that he had no funds to meet the debt. Bankruptcy proceedings had been commenced against him by the time he commenced discussions with Scholz about the proposal to represent Farmers’ Shop. Scholz was not acquainted with any of these matters. Indeed they did not come to light in this matter until cross-examination. The judgment debt is still outstanding.

I also accept the evidence of Mr Gordon Ransom who gave evidence that in the early 1980s he invested money in Lloyd’s business with a view to having Ransom’s son employed in the business. Not long afterwards a receiver was appointed to Lloyd’s business and Mr Ransom was unable to recover the amount in excess of $60,000 which he had invested in the business.

I find that the defendant has established that Lloyd made all of the representations set out in paragraph 8 of the defence. Lloyd painted himself as a very successful businessman who, by reason of his success, had made sufficient money to retire from his Asian business interests and return to Adelaide. He told Scholz he had made enough money to be financially stable and comfortable in retirement. He had reached his financial target. In an attempt to bolster his qualifications for transacting business on behalf of the defendant in the Asian region he gave Scholz to understand that he was fluent in two Chinese dialects. The true position was a long way from these representations. Lloyd’s business activities could hardly be described as successful. Apart from anything else the evidence discloses that he was in serious financial difficulty because of the failure of his business ventures at the time he was negotiating with Scholz. It was quite misleading to claim the business success which he did without revealing this and the other matters which I have summarised.
In the light of these findings, I turn to s52(1) of the Trade Practices Act, 1974 (Cth) which provides:
“A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

There is no dispute that Lloyd negotiated with the authority and on behalf of the plaintiff company. It was not argued that the negotiations leading up to the contract of agency did not take place in the course of trade and commerce. Authority for the proposition that such negotiations can come within trade and commerce is to be found by way of analogy in Wright v TNT (1989) 85 ALR 442 (independent contractor agreement) and Patrick v Steel Mains Pty Ltd (1987) 77 ALR 133 (contract of employment). The conduct in which Lloyd engaged in making representations as to his business success and current financial position were both misleading and deceptive. Farmers’ Shop relied on the representations as one of the factors which led it to enter into the agreement with Raestreet, thus satisfying the requirement of causation. (Henderson v Amadio Pty Ltd (1995) 140 ALR 391 at 544; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525.)

I reject the suggestion that the conduct complained of was no more than puffery. The statements were not of an introductory character of the type referred to in Pappas v Soulac Pty Ltd (1983) 58 ALR 231. Furthermore they were clearly intended to induce a belief in a position which was “objectively quantifiable and capable of substantiation”. CCH, Australian Trade Practices Reporter, vol 2 (at 14,802) ¶ 20-440.

I conclude that Farmers’ Shop has made out its case under s52(1) of the Trade Practices Act on the basis of the representations which I have been discussing. I am also of the view that the conduct entitled Farmers’ Shop to relief under s7 of the Misrepresentation Act, 1972 (SA). I have some doubt that it comes within one of the categories specified in s58 of the Fair Trading Act, 1987 (SA).

The representation as to honesty

The defendant has claimed that Lloyd made various statements about his honesty and that he conceded the fact that he had been convicted of fraud offences. I have no doubt that Lloyd told Scholz he was a businessman of “total integrity” and that this integrity had ensured his success. This was said in the context of Lloyd talking about the need for honesty and integrity in business. As I have pointed out, Lloyd agreed in cross-examination that he told Scholz he was a well respected, honest and trustworthy businessman. The defendant’s contention is that Lloyd made no mention of his conviction for fraud offences and that, in the circumstances, the non-disclosure in the face of the positive statements of honesty was misleading conduct as well as an actionable misrepresentation. Scholz made it clear that he would not have signed the contract if he had known of this conviction. He said the position demanded a high level of integrity, expertise and honesty.

It is not in dispute that in 1983 Lloyd pleaded guilty to nine counts of false pretences. The court was also asked to take into account 18 similar offences. I have pointed out that the offences took place between 7th December 1979 and 17th June 1981. The offences were committed on a company engaged in the business of factoring debts. They were connected with Lloyd’s importing business. On the occasion of each offence he falsely pretended that another company had incurred debts with his own company. This was in order to receive payment through the factor. $285,000 was obtained by means of the frauds and an amount in excess of $200,000 was outstanding at the time of the criminal proceedings. No restitution was made.

Lloyd claimed in evidence that he did disclose the conviction to Scholz on an occasion after the signing of the contract and about the time that its extension beyond the 15 week period was under consideration. The meeting at which the disclosure is alleged to have taken place occurred on 6th June 1993. Lloyd had already been overseas on Farmers’ Shop business and he was about to leave on another overseas trip. He was concerned that there had been no formal extension of his contract and he arranged to meet Scholz that evening. They went to a café on Hyde Park Road.

Lloyd said in evidence that there was preliminary conversation and then Scholz spoke to him about the conviction. Lloyd’s evidence on this incident was as follows:

“A.... . . . And he then opened the next round by saying to me ‘Well, I have heard some good things and I have heard some bad things about you’. He said ‘Which do you want first?’ And I said to him ‘I’ll take the bad first’. So, he then advised me that he had been advised that I had been in gaol. And he said ‘Is it true?’ And I said ‘Yes’. I then elaborated on the circumstances.
Q...... What did you tell him?
A...... I told him that the reason for the incarceration was that I had committed an offence as a company director. That I had been sentenced for false pretences. The circumstances that had caused that, namely, the strikes of 1980, whereby I couldn’t get my goods off the wharves, I had to keep my Asian contacts supplied with the funds, because they were supplying me with the goods.
Q...... This is still what you are telling him, what you said?
A...... That is what I told him, all of the circumstances of the offence. And he then said to me - I added, I said, ‘Look, if you have got any doubts about this, I’ll make application to the judge and get a copy of the sentence’. Knowing that I had done it once before and that this was possible. He then said ‘No, look, that won’t be necessary, I’ve made my decision already. It was dependent on how promptly you answered or whether you tried to waffle and prevaricate on the issue’.”

Lloyd said that Scholz then advised him that he had an uncle who had been in gaol and that he understood how Lloyd felt because his uncle had to “wear his incarceration with some embarrassment in the country”.

I note in passing that even on Lloyd’s own version which I have just set out, he provided a misleading account of these matters. I set out below a summary of Lloyd’s subsequent cross-examination and my conclusion that in his evidence-in-chief he attempted to mislead the court as to the level of gravity of his offending. The impression created by Lloyd’s version of his discussion with Scholz would be that this was an unfortunate situation which arose by reason of some strikes in 1980 and that the offence was committed as a company director who was required to pay his suppliers for the goods which could not be moved from the wharf so as to provide funds to keep the business going. In fact the conduct involved a series of frauds over a period of approximately two years which were committed in quite different circumstances than those which, according to Lloyd’s version, he narrated to Scholz.

Scholz agreed that a conversation took place at the restaurant, but he denied any mention by Lloyd of the fact that Lloyd had been in goal. He said he first became aware of Lloyd’s conviction on 16th July 1993 when informed of it by Cheney. According to Scholz’s evidence he did ask Lloyd while they were at the restaurant “What else should I know?”. Lloyd replied that he had got into trouble with some of his businesses because of trade union difficulties on the waterfront. This had created financial problems for his business. According to Scholz, however, Lloyd did not suggest that he had a conviction and had been sent to gaol as a result of the episode.

Cheney said he learnt about the conviction on 16th July 1993. He was told about it by a bank manager. He advised Deare who set about making some enquiries. Cheney told Scholz on the following day. Cheney said Scholz told him he did not believe him.

It was put to Scholz in cross-examination that he had an uncle who was sent to gaol and that is why he made the comment alleged by Lloyd. Scholz said that this was incorrect. He also denied the suggestion that he had discussed with his mother the fact that a person named Eric Scholz who was related to the witness had been jailed for an offence relating to the purchase of wheat which was the subject of a mortgage. He said the first time he heard the suggestion that Eric Scholz had been jailed was when it was put to him in the witness box.

The plaintiff then called Mrs Scholz, the mother of Tim Scholz. She is 79 years of age. She said that in the late 1930s some people at Wudinna on the West Coast of South Australia got into trouble over some trading in wheat. One of them was her uncle, another was the son of a brother of her late husband’s father and the third was the son of the second person who was involved. Two of them were sentenced to imprisonment for three months and the third was sentenced to imprisonment for six months. She said she had no recollection of talking about this episode to her son Tim. She did say she assumed her son Tim knew about it, but this was on the basis that one of her older son’s knew about it. However she said that the older son stayed on the farm and lived with her all of his life. This son is 10 years older than Tim. Tim Scholz’s sister was also called to give evidence. She is five years older than Tim. She said she had never heard any stories about relatives going to gaol.

I formed a most unfavourable view of Lloyd’s credibility. By way of contrast I regard Scholz as a truthful witness, although his memory for various events was not good. I should add that Lloyd’s evidence-in-chief on the events which led to his sentence of imprisonment was quite evasive. He said a waterfront strike was in progress and he had goods on the wharves which had cleared customs, but which could not be removed from the wharves because of the strikes. He said AGC was the factor and they knew that the orders were genuine. He processed the invoices as if the goods had already been dispatched.

When cross-examined about this topic Lloyd at first adhered to his version that all the falsifications were in relation to goods which had been ordered and had arrived in Australia but which were not delivered because of the industrial trouble. He was then asked if this took place over a period as long as two years and he said he could not remember. After the contents of one of the original declarations filed at the preliminary examination was put to him, he agreed that some of the goods had not even been ordered. After still further cross-examination he gave an estimate of the cases in which no orders had been placed for goods at all as being 60% of the total charges. A number of declarations were then put to him, all of which claimed that he falsified documents by pretending that orders were made when no such action had taken place. It is obvious from these documents and the other material tendered in evidence in relation to the episode that the offences were far more serious than indicated by Lloyd’s evidence-in-chief. I have no doubt that he deliberately set out to mislead the court on this issue.

I return then to the conversation between Lloyd and Scholz in the restaurant. The evidence relating to the jailing of Scholz’ relation and the possibility that he may have heard about it and mentioned it in the course of the restaurant conversation is an important consideration. It raises the question as to whether the evidence in relation to Scholz’s relatives is pure coincidence or reveals esoteric knowledge on the part of Lloyd which supports his version of the conversation. In the end I have reached the conclusion that Scholz’ version is the more likely. Although I have considered the evidence about the relations carefully, it does not displace my strong preference for the truthfulness of Scholz’ version over that of Lloyd’s. I am satisfied that he found out about Lloyd’s background when told of it by Cheney. I have not overlooked Lloyd’s evidence that he made a note of the fact that his conviction was mentioned and that he said he made the note at about the time of the conversation. His answers in cross-examination on the reason why he would put this information in his diary were unsatisfactory and, in any event, he had access to the diary from time to time during the preparation of his case. It is not as though the note provides support for his version of the conversation which is independent of the witness. I am quite confident that if Scholz had been told the true story of this incident he would have mentioned it to Deare and his fellow directors. I find that the representations concerning Lloyd’s honesty also constitute misleading and deceptive conduct contrary to the provisions of the Trade Practices Act and the Misrepresentation Act. It is my view that each of the sets of representations upon which the defendant acted, namely, those relating to business success, financial position and ability to speak Chinese on the one hand and those relating to honesty on the other, give rise to an entitlement on the part of the defendant to rescind the contract. I will discuss the defendant’s claim for damages later in these reasons.

The extension of the contract

This conclusion which I have reached in relation to the defendant’s case on misrepresentation puts an end to the plaintiff’s case, but it is appropriate to go on and consider the other issues raised by the pleadings. The first is the defendant’s contention that the contract had not been extended beyond the initial period of 15 weeks. As a preliminary to discussing this argument it is necessary to examine some of the relevant clauses of the agreement of 11th March 1993.

The contract comprises 12 pages. It was prepared by Lloyd who presented it to Scholz and it was formally executed by Raestreet and SAFF. It is obvious that much of it is borrowed from other documents prepared by a person or persons with legal knowledge, but Lloyd has drafted various provisions in an attempt to meet the requirements of the relationship between the plaintiff and the defendant. The resulting document leaves much to be desired.

The purpose of the agreement is set out in clauses 5.1 and 5.2. I have set out clause 5.1 above. Clause 5.2 provides:

“It is agreed that in entering this agreement FARMERS appoints Raestreet and its employee Trevor Lloyd to be its sole Consultant, Representative, and Negotiator for Foreign Trade Counter Trade matters which include the sale of, or acquisition of various agriculture related commodities. At the time of each commodity type being negotiated, the commodity together with any applicable specifications shall be noted as an annexure to this agreement and thereby covered by the terms of this agreement.”

Clause 5.10 states that Lloyd shall be “the chief negotiator for the development of various commodities agreed from time to time as required to be developed by the Federation and its Members in Foreign Markets”. Clause 3.2 provides that the plaintiff will not undertake any commitment on behalf of Raestreet or make any representation to a third party without the written consent of the defendant.

It is important to have regard to those clauses which deal with the period of the agreement. Clause 5.9 states:

“It is agreed that at the commencement of the contract, the initial contract term is for a period of 15 weeks, starting from 11/3/93 to 24/6/93 and that this is to cover an initial sales procurement drive covering travel to Asia, Europe and the U.S. It is further agreed that the option to continue the contract is automatic and subject to fees and commission terms contained in Clause 6, and all other terms agreed in this Agreement.
Immediately upon the signing of an order to supply Australian goods, or the head of agreement negotiations being concluded, leading to the subsequent signing of a contract to obtain commodities from overseas sources in Asia, Europe, North Africa, North America, South America, Eastern Europe or any other point on the Globe derived from the sales promotional trip to Asia, Europe, and the U.S.”

It is clear that some wording appears to have been left out in the second paragraph which I have just quoted.

In so far as it is relevant clause 6bb provides:

“6bb.1.1.... It is agreed that this letter of agreement shall be an operable agreement for a period of 5 years, dated from the date of signing by both parties.
1.2... Termination of this agreement can only occur with either party giving the other six months notice of intention to do so. In the event that FARMERS seek to terminate this agreement, then they will be required to satisfy in full the payment of any outstanding sums of money under the base yearly retainer schedule below, plus any subsequent commissions falling due from previously signed agreements to supply or procure commodities negotiated during the operation of this agreement.
1.3 Should RAESTREET seek to terminate this agreement, then the Company will forego any claims against any outstanding amounts remaining with regard to the base yearly retainers, however such termination does not affect any outstanding commissions due, which were negotiated during the life of the agreement up to the date of termination, and does not effect any subsequent re-orders, rollovers, or increases in orders negotiated during the life of the agreement but subsequently implemented after termination of the agreement, from sources introduced, or supplied by RAESTREET during the life of the agreement, and for the effective period of 60 Months after any termination of this agreement.
. . .
1.6 It is agreed that upon commencement of this contract RAESTREET will not have any claim against FARMERS should the option of continuance not occur, for any further fees except the prepayment of the A$15,000. It is agreed however, that the placing of any orders for Australian commodities to be exported, or the obtaining of supplies from overseas, of any commodities, to be imported for the benefit of FARMERS, its clients, members associates or assigns will automatically activate the option of continuance of this agreement in full.” (my emphasis)

A “scale of retainers” to be paid over a period of five years is set out in clause 6cc. The effect of the clause can be summarised as follows:

Year 1	$52,000 made up of payments of $6,000 for work done prior to the signing of the agreement, $9,000 upon the signing of the agreement, $11,000 “upon option being automatically activated by either overseas orders being placed for Australian commodities or an importation order being agreed of a foreign trade commodity sought by the Farmers” and $26,000 to be paid “after 6 calender months from the commencement date of this agreement (this can only occur after the option has been activated).”
Year 2	$75,000
Year 3	$100,000
Year 4	$100,000
Year 5	$100,000.

Provision is also made for the payment of a commission to the plaintiff. Clause 6cc (1.1.5)(e) provides:

“If no business is transacted or generated in the first 15 weeks this agreement automatically terminates except for the confidentiality provisions of this agreement.”

The provisions relating to the term of the contract are ambiguous and do not marry well with each other. It is at least clear that if the contract ran its full length it would operate for a period of five years from the commencement date of 11th March 1993. However there was to be an initial period of 15 weeks during which the overseas sale drive was to take place and the contract provided for the manner in which that initial period could be extended to five years. I have no doubt that the understanding of the parties was that the 15 weeks was to be regarded as a trial period.

I disagree with the argument that the effect of the contract and, in particular, clause 6bb.1.1 is to require Farmers’ Shop to take a positive step to prevent the continuation of the arrangement beyond the period of 15 weeks. In my view clause 6bb.1.1 must be read in conjunction with clause 6bb.1.6 which provides for an automatic activation of the full period of five years in the event of an order or importation of the type prescribed and clause 6cc(1.1.5) which automatically terminates the agreement except for the confidentiality provisions if no business is transacted or generated in the first 15 weeks. The reference to an “option to continue” seems to be misplaced in view of the provisions relating to automatic extension and automatic termination. However this is not to say that the parties could not reach a subsequent agreement that the contract was to be extended to the full five year period regardless of the automatic provisions. Much of the focus of the case was directed towards this last mentioned consideration. Leaving aside the issue of estoppel, the principal contest on this aspect of the case comes down to two issues:

Was the remaining period of the contract automatically extended by reason of the placing of an order for Australian commodities to be exported as envisaged by clause 6bb.1.6?

If there was no such automatic extension, did the parties nevertheless positively agree to an extension of the 15 week period shortly before it expired or did the defendant make it clear that it was not going to grant such an extension until it had been fully and properly considered by the defendant? It is the defendant’s case that the matter was still under consideration when it became aware of the Gordon appointment which led to the purported termination of the agreement.

Automatic extension of the contract

In relation to the first of these issues, the plaintiff relies upon what it contends was an order placed for textiles by a company referred to in the documentation as Dax Sportswear. It is claimed that the order was for samples comprising 180 yards of material for the purchase price of $US2,190.00. The textiles were to be obtained from a mill in Poland which had been inspected by Lloyd and other Australian representatives. The order form was not acted upon by the defendant.

Lloyd said he received information from Craig Bush who was about to be appointed as an agent for the defendant in the United States that Mr David Ackerman of the Dax Sportswear company wanted to purchase some samples of textiles. Lloyd said he met Mr Ackerman when he went on a second trip to Calmart in Los Angeles. He said Mr Ackerman wanted to purchase samples of material he had seen on swatch cards which Lloyd had obtained from Prospertex, one of the mills he visited in Poland.

There is no documentation in relation to this matter apart from an order form which came from the discovery of the plaintiff (P61) and a similar, but not identical order form, (D63) which was sent by Lloyd to Farmers’ Shop and came into the possession of Cheney. Cheney did not receive a letter of credit which was stipulated in the payment details on P61 and D63. The document received by Cheney (D63) is curiously worded in that instead of the buyer being shown as Dax Sportswear, the Australian Marketing Group is recorded in the space provided for the purchaser and the word “sold” in the caption “sold to” is crossed out. There is nothing on the face of D63 to suggest that this was an order placed by Dax Sportswear. Cheney said he thought it was an “internal” sample required by Australian Marketing Group which had not yet been incorporated, but was to become the company in the United States which would be used as a vehicle by Farmers’ Shop. On the other hand Cheney did refer to it as an “indicative sample order” in a letter he wrote to Lloyd on 15th June 1993.

In all the circumstances I have some doubt that it was a genuine order. However that my be, there is a fundamental flaw in the plaintiff’s argument on this issue. Even if this was a genuine order for samples which contained Australian wool, it is not within the description of the type of order, the placing of which would automatically extend the contract. The relevant part of clause 6bb.1.6 is as follows:

“It is agreed however, that the placing of any orders for Australian commodities to be exported, or the obtaining of supplies from overseas, of any commodities to be exported, or the obtaining of supplies from overseas, of any commodities, to be imported for the benefit of FARMERS, its clients, members associates or assigns will automatically activate the option of continuance of this agreement in full.”

This was not an order for Australian wool “to be exported”. Nor did it come within the other part of the description in clause 6b.b.1.6 which deals with commodities imported into Australia for the benefit of farmers. The whole idea of the project in which the plaintiff and the defendant were concerned was to generate orders for the export of Australian primary products and the importation of goods which would be advantageous to farmers. The clear intention of the clause which is quoted above was to reward Raestreet with an automatic extension of the contract if it achieved an order which would lead to exportation or importation of the type contemplated. No such goal was achieved in the present case. If the order was genuine it would result in nothing more than a transfer from one foreign country to another of a product which contained raw material which had been exported previously from Australia in circumstances which had nothing to do with the plaintiff. In these circumstances I reject the argument that there was an extension of the 15 week period by operation of this clause in the contract.

Was there an agreed extension of the contract?

The next question is whether the parties agreed to an extension of the 15 week period. The plaintiff claims that during the 15 week period the defendant agreed to extend the contract for the full period of five years. The defendant denies this assertion and claims that, although negotiations were taking place for such an extension at the time of the purported termination, there was no concluded agreement to this effect. It is necessary to summarise the factual background of the negotiations in order to deal with this issue.

On 17th April 1993, a little over a month after the contract was signed, Lloyd left for overseas to carry out the duties specified in the agreement. His movements are referred to in more detail at a later stage in these reasons. He went to Poland via Hong Kong and Geneva. In late April he returned to Geneva and then went to Poland a second time. In early May he travelled to Los Angeles via Geneva. Preparations were then made for an Australian exhibit at the trade fair at Calmart in Los Angeles. The fair took place from 17th to 19th May 1993. He returned to Australia on 24th May 1993. Lloyd left for overseas again on 9th June 1993. The 15 week period was due to expire on 24th June 1993 and there were discussions about the extension of the contract before he left.

Lloyd provided a written report to SAFF on his return from his first overseas trip and he gave an oral report to the SAFF Board on 31st May 1993. He said that after the Board meeting on that day he spoke to Scholz about his contract. He explained in evidence why he did this by saying that he “wanted something stable on which to plan the next four and a half years”. He also asked for the next instalment of his contract. Up to that point he had received instalments of $6,000 and $9,000. According to Lloyd, Scholz said he would extend the contract for the five years. He said he would also make payment of $11,000 which Lloyd requested and said he would get it organised before Lloyd left for overseas.

On 6th June 1993 Lloyd sent a fax to Scholz which dealt with various topics including the contract. When referring to the contract he wrote:

“ As you are aware, a meeting took place on 25.4.93 in your offices between yourself and Mr. Graham Blight, President of the National Farmers Federation. At this meeting I was verbally asked to commence the detailed preparations for the establishment of the AMG office in Los Angeles, the establishment of detailed talks in Poland, to enable increased sales of Australian Wool into that country, confirm talks with Andy Poon in L.A., talks with Spinners in France, talks with fashion people in France, as per the Embassy of France in the U.S. connections, co-ordinate the C.S.I.R.O., appointments, set up detailed talks with Fauchon, Haitiard, set up appointments for live sheep sales where Graham Blight can apply his certificate with Morroccan buyers etc. New York and Canada. This constitutes an implied take up of the option, and when I have asked verbally have been repeatedly assured that I will receive the appropriate documentation.
However when I have pressed the point, I have been repeatedly ‘fobbed off’, as to the issue of the paper, and the next cheque, while being assured that the option was operational.
I also refer to our private discussion as to how we would arrange the option take up, given possible vagaries, if orders were not already on paper, and we came to an agreement that we would work this out together, based on any decisions, like the above requests that have been asked of us. I might point out that the lack of orders already on paper has been because of slack follow-up and support from the Adelaide office, matters we have already discussed, but which are noted.
I also refer to your statement that the 15 weeks is not due yet, well this is totally a reversal of our verbal discussions, where you sought our goodwill not to be difficult, so as not to cause you problems. Life is a two way street.”

I have noted previously that the meeting between Lloyd and Scholz at the restaurant took place on 6th June 1997. According to Lloyd he was receiving instructions to get going and he said that in his mind he had an implied extension to the contract. However he asked for the contract to be confirmed. He said he also asked Scholz to pay the next instalment which would be falling due as the sums of money that had been paid covered the first 15 weeks only. Lloyd said that Scholz told him after the Board meeting of 31st May that the contract would be extended to five years. He said the payment of $11,000 was also discussed. Scholz said to him “I’ll get it organised and it will be done before you go”. Lloyd said he discussed the contract with Scholz only.

Lloyd said that on the 6th June he called Mr Scholz at his home at Wudinna and told him that he was very alarmed at being told to proceed on the one hand but not receiving confirmation on the other. Lloyd said he met Scholz at the airport and they went to the restaurant on Hyde Park Road. He said it was then that the conversation relating to the gaol sentence took place. According to Lloyd, Scholz then apologised for the sloppy administration in getting him ready to leave. Scholz said that he had come down for a Board meeting which would ratify the contract in formal terms and that the whole matter would be addressed that week. Lloyd reminded him that he had better get a move on because he was scheduled to leave the next day. It was agreed that his departure time would be re-scheduled for about 9th June. Lloyd said he made it quite clear to Scholz that unless the $11,000 which represented to him the commitment for the extension period was paid, he would not be departing. Scholz said “Well, actually the contract, the 15 weeks, doesn’t expire until the 24th”. Lloyd said he replied “Look, two can play that game ... because I can always sit here until it does expire. You wanted me to go, you wanted me to get things organised. You are telling me that you wanted to extend, but you are not doing the right things”. He said Scholz replied “Alright, alright, I’ll organise it”.

The Farm Trade Board was considering Lloyd’s further appointment at about this time and it seems clear that the Board was in favour of an extension to the contract but it was also concerned about the conditions on which the extension would be agreed. (I should mention that Farmers’ Shop decided to trade under the name of Farm Trade and these names are used interchangeably in the documentation which was tendered. References to the Farm Trade Board and Farmers’ Shop Board are references to the same body.)

The agenda for a Farm Trade telephone conference to be held on 30th April 1993 contained an item “The Terms and Conditions of the appointment of Mr Trevor Lloyd”. At the Farm Trade Board meeting on 5th May 1993 the chief executive officer was asked to obtain legal advice on the status of Lloyd’s contract. Then at a meeting of the E&FC on 2nd June 1993 the following resolution was passed:

“That the Farm Trade Board resolution from its meeting held on 13 May, 1993, be adopted by the executive and finance committee as follows:
1...... Trevor Lloyd to report to manager, Farm Trade;
2...... Farm Trade Board to receive a written report from Trevor Lloyd at each meeting;
3...... Trevor Lloyd to work from Farm Trade offices during normal working hours while in S.A.;

4...... Allocation of tasks is to be confirmed in writing;
5...... Budgets are to be agreed with variations notified 48 hours in advance if greater than $500;
6...... Contract performance to be tracked:
6.1... All contracts are to be listed in Board report
6.2... Dollar value of business written and contracts presented to Board
6.3... A minimum sales period (year?) to be agreed;
7...... Specific objectives for Trevor Lloyd to be agreed as per clause 3.1 of his contract;
8...... Control of specific expenditures to be the responsibility of the Board.”

The same resolution had been passed by the Farm Trade Board on 13th May 1993.

Scholz agreed that Lloyd and he discussed the extension of the contract at about this time but he was adamant that he made it clear to Lloyd that ultimately the decision rested with the Farm Trade Board. He was questioned about these discussions:

“Q.... What was the position in relation to any question of the renewal of the contract or the take-up of the option?
A...... That we had a contract for 15 weeks, and that the process, any process following the Calmart trade fair visit was to follow expressions of interest or contacts from that visit, from that trade show.
Q...... And who was to determine the question of the take-up of his option?
A...... Farm Trade Board.
Q...... Did you ever suggest to Mr Lloyd otherwise?
A...... No.
Q...... Did he in fact ask you to confirm the take-up of his contract from time to time?
A...... Repeatedly.
Q...... What did you respond?
A...... That it could not be done, I could not.
Q...... Did you tell him why you couldn’t do it?
A...... Yes, a number of times.
Q...... What did you say?
A...... Don’t recall the exact words, that it was a Board decision.”

On 9th June 1993 Deare, as the defendant’s chief executive officer, wrote to Raestreet in the following terms:

“We refer to the agreement between us dated 11 March, 1993, in which Raestreet is appointed as our broker/agent for commodity trading.
The Farmers’ Shop Pty Ltd intends to take up the option to continue the contract, as specified in Clause 5.9 of the agreement, subject to clarification of the following points:
1...... Evidence that Mr Trevor Lloyd is legally contracted to Raestreet Pty Ltd for a further period of five years, and that Raestreet Pty Ltd has the authority to assign his services exclusively to The Farmers’ Shop Pty Ltd.
2...... The Clause 6bb.1.4 is amended to allow the termination of the contract upon the death or permanent disablement of Mr Trevor Lloyd.
3...... That Raestreet Pty Ltd supply written reports to The Farmers’ Shop Pty Ltd for each Board meeting, covering all sales achieved and current work programme.
4...... Mr Phil Cheney, Manager, The Farmers’ Shop Pty Ltd (trading as Farm Trade) has responsibility for supervising the business development arising from this contract and will therefore be the authority for all directions, approvals and reports between Mr Trevor Lloyd and our company.

Upon clarification of these points, The Farmers’ Shop Pty Ltd Board will receive a recommendation that the contract between us be continued. The Board meets on Friday, 11 June, 1993.” (my emphasis)

Mrs Lloyd replied to Deare in a letter dated 9th June as follows:

“I refer to your letter of this day, with regard to the option to continue the contract you have with us.
1...... Please find attached evidence that Mr Trevor Lloyd is contracted to us for 5 years. You already have our letter of assurance with regard to the relationship should any divorce occur between one of our Directors and Mr. Lloyd.
2...... We will agree to the Amendment to Clause 6bb.1.4 as proposed, subject to the continuance of commissions in accordance with the current terms in the Contract.
3...... Written reports will be provided to the Board of your company as requested, provided at least one weeks notice (minimum) is given of any such Board meeting. It is our policy in any event to supply regular weekly reports.
4...... This point in your letter is accepted, provided that Mr. Cheney also maintains close communication with this Company, and provides efficient feed-back upon request from this Company, or Mr. Lloyd as provided in our Contract.”

There is a dispute as to when this letter was delivered. Deare said that he received it after Lloyd had left for overseas. He said it was hand delivered by Mrs Lloyd. Mrs Lloyd said that, although she signed the letter, she could not remember seeing it. Lloyd said he delivered the letter to the Farm Trade office by hand on 9th June 1993. However that may be, there was a meeting between Lloyd, Scholz and Deare on 9th June. Lloyd said it took place when he went in to hand deliver the response to the letter containing the four stipulations. He said when he handed over the response he was given some cheques including one for $11,000. He said he was told by either Scholz or Deare “Look Trevor we really are supporting you. It may not always seem like it but we are”. He said he was also told by Scholz and Deare that the contract was now in place. He said he thinks Scholz added “Now just get on and do the job”. Lloyd said that the handing over of the $11,000 indicated to him that the contract was now in place with the Board’s approval.

For his part Deare was adamant that at no stage did he give Lloyd the impression that the contract had been extended. He said he made it plain that there was no such extension in place. He denied that Lloyd was told at the meeting that the contract was in place. According to Deare, Lloyd’s opening position at the discussion on 9th June was that he would not go overseas until he had the security of a contract going beyond 15 weeks. Deare continued:

“Mr Scholz and I indicated to him that we had certain constraints put on us by the Board of Farm Trade, and that we couldn’t agree to that until he agreed to the terms sought by the Board of Farm Trade. We argued that backwards and forwards for half an hour, three quarters of an hour, and it got fairly heated at times, but ultimately Mr Lloyd accepted our position and indicated that he had a flight to catch, he had commitments, he had made commitments overseas and he intended to keep them, and he asked for the money that we had indicated to be available to him before he travelled. We gave him the cheque, he left the building and went off on the trip.”

Deare said that the fourth point in his letter of 9th June relating to supervision by Cheney had been the sticking point. He agreed that one of the cheques handed to Lloyd on 9th June was for $11,000. He said he understood this was to cover his immediate expenses for air fares and travel over the next month or so. When cross-examined further he remembered that more than one cheque had been handed over. In the course of re-examination Deare said that after earlier questioning in cross-examination, he had given considerable thought to the question of the cheques given to Lloyd at the time of the meeting and he was able to recall further details about them. He said in re-examination:

“Yes, in an attempt to appease Mr Lloyd we gave him assurance at that time that we were, that is Mr Scholz and I were supportive of this project going ahead, and supportive of his involvement, and my recollection is that he made comments to us that he wasn’t prepared to go off overseas and spend his time and effort unless we could give him some sort of comfort. We said to him we could not guarantee that the contract was going to be extended and he made - my recollection is that he made some comments to us about his financial position and he could not go off overseas for the length of the trip that was planned unless he had some money that he could leave for his wife to continue to run their household, and my recollection now is that at some stage during that conversation we agreed that we would give him some additional funds on the basis that the $11,000 I think he was asking for at that time, on the basis that it was an ex gratia payment to him on the understanding that we were not confirming or extending the contract but that it was a demonstration of our goodwill towards him and the project continuing that we were prepared to make that payment available to him.”

It was put to Deare that in a letter written to the executive director of NFF on the following day, when dealing with the latest developments of the overseas project, he said:

“We are continuing to pursue the project and have extended Trevor Lloyd’s contract and we are in the process of appointing a sales manager in the United States.”

He said that by writing in these terms he had incorrectly anticipated the Board’s approval of the contract.

Scholz can remember an amount of money being paid to Lloyd on 9th June, but he said he cannot recall the details of the payments. However he denied that any sum of money was paid to Lloyd because the contract had been extended beyond the 15 week period. He denied authorising Deare to pay any sum of money on the basis that the contract had been extended.

Although it was stated in the letter to Raestreet of 9th June that the Board would meet on 11th June, it appears that a meeting did not occur on that date. I accept the evidence that, because of the difficulties which Board members from country areas sometimes encounter in travelling to meetings, it was not unusual for a meeting to be cancelled and that this might well have been what happened on this occasion.

Nevertheless an agenda was prepared for a meeting on that date and one of the items for discussion was “Endorsement of Trevor Lloyd’s Contract Extension”. Lloyd left for overseas on 10th June. A meeting of the E&FC took place on 15th June 1993. Scholz and Deare were present. The minutes of the meeting include the following note:

“Discussion then ensued regarding the renegotiation of the contract with Raestreet Pty Ltd.
Mr Deare informed the Committee that a letter had been handed to Mr Trevor Lloyd advising that the Farmers’ Shop were not happy with certain aspects of the contract and, as a consequence, sections of the contract were re-worded and Mr Lloyd’s reporting procedure clarified. Raestreet accepted the changes apart from the reporting procedure component. In addition, the Farm Trade Board has asked that a performance clause be included in the contract and criteria be developed for this clause.
It was AGREED that Mr Scholz speak with Mr Lloyd regarding the insertion of a performance clause in his contract.”

Deare said that he advised the meeting that Lloyd had not accepted the reporting conditions, hence the reference to that problem in the minutes.

On 15th June Cheney prepared a letter to be sent to Lloyd which included the following statement:

“We have struck a slight snag, in that the Board will not approve the extension of the RAESTREET contract unless there is agreement to the attached amendments.
Fortunately there is nothing in the amendments which should cause either of us concern:-
1. The first three clauses are only due diligence clauses.
2.The performance clause only states the budget proposed by Mike, which on your estimates is half what you will achieve.

I therefore ask that you have your company sign the attached so we can get on with our successful business strategy.”

A draft amendment was also prepared which included a provision that if receipts for sales of products for services negotiated by Raestreet did not exceed stipulated amounts in the years 1993 to 1995 the agreement would be terminated except for the obligations as to confidentiality. The letter and amendment were not sent. The minutes of a telephone hook-up of the Farm Trade Board of Directors held on 18th June document a resolution that the draft letter was to be held until the “results of negotiation between Tim Scholz and T Lloyd re performance”.

It is not in dispute that Scholz rang Lloyd on 17th June. Lloyd was in Canada. Lloyd’s version of the conversation was as follows:

“I got a call from Tim at 9.30 in the morning Canadian time, saying that the Board wanted to rewrite some parts of the contract. I said ‘But the contract is already operational’. He then said ‘They want to do some changes’. I said ‘You have got a great way of motivating people out in the field. I won’t renegotiate it but let me put it to you this way; if you want to start renegotiating, start by doubling my fees because I have done enough to try and help’. I was really, I was not only angry but I was stunned and I said ‘As far as I’m concerned you either accept it in its current form or I’m coming home’. He said ‘No, no, don’t worry, don’t worry, everything is okay. I will sort it out somehow’, and it was just left like that.”

Scholz said he told Lloyd during the telephone conversation that the Board was unhappy with the contract and they wanted a performance clause. He said Lloyd became angry and said that if they wanted to do that he would have to increase the retainer. Scholz said that he would have to get back to the Board. I prefer his evidence to that of Lloyd in relation to the conversation.

Cheney said he spoke to Lloyd on the telephone when Lloyd called him from Paris on 21st June. Cheney gave evidence along the lines of the minutes which he prepared from notes made at the time of that conversation. The minutes state:

“1..... Trevor pointed out that according to the letter provided to him on 9/6/92, (sic) he would be given Board acceptance of his ongoing contract, and he URGENTLY requested this. He stated that he would not go into Poland without this contract approval, and that he did not like having a ‘gun put to his head’ over contractual matters. (Referring to the request for change to incorporate a performance clause)
2...... He pointed out that Graham Blight had stated that the contract issue had been resolved, and he couldn’t see why the delay in confirmation.”

Lloyd denied that any such conversation took place. I have no doubt that it did take place and that Cheney’s notes accurately record what was said during the conversation.

On 20th June 1993 Lloyd faxed a message to his wife from Paris. It contained the following query:

“Have you heard from Tim re contract, do you have un-equivocal take up in your hands???”

He sent another fax to his wife on the following day which stated:

“1..... I spoke with Graham a short time ago re our contract.
2..... He advised that Tim had advised him Friday morning that he had it under control [and] that all was OK. (what ever that means.
3..... I said to Graham, ‘It would be nice if courtesy was extended to us [and] we were told’! I also advised Graham that we required an un-equivocal letter, not like we currently had before Friday - I also told him ramifications. Tim already knows this! I don’t want to hear that A Mike will attend to it, B He is carrying it. etc, etc. You must have in your hand as Director an original copy that option is confirmed [and] taken up in accordance with our contract, of ....... Clause ...... etc.
4..... They must think that we are mind readers, this should have been attended to. Please speak to Tim personally at either SAFF or at his home: 086 - 80 - 40 -27.”

Cheney said he rang Lloyd in Paris at 2.00 pm (Adelaide time) on 23rd June. He made notes of the conversation. A portion of his notes reads as follows:
“8 There was a reference in the fax today re ‘Un-equivocal option take-up’ which I presumed to be from NFF. Trevor said that his contract had been confirmed via Bobbie, via Tim that a letter would be in Bobbie’s hands on Friday. There would be no further negotiation on the contract or it would be handed over to NFF.”

Cheney said he presumed it must have been a take-up of the offer by NFF because he was not aware that Farm Trade had taken up any offer. Cheney’s evidence was along the lines of his note. Lloyd said he disputed this version of the conversation because he could not recall any discussion other than that related to expenses.

The contract was discussed again during a telephone hook-up of the Farm Trade Board on 23rd June. Scholz and Cheney took part in the conversation. Notes of it were taken by Cheney. The notes begin as follows:

“CONTRACT TREVOR LLOYD:
It was explained that Trevor Lloyd felt that his contract was a performance contract and an additional requirement was unnecessary. Apparently Lloyd is prepared to sign a performance condition if the basic salary is increased.
He believes that, at least in the first two years, he comes to FARM TRADE at a very reasonable cost.
Some concern was expressed about Lloyd’s reluctance to report and the need for controls on expenditure, etc, was pointed out.
moved Don Pfitzner Wayne Cornish seconded
‘That the Lloyd contract be proceeded, incorporating the additions indicated by Tim Scholz and acknowledging that the contract is performance based.’

CARRIED

Further addition
moved Wayne Cornish Tim Scholz seconded
‘That an acceptance letter, endorsing the previously negotiated contract and including the eight points negotiated by the president, be prepared and promulgated to RAESTREET and Michael Deare.’

CARRIED

It was agreed that Phil Cheney should prepare a covering letter, stating that absolute adherence to these conditions was essential.” (The exhibit has a handwritten insertion after the word “points” which reads “previously moved by the Board, and the termination clause”. Cheney said that he made this insertion.)

Cheney said that during the telephone hook-up of the Farm Trade Board he discussed the various matters raised by Lloyd in the telephone conversation he said he had with Lloyd on 23rd June and which he recorded in his notes. He said he went through the 9 points which he recorded in the minutes. When discussing point 8 he said the directors stated that the NFF was not going to be involved at this stage. One of the directors said that Deare had this matter sorted out and so Cheney wrote “Handled” under the heading “Point 8”.

Scholz then arranged for a letter dated 23rd June 1993 addressed to Lloyd to be prepared. It referred to the contract and stated that the Board of Farm Trade had pleasure in accepting the option to continue the contract subject to various conditions which were set out in the letter. The document included reporting conditions. Cheney prepared it and sent it to Scholz. According to the defendant’s case other events leading to the purported termination of the contract overtook the situation and the letter was not sent.

It is clear to my mind that, although the Board of the defendant company was willing to extend the plaintiff’s contract, it was insisting that this was to be done only on certain conditions. It is true that all the conditions which the Board members considered appropriate were not apparent from the start. However it did emerge at an early stage of the Board’s discussion of the extension that some form of reporting condition should be included. The Board perceived difficulty in the reporting procedures following upon Lloyd’s first trip overseas and this was one of the aspects raised in Deare’s letter to Lloyd on 9th June.

In my view the relevant Board minutes all support the defendant’s assertion that, from the Board’s viewpoint, the extension had not been agreed upon. Mr Starick a senior member of the SAFF Board, who I found to be a very impressive witness, said in evidence that the Board was having difficulty in getting the various conditions which they noted into the contract and by 7th July they were taking a very firm stand on these issues. According to the plaintiff’s argument the Board had agreed to the extension at least by 23rd June when the motion was passed that the Lloyd contract to be “proceeded”. Mr Morcombe QC, for the plaintiff, saw particular relevance in the word “proceeded” but in my view the context makes it clear that the Board wanted to incorporate into the contract the additions referred to by Scholz and the wording of the contract had to provide that it was performance based in the sense that this concept had been discussed by the Board.

“3..... The plaintiff denies that it committed a fundamental breach of the contract as alleged in paragraph 7 of the More Explicit Defence or at all and says that if any breach of the contract did exist (which is denied) such breach was induced by the actions of one Mr Graham Blight (hereinafter called “Blight”). The plaintiff says that the defendant was informed of the nature and terms of all contractual obligations and that the plaintiff did not create or purport to create any obligations which were binding upon the defendant. The defendant was never legally obligated to Gordon Textiles as a consequence of any actions of the plaintiff although negotiations had occurred, no agreement was ever concluded.
4.1... The plaintiff admits that negotiations were entered into in accordance with the facts referred to in paragraph 7(b) of the More Explicit Defence but says that no binding agreement was ever entered into. The plaintiff also says that:-
(a).... the said Blight (the agent of the defendant), met with James Gordon of Gordon Textiles and assisted in the negotiation process;
(b).... Blight represented to Mr Trevor Lloyd, an employee of the plaintiff (hereinafter called “Lloyd”) that he had authority to enter into the contractual arrangements with Gordon Textiles;
(c).... Blight also represented that he was a director of the defendant company;
(d).... Blight also arranged payments to be made in respect of airfares and accommodation in respect of the initial trip by James Gordon from New York to Poland.”

The role of Mr Blight

In his evidence Lloyd described the first meeting with Gordon which took place at Calmart. He said that subsequently he introduced Gordon to Scholz. He claimed that while Scholz was present there was some discussion about the establishment of a New York office, but his evidence on this aspect was vague. In his evidence-in-chief Lloyd said that he attended a meeting of the SAFF Board on 31st May 1993. He said Scholz confirmed to the Board that he had met the man and “he felt that the likelihood of an arrangement with him would be advisable to the future operations”. Lloyd said he was told to conclude the best deal which he could with Gordon and that this was to be done in Blight’s presence.

Lloyd said he arrived in New York on 13th June. He met Blight there. They had an appointment to see Gordon on the following day. Blight said to Lloyd that Gordon looked good on paper. He said they then met with Gordon on 14th June. Lloyd said that Gordon indicated what he would be able to do to assist the Australian project and he, Lloyd, was careful to explain that he did not have the authority to confirm anything; only the power to negotiate. He said Blight explained that the State farmers’ body would not be able to maintain the operation financially and the NFF was moving to take the project under its control. Gordon said he would have to undertake a trip to Poland if he were to become involved. Some dates suitable to him were discussed. Lloyd said that Blight told Gordon he would be speaking to the Board that night and that he was going to recommend that they give their approval for the appointment subject to the terms which Gordon was going to deliver to them on the following day.

Lloyd said that after this meeting he and Blight discussed the appointment of Gordon. According to Lloyd, Blight said, “We have to get that man. He is important to the operation”. He added, “It is necessary for us to cut the best deal possible”. Lloyd said that Blight made a call to Adelaide that evening. Lloyd was in the room with him and Blight spoke to the SAFF Board. He said that he felt Gordon should be employed and he and Lloyd would negotiate with him on the following day. He added that at the end of the day the NFF would be picking up the bill. Lloyd left the room after this part of the conversation, but before the call ended. According to Lloyd’s evidence, Blight spoke to him again at breakfast the following morning. Blight told Lloyd that he had been appointed a director of the SAFF trading company and that his recommendation for Gordon’s appointment had been “nervously accepted”.

Later in the day they lunched with Gordon and he gave them the letter to which I have referred setting out his proposals for the terms of his appointment. Lloyd said he read it, made some notes on it and handed it to Blight who also read it. Lloyd then told Gordon that he wanted to discuss it in private with Blight. He said Blight told Gordon that if they did agree any written document would have to be prepared in Australia.

According to Lloyd, he and Blight then went back to the hotel where they were staying and discussed the matter in Blight’s hotel room. Lloyd suggested the modified remuneration proposal. They discussed whether Gordon would agree to it and Blight then directed Lloyd to call Gordon and put the counter proposal which he did while still in Blight’s room. Gordon agreed with the amended proposal. Lloyd said that he and Blight then booked out of the hotel. Lloyd had to travel to Montreal and Blight to Scotland. While they were still in the foyer of the hotel Blight told Lloyd to ring Gordon and advise him to get organised for the day on which it was planned he would travel to Poland. Lloyd did so and told Gordon that Blight had authorised him to contact Gordon a second time and advise that he agreed with the proposals and, as Gordon had also agreed, he was to be asked to put his travel plans into place. Lloyd said he gave Blight a copy of the proposal Gordon had put into writing because Blight would be in Australia before Lloyd and would “get things organised to get a contract in place”.

Blight gave a version of the dealings with Gordon in New York which differed markedly from that deposed to by Lloyd. Blight is a farmer from New South Wales. He has been involved in agriculture all his life. He has been involved to a considerable extent in various primary producers’ associations and he served as president of the NFF from May 1991 until May 1994. I found him to be an honest witness who had a good recollection of the events relevant to the present case. He was not an office holder of Farmwide Pty Ltd but he attended the meetings of that company from time to time as an observer. He said he met Lloyd in Adelaide in the latter part of 1992 and saw him again when Lloyd visited Canberra.

Blight said that during 1993 he became aware of SAFF’s interest in attending the Calmart Fair in Los Angeles. He said that the NFF believed that what SAFF was trying to do fitted in with NFF policy and the NFF supported this type of action in principle. On 1st June Blight attended as an observer at a Farmwide meeting. Scholz attended the meeting and reported on what had transpired at the Calmart Trade Fair. Scholz also reported on discussions which were under way with manufacturing organisations in Poland. According to the minutes, Scholz reported that Australian wool was to be used in the production of items in Polish factories and Australian interests had been requested to take a “small equity position in Polish mills”. A question arose at the meeting as to whether Farmwide would invest in the venture and more information was requested in relation to this aspect.

In his evidence Blight made it clear that NFF had no capacity to be involved in the venture. The Farmwide Board decided that there was insufficient detail to consider the proposal at the time of the meeting and Scholz stated that SAFF would continue with the project in its own right irrespective of the support from the various States and Farmwide. Blight said that he later received a letter from the Victorian Farmers’ Federation stating that it did not support the SAFF proposal. The Western Australian Farmers’ Federation was supportive of the proposal.

According to Blight he planned to travel to Washington in June in relation to business associated with the NFF. He agreed to a request from Scholz to meet Mr Craig Bush in San Francisco in order to assess Bush’s suitability as an agent for SAFF in North America. Blight said in evidence that he met Lloyd in New York on the evening of 13th June. He said that Lloyd told him about Gordon. According to what Lloyd said, Gordon was a most impressive operator and he would fit into the structure which Lloyd was trying to develop. Lloyd stated that he (Lloyd) was the trade negotiator for SAFF and had capacity to undertake arrangements with a potential agent. During examination-in-chief Blight was shown the letter from Lloyd to Gordon stating that he wished to confirm a meeting on 14th June and that he would have with him “our client Mr Graham Blight, who is President of the National Farmers’ Federation of Australia, the body behind the initiative at L.A. who are now taking equity position in Poland in certain textile factories”. Blight stated in evidence that this was a quite misleading letter in that the NFF was not a client of Lloyd; nor was the NFF mounting the drive to promote wool in the manner described in the letter. Blight had not seen the letter before the commencement of these proceedings.

According to Blight’s evidence he met with Gordon in Gordon’s office on 14th June. Gordon explained the working of the textile industry and Blight found him to be very informative. Gordon also indicated that he was prepared to go to Poland to investigate the mills there. Blight said that he rang the SAFF office that evening. He said he spoke to the SAFF Board and reported on his meeting with Craig Bush. He also advised the Board that in his opinion Gordon was a reasonably competent person and that he was very impressed with him. He said he made the telephone call from his hotel room and Lloyd was present at the beginning of the conversation.

