Schiavello Group Pty Ltd v Exquisite Australia Pty Ltd
[2015] VCC 4
•29 May 2015
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-12-03909
| SCHIAVELLO GROUP PTY LTD | Plaintiff |
| v | |
| EXQUISITE AUSTRALIA PTY LTD | First Defendant |
| AND | |
| BRIAN JOHN STEENDYK | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17-21 February, 29-30 May, 20 June (further written submissions) 2014 | |
DATE OF JUDGMENT: | 29 May 2015 | |
CASE MAY BE CITED AS: | Schiavello Group Pty Ltd v Exquisite Australia Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 4 | |
REASONS FOR JUDGMENT
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Subject:CIVIL PROCEDURE, CONTRACT, EQUITY, TORT, TRADE PRACTICES
Catchwords: CIVIL PROCEDURE – Non-parties – Enforcement of judgment or order – Wholly-owned subsidiaries of party.
CIVIL PROCEDURE – Pleadings – Whether issue pleaded.
CONTRACT – Design licence agreement – Breach – Whether notice of breach – Effect of dispute resolution clause on ability to terminate.
CONTRACT – Breach – Remedies – Damages.EQUITY – Confidentiality – Breach of duty of confidence.
TORT – Unlawful interference in contractual relations – Inducement or procuring of breach of contract – Personal liability of director for company's wrongdoing.
TRADE PRACTICES – Misleading or deceptive conduct – Representation as to future conduct – Whether reasonable basis for representation made – Whether reliance on representation – Remedies – Damages – Trade Practices Act 1974 (Cth) ss51A and 52.
Legislation Cited: Civil Procedure Act 2010 (Vic); County Court Civil Procedure Rules 2008; Designs Act 2003 (Cth); Trade Practices Act 1974 (Cth).
Cases Cited:Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1989) 95 ALR 211; Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564; Betfair Pty Ltd v Racing New South Wales (2010) 273 ALR 664; BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [2014] VSCA 338; Browne v Dunn (1893) 6 R 67 (HL); Clark v Macourt (2013) 304 ALR 220; Coco v AN Clark (Engineers) Ltd [1969] RPC 41; Coles Supermarkets Australia Pty Ltd v FKP Limited [2008] FCA 1915; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; Complete Technology Integrations Pty Ltd v Green Energy Management Solutions Pty Ltd [2011] FCA 1319; Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 74 ALR 428; Cummings v Lewis (1993) 41 FCR 559; Daebo Shipping Co Ltd v The Ship Go Star [2012] FCAFC 156; DC Thomson & Co Ltd v Deakin [1952] Ch 646; Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471; Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; Gilford Motor Co Ltd v Horne [1933] Ch 935; Gold and Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281; Golden Strait Corp v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353; G Scammell & Nephew Ltd v Hurley [1929] 1 KB 419; Hospitality Group Pty Ltd vAustralian Rugby Union Ltd (2001) 110 FCR 157; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109; Inverness Medical Switzerland GmbH v MDS Diagnostics Pty Limited [2010] FCA 108; Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171; Keller v LED Technologies Pty Ltd (2010) 268 ALR 613; Kismet International Pty Ltd v Guano Fertilizer Sales Pty Ltd [2013] FCA 375; McCrohon v Harith [2010] NSWCA 67; McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125; McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230; Miba Pty Ltd v Nescor IndustriesGroup Pty Ltd (1996) 141 ALR 525; MWH Aust Pty Ltd v Wynton Stone Aust Pty Ltd (in liq) [2010] VSCA 245; Norm Engineering Pty Ltd v Digga Australia Pty Ltd (2007) 162 FCR 1; O'Brien v Dawson (1941) 41 SR (NSW) 295; O’Keefe v Williams (1910) 11 CLR 171; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; Re Darby, ex parte Brougham [1911] 1 KB 95; Robertson v Unique Lifestyle Investments Pty Ltd [2007] VSCA 29; Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231; Said v Butt [1920] 3 KB 497; Salomon v Salomon & Co Ltd [1897] AC 22; Sent v Jet Corp of Australia Pty Ltd (1986) 160 CLR 540; Sky Channel Pty Ltd v Austar Entertainment Pty Ltd [2005] NSWSC 815; Streetscape Projects (Australia) Pty Limited v City of Sydney [2013] NSWCA 2; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; The Electric Light & Power Supply Corporation Limited v Cormack (1911) 11 NSWSR 350; Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353; Traztand Pty Ltd v Bousfield (1984) 56 ALR 188; TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444; Wertheim v Chicoutimi Pulp Co [1911] AC 301.
Judgment:
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms M Marcus | MDP McDonald Partners |
| For the Defendants | Mr P Collinson QC (29-30 May 2014) with Ms J Collins (17-21 February 2014, 29-30 May 2014) | Hunt & Hunt |
HIS HONOUR:
Introduction
1 The plaintiff, Schiavello Group Pty Ltd (“Schiavello Group”) is a multi-disciplinary, privately owned company. One of Schiavello Group’s business areas involves the design, manufacture, sale and distribution of furniture.
2 The first defendant, Exquisite Australia Pty Ltd (“Exquisite”) is company involved in the design and sale of furniture. It was established by the second defendant, Brian Steendyk (“Steendyk”).
3 The claim and counterclaim in this proceeding arose out of alleged breaches of Design Licence Agreements (“DLAs”) between Schiavello Group and Exquisite in respect of furniture products designed by Steendyk. In particular, Schiavello Group claimed that Steendyk breached the DLAs by selling products to third parties and sought damages accordingly. Schiavello Group also contended that the DLAs have not been lawfully terminated by Exquisite, and seeks declaratory orders that the relevant DLAs are still on foot.
4 Exquisite contends that, as a result of various breaches by Schiavello Group, Exquisite has lawfully terminated the DLAs or Schiavello Group has repudiated those agreements.
5 A major issue in the case is whether those agreements are still operative and on foot. If one or more of the agreements has been terminated, either through acceptance of one party’s repudiation or in accordance with the terms of the contracts, the question of damages arises.
Background
6 Steendyk is the sole director, shareholder and controlling mind of Exquisite. He is a highly qualified architect with an interest in design. He has worked and studied both in Australia and overseas. He established his own business in about 2002. To varying degrees, he designed and developed a range of products including stools, sofas and tables. The products for present purposes were the “Cero” and “subCero” stools;[1] the “Wave” stool; the “Play” sofa, which had a variety of configurations; and the “Wave” table base.
[1]They were designed in about 2000 and 2001 respectively
7 In late 2006, Schiavello Group and Steendyk began to negotiate DLAs in relation to the proposed manufacture and sale by Schiavello Group of some of the products developed by Steendyk. In October 2006, Peter Schiavello (“Schiavello”), on behalf of Schiavello Group, executed a non-disclosure agreement with Steendyk and his then business partner Helen Kontouris (“Kontouris”). At the same time, Schiavello Group provided Steendyk and Kontouris with its standard design licence agreement template.
8 In November 2006, negotiations between the relevant parties commenced. The negotiations were initially between Schiavello Group and Steendyk personally. However, upon Steendyk’s operating his business through Exquisite, Schiavello Group agreed to negotiate with Exquisite rather than Steendyk personally. The negotiations between Schiavello Group and Exquisite continued throughout 2007 in relation to the terms of the DLAs. Simultaneously, Schiavello Group began engineering, proto-typing and promoting the Wave stool, allegedly at Steendyk’s request. In 2008 and prior to entering the DLAs, Schiavello Group began promoting and selling the Cero and subCero stools using the tools that had been created by Steendyk in conjunction with a company in Brisbane called Palamont Pty Ltd (“Palamont”). Schiavello Group purchased the tools in accordance with the DLAs. It was not until around late June or July 2009 that Schiavello Group obtained control over the tools when they were transported to Melbourne for use by Palamont.
9 On 3 April 2008 Schiavello Group and Exquisite entered into several DLAs, in which Exquisite granted rights to Schiavello Group to produce, market and sell certain items of furniture designed and developed by Exquisite. The DLAs in dispute are:
(a)the Design Licence Agreement in respect of the Cero Stool product (“Cero DLA”) (CB 110);
(b)the Design Licence Agreement in respect of the subCero Stool product (“subCero DLA”) (CB 121);
(c)the Design Licence Agreement in respect of the Wave Stool product (“Wave Stool DLA”) (CB 133);
(d)the Design Licence Agreement in respect of the Wave Table Base product (“Wave Table DLA”); and
(e)the Design Licence Agreement in respect of the Play sofa product (“Play sofa DLA”).
10 It appears that by about late 2010, the relationship between Schiavello Group and Exquisite was becoming strained. There were allegations regarding various matters causing friction - the issue of replacing the tools needed for the manufacture of the Cero and subCero stools; the failure to credit Steendyk’s design work in all the relevant Schiavello Group promotional material; Schiavello Group’s failure to apply to products the logo required by Steendyk.
11 Although the parties exchanged correspondence on these matters, the effect of which is the subject of debate, the parties adopted very different positions. The defendants claimed that Schiavello Group had breached the DLAs and had to remedy those breaches. Schiavello Group denied any breach or liability to Exquisite.
12 Through a number of emails during the period 4-5 November 2010, Steendyk communicated to Matt Thomson (“Thomson”), Operations Manager of Office Chair Manufacturers of Australia Pty Ltd (“OCMA”) various issues he had in relation to the manufacture and marketing of the products.
13 Emails between Michelle Hyams (“Hyams”) of Schiavello Group and Steendyk during the period 17-24 November 2010 raised issues in relation to marketing of the subCero product, the use of a “nominated logo” for the purposes of the DLAs, and CAD drawings which Steendyk prepared. Steendyk alleged a number of breaches of the DLAs, including in relation to the nominated logo.
14 On 10 December 2010, Hyams emailed Steendyk on the question of the nominated logo for the Play sofa, signalling that Schiavello Group would cease any further introduction of the product into the market pending approval of a logo.
