Sante Wines Pty Ltd v Paxton Wines Pty Ltd

[2018] SASC 104

SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeals: Civil)

SANTE WINES PTY LTD v PAXTON WINES PTY LTD

[2018] SASC 104

Judgment of The Honourable Justice Parker

19 July 2018

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS - DURATION OF CONTRACT

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS - GENERALLY

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE

ESTOPPEL - ESTOPPEL BY CONDUCT - ACT, OMISSION OR ASSUMPTION - WAIVER

ESTOPPEL - ESTOPPEL BY CONDUCT - ACT, OMISSION OR ASSUMPTION - REPRESENTATION GENERALLY

PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS

Appeal against decision of a Magistrate.

The appellant is a Victorian liquor wholesaler. The respondent is a South Australian wine producer.

These proceedings arise from a dispute between the parties over the terms of a distribution agreement.

The Magistrate gave judgment in favour of the respondent and made an order that the appellant pay a portion of the respondent’s costs on an indemnity basis.

The appellant appeals on eight different grounds.

Held, per Parker J, dismissing the appeal:

1.  Although the appellant was granted some form of exclusivity, it was not proven to be in the terms alleged by the appellant. Even if the exclusivity arrangement was in the terms alleged by the appellant, a breach has not been established (at [110] and [112]).

2.  The requirement that the appellant pay on time was a fundamental term of the agreement (at [31]). The respondent was entitled to terminate the agreement for late payment, notwithstanding that it had not exercised that right on earlier occasions (at [33]). Furthermore, the appellant’s persistent failure to pay on time constituted a repudiation of the agreement (at [40]).

3.  The termination letter was effective, notwithstanding the failure by the respondent to identify the grounds of termination (at [35]). In any event, the appellant had accepted the termination and was therefore not entitled to challenge it (at [52]).

4.  The respondent had proper grounds to refuse to meet any further orders after giving notice of termination (at [59]). 

5.  The appellant has not established that the respondent was estopped from denying it was bound by the 2015 Memorandum of Understanding (at [73]).

6.  A reasonable notice clause could not be implied into the agreement. The implication of such a term was not necessary to give business efficacy to the agreement, not so obvious that ‘it goes without saying’ and would be contrary to a term of the agreement (at [93]).

7.  The Calderbank letter supports the award of costs on an indemnity basis (at [134]).

Magistrates Court (Civil) Rules 2013 r 106(2), referred to.
Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438; Pacific Products Pty Ltd v Howard [2005] SASC 290; Ballast Stone Estate Wines v Wine Solutions Australia Pty Ltd [2007] SADC 129, distinguished.
Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291; Tropical Traders Ltd v Goonan (1964) 111 CLR 41; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; Concut Pty Ltd v Worrell (2000) 75 ALJR 312; The Commonwealth v Verwayen (1990) 170 CLR 394; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Whisprun Pty Ltd v Dixon (2003) 77 ALJR 1598; Wheeler v State of South Australia [2012] SASCFC 111; BP Refinery (Westernport) Pty Limited v Hastings Shire Council (1977) 180 CLR 266; Calderbank v Calderbank [1975] 3 WLR 586; Nominal Defendant v Dighton (No 2) [2012] SASCFC 97, considered.

SANTE WINES PTY LTD v PAXTON WINES PTY LTD
[2018] SASC 104

Magistrates Appeal:  Civil

1. PARKER J:          This appeal against a decision of a Magistrate relates to a contract dispute.  The Magistrate gave judgment for the respondent in the sum of $73,755 including interest and dismissed the counterclaim and set off by the appellant.  The appellant had sought the sum of $94,012.56 under the counterclaim and set off.  For the reasons that follow, I dismiss the appeal in all respects.

   Background

2. The appellant, Sante Wines Pty Ltd, is a wholesale distributor of beer, wine and spirits based in Victoria.  The respondent, Paxton Wines Pty Ltd, is a wine producer based in South Australia.  In or around January 2012 the parties made an agreement with respect to the distribution of the respondent’s wines in Victoria by the appellant.  A dispute over the terms of that agreement form the subject of these proceedings. 

3. The Magistrate found that the terms of the contract between the parties were largely contained in a series of emails exchanged in early 2012.  The main issue between the parties at trial was whether the respondent validly terminated the contract by giving written notice on 1 March 2016 to take effect on 31 March 2016.  The appellant contended that it was entitled to reasonable notice of termination and that six months’ notice was required.  It sought damages of $64,012.56 based on lost earnings. The respondent claimed in the alternative that it was entitled to terminate the contract for cause on the basis that the appellant had consistently breached a fundamental term of their agreement by the late payment of monies due. 

4. The appellant also contended by way of set off and counterclaim that the respondent breached its exclusive contractual right to distribute the respondent’s wine in Victoria.  The appellant claimed that this alleged breach caused it to suffer loss of commission in the sum of $30,000. 

5. A further dispute between the parties was an allegation by the appellant that the respondent had improperly used confidential information.  While the Magistrate dismissed that claim, it is not the subject of this appeal. 

   Grounds of appeal

6. The appellant now relies upon eight grounds of appeal.  These may be summarised as follows:

   ·The Magistrate erred in failing to find that the appellant did not have the exclusive right to distribute the products of the respondent in Victoria and therefore was not entitled to compensation for the sales made by the respondent to Vinofomo (Grounds 1 and 2).

   ·The Magistrate erred in finding that the respondent was entitled to rely upon late payments by the appellant as disentitling the appellant from receiving reasonable notice of termination of the distribution agreement to which it would otherwise have been entitled (Ground 3). 

   ·Closely related to that assertion is the contention that the Magistrate erred in finding that the appellant had accepted the termination and waived its right to damages for want of reasonable notice (Ground 4). 

   ·The Magistrate erred in finding that the respondent was entitled to refuse to fill orders placed by the appellant during the notice period (Ground 5).

   ·The Magistrate erred by not finding that the respondent had acted in bad faith by representing that it would formalise the distribution agreement in writing, when it had no intention of doing so and was seeking an alternative distributor (Ground 6).

   ·The Magistrate erred in finding that the extent of the appellant’s right to reasonable notice of termination depended upon the percentage of its business provided by the respondent. The Magistrate should have found that the length of a reasonable notice period must be determined in light of the overall circumstances of the relationship between the parties and the time likely to be taken by the appellant to find replacement clients (Ground 7).

   ·The Magistrate erred in relation to the award of costs against the appellant (Ground 8).

   I will first consider Grounds 3-7, then Grounds 1 and 2 and finally the costs contention in Ground 8.

   The contract

7. Before referring to the findings by the Magistrate about the terms of the contract, it is necessary to refer to his Honour’s finding about the witnesses. The appellant called its managing director, Mr Todd Lichti. The respondent called a long term senior employee, Mr Ben Paxton, and its former sales manager, Mr Paul Limpus. His Honour accepted that the evidence given by the witnesses could be relied upon. The greater part of the evidence comprised email communications and other documents. Certain facts were also admitted in the pleadings and in evidence.

8. It was accepted by the parties that in about January 2012 they entered into a contract. That replaced an earlier informal agreement. The oral evidence and emails showed the substance of the contract to be that the respondent would supply wine to the appellant for distribution in Victoria.  The wine was delivered to a Melbourne warehouse for distribution by the appellant but remained the property of the respondent until it had been sold.  The appellant was not obliged to pay the respondent for the wine until it had been sold. After the wine was sold the appellant would generate an invoice each month for payment in accordance with the agreement between the parties. 

9. The Magistrate found that the terms of the contract were contained in four emails. On 13 December 2011 Mr Lichti sent an email to the respondent and other suppliers of wine proposing a revision to their terms of trade.  Mr Lichti’s proposal was that suppliers would forward an invoice at the end of each month covering the wine sold by the appellant during that month.  The invoice would be paid by the appellant by the 10^th day of the following month.  Mr Lichti explained the proposal as follows.  If the appellant sold $20,000 worth of the respondent’s wine in January, the respondent would then send an invoice to the appellant in early February with the sum due to be paid by 10 March.  Mr Lichti stated “[t]his sounds a bit like selling on consignment but it’s not.  We still bear the risk of not getting paid by our customer and most likely pay you prior to getting paid by a large majority of our customers.”

10. Mr Lichti stated in his email of 13 December 2011 that “Payment in account guaranteed every month at the same time.  WE UNDERSTAND UNEQUIVOCABLY THE IMPORTANCE OF THIS COMMITMENT BEING MET… without this, the model falls apart and loses any appeal from a supplier perspective”.[1]  Mr Lichti proposed that the new terms would apply from 1 January 2012. 