Blight went on to say that on the following day he and Lloyd went to lunch with Gordon at the Princeton Club. He said that on that day he (Blight) was leaving New York and he packed his bags and checked out of the hotel at about 11.00 am. While they were at lunch Gordon produced a two page document which set out a proposal for his company to act as consultants and sales agents for the Polish mill (Prospertex) and its affiliates. He stated in the letter that he understood that the mill was involved in “a joint venture with the NFF”. Blight said that Lloyd read the letter at the table but he, Blight, only glanced at it. However he perused it in the taxi after the lunch. He made it clear in his evidence that his role was to do no more than give an opinion about Gordon. He said he had no authority to go any further than recommend Gordon. He denied Lloyd’s suggestion that he was involved in reaching any agreement with Gordon concerning his role. He said he also suggested that the level of fees which Gordon had suggested was too high. He denied discussing the terms of the agreement with SAFF. He denied saying to Lloyd that SAFF agreed with the proposed terms of the appointment of Gordon. He denied advising Lloyd that he had been made a director of Farmers’ Shop Pty Ltd. He said he was never a director of that company. He said that the impression he received from the discussions with Lloyd was that Lloyd had authority to enter into an agreement with Gordon. He said he did not have any knowledge before he left New York of any phone calls made to Gordon telling him that a deal had been done and that Gordon would be the agent.

Scholz gave evidence that he went to the Calmart fair in early May 1993. He cannot remember meeting Gordon there, but he thinks he might have been introduced to him. He had no recollection of any conversation they might have had. He said that Lloyd referred to Gordon in a report after the fair but this was in the context of Gordon being a director of a major clothing firm which was a potential customer. Scholz said that he can remember Blight ringing from overseas when the E&FC Committee was meeting on 15 December 1993. The minutes of the meeting record that:

“The Committee spoke with Mr Graham Blight, President of the National Farmers Federation, by telephone. Mr Blight spoke to the Committee from Europe, (sic) where he had been travelling with Mr Trevor Lloyd, and made suggestions in relation to the Australian Marketing Group.”

Nothing was recorded in the minutes concerning an appointment of Gordon to represent SAFF interests. Starick, who was at the meeting, said in evidence that Blight referred to possible customers and orders and he mentioned Gordon as a potential customer who might fulfil those orders. According to Scholz, Blight said that he met Gordon and it was Blight’s view that he was a credible person in the industry who could provide “a lot of opportunity”. Deare was also present at the meeting when Blight rang but he had difficulty remembering what Blight said. According to Deare’s recollection Blight spoke about a meeting with a director of Liz Claybourne and this was an excellent opportunity to sell textiles to that company.

Later in June, Scholz received information that Craig Bush in Los Angeles was upset because he had heard that someone had been appointed over him. Scholz said he spoke to Lloyd about this and was assured that “Craig had got it wrong”. At about this time Scholz sent a fax to Deare in Los Angeles which appears to be in answer to a query from Deare about Gordon. The fax states in part:

“No mention has been made to me by Trevor or Grahame re agent in N.Y. Certainly James Gordon as a textile wholesaler has been met with.”

Cheney asked Lloyd about Craig Bush’s concern when they spoke on the telephone on 23rd June. Cheney made a note of this discussion as follows:

“I asked about the Craig Bush interpretation re NY agent. It appears that Trevor has made an agreement (verbal) for Gordon to work in collaboration with Craig. (Reporting to Craig) I have no other knowledge of any such arrangement. Trevor says that Craig misunderstood his explanation.”

I accept Cheney’s evidence as being an accurate account.

This was reported to an E&FC Committee meeting on 23rd June when Cheney’s notes were tabled. The minutes of the meeting record that in relation to the note of the conversation quoted above “Michael Deare has sorted out”.

On 15 July Deare sent a fax to Scholz which referred to the letter suggesting that Gordon was entitled to a consulting fee of $6,000. He said in the fax:

“We have not been consulted. We have also not heard from Trevor since the middle of last week.”

It was then that Scholz sent his letter to Gordon asking for details of any agreement he might have made with Lloyd.

It is unnecessary to refer to other documentation which, in my view, confirms the evidence of the defendant’s witnesses that no-one at SAFF or Farmers’ Shop knew of the appointment of Gordon until after it had taken place. Some had heard of his name as a potential customer and it is clear that they got this impression from Lloyd’s own report to them; but I accept that none of them authorised this appointment.

I reject Lloyd’s version of these transactions with Gordon. In my view it is at odds with too much reliable evidence from other sources. It is my view that Lloyd got carried away with the opportunity of working with a person of Gordon’s undoubted stature and he took a short cut which excluded the SAFF and Farmers’ Shop boards from the process of the appointment of Gordon as an agent. In my view he was encouraged by Blight’s interest in the project generally and Lloyd might well have thought that there were good prospects for the NFF to join the venture if it proved successful. On the other hand I am confident that Blight was careful not to indicate that his organisation would take over the project; nor did he suggest that he had any authority to appoint Gordon. I find that he did not suggest to Lloyd at any time that SAFF had approved Gordon’s appointment. I also find that he did not tell Lloyd he had been appointed to the SAFF trading company.

I have no doubt that Lloyd negotiated a contract with Gordon in New York which was binding on the defendant. It is true that mention was made of a written document being prepared in due course. However it is clear that this was to formally incorporate in written form the agreement which had already been reached.

In view of the significance which the plaintiff attaches to the role of Blight in these matters it is necessary to refer to Blight’s contact with Lloyd after leaving New York and his further dealings with Gordon. He said he left New York on 15th June and went to London. He then flew from London to Edinburgh on the morning of 16th June. He stayed in Scotland until 20th June and then travelled to Copenhagen where he met up with Lloyd. Deare also met them and they travelled together to Poland.

Lloyd told Deare he was short of funds and when Deare said he was unable to assist, Blight indicated that he would advance the necessary money. He also agreed to contribute extra funds to Ela Kos, an employee of the defendant, for her trip to Poland. At a later time Blight arranged for the payment of $4,000 to cover Gordon’s air fares to Poland. According to Blight he recovered from SAFF all these monies which he had paid on their behalf.

Blight visited manufacturing mills in Poland and was present at the formal incorporation of Polwool the company which was to be the vehicle for the joint venture envisaged by the defendant in the Polish interests. He said he agreed to be chairman of Polwool and he has some recollection of agreeing to sign up for some shares, although neither he nor the NFF paid for the shares. Blight travelled with Lloyd to Geneva on 30th June. Not long after his arrival in Geneva Blight became aware of some difficulty in relation to the funding of Gordon’s trip to Poland. Gordon had decided to cancel the trip. Blight said he was concerned about this because he was of the view that it was important for the Australians to receive the benefit of Gordon’s expertise in assessing the Polish industry. He was embarrassed and concerned about the cancellation of the trip and endeavoured to contact SAFF personnel. He was unable to make contact with Scholz, but he eventually spoke to Starick. Unfortunately Starick was not directly involved in the matter and could not provide any assistance. According to Blight he decided in the end to use his own judgment and fund Gordon’s trip. He did it on the understanding he had received previously from Scholz that if he had to expend any money in relation to SAFF’s business he would be reimbursed. Blight rang Gordon from Geneva and the trip was reinstated.

I find that Blight was very interested in the project which had been initiated by SAFF and that he was anxious that it should be explored with the assistance of Gordon. In this state of affairs there was room for some confusion in the mind of Gordon as to who would be his principal. However I am quite satisfied that Lloyd was well aware of the respective roles of the NFF and the defendant both generally and in relation to this project. I find that Lloyd realised he could not obtain authority from Blight to appoint Gordon and that this authority had to come from the defendant. It is my firm view that Lloyd, encouraged by Blight’s enthusiasm for the project generally, decided that there was little risk in concluding an agreement with Gordon without obtaining approval from the defendant. Although the approval was not obtained at the outset, it was obvious that the defendant would find out about the arrangement before very long. Lloyd must have realised that this was the case, but he was confident that the appointment would not cause any difficulty.

It is somewhat curious that Deare did not become aware of all that had happened between Blight, Lloyd and Gordon until he returned to Australia. I have also given careful consideration to a fax sent by Deare to the Farm Trade Board from Warsaw on 30th June 1993. It stated that the Farm Trade Board must not cut across the arrangements made between “Blight/Lloyd and Gordon in New York”. It was also fulsome in its praise of Lloyd and exuberant about the prospects of the success of the project in Poland. It recorded that Blight supported the project.

However I accept Deare’s assertion that he did not know of the appointment of Gordon as agent until he returned home to Australia. In any event he did not discuss the matter with Blight until after the appointment was made. Deare was asked about Gordon by Craig Bush on 21st June. He made notes of his conversation and wrote down “Barry or Bruce Gordon”. He said that this news of a person called Gordon took him by surprise. He then rang Adelaide in an attempt to find out where Gordon Textiles fitted in.

Deare said that on the first day he arrived in Warsaw he spoke to Lloyd about his conversations with Bush. He asked Lloyd whether Gordon had been appointed. Lloyd replied that he believed Bush had misunderstood the situation and that he had had discussions with Gordon in New York, but Gordon was a representative of a very large American clothing manufacturer and it was in that context that Gordon was working with the Australians as a potential buyer of wool based fabrics and textiles which were going to be supplied to the United States. Deare said he accepted this assurance. He said he was relieved to hear it because of SAFF’s limited financial resources. He said he contacted Bush and told him of the assurances that he had been given and the reply he got from Bush was “I don’t understand, but I trust you”. Deare said there was no suggestion made to him by Lloyd that Gordon was to be paid by SAFF or Farm Trade for any services. I accept Deare’s evidence as to his state of knowledge of Gordon as at the time he left Warsaw. He said he understood Gordon’s role in Poland to be one related to the conduct of his own business. I do not accept that Deare learned of the true nature of Gordon’s role in the course of a conversation between Blight and Adam Miernik in Poland which was translated by Ela Kos.

I find that Lloyd appointed Gordon Textiles as an agent for the defendant without the defendant’s consent and with knowledge that there was no such consent. The question remains whether Lloyd’s conduct entitled the defendant to rescind the contract. There is no stipulation in the contract that a breach of clause 3.2 will entitle the defendant to terminate it. However it is necessary to enquire whether the clause is of such a nature as to give rise to a right to rescind or whether the breach relied upon in this case is sufficiently serious to precipitate such a right.

Various tests have been proposed for determining whether particular conduct is in breach of an essential term. In Halsbury’s Laws of Australia, vol 6 para 110-9175 the following comment appears:

“The criterion to be applied at common law may be expressed in various ways:
(1)... whether the breach frustrates the purpose of the contract;
(2)... whether the breach has deprived the promisee of substantially the whole benefit of the contract;
(3)... whether the breach makes further commercial performance of the contract impossible;
(4)... whether the breach is fundamental in character;
(5)... whether the breach has produced a fundamentally different situation;
(6)... whether the breach goes to the ‘root’ of the contract;
(7)... whether the breach causes a total failure of consideration.

These expressions show that the performance of the contract must be rendered substantially different from that intended by the parties, as a consequence of the promisor’s breach. However, the seriousness of a breach may depend not only on the breach itself but also on the consequences of the breach, both actual and foreseeable, for the promisee. The assessment of these consequences is a factual matter in respect of which the promisee bears the onus of proof.”

In Shevill v Builders Licensing Board (1982) 149 CLR 620 at 626 Gibbs CJ obtained assistance from two authorities which he cited:

“In Suisse Atlantique Societe d’Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C., at p.422. Lord Upjohn said:
‘A fundamental term of a contract is a stipulation which the parties have agreed either expressly or by necessary implication or which the general law regards as a condition which goes to the root of the contract so that any breach of that term may at once and without further reference to the facts and circumstances be regarded by the innocent party as a fundamental breach ...’

The test accepted in Associated Newspapers Ltd. v. Bancks (1951) 83 C.L.R. 322, at p.337, is whether the term ‘is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor’.”

Gibbs CJ also referred to Hongkong Fir Shipping Co. Ltd. v Kawasaki Kisen Kaisha Ltd. [1962] 2 Q.B. 26, at p.64 a case in which it was held that a right to rescind would arise if the other party commits a breach which goes “so much to the root of the contract that it makes further commercial performance of the contract impossible”.

Clause 3.2 covers a wide range of conduct. I do not think that every breach of the clause was intended to give rise to a right to rescind. Furthermore I am of the view that Lloyd’s conduct in purporting to appoint Lloyd was not of such a nature as to satisfy any of the criteria set out above. There could be no suggestion that Lloyd was going to hide anything from the defendant in the long term. The results of Lloyd’s negotiations with Gordon had to become known in a very short time. In my view the defendant lost nothing as a consequence of the arrangement with Gordon; he gave the defendant service for a period of time which was of benefit to its project and he readily agreed not to make any claim beyond payment for that work. It is not as though Lloyd did something which was completely foreign to the defendant’s aims and intentions in furthering its project. One had only to see Gordon in the witness box and have regard to his experience and the praise he received from various witnesses to understand why he would have been an asset to the project. In my view the breach was a case of Lloyd “jumping the gun” in the course of his euphoria and doing little damage, if any, to the defendant. In making this assessment I have not overlooked the fact that Lloyd owed fiduciary obligations to the defendant. However I have concluded that the defendant was not justified in treating this breach of the agreement as giving rise to a right to rescind.

The defendant has counterclaimed against Raestreet alleging that if the contract dated 11th March 1993 was binding on the parties, Raestreet was liable for the amounts paid to Gordon Textiles arising out of the appointment of that company to act as agents. The defendant has also issued a third party notice against Lloyd claiming damages by reason of the misrepresentations which led to the signing of the contract. The measure of damages is said to be the amounts paid by the defendants to Gordon Textiles under the agency agreement and to Lloyd for his retainer and expenses. Other claims made in the counterclaim and statement of claim against Lloyd as third party have been abandoned. The amounts paid to Gordon Textiles total $10,293.58 and those to Lloyd total $26,000.

I deal first with the amounts paid to Gordon Textiles. They comprise two payments, one being a cash advance of $4,094.98 made to Gordon by Blight and the other being the $6,000 consulting fee paid to Gordon by the defendant plus a further $198.60 for expenses incurred on the trip which Gordon made to Poland.

In late June 1993 Gordon forwarded a claim for expenses in anticipation of his trip to Poland. I have mentioned that he received a reply from Cheney on 1st July which stated that Lloyd had no authority to commit the defendant to expenditure of this nature. This led Gordon to cancel his trip to Poland. He said in evidence that at this stage he was content not to go to Poland and to proceed as though the agreement he had reached with Lloyd did not exist.

However it was at this point that Blight intervened. As I have recorded earlier, he decided to exercise his own judgment and fund Gordon’s trip. He anticipated that he would be able to recover these funds from SAFF in due course. Gordon then decided to undertake the trip because of the assurances he received from Blight. The consultancy fee which he later claimed was confined to the services he rendered in July and, in particular, during the trip to Poland. The defendant received the benefit of his services in advancing its project. It is clear that the amounts eventually paid to Gordon arose from Blight’s intervention and initiative after the defendant had given Gordon notice that Lloyd had no authority to bind it. Gordon was prepared to accept the defendant’s denial of a binding agreement. In these circumstances it cannot be said that the dealings between Gordon and Lloyd were the real cause of the payments made to Gordon and I disallow this aspect of the defendant’s claim.

There remain the amounts paid to Lloyd. The agreement provided that he was to be paid $6,000 for work done prior to the signing of the agreement and $9,000 when the signing took place. He received these amounts. The defendant claims that they should be recovered by way of damages for misrepresentation.

It has been said that the assessment of damages for misrepresentation under the Trade Practices Act is analogous to the general principle respecting the measure of damages in tort. (Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 at 351.) I think it is the correct measure in the circumstances of the present case. It is pertinent to enquire, therefore, as to the position of the defendant before and after the contract was entered into.

I have reached the conclusion that the defendant has not suffered any real loss by reason of the misrepresentations made by Lloyd. He achieved for them what they bargained for. The level of his contribution was recognised by Deare in his fax to the defendant dated 30th June 1993. He was in Warsaw and had been given a good opportunity to assess the progress of the project. He expressed the view that Lloyd was “the key to success” and that he had to be supported financially. Despite his exaggerations and, indeed, his misrepresentations on certain aspects, it is clear that Lloyd did what was expected of him in relation to the project and that the defendant received the benefit of his work. In these circumstances I do not think that the defendant suffered a compensable loss.

The payment of $11,000 was also claimed as a head of damage, but the defendant concedes that this was not paid under the contract. As I have pointed out, it was paid as part of the resolution of the impasse which had resulted when Lloyd refused to travel overseas unless his contract was extended. In my view it is not recoverable as damages for misrepresentation.

For the reasons which I have given the plaintiff’s claim and the defendant’s counterclaim and third party claim will be dismissed.

[1998] SASC 6753

30 June 1998