Savvy Direct Pty Ltd v James Yudinsky and a Very Lucky Man Pty Ltd

[2007] NSWLC 6

Local Court of New South Wales

CITATION:	Savvy Direct Pty Ltd v James Yudinsky and A Very Lucky Man Pty Ltd [2007] NSWLC 6
JURISDICTION:	Civil
PARTIES:	Savvy Direct Pty Ltd James Yudinsky (1st Defendant) A Very Lucky Man Pty Ltd (2nd Defendant)
FILE NUMBER:	4911/06
PLACE OF HEARING:	Downing Centre Local Court
DATE OF DECISION:	04/23/2007
MAGISTRATE:	Magistrate H Dillon
CATCHWORDS:	Contract – Whether defendant interfered with plaintiff’s contractual relations with a third party – Whether defendant breached terms of confidentiality agreement with plaintiff – Whether plaintiff suffered any loss or damage as a result of any unlawful conduct on the part of the defendant – Whether goods in possession of defendant were gifts or on loan – Whether goods not returned had any value to plaintiff
LEGISLATION CITED:
CASES CITED:	BP Refinery (Westernport) Pty Ltd v Hastings Shire (1977) 16 ALR 363 at 365. Building Workers’ Industrial Union of Australia v Odco Pty Ltd (1991) 99 ALR 735 Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. Davies v Nyland (1975) 10 SASR 243 Labrador Park Shopping Centre Pty Ltd v Esbas Pty Ltd [1984] A Torts R 80-694 Lumley v Gye (1853) 2 E&B 216
REPRESENTATION:	Plaintiff self-represented Abrahams & Associates, Solicitors (for 1st & 2nd Defendants)
ORDERS:	Verdict for the defendants and judgment accordingly. I reserved the question of costs.

JUDGMENT

1. Savvy Direct Pty Ltd is a telecommunications company run by its American sole director, Mr Mark Whitaker. Like Australians with their love of Vegemite, some Americans are attached to their native condiments. Although his principal business was telecommunications, when Mr Whitaker moved permanently to Australia, he conceived a plan to market his favourite American barbecue sauce, known as “Big Rick’s Bar-B-Que Sauce” on the Australian market. Mr Whitaker may have considered that the Big Rick’s slogan, “Big Guys Always Have the Best Eats”, and the sauce’s smoky flavour, would appeal to large Australian men as much as they did to him. In any event, in 2002 Savvy entered a licence agreement with Big Rick’s LLC of Wichita, Kansas (“Big Rick’s USA”), varied in 2003, to produce and distribute the sauce in Australia.

2. Mr James Yudinsky, who is also American, was for some time friendly with Mr Whitaker and employed by his company, Savvy. Mr Yudinsky is the owner and director of A Very Lucky Man Pty Ltd (“Lucky Man”). After Mr Whitaker acquired the Australian licence for the sauce Mr Yudinsky worked for a few months marketing it. In May 2005, Savvy entered an agreement with Lucky Man to take over the distribution and management of Big Rick’s products in Australia. This, in effect, was a sub-licence agreement.

3. In March 2006, Mr Whitaker offered Lucky Man the chance to purchase the licence. During these negotiations Mr Yudinsky spoke to Mr Dennis Rees, whose company Epicurean Investments, had taken over Big Rick’s USA and had a number of email exchanges with him. Following those contacts, Big Rick’s USA purported to cancel its licence agreement with Savvy and to enter a new agreement with Lucky Man.

4. Savvy’s claim against the two defendants pleads a number of causes of action including breaches of the May 2005 agreement, a breach of a confidentiality agreement entered by Savvy with Mr Yudinsky in September 2002, passing off and misleading and deceptive conduct. It seeks damages in respect of the cost of Big Rick’s products and materials in the sum of $13,016.35; unpaid future commissions from the sale of Big Rick’s products in the sum of $39,045.05 and royalties payable to Big Rick’s USA in the sum of $9,762.26. Those amounts in aggregate exceed the Local Court’s jurisdictional limit of $60,000 and the excess is abandoned.

The issues

5. Although the statement of claim was pleaded in these various ways, during the course of the trial the principal issue that emerged from the plaintiff’s point of view was whether Mr Yudinsky had induced Big Rick’s USA to terminate its contract with Savvy in breach of an unpleaded, unwritten, implied provision of the agreement between Savvy and Lucky Man. (It is to be noted that Big Rick’s USA was not party to that agreement or the proceedings.) The claim for unpaid future commissions was, in reality, based on this allegation of interference with contractual relations.

6. Savvy was represented only by Mr Whitaker. He had dispensed with the services of Savvy’s previous legal representative. It was, I assume, because Savvy did not have legal representation and because they were not significantly prejudiced that the defendants took no issue with Mr Whitaker advancing a case that had not formally been pleaded in that critical respect.