    [1]    The capitalisation and the ellipsis appear in the original message sent by Mr Lichti.

11. On 30 December 2011 Mr Limpus replied to Mr Lichti on behalf of the respondent.  He stated that the appellant had no major disagreement with any of the proposals but certain points required discussion. Those points were set out in the message. The final and relevant point made by Mr Limpus was that timely payment was required. He listed five outstanding invoices and indicated when he considered that payment was due “based on payment terms of 60 days EOM.”

12. Mr Lichti replied to Mr Limpus by email on 30 December 2011. He responded to each of the points raised by Mr Limpus. He suggested that the proposed revision to the stock control procedures would simplify payment. Mr Lichti also made detailed observations concerning the transition to the proposed new system. 

13. Mr Lichti sent a further email to Mr Limpus on 4 January 2012.  He referred to steps being taken to implement the new procedures.  He also stated “as discussed, all stock in warehouse will now fall under your ownership and stock we sell in January will be paid for in early March, stock sold in February paid for in early April, etc.”. 

14. The Magistrate noted that the appellant had pleaded that the agreement was oral and partly evidenced in writing.  The particulars supplied in the defence, set off and counterclaim included an allegation by the appellant that oral agreement had been reached between Mr Lichti and Mr Limpus following discussions throughout January 2012.  The Magistrate noted that neither Mr Lichti nor Mr Limpus had given evidence that would allow for him to make a finding that oral terms had been agreed between the parties. 

15. I will now turn to the grounds of appeal.

    Ground 3 - termination of the agreement

16. On 2 March 2016 the respondent sent an email to the appellant with an attached letter of termination dated 1 March 2016.  The letter stated that:

    Paxton Wines wish to cease supply and end our relationship with Sante Wines as Paxton Wines Victorian distributor effective 31^st March 2016. 

    If you wish to cease sales prior to this time, arrangements to will be made to remove all Paxton stock from Elite Logistics warehouse. 

    If you wish to see out the notice term we will arrange the movement of stock out of the warehouse on 1^st April 2016. 

17. The covering email stated:

    I’m happy to discuss with you if need be.

    The Letter outlines the processes to be and if you could come back to me with your decision on the timeline of the termination, that would be appreciated.

18. Mr Lichti responded in a letter sent by email on 3 March 2016.  He said that the appellant had obtained legal advice. He referred to an alleged dissemination of confidential information to competitors.  Mr Lichti threatened “injunctive proceedings will be sought in the Supreme Court followed by a claim for general damages plus punitive and exemplary damages”.  There seems little doubt that Mr Lichti’s choice of words was based on legal advice, at least in relation to the alleged breach of confidence.  Mr Lichti then stated:

    You have advised that our agreement is to terminate on the 31/03/2016.  We accept this and will continue to honour our part of the agreement by supplying product until that date.  Please send me an executed document stating our terms of trade so we can ensure we are operating within these terms.

    The Magistrate’s reasons relating to termination

19. The Magistrate identified four separate reasons for finding that the respondent had validly given notice of termination of the agreement to the appellant.  The first reason was that the contract authorised the respondent to given written notice of termination without any notice requirement and without cause.[2]  Secondly, if there was a notice requirement, the notice of one month provided by the respondent was sufficient. [3]  Thirdly, the term requiring payment by the tenth day of the month following issue of an invoice was a fundamental term of the agreement and the respondent had breached that term.[4]  Finally, the persistent delay by the appellant in making payment demonstrated a “disavowal of the obligation and a repudiation of the agreement.”[5] 

    [2] Paxton Wines P/L v Sante Wines P/L [2017] SAMC 70 at [47] and [55].

    [3] Ibid at [59].

    [4] Ibid at [32] and [42].

    [5] Ibid at [40] and [47].

    The appellant’s contentions in relation to Ground 3

20. Ground 3 in the notice of appeal contends that the Magistrate found that the late payment of invoices disentitled the respondent from receiving notice of the termination.

21. The appellant also contends that its late payment of the respondent’s invoices only amounts to a repudiation of the agreement if it is established that it intended either not to be bound by the agreement or to carry it out in a manner that was substantially inconsistent with its obligations.  It relies on Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council to support the contention that its ongoing effort to perform the contract militates against a finding of repudiation.[6] 

    [6] [2006] NSWCA 291 at [109]-[110], Giles JA, Tobias JA agreeing, Bryson JA dissenting.

22. It further contends that failure to perform on time may only give rise to a right to terminate a contract without prior notice if the delay is so long, or of such character, as to amount to repudiation.  A delay will only amount to repudiation where “procrastination may be so gross and protracted as to amount to repudiation”.[7]  In the absence of clear evidence of an unwillingness or inability to be bound by a contract, a failure to perform on time will not constitute repudiation.[8]  The appellant submits that although its payment were, at times, late, the invoices were paid on an ongoing basis.  This showed an ongoing effort by the appellant to perform the contract.  There is no evidence suggesting that its late payment of invoices demonstrated an intention not to be bound by the agreement or to carry it out in a manner that was substantially inconsistent with its obligations. 

    [7]    Sindel v Georgiou (1984) 154 CLR 661 at 671, Mason, Murphy, Wilson, Brennan and Dawson JJ.

    [8]    Command Energy Pty Ltd v Nauru Phosphate Royalties Trust [2003] VSC 261 at [827]-[833], Harper J.

23. The Magistrate had found that although there were multiple late payments, the delay was generally between seven and 21 days, although a number were more than 21 days late.  The appellant submits that delays of between seven and 21 days could not amount to procrastination that was so gross and protracted as to amount to repudiation.  Even if the appellant had breached its payment obligations, the respondent had waived its right to rely upon those breaches due to its acceptance of each late payment over an extended period.

    The respondent’s contentions in relation to Ground 3

24. The primary contention made by the respondent with respect to Ground 3 is that the Magistrate implicitly found that the agreement authorised the respondent to terminate at any time and it had done so.  Thus, in effect, the Magistrate found that termination could occur without a period of notice. His Honour did not find that the late payments disentitled the appellant from receiving reasonable notice of termination.

25. The respondent also notes that there is no challenge by the appellant to the finding by the Magistrate that it was a fundamental term of the agreement that the appellant would make payment by the tenth day of the next month after the month in which the invoice was provided by the respondent.  There is also no challenge to the finding by the Magistrate that the appellant was routinely late in making payments and that this was a matter of significance and concern to the respondent. 

    Consideration of Ground 3

26. As I have already noted, Ground 3 in the notice of appeal contends that the Magistrate found that the late payment of invoices disentitled the respondent from receiving notice of the termination. The respondent submits that the Magistrate did not make any such finding. I have summarised his Honour’s findings in relation to the question of termination at [19] above. In my view, Ground 3 may properly be considered as challenging the finding by the Magistrate that there had been a breach of a fundamental term of the agreement and also his Honour’s finding that the appellant’s persistent late payment constituted repudiation of the agreement.

27. The Magistrate noted that the parties had accepted in the pleadings that the agreement was for an indefinite period unless expressly notified in writing by the respondent.  There was no express requirement to give notice of termination. His Honour found that there was no evidence to support the implication of a term that reasonable notice be given.[9]  His Honour also rejected the submission by the appellant that it was necessary for the termination letter to specifically state that the termination was for cause. 

    [9]    Paxton Wines P/L v Sante Wines P/L [2017] SAMC 70 at [55].

28. I turn to the finding by the Magistrate that the requirement for payment to be made to the respondent by the tenth day of the month following issue of an invoice was a fundamental term of the agreement and the appellant had breached that term. I consider this finding to be correct. 

1. I have referred at [10] to the statement made by Mr Lichti on behalf of the appellant in his email of 13 December 2011 that payment was guaranteed every month at the same time.  He emphasised the importance of this commitment by the use of uppercase type.  He further reinforced the significance of the commitment by stating that without payment being made on time the trading model that he was proposing would fall apart and lose its attraction to the respondent. 

2. The words chosen by Mr Lichti were clearly intended to convince the respondent of the benefits it would receive by abandoning the subsisting arrangement and accepting the new arrangements he was proposing. The central point of the new arrangement was the guarantee by Mr Lichti of timely payment. The evidence on behalf of the respondent was that Mr Lichti’s assurance was a significant factor in it agreeing to the new terms.

3. For the reasons identified in the preceding two paragraphs I consider that the Magistrate was correct to find the requirement that the appellant pay at the time proposed by Mr Lichti was a fundamental term of the contract.

4. I also consider that the Magistrate correctly rejected the submission by the appellant that the respondent had waived its rights with respect to delays in payment. In my view his Honour correctly rejected the appellant’s contention that the decision of the High Court in Tropical Traders Ltd v Goonan established that late payment could be excused by conduct.[10]  That case concerned a contract for the sale of land with payment to be made by five annual instalments. The contract provided that time was of the essence.  Three of the first four instalments were paid late without complaint by the vendor.  The purchaser was unable to pay the fifth and final instalment on time and was given an extension of one week by the vendor.  Kitto J held that each acceptance of a late payment operated as an election not to rescind the contract.  However, Kitto J also held that the acceptance, whether considered separately or as a whole, did not support the contention of a promise or inducement in relation to future payments.  In separate judgments Taylor and Menzies JJ agreed with Kitto J.

   [10] (1964) 111 CLR 41.

5. Not only was the appellant’s position not supported by Tropical Traders but I consider that the Magistrate correctly found that the respondent had not acquiesced to the appellant’s persistent failure to pay on time.  The Magistrate referred to the fact that only six invoices over a period of almost four years had been paid on time.[11]  The majority of invoices were paid more than seven days late and a substantial number were more than 21 days overdue.  The respondent had been diligent and persistent in following up late payments by email.  Mr Paxton had personally become involved because of the importance of the issue to the respondent.  I consider that the Magistrate was correct to find that the respondent was entitled to terminate the agreement for late payment notwithstanding that it had not exercised that right on many earlier occasions. 

   [11]   Paxton Wines P/L v Sante Wines P/L [2017] SAMC 70 at [39].

6. The appellant contends that the termination of the contract was not effective due to the failure of the respondent to state in its letter that it was giving notice because of the failure by the appellant to pay on time. In Sunbird Plaza Pty Ltd v Maloney Mason CJ held (with Deane, Dawson and Toohey JJ agreeing):[12]

   Shepherd v Felt & Textiles of Australia Pty Ltd stands as authority for the general proposition that a termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at the time and even though the ground actually relied on is found to be without substance.

   (Footnotes omitted)

   [12] (1988) 166 CLR 245 at 262.

7. In Concut Pty Ltd v Worrell, Gleeson CJ, Gaudron and Gummow JJ stated that in that case no attempt had been made to deny the principle of law expressed in Shepherd v Felt & Textiles of Australia Pty Ltd[13] and any such attempt would not have succeeded.[14]  Their Honours also observed that in Shepherd, Dixon J (as he then was) [15] had identified as a rule of general application the principle that a contract may be validly terminated on grounds that were not relied upon at the time and were, at the time, unknown.[16]   In view of the clear and consistent statement of principle by the High Court I reject the appellant’s contention that the termination letter was not effective because of the failure by the respondent to identify the grounds of termination.

   [13] (1931) 45 CLR 359.

   [14] (2000) 75 ALJR 312 at [29].

   [15] (1931) 45 CLR 359 at 377.

   [16] (2000) 75 ALJR 312 at [29].

8. The fourth finding made by the Magistrate concerning termination was that the persistent late payments demonstrated a repudiation of the agreement by the appellant. The respondent submits that the appellant has not directly challenged this finding in its notice of appeal.  However, in my view the appellant has indirectly challenged the finding of repudiation by contending that the Magistrate erred in finding that the respondent was entitled to rely upon the late payments as disentitling the appellant to receive reasonable notice of termination. 

9. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd Gleeson CJ, Gummow, Heydon and Crennan JJ explained that the term repudiation may be used in two different senses: [17]

   First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract.  This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations.  It may be termed renunciation.  The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it. … Secondly, it may refer to any breach of contract which justifies termination by the other party.

   (Footnotes omitted)

   [17] (2007) 233 CLR 115 at [44].

10. It is clear from [40] of his reasons that the Magistrate used the term “repudiation” in the first of the two senses referred to by the High Court in Koompahtoo.  His Honour specifically referred to persistent delay by the appellant in making payment as “conduct amounting to a disavowal of the obligation and of a repudiation of the agreement”.

11. Given the finding by the Magistrate that the respondent was entitled to terminate the agreement on account of the breach of the fundamental term as to the timing of payments, the question as to whether the persistent delays also amounted to repudiation is an academic point of no immediate consequence.

12. Leaving aside the four payments that fell due after 10 February 2016, the appellant made all payments due under the contract, albeit the delay in payment ranged from nine days up to 31 days based on the evidence before the Court.  While the appellant had persistently breached the fundamental term of the contract concerning the timing of payments, and was significantly in breach when notice was given, it had otherwise fully met all other obligations under the contract.[18]  This latter fact might be taken to suggest that there was no repudiation.  Nevertheless, the persistent failure to pay on time suggests that the appellant was only willing or able to fulfil its payment obligations in a manner substantially inconsistent with its contractual obligations.  For this latter reason I consider that the Magistrate correctly found that there was a repudiation.

    [18]   At the time notice of termination was given by the respondent on 2 March 2016, the payment due on 10 February 2016 was 20 days overdue. 

13. I dismiss Ground 3 of the notice of appeal.

    Ground 4 – acceptance of termination and waiver of right to damages

14. The Magistrate found that the words used by Mr Lichti in his email of 3 March 2016 (set out at [18] above) constituted an express acceptance of the time that termination of the contract would take effect. He observed that the appellant had the opportunity to object to the termination or to defer any response to the appellant’s letter until the situation had been investigated. The Magistrate concluded that it was not open to the appellant to go behind its acceptance of the termination or to subsequently challenge the termination.

    The appellant’s contentions in relation to Ground 4

15. The appellant observes that waiver may occur by estoppel or by election.  It contends that the waiver of a right to claim damages for want of reasonable notice by accepting termination is clearly a waiver by election.[19]  The appellant further submits that a distinction should be made between a case where:

    (a)a party waives its right to treat a contract as repudiated but does not abandon its right to claim damages resulting from the breach; and

    (b)the innocent party waives both its right to terminate performance of the contract and its claim for damages.[20] 

    [19]   Craine v Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 326, Knox CJ, Isaacs and Starke JJ; Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 406, Mason J.

    [20]   Motor Oil Hellis (Corinth) Refineries SA v Shipping Corp of India [1990] Lloyd’s Rep 391 at 397‑398, Lord Goff.

16. The former instance is an example of waiver by election while the latter is regarded as waiver by estoppel.[21]

    [21]   Chitty on Contracts (Thompson Sweet & Maxwell, 29^th ed, 2004) 1304 and 1371.

17. The appellant submits that the Magistrate erred by finding that the letter it sent to the respondent dated 3 March 2016 constituted acceptance of the termination and waiver of the right to reasonable notice.  The correctness of this finding depended upon the letter amounting to an election to accept the termination.  However, there were other reasons for sending the letter apart from the acceptance that one month’s notice of termination was reasonable.  There were other issues, such as the concern that the respondent had been supplying wine to other distributors, that may have strained the commercial relationship so that termination was welcomed.  The appellant submits that an election is the effect that the law attaches to conduct that would only be justifiable if an election has been made.  The appellant’s letter cannot be regarded as an election to accept the reasonableness of the notice period.

18. By way of alternative submission the appellant also submits that its alleged acceptance of the termination did not waive its right to damages for want of reasonable notice.  If there was an acceptance of the notice period that constituted a waiver by election, the appellant needed to choose either to enforce its contractual rights arising from the failure by the respondent to give reasonable notice and thus treat the contract as repudiated or, alternatively, waive its right to do so.

19. The appellant notes that the Magistrate found that the letter of 3 March 2016 constituted a waiver of the appellant’s right to damages for want of reasonable notice.  However, the appellant had only abandoned its right to treat the contract as repudiated rather than its right to claim damages for loss suffered as a result of that breach.  Therefore, the appellant submits that the letter of 3 March 2016 was akin to an election to affirm acceptance of the date of termination in the same way that a party may elect to affirm a repudiation without waiving the right to damages arising from a failure to give reasonable notice.

    The respondent’s contentions in relation to Ground 4

20. The respondent notes that Ground 4 is only relevant if the appellant succeeds on either Ground 3 or Ground 7.  While I have found that the appellant fails on both Ground 3 and Ground 7, for completeness I will deal with Ground 4.

21. The respondent maintains that the Magistrate correctly found that the agreement permitted termination by the respondent at any time by written notice and, in any event, it had given reasonable notice.  The respondent also contends that the Magistrate correctly found that the appellant had accepted the termination and the period of notice by sending the letter of 3 March 2016.  The respondent submits that the appellant expressly accepted the one month notice period, conceded that such a notice period was acceptable in the circumstances and also unconditionally waived and abandoned its right to assert that the notice period was insufficient by acting in a manner inconsistent with the existence of that right.

22. The respondent also submits that there was no evidence given at the trial that might support any other justification for the letter sent by the appellant on 3 March 2016.  The suggestion that it may have accepted the termination because the respondent was supplying wine to Vinomofo contrary to their agreement is mere speculation.  The acceptance by the appellant of the termination and the notice period is not akin to an election to affirm a repudiation without waiving the right to damages.  The clear and unequivocal effect of the words used in the letter of 3 March 2016 was to accept the one month period ending on 31 March 2016.

    Consideration of Ground 4

23. Mason CJ noted in The Commonwealth v Verwayen that “‘waiver’ is an imprecise term capable of describing different legal concepts, notably election and estoppel.”[22]  A waiver by estoppel is enforceable in the absence of any consideration.[23]  However, in the present case there is no suggestion that the respondent relied to its detriment on the statement by the appellant in its letter of 3 March 2016 that it had accepted the termination.  Thus, there is no basis for a waiver by estoppel and the respondent has not suggested otherwise.  For these reasons I accept the correctness of the appellant’s submission that if there was a waiver it occurred by way of election.  However, I do not accept the correctness of the appellant’s contention that it may have had other reasons, such as the dispute about sales to Vinomofo, to explain why it had accepted the termination but not waived its right to receive damages for lack of reasonable notice.  There was no evidence that this concern may have led the appellant to accept the termination.  While the appellant referred in the letter of 3 March 2016 to an alleged misuse of confidential information by the respondent it has not contended in the appeal that this issue provided an explanation for its decision to accept the termination.

    [22] (1990) 170 CLR 394 at 406.

    [23]   Agricultural & Rural v Gardiner (2008) 238 CLR 570 at [126], Kirby J.

24. I find that the Magistrate correctly concluded that the appellant had accepted the termination and was therefore not entitled to challenge the termination.  I dismiss Ground 4 of the notice of appeal.

    Ground 5 – the finding that the respondent was entitled to refuse to fill orders placed during the notice period

    The appellant’s contentions in relation to Ground 5

25. The appellant contends that the Magistrate erred in finding that the respondent was not required to fill orders placed by the appellant during the notice period.  That finding was inherently inconsistent with the requirement to give one months’ notice.  The finding was also contrary to the purpose of a notice period, during which the contractual obligations of the parties continue to operate.  A reasonable person would understand that a notice of termination was a step prior to effective termination of the agreement so that the contractual obligations continued until the point of termination. 

26. For those reasons the appellant contends that the contract remained effective during the notice period and all contractual obligations, including the obligation of the respondent to meet orders placed by the appellant, remained on foot.  The effect of the conclusion reached by the Magistrate was to render the notice period ineffectual so that, in effect, the contract was terminated when notice was issued.

    The respondent’s contentions in relation to Ground 5

27. The respondent notes that this ground of appeal is of no consequence if the appellant fails in relation to Ground 3 or Ground 7. 

28. The respondent submits that the appellant’s contentions relating to Ground 5 are wrong in several respects.  First, the respondent submits that the purpose of a notice period depends on all the circumstances and necessarily include that the appellant will continue to derive income from the respondent during the notice period.  Secondly, there was no positive obligation under the agreement between the parties for the respondent to accept, regardless of the circumstances, orders placed by the appellant for the supply of wine.  While the respondent was not permitted under the agreement to supply wine to another distributor, it was not contractually bound to accept all orders placed by the appellant, particularly in light of the consignment arrangement that existed.  Thirdly, the respondent had good reason not to supply additional wine to the appellant during the notice period.  It would have supplied wine if the appellant had paid the amounts that were due and owing to the respondent. 

    Consideration of Ground 5

29. I consider that the respondent’s submission that it was not required to supply wine to the appellant for sale in Victoria provides a complete answer to the complaint that orders placed during the notice period were not filled.  Leaving aside their dispute about the meaning and operation of the exclusion relating to mailing houses, the agreement between the parties did not require the respondent to supply any particular quantity of wine to the appellant, nor was there an obligation to meet all orders placed by the appellant.  It is a notorious fact that wine production, like other forms of primary industry, is affected by seasonable climatic conditions.  Furthermore, the demand for particular types of wine, and for wine in general, changes over time.  For those reasons it would always have been a possibility that the respondent was unable to meet all orders placed by the appellant.  That consideration no doubt explains why the parties did not include a guaranteed supply commitment in the agreement.

30. I also consider that there is substantial force in the third contention made by the respondent with respect to Ground 5.  The Magistrate found that the appellant had 314 dozen and nine bottles of the respondent’s wine on hand as at 29 February 2016.  That quantity was less than the wine on hand from June 2015 to January 2016 but not the lowest it had ever been.  In the view of the Magistrate, the wine on hand from June 2015 to January 2016 was not “dramatically lower” than the average across the period covered by the evidence.  On that basis the Magistrate concluded that the appellant could have continued to trade in the respondent’s products during the notice period.  While it is possible that the appellant may have had insufficient stocks of some of the respondent’s products, there appears to be no evidence before the Magistrate about that particular question.

31. Apart from the Magistrate’s conclusion that the appellant had substantial stocks of the respondent’s product on hand at the commencement of the notice period, there are other considerations which, in my view, support the conclusion reached by the Magistrate.  First, the respondent retained the ownership of wine delivered to the appellant until such time as that wine was sold.  Secondly, the appellant owed the respondent $25,477 that was due on 10 February 2016 for wine sold during December 2015 and $11,813 was due on 10 March 2016 for wine sold in January 2016.  The payments either fell due prior to the giving of notice or during the notice period.  No payment has ever been made in respect of these debts.  In view of those clear breaches of the agreement by the appellant I consider that the respondent had proper grounds to refuse to meet any further orders.  It defies commercial reality to suggest that the respondent should have continued to supply wine (which would remain its property until sale) to the appellant in circumstances where it had demonstrated a clear unwillingness or inability to make payment as required by the agreement.

1. For these reasons I dismiss Ground 5 of the notice of appeal.

   Ground 6 - bad faith or estoppel relating to entry into a written agreement

2. The Magistrate found that a memorandum of understanding (‘MOU’) sent by the appellant to the respondent in March 2015 and a further version of the MOU provided by email on 16 October 2015 were not part of the agreement between the parties.  The email of 16 October 2015 requested that the respondent review the document and stated that any questions or feedback could be discussed.  An employee of the respondent responded to the email the same day stating “we will come back after reviewing”.  On 19 November 2015 the appellant sent another email asking if there had been a chance to review the agreement.  The answer provided on behalf of the respondent was “not yet”.  The Magistrate found that there was no further relevant communication about the MOU.

3. The Magistrate noted that the March 2015 version of the MOU was a generic document that related to various customers.  His Honour found that although the October 2015 version of the MOU did specifically refer to the respondent, the evidence was clear that the respondent had not agreed to be bound by this document and it had not been signed by either party. 

4. After referring to the relevant authorities, the Magistrate found that the requirements necessary to establish a binding contract based upon the MOU were not established. The Magistrate concluded that the MOU did not form any part of the terms of agreement between the parties in relation to matters that were in dispute.

5. As mentioned earlier, the Magistrate found that parties disagreed as to whether the appellant would conduct all wholesale trade sales in Victoria on behalf of the respondent with the exception of sales made direct by the respondent to mail houses (including but not limited to the Wine Society, Cellar Masters and Wine Selector), airlines, cruise ships and auction houses. 

   The appellant’s contentions in relation to Ground 6

6. The appellant contends that the representations made by the respondent concerning the adoption of the October MOU were ambiguous.  Nevertheless, the appellant submits that it had assumed that the exclusivity provision contained in the October 2015 MOU had been adopted and also assumed that the respondent would formalise the distribution agreement in writing.  The appellant operated on the basis of those assumptions.  The conduct of the respondent in supplying solely to the appellant coupled with its failure to inform the appellant that it had not adopted the October 2015 MOU, and the protracted review process it had undertaken in relation to the MOU, had induced the appellant to assume that the terms stated in the MOU had been adopted and that the revised distribution agreement would be formalised in writing. 

7. The appellant further contends that in reliance upon these assumptions it did not seek alternative distribution arrangements and reallocate its resources.  The assumption that the agreement would be formalised in writing suggested that there was a long term contractual relationship which would not need to be replaced on short notice.  The appellant also contends that the respondent failed to act to avoid the appellant incurring that detriment because, at all material times, it was seeking alternative distribution arrangements. On that basis the appellant submits that the elements of estoppel based upon the High Court decision in Waltons Stores (Interstate) Ltd v Maher were made out.[24]  Thus, the appellant submits that the respondent cannot deny its failure to formalise the agreement and to adopt the October 2015 MOU.

   [24] (1988) 164 CLR 387 at 428-429, Brennan J.

   The respondent’s contentions in relation to Ground 6

8. The respondent submits that the appeal grounds based on bad faith and an alleged estoppel are objectionable as the appellant did not plead or rely upon those matters at trial.  The estoppel ground is not referred to in the appellant’s notice of appeal. No evidence was given at trial about the elements of assumption, inducement and reliance necessary to demonstrate estoppel.  Furthermore, the respondent submits that the bad faith ground has effectively been abandoned by the appellant and replaced with the alleged estoppel.

9. The respondent submits that it was not under any obligation to inform the appellant of its intention to terminate their contract in the absence of any contractual term requiring that to occur.  The terms of the contract were simply that the agreement was for an indefinite period but could be terminated by notice in writing.  Furthermore, the respondent was entitled to give written notice of termination at any time regardless of when it made the decision to terminate.  That contention relies upon Pacific Products Pty Ltd v Howard where Bleby J found that the fact that a party had refrained from giving greater notice or failed to give earlier notice when it could have done so was not, of itself, relevant to the determination of what comprised reasonable notice.[25]  The respondent also submits that there is nothing unreasonable, nor does it amount to bad faith, for a party to a commercial agreement to act in its own best interests in deciding when to give notice of termination. 

   [25] [2005] SASC 290 at [26].

10. A further submission by the respondent is that its intention to terminate the agreement arose, at least in part, on account of the fact that the appellant was routinely late in paying the amounts due under the agreement.  That constituted a breach of a fundamental term.  For that reason the respondent was entitled to terminate the agreement when it did so. 

11. The respondent also submits that no representation was ever made to the effect that it would formalise the distribution agreement in writing.  Its communications simply stated that the MOU was being reviewed.

    Consideration of Ground 6

12. In Whisprun Pty Ltd v Dixon the majority in the High Court, comprising Gleeson CJ and McHugh and Gummow JJ, held “it would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial.”[26]  In Wheeler v State of South Australia White J held, with Sulan and Nicholson JJ agreeing, that “when the issue raised for the first time on appeal is one of law, and it is plain that the other party could not have adduced any further evidence relating to the matter had the point been taken in the Court below, the issue may, and often will, be considered”.[27]

    [26] (2003) 77 ALJR 1598 at [51].

    [27] [2012] SASCFC 111 at [48].

13. The appellant did not lead specific evidence at the trial in an attempt to establish the factual matters necessary to demonstrate estoppel.  On appeal, the Court has effectively been asked to draw inferences based upon the two email messages sent on behalf of the respondent indicating that it was reviewing the proposed MOU.  It is not apparent that the respondent could have adduced any further evidence at trial relating to the estoppel question. In those circumstances I will consider the appellant’s contention that the respondent was estopped from denying that the MOU had been adopted by the parties.

14. While the truth of the matter is apparently that the respondent was seeking an alternative distributor, it was not obliged to disclose that fact when it gave a non-committal response in relation to the MOU. Nothing was said or done by the respondent which caused the appellant to infer that the respondent had agreed to the proposed revision to their terms of trade.  I find that the appellant has not established that the respondent was estopped from denying that it was bound by the October 2015 MOU.

15. While the appellant asserts that the Magistrate should have found that the respondent had acted in bad faith in relation to the adoption of the MOU, that ground was not pursued in oral submissions. Counsel conceded that the allegation of bad faith was, in essence, an element of the estoppel contention in that it served to demonstrate the prejudice suffered by the appellant by being denied the opportunity to find an alternative customer.  In that light and in view of my finding that an estoppel is not established, it is unnecessary to consider further the contention of bad faith.

16. I also find that the mere fact that the respondent continued to deal with the appellant was not conduct that amounted to an acceptance of the MOU as contended by the appellant. The ongoing conduct of the respondent was entirely consistent with it continuing to perform under the agreement reached in early 2012.

    Ground 7 – period of reasonable notice

    Failure to plead a reasonable notice requirement

17. The respondent contends that the appellant did not plead that a term requiring reasonable notice should be implied into the 2012 agreement.  Instead, the respondent contends that appellant’s submission was that such a term should be implied into the October 2015 MOU. However, the Magistrate found that the terms proposed in the October 2015 MOU had never been adopted by the parties. 

18. Nevertheless, the Magistrate proceeded to decide whether or not an obligation to give reasonable notice should be implied.  His Honour specifically did so on the basis that the parties should have the benefit of a ruling by the Court on the issues that were the subject of evidence.  He referred to several authorities in support of his conclusion that the case should be decided on the basis of the real controversy between the parties without regard to the failure of a party to seek permission to amend their pleadings to reflect the case that was actually run.  The adoption of that approach by the Magistrate has not been challenged.

    The Magistrate’s reasons in relation to Ground 7

19. The Magistrate held that the fact that the agreement operated for an indefinite period, unless terminated in writing by the respondent, was a significant consideration against the implication of a term requiring reasonable notice.  His Honour observed that the parties had ample opportunity to formalise the agreement or to document any express terms but had not done so.  The respondent had also given evidence to the effect that at the time the MOU had been proposed it did not wish to enter into a long term arrangement with the appellant.

20. The Magistrate also found that there was no evidence to indicate that the effect upon the appellant’s business would be such as to require the implication of a term requiring reasonable notice to be given of termination.

21. The Magistrate distinguished Ballast Stone Estate Wines v Wine Solutions Australia Pty Ltd[28] and Pacific Products Pty Ltd v Howard,[29] being the authorities relied upon by the appellant at trial. In Pacific Products the Court found that a period of 10 months constituted reasonable notice in a distribution agreement for supermarket products.  The Magistrate noted that there the products of the supplier constituted about 23% of the overall business of the distributor. In Ballast Stone the District Court Judge found that three months’ notice was reasonable.  However, the Judge had taken into account that when the contract commenced Ballast Stone had been a very new producer. At the time of the termination there was a high level of oversupply in a very competitive wine industry. Witnesses had described the situation as a “wine lake”, where margins at all levels of supply and distribution were under pressure. The Judge had taken into account how long it might take for the distributor, Wine Solutions, to redeploy its resources, to cushion itself against change, to make alternative arrangements, to fulfil its present commitment to Ballast Stone and to bring the relationship to an end in a businesslike manner. His Honour also took into account the length and quality of the relationship and the standards of performance on both sides.

    [28] [2007] SADC 129.

    [29] [2005] SASC 290.

22. In the present matter the Magistrate took into account that the respondent had an annual turnover of about $8 M, annual sales of the respondent’s wines by the appellant were less than $300,000 and on an annualised basis for the period ending 31 March 2016 the sales were $280,000.  His Honour concluded that the sale of the respondent’s wines was less than 5% of the total business of the appellant.  On my calculation, the respondent’s monetary share of the appellant’s business in the nine months ending 31 March 2016 was only 3.5%. The Magistrate also noted that the appellant was possibly the distributor for up to 50 different producers.

23. The Magistrate concluded that, if it was necessary to imply a term into the 2012 agreement requiring reasonable notice, a period of one month would satisfy that requirement.  On that basis his Honour rejected the claim by the appellant that the termination was unlawful or could support a claim for damages. 

    The appellant’s contentions in relation to Ground 7

24. The appellant relies upon Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd in support of its contention that the period of reasonable notice of termination of an indefinite contract “must be sufficiently long to enable the recipient to deploy his labour and equipment in alternative employment, to carry out his commitments, to bring current negotiations to fruition and to wind up the association in a businesslike manner.[30] 

    [30] (1988) 14 NSWLR 438 at 444, McHugh JA.

25. The appellant also submits that the reasonableness of the period of notice must reflect the circumstances in existence at the time notice is given.  Bleby J held in Pacific Products that this requires an evaluation of the “whole of the relationship of the parties as it currently stands”.[31]  On that basis the appellant contends that the Magistrate should have considered the broader circumstances surrounding the agreement at the time notice was given, rather than merely the proportion of the appellant’s business provided by the respondent. 

    [31]   Pacific Products Pty Ltd v Howard [2005] SASC 290 at [15].

26. The appellant contends that the broader circumstances that should have been taken into account by the Magistrate included the fact that the agreement had been operating for six years prior to the giving of notice, that the nature of the wine industry meant that finding new clients for a distributor may require a more extensive period of notice and that the intention of the appellant had been to act as the respondent’s exclusive distributor for an extended period. These facts indicated that one month’s notice was not sufficient to satisfy the requirements identified in Crawford Fitting.

    The respondent’s contentions in relation to Ground 7

27. The respondent submits that the Magistrate correctly referred to and took into account not only the percentage of the appellant’s business represented by the respondent but also the matters referred to by Judge Tilmouth in Ballast Stone.[32]His Honour found that there was very limited evidence from the appellant in respect of those matters.  The respondent also contends that there was no evidence at trial to support the assertion made by the appellant on appeal that the nature of the wine industry is such that finding new clients “may require a more extensive period of time”.  Furthermore, the respondent also contends that the assertion made by the appellant in its outline of argument that it intended to act as the respondent’s distributor for an extended period of time, and that therefore it may not have been conducting other negotiations when notice was given, is misconceived for several reasons.  First, the respondent contends there was no evidence given about the appellant’s intentions concerning the duration of the agreement.  Secondly, the intended duration of the agreement cannot be determined solely by reference to the appellant’s unilateral intention.  Thirdly, the respondent submits that it is a matter of mere speculation as to whether the appellant may have been negotiating with other suppliers when it received notice.

    [32] [2007] SADC 129 at [52] and [55].

28. In addition to those matters the respondent also contends that the implication of a term requiring reasonable notice of termination would be contrary to the express terms of the agreement which provided that the respondent could terminate the agreement by giving express notification in writing.  “Notification” is different to a period of notice and merely involves the act of notifying of an event, in this instance termination of the contract.  In other words, no period of notice was required under the express term and the respondent was entitled to effect termination at will by giving written notification.  That was the common purpose of the parties when they entered the agreement.  In those circumstances there is no room for the implication of a term requiring advance notice. 

29. The respondent submits that the authorities relied upon by the appellant, namely Crawford Fitting and also Pacific Products, are distinguishable from the present matter as in those cases the distribution agreement was silent as to termination. The principles discussed in those cases apply to a commercial agreement operating for an indefinite and unlimited period.[33]  In the present matter the agreement expressly provided that it could be terminated on written notification by the respondent, and therefore the implication of a term requiring notice of termination is inconsistent with the express terms of the agreement. Thus, in the respondent’s submission, the Magistrate correctly found that the respondent was entitled to terminate the agreement by notification in writing without any period of notice.  The finding by the Magistrate that one month’s notice was reasonable was merely an alternative finding in the event that his Honour was incorrect in his conclusion that no notice was required.

    [33]   Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 443.

    Consideration of Ground 7

30. Two issues arise under Ground 7.  The first issue is whether a term should be implied into the agreement requiring the respondent to give reasonable notice of termination.  That must be determined in light of the facts existing when the parties entered the contract.[34]  Secondly, if there is an obligation for the respondent to give reasonable notice, what was the length of the required notice in the particular circumstances existing at the time that notice was given.[35]

    [34]   Australian Blue Metal Ltd v Hughes (1962) 36 ALJR 139 at 143, Privy Council.

    [35] Ibid.

31. I accept the correctness of the respondent’s submission that Crawford Fitting and Pacific Products are distinguishable on the basis that in those cases the relevant distribution agreements operated indefinitely without any provision for termination.  In the present case the parties have agreed that their agreement could be terminated by the respondent giving written notification. 

32. The Magistrate concluded that, because the proposed term requiring reasonable notice would be inconsistent with the express term of the agreement permitting termination by written notice, such a term could not be implied.  The implication of a term in those circumstances would be contrary to the fifth of the principles expressed by the majority of the Privy Council in BP Refinery (Westernport) Pty Limited v Hastings Shire Council, i.e. “for a term to be implied … (5) it is must not contradict any express term of the contract”.[36]

    [36] (1977) 180 CLR 266 at 283, Lord Simon, Viscount Dilhorne and Lord Keith; see also Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347, Mason J (as he then was).

33. The Magistrate also referred to the fact that the parties had not taken the opportunity to formalise their agreement or document any express terms.[37]  His Honour also noted that the respondent gave evidence that at the time the MOU was proposed it did not wish to enter into a long-term arrangement with the appellant. I do not regard either of those considerations as relevant to the question of whether a reasonable notice clause should be implied. The respondent’s intentions in 2015 when the MOU was proposed are not relevant to the question of whether a term should be implied into the agreement as negotiated in early 2012. The fact that several years after the agreement commenced it had not been formalised by entering the MOU also does not assist. The question of whether or not a term should be implied must be answered by reference to the facts as they existed in early 2012, not several years later.

    [37] Paxton Wines P/L v Sante Wines P/L [2017] SAMC 70 at [54].

1. While the Magistrate erred by apparently taking into account the facts as they existed several years after entry into the agreement, I am not persuaded that he also erred in finding that a reasonable notice term should not be implied into the agreement. In addition to the failure to satisfy the fifth of the conditions referred to in BP Refinery (Westernport), two other of those conditions are also not satisfied. I am not persuaded that the implication of a reasonable notice clause was necessary to give business efficacy to the contract. In my view the contract was fully effective without the implication of such a term. I also do not regard the implication of such a term to be “so obvious that ‘it goes without saying’”. I therefore find that the Magistrate correctly held that a reasonable notice clause could not be implied into the agreement.

2. For completeness, I turn to the further question as to whether the Magistrate erred in finding that notice of one month period was reasonable.

3. In my view it is quite clear that the Magistrate only took into account the percentage of the appellant’s business that was provided by the respondent for the purpose of considering whether the facts rendered the present case distinguishable from the authorities referred to in submissions.  I consider that the Magistrate correctly found that, although Ballast Stone also involved the relationship between a wine producer and its distributor, the facts are readily distinguishable for the reasons given by his Honour. The circumstances are such that reasonable notice must be substantially less than the three months found to be appropriate in Ballast Stone.

4. It was necessary for the Magistrate to take into account the time that might reasonably be taken by the appellant to rearrange its business in response to the loss of the respondent as a client. The reference made by the Magistrate to the reasons of Judge Tilmouth in Ballast Stone makes clear that his Honour was alert to the significance of that issue. However, he found that there was little evidence in relation to that aspect of the case. His Honour was clearly not persuaded by the evidence of Mr Lichti that it would take six months for the appellant to rearrange its business.

5. Given that the respondent provided less than 5% of the appellant’s business, and was one of about 50 suppliers, I cannot identify any error in the Magistrate’s reasoning or in his conclusion. In the absence of any persuasive contrary evidence, it was reasonable for the Magistrate to infer that the appellant could adapt to the loss of the respondent’s business within one month. The facts may be contrasted with Ballast Stone where the producer (being the party terminating the contract) was the distributor’s main source of business and the producer’s business had been built up from a very small start by the work of the distributor. The facts of this case are also very different to Pacific Products where the supplier provided about 23% of the distributor’s business and Crawford Fitting where there was only one customer.

6. I find that the Magistrate did not err in concluding that notice of one month was reasonable. I dismiss Ground 7.

   Grounds 1 and 2 – sales to Vinomofo

7. The appellant asserted in its counterclaim that the respondent had breached the agreement by selling a particular wine to Vinomofo.  The appellant contends that the Magistrate erred in finding that there was no “exclusivity” arrangement that operated to prohibit sales to Vinomofo in Victoria.  The appellant also contends that the Magistrate erred in finding that the respondent was not obliged to compensate the appellant for sales made to Vinomofo.

8. The appellant alleged in paragraph 4.10 of the fourth defence, set off and counterclaim that the parties had agreed that the appellant would “facilitate all wholesale trade sales to licensees in Victoria excluding sales made direct by the plaintiff to mail houses (including but not limited to the Wine Society, Cellar Masters and the Wine Selectors) airlines, cruise ships and auction houses.”  The respondent acknowledged at trial that the appellant did have a right of exclusivity but disputed the scope of that right. It also contended that the sales it had made to Vinomofo did not breach the right of exclusivity.

9. The Magistrate found that the exclusivity clause relied on by the appellant was not expressly mentioned in the email communications that formed the basis for the agreement.  His Honour also noted that no evidence was given about any verbal agreement concerning an exclusivity clause.  While an exclusivity clause in the terms claimed by the appellant appeared in the MOU’s created by the appellant in March 2015 and October 2015, his Honour found those documents did not vary the arrangement between the parties and were not contractually binding. 

10. The Magistrate found that some form of exclusivity had been granted to the appellant but was not satisfied that it was in the terms alleged by the appellant.  Nevertheless, the Magistrate proceeded to consider whether the sales made by the respondent to Vinomofo had breached an exclusivity provision in the terms alleged by the appellant.

11. The respondent accepted at trial that it could not make wholesale sales to liquor licensees in Victoria.  It acknowledged that it had made sales to the Wine Society, Cellar Masters and Wine Selectors.  The respondent also accepted that the exclusivity arrangement covered restaurants, hotels, bottle shops and large liquor retailers such as Coles, Woolworths and Dan Murphy’s.

12. The evidence was that a total of 2,000 cases of wine had been supplied to Vinomofo by the respondent in June 2015 and August 2015.  The total price was some $153,000.  The appellant has pleaded that it would have been entitled to a commission of $10 per case. The wine was delivered to a South Australian warehouse but the invoices showed the address of Vinomofo (under a previous business name) in Victoria.  The Magistrate held that the sales to Vinomofo did not constitute a breach of the exclusivity clause alleged to exist in the agreement. 

13. The Magistrate noted that Vinomofo was founded in South Australia and has its registered office in this State although an ASIC search showed that, for a period, its principal place of business was in Victoria.  The Magistrate considered that the latter fact did not establish that the sales were to a licensee in Victoria contrary to the alleged term of the agreement.  His Honour took the view that the location of a company which trades nationally and sells over the internet was not sufficiently certain to establish that the sales to Vinomofo contravened the alleged exclusivity clause.  His Honour also observed that online or internet sales by a national marketing business are not easily adapted to a distribution arrangement based on State boundaries. 

14. The Magistrate accepted the contention by the respondent that Vinomofo could properly be regarded as a “direct mail house” that conducted its business over the internet. Thus, sales to Vinomofo were permitted under the exception covering direct mail houses.

    The appellant’s contentions in relation to Grounds 1 and 2

15. The appellant contends that the Magistrate erred in not finding that there was an exclusivity arrangement.  The appellant’s argument is that even if the respondent had not accepted the entirety of the terms set out in the October 2015 MOU, it had accepted the exclusivity arrangement contained therein.

16. The appellant further contends that Vinomofo is properly classified as an online retailer rather than a direct mail house.  As I understand the oral submissions on behalf of the appellant, its contention is that a direct mail house approaches potential customers after selecting them from a mailing list it has compiled while an online retailer advertises on the internet and sells wine to persons who place orders through the internet. An online retailer may also contact past customers by email to encourage them to make further purchases.

    The respondent’s contentions in relation to Grounds 1 and 2

17. The respondent notes that Mr Lichti gave no evidence to support the contention in the pleading at particular A of paragraph 4.16 of the fourth defence, set off and counterclaim to the effect that he had reached an oral agreement with Mr Limpus, then an employee of the respondent, concerning the terms of the exclusivity agreement and other matters.  The respondent also notes that it had agreed at trial that the exception to the exclusivity arrangement was “not restricted to mail houses of the old fashioned postage type and extended to the modern type of wine houses that email out wine offers and also offer wine sales nationally directly through their websites (wherever in Australia their head office is located)”.

    Consideration of Grounds 1 and 2

18. In view of the finding by the Magistrate that the parties had not agreed to be bound by the October 2015 MOU, that document could not be the source of the exclusivity agreement.  When that fact is combined with the unchallenged finding by the Magistrate that no evidence was given at trial concerning any verbal agreement in relation to an exclusivity clause, the source of any such restriction is elusive.  While the respondent acknowledged that it had given some exclusive marketing rights to the appellant, the respondent did not concede the precise extent of that restriction.  Under the circumstances I consider that the Magistrate was correct to find that although the appellant had been granted some form of exclusivity he could not be satisfied that it was in the terms alleged by the appellant.

19. At common law the place of residence of a company lies at the place where its central management and control is located.[38]  The place of central management and control is the location where major decisions about the policy and activities of the company are made.  That is not necessarily the same location as its principal place of business.  Thus, the information before the Magistrate was not sufficient to determine the place of residence of Vinomofo. 

    [38]   DeBeers Consolidated Mines Ltd v Howe [1906] AC 455 at 458, Lord Loreburn LC.

20. Moreover, even if Vinomofo was resident in Victoria and its principal place of business was also in that State, it is by no means clear that the delivery of wine to a warehouse in South Australia to enable sales by Vinomofo to customers located across Australia, can properly be regarded as a sale to a licensee in Victoria.  I note in particular that after the wine is delivered from the respondent’s premises to the South Australian warehouse used by Vinomofo it is then sold by Vinomofo and sent directly to its customers, wherever they are in Australia.  For these reasons I consider that the Magistrate correctly concluded that even if the exclusivity arrangement was in the terms alleged by the appellant, a breach had not been established. 

21. I dismiss Grounds 1 and 2 of the notice of appeal. 

    Ground 8 – costs

    The second notice of appeal

22. On 23 February 2018, five days before the appeal was heard on 28 February 2018, the appellant filed a second notice of appeal and a supporting affidavit.  The affidavit merely stated that the appellant wished to ensure that the grounds stated in the notice of appeal gave fair notice of all the appellant’s contentions in so far as the appeal relates to the costs orders.  As initially drafted, the notice of appeal contended in Ground 8 that the Magistrate erred by awarding the respondent any costs on account of the claim beyond the issuing fee and solicitor fee to issue and serve the claim based upon the claimed sum of $73,755.  That claim had not been disputed by the appellant, nor was it the subject of the trial.  The original notice also contended that the indemnity costs order should only have applied to the appellant’s counterclaim and set off.  Alternatively, it was contended that there should have only been one costs order.

23. The proposed second notice of appeal contends that the circumstances did not justify the award of costs on an indemnity basis as a matter of policy.  That is because the Magistrates Court should only grant indemnity costs sparingly and in clear circumstances. 

24. The second notice of appeal also contends that the respondent’s letter dated 20 April 2017 did not fulfil the requirements for a Calderbank offer[39] because it was not clear, precise and certain in its terms, it did not clearly state the costs advantage sought to be achieved, it did not provide a separate formulation of an offer in relation to the costs to date and no information was provided estimating the likely impact of costs being recovered on an indemnity basis as opposed to the Magistrates Court scale. The notice also contends that not all relevant facts upon which the respondent proposed to and did rely on at trial were disclosed by the date of the Calderbank letter, there was no overall assertion that it would be unreasonable for the appellant not to accept the offer with an explanation of all relevant factors and matters that supported such a contention and, finally, the respondent had failed to discharge the onus of showing that failure to accept the Calderbank offer was unreasonable.

    [39]   Calderbank v Calderbank [1975] 3 WLR 586.

25. The respondent opposed the grant of permission for the filing of the second notice of appeal.  It did so on the basis that the amendments to Ground 8 substantially enlarged and changed the basis upon which the costs order was challenged.  The original notice of appeal did not challenge the award of indemnity costs but asserted that they should only have been applied to the counterclaim and set off. 

26. Counsel for the respondent informed the Court that he had not obtained a copy of the transcript of the submissions made about costs because of the manner in which the original notice of appeal had been drafted.  For that reason the respondent was prejudiced by the very late introduction of a different ground of appeal after written submissions had been filed. Thus, counsel contends that the respondent should be given the opportunity to make further submissions on the costs question if my preliminary view was to decide against it on that issue. As I consider that the Magistrate did not err in relation to the costs order, it has not been necessary to provide the respondent with an opportunity to make further submissions concerning Ground 8 as provisionally expressed in the proposed second notice of appeal. In view of my conclusion that there is no merit in the proposed amendments to Ground 8, I decline to grant permission to file the amended notice of appeal.

    The Magistrate’s reasons relating to the costs order

27. The respondent instituted proceedings against the appellant to recover the sum of $68,005.48 (plus costs) representing the amount unpaid by the appellant in respect of sales of wine in December 2015 and January, February and March 2016.  The appellant admitted that it was indebted to the appellant for the sum but contended in its counterclaim that it was entitled to set off in the sum of $94,012.56 (plus costs) from the amount claimed by the respondent.

28. The Magistrate rejected the appellant’s set off and counterclaim.  His Honour also found that the respondent was entitled to interest in the sum of $5,750 up to the date of judgment.  Thus, his Honour awarded judgment for the respondent in the sum of $73,755.

29. The Magistrate ordered that the appellant was to pay the respondent’s costs of the claim assessed on a judgment sum of $73,755 and also the costs of the counterclaim assessed on a claimed amount of $26,007 up to 28 April 2017.[40]  The costs were to be determined in accordance with Cost Scale 1, Schedule 3 to the Magistrates Court (Civil) Rules 2013 (‘Rules’).  The Magistrate also ordered that the appellant was to pay the respondent’s costs of the claim and counterclaim from and including 29 April 2017 on an indemnity basis.

    [40]   The sum of $26,007 is the difference between the respondent’s claim of $68,005 and the appellant’s counterclaim of $94,012.

30. It is apparent that the decision by the Magistrate to award costs on an indemnity basis from 29 April 2017 was based on the Calderbank letter sent by the respondent’s solicitors to the appellant’s solicitors dated 20 April 2017.  The letter offered to settle the proceedings on the following basis:

    1The appellant was to pay the respondent $54,000 within 14 days of the parties signing a mutually agreeable deed.

    2The respondent was to discontinue the claim and the appellant was to discontinue its counterclaim with no orders as to costs within seven days of the respondent’s receipt of the settlement sum.

31. The settlement offer remained open for acceptance until 5:00 pm on 26 April 2017.  The concluding paragraph of the letter stated that the offer was made in accordance with the Calderbank principle.  The letter made clear that if the offer was not accepted, and the appellant did not achieve an outcome at trial that was more favourable than the offer, the respondent would rely on the letter in support of an application for indemnity costs.

    The appellant’s submissions concerning Ground 8

32. The appellant submits that an order for payment of costs on an indemnity basis is only warranted where there is a special or unusual feature in the case which justifies departure from the ordinary practice of awarding costs on a party/party basis.  What constitutes a special or unusual feature so as to support indemnity costs will depend on the circumstances of the case.  As the respondent’s claim merely reflected the debt arising from the unpaid invoices, there was no special or unusual feature of the case that warranted the award of costs on an indemnity basis.  The appellant further submits that its counterclaim and set off was based, in part, on the claim that the respondent had misrepresented the circumstances surrounding the agreement.  Thus, costs should only have been awarded on an indemnity basis for the counterclaim and set off.

    The respondent’s contentions in relation to Ground 8

33. The respondent submits that the appellant has incorrectly contended that the respondent’s claim and its quantum were not disputed.  While the quantum of the respondent’s claim was agreed, the claim itself was not agreed.  The appellant denied the claim as a result of the set off, based on the matters that were the subject of its counterclaim.  The respondent observes that a set off is in the nature of a defence.[41] 

    [41]   Gathercole v Smith (1881) 7 QBD 626.

34. The respondent further submits that the appellant’s counterclaim was effectively in the sum of $94,012 comprising the set off in the full amount of the respondent’s claim, namely $68,005, and the counterclaim of $26,007.  On that basis the respondent submits that the Magistrate correctly applied Cost Scale 1 in Schedule 3 of the Rules for the period up to 28 April 2017 based upon the judgment sum on the respondent’s claim of $73,755 (inclusive of interest) and the counterclaim of $26,007.  The respondent further submits that the Magistrate also adopted the correct approach in awarding costs on an indemnity basis in respect of both the claim and the counterclaim from 28 April 2017.  The separate calculation of costs was consistent with r 106(2) of the Rules.

35. The respondent also submits that the decision of the Magistrate to award costs on an indemnity basis did not rely on the claim having a special or unusual feature.  The Magistrate simply found that there was an imprudent refusal by the appellant of the settlement offer contained in the Calderbank letter of 20 April 2017. 

36. The respondent submits that its letter of 20 April 2017 satisfies each of the requirements for a Calderbank offer.  It refers to the decision of the Full Court in Nominal Defendant v Dighton (No 2) where the Court set out six criteria that should be taken into account when making a determination on costs following the making of Calderbank offers.[42]  The six criteria were drawn from the decision in Hazeldene’s Chicken Farm v VWA (No 2).[43]The matters identified in Dighton were:[44]

    First, what stage the proceedings were at when the offer was received.  Secondly, the time allowed to consider the offer.  Thirdly, the extent of the compromise offer.  Fourthly, the prospects of success from the date of the offer.  Fifthly, the clarity in which the terms were expressed and finally, whether the offer foreshadowed indemnity costs in the event the offeree rejected it.

    [42] [2012] SASCFC 97.

    [43] (2005) 13 VR 435.

    [44]   Nominal Defendant v Dighton (No 2) [2012] SASCFC 97 at [8].

1. According to the respondent’s submissions, the Magistrate specifically took into account the criteria identified in Dighton and found that these factors, when considered in the context of this case, provided grounds to exercise his discretion to make an order more favourable to the respondent than the usual costs scale.  His Honour noted that there had been conciliation conferences on 30 September 2016 and 17 March 2017 and that the Calderbank letter had followed the second conciliation conference.  His Honour considered that these matters were relevant to the assessment of the Calderbank letter including the time allowed for consideration and acceptance.  In his Honour’s view, at the close of the conciliation conference it was quite obvious that work to prepare for trial would need to commence.  The trial had been set down for November 2017.  While it would have been reasonable to leave the offer open because the parties had been engaged in negotiations, the Magistrate noted that events subsequent to April 2017 shows that that was not the end of negotiations.  However, his Honour concluded that it was appropriate to fix the date for a more favourable costs order by reference to the Calderbank letter. 

2. As his Honour had determined costs by reference to the Calderbank offer it was not necessary for him to consider the filed offer on 13 October 2017, in which the respondent offered to accept $45,000 plus costs in respect of its claim.  In the context of r 58 of the Rules the Magistrate considered that the Calderbank offer, together with costs outstanding at the date of the offer, would not be more favourable to the respondent than the outcome of the trial.  His Honour did not consider that r 58 required anything more to establish that the result of the trial was such that a favourable costs order was appropriate.

   Consideration of Ground 8

3. I have refused permission to proceed on the proposed second notice of appeal but it is necessary to state why I consider that there is no merit in the wider grounds stated in that document concerning the award of costs.

4. I consider that the Calderbank letter was sufficient to satisfy the criteria referred to by the Full Court in Dighton.  The offer was made after the second conciliation conference and some seven months before the matter was set down for trial.  In all the circumstances, I consider that the time allowed to consider the offer, namely one week, was reasonable. I am not persuaded by the appellant’s contention that not all relevant facts upon which the respondent proposed to and did rely on at trial were disclosed by the date of the Calderbank letter. I consider by that stage in the proceedings the issues and risks should have been well understood. It is clear that the settlement offer represented a considerable compromise on the part of the respondent. The letter explained clearly why the respondent considered that the appellant had little prospect of success at trial and expressly stated that indemnity costs would be sought in accordance with the Calderbank principle if the offer was not accepted.

5. Rule 106(2) of the Rules required the Magistrate to separately calculate and apply the costs of the claim and the counterclaim. Given that the appellant conceded the validity of the respondent’s claim for $68,005 the reality of the proceedings was that the amount in dispute was the sum of $94,012 (plus costs) sought on the counterclaim. The approach adopted by the Magistrate recognised that reality by awarding costs by reference to a total sum of $94,012 but also complied strictly with rule 106(2) by allocating the costs between the claim and the counterclaim.  It may be that the Magistrate might have satisfied rule 106(2) by ordering that costs be assessed on the basis of a zero-sum on the respondent’s claim and $94,012 on the appellants counterclaim. However, that would not have made any difference to the outcome. The important point is that the costs order was based upon the total sum in dispute, being $94,012. I consider the approach adopted by his Honour to be a valid exercise of his broad discretion when awarding costs. There was no process error or outcome error in the sense identified in House v The King.[45]

   [45] (1936) 55 CLR 499.

6. I reject the appellant’s contention that indemnity costs may only be awarded where there is some special or unusual feature about the proceedings. The proposal in the respondent’s Calderbank letter to settle for $54,000 (with no costs payable) was a prudent commercial settlement. I have already found that sufficient time was allowed to consider and respond to the offer.  The appellant was unsuccessful in all respects at trial. In the circumstances I consider that the Magistrate appropriately awarded costs on an indemnity basis from the day after the date allowed for acceptance of the Calderbank offer.

7. I dismiss Ground 8 of the notice of appeal.

   Conclusion

8. I dismiss the appeal on all grounds. I will hear the parties as to costs.