15 On 17 April 2011, Steendyk sent a number of emails to Schiavello Group notifying of Schiavello Group’s alleged breaches of the DLAs. On 20 April 2011, Brad Dosser (“Dosser”) of Schiavello Group emailed Steendyk, indicating that Schiavello Group reserved its rights under the DLAs and flagging a more substantial response to Steendyk’s allegations in due course.
16 On 22 April 2011, Steendyk advised Schiavello Group that the DLAs had been terminated for breach. By email of 28 April, Dosser informed Steendyk that Schiavello Group wished to further investigate the breaches and sought to invoke the dispute resolution process contemplated by the DLAs.
17 On 4 May 2011, Schiavello Group provided a formal response to Steendyk’s notification of breach.
18 During the period around July 2011 to October 2011, Palamont in Brisbane created tools for, and manufactured, the Cero and subCero products for the defendants.
19 In March 2012, Steendyk again notified Schiavello Group that the DLAs had been terminated, and signalled that he did not wish to participate in mediation.
20 The proceeding commenced in August 2012.
Issues
21There was a significant number of issues in this proceeding, arising from both the claim and counterclaim. The defendants’ closing submissions dated 19 May 2014 usefully included a chart summarising more than 30 major issues to be determined. I have relied upon this as setting out the issues from the defendants’ perspective. The table also served to encapsulate the main points raised by the plaintiff. To the extent I considered other matters should be raised, I have done so.
22Apart from the sheer number of matters requiring attention, the work became more difficult due to the absence of submissions on significant issues. For example, the parties did not grapple with the meaning and application of clause 11.1 of the DLAs to the various breaches alleged; nor did they explore in detail the damages claimed by the defendants, including how the categories of damage were calculated and the period for which damages could be awarded.
23Issues for resolution in Schiavello Group’s claim were:
(a)Did Exquisite breach the exclusivity provisions of the DLAs by selling to third parties? If so, has Schiavello Group established any and what entitlement to damages?
(b)If Exquisite breached the DLAs, did Steendyk induce or procure such breach?
24 The parties disagreed about whether the DLAs were valid and subsisting. Schiavello Group sought a declaration to this effect, whereas Exquisite by counterclaim argued that the DLAs had been lawfully terminated. Questions for determination of this point were:
(c) Did Schiavello Group breach the DLAs?
(d)Were the DLAs terminated because either Exquisite served notices of breach which took effect according to their terms or because Schiavello Group repudiated the agreements?
(e)Did the dispute resolution clause prevent Exquisite from terminating the DLAs?
(f)Did Schiavello Group make false representations as to the future conduct of the relationship with Exquisite? If so, to what relief was Exquisite entitled?
(g)Did Schiavello Group breach any duty of confidence owed to Exquisite?
Preliminary Issue
25 One matter which arose in this case was whether, by reason of the definition of “Schiavello Group” in the various DLAs, subsidiaries of Schiavello Group had rights and liabilities which were to be determined in the litigation as if they were that company, even though they were not parties to the proceeding. As a general principle, I would not wish a non-party to recover damages or obtain relief from the court. Had Schiavello Group sought to obtain relief from the court regarding subsidiaries, then I consider that it should have joined those companies as plaintiffs to the proceeding. No such application was made at or before trial. Hence, to the extent that, for example, OCMA might have suffered loss arising from the conduct of either defendant, it could not in my opinion recover damages because it made no specific claim in the proceedings.
26 The parties generally appeared to conduct much of the action as if there were no distinction between Schiavello Group and its subsidiaries. Schiavello Group was organised in such a way that there were divisions within the group and a level of vertical integration so that, for example, one part of the group manufactured product which was then sold to another part of the group for retail distribution. But, in final submissions, the defendants sought to distinguish various entities primarily because they wanted to restrict any damages claim which Schiavello Group might have. As I understood it, the gist of the argument was that:
· Schiavello Group referred to the role of subsidiaries such as Mobi Contract, Omvivo and OCMA
· There was no proof that the profit of those entities was the profit of Schiavello Group
· Mobi Contract, Omvivo and OCMA were not parties to the proceeding
· Schiavello Group could not claim the lost profits of another entity such as these subsidiaries.
27 The plaintiff appeared to accept the logic of the submission, but contended that other consequences flowed for the defendants – namely, if there could be no damages claims by entities associated with Schiavello Group, nor could Schiavello Group be liable for breaches of the DLA which might have been committed by these other entities. For example, if there were a wrongful removal of a web address from the base of the Cero stool or breach of the product development term, the conduct complained of might be OCMA’s not Schiavello Group’s. Hence, Schiavello Group contended that the defendants could not rely on breaches alleged against an entity other than Schiavello Group. This was especially the case with OCMA because the defendants received many invoices from OCMA and were, or ought to have been, well aware of its existence. Accordingly, there is substance in the plaintiff’s contention that, if the defendants wished to make a counterclaim against a member of the Schiavello group of companies other than Schiavello Group itself, then the defendants ought to have joined the specific entity as a defendant to the counterclaim. This point has most force when applied to a non-contractual claim, for example, misleading conduct.
28 To the extent that Schiavello Group did not comply with its obligations under a DLA, Schiavello Group will be in breach, whether it or another member of the group was immediately responsible. On any view, Schiavello Group owed the contractual obligation to Exquisite. If Schiavello Group or a subsidiary which was its privy or agent breached a DLA, then Schiavello Group should remain responsible.
Credit of witnesses
29 The two most important witnesses in the proceeding were Schiavello and Steendyk. The outcome of the case was affected in part by an assessment of the credibility of those witnesses. Although the parties produced four volumes of court book, the documents were not invariably useful. Hence, they did not always provide a useful context against which to assess the actions of the main protagonists. Accordingly, I was required to, and did, pay close attention to the conduct and demeanour of those witnesses as they gave their evidence during the case. I was also required to assess the inherent likelihood of their evidence, and how comfortably the evidence fitted within the known or undisputed facts.
30 Schiavello presented as an articulate businessman who had management responsibility for the operations of a large family company. Although he was familiar in general terms with the business operations and activities of Schiavello Group, he was not, as he in effect conceded, across the minutiae of all facets of the business. In a substantial company such as Schiavello Group, this is precisely what one would expect of the managing director. Such a person would have to delegate tasks and responsibilities to others within the company. As a result, Schiavello’s grasp of the detail was often lacking. His answers were quite frequently general in nature, and he struggled to recall some events or conversations which the defendants alleged took place. While the defendants seemed to treat Schiavello’s absence of detailed recollection as a fault or criticism of him, my view is different. On occasion, a lack of detailed recollection might be significant, but I would have been more sceptical of, and concerned by, Schiavello’s evidence if he had purported to recall all the matters in considerable detail. Such a scenario would not have rung true and would have been inconsistent with common experience.
31 It appeared to me that Schiavello felt concerned that it reflected poorly on his competence if he were not familiar with the details of events. For this reason, he was prone to take a particular approach to questions asked: he did not readily concede that he was unable to answer a question; especially in cross-examination, he gave answers which were not always short and directly responsive and he sought to justify or explain his position. He also gave inconsistent answers regarding his knowledge of one particular matter.
32 Notwithstanding some criticism which might be made of Schiavello, in general terms, I found him a credible and honest witness. Broadly speaking, his evidence was consistent and seemed to fit reasonably comfortably with the commercial realities of the situation between the parties.
33 I found Steendyk was not an impressive witness. He commonly gave unresponsive, self-serving answers. His answers were often needlessly long and were a vehicle for complaints about wrongs allegedly suffered, or mistreatment received, at the hands of Schiavello Group. Plainly, he was unhappy with Schiavello Group and expressed his displeasure with it. He appeared keen to sever the relationship with Schiavello Group. Too often Steendyk had difficulty in acknowledging basic factual matters and making obvious concessions. In cross-examination he was sometimes unreasonably pedantic and obtuse in denying or querying the obvious. Steendyk was obviously an intelligent person and was quite experienced commercially. He presented as a small business operator who would act in whatever way would achieve the best outcome for his commercial interests. Steendyk created an impression of giving calculated answers in his evidence.
34 Another matter of concern arose from Steendyk’s conduct of his case. He framed the defendants’ damages claim to include sums in respect of the Wave Tables and Drift Bath. The breadth of the claim reflected the defendants’ somewhat casual attitude to the truth and known facts to the extent that they claimed for items which were not the subject of any DLA (the Drift Bath) and items where the DLA was effectively dissolved after 12 months by agreement (the Wave Table). The Drift Bath cannot give rise to any damages claim, much less a contractual claim which extends from 2009 to 2020. Especially with the advent of the Civil Procedure Act 2010, a party should not make extravagant claims which lack a sound factual basis. In my view, it raises concerns about the bona fides and integrity of the party making the claim.
35 The terms of the DLA contemplate that there may be no manufacture of a given product in the first 12 months of the agreement in which case the agreement will terminate automatically. Schiavello said that the company did some development work on the Wave Table and presented a couple of prototypes to the market, but there was insufficient response to warrant the significant investment needed to manufacture the product. As a result, Schiavello Group no longer wanted to commercialise the Wave Table and gave back the licence agreement to Steendyk.
36 When he was cross-examined about it, Steendyk was evasive. He said that the Wave Table DLA was not terminated 12 months after it was signed. He made this statement even though his letter to Schiavello group dated 17 April 2011 specifically said that the Wave Table DLA had been terminated under clause 11.3 of the DLA. Steendyk did not regard himself as bound by the DLA and assumed the table was not part of the subject matter of the litigation. Again, it takes substantial effrontery to claim damages from 2009 to 2020 in relation to three Wave Tables which are not part of the litigation.
37 The point in relation to Steendyk’s credit is even more stark when one considers that, in respect of at least part of the same period for which he was claiming damages, Steendyk was selling both the Wave Tables and Drift Bath through Anon & Co, a business name through which he or his company trades.
38 I note also that Steendyk made claims in the defence and counterclaim which he presented during trial but resiled from in final address. An example is the claim in the 17 April 2011 letter that Schiavello Group failed to pay licence fees owing to Exquisite within 30 days of the end of the quarter. The evidence disclosed that usually the late payment was due to the late receipt by Schiavello Group of documentation from the defendants
39 Generally, Steendyk’s manner, his performance and demeanour in the witness box, and his conduct of the proceeding inspired no confidence that he was a reliable witness whose evidence could be readily accepted (especially where it conflicted with others).
Schiavello Group’s claim against Exquisite for breach of the exclusivity provisions of the DLAs
(a)Did Exquisite breach the exclusivity provisions of the DLAs by selling to third parties?
40 In short, Schiavello Group alleges that Exquisite sold products to unauthorised third parties, and by doing so, Exquisite was in breach of the DLAs. Exquisite, on the other hand, admits the sales to third parties, but denies that such sales constituted a breach of the DLAS. Exquisite says that the Product Schedule, which contains a list of authorised Retailers, was amended orally to include Space Furniture, thereby entitling Exquisite to sell its products directly to Space Furniture. Alternatively, Exquisite says that each of the parties to whom goods were sold was a “direct project client”, and Exquisite was therefore entitled to sell products to each of them directly.
Approved retailers
41 Exquisite granted exclusive rights to Schiavello Group pursuant to clause 3.1 of the DLAs which was in the following terms:
“The Designer [Exquisite] hereby grants to the Company [Schiavello Group] a licence with the exclusive right (except for allowing the designer to deal directly with the retailer(s) listed in the Schedule as may be amended from time to time in the Company’s sole discretion to only act as a retailer of the product) to use the intellectual property and designs associated with the Product to manufacture or have manufactured, vend and market, and generally do all things to commercialise the Product within the Territory for the Term. The Company agrees that it will act reasonably when determining whether to add or remove a proposed retailer from the Schedule. This does not apply to Products that the Company confirms in writing that it does not wish to vend and market (and in which case the Company will not have an exclusive right to vend and market those nominated Products). The parties agree that in all situations, the Company will have the exclusive right to manufacture the Product.”
The DLA defined “Product” as the product or products described in the Product Schedule to the agreement. The product was the Cero stool, the subCero stool or other products dependent upon the particular DLA referred to. “Term” was defined as the term set out in the product schedule, namely “in perpetuity”. Likewise, “Territory” was defined to be the territory described in the Product Schedule, namely Australia and New Zealand.
42 Hence, as a result of clause 3.1, Schiavello Group had exclusive rights in relation to the products and the intellectual property designed or created by Steendyk and licensed to Exquisite.
43 However, Exquisite retained the right to deal directly with the Retailer listed in the Schedule to the DLA, David Jones Pty Ltd (“David Jones”). In addition, pursuant to clause 6.8 of the DLA, Exquisite was entitled to purchase the product for his own personal use or to supply Exquisite’s direct project clients.
44 Schiavello Group alleged, and the defendants accepted, that Exquisite sold product to third party retailers in addition to David Jones. Exquisite agreed that it had sold products and/or granted licences to various third parties to sell the products. These third parties were BCI Furniture (“BCI”), Space Furniture and Top3 By Design (“Top3”).[2]
[2]See plaintiff’s closing submissions at [25] – [27]
45 Schiavello Group claimed that sales to these third parties constituted a breach of the applicable DLA. Schiavello Group relied upon the principle that:
“Every exclusive licence or right imports a negative, and the person who confers it impliedly enters into a negative undertaking to do nothing to contravene it.”[3]
[3]See O’Keefe v Williams (1910) 11 CLR 171, 211 cited with approval by Einstein J in Sky Channel Pty Ltd v Austar Entertainment Pty Ltd [2005] NSWSC 815.
46 Schiavello Group contended that such sales were not to an authorised retailer or to a direct project client, but were to its competitors. This was said to undermine the intended benefit of the exclusivity conferred upon Schiavello Group under the DLA.
47 The defendants argued that the sales to the third parties did not infringe the DLAs because either Schiavello Group agreed to the sales by effectively treating the third parties as retailers, like David Jones, or because they were direct project clients within the meaning of clause 6.8 of the DLA.
48 In final submissions, the defendants contended that in September 2009, Schiavello agreed orally to add Space Furniture as a retailer within the exception provisions in the Cero and subCero DLAs.[4] No similar claims were made regarding the other third parties (BCI and Top3). This claim was consistent with paragraph 11 of the Defence where the defendants made this allegation. The particulars of the conversation alleged were not referred to when Steendyk gave evidence in chief about the conversation.
[4]Defendants’ final submission [242]
49 The defendants contended that Steendyk was selling product to Space Furniture at the time of entry into the DLAs. Steendyk’s evidence was that he had a conversation with Schiavello in February 2008 about the direct project clients he had dealt with to that point such as Space Furniture and his desire to retain them in the future due to the time and effort which he had spent in creating those relationships.
50 In cross-examination, the defendants initially put to Schiavello that he had a conversation with Steendyk in May 2008 in which Steendyk said that he had existing relationships which he wanted to maintain including with BCI. Schiavello could not recall the conversation alleged.
51 In his evidence in chief, Schiavello’s counsel asked him to comment on the allegation made in paragraph 11A of the Defence and Counterclaim. There, the defendants alleged that in February 2008 the parties agreed that, for the purposes of clause 6 of the DLAs, Steendyk’s “direct project clients” would include those of Steendyk’s clients with whom he had a long-standing relationship. The agreement was said to be made in a conversation between Schiavello and Steendyk where it was alleged that Steendyk said “we have existing relationships built over many years which we want to maintain.” Schiavello allegedly replied “I understand you want to maintain the relationships – that’s ok”. Schiavello denied any such conversation. He said he did not give any permission for either defendant to directly supply any third party reseller except for David Jones.
52 Near the conclusion of his lengthy cross-examination, Schiavello was asked whether he had a conversation with Steendyk in February 2008 where Steendyk said to him that the defendants had existing relationships built over many years which they wished to maintain. Schiavello said he did not recall such a conversation. The defendants did not put to Schiavello that he agreed in February 2008 to the defendants continuing to sell product to those clients.
53 There was a lack of correlation between Steendyk’s evidence and Schiavello’s cross-examination. I note that the BCI entity initially put to Schiavello was not referred to by Steendyk in his account of the conversation and the existing client which Steendyk referred to in his evidence was not put to Schiavello.
54 The defendants also rely upon a second conversation in September 2009 between Steendyk and Schiavello to support the argument that Schiavello Group agreed that sales of product could continue to Space Furniture.
55 The defendants contended that the conversation took place at the offices of Schiavello Group on 11 September 2009. Steendyk said that he met Schiavello on a staircase in the building. Steendyk said that, having greeted each other, Schiavello said something to the effect that he had noticed that there were sales taking place to Space Furniture. Steendyk said, “Yes, of course”. Steendyk added that Schiavello knew that Steendyk wanted to continue the relationship with Space Furniture and Steendyk understood that it was permissible to supply them as they were in the retail market and thereby “balanced off” the commercial area where Schiavello Group worked. Steendyk said that Schiavello replied, “Well, let’s just see how it goes”.
56 When this conversation was put to Schiavello, he said that he did not recall a conversation in September 2009 regarding Space Furniture. He said that at the time, namely September 2009, he did not know that Steendyk was selling product to Space Furniture. However, Schiavello said that he did remember asking Steendyk about continued dealings with BCI.
57 I find that Schiavello Group did not agree to the defendants supplying product to retailers such as Space Furniture, BCI and Top3. I make this finding for several reasons.
58 First, the negotiations for the entry into the DLAs were protracted. Indeed, by the time they were signed in April 2008, Steendyk had already made an agreement with the Italian company Serralunga in relation to the Cero product. According to Steendyk, Schiavello was very disappointed about this agreement. Schiavello told Steendyk how Schiavello Group was about to expand internationally and open a showroom in London. In that context, I can readily imagine that Schiavello would have had hopes of being the exclusive licensee of the product, not just in Australia and New Zealand but also elsewhere in the world. Having seen him give evidence, I can readily infer that Schiavello would have been disappointed to lose exclusive rights to what he regarded as an attractive product.
59 For this reason, when Schiavello Group’s international aspirations had been dashed in this way (Schiavello was aware of the Serralunga agreement before April 2008), I do not think it likely that Schiavello would have been happy and agreed to:
· have Schiavello Group’s territory limited to Australia and New Zealand; and
· share that smaller territory with other businesses such as Space Furniture
I accept that Schiavello would not have agreed to such an arrangement with Steendyk. In short, it was not in the best interests of Schiavello Group’s business to grant such a concession.
60 Secondly, if the second conversation in September 2009 took place, one might have expected the defendants to confirm the new arrangement in writing. Again, there was no evidence of any written confirmation. By this time, Exquisite had signed the DLA with Schiavello Group. However, neither defendant required any amendment of the DLA to reflect the allegedly agreed variation. This failure assumes greater importance when the DLA provides that the agreement cannot be varied except in writing signed by the parties.
61 Thirdly, based on his conduct, demeanour and answers in giving evidence, I doubt the reliability and truthfulness of Steendyk’s evidence on this point. Here, I note that the defendants’ case appears to be inconsistent to the extent that, on the defendants’ version of events, it was not necessary to have any conversation with Schiavello Group in September 2009 to the effect alleged by the defendants if the conversation in February 2008 took place. In other words, why would Space Furniture need “retailer” status like David Jones if it was already permitted to receive product as a “direct project client”? If Schiavello Group had already agreed that Steendyk could keep supplying Space Furniture, then, in the absence of some dispute or a purported withdrawal of the consent, why would the defendants require consent again? The defendants did not explain this to my satisfaction.
62 I do not consider that Schiavello knew either of the sales to Space Furniture or the defendants’ alleged belief that Schiavello Group had no objection to such sales (and hence Exquisite was entitled to continue selling to Space Furniture). While I accept that Exquisite sent purchase orders to OCMA specifying the delivery address of the stools, I am not prepared to infer that relevant decision makers in Schiavello Group were aware of those sales to Space Furniture. It is one thing to send delivery documents to an accounts clerk and another to notify Peter Schiavello or other senior management within Schiavello Group. Similarly, the fact that Schiavello Group made discovery of a magazine article which said the Cero stool was available both from Space Furniture and Schiavello Group does not mean that Schiavello Group should be estopped from contending the sales to Space Furniture were impermissible. Again, the mere discovery of a document of itself says nothing of the state of mind of senior management at Schiavello Group at the relevant time. When Schiavello said he could not remember conversations with Steendyk in 2008 and 2009 regarding sales to Space Furniture, I find that is because they did not take place as Steendyk said.
Direct project clients
63 Clause 6.8 of the Cero and subCero DLAs provided in part:
“[T]he Designer may purchase the Product for his own personal use or to supply any retailer as listed in the Product Schedule or to supply the Designer’s direct project clients at Net Wholesale Sales Price …”
64 A major point of difference between the parties concerned the meaning or scope of the term “direct project client” which was not defined in the DLA. Schiavello Group argued that the expression meant clients of Steendyk’s architectural practice. Exquisite submitted that it meant any clients established before the execution of the DLAs.[5]
[5]See defendants’ closing submissions at [236]
65 In construing the agreement, I must have regard not to the subjective understandings of the parties but to the text of the DLA in its context. As put by Lewison and Hughes in The Interpretation of Contracts in Australia:
“This requires that the text of the contract be read as a whole, and, ordinarily, that it be read against the background surrounding circumstances known to the parties and the purpose and object of the transaction.”[6]
Evidence of pre-contractual negotiations is generally not admissible to interpret the concluded written agreement. But such negotiations can be relevant for other limited purposes.[7]
[6]Sir Kim Lewison and David Hughes, The Interpretation of Contracts in Australia (Thomson Reuters, 1st ed, 2011) at [10.04]
[7]Ibid, para 3.08
66 From the evidence, it seems clear that:
·Schiavello Group was a substantial business which sold furniture and designer goods amongst other things.
·Steendyk was an architect/designer who, together with a colleague, Helen Kontouris, had sought to interest David Jones in a design concept akin to that used by David Jones in supporting Australian clothing designers.
·Schiavello Group had previously shown an interest in Steendyk’s work and had tried, without success, in about 2004 to enter a commercial arrangement with him to sell his products.
·Steendyk had his own architecture and design business which he had operated since about 2002.
67 The purpose of the contemplated DLAs was for Schiavello Group to obtain certain rights to products designed by Steendyk and for Exquisite and Steendyk to join forces with a larger entity which could provide assistance to them so that Steendyk could devote more attention to design activities while leaving others to deal with the commercialisation process associated with his products.
68 In support of its position, the defendants made a number of observations, including:
· Schiavello agreed to the defendants making sales in the February 2008 conversation.
· There was no evidence that Schiavello Group knew at the time of executing the DLAs that Steendyk operated an independent architectural practice.
· The words “direct project client” cannot have the same meaning in the Schiavello Group DLA with Kontouris as in the DLA with Exquisite
69 I have already explained why I find that Schiavello Group did not agree in February 2008 that Exquisite could make sales directly to Space Furniture.
70 I reject the defendants’ contention that there was no evidence of Schiavello Group being aware in or before April 2008 that Steendyk operated an independent architectural practice. First, Schiavello had pursued Steendyk unsuccessfully around 2004 to obtain a licence agreement. Although I accept there was no direct oral evidence on the point, I infer that Schiavello Group did not simply choose to pursue Steendyk on an irrational whim without undertaking some investigation into him, his business and products. Secondly, there was evidence of a fax from Steendyk to Schiavello Group in February 2004, the letterhead of which referred to the services which Steendyk provided. This summarised clearly what Steendyk did (if it were not already clear).
71 As to the final matter, the defendants failed to explain why the words “direct project client” could not have the same meaning in both agreements. There was no detailed evidence about Helen Kontouris and her work. But in principle, if she offered clients a variety of services as Steendyk did, then what prevented Schiavello Group from agreeing that she could offer the full range of such services to a client notwithstanding her DLA with the company?
72 In the context of the negotiations for and entering the DLA, the better reading of the expression “direct project client” is a client to whom Steendyk directly provided his services. So, for example, if a client wanted Steendyk to design a building and sought to include furniture designed by Steendyk as part of the fit-out, Steendyk would be at liberty to supply stools and tables for which Schiavello Group otherwise had exclusive distribution rights. Such an arrangement enabled Steendyk to keep faith with clients specifically seeking his services and did no major harm to the interests of Schiavello Group. In contrast, if Steendyk or Exquisite were allowed to continue selling product directly to businesses like Space Furniture, then it could deprive Schiavello Group of substantial sales, thereby not only lessening sales revenue but also reducing the promotion and market development of the Schiavello brand. Having examined the DLAs, it seems to make sense commercially that in relation to his products, Steendyk should have advised clients such as Space Furniture that henceforth, they were to buy his products through Schiavello Group and not him directly.
73 In short, interpreting the words of the DLA as a whole, reading it against the background surrounding circumstances known to the parties and having regard to the purpose and effect of the transaction, I find that the reference to “direct project client” was a reference to a client who sought specific services from Steendyk in relation to a project such as the design of a building fitted out with furniture designed by Steendyk. Such a client was to be distinguished from third party businesses such as Space Furniture and BCI which sold furniture on a retail basis.
74 In summary, I find that Exquisite breached the terms of the Cero and subCero DLAs insofar as it sold products to third party businesses such as Space Furniture and BCI which operated, at least in part, on a retail basis. Any sales made through David Jones were permissible.
(b)Has Schiavello Group established any and what entitlement to damages?
(i) Legal principles
75 The governing principles in relation to claims for contractual damages are not contentious. The plaintiff, so far as money can do it, is to be put in the same position with respect to damages as if the contract had been performed.[8] The loss must be proved on the balance of probabilities with as much precision as the subject matter reasonably permits.[9] The court must do its best to quantify the loss sustained by the plaintiff as a result of the defendant’s breach, even if some degree of speculation or guesswork is involved.[10] To the extent that a party’s proofs lack precision, it might be necessary to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case, it may be that estimation, if not guesswork may be necessary in assessing damages to be allowed. Although it might be difficult to estimate the damages in a particular case, the court must still do the best it can. This is especially so where the injured party is unable to adduce precise evidence of the loss. [11]
[8]Clark v Macourt (2013) 304 ALR 220 at [60] citing Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [13]
[9]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80, 83-4, 138, 153 and 161
[10]Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564 at [35]
[11]Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at [38]
76 An injured plaintiff is not to make a profit from the breach of contract. That party cannot recover damages for a loss which it did not suffer by being put in a position superior to that which would have resulted from the contract being performed.[12] The plaintiff is entitled to the benefit expressed in money of the contractual rights which he has lost but not to the benefit of more valuable rights which the contract did not confer.[13]
[12]Wertheim v Chicoutimi Pulp Co [1911] AC 301, at 307-8; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, at 82
[13]Golden Strait Corp v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353, at [30] (quoted with approval in McCrohon v Harith [2010] NSWCA 67, at [58])
77 In the particular context of this case, where Schiavello Group alleges it has lost sales to Space Furniture, the discussion by Finkelstein J in TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3)[14] provides some guidance. There, the applicant sued former employees who secretly copied drawings and data and then used that information to assist in the establishment of a rival business. The claims included breach of copyright and breach of confidence. The applicant sought damages rather than an account of profits. His Honour said that the court had to explore the contract which the plaintiff would have obtained without the infringement and the costs associated with performance of that contract. The court had to assess the lost net profits, i.e. revenue less all costs (including variable and indirect costs but excluding income tax).
[14](2007) 158 FCR 444, at [207]
78 The applicant in Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd[15] made a like claim for lost profits based on an alleged breach of copyright. Gordon J referred to TS & B Retail Systems and Norm Engineering Pty Ltd v Digga Australia Pty Ltd,[16] and set out the following methodology for calculating the loss:
[15][2009] FCA 633
[16](2007) 162 FCR 1, at [266]-[271]
(a) examine the number of sales made by the defendant
(b) assume that the defendant was trying to capture sales from the plaintiff
(c) assume that the number of sales made by the defendant is equal to the number of sales lost by the plaintiff
(d) discount the number in (c) to reflect that not all sales made by the defendants can be considered sales lost by the plaintiff
(e) apply any further discount necessary in the circumstances of the case.[17]
[17]In Kismet International Pty Ltd v Guano Fertilizer Sales Pty Ltd [2013] FCA 375, at [25], Murphy J adopted the same methodology
79 The defendants disputed Schiavello Group’s entitlement to damages for Exquisite’s breach of the DLAs in two key respects. The first related to causation, and the defendants’ claims that:
· in the event that Exquisite sold product to Space Furniture, Schiavello Group’s customers and Space Furniture’s customers did not overlap and Space Furniture was not a customer of Schiavello Group. Therefore, sales by Exquisite to Space Furniture could not be said to have caused Schiavello Group any loss
· any loss which Schiavello Group incurred due to its failure to sell Cero and subCero stools for a period was attributable to Schiavello Group’s failure to replace defective tools for those products
80 The second point on which the defendants disputed Schiavello Group’s entitlement to damages related to the basis on which Schiavello Group calculated the quantum of damages.
(ii) Causation
81 The defendants alleged that because there was no overlap in customers, it could not be said that sales to Space Furniture caused Schiavello Group to suffer any loss. To this end, the defendants submitted that Space Furniture did not sell products through its “contract specifier” division (which would have competed with Schiavello Group) or, if it did, Space Furniture sold predominantly European-made products rather than Australian products such as the Cero and subCero stools. On this basis, the defendants contended that whatever sales Space Furniture made from product supplied by Exquisite could not have been made by Schiavello Group.
82 I am not persuaded by the defendants’ argument. I am not satisfied that the defendants accurately portrayed Space Furniture simply as a retailer (in contrast to Schiavello Group) which operated within a different market. Like Schiavello Group, Space Furniture operated in both the retail and “design specifier” markets. The nature of the agreement made by the parties was that, with the exception of the retailer David Jones, Schiavello Group would be the sole distributor of the products in Australia. In my view, it is not essential for Schiavello Group to establish that it would have made all the sales which Space Furniture in fact made.[18] It is enough that Schiavello Group had the exclusive right to distribute product so that anybody wanting the product had to obtain it from Schiavello Group. The court can discount any award of damages to reflect that Schiavello Group would not necessarily have captured all the sales made by Space Furniture. But given the defendants breached the DLA, it ill behoves them to be overly critical of Schiavello Group’s position on the proof of damages.
[18]Schiavello Group claimed damages only in relation to the sales by Space Furniture and not the other third parties; see exhibit P6
83 As to the second point – that Schiavello Group’s lost sales were caused by its own failure to replace the Cero and subCero tools – I am satisfied that this had some impact on sales. For this reason it cannot be said that, but for Exquisite’s breach of the DLAs in selling to Space Furniture, Schiavello Group would not have incurred the losses it did. Rather, for a period of time, Schiavello Group’s lost sales were partly attributable to faults with the tools and/or Schiavello Group’s unwillingness to obtain new tools. Given the state of the tools, I consider that Schiavello Group could not have made some of the sales which Exquisite was able to make. This was because Exquisite had new tools producing a suitable product – Schiavello Group could not make the same boast.[19]
[19]Indeed, it appeared that after Palamont had ordered new tooling from Italy, Schiavello Group denied it had authority to do so (because Matt Thomson of OCMA had no authority to permit them) and Schiavello Group refused to pay for the work. A deal seems then to have been arranged whereby Steendyk or his company paid for the work and took possession of the new tooling.
84 Notwithstanding the deterioration in the tools and the problems this caused, it seems that Schiavello Group continued to manufacture stools until at least 2012. There were problems with the Cero and subCero stools in 2010 and by about the middle of that year, they needed repair work in order to improve production efficiency and a reduction in defects. This remained an ongoing problem.
85 On 14 August 2011, Schiavello wrote an email to Steendyk advising that the tooling for the Cero stool needed replacement. He asked Steendyk to confirm the logo to be placed on the bottom of the Cero stool. In order to avoid a break in production, Schiavello asked for a response by 25 August. Steendyk, by email on 16 August 2011, advised that the logo proposed was not accepted. But he told Schiavello that he had commissioned moulds so, if Schiavello Group were interested, it could purchase product through him. It is not clear on the evidence what happened thereafter. However, it appears that because of the issue with the tool, the incidence of defective product increased.
86 This was a problem in two ways. First, the higher reject rate meant more product had to be manufactured in order to create sufficient product of the requisite standard. Secondly, the need to manufacture more Cero product placed extra demands upon the failing tooling. By November 2012, Palamont advised Thomson that the Cero mould was “no longer suited to or able to support long term reliable production”. Hence, Palamont said that all rejects caused by the condition of the mould were not its responsibility but would be at the cost of Schiavello Group. Palamont was keen to support the project of replacing the tool with one which was better suited to long-term production.
87 By late November 2012, Schiavello authorised OCMA to increase its prices in order to recoup the cost to Schiavello Group of the higher than normal reject rates on the Cero stool. Although Schiavello approved repairs to be done on the tooling, and it was carried out before Christmas 2012, the repair was not successful and early in 2013, the tool returned to the tool maker. The position at the time was that Schiavello Group could not meet outstanding or new orders until the repair work was completed and the tooling was in a state adequate to produce finished product of the requisite quality. It was in January 2013 that OCMA and Schiavello Group management advised sales staff that they had made a business decision to stop the further supply of Cero stools.
88 This chronology of events suggests that claims for lost sales in and after the second half of 2012 must be treated carefully. It should also perhaps be recognised that as early as September 2009, Schiavello Group and OCMA were referring to extended lead times due to a tooling problem and defects in the manufactured product. But even if there were problems with the tooling for the Cero stool, the inescapable fact is that Space Furniture made sales of the product after Schiavello Group and the defendants entered into the Cero DLA when (subject to the retailer and direct project client exceptions) Schiavello Group was the exclusive supplier of the product. In the circumstances, I accept that Schiavello Group’s failure to replace the tooling had an adverse impact upon its ability to make sales of the stools. While this was a cause of Schiavello Group’s problems, it was not the only cause and did not sever the chain of causation.
89 In the context of the new tooling it is important to bear in mind that a contributing reason for delay was the dispute between Schiavello Group and Steendyk about the logo. If Steendyk had been agreeable to use the logo originally put forward for the Cero and subCero stools (which Steendyk did not complain about or seek to change until 2010), then it was likely that Schiavello Group would have authorised the new tooling sooner.
(iii) Quantum of damages
90 In supporting its claim for damages flowing from Exquisite’s breach of the DLAs, Schiavello Group relied upon the evidence of Helen Faull, a financial accountant at the company. She was a qualified Chartered Accountant. She became involved in the present matter due to her assignment to the OCMA account. Ms Faull calculated the damages in relation to sales to Space Furniture by Exquisite from April 2008 to October 2011. She also calculated the sales foregone for the period from 1 July 2011 to 30 June 2013. The methodology and calculations were set out in a report tendered as Exhibit P6.
91 Faull prepared for trial a report containing a calculation of damages in respect of Exquisite’s sales of the Cero and subCero stools. Schiavello Group contended that the calculation was very conservative because it was restricted in this way and did not include sales of other products. This came about because the defendants did not provide the plaintiff with records of sales to third parties for the period before April 2012. Steendyk said that due to a computer malfunction in his laptop, he lost all the financial records for his business commencing from 2004. Apparently, these records were stored only on his computer (except for some which had been copied onto a USB stick). There were almost 8 years of documents lost. The non-discovery of these financial documents and the reason therefor was a matter of some debate at the trial. It made the plaintiff’s position more difficult in proving the damages aspect of its case and fuelled suspicion about the defendants’ bona fides in the litigation.
92 In relation to quantum, I make the following observations. First, as noted above, Schiavello Group’s claim is limited to lost sales of Cero and subCero stools made to Space Furniture. It does not include sales of other products the subject of a DLA or sales to other third parties
93 Secondly, the claims which Schiavello Group relies upon suggest (according to the documents produced on subpoena by Space Furniture) that between April 2008 and October 2011, Space Furniture bought 450 Cero stools and 80 subCero stools from Exquisite. Ms Faull reconciled these figure to, inter alia, the royalty payments. This contrasts with Steendyk’s handwritten notes which refer to sales of 620 Cero stools and 260 subCero stools in the same period. If the Steendyk figures are accurate, then Schiavello Group might have understated its claim.[20] This could represent a substantial discount to the damages which Schiavello Group might have claimed for lost sales in that period. Such a discount would be additional to the 25 per cent discount which Ms Faull applied in her calculations.
[20]The difference in figures might also be attributable to the difference between Exquisite’s total sales, including those by David Jones and through direct project clients, and sales by Schiavello Group only.
94 Thirdly, although the defendants admitted there were sales to other third parties such as BCI, to the extent that they gave discovery of supporting documents, it appears it was only shortly before trial. In making this comment, I am mindful that Steendyk produced some handwritten notes. Steendyk said that he made these notes as a “sanity check” each quarter to check how the business was performing. Steendyk said that the handwritten figures were substantiated by the documents in a court book produced by the defendants. The evidence on this point seemed to arise in re-examination and was not detailed or comprehensive. The gist of the evidence was covered in Steendyk’s affirmative response to a question from his counsel which invited that answer. I have reservations about the handwritten figures because:
· I have a general concern about the reliability and veracity of Steendyk’s evidence
· most of the primary financial data for the period 2004 to 2012 underlying the defendants’ claim was lost when Steendyk’s computer failed.
· at trial, Steendyk gave no evidence of attempting to recover the lost data either himself or through an expert. In an affidavit Steendyk swore in December 2013, he said that because at the time the laptop malfunctioned the computer was old, the operating system was old and non-operational, he disposed of the computer by, in effect, throwing it out.
· the specifics of the connection between the defendants’ discovered documents in the Court Book and the handwritten notes were not the subject of comprehensive evidence or address at trial
· the accuracy of the figures was not demonstrated.
95 Fourthly, in terms of evidence underlying the claim by Schiavello Group:
· Schiavello Group has substantially incomplete records from the defendants for the period prior to April 2012
· Schiavello Group calculated its loss of profit from sales forgone based upon average values for sales and costs for the relevant period, calculated by reference to such sales and cost data as was available from the Schiavello Group system and other records. It appears that the sale price figures used by the defendants in their “adjusted calculation” in their reply submissions were not similarly averaged. The figure used by the defendants was a low price at a particular time which took no account of higher prices at which other sales to Space Furniture were made.
A. Lost sales to Space Furniture 2008 - 2011
96 Ms Faull explained the calculation process she undertook (as set out in Exhibit P6) to arrive at a damages figure of $37,186.49 representing the amount Schiavello Group would have made if it had sold the same numbers of Cero and subCero stools as Exquisite did to Space Furniture between April 2008 and October 2011.
97 Ms Faull obtained the Exquisite sales figures from Space Furniture and said that the sales for the period totalled $73,917.12 (exclusive of GST). She worked out the average unit price for the stools over the period by adding the four different unit prices charged by Exquisite and dividing it by four. She calculated the respective proportions of Cero and subCero stools sold to Space Furniture and found that 90% of sales were the Cero product and 10% the subCero product. She worked out the number of units which would have been sold of Cero and subCero products based on those figures. She then calculated the average sales list price and the average cost price for each unit sold and then allowed a further 25% discount in the average sales price in order to make due allowance for the range of prices as which units were sold depending upon the context – for example, retail or project client.
98 The defendants submitted that the calculation of damages was erroneous for a number of reasons, and hence the amount claimed by Schiavello Group ought not to be accepted.[21] The defendants contended that the calculation contained:
[21]In their submissions, the defendants did not seek to discredit the witness personally
· an assumption that sales to Space Furniture would have been made by Schiavello Group;
· an assumption that higher prices would have been achieved;
· an unexplained and unjustified departure from actual sales data;
· an assumption of rapid and exponential sales growth;
· the inclusion of amounts representing Exquisite’s sales to its own customers;
· incidence of double counting;
· a sales price for the Cero and subCero stools, in support of which Schiavello Group failed to adduce admissible evidence; and
· an amount representing OCMA’s lost profits.
I now address the defendants’ contentions in turn.
Assumption that Schiavello Group would have sold product to Space Furniture
99 The defendants submitted that Faull’s calculation should not have assumed that Schiavello Group would have made sales which Exquisite otherwise made to Space Furniture. The defendants argued that Faull lacked knowledge about who Schiavello Group’s customers were, and whether there might be overlap in the customer base between Exquisite and Schiavello Group.
100 It is correct to say that Ms Faull assumed Schiavello Group would have made the sales which Space Furniture made. While I accept that this assumption was not entirely justified, it remains true that for several years Schiavello Group was meant to be the exclusive distributor of the product in Australia.[22] In my view therefore, Schiavello Group was not obliged to show that it would necessarily have made all the same sales as Exquisite did to Space Furniture. It was enough that it had exclusive rights of distribution so that those wanting these stools had to obtain them through the plaintiff.
[22]Subject to the specific exceptions in the DLA
101 Also, to the extent that some guesswork was required, when the defendants breached the DLA and failed to give full discovery, they cannot complain if the court adopts a more benign attitude to the party who is harmed at the expense of the party who perpetrated the wrong and then fails to produce evidence. Schiavello Group is not responsible for the defendants’ failure to produce relevant financial documents.
102 Nonetheless, I agree that in arriving at a damages figure, the court should be alive to the assumption and should take it into consideration as a factor which would reduce the quantum appropriately awarded to the plaintiff.
Assumption that higher prices would have been achieved
103 The defendants contend that Ms Faull assumed:
· Space Furniture would have paid Schiavello Group more for the stools than they actually paid Exquisite
· Schiavello Group would have achieved the sales to Space Furniture at its full list price (less 25 per cent).
The defendants characterised Schiavello Group’s evidence as amounting to a position that because Schiavello Group often discounted significantly the price of products on commercial projects, and the market where Schiavello Group competed directly against Space Furniture was that market, it meant that its lost sales were at lower prices than average rather than the higher price point.
104 As noted above, it is not necessary for Schiavello Group to prove it actually would have made all the sales. It is, however, another matter to assert that any such sales would have been made for a particular price. I find that Schiavello Group, through Faull’s calculation, has endeavoured to arrive at a reasonable figure in proving its loss. Necessarily speculative, the calculation reflects averages taken over a period of years. I find this approach to the problem appropriate. The methodology reflects the plaintiff’s assessment of the likely price based on historic average sales prices and takes account of the 25% discount allowed for by Schiavello Group. However, given that I have evidence of the actual sale prices paid by Space Furniture to Exquisite, I am able to compare these prices with the posited Schiavello Group price. The table below sets out the price comparison on Cero and subCero stools at the times stipulated:
Schiavello Group
(List Price)Exquisite
(Actual Price)April 2008 - October 2011 Cero $174.90 $127.00 - $138.00 subCero $107.25 $91.00 - 94.50 Year ended 30 June 2012 Cero $178.50 $175.00 subCero $105.00 $94.50 Year ended 30 June 2013 Cero $216.00 $144.00 - $175.00 subCero $113.25 $91.00
105 With the exception of the Cero stool in the year to 30 June 2012, there is a differential of at least $10 per unit between the Schiavello Group price and the price in fact paid by Space Furniture. At other times, the difference was about $40 per unit. Plainly, such a difference would affect revenue projections if Schiavello Group had achieved sales at a lower figure.
106 Again, the sale price is a relevant factor to take into account in considering the loss which Schiavello Group suffered as a result of the sales by Exquisite to Space Furniture. However, it must also be recognised that if Schiavello Group were the only authorised supplier of the stools in Australia, then Space Furniture might have been prepared to pay more for the stools and either increase its sale price or make a reduced profit. The court should not assume that, because Space Furniture paid the defendants a particular price for the stools, that was the upper limit of the price it would pay. The issue of the achievable sales price is a substantial source of uncertainty.
Departure from actual sales data
107 The defendants submitted that the damages calculation contained an unexplained and unjustifiable departure from actual sales data. The calculation cites figures for “forgone sales” from 30 June 2011 onwards. The defendants’ argument seems to be based on Schiavello Group’s claim for loss of sales as a result of Exquisite’s sales to Space Furniture and other third parties. The defendants contended that there was no connection between the fluctuations in sales of Cero and subCero stools by Schiavello Group and the sales by Exquisite to third parties. The short point was that Schiavello Group failed to establish a causal link between the two events.
108 I reject this submission on the basis that if Schiavello Group is the exclusive distributor of these stools in Australia, then one can reasonably expect that sales by Exquisite will have an impact on Schiavello Group’s sales by reducing the number of sales. As noted before, the damages award can be discounted to reflect the situation where Schiavello Group does not make all the sales which Exquisite made to Space Furniture.
Assumption of rapid and exponential sales growth
109 In her calculations, Ms Faull assumed that, in the absence of Exquisite’s sales to Space Furniture, Shiavello Group would have enjoyed substantial growth in sales of the products over the period from 30 June 2011 to 30 June 2013. The defendants contended that such an assumption was untenable.
110 First, the condition of the Cero and subCero tooling deteriorated at least from 2010 (if not earlier) and Schiavello Group could not have increased production with the existing tooling. I accept the force of this submission. Given the problems experienced with the tooling in and after 2010, I consider it unlikely that Schiavello Group could have increased production in the manner posited without obtaining new tooling. In saying this, I recognise that the tooling, albeit requiring frequent repairs, remained operational at least until late 2012.
111 Secondly, the defendants attacked Ms Faull’s methodology for assessing sales growth whereby she arrived at a rate of growth based upon the combined total of product sales for Cero and subCero stools. I consider this criticism was valid because Ms Faull herself acknowledged that the products were separate in the sense of not directly substitutable, and implicitly, were aimed at different markets. Ms Faull offered no persuasive rationale for effectively treating the two products as one when there was no necessary connection between their respective sales. Ms Faull’s methodology weakens the utility of the calculations which she put forward.
112 Finally, in their written submissions the defendants contended that Ms Faull erroneously calculated the rate of sales growth because she used as a commencement point a figure which was lower than the true figure. The defendants argued that in the year to 30 June 2009, there were 905 Cero stools sold, not 622 as appeared in Ms Faull’s calculations; and 221 subCero stools sold, not 37 as appears in her calculations. The defendants’ figures were based on Steendyk’s handwritten notes. As previously observed, I have doubts about the accuracy and reliability of those notes. Steendyk said that he prepared the figures at the end of each financial quarter. I note in passing that the handwritten notes were used in Steendyk’s Attachment A to support the defendants’ damages claim. There, I was troubled specifically by a mathematical error where Steendyk wrongly averaged the sales of the Wave tables over two years rather than the four years for which the product was available.
113 The defendants did not challenge Faull’s evidence on this point when she was in the witness box. They did not put the higher figures to her in cross-examination. For those reasons, particularly the Browne v Dunn point, I gave limited weight to the defendants’ submission on this issue.
Inclusion of sales by Exquisite to its customers
114 The defendants contended that in determining Schiavello Group’s foregone sales, Ms Faull failed to exclude sales made by Exquisite. They argued that sales by Exquisite to its customers constituted “a significant proportion” of the total sales which Schiavello Group recorded.
115 Schiavello Group submitted that the figures should be read in light of its method of accounting for sales, whereby sales by Schiavello Group excluded sales made by OCMA to Exquisite. The sales foregone figure looks at the sales trend by Schiavello Group at the retail level, less the OCMA price. When positing a sales trend by Schiavello Group, the trend did not include sales by OCMA to Exquisite because they were not retail sales by Schiavello Group.
116 I accept Schiavello Group’s submissions as a clarification of the issue, and I reject the defendants’ submissions. It remains the case that if Schiavello Group, after buying stools from OCMA as Exquisite did, then sold the stools to Space Furniture, it would have made some profit.
Double counting
117 With respect to the alleged issue of double counting, the defendants argued that this arose due to the inclusion of part 1 of Faull’s calculation of damages for sales to Space Furniture during the period up to October 2011, and in part 2 for amounts from 30 June 2011. The result was said to be an overlap in the period 30 June 2011 to October 2011 for the amount of damages claimed.
118 The defendants did not put this potential discrepancy to Faull in cross-examination. When the defendants raised the issue in closing submissions Schiavello Group did not directly respond in reply. While I consider that there might be some substance in the defendants’ submissions, I am greatly troubled that Ms Faull, the person most likely to be able to explain the figures and deal with the allegation, was not given the opportunity to do so. For this reason, I attribute only minimal weight to this factor. The defendants did not give evidence on this point.
Failure to adduce evidence of actual sales price
119 The defendants argued that because Schiavello Group failed to adduce clear evidence about the actual price at which it sold the Cero and subCero products between 2008 and 2012, it thereby failed to prove an important aspect of its damages claim.
120 I reject this submission. There is a number of variables affecting this assessment exercise. To that extent, while precise figures might have given greater certainty to that component, it would not have made a major difference due to the other factors. The circumstances of this case are such that there is an element of guesswork involved which cannot be eliminated. Hence, the fact that Faull spoke to the director of sales about the discount factor of 25% is not determinative.
Impermissible claim for OCMA’s lost profits
121 The defendants contended that even if it were permissible for Schiavello Group to claim damages suffered by a separate entity such as OCMA (which they denied), that company could not suffer a loss on the Exquisite sales. This was because Exquisite had to obtain the product from OCMA and pay the net wholesale price. This ex-OCMA price included the production cost and a profit component and was the price which OCMA charged both to buyers such as Exquisite and the retail arm of Schiavello Group. Hence, OCMA would suffer no loss from sales made by Exquisite in breach of the provisions giving Schiavello Group exclusive rights.
122 In its reply submissions, Schiavello Group did not take issue with several of the submissions made by the defendants. Partly, Schiavello’s evidence confirmed the defendants’ submission – he noted that when Exquisite bought product at the wholesale price from OCMA, OCMA thereby recovered its costs, amortisation, overhead, profit margin and royalty payment. The loss to Schiavello Group as a separate company was the loss of a sale at its retail price. This was the sales margin which covered the cost of all marketing activities, and, I infer, a profit component as well. But Ms Faull was clear that the mark-up charged by OCMA as its profit component in the sale price was excluded from Schiavello Group’s loss calculations. This is clearly seen in Exhibit P6 by examining the comments on page 2, item 10 and the attached tables referred to.[23]
Conclusion
[23]The matter is referred to in greater detail in paragraph 68 of the plaintiff’s outline of closing submissions on damages dated 20 June 2014.
123 In relation to the claim for Cero and subCero sales to Space Furniture between April 2008 and October 2011, I award Schiavello Group the sum of $18,500. In general terms, I accept the approach to quantum adopted by Ms Faull. But doing the best I can with the uncertain evidence, I have reduced the amount claimed of $37,186.49 to reflect that:
· Schiavello Group would not necessarily have made all the sales claimed, whether due to problems with the tooling or other matters
· The sales price achieved by Schiavello Group might have been lower than that in the calculations
· The sales growth was exaggerated
· There might have been some double counting
· The Cero and subCero DLAs came to an end in April 2011 when Exquisite accepted Schiavello Group’s repudiation or alternatively, in about August 2011 when the DLAs terminated in accordance with their terms.
In reaching this figure, I am mindful that the average sales price was reduced by 25% in Schiavello Group’s calculations and that the claim for foregone sales was limited.
B. Sales foregone for the period ending 30 June 2012 and 30 June 2013
124 Later in this judgment, I find that Schiavello Group repudiated the Cero and subCero DLAs and Exquisite accepted the repudiation in April 2011. Alternatively, I find that Schiavello Group breached those DLAs and Exquisite gave a 90 day notice under clause 11.1 of the DLAs. Exquisite then exercised its option to terminate those DLAs in August 2011. Accordingly, the following examination of Schiavello Group’s damages claim for the periods ending 30 June 2012 and 30 June 2013 is made on the assumption that those findings are wrong.
(i) Financial year ending 30 June 2012
125 Ms Faull’s method of calculating the average sales price and average cost price was reasonable. She examined sales reports for the financial years ending 30 June 2009, 2010, 2011. She examined the figures to assess the level of percentage increase in sales for the period to obtain an average annual percentage sales increase. She multiplied the difference between the units actually sold and what should have been sold (assuming the sales growth at the average annual percentage increase) by the difference between the average sales list price and the average cost price (less a further 25 per cent discount). Using this methodology the damages claimed for sales foregone in the financial year ending 30 June 2012 were $82,867.02. However, the number of units sold is too high. It reflects an unjustified assumption about the level of sales growth. In my view, it was wrong to derive a figure for sales growth from the combined figures for Cero and subCero products. The calculation should have been conducted on an individual product basis. The valuation also ignores production problems caused by the deterioration of the tooling. While I accept that the delay on the replacement tooling was caused partly by the dispute about the logo, it was also caused by Schiavello Group being unhappy to accept that recently bought tools required replacement so quickly and the likely cost of replacement.
350 The test for the defendants to meet in claiming breach of an equitable duty of confidence was formulated by Gummow J in Corrs Pavey Whiting & Byrne v Collector of Customs (Vic).[108] In raising Steendyk’s claim to the discretionary remedy of an account of profits, the onus was on the defendants to establish with specificity the information said to have been confidential, and that:
[108](1987) 74 ALR 428, at 437 (“Corrs Pavey”). See also Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353, at 376 (O’Loughlin J) (“Titan Group”); Coco v AN Clark (Engineers) Ltd [1969] RPC 41, 47
· the information had “the necessary quality of confidentiality”;
· the information was imparted to Schiavello Group in circumstances where there was an obligation of confidence; and
· Schiavello Group made unauthorised use of the information to the detriment[109] of Steendyk.
[109]Gummow J in Corrs Pavey did not conclude whether it was a requirement that there be detriment to the claiming party, and his Honour considered it obvious in that case that the plaintiff would suffer detriment; cf Titan Group at 376 (O’Loughlin J).
I address each of these points in turn.
(i)Was the information confidential to Steendyk?
351 The defendants submitted that the information contained in the mould was confidential in the sense that it was not generally known. Schiavello Group contended that there was no evidence that the information about the manufacture of the Cero stool was not generally available on the market by the time sales of the product were made to Singapore. Further, Schiavello Group submitted that the Cero products were already available in Singapore through a company called Serralunga.
352 Steendyk gave evidence about the ability to “reverse engineer” the Cero stool – that is, to use a sample stool as a means of creating a mould and with it ascertain the technical and other information relevant to the stool. Steendyk theorised that an adept manufacturer could perform this task in about two months. For Schiavello Group, such evidence supported the proposition that any information in relation to the product was no longer confidential due to being in the public domain.
353 Schiavello Group also sought to refute any claim of confidentiality in the Cero mould on the basis Steendyk had previously worked with others in development of the Cero stool, including a “fibreglasser” and a company called Rotadyne in Sydney. Moreover, Schiavello Group had prior experience in manufacturing rotomoulded products.
354 Finally, Schiavello Group argued that to the extent the product mould could be said to contain or comprise confidential information, the ownership of that information was not vested in Steendyk. Steendyk gave evidence that “usually we leave it up to Palamont” and that “Andrew Berry [of Palamont] would be the person that generally provides details of framing and requirements [for a product mould]”. Steendyk also stated that Palamont were “custodians of the [mould]”. On this basis, Schiavello Group contended that if there were a duty of confidence owed, it was owed to Palamont rather than Steendyk as the principal in the equitable fiduciary relationship.
355 At another stage in evidence, Steendyk stated that he and representatives of Palamont “worked together” in production of the mould and the cost for Steendyk was between $20,000 and $24,000.
356 I am more persuaded by the view advanced by Schiavello Group. While on the evidence I find that the information would have been confidential to Steendyk rather than to Palamont, such confidentiality was lost due to the Cero product being available in Singapore. This was so, notwithstanding what the defendants contended would be a difficult task of obtaining the information bound up in the Cero mould.
357 In the event I am wrong in my finding and confidentiality did in fact remain, I now consider the question of whether the information was disclosed in circumstances where there was an obligation of confidence.
(ii)Was the information communicated in circumstances where there was an obligation of confidence?
358 The defendants submitted that information about the specifications and manufacture of the Cero stool constituted information imparted to Schiavello Group in circumstances where there was an obligation of confidentiality. In their Further Amended Defence and Counterclaim, the defendants pointed to clause 13.1 of the DLA as the particular context. The clause of the DLA relevantly included obligations that Schiavello Group and Exquisite were to:
“13.1.1 keep confidential all information and technical data disclosed by one party to the other provided that they shall have the right to disclose such information to their employees insofar as it is necessary for them to know the information for the use of the licence granted herein; and
13.1.2not use any of the other party’s disclosure or other information or technical data, except for the purposes of the licence granted herein and on the terms of this agreement.”
359 Although the plaintiff did not appear to challenge the basis on which an account was sought, as I understand it, the defendants do not rely upon a contractual basis for the obligation. Were that the case, it would not be appropriate to seek an account of profits for breach.[110] Clause 13.1 of the DLA points to the fact that certain “information and technical data” communicated between the parties is to be kept confidential; it speaks of the circumstances in which there is an obligation of confidence, rather than defining the rights that are said to have been breached.
[110]An account of profits is not available for breach of contract in Australia; see Hospitality Group Pty Ltd vAustralian Rugby Union Ltd (2001) 110 FCR 157, at [155]-[159]
360 In the context of the obligations under the DLAs, I am satisfied that the information about the mould was communicated in circumstances importing an obligation of confidence.
(iii)Did Schiavello Group use the information to the detriment of Steendyk?
361 There is conflicting judicial opinion about whether the party suing for breach of confidence must have suffered detriment as a result of breach.[111]
[111]Corrs Pavey (1987) 74 ALR 428, at 437 (Gummow J); cf Titan Group (1990) 19 IPR 353, at 376 (O’Loughlin J)
362 Gummow J in Corrs Pavey stated:
“It may also be necessary, as Megarry J though probably was the case (Coco v Clark (AN) (Engineers) Ltd [1969] RPC 41 at 48), and as Mason J (as he then was) accepted in the Fairfax decision was the case (at least for confidences reposed within government), that unauthorised use would be to the detriment of the plaintiff. This last aspect may be put to one side in the present case, because the use to which [the confidential information was put] would plainly be detrimental to [the plaintiff]”[112]
[112](1987) 74 ALR 428, at 437
363 The earlier decision of Megarry J in Coco v AN Clark (Engineers) Ltd was in a similar vein, stating:
“Some of the statements of principle in the cases omit any mention of detriment; others include it. At first sight, it seems that detriment ought to be present if equity is to be induced to intervene; but I can conceive of cases where a plaintiff might have substantial motives for seeking the aid of equity and yet suffer nothing which could fairly be called detriment to him …. The point does not arise for decision in this case, for detriment to the plaintiff plainly exists. I need therefore say no more than that although for the purposes of this case I have stated the proposition in the stricter form, I wish to keep open the possibility of the true proposition being that in the wider form.”[113]
[113][1969] RPC 41, at 48
364 In taking the conservative position, I shall assume that detriment is a prerequisite to obtaining equitable relief.
365 The defendants’ position seems to be that Schiavello Group selling the Cero stool to Standard Chartered Bank in Singapore constituted improper use of the defendants’ confidential information inherent in the product mould. In their Further Amended Defence and Counterclaim, the defendants asserted that Steendyk suffered detriment due to diversion of profits that could otherwise have been enjoyed, and due to interference with the defendants’ ability to develop a reputation in Singapore.
366 Schiavello Group disputed both points. It claimed that the defendants had not adduced evidence probative of the lost profits, and argued that any Cero stool sold in Singapore would feature only the “Steendyk” logo and include no reference to Schiavello Group. As a result, there could not be any interference with the ability of the defendants to develop their reputation in Singapore.
367 I address the latter point first. Steendyk conceded that the stools he saw on display in Singapore might have been those manufactured by Serralunga rather than Schiavello Group. No other evidence was adduced at trial to support the defendants’ claim of detriment suffered insofar as it could be said to relate to interference with reputation. Further, it was common ground that the base of the Cero stools featured only a reference to Steendyk and none to Schiavello Group. For that reason, the sale of the chairs in Singapore did not cause any, or any significant, detriment to the defendants. I am not satisfied that the defendants have proved detriment in this sense.
368 I turn then to the issue of diversion of profits, which the defendants argued was another way in which they suffered detriment as a result of the alleged breach of confidence. Schiavello acknowledged that there would have been a profit made on the product sales, and gave evidence that any estimate of such profit would be an “absolute guess”.
369 It appeared from the evidence that the defendants had agreed for Serralunga to sell the Cero stools in Singapore. I infer that the arrangement between Exquisite and Serralunga was broadly similar to the agreement between Exquisite and Schiavello Group. So, had Serralunga sold the stools, it is likely that Serralunga would have paid commission or royalties to Exquisite in the same way that Schiavello Group did upon the sales it made. Subject to there being a difference in the commission rates in the two agreements, about which there was no evidence, it is not obvious to me what, if any, substantive harm Exquisite suffered from the sales. I note also that there was no evidence from the defendants that the sales by Schiavello Group created any tension or difficulty between Serralunga and the defendants.
370 More generally, I have a conceptual difficulty with this aspect of the defendants’ case. Because the Cero and subCero stools had been created in the early 2000s, they had been in the public domain before the defendants entered into the DLAs with Schiavello Group. To that extent, they were available to be bought and were capable of being reverse engineered. Subject to any specific intellectual property protection which the stools enjoyed, others were free to examine the product and create their own version.
371 Here, the substance of the complaint against Schiavello Group was that it sold the product in Singapore – it sold in excluded territory. The defendants had no issue with Schiavello Group owning the moulds for the tools, engaging Palamont to make stools, and then selling them to the public. Indeed, Schiavello Group was expected to do just that. Further, Schiavello Group did not try to exploit the tooling for the products to springboard itself into a new business. This scenario is one more commonly associated with confidential information claims: A alleges that B has improperly used confidential information, impermissibly accessed, to establish its own business or assist someone else to do so. This was not such a case. Also, clause 13 of the DLA provided in substance that Schiavello Group and the defendants were to keep confidential all information and technical data disclosed by one to the other and not use the disclosures or data except for the purposes of the licence and on the terms of the DLAs. Hence, there was a contractual provision requiring confidentiality between the parties to the agreement.
372 I note there is recent authority to the effect that equity would not intervene to protect a confidence if the parties had entered into an agreement dealing with the matter.[114] Here, the details of the mould could aptly fall within the description “information and technical data”. The issue of the role of equity in the context has been said to be “not without difficulty”.[115] But given the recent authority and notwithstanding a view to the contrary, I conclude I should accept and apply the recent authority. Accordingly, I find that even if Schiavello Group wrongfully used or disclosed confidential information by selling Cero stools in Singapore, there was no occasion for equity to intervene.
[114]Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172, at [118]; Coles Supermarkets Australia Pty Ltd v FKP Limited [2008] FCA 1915, at [63]; Gold and Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281, at [89]-[96]; Streetscape Projects (Australia) Pty Limited v City of Sydney [2013] NSWCA 2, at [150] (“Streetscape”)
[115]Complete Technology Integrations Pty Ltd v Green Energy Management Solutions Pty Ltd [2011] FCA 1319, at [119] (referred to in Streetscape, at [151])
Defendants’ damages
373 In their further amended defence and counterclaim the defendants made a number of claims:
(a) $253,767 for loss arising from Exquisite’s entry into the DLAs as set out in attachment A[116]
[116]Exhibit D3
(b) $290,505 for lost earnings in respect of the Cero marketing strategy breach[117] as set out in attachment B[118]
[117]See paragraphs 16TT and 37(g)
[118]Exhibit D4
(c) $4,967 (plus GST) for the new drawings for the new Cero tooling
(d) Lost profits of $8750 arising from the unauthorised use of the defendants’ confidential information by selling stools in Singapore
374 In opening submissions, the defendants paid little attention to damages. They said[119] that Exquisite claimed damages of $253,767 as a result of Schiavello Group’s misleading conduct to restore it to the position it would have been in had it never entered the DLAs. For breach of the collateral contract between Schiavello Group and Exquisite, Exquisite claimed $290,505 to restore it to the position it would have been in but for that breach.[120]
[119]Defendants’ opening submissions at [30]
[120]Ibid at [34]
375 Exquisite said that the terms of the collateral contract were that:
· Schiavello Group and Exquisite would form a partnership (in the sense of a joint venture) to develop, manufacture and sell furniture
· Schiavello Group would make a reasonable investment in tooling to manufacture Exquisite’s products and in marketing and positioning those products
· Schiavello Group and Exquisite would work together to identify and develop additional products which would be licensed to Schiavello
· In consideration for Schiavello Group entering into the collateral contract, Exquisite would grant Schiavello Group pursuant to the DLAs long term geographically extensive and exclusive rights (subject to some agreed exceptions) in respect of the products the subject of the DLAs.
376 Exquisite contended that Schiavello Group breached the collateral contract by failing to make a reasonable investment in Exquisite’s products and failing to work with Exquisite to identify or develop additional products which could be licensed to Schiavello Group.
377 I have found that Exquisite has failed on its misleading and deceptive conduct claim. Exquisite’s claim for damages under this head is irrelevant. In any event, cases involving misleading conduct normally award damages not on the basis of the outcome if the representations alleged had been true, but on how much worse off the claimant is as a result of the being induced to act in a particular way in reliance upon the false representation.
378 Exquisite dropped the claim for breach of collateral contract during the hearing and hence that damages claim also became irrelevant.
379 In their final written submissions, the defendants did not address in any detail the issue of damages which flowed from the breach of the DLAs. Usually where the innocent party accepts the repudiation of a contract by the guilty party, the former is entitled to damages for the loss of bargain. Where an innocent party exercises a right given pursuant to a provision of the contract to terminate for breach, the damages are generally limited to loss suffered before the time of termination.
380 Neither in their written or oral submissions in final address did the defendants explain the evidentiary basis for the damages claim regarding the breach of the DLAs. They did not set out the relevant evidence and a detailed rationale to support the claim. They did not undertake the same kind of exercise which Schiavello Group did through Ms Faull. They did not make submissions about the appropriate calculation of loss. Nor did they make submissions about what findings or orders the court should make regarding the claim for damages in respect of the breached DLAs. In final address, Senior Counsel for the defendants said[121] that Exquisite pleaded there were breaches of the DLAs and as a result, Exquisite was entitled to terminate for repudiation and by serving a notice of breach under clause 11.1. Counsel said:
[121]T538
“There’s a damages claim by Exquisite but only small amounts arising out of the contractual breaches”.[122]
I infer from this that any damages claim for the breaches of the DLAs would have been small.
[122]Ibid
381 In Schiavello Group’s written final submissions, it devoted some attention to the defendants’ damages claim.[123] The submissions contended that the damages claimed in annexures A and B to the further amended defence and counterclaim were fanciful and speculative and should not be relied upon by the court. Schiavello Group contended that attachment A was relevant to the misleading and deceptive conduct claim and that attachment B represented what Exquisite said it would have earned if the plaintiff had complied with its obligations under the DLAs. Exquisite’s claims were said to fall within attachment B insofar as it related to the Cero and subCero products. Schiavello Group noted that Exquisite assumed a ratio of 2:1 for sales of Cero and subCero products. Schiavello Group commented that Exquisite did not take account of fluctuating sales or the evidence of sales by Exquisite to Space Furniture during the term of the DLAs which did not accord with the assumed ratio. Schiavello Group explained why it contended the claim by Exquisite was pure speculation.
[123]Schiavello Group final submissions at [248] – [269]
382 Because the closing written submissions were filed before the parties’ final addresses to the court and the parties also had the chance to file written submissions in reply before final address (as well as some further written submissions after final address), I expected the defendants to grasp that further opportunity to set out their damages case. However, they did not do so.
383 If the defendants had sought to use the material in attachment B as the basis of a submission for damages for breach of the DLAs (which they did not), I would not have been persuaded by the figures contained therein. This was for several reasons.
384 First, there are claims for both the Wave Table in three different sizes and the Drift bath where these items were either not the subject of a DLA or were the subject of a DLA which terminated in about the first half of 2009.
385 Secondly, the projected sales assumed the sale of 1000 Cero stools in the financial year ending 30 June 2009 in circumstances where, according to his own handwritten figures for the period 2004-2008, the annual sales were 200, 348, 140, 359 and 317 respectively. In his evidence in chief, Steendyk said that he based his starting figure of 1000 stools on a comment made by Schiavello as to likely sales. According to Steendyk, Schiavello said that they were selling approximately 1000 units per year of a plain stool by another designer and he imagined that “projecting forward”, they would sell an equal or greater number than that. In cross-examination, Schiavello could not recall making such a comment or having such a conversation. Even if I assumed the conversation took place as alleged by Steendyk (which I will do for the purposes of the exercise), I do not consider that his account provides a sound basis for saying there would be sales of 1000 units in the initial year of production. If Schiavello spoke of “projecting forward”, I take that comment to refer to a figure which Schiavello Group would expect to sell annually at some future time but not immediately. I note that Steendyk has written on both attachment A and B words to the effect that products generally take two years before full production/sales potential is realised.
386 Thirdly, the projected sales assume 5% annual growth where the sales growth on Steendyk’s own figures for the period 2004 – 2008 did not support such an assumption.
387 Fourthly, I have, as noted previously, concerns about the accuracy and reliability of the hand recorded figures kept by Steendyk.
388 Because the defendants have failed to discharge their onus of proof through persuasive evidence and submissions as to the loss which would flow from the particular cause of action, namely the breach of the DLAs, I will award Exquisite only nominal damages in the sum of $100 for these breaches. I do not consider that this is a case where the court should attempt to guess at what the defendants might have proved.
389 I invite the parties to confer and submit orders giving effect to these reasons. If the parties cannot agree I shall list the matter for a further hearing.
ANNEXURE A
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