7. The second major head of damage claimed is in respect of royalties said to be payable by Savvy to Big Rick’s USA and which remain unpaid by Lucky Man. The written sub-licence agreement of May 2005 provided that Lucky Man would be responsible for payment of all royalties owed to Big Rick’s USA. This in turn gives rise to two questions: First, was the written agreement varied orally by Savvy and Lucky Man to the effect that Lucky Man was not required to comply with the condition that it pay royalties to Big Rick’s USA? Second, if Lucky Man breached its contract with Savvy by not paying royalties to Big Rick’s USA, what, if any, damage has Savvy suffered?

8. The third head of damage claimed is in respect of goods and materials said to have been provided to Lucky Man but not returned at the termination of the agreement between the two parties. Most of the goods and materials in question were marketing materials, such as shirts emblazoned with Big Rick’s logos and labels, but the claim is also made in respect of kitchen utensils. Here three questions arise: first, if the majority of the goods were intended to be used or disposed of in the course of marketing the barbecue sauce, was it intended by the parties that the left-over items be returned to Savvy? Second, if so, what value have the goods not returned? Third, were the kitchen utensils gifts to Mr Yudinsky or were they lent to him for the period of the contract for the purposes of producing and marketing the sauce ?

9. A question of the loss of rights to Lucky Man was raised by not pursued by Savvy. This was not pleaded in Savvy’s statement of claim but related to question of loss of commissions.

The agreement between Savvy and Lucky Man

10. Before considering the agreement between Savvy and Lucky Man and whether it was breached, it is necessary to outline the terms of the head agreement between Savvy and Big Rick’s USA. The initial proposed agreement between Big Rick’s USA and any entity controlled by Mr Whitaker was with a company called Roselaw Pty Ltd. This appears to have been the company which initially traded as Savvy Direct. No point is taken that the true plaintiff ought be Roselaw. I have proceeded on the basis that Savvy and Roselaw are the same entity. It seems, however, to be undisputed that the agreement ultimately formed in June 2002 was between Savvy and Big Rick’s USA. The parties agreed that the licence would run for three years, giving Savvy the rights to make and market the sauce in Australia and New Zealand. It set a sliding scale of royalties: seven per cent of annual gross on sums of up to $US 40,000; six per cent on sums $US 40,001 to $US 100,000 and five per cent on annual gross sums in excess of $US 100,000.

11. Between February and May 2003, Savvy negotiated a number of variations to the original contract. The first was that Savvy agreed to pay royalties “on all sales effected on or after 21 February 2003” at the rate of 24 cents per bottle, calculated monthly and electronically transferred to Big Rick’s USA within 14 days of the end of each month. The second granted Savvy a licence agreement for 13 years from the date of the original contract. The third gave Savvy the right to sell its interests to a third party provided that it consulted with Big Rick’s USA concerning the proposed sale.

12. It was a term of the contract that Savvy would “consult with a representative of [Big Rick’s] regarding the proposed sale to ensure… that the proposed purchaser of Big Rick’s of Australia will continue to pay the current royalties per bottle or alternatively negotiate direct with BR with regard to the payment of royalties. Savvy will not be held responsible for any such negotiations between BR and the proposed purchaser.”

13. In September 2002, Savvy and Mr Yudinsky entered a confidentiality agreement. In essence, Mr Yudinsky agreed to keep confidential all Savvy’s information, software, marketing literature, price lists, customer lists and other matters that were not public knowledge. He also agreed to use Savvy’s confidential information only for the purpose of undertaking work agreed between the parties. Savvy alleges that Mr Yudinsky breached his confidentiality agreement by getting in contact by telephone with Big Rick’s USA in March 2006. Mr Whitaker claims that the telephone numbers of Big Rick’s USA was Savvy’s confidential information misused by Mr Yudinsky.

14. In December 2002, Mr Yudinsky also entered a “non-exclusive independent services contract” with Savvy. From Mr Whitaker’s evidence it seems that the use of such contracts was common at Savvy for its telecommunications sales team. That contract seems from its form and terms to have related to Mr Yudinsky’s work marketing the telecommunications services sold by Savvy rather than to the barbecue sauce business. Nevertheless, it was relied upon by Mr Whitaker in pressing his argument concerning the alleged disloyalty of Mr Yudinsky.

15. Nowhere does there appear in the contract any specific provision that suggests some implied term that Savvy demanded, and Mr Yudinsky agreed to give, undivided loyalty to either Mr Whitaker personally or to Savvy. Quite the contrary. The contract states, among other things, “You are not required to provide your services exclusively to Savvy, nor are you obliged to provide any minimum level of services or devote any minimum amount of time to providing services.” Clearly the contract was designed to enable Savvy to avoid any suggestion that Mr Yudinsky was Savvy’s employee with the consequential rights (and obligations) that such status brings with it. The contract expressly denies any intention on Savvy’s part to require undivided loyalty from Mr Yudinsky nor did it oblige Savvy to offer him its.

16. Mr Whitaker’s evidence was to the effect that, based on custom and practice within his company, his expectation was that no one would talk without his knowledge or consent to Big Rick’s USA, and that this was an implied term of the confidentiality agreement. That is not conceded by Mr Yudinsky.

17. The May 2005 agreement between Savvy and Lucky Man was set out in two letters dated 6 May. The letter of offer drafted by Mr Whitaker set out ten conditions including terms that all royalties owed to Big Rick’s USA would be made by Lucky Man; that the sauce recipe and all marketing materials wold remain the property of Savvy; that Lucky Man would pay the manufacturer of the sauce; that Lucky Man would be responsible for collecting all moneys owed by wholesalers; that Lucky Man would pay 50 cents per bottle sold for three months and thereafter 95 cents per bottle; that Lucky Man would provide monthly reports of bottles produced and sold; that it would pay Savvy seven days after the end of each month and that it would “update” Savvy regularly concerning all its Big Rick’s activities. Mr Yudinsky wrote a letter accepting Mr Whitaker’s offer of the management of the Big Rick’s brand in Australia and New Zealand. It also noted that Lucky Man would “assume the responsibility of any royalty payments to be made to Mr [Rick] Doty and Big Rick’s USA.”

18. It is common ground that Mr Yudinsky did not strictly comply with the term that he report monthly to Savvy. On the other hand, the uncontradicted evidence is that he spoke from time to time with Mr Andew Parkinson, Savvy’s financial controller. Mr Parkinson gave evidence that between May 2005 and January 2006, when he ceased to work for Savvy, he obtained the relevant figures from Mr Yudinsky (who was also marketing Savvy’s telecommunications services on a commission basis at the same time) and reconciled the amounts owed by Mr Yudinsky to Savvy and the amounts owed by Savvy to Lucky Man and make the appropriate payments. As far as he could remember, when Mr Parkinson finished working for Savvy in January 2006, Lucky Man was not in debt to Savvy.

19. One of the key factual issues that arose between the parties – and it went both to the issue of damages and Mr Whitaker’s credit – was whether Mr Whitaker had made an arrangement with Big Rick’s USA for a royalty “holiday” while building up the Big Rick’s business in Australia.

20. According to Mr Parkinson, in September 2003 he was told by Mr Whitaker that he intended to renegotiate the royalties deal he had with Big Rick’s USA because Savvy could not afford to pay. A short time later he said that he had been told by Mr Whitaker that he had renegotiated the deal and that Savvy did not need to pay royalties until its sales grew to 20,000 bottles. He said that from that time until he left the company he was never asked by Mr Whitaker to calculate royalties due to Big Rick’s and he was not aware of any such payments being made to Big Rick’s USA. He said that if such payments had been made he would have been likely to have known of it.

21. Mr Yudinsky’s evidence was that at the time he made the agreement on behalf of Lucky Man, notwithstanding the term of the agreement that Lucky Man would pay any royalties due to Big Rick’s USA, Mr Whitaker had said to him, “At this stage don’t worry about paying royalties. There’s not enough money in it.” His evidence was to the effect that, relying on that representation, he never paid royalties.

22. It is common ground that, notwithstanding the agreement that Lucky Man pay any royalties due to Big Rick’s USA, Savvy never asked it to do so or notified Mr Yudinksy that the company should do so after May 2005. Nor did Mr Yudinsky directly get in touch with Big Rick’s USA to enquire whether royalties were expected. In the light of Mr Whitaker’s evidence that it was his expectation that Mr Yudinsky would have no direct contact with Big Rick’s USA it is reasonable to infer that Mr Whitaker did not suggest to Big Rick’s USA that Lucky Man would be paying royalties or that it should deal directly with Lucky Man concerning royalties. That inference is supported by Mr Whitaker’s report to Big Rick’s USA in February 2006 (see below.)

23. In my view, Mr Whitaker’s complaints that Mr Yudinsky breached his confidentiality agreement with Savvy by discussing the possibility of taking over the Big Rick’s Australian licence from Savvy with Big Rick’s USA is entirely misconceived. Mr Yudinsky’s evidence was that he obtained it from the Big Rick’s USA website. The telephone numbers and other information available on a company’s website or in other sources in the public domain, such as telephone books, by definition is not, and cannot be, confidential information. Big Rick’s USA is not a secret organisation with a silent telephone number. That number is published on its letterhead and, no doubt, is given out to world at large in a variety of different ways.

24. The law in relation to the implication of contractual terms in commercial contracts is well-settled. Apart from statutory warranties and the like, terms will only be implied in a contract when they are reasonable and equitable; necessary to give business efficacy to the contract; “so obvious that ‘it goes without saying’”; capable of clear expression and consistent with all express terms of the contract. BP Refinery (Westernport) Pty Ltd v Hastings Shire (1977) 16 ALR 363 at 365. See also Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. The confidentiality agreement signed by Mr Yudinsky, by definition, related only to confidential information. It bound Mr Yudinsky not to make unauthorised disclosures of various types of information that Savvy sought to protect from its competitors. It is not an implied term of such an agreement, however, that the employee or contractor who signs such an agreement swears allegiance to the chief executive of the company. Mr Whitaker misconstrues social expectations as contractual obligations and elides those concepts.

25. Nevertheless, Mr Whitaker was instinctively correct in believing that a person or a company that interferes with his or his company’s contractual relations with a third party and causes his company loss may be liable at law. I now turn to that question.

Did Lucky Man wrongfully induce Big Rick’s USA to terminate its agreement with Savvy?

26. Mr Yudinsky denies having induced Big Rick’s USA to terminate its licence to Savvy to produce and distribute its barbecue sauce. Savvy bears the onus of proof, on the balance of probabilities, of proving the allegation that Lucky Man induced or persuaded Big Rick’s USA to do so.

27. If a person knowingly and intentionally interferes with another’s contractual rights without justification and causes damage to that other person, he or she may be held liable for that damage. Ordinarily this type of economic tort is committed by a defendant inducing a third party to break its contract with the plaintiff or by some sort of interference with the performance of the contract.

28. Where the plaintiff’s allegation is that the defendant caused a third party to break its contract with the plaintiff, to succeed he or she must prove that the defendant applied pressure upon the third party or persuaded it or induced it or procured it to break the contract. (See Lumley v Gye (1853) 2 E&B 216.) For the defendant merely to have advised the third party to break the contract is insufficient. (See Labrador Park Shopping Centre Pty Ltd v Esbas Pty Ltd [1984] A Torts R 80-694 at 68,961.)

29. If the breach of contract is induced indirectly, for the interference with the contract to be actionable it seems that the interference must be, or must include, some unlawful act. (See Davies v Nyland (1975) 10 SASR 243; Building Workers’ Industrial Union of Australia v Odco Pty Ltd (1991) 99 ALR 735.) Further, the indirect interference with the performance of the contract will only be actionable if the breach of contract complained of is a necessary consequence of the interference by the defendant. (See Davies v Nyland at 98-99; JT Stratford & Son Ltd v Lindley [1965] AC 269.)

30. It seems to be the plaintiff’s case is that Mr Yudinsky directly induced or persuaded Big Rick's USA wrongfully to repudiate its contract with Savvy. As Mr Whitaker is not legally trained, however, I consider it prudent also to deal with the possibility that the allegation is also put that the allegedly wrongful breach of contract was brought about indirectly.

31. Mr Whitaker gave evidence that in late January 2006 he had got in touch with Mr Rees in the United States by telephone and discussed the relationship between Savvy and Big Rick’s USA. He said that he had sent samples of the Australian product and marketing materials to Mr Rees plus copies of previous correspondence. At that stage it seems that Mr Rees knew little, if anything, at all about any connection with Australia.

32. In his correspondence with Mr Rees, Mr Whitaker revealed, among other things, that it was also his “complete belief that Rick Doty had given his verbal agreement to suspend royalty payments until Big Ricks in Australia was growing strongly.” He told Mr Rees that he had told Mr Doty that he would “grow the business throughout 2005 and … would be in a position to pay royalties in 2006.” He also told Mr Rees that a full-time sales representative had been hired in mid-2005. He also proposed a business plan for the future.

33. Mr Rees’s initial response to Mr Whitaker was courteous and cordial. On 2 February 2006 he wrote to Mr Whitaker by email thanking him for his telephone call. He noted, however, that one of Big Rick’s USA’s requirements “is a report of your manufacturing volumes and sales volumes since inception.” He also stated that he had been briefed by Mr Doty and been told that he had never received any volume reports from Savvy. He commented, perhaps ominously:

This goes to your comments about dealing with someone who does not understand business and does not handle things in a businesslike manner. I expect that you would be able to comply with the volume report information so that we can better understand your historical and current situation.

34. On 7 February 2006, he thanked Mr Whitaker again by email for an update and “prompt action”. He expressed “excitement” at the possibilities Savvy opened up for Big Rick’s USA. He awaited Mr’s Whitaker’s letter.

35. It is common ground that on about 9 March, Messrs Whitaker and Yudinsky met to discuss the possibility of Mr Whitaker selling the Australian licence to Lucky Man. According to Mr Yudinsky, Mr Whitaker, having made a number of proposals, then told him that if he took up the offer there were a number of new ideas they could work on together. At that point, Mr Yudinsky stated, Mr Whitaker said, “You will need to contact the United States. The current royalty is way too high. I believe 10 cents is about where it should be.”

36. According to Mr Yudinsky, on 10 March he again spoke to Mr Whitaker and told him that he was not in a position to accept the proposal but said that he was putting together a business plan and assessing the figures. He said that Mr Whitaker had asked him to call him back the following week. In the meantime, on 11 March, Mr Yudinsky called the United States and spoke to Mr Rees.

37. Mr Yudinsky stated that he told Mr Rees that he had dealings with Savvy and that Mr Whitaker had offered to sell him the Big Rick’s Australian licence. He said that he had told Mr Rees that he wished to discuss royalties and the status of the licence. He said that Mr Rees had told him that the relationship with Savvy was not good and that Mr Whitaker had never paid royalties to Big Rick’s USA. Mr Yudinsky said that he had told Mr Rees that he ran Big Rick’s for Mr Whitaker in Australia and was then told by Mr Rees that Big Rick’s USA was cancelling Savvy’s licence but wanted to continue selling in Australia. He said that Mr Rees had then invited him to “work with” Big Rick’s USA toward that end and would prepare a licence agreement for Mr Yudinsky.

38. It is common ground that on 14 March 2006, Messrs Whitaker and Yudinsky spoke about the proposed sale of the licence and that, as he put it himself, Mr Whitaker “flipped” and “lost it” when told by Mr Yudinsky that he had been in touch with Mr Rees to negotiate royalties. Mr Yudinksy stated that after he had told Mr Whitaker that he had put a few questions to Mr Rees and been asked to put them in an email to him, he reminded Mr Whitaker that it was on Mr Whitaker’s advice that he had done so. According to Mr Yudinsky, Mr Whitaker claimed that the advice had been taken out of context and that his intention had been that the approach to Big Rick’s USA be made jointly.

39. On 15 March 2006, Mr Rees emailed Mr Whitaker informing him that he had received a telephone call from Mr Yudinsky inquiring as to the status of the agreement between Savvy and Big Rick's USA. This was because Savvy had offered him the opportunity to purchase the rights in Australia. He then expressed a number of “very grave concerns”:

1. You maintain that you were given a holiday on royalty payments by Rick Doty. Rick maintains you were not.
2. You have been selling product all along (according to your website you have 700 locations) without paying royalty other than one $1200 payment 3 years ago.
3. You have not met the minimum volume requirements in the contract.
4. We have never had any accounting of what is happening in your business so as to assess our position with respect to royalties.
5. You led Rick Doty and I to believe that Big Rick's sauce was in a state of dormancy for an extended period of time due to your lack of time to be involved. The belief was relied on in not making demands for royalties previously. My recent conversations with you lead me now to believe that the business is, and has been, ongoing.
6. At this time I would now advise you that our contract is no longer valid and has expired under its own terms. That having been said, you are still obligated to pay Big Rick's royalties for all sauce that has been sold as well as your payment of all royalties due. You are not at liberty to sell our contract as none exists. Once we have received all back royalties, we will continue discussions on the future of Big Rick’s Australia.
   

40. Because of time differences between Sydney and Wichita it is sometimes difficult to reconstruct the sequence of events but the next communication appears to have been a telephone conversation between Messrs Rees and Whitaker on 14 or 15 March.

41. According to Mr Whitaker, he called Mr Rees following the meeting with Mr Yudinsky. He was, as he put it, in “damage control mode”. He said that he was told by Mr Rees that Big Rick’s USA had another proposal from Australia, from Mr Yudinksy. Mr Whitaker told Mr Rees that he regarded Mr Yudinsky as being in breach of his agreement with Savvy. He said that Mr Rees had responded by saying that Big Rick’s USA would consider both proposals. Mr Whitaker said that he was very disappointed that Big Rick's USA would talk to anyone but himself.

42. Following the telephone call, Mr Whitaker emailed Mr Rees offering to send a full report within a few days and looking forward to “resolving our terms and having Big Rick's Australia a viable concern for both of us.”

43. On 15 March, Mr Yudinsky developed his proposal to Big Rick's USA by sending some information concerning a promotion of the sauce involving a deal with Fosters. Mr Rees expressed enthusiasm and sought further details. He wrote:

… I want to be comfortable I know all of the details of the transaction and how it will lead to $$ for Big Rick's in the future.

Please be patient while we build our relationship. You must help me by suffering all of my questions while I sort out the path for the future. The more information I have and the more we understand all of the details going forward, the more solid our relationship and the faster it will develop.

I believe it will be another day or two before I can address your questions about what our strategy is with respect to business continuation.

44. At that stage it appears that Mr Rees was considering the proposal from Lucky Man and taking a diplomatic but unencouraging approach towards Savvy. In the meantime, on 16 March 2006, Savvy terminated its agreement with Lucky Man. In that email Mr Whitaker demanded the return of all marketing material, customer lists, intellectual property, sales reports and orders. It also demanded that all outstanding payments be made and threatened legal action if Mr Yudinsky did not comply with the demands or if he breached his confidentiality agreement with Savvy.

45. Mr Yudinsky passed on to Mr Rees a copy of Mr Whitaker’s email to him with the comment “I believe I should take a step back for a bit and allow you to finalise the current situation and take steps to begin a new path for Big Rick's in Australia. He told Mr Rees that “Today seem to have been another perfect day in paradise… Mark has again ‘gone off the charts’”. (This appears to have been a reference to the termination of the agreement between Savvy and Lucky Man and Mr Whitaker’s reaction to it.) He asked Mr Rees to keep him abreast of developments.

46. Mr Rees’s response was to thank Mr Yudinsky the same day for the information and to confirm that he had terminated the agreement with Savvy.

47. On 16 March Mr Rees emailed Mr Whitaker requesting his report as soon as possible but reiterating that current agreement had been terminated. He offered the possibility of a new contract once the present dispute had been resolved. He also reiterated that any sale of the licence would be a nullity. He concluded, “Big Rick’s will continue to evaluate all options with regard to the Australian market and make decisions that fit most closely with its business goals and strategy in the area so please remember, time is of the essence in this matter.” He also asked for Mr Whitaker to clear any balance owing on the terminated agreement.

48. On the same day, Mr Whitaker disputed Big Rick's USA’s right to terminate the agreement and notified Mr Rees that Savvy would be terminating its agreement with Lucky Man. Once again Mr Rees replied asserting Big Rick's USA’s right to end the contract. He stated that this was because of Savvy’s failure to pay royalties and alleged that Mr Whitaker had not acted in good faith towards Big Rick's USA. Among other things he stated in the email:

The fact that you have finally contacted us when you feared that we would cancel your license is of no importance. James [Yudinsky] has not bearing on this decision nor is any conversation we have had relevant to the facts of the termination of license. We do not wish to continue to do business with someone we cannot trust to pay us on time or at all. The contract provides specifically for termination if royalties are not paid when due. You have never paid royalties when due after the first payment you made over 3 years ago and therefore the contract is terminated.

To date I have rationally discussed the fact that you have not paid your royalty obligation on time. I have not ordered you around. I have only pointed out facts. As I stated earlier, pay all that you owe and you are free at that time to make a new proposal regarding licensing Big Rick's products.

49. Later the same day Mr Whitaker emailed Mr Rees in response to this message. He denied bad faith on his part, he suggested a new deal, blamed Mr Yudinsky for the breakdown of the relationship between Savvy and Big Rick's USA and alleged that “James’s actions are the equivalent of an employee of Big Rick's USA stealing the rights from you.” He then demanded to know “how you have instructed James.” He also asserted a right to time to remedy the breach of contract.

50. Mr Rees replied on 17 March once again repeating that the agreement had been terminated and denying that there was an implied condition that Savvy have time to remedy its breach. He stated that Mr Whitaker had lied to Rick Doty to obtain agreement that royalties not be paid. As to the allegations that Mr Yudinsky was responsible for the termination of the agreement he stated:

None of the above has anything to do with James. I have not given James any “instructions” at all. As far as I know, James has not stolen anything from you. You have not provided any information to lead me to believe that James or anyone else other than yourself is now, or ever has been, responsible for paying your royalties due under our now terminated contract.

51. It seems from this exchange that Mr Whitaker had not provided Mr Rees with a copy of the May 2005 agreement between Savvy and Lucky Man. That probably would make no difference, however, in light of the evidence that Mr Whitaker had told Mr Yudinksky not to worry about payment of royalties to Big Rick's USA.

52. On 17 March Mr Yudinsky emailed Mr Rees with concerns that Savvy was about to place a large order for sauce with the manufacturer and outlining his plans to thwart this tactic on Savvy’s part. He concluded by writing, “Mark [Whitaker] has threatened me with court action, this does not concern me as he has no evidence I am involved in your decision to cancel the agreement between Savvy Direct and Big Rick's USA.”

53. Mr Rees replied by email in the following terms:

You are not now, nor have you ever been involved, or in any way a factor in our decision to terminate our agreement with Mark [Whitaker]. Our decision is based on sound business reasons and is totally within our rights under the agreements we have now cancelled. The reason Mark would have no evidence of your involvement is that there has been none.

54. It is easy to understand how Mr Whitaker formed the view that Mr Yudinsky had interfered with Savvy’s contract with Big Rick's USA. From having a cordial and apparently developing relationship in February 2006 with Mr Rees, Savvy and Mr Whitaker found themselves, after Mr Yudinsky’s conversation with Mr Rees in early March in “damage control mode”, treated with suspicion by Mr Rees, being called a person who had acted in bad faith towards Big Rick's USA and also being called upon to account for unpaid royalties.

55. It is common ground that Savvy had not paid royalties to Big Rick's USA except on one occasion and yet had been in business selling the sauce since 2002. Neither Mr Rees nor, more particularly, Mr Doty were called to give evidence by either party. On the basis of the correspondence referred to above, it might be expected that Mr Doty would not support Mr Whitaker’s evidence that Savvy had been given a complete “holiday” from paying royalties until Savvy was selling 20,000 bottles of sauce per annum. At least as far as one can tell from the email correspondence of March 2006, the impression Big Rick's USA had was that Savvy had allowed the sauce business to lapse pending Mr Whitaker having more time to spend on it and that Mr Yudinksky’s inquiries and his revelation that he was managing the sauce business in Australia came as an unpleasant surprise.

56. There is no direct evidence that Mr Yudinsky got in touch with Mr Rees with the intention of undermining the contractual relationship between Savvy and Big Rick's USA. On the contrary, Mr Yudinsky had been invited to purchase the licence from Savvy. In the circumstances, it was entirely reasonable for Mr Yudinsky to get in touch with Big Rick's USA to introduce himself, to make inquiries concerning marketing and the licence, to explain what was happening with the business in Australia and so on. Nor is there any direct evidence that Mr Yudinsky expected or intended his contact with Big Rick's USA to have the consequences that ultimately followed.

57. At best Savvy’s case against Mr Yudinsky is circumstantial only and is based on suspicion rather than proven facts. Mr Whitaker is probably right to believe that, but for Mr Yudinsky getting in touch with Mr Rees, Big Rick's USA may never have terminated its contract with Savvy. On the other hand, the weight of evidence suggests that Mr Yudinsky’s information simply put Big Rick's USA on notice that Savvy’s sauce business, despite the fact that it was not paying royalties, was not dormant but rather was being vigorously developed and expanded.

58. There appears to be no good reason to reject the assertions made by Mr Rees that Big Rick's USA decision had not been induced by any conduct on Mr Yudinsky’s part. On the other hand, Mr Whitaker’s panic-stricken call to the United States to control the damage done by Mr Yudinsky’s call implies that he feared the true situation in Australia coming to the attention of Big Rick's USA because that would reveal that Savvy was in breach of its agreement.

59. Once Mr Rees became aware that Savvy was conducting a substantial business selling Big Rick's sauce in Australia but was not reporting its sales and production volumes to the United States and was not paying royalties, it appears that he needed no persuasion or inducement to come to his own view that the licence agreement ought be terminated. This was not a decision brought about by Mr Yudinsky bringing pressure or his persuasive powers to bear upon Big Rick's USA; very simply, it was brought about by Savvy’s failures to deal with Big Rick's USA frankly and to pay the royalties it owed. Nor did Mr Yudinsky do anything unlawful that indirectly led to Big Rick's USA breaching its contract with Savvy. The only illegality alleged by Mr Whitaker was a breach of his confidentiality agreement by Mr Yudinsky. As I have explained above, that allegation is misconceived. In my view, Big Rick's USA was entitled to terminate the contract on the basis of Savvy’s breaches.

60. It follows that Savvy must fail in its claim to damages for loss of future commissions based on the licence.

Royalties payable to Big Rick's USA

61. Under the contract of 2005 between Lucky Man and Savvy, Lucky Man agreed to pay any royalties due to Big Rick's USA. Savvy claims a sum of $9,762.26. In my view, this part of the claim also fails.

62. The weight of evidence indicates that Mr Whitaker represented that “at that stage” no royalty payments needed to be made to the United States. The evidence discussed previously also suggests that the representation was either untrue or misleading. I accept, however, that Mr Yudinksky believed and relied upon that representation. In such circumstances, it seems to me that Savvy is estopped by its own conduct from relying upon the term of that term of the contract.

63. Second, Mr Whitaker admitted in evidence that Savvy had not paid the royalties outstanding, that Big Rick's USA had not taken recovery action against Savvy and none is anticipated. Given the logistical difficulties in litigating such a small claim, it would appear that Big Rick's USA has most likely has written off the debt. Certainly there is no evidence that Savvy has suffered any compensable loss in respect of the royalties claimed by Big Rick's USA.

Did Lucky Man fail to return property to Savvy?

64. It was common ground that some marketing materials had been supplied to Mr Yudinsky by Savvy after the May 2005 agreement was formed. According to Mr Whitaker, Savvy supplied labels, artwork and a number of polo shirts to Lucky Man to be used in the course of marketing the sauce. Mr Whitaker tendered a document headed “Big Rick’s expenses” summarising expenditure on those items. The costs come to a total of $13,100.23. That sum is claimed from Lucky Man.

65. The claim could, at best, succeed only partially. All the labels and artwork were produced and paid for in 2002 and 2003. It is Mr Whitaker’s own evidence that Big Rick’s sauce was being produced and sold during the period from 2002 to 2005. He does not quantify the number of labels used in that period or the period between May 2005 and March 2006 nor the number left over. Further, as Savvy no longer has a licence to produce and market Big Rick's sauces, the labels could have little if any value if returned to it. On the other hand, if Lucky Man is producing Big Rick's sauces, the labels may have some value in its hands. That value, however, has not been quantified by the plaintiff.

66. Mr Yudinsky denied having received the labels, barcodes or artwork at all. He stated that to his knowledge Mr Whitaker had given the labels to the sauce manufacturer, B&B Gourmet Food Pty Ltd. The plaintiff bears the onus of proving that the labels were in the possession of Lucky Man, were not returned and that it suffered a consequential loss. This is a case of word against word. Moreover, it seems unlikely that Lucky Man would have possession of the labels: they would have been used by the sauce manufacturer on the bottles of the sauce. No loss has been proven. This part of the claim fails.

67. Included in the sum of $13,100.23 is a claim to a sum of $5464.58 for monogrammed polo shirts. Mr Whitaker claims that the shirts were supplied to Mr Yudinsky for marketing purposes. Mr Yudinsky denied ever receiving any polo shirts but stated that in November 2005 he had seen boxes of polo shirts embroidered with Savvy’s logo in the Savvy office. Mr Parkinson also gave evidence that no polo shirts with Big Rick's logos had, to his knowledge, been ordered during the time he worked at Savvy. On the other hand, Mr Yudinsky agreed that Mr Whitaker had supplied him with a number of T-shirts and aprons marked with the Big Rick's logo. He said that by March 2006 he had about two T-shirts and one apron left. He did not say whether he still has those items. It is self-evident, however, that, Savvy’s licence having been cancelled in March 2006, they could have had no value to Savvy if returned.

68. In my view, the evidence regarding the shirts is equivocal and the weight of evidence suggests that Mr Whitaker is mistaken when he asserts that polo shirts were supplied to Lucky Man. In any event, even if they were, they were obviously supplied for marketing purposes as “give-aways” and, if Mr Yudinsky’s evidence is accepted, the supply of promotional shirts was virtually exhausted by March 2006. There seems no particular reason to reject that evidence. Finally, of course, the remaining shirt or shirts could have no value to Savvy once it lost its licence. This aspect of the claim also fails.

69. Mr Whitaker also complained that Mr Yudinsky had failed to return intellectual property belonging to Savvy, namely the sauce recipe. In my view, that claim must fail because the intellectual property was not Savvy’s but belonged to Big Rick's USA. Savvy had the recipe under licence only. Once the licence was cancelled, it had no right to seek its return, or the return of any copies, from Lucky Man. In any event, even if there was some sort of residual right to have the recipe returned, it could have had on the value of a used piece of paper to Savvy.

70. Finally, Mr Whitaker asserted that he had supplied a large pot and cooking utensils to Mr Yudinsky to enable him to experiment with new sauces. He claims that the goods were lent not given and have not been returned. Mr Yudinsky asserted that they had been gifts to him from Mr W when they formed their May 2005 agreement. Once again, the plaintiff bears the onus of proof on the balance of probabilities. It seems more likely than not that the items were given to Mr Yudinsky as he was taking over the sauce business for the foreseeable future and Mr Whitaker even formed the idea of selling the licence to him. Mr Whitaker had no need for the pot and utensils once he handed the business over. This aspect of the claim also fails.

Conclusions

71. In my view, each of the plaintiff’s claims against both defendants fail. There will therefore be verdicts for each defendant and judgments accordingly.

72. I reserve the question of costs.

Hugh Dillon

Magistrate