Shield Mercantile v Citigroup - [2013] NSWSC 117

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Shield Mercantile v Citigroup [2013] NSWSC 117
Hearing dates: 15/10/2012, 16/10/2012, 17/10/2012, 18/10/12, 22/10/12, 23/10/12, 24/10/12, 25/10/12, 29/10/12, 31/10/12, 05/11/12, 06/11/12
Decision date: 28 February 2013
Jurisdiction: Equity Division - Commercial List
Before: McDougall J
Decision:
Plaintiff to bring in draft orders. Reserve costs.

Catchwords:
CONTRACTS - breach of contract - breach of essential term, or alternatively, serious breach of a non-essential term - termination

CONTRACTS - repudiation - acceptance of repudiation

CONTRACTS - repudiation - where both parties partially misconstrue a term of the contract - where defendant failed to comply with demands purportedly made pursuant to the terms of the contract - no repudiation if the relevant demand was not wholly a requirement of the contract

TRADE & COMMERCE - misleading or deceptive conduct - representations - no reliance
ESTOPPEL - equitable estoppel - whether plaintiff estopped from resiling from assumption that all files referred to the defendant were appropriately classified - no reliance
DAMAGES - damages for loss of benefit of the contract and likely renewals - no loss proved
Legislation Cited: Consumer Credit Code
Evidence Act (NSW) 1995
Trade Practices Act 1974 (Cth)
Cases Cited: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Byrne v Australian Airline Limited (1995) 185 CLR 410
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Foran v Wight (1989) 168 CLR 385
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115
Sweet and Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699
Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326
Peter Turnball and Co Pty Limited v Mundus Trading Co (Australasia) Pty Limited (1954) 90 CLR 235
World Best Holdings Ltd v Sarker [2010] NSWCA 24
Category: Principal judgment
Parties: Shield Mercantile Pty Ltd (Plaintiff)
Citigroup Pty Ltd (Defendant)
Representation: Counsel:
M J Darke / T Gordon (Plaintiff)
A A Henskens SC / A R Zahra (Defendant)
Solicitors:
McLachlan Thorpe Partners (Plaintiff)
Henry Davis York (Defendant)

File Number(s): 2008/290591

Judgment

The Plaintiff (Shield) performed debt recovery services for the defendant (Citigroup) between 2002 and 2006. Those services were performed under a series of "Agency Service Agreements" (ASAs).

In October / November 2006, Shield and Citigroup became embroiled in a dispute as to the correct rates of commission payable by Citigroup to Shield on recoveries. As a result, the ASA for that year (the 2006 ASA) was terminated. In these proceedings, Shield sues to recover what it claims are underpaid commissions under each of the ASAs, and damages for what it says is Citigroup's repudiation of the 2006 ASA.

Citigroup denies that it has underpaid commissions. Further, although Citigroup accepts that the 2006 ASA was terminated in November 2006, it denies that it had repudiated that agreement.

The basic issues

The parties prepared a combined statement of the real issues in dispute. That document is lengthy, and cannot be understood without a more detailed statement of the relevant facts than I have given so far. However, the basic issues in dispute may be stated as follows:

(1) Did Citigroup breach the various ASAs by paying commission at a lower than applicable rate on certain of the debts "assigned" (or referred) to Shield for recovery?

(2) To the extent that there has been any underpayment, is Shield now entitled to recover the amount underpaid?

(3) Did Citigroup repudiate the 2006 ASA, and if it did, did that agreement come to an end by reason of Shield's acceptance of that repudiation?

(4) What is the proper quantification of Shield's loss (if any) in respect of:

(a) any underpayments that may be proved and recoverable; and

(b) damages for loss of the benefit of the 2006 ASA, and of the opportunity to enter into further ASAs?

The mechanics of debt recovery

The debts in question arose principally on credit cards issued by Citigroup (which was then know as Citibank) and unsecured line of credit loans made by Citigroup.

It is uncontentious that if a debtor fell into arrears, Citigroup would "work" the account in house for a period of about 90 days. During that time, officers of Citigroup would attempt to contact the debtor. The intention was to "rehabilitate" the account: to persuade the debtor to pay the arrears. If that happened, Citigroup would thereafter reinstate the account and resume extending credit to the debtor.

From time to time, whilst accounts were being worked in house, mercantile agents would be instructed to locate the debtor: a process known as a "skip trace". Sometimes, if the debtor was located, the mercantile agent would be instructed to carry out a "field call". The agent would seek to meet the debtor and to persuade the debtor to bring the account into line. The mercantile agents who performed those services were paid a flat fee. Shield was not among the mercantile agents to whom accounts were referred for skip trace or field call only.

At about 77 days past due (often referred to "DPD"), Citigroup would send the debtor a letter, being a notice under s 80 of the Consumer Credit Code. The effect of that letter was to make not just the arrears, but the whole of the amount owing on the account, due and payable.

Nonetheless, Citibank's evidence was, if the account could be "rehabilitated" thereafter, up to the time when it was more than 180 days overdue, Citigroup would do so. That is to say, even though the s 80 notice had been sent, Citigroup would thereafter (up to 180 days overdue) accept payment of the arrears, and reinstate the account.

The activities that I have described so far were carried out by Citigroup's "Collections" or "Loss Mitigation" Department. The debts the subject of that action were sometimes referred to as "receivables".

A number of things happened once the debt reached 180 days past due. First, Citigroup wrote off the debt. Secondly, the account was transferred within Citigroup from the Collections Department to the Loss Recovery Department. Thirdly, if the account was then referred to a mercantile agent, it was on any view referred for collection. Shield was one of the mercantile agents to whom Citigroup's Loss Recovery Department referred accounts for collection, in the period 2003 to 2006.

Where an account was referred for collection, the mercantile agent was remunerated on a contingent basis, by being paid a "commission" on actual recoveries. The rate of commission depended on the classification of the debt. In the jargon of the trade, referrals for collection were known as "primary", "secondary", or "tertiary" referrals. The meaning of those terms might appear to be simple. However, the precise content of each was a matter of hot dispute between the parties.

Shield contended that a primary referral was a referral of a debt for collection where there had been no prior referral to a mercantile agent for the provision of any debt recovery services (as defined in the ASAs). Thus, Shield contended, a referral could only be a primary referral if the debt had never been referred to a mercantile agent from Citigroup's collections department, even if only for the provision of services such as a skip trace or a field call.

Citigroup contended that a referral would be a primary referral unless there had been a prior referral, after write-off, by Citigroup's Loss Recovery Department, for the purpose of collection of the debt. Further, and consistent with that position, Citigroup said that a referral before write-off, by the Collections Department, would not amount to a prior referral so as to disqualify a subsequent referral from the Loss Recovery Department (to a mercantile agent such as Shield) from being properly classified as a primary referral. The disputes as to the proper meaning and application of the terms "secondary" and "tertiary" referrals reflected those competing positions.

Recoveries for primary referrals attracted a lower rate of commission than recoveries for secondary or tertiary referrals. That reflected the increasing difficulty of collecting, as the account was worked and reworked. It appeared to be common ground, and in any event the evidence was, that the major impediment to collection was locating the debtor. Common sense suggests that it would become more difficult to locate the debtor as time went by, and as all known leads to establishing the location of the debtor were exhausted, fruitlessly, through prior attempts at recovery.

The commission structures agreed between Shield and Citigroup provided, on the face of the ASAs, for Shield to be paid a commission of 25% on recoveries pursuant to primary referrals and 50% on recoveries pursuant to tertiary referrals. With one exception (the 2004 ASA) there was no provision for a commission rate on secondary referrals. The reasons why that is so, and the content of the term "tertiary referrals", were matters of dispute.

There are two complicating factors to note. The first is that, in late July 2005, Citigroup changed its recovery processes somewhat. Up to 180 days past due, debts remained in the Collections Department, and were worked by or under the direction of that department. However, from late July 2005, when the Collections Department referred a debt to a mercantile agent, the referral was on what was known as an "assign to collect" basis. As the name suggests, such assignments were not merely for the provision of specific and limited services (such as a skip trace), but for collection purposes. Under the assign to collect process, mercantile agents were paid on the basis of recoveries (commission) rather than by flat fee for the provision of a particular service.

There is in all this a linguistic complication. What I have called above "referral" was also known, in the jargon of the trade, as "assignment". That can be seen, for example, in the expression "assign to collect".

However, whatever such an "assignment" was, it was not an assignment at law or in equity of the bundle of rights - the chose in action - constituting the debt. In the context of this case, the word "assign" was used (and its cognate forms were used) to denote the process whereby Citigroup sent debt files to Shield or other mercantile agents, with instructions to take some form of action on them. Whether that is only true where the file was referred to an agent to collect the debt, or whether it applies also where (for example) the referral was to conduct a skip trace, or to collect only arrears, was another matter in dispute.

There was also a practice of assigning debts in the legal sense. Lenders such as Citigroup would from time to time sell a "portfolio" of debt to a mercantile agent. That would amount to an assignment in equity; and, if notice were given, to an assignment at law. In those circumstances, the agent would collect for its own benefit. By contrast, in the circumstances of this case, Shield and other agents collected for the benefit of Citigroup.

Shield did have a subsidiary company (Shield Debt) which carried on the business of buying, and recovering for its own benefit on, portfolios of debt. I mention that only because there was a question, in connection with damages, as to the consequences of the fact that the consolidated financial statements for Shield included expenses relating solely to the operation of its subsidiary Shield Debt.

The witnesses in the case

Each party called a number of witnesses. Each witness gave evidence by affidavit, and most were cross-examined extensively on their affidavits. In most cases, as one might expect, the passage of time had diminished the power and quality of recollection.

A number of the witnesses called remain in the employ of the party by whom they were called. I do not consider that this fact had any adverse impact on their truthfulness - that is to say, I do not think that any witness in this category sought consciously to shape his or her evidence to suit what might have been perceived to be the needs of his or her employer. Equally, however, it was a feature of the evidence that each party appeared to take the view that its subjective commercial policies were reflected in the ASAs; and to my mind, this tendency did have a subconscious and unintentional impact on the evidence of some of the witnesses.

Likewise, I think that with the passage of time and the fading of actual recollection, some of the witnesses effectively sought to reconstruct events; and that in doing so, not unnaturally, the process of reconstruction was affected by the tendency to which I have just referred. Some of the witnesses came to reconstruct events, in my view subconsciously and unintentionally, in accordance with their understanding of the policies and interests of the party by whom they were called, and to claim that reconstruction as recollection.

In some cases, the witnesses had made what they said were contemporaneous file or diary notes. In other cases, they had refreshed their recollection from other contemporaneous sources such as emails.

Looking at the evidence at a reasonably high degree of abstraction, I have formed the view that the surest guides to finding the facts (to the extent that they are in dispute) are contemporaneous records, where they are available; and the probabilities as, objectively, they appear from the whole of the evidence. Having said that, there were very few direct challenges to credibility. Indeed, some of the witnesses were not required for cross-examination.

One curious feature of the cross-examination of (in particular) Shield's witnesses was that in at least two cases, with which I shall deal in due course, there were direct and sustained credibility attacks. Those attacks extended to what were, or were said to be, contemporaneous file or diary notes made and kept by those witnesses. In each case, however, the zeal of the attack seemed to be somewhat misplaced. In each case, the relevant witnesses for Citigroup agreed, piece by piece, with the substantial accuracy of the greater part of the impugned notes.

The first witness called for Shield was its founder and managing director, Mr Desmond Joseph Shields. He gave evidence at a reasonably high level of generality. That reflected in part his relative lack of involvement in the day to day operations of the company at the relevant times, and in part the passage of time since November 2006, when the relevant events occurred.

I formed the view that Mr Shields was a witness who sought to tell the truth to the best of his ability, and who did not seek knowingly to mislead the court. To the extent that there are difficulties in his evidence (and there are few), I ascribe them to the factors just mentioned.

I accept that Mr Shields, through his "ownership" of Shield, has an indirect financial interest in the outcome of the proceedings. Except to the limited extent indicated at [24], I do not think that this interest has had any impact on the reliability of Mr Shields' testimony.

The next witness called for Shield was its client liaison manager, Mr Ian David Bolger. Mr Bolger was more directly involved in some of the relevant matters; or to put it another way, was not completely removed from the relevant action. With that exception, the comments that I have just made in relation to Mr Shield apply equally to Mr Bolger. I add that Mr Bolger was the author of a number of contemporaneous file notes. I accept that, in those files notes, he sought to make an accurate record of what he considered to be the relevant part of the events to which they referred.

There was some relatively minor conflict between the evidence of Mr Shields and that of Mr Bolger, as to the date of a particular conversation. I do not think that anything turns on this. Whatever the date may have been, I accept Mr Bolger's note of the conversation (made at Mr Shield's direction) as substantially accurate so far as it goes.

The next witness called by Shield was Ms Deborah Lynette Roddom. Ms Roddom is now no longer employed by Shield. At the relevant time, however, she was its director of operations.

Ms Roddom was involved in a number of the key conversations in late October and early November 2006, which arose out of the discovery of what Shield claimed were misclassified assignments. In particular, Ms Roddom was involved in a telephone conference with representatives of Citigroup, in which, according to Shield, Citigroup repudiated the then current (2006) ASA.

Ms Roddom made what she said was a contemporaneous handwritten note of that conversation, and a little later prepared a typed, and somewhat more expansive, file note. The veracity of, in particular, the handwritten file note was subjected to a sustained and aggressive challenge.

In substance, Mr A A Henskens of Senior Counsel (who appeared with Mr A R Zahra of counsel for Citigroup) suggested, by reference to the form and content of the handwritten file note, that it was not, and could not have been, made (as Ms Roddom said it was) during the course of the telephone conference. Ms Roddom strenuously denied that suggestion.

A finding that the file note in question was not made in the course of the conversation would, necessarily, involve the conclusion that Ms Roddom had lied deliberately on this topic. I am not prepared to find that she did. Ms Roddom impressed me as a witness who was concerned to tell the truth to the best of her ability. She was, it must be said, extremely defensive during (in particular) this passage of her cross-examination. But that, perhaps, is hardly surprising, having regard to the questions that were put and their necessary corollary.

I do accept that there are aspects of the handwritten file note which raise doubts about its contemporaneity. For example, as Mr Henskens noted, it fluctuated between what appeared to be direct reporting of passages of discussion, and summaries or impressions of other passages. To some extent, I think, this is understandable, having regard to what was on any view the repetitive nature of the discussions in question.

Again, the document does appear to be remarkably neat for one produced in the course of what must have been a heated discussion, in circumstances where at least one of the participants (Mr Vicente of Citigroup, to whom I refer below) undoubtedly spoke vehemently and (if his performance in the witness box is any guide) rapidly.

Again, I note, a person from Shield who was present with Ms Roddom for part of the conversation (Mr Skelton) made a note, which appears in the notebook immediately before Ms Roddom's file note, suggesting to her that she should make a record of what was being discussed. That might not be significant of itself. But that written direction appears at the foot of a particular page; and higher up on the same page are references to what must have been aspects of the discussion. The handwriting of those references has not been identified. It certainly does not appear to be the same as Ms Roddom's handwriting.

Mr Henskens wished to administer a dictation test to Ms Roddom in the witness box. I rejected that proposal. It seemed to me that it would be entirely unhelpful. When Ms Roddom made (or said she made) the file note in dispute, she was sitting in her own office. She was in familiar surroundings, speaking to people whom for the most part she knew (and had dealt with on many occasions), and dealing with a familiar subject matter. None of those factors could have applied to the exercise that Mr Henskens sought to undertake. In my view, both individually and together, those factors would have rendered the exercise useless in practical terms. Accordingly, I invoked s 135 of the Evidence Act (NSW) 1995 and rejected this line of cross-examination.

The force of Mr Henskens' criticisms of the file note must be acknowledged. However, as I have said, I do not regard Ms Roddom as a liar (let alone a person prepared to lie, deliberately and on oath). Thus, I accept her evidence that she made the file note contemporaneously with - that is to say, in the course of - the telephone conference to which it related. I accept, also, that she sought to make an accurate record of the conversation to the extent that she thought it necessary to do so. I am comforted in this view of the evidence by the circumstance that Ms Jones of Citigroup, who was a party to the conversation, was cross-examined at length on, and accepted the substantial accuracy of much of, the typed file note. So, too, was Mr Vicente. I will deal with Ms Jones and her role below, as I have said I will with Mr Vicente.

The striking feature of this aspect of Ms Jones' cross-examination is that in many cases she agreed that words to the effect of those set out in the typed file note were in fact said during the telephone conference. That applies, in particular, to the contentious parts of the conference. Again, to the extent that Ms Jones did not accept the accuracy of the file note, she nonetheless agreed as to some of the underlying facts.

Likewise, Mr Vicente accepted the substance of, or did not deny, at least part of the typed file note.

There are two final points to make. The first is that, to the extent there were denials that the file note was an accurate record, in many cases there is no dispute as to the underlying facts. Thus, it is not improbable that words to the effect of those recorded would have been said. On the contrary, in my view, having regard to the purpose and content of the conversation, it is likely that they were said. Secondly, to the extent that there are disputes that remain unresolved (for example, as to whether Mr Vicente said "stop, I am pulling rank now"), those disputes seem to be entirely incidental, and not to require resolution.

I accept Ms Roddom's file notes as substantially accurate, at least in relation to the principal points of the conversation which they record.

The next witness called by Shield was Mr Colin Douglas Skelton. At the time, he was Shield's marketing manager. He has since retired. Mr Skelton's recollection in the witness box was sketchy. That, no doubt, reflects both the passage of time and the fact of his retirement. Whilst I have no doubt that Mr Skelton sought to tell the truth, the disparity between his affidavit and his oral evidence leads me to the view that his testimony lacks persuasive force.

The next witness called by Shield was Mr David Peter Wadick. He is Shield's national collections manager. His evidence did not go to any of the events in dispute in (or before) October/November 2006. It was concerned, rather, to provide a factual foundation for the quantification of an aspect of the damages claimed by Shield. There was no challenge to his credibility - indeed, his cross-examination was brief and, so far as I could see, entirely pointless - and I accept him as a witness of truth.

The next witness called for Shield was Mr Scott Michael Colomb. Mr Colomb had been employed by Shield from about October 1994. At the times relevant to these proceedings, he was a director of operations. He became Shield's managing director, and held that position until he left its employ in October 2009. He is now employed as a bank manager.

There was a sustained attack on Mr Colomb's credibility.

In my view, there is substance to some of the challenges. I refer, by way of example only, to what I say at [112] to [123] below. Thus, whilst I do not find that Mr Colomb sought to give knowingly false evidence, I do think that his evidence should be scrutinised with extreme care, and that, in general, it is preferable to have regard to contemporaneous documents and the probabilities, objectively ascertained, in considering the events to which his evidence is relevant.

In general, I am not prepared to accept as reliable Mr Colomb's evidence on matters in dispute, unless it is appropriately corroborated or is consistent with the probabilities, objectively ascertained. I have taken into account both the manner in which Mr Colomb gave evidence and specific problems with it, to some of which I refer later, in forming this view.

Having said that, it is a feature of Mr Colomb's evidence (or more accurately, of what he said were contemporaneous file or diary notes) that witnesses called for Citigroup, when cross-examined, accepted the substantial accuracy of important aspects of those notes.

Mr Henskens drew attention to aspects of some notes which Mr Colomb said he had made which, Mr Henskens submitted, were unsatisfactory. For example, in two cases, it appeared that the notes had been misdated and that the date had been corrected. Whilst I accept that this does raise a doubt as to either the accuracy of the file notes or the reliability of Mr Colomb as a note-taker, I note that aspects of what was recorded (or purportedly recorded) are either non-contentious or are supported by other evidence.

In the result, I see no point in burdening the reader with an exhaustive analysis of the criticisms made of Mr Colomb's evidence. My approach to the assessment of his evidence is that set out at [51], [52] above.

Shield relied on other witnesses of fact. Those witnesses gave evidence by affidavit. They were not required for cross-examination. It follows that I accept their evidence, so far as it goes.

Shield also called an expert accountant, Mr Benjamin James Jennings. I accept that Mr Jennings was aware of, and sought to perform to the best of his ability, his duties to the Court. The same comments apply to his counterpart called by Citigroup, Mr Joseph Allan Box. To the extent that there remained differences in the evidence of those experts after they had conferred and produced two joint reports, those differences fall to be resolved by considering the inherent logic of what each says, not by reference to any question of credibility in the narrow sense.

The first witness called by Citigroup was Ms Melissa Jones. She worked for Citigroup between May 2005 and March 2007. She held the position of Manager - Agency Management until her superior, Mr Shinghal, moved from Citigroup's Sydney office to another posting at the end of October or early November 2006. From then until March 2007, Ms Jones acted as head of recoveries.

Ms Jones left Citigroup for a mercantile agency, known as Collection House Limited, in April 2007. She had worked for Collection House between 1997 and 2005. Collection House had had a commercial relationship with Citigroup at some times over the period 2003 to 2006 - it was one of the mercantile agents to whom, from time to time, Citigroup would assign recovery work. However, Ms Jones said (and I accept), there is now no commercial relationship between the two companies; and there has not been since Ms Jones returned to the employ of Collection House in April 2007.

In the witness box, Ms Jones demonstrated very little actual recollection of the relevant events (including those covered in some detail in her affidavits). As I have observed already, this was not uncommon; it may be said equally of (for example) Mr Shields and Mr Skelton.

It seemed to me that much of what Ms Jones said in her affidavits was based on reconstruction, from contemporaneous documents and her understanding of Citigroup's relevant policies and procedures at the time, rather than on any actual recollection. Thus, I think, it is necessary to scrutinise her evidence with some care.

Having said that, I do not think that Ms Jones sought in any way to mislead the Court, or to give evidence that was knowingly false. On the contrary, I thought that, to the extent that her recollection allowed, she gave honest and reliable evidence. It may be noted that in many cases, when Ms Jones was taken through the detail of file diary notes prepared by employees of Shield, she accepted the substantial truth of substantial parts of what was recorded in those notes.

However, my overall impression of Ms Jones' evidence - based, specifically, on her lack of recollection of relevant events when cross-examined - leads me to conclude that what she says must be assessed carefully against contemporaneous documents and the probabilities, objectively ascertained.

There is one particular contemporaneous document created by Ms Jones that was the subject of some debate. That document is an email that Ms Jones prepared and sent to her superior, Mr Vicente, on 10 November 2006. That email was sent two days after the conversations of 8 November 2006, in and as a result of which (it is now common ground) the 2006 ASA was effectively terminated. The fact of termination was confirmed by a letter from Ms Jones to Ms Roddom and Mr Colomb of Shield on 10 November 2006, in which she said that as a result of those discussions "Citigroup believe the relationship with Shield Mercantile to have been terminated as of the 8th November 2006".

In my view, there is no doubt that Ms Jones prepared the email in question in an attempt to report the relevant facts (as she then perceived them) to Mr Vicente, and to explain to him what had happened, and why.

Mr Henskens submitted that the email should be regarded as an objective and relatively contemporaneous account of events, made at a time when Ms Jones might be thought to have had a good recollection of them. Thus, he submitted, it should be treated in effect as some form of file or diary note (indeed, he frequently referred to it by the latter phrase during his submissions).

Mr M H Darke of counsel, who appeared with Ms T R Gordon of counsel for Shield, put to Ms Jones that the email was "a slightly sanitised version of events for Mr Vicente's consumption". Ms Jones did not agree (T490.12-.14).

In assessing the factual accuracy of what is recorded in the email, one must bear in mind that, at the time, Shield was Citigroup's most successful debt collector. Thus, the loss to Citigroup of the benefit of Shield's services must have been substantial, as on any view it was (given the speed with which events developed) surprising. The evidence is clear that Citigroup had to scramble to appoint another mercantile agent to fill the role hitherto filled by Shield.

In those circumstances, I think it is inherently likely that Ms Jones would have sought to put a positive "spin" on her account of events in the email. Thus, I think, one needs to take care in using it as an objective contemporaneous document on whose accuracy and reliability reliance can be placed. Having said that, it is again the case that many of the events recorded in the email are (apart from any "spin") hardly in dispute. Indeed, there is one aspect of the email on which Mr Darke relied to controvert an aspect of Mr Shinghal's evidence.

There were occasional passages during Ms Jones' lengthy cross-examination where I had some concerns at what she had said. I gained the impression, both from what she said and from the manner of saying it, that Ms Jones was allowing her evidence to be influenced by her understanding of Citigroup's policies and procedures at the time. But, having reconsidered those aspects (and others) of Ms Jones' evidence, my overall assessment is that set out in [62], [63]. In those circumstances, I will not elaborate on the passages of evidence to which I have referred.

The next witness called by Citigroup was Mr Peter Manuel Vicente. Mr Vicente was during 2006 (and later) the director of credit operations for Citigroup. He has now moved to another office in the Citigroup empire.

Mr Vicente was several degrees removed from the day to day dealings between Shield and Citigroup. His only direct involvement in matters at issue in these proceedings came in late October or early November 2006, when Ms Jones brought to his attention the dispute that had arisen between Shield and Citigroup over commissions.

Thereafter, Mr Vicente's direct involvement was limited to the telephone conference of 8 November 2006 involving Ms Roddom and, later, Mr Colomb from Shield (Mr Skelton was also present and in Ms Roddom's office for part of that conversation) and Ms Jones of Citigroup. Mr Vicente had a later conversation with Mr Colomb, in the course of which Mr Colomb said in effect (the precise words do not matter) that Shield regarded the relationship as at an end.

Mr Vicente gave evidence at a significant level of generality. I formed the impression that his recollection was heavily influenced by his perception of what Citigroup's policies and procedures at the time required. I might add that this perception also seemed to me to underlie the approach that Mr Vicente took to dealing with the dispute, during the telephone conference of 8 November 2006.

As will be clear already, there are differences as to what was and was not said during that telephone conference. However, the thrust of the discussion is reasonably clear, as is the thrust of the subsequent and short discussion between Messrs Colomb and Vicente.

I do not think that Mr Vicente had any real present recollection of the events. Much of his evidence seemed to me to be reconstruction based on his understanding of Citigroup's policies and procedures.

Nonetheless, there was no direct attack on Mr Vicente's credibility. Nor was there any dispute of substance as to the events of which he gave evidence. Finally, much of what he said appears to me to be consistent with contemporaneous documents and with the probabilities, viewed objectively. In those circumstances, it is unnecessary to subject Mr Vicente's evidence to detailed analysis.

I should add however that my impression of Mr Vicente, during his cross-examination, was entirely consistent with the picture that emerges from the evidence (including that of Ms Jones) of the way he conducted himself during the telephone conference on 8 November 2006. I have no doubt that Mr Vicente behaved and spoke in a manner that was self-assured, confident perhaps to a fault, and that brooked no opposition. I have no doubt that, during the telephone conference, Mr Vicente put Citigroup's position, based on his understanding of its policies and procedures, forcefully and repeatedly.

The next witness called by Citigroup was Mr Manu Shinghal. Mr Shinghal was, from May 2005 to October 2006, the head of Loss Recoveries. In that position, he was Ms Jones' immediate superior. As I have said, Mr Shinghal moved to another position within the Citigroup empire at the end of October 2006.

It was clear, during Mr Shinghal's cross-examination, that he had no real recollection of the relevant events. I have great difficulty in understanding how he could have been as positive as he was in his affidavit affirmed 7 June 2012, compared to his uncertainty in the witness box some five months later.

Mr Shinghal was forced to accept that there were passages in his affidavit which were incorrect, or which overstated the relevant facts. I suspect that this may have reflected the fact that Mr Shinghal's evidence was really reconstruction based on his understanding of what was required by Citigroup's policies and procedures at the time.

In general, to the extent that there is a conflict between the evidence of Mr Shinghal and the evidence of witnesses called by Shield, I prefer the evidence of the witnesses called by Shield.

For example: there is a question as to whether Mr Shield had a conversation with Mr Shinghal concerning the dispute. Mr Shield said that there was such a conversation. Mr Shinghal said that there was not, and thus disputed the particular conversation to which Mr Shields had deposed. However, in Ms Jones' email of 10 November 2006 to Mr Vicente, she recorded among other things that "...Des Shield [sic] phoned and spoke with Manu Shinghal...". It is clear that Ms Jones must have based this on something said to her by Mr Shinghal, probably before he left the Sydney office of Citigroup at the end of October 2006. This undermines the reliability of Mr Shinghal's denial, and disposes me to accept Mr Shields' evidence on the point.

The next witness called by Citigroup was Ms Jennifer June Dunk. She was at the relevant time an agency liaison officer within the Agency Management Department of Citigroup's Debt Recovery unit. In that position, she reported to Ms Jones.

By far the greater part of Ms Dunk's evidence was devoted to proving the records in respect of, and analysing, the various debt recovery files sent by Citigroup to Shield in respect of which there was a dispute as to commission. That evidence was essentially non-contentious.

There were occasions, during Ms Dunk's cross-examination, where I thought that her evidence was heavily influenced by her perception of what might be consistent with Citigroup's policies and procedures, or Citigroup's interest more generally.

There were some conflicts between the evidence of Ms Dunk and the evidence of Shield's witnesses, as to conversations and the like. In general, where there are such conflicts, I prefer the evidence given by Shields' witnesses (for example, Mr Bolger).

Citigroup relied on the evidence of other witnesses, who gave their evidence by affidavit. Those witnesses were not required for cross-examination. In the circumstances, I accept the evidence of those witnesses so far as it goes.

Factual background

I propose to set out, as briefly as I can, and (with a few exceptions) in a relatively non-contentious way, the essential factual background to the disputes. That will enable the combined statement of issues to be understood, and will provide the framework for their resolution.

The first ASA made between Shield and Citigroup was dated 8 April 2002. It was expressed to the operative until 8 April 2003. Under that agreement, Shield was entitled to be paid commission on recoveries pursuant to primary assignments at the rate of 25%. The agreement noted, further, that if Citigroup gave secondary assignments to Shield, the commission rate would be negotiated.

Before the 2002 ASA was made, Citigroup had referred accounts to Shield for collection on a trial basis. It appears that the trial was successful.

The 2003 ASA was dated 8 April 2003. It made the same provisions, as to remuneration (including rates of commission), as the 2002 ASA had done.

The 2004 ASA is dated 8 April 2004. The provisions as to commission changed somewhat. Item 2 of appendix B, which dealt with "fees", stated that fees would be payable as follows:

(1) at 25% on primary assignments;

(2) at 35% on secondary assignments; and

(3) at 50% on tertiary assignments.

The 2004 ASA marks the first time that a rate was stipulated for secondary assignments; and the first time that tertiary assignments were mentioned.

Shield executed the 2004 ASA on 29 April 2004. Those who signed it for Shield were Messrs Shields and Colomb.

According to Mr Colomb, he received a draft of the 2004 ASA in late March 2004. Mr Colomb said that the draft provided for commissions at 25%, 35% and 50% on primary, secondary and tertiary assignments respectively. He said that he discussed the draft with Mr Dayeian of Citigroup.

Mr Colomb said, and in the circumstances I accept, that the conversation was to the following effect:

Colomb: Shield's rates are 25% and 50%. You have a rate here of 35%. But those aren't our rates.

Dayeian: we won't send you any secondary files. We'll send those to others because we can get a cheaper rate and then we'll send you the tertiary files.

Colomb: OK, but if it's been to any other agent it's 50%.

Dayeian: I understand that is Shield's rate.

Mr Dayeian was a senior Agency Recovery Officer of Citigroup. He reported to Ms Jones and, as I understand it, was one of those to whom Ms Dunk provided support services. Mr Dayeian was not called to give evidence; it seemed that he is no longer in Citigroup's employ.

Ms Roddom gave evidence, which I accept, that on about 4 May 2004, she met with Mr Dayeian at Shield's premises. They discussed a number of matters. One was the authority of Shield to reach binding agreements with debtors who offered a "full and final settlement". Ms Roddom sought authority for Shield to enter into agreements, for settlements no less than 75% of the amount owing, without needing (as had been the case) to refer each settlement to Citigroup for approval. Mr Dayeian agreed with this.

Ms Roddom and Mr Dayeian also discussed instalment repayment arrangements (that is to say, arrangements by which a debtor would pay off the principal amount of the debt by instalments over a period of time). Mr Dayeian said that Shield could enter into such agreements as long as they provided for the whole of the debt to be repaid. Because those agreements were made only after the debt had been written off, interest no longer accrued on the account and thus even small repayments, regularly made, would eventually discharge the principal of the debt.

Ms Roddom said that she then reviewed the 2004 ASA with Mr Dayeian, going through it page by page. She said (and again, as with all this part of her evidence, I accept) that when they came to appendix B, and the specification of commission rates, she said words to the effect of:

You understand that the primary rate of 25% is [for] work that's come straight from Citigroup to Shield Mercantile and never been outsourced. And the secondary rate of 50% are [sic] for files that Citigroup has outsourced to a previous agent, they've done work on it and been unable to resolve it and it's come to Shield.

Ms Roddom said that Mr Dayeian responded that he understood; and that she said she would confirm their discussion in writing.

On that same day, Ms Roddom did so. She sent an email to Mr Dayeian. Omitting formal parts, it stated:

As discussed could you please confirm the points below:

(1) Shield Mercantile Pty Ltd settlement criteria 75% of principal of debt if below this criteria [sic] Citigroup to be informed for approval - Citigroup will advise any change in criteria.

(2) Shield Mercantile Pty Ltd can accept payment arrangements without referal [sic] to Citibank.

(3) Shield Mercantile Pty Ltd rates (as previous discussions held):

25% primary - have not been outsourced to a previous agent

50% - files which have been previously with another agent.

Mr Dayeian emailed back the next day stating, among other things, "Confirmed".

Shield contended that the conversation amounted to a variation of the 2004 ASA. Citigroup, whilst accepting that the conversation had taken place (and, of course, accepting that the email exchange had occurred), did not accept that it was intended thereby to effect, or that there had been effected, a variation of the 2004 ASA.

The 2005 ASA was dated 8 April 2005. In relation to commissions, item 2 of appendix B stated:

(1) "Primary Assignment 25%";

(2) "Secondary Assignment N/A"; and

(3) "Tertiary Assignment 50%".

Shield submitted that this formulation (which was repeated in the 2006 ASA) reflected the agreement struck between Ms Roddom and Mr Dayeian, that all work other than primary assignments referred to Shield would attract a contingent commission of 50%. Citigroup submitted that the expression "N/A" denoted, in each case, an understanding that Citigroup would send to Shield only primary assignments and tertiary assignments; and that it would not send secondary assignments.

Citigroup submitted, in relation to the conversation between Mr Colomb and Mr Dayeian shortly before the 2004 ASA was signed, that the proper conclusion to draw was that Citigroup and Shield had agreed that Citigroup would only send primary and tertiary assignments to Shield. Mr Henskens submitted that the subsequent discussion and email exchange between Ms Roddom and Mr Dayeian should be understood in that context.

In late July 2005 (during the term of the 2005 ASA), Citigroup's referral practices, in relation to debts that were less than 180 days past due (i.e., debts that had not been written off), changed. Citigroup stopped using agents for skip trace or field visit purposes, and instead (I stress, before write-off) referred the debt files to agents on the "assign to collect" basis.

Citigroup said that although the full amount of the debt had been made due and payable (because a notice under s 80 of the Consumer Credit Code, having that effect, had been generated automatically at 77 days past due and sent to the debtor), the mercantile agents were seeking only to collect arrears, and thus to "rehabilitate" the account.

Nonetheless, Citigroup's own documents show that agents to whom work was referred, from the Collections Department before write-off on an "assign to collect" basis, could, with the authority of Citigroup, settle the entire debt. More importantly, those documents showed that those agents were paid contingently, on a commission basis, for recoveries. That stands in marked contrast to the previous practice of paying a fixed fee for a particular service such as a skip trace.

At about the same time (that is, late July / early August 2005) Citigroup considered what it should do with files that had been referred to and recalled from two other agents, known as Creditcorp and Beukhan and Pokhrell (referred to in the evidence and elsewhere, and here for convenience, as "B&P").

Creditcorp and B&P had entered into payment arrangements with a number of debtors. The preferred method for giving effect to payment arrangements was for debtors to execute a direct debit authority, which the agent would lodge with the debtor's bank. The agreed instalment payments would then be deducted from the debtor's bank account and remitted to the agent's bank account. The agent would remit those receipts to Citigroup in accordance with the contract between them, and be paid its commission.

Citigroup did not have the ability to put in place substitute direct debit facilities. Thus, according to Ms Jones (in her affidavit), she discussed the Creditcorp and B&P files with Mr Colomb and proposed to him that, once recalled from the earlier agent, they would be referred to Shield as primary assignments at a commission rate of 25%. She said that Mr Colomb accepted that position.

Mr Colomb denied that there was any such agreement. Ms Jones, although she gave evidence of it in her affidavit, was unable to recall the details in cross-examination. Nonetheless, the making of the agreement is supported by contemporaneous documents. In my view, it was made.

First, there is a "site visit report" prepared by Ms Dunk after she and Ms Jones went to Shield's premises on 5 August 2005. By then, according to an email Ms Jones sent to Messrs Shinghal and Dayeian on 29 July 2005, she had already discussed with Mr Colomb the prospect of referring the Creditcorp and B&P files to Shield, at a commission rate of 25%.

Ms Jones read the site visit report at the time, and signed it. That report stated, among other things that the relationships between Citigroup and the other two agents were discussed, and Shield was told that in each case the relationship was being terminated. The report then continued (on this topic):

Shield were concerned that they did not receive a Primary allocation for the month of August. It was discussed that Credit Corp and B&P inventory has [sic] been assigned to them in August 2005 as tertiary. It was also pointed out that Shield receive all of the accounts that were on arrangements from both companies. Shield advised that all of these accounts would be contacted and advised that Shield would be resuming collections and new paying details would be conveyed. Confirmed with Shield that commission rate for these accounts would be 25%.

Five days later, on 10 August 2005, Ms Dunk created a new "queue" in Citigroup's computer system entitled "Shield Special". (Referrals by Citigroup were allocated into "queues" depending on the agent to whom the referral was to be made and the nature of the work being referred, among other things.)

Later that same day, and at Ms Jones' direction, Mr Dayeian sent an email to Messrs Colomb and Bolger. Omitting formal parts, that email stated, relevantly:

Attached are the accounts you spoke to Melissa about where we recalled from Creditcorp and Beukhan that were paying arrangements. As per your agreement this will be treated as 25% assignment.

Please confirm when these files have been loaded.

I do not know if a reply email is in evidence. However, there is no doubt that Mr Dayeian's email was sent and received: the files that were attached to it or sent with it were uploaded to Shield's computer system.

On the basis of that contemporaneous evidence, I find that there was a conversation between Ms Jones and Mr Colomb as stated in the site visit report; that an agreement was reached (confirmed by the email of 10 August 2005) that accounts that had been sent to Creditcorp or B&P and recalled would be reassigned to Shield as primary assignments; and that Shield would be entitled to commission at the rate of 25% only on collections made in respect of those files. Although Mr Darke submitted to the contrary, his submission (if I may say so) lacked his customary polite but insistent firmness.

I do not accept that Ms Dunk prepared, or that Ms Jones signed, a knowingly false site visit report (which must be the corollary of accepting Mr Colomb's denial of the relevant conversation). Nor do I accept that, if the conversation had not occurred substantially as recorded in the site visit report, Mr Colomb at least would have failed to reply to the email of 10 August 2005, denying the making of the agreement alleged in it.

In this context, it may be noted that subsequent emails and other documents were sent by Citigroup to Shield referring to "Special Accounts" or "Shield Specials" and the like. Mr Colomb never questioned any of those documents; nor did any other employee of Shield to whom they were sent or copied.

I do not accept Mr Colomb's denial of the making of the agreement. His willingness to deny it, in the face of the contemporaneous evidence of the contrary, is one of the matters that I have taken into account in forming the view recorded earlier as to his credibility.

The 2006 ASA was dated 8 April 2006. Although it was essentially similar to the 2005 ASA, there was one change, perhaps of significance, to appendix B (which dealt with payment arrangements). I will return to that in discussing the questions of construction that were argued.

At the time the 2006 ASA was made, one of the mercantile agents to whom Citigroup had referred work was Brodie Services Pty Ltd (usually known, and referred to in these reasons, as "Brodies"). That relationship was terminated, in two stages. First, on 17 May 2006, the agreement between Brodies and Citigroup's Debt Recovery unit (i.e., the unit dealing with debts after write-off) was terminated. Secondly, on 14 July 2006, the agreement between Citigroup's "Loss Mitigation / Collections" unit and Brodies was terminated.

Ms Jones said that, after the agreement between Debt Recovery and Brodies had been terminated in May 2006, she asked Mr Colomb whether Shield would take over the subject files as primary assignments at 25%, and that Mr Colomb agreed.

Thereafter, files recalled from Brodies were sent to Shield on this asserted basis. They were referred to as "Brodies Specials".

Mr Colomb denied the making of the agreement. He said, in an email of 15 November 2006 to Ms Jones, that Shield would not have made such an agreement:

At no time in its 20 year history have or would Shield Mercantile accepted [sic] secondary placement files at a reduced rate. This has been discussed with all of our clients including Citigroups' Adam, Jennifer, Manu and yourself. These files outsourced in May should have been at the rate of 50%.

That reason is specious. Shield had agreed to just such an arrangement a little more than a year ago: in relation to the files recalled from Creditcorp and B&P and referred to Shield as "Shield Specials". Even if one were to accept that Mr Colomb could not now recall the various emails to which he was taken in cross-examination, as to the making of that 2005 agreement, it is beyond belief that he would not have recalled it back in 2006, when he was turning his mind to the very question of commission rates.

I find that the agreement asserted by Citigroup in relation to the "Brodies Specials" files was made. I do not accept Mr Colomb's denial of the making of such an agreement.

I add, in relation to both agreements, that there was every reason for Shield to make them. The hard work, of locating the debtor, had been done in each case; and the task of persuading the debtor to agree to a payment arrangement had also been done. According to Mr Shield, most of the work involved in collections activity relates to locating the debtor, and in about 75% of cases, the debtor is never located. Further, Mr Shields said, about half of those who are located enter into an agreement to pay a lump sum to finalise their obligations; and about half enter into a payment arrangement to pay off the debt by instalments. (This is an over-simple but sufficient summary of this aspect of Mr Shield's evidence, which on this point I accept.)

Thus, the re-assignment of files to Shield from an agent who had established a payment arrangement with the debtor would have two benefits for Shield. First, the labour-intensive work of tracking down the debtor would be minimised; and the waste of that work (in respect of those debtors who were not located) would also be minimised, if not entirely avoided. Secondly, and assuming that the debtor was prepared to continue the payment arrangement, but with Shield rather than the previous agent, there was a sure source of commission income. The value of that income would depend on the debtor's willingness and ability to keep on paying; but this is the case with any instalment arrangement.

So analysed, the Shield Specials and Brodies Specials offered Shield the opportunity to collect commissions, on an ongoing basis, on most if not all of the files that were to be reassigned to it from the previous agent. In those circumstances, it was clearly advantageous to Shield to take the files and receive its commission. The hard work had been done by the previous agent, and the previous agent had suffered the burden of wasted costs. It is in my view inherently likely that such business would be profitable for an agency in Shield's position, even at a commission rate of 25% rather than 50%.

Thus, in my view, both the contemporaneous records and the objective probabilities support the conclusion that the Brodies Specials agreement was made as Ms Jones said had happened.

Mr Bolger's evidence was that in late October 2006 (he put the date at 23 October 2006), he discovered that a file referred by Citigroup to Shield had been, in his view, incorrectly classified. The file in question (which has not been identified) had been classified as a primary assignment, but when Mr Bolger looked at the file, he discovered that it had been the subject of an earlier assignment for collection. Mr Bolger said that he raised this with Mr Colomb. Both Mr Bolger and Mr Colomb said that they then discussed the matter with Ms Dunk.

There was a series of meetings and discussions after that "discovery", culminating in the telephone discussions of 8 November 2006 to which I have referred already.

I do not propose to summarise those events at this point. The parties made detailed analyses of the relevant conversations, in support of their respective positions on repudiation. It will be necessary to look at the facts in detail, to resolve the question of repudiation.

The process of assignment of files

Officers of Citigroup were responsible for deciding the allocation of debtor files to mercantile agents on Citigroup's panel. For at least some of the relevant time, Ms Dunk was responsible for making (or making recommendations as to) allocations.

Once the allocation decision was made (and I shall confine the discussion to the position as between Citigroup and Shield), Citigroup would send an email to Shield indicating that it had sent a batch of debtor files to Shield. In the earlier part of the relationship, those files were provided by password-protected floppy disc or CD. The disc or CD was usually marked as "primary" or "tertiary", according to Citigroup's view of its contents.

When the disc or CD was received, an employee of Shield opened it (using the password that had been provided) and uploaded the files to Shield's computer system. The files consisted of two parts. The first was an Excel spreadsheet setting out details such as the debtor's name, contact details and the like; and information as to the debt. The second part of the file was another Excel spreadsheet (or other such spreadsheets) setting out the notes made by any person who had previously worked on the file. Those notes would include all notes made by Citigroup personnel and all notes made by agents to whom the file had been assigned previously.

Shield was required to upload files to its system within 24 hours. Mostly, it did so.

This system changed in about January 2005. The files were sent to Shield as attachments to the email from Citigroup. The files were not password-protected, but were encrypted using proprietary software which was installed both on Citigroup's computer system and on a particular computer in use at Shield's premises.

Once the files were received and decrypted, they were uploaded to Shield's computer system as before. Again, that was supposed to occur within 24 hours; and again, mostly, it did.

When the files were uploaded, the classification (as primary or tertiary) was entered. That was done based on information supplied by Citigroup: either by email, or by the writing on the floppy disc or CD, or by reference to the title of the spreadsheet containing the files. Once the appropriate code (according to Citigroup's instructions) had been entered, the file was administered accordingly. Among other things, this meant that where recoveries were effected, commission was charged at the rate appropriate to the description of the file, on Shield's system, as primary or tertiary.

After all this had happened, the files were distributed to Shield's employees to be worked.

Some were worked from the Sydney office (which was at Parramatta). Others were allocated to, and worked from, Shield's regional offices (I think, in each of the mainland states of Australia).

The notes on each debtor file contained detailed information about all prior attempts to contact the debtor, and the results of those attempts. Further, they contained details of all prior assignments. If those prior assignments had borne fruit, the notes would record the receipt of repayments by Citigroup from the prior agent.

Mr Shields (and other witnesses) accepted that for a Shield employee to perform thoroughly his or her primary responsibility of attempting to locate the debtor, it was necessary for that employee to read the notes. That is because the notes contained details of all previous known contacts: place of work, place of residence, telephone numbers, details of neighbours and workmates, and the like. In addition, the process of seeking to locate the debtor included making searches of a number of publicly available databases (the electoral roll, the electronic White Pages, and others).

It has not been suggested that Citigroup ever sought to edit the file notes, so as to disguise or obscure the fact that a file had been the subject of a previous referral to another agent. On the contrary, to the extent that I was taken to the detail of the files, even a moderately careful reading of the file notes discloses, where it was the case, that a file had been the subject of a previous referral. Mr Colomb agreed that this was so, in the case of the Brodies Specials files (see, generally, T 336-337).

The combined statement of issues

At this point, it is convenient to set out the combined statement of issues:

Contract claim

1. [Plaintiff issue] What is the true construction of the terms "primary assignment", "secondary assignment" and "tertiary assignment" insofar as they appear in each of the Agency Services Agreements?

2. [Plaintiff issue] Did the parties amend the 2004 Agreement so as to provide that the defendant would pay the plaintiff commission of 50% on amounts collected by the plaintiff on any debts that had previously been referred to another agent and, if so, when did that amendment take effect?

3. [Defendant issue] What is the true construction of the 'Assignment' of a 'Debt' for 'Services' under each of the Agency Services Agreements?

4. [Defendant issue] Was there an amendment to the 2004 Agreement such as to change that construction for that agreement?

5. Was it an implied term of the 2003, 2005 and / or 2006 Agency Services Agreements that the defendant would pay the plaintiff a reasonable remuneration for services it provided in connection with any assignments for which a specific commission rate had not otherwise been fixed by the agreement or is such a term inconsistent with the express provisions of the agreements?

6. [Defendant issue] Did the parties enter into a 'special' agreements in relation to the assignment of debts that had been previously assigned to Credit Corp Collections Pty Ltd and Beukhen & Pokhrell Pty Ltd following the termination of agreements with those other mercantile agents, as pleaded in paragraph 64 of the Amended Commercial List Response (ACLR).

7. [Defendant issue] Did the parties enter into a 'special' agreements in relation to the assignment of debts that had been previously assigned to Brodie Services Pty Ltd following the termination of the agreement with Brodie Services, as pleaded in paragraph 65 of the ACLR.

8. [Plaintiff issue] In respect of each of the 383 debts the subject of the claim, was the referral of that debt to the Plaintiff:

a. in respect of the 2003, 2004, 2005 or 2006 Agency Services Agreement, a "primary assignment", "secondary assignment" or "tertiary assignment"; or

b. in respect of the 2004 Agency Services Agreement, if amended as the Plaintiff contends, a "primary assignment" or a debt which had previously been referred to another agent?

9. [Defendant issue] In respect of each of the 383 debts the subject of the claim, had there been a prior Assignment of Services with respect to the same Debt?

10. [Plaintiff issue] In respect of each of the 2003 to 2005 Agency Services Agreements, did the Defendant breach the agreement by failing to pay the Plaintiff the rate of commission it claims?

11. [Plaintiff issue] In respect of the 2006 Agency Services Agreement:

a. was it an implied term of that agreement that the defendant would exercise any discretion conferred on it by cl 1.2 of Appendix B reasonably and in good faith;

b. did the defendant breach the agreement by failing to pay the plaintiff the rate of commission it claims, even where the plaintiff had not invoiced the defendant for commission at that rate in accordance with cl 1.2 of Appendix B;

c. if so, did the defendant's breaches of the agreement entitle the plaintiff to terminate it;

d. in any event, did the defendant by its conduct repudiate the agreement?

12. [Defendant issue] In respect of each of the 2003 to 2006 Agreements, if there was a prior Assignment of Services with respect to the same Debt, did failing to pay for those services at the rate of commission claimed by the plaintiff constitute a breach of the agreement when no invoice was issued under the agreement for the higher commission?

13. [Defendant issue] Alternatively to 12, in respect of the 2006 Agreement, did the failure to invoice for Services at a higher rate of commission:

(a) within 3 months of the Services; or

(b) at all

prevent the claim or, if not, entitle the defendant to exercise a discretion not to pay?

14. [Defendant issue] If the defendant was entitled to exercise that discretion, was there an implied term requiring it to do so in good faith or reasonably?

15. [Defendant issue] If so, has the defendant exercised that discretion in good faith or reasonably?

16. Alternatively, in circumstances where all invoices issued under the 2003 to 2006 Agency Services Agreements have been paid, are the contracts fully executed disentitling the Plaintiff to claim further remuneration?

17. [Defendant issue] Did the defendant's conduct evince an intention to no longer be bound by the agreement thereby entitling the plaintiff to terminate?

18. If the plaintiff was entitled to terminate the 2006 Agency Services Agreement, or the defendant by its conduct repudiated that agreement, can the plaintiff claim for loss of future profits:

a. at all;

b. for more than 1 month;

c. to the end of the term of the agreement;

d. beyond the term of the agreement?

19. If the defendant is liable to the plaintiff, what is the quantum of the plaintiff's loss and damage?

Quantum meruit

20. Is the defendant under a quasi-contractual obligation to pay the plaintiff a reasonable remuneration for services the plaintiff provided in connection with any assignments for which a specific commission rate had not been fixed by the 2003, 2005 or 2006 Agreements?

21. If so, what is the quantum of the plaintiff's entitlement?

Misleading and deceptive conduct

22. Did the defendant make the alleged Primary Assignment Representations as defined in paragraph 19 of the Second Further Amended Commercial List Statement?

23. If so, did the plaintiff rely on such representations?

24. If so, did the defendant thereby contravene s 52 of the Trade Practices Act 1974 (Cth) (TPA) and / or s 42 of the Fair Trading Act 1987 (NSW)?

25. If so, what is the quantum of the loss and damage the plaintiff thereby suffered?

Unconscionable conduct

26. Did the defendant contravene s 51AC(1) of the TPA by requiring the Plaintiff to return all the debt files which the Defendant had referred to it and in relation to which the Plaintiff had established ongoing repayment arrangements in circumstances where, inter alia, the Defendant had represented to the Plaintiff or induced in the Plaintiff a belief that this would not occur?

27. If so, what is the quantum of the loss and damage the plaintiff thereby suffered?

Miscellaneous defences

28. [Plaintiff issue] In the events which have happened, do any of:

a. clauses 2(e);

b. Appendix B, Item 1, clauses 1.5(d) and 1.5(e),

of the 2006 Agreement exclude the Defendant's liability to the plaintiff

29. [Defendant issue] In the events which have happened, is reliance in these proceedings on any of:

a. clauses 2(e);

b. Appendix B, Item 1, clause 1.2;

c. Appendix B, Item 1, clauses 1.5(d) and 1.5(e),

of the 2006 Agreement exclude the defendant's liability to the plaintiff by reason of some unconscionable conduct by the defendant in contravention of s. 51AC(1) of the TPA.

30. Is the plaintiff, by reason of:

a. the conduct pleaded in para 62 of the ACLR;

b. the conduct pleaded in relation to the alleged 2005 Special Referral Agreement in para 64 of the ACLR; or the conduct pleaded in relation to the alleged 2006 Brodies Debts Agreement in para 65 of the ACLR,

estopped from making any further claim for payment of commission in relation to the services it provided pursuant to the 2003, 2004, 2005 and 2006 Agreements, the 2005 Special Referral Agreement, or the alleged 2006 Brodies Debts Agreement?

I propose to deal with those issues in groups.

Issues 1, 3, 5, 11a, 14: construction of the ASAs

Relevant terms of the ASAs

Because the construction issues focus on the 2006 ASA, and because that document, in most respects, does not differ materially from the earlier ASAs, I will set out the relevant provisions, on which the parties' analyses focused, from the 2006 ASA.

The recitals contained a definition of "Debts" (recital A), a definition of "Services" (recital B) and a recital of Citigroup's wish to procure such Services from "Agency" (recital C). I set out those recitals:

A. Citigroup has client accounts arising from its business of lending money under various types of finance arrangements (including contracts of loan, hire and lease) where amounts due and owing thereon are unpaid ("Debts").

B. Agency engages in the business of performing debt recovery and mercantile agency services ("Services"), as set forth in Appendix A which is attached hereto and made a part hereof, and is willing to provide these Services to Citigroup under the terms and conditions hereinafter set forth.

C. Citigroup wishes to procure such Services from Agency, for good and valuable consideration, as is more fully described in Appendix B attached hereto and made a part hereof.

Clause 1 dealt with the scope of the services and of the appointment. Since Citigroup's submissions emphasised subclause (c), I set it out:

(c) Agency shall conduct such debt recovery services as Citigroup shall from time to time request and, for the purposes of carrying out its functions pursuant to this Agreement, is hereby appointed Citigroup's agent to collect such of the Debts as Citigroup may refer to Agency for collection from time to time.

Clause 2(b) gave Citigroup the right to terminate for breach, breach of warranty or insolvency. Further, cl 2(c) gave Citigroup the "right to terminate this Agreement: without cause upon thirty (30) days advance written notice to Agency".

Clause 2(d) dealt with Citigroup's obligation to pay "compensation due, if any, as of the date of termination", with allowances to be made for offsetting costs.

Clause 2(e) dealt with the consequences of termination. I set it out:

(e) Termination of this Agreement shall immediately cancel any instructions already given and not carried out but no termination of this Agreement shall in any way prejudice or affect the obligations of either party in respect of acts or events prior to such termination. Nothwithstanding any other clause of this Agreement, immediately upon termination, Agency shall return to Citigroup all documents, files and records in its possession relating to any Debts and shall within (14) fourteen working days thereafter prepare and forward to Citigroup a detailed statement relating to all monies held by it for and on behalf of Citigroup. The statement shall also include details of any fees or other sums allegedly owed to it by Citigroup, a short summary of any legal or recovery action taken by it in respect to each of the Debts referred to Agency by Citigroup and any such other information in respect of the Debts as Citigroup may reasonably require.

By clause 2(f), Shield was required, on termination, in effect to facilitate the handover or transfer of the files that it held. I set it out:

Upon notice to Agency of expiration or termination of this Agreement and continuing through to the effective date of expiration or termination, Agency will;

(i) provide to Citigroup reasonable assistance requested by Citigroup to allow the use of the Services without interruption or adverse effect and to facilitate the orderly transfer of the subject matter of this Agreement as desired by Citigroup;

(ii) If requested by Citigroup, Agency will reasonably cooperate with a third party supplier in connection with the preparation and implementation of a transition plan by such third party or - Citigroup upon the termination or expiration of this Agreement;

(iii) At Citigroup's option and expense, shall permit Citigroup to evaluate Agency's performance under this Agreement and Agency shall cooperate in Citigroup's evaluation.

Clause 3 dealt with terms of payment. Reference was made in particular to paras (a), (b) and (d). I set them out:

(a) Citigroup agrees to compensate Agency for Services provided pursuant to this Agreement as set forth in Appendix B, which is attached hereto and made a part thereof.

(b) Invoices shall be submitted by Agency on a monthly basis. All invoices shall be due and payable by Citigroup in its ordinary course. There will be no late payment service charge of any kind. Citigroup may, upon notice to Agency, withhold payment for Services that fail to meet the minimum performance standards set forth herein and in Appendix A attached hereto and/or for any disputed invoiced items or any other related matters. Such non-payment shall not constitute a default or breach of this Agreement. In the event of any dispute between Citigroup and Agency with respect to performance standards, invoiced items or other related matters, Citigroup shall pay the undisputed portion of the invoice according to its terms and notify Agency promptly of the dispute. The parties shall use their best efforts to resolve the dispute within thirty (30) days. In the event the parties are unable to resolve a dispute within thirty (30) days, the parties shall comply with the provisions set forth in clause 18 hereof. Any disputed portion of an invoice that is resolved in favour of Agency shall be due and payable within forty-five (45) days after resolution of the dispute.

...

(d) All invoices shall be in the form set out in Appendix A and contain such information as may be notified by Citigroup to Agency to writing.

Clause 7 was a non-waiver clause: no failure or delay by either party in the exercise of a right should be taken to impair its ability thereafter to exercise that right, or otherwise to affect its rights and remedies.

Clause 32 was an "entire agreement" clause. It included a provision that the agreement:

... may not be altered, amended or modified except in a writing incorporated herein, and signed by the parties.

Clause 34 dealt with amendment. I set it out:

MODIFICATION, AMENDMENT, SUPPLEMENT

No modification, amendment, supplement to or waiver of this Agreement or any of its provisions shall be binding upon the parties hereto unless made in writing and duly signed by the party against whom enforcement thereof is sought.

Clause 35 also dealt with waiver. There is no need to set it out.

Appendix A set out, in Item 1, what were described as "Agency Duties". Clause 1.1 of appendix A reinforced cl 1(c) of the conditions of contract:

1.1 Agency shall perform debt recovery services as described and instructed by Citigroup from time to time. Without limiting the generality of the services or duties which Citigroup may require to be performed, Citigroup may refer Debts to agency with instructions to:

....

There followed a list of services including skip traces, field calls, repossessions, and other matters.

Appendix B dealt with remuneration. The parties relied on cls 1.1, 1.4 and 1.5 of item 1 of appendix B. I set out those clauses:

1.1 Citigroup shall pay to Agency for services rendered, such fees (inclusive of disbursements) as agreed between the parties in writing from time to time. Fees may vary depending on the source of the instruction, the type of finance agreement involved and the amount of the debt.

1.4 Subject to this paragraph 1.3, at the time of each periodic report being submitted to Citigroup, Agency shall also submit an itemised invoice detailing amounts due by Citigroup to Agency. The invoice shall be paid within 30 days of receipt provided that where Citigroup believes that an amount invoiced may not be payable at that time, Citigroup shall:

(a) pay the invoiced amount less the amount which it believes is not payable at that time; and

(b) advise Agency of its reason for not paying this amount, whereupon the parties shall mutually resolve the issue.

1.5 Agency shall not be entitled to any fee in respect of any monies received from a debtor or any person in respect of a Debt unless the cheque or other type of remittance is honoured on presentation.

(a) Where an instruction in respect of a Debt is withdrawn by Citigroup, Agency shall be entitled to all reasonable disbursements incurred in providing services in respect of that Debt where it can be demonstrated that there was a reasonable expectation that the debt would be paid in full with 60 days of the instruction being withdrawn.

(b) Where it is shown that there is a reasonable expectation of recovering part of the debt within this time, Agency shall be entitled to a percentage of all reasonable disbursements incurred equal to the percentage that the expected amount recoverable bears to the total debt.

(c) The opinion of the Citigroup manager responsible for providing the instructions which were withdrawn shall be conclusive in determining the expectation of the recovery of the debt and the reasonableness of the disbursements.

(d) Reimbursement will not be available where the instruction is withdrawn as a result of this agreement being terminated by Agency or Citigroup.

(e) Other than the reimbursement provided for under this paragraph 1.4, Agency shall not be entitled to any other payment (including loss of profits) as a result of an instruction being withdrawn.

Clause 1.2 was unique to the 2006 ASA. Clause 1.4 had appeared in all prior versions, although I think that, in each, it had been numbered 1.3. Likewise, cl 1.5 had appeared in all prior ASAs, although numbered 1.4.

Issues 1 and 3: assignment

Each of these issues approaches, although in different language, the two key questions of construction. The first question is: what is an assignment, for the purposes of the ASAs? The second is: what is the proper meaning of the expressions "primary assignment", "secondary assignment" and "tertiary assignment" where they appear in Item 2 of appendix B to one or other of the ASAs?

The first, and obvious, point is that whatever "assignment" may mean, it does not mean the assignment of a debt at law or in equity. It was common ground that, under the ASAs, Citigroup remained the legal owner of the chose in action represented by each debt that was "assigned" (or that was the subject of each debt file, or account, that was "assigned").

The submissions for each party focused on the terms "Debts", "Services" and "Assignment". It was common ground that the first two expressions were defined by, respectively, recital A and recital B. In the case of recital B, the definition refers the reader to appendix A, which sets out in more detail what it is that is comprised within the concept of "debt recovery and mercantile agency services". Clause 1.1 of appendix A makes it clear that what is meant is "debt recovery services" which are the subject of instructions from Citigroup from time to time. The following subparagraphs then identify particular kinds of instructions, and thus particular kinds of debt recovery services.

I do not propose to set out the detailed submissions of counsel. They are recorded in written submissions (both those provided before the hearing commenced, and those provided prior to final addresses). They were elaborated orally (both in opening and, again, in final addresses).

It is clear, as Mr Henskens submitted, that "debt recovery services" are services in respect of "Debts". It is convenient to use the contractual expression "Services" to refer to such services.

The purpose of each ASA was to provide a contractual basis under which Citigroup could refer debts, or debt files, or debtors' accounts, to Shield for the purpose of Shield's providing Services.

The examples given in item 1.1 of appendix A, of "debt recovery services", include services that, whilst they might be preliminary steps in the attempted collection of a debt, do not of themselves amount to the recovery, or attempted recovery of the debt. For example, para (a) refers to skip traces; and para (d) refers to the processes of obtaining details of the debtors or guarantors and their property. By contrast, para (b) (field call - attending the debtor and demanding payment) and para (e) (processing "Recovery Proceedings") clearly relate to recovery, or attempted recovery. And so do most of the services described in para 1.2, which authorises the taking of "such action as may be necessary to recover each Debt including" locating the debtor; making demand; negotiating and receiving payment; obtaining judgment; and enforcing any judgment obtained.

It follows, both from the structure and language of cl 1.1 of appendix A and from cl 1.2, that each of the tasks described is an aspect of "debt recovery services". I do not accept that debt recovery services exclude matters such as skip traces. To do so would be inconsistent with the definition of "Services" in recital B, as amplified by reference to appendix A. Clause 1.2 makes it clear that each of the specified actions is included within the phrase "such action as may be necessary to recover each Debt".

The ASAs do not use the language of "assignment" to describe the process by which instructions to act on particular debt recoveries are given by Citigroup to Shield. So far as I can tell, the only place in the ASAs where the word "assignment" appears is item 2 of appendix B, where the commission rates are set out. Nor, for that matter, do the ASAs use the language of "referral". Recital C invokes the concept of procurement of Services. Clause 1(c) is based on the concept of "request": Shield is required to "conduct such debt recovery services as Citigroup shall... request". Further, and for the purpose of carrying out its functions pursuant to the ASA (and, I add, in seeking to fulfil any "request" made by Citigroup), Shield is appointed Citigroup's agent to collect the debt.

For the reasons that I have given, files in each sub-category were referred for the provision of "Services", and hence those prior referrals are to be taken into account in considering whether the subsequent assignment of those files to Shield was a secondary or tertiary assignment, as I have construed those expressions.

It follows, in turn, that Citigroup's stated position in relation to files in each sub-category of category B(i) was a breach of contract, and could be taken to be a repudiation of its contractual obligations in respect of those files.

There are some 57 files in the first subcategory of category B(i), and some 156 files in the second subcategory.

Category B(ii) relates to files outsourced by Citigroup to a mercantile agent for the agent to undertake legal recovery work. It is said that the assignments were "on an agreed fee basis". I am prepared to accept that this was so. Ms Dunk was not challenged on this aspect of her evidence.

Nonetheless, for the reasons that I have given, that amounts to a referral for the provision of a Service. There are eleven files in this category.

Category B(iii) relates to one file only: a file that had been assigned to Creditcorp in July 2003 on a flat fee basis. There is no evidence of the nature of the assignment (so Ms Dunk says, and I accept). Nonetheless, it is open to infer that the assignment was one for the provision of some "Service". Why else would a lender refer a debt file to a mercantile agent?

Category C constitutes the Shield Specials. There are two files in that category. For the reasons that I have given, Citigroup was correct in relation to these two files and there can be no breach.

Category D relates to the Brodies Specials. There are some 78 files in this category. Again for the reasons that I have given, Citigroup was correct in relation to these files and there can be no breach.

Category E concerns some five files that had been twice assigned to Shield. The first assignment was classified by Citigroup as a primary assignment. The second assignment was classified by Citigroup as a tertiary assignment. Both classifications were correct. (Presumably, there had been an intervening secondary assignment to another agent.)

Nonetheless, despite being aware of the classification, Shield only charged, in respect of the tertiary assignment, commission at the rate of 25% on recoveries. That commission has been paid.

In circumstances where Citigroup has paid all that Shield demanded, I do not think that there can be any question of breach, far less of repudiation.

Category F comprises some 19 files. Citigroup concedes that they were wrongly assigned as primary assignments when in fact they were either secondary or tertiary assignments.

In summary, then, there was, on Citigroup's part:

(1) no breach in respect of the files in categories A, C, D and E; and

(2) breach in respect of some 243 files in the remaining categories.

Conclusion on termination and repudiation

I conclude that Shield was entitled to terminate the 2006 ASA for Citigroup's breaches of an essential term, or alternatively for Citigroup's serious breaches of a non-essential term. However, were it necessary to do so, I would conclude that Citigroup did not otherwise repudiate the 2006 ASA or its obligations thereunder.

Issue 30: estoppel

Having come to that conclusion, it is convenient to turn to Citigroup's estoppel defence.

The estoppel alleged is based on Shield's conduct in accepting, working on and charging for as primary assignments referrals of Debts when it was plain, from the history notes that were given to Shield and that Shield either reviewed or should have reviewed, that the assignments had been wrongly classified as primary.

Mr Henskens submitted that a representation could be spelled out from this conduct, and that Citigroup relied on that representation. He submitted that Citigroup would suffer detriment if Shield were now allowed to withdraw from the position that, allegedly, it had represented. That detriment would arise, Mr Henskens submitted, because the evidence showed that Citigroup would never have referred secondary assignments to Shield if it knew that Shield was going to charge commission of 50% on recoveries.

There are two answers to this submission. The first is that no one called by Citigroup gave any evidence of an understanding that Shield was representing that it was happy to take secondary assignments and work the files on the basis that it would charge only 25% (or less than 50%) on collections. Thus, there is no evidence that anyone from Citigroup relied on the representations said to be spelled out from conduct, in referring to Shield, for the provision of recovery services, debts that had been the subject of one such prior referral.

The second answer is that, because Citigroup had agreed to vary the 2004 ASA in the manner indicated in answer to issues 2 and 4, the evidence does not establish the proposition (to quote from Mr Henskens' written submissions) "that Citigroup would never have sent secondary accounts to Shield at a commission rate of 50%".

Issues 22 to 25: misleading or deceptive conduct

It is convenient to deal with these issues before turning to questions relating to damages (and limits on recovery of damages).

The case for misleading or deceptive conduct was put in the alternative, or further alterative, to Shield's cases based on the contracts and on quantum meruit. I think Mr Darke accepted, and in any event in my view it is correct, that to the extent that Shield is entitled to succeed on one or other of those aspects of its case, its case based on misleading or deceptive conduct adds nothing.

Equally, in my view, to the extent that Shield's case fails for the reasons that I have given, the case on misleading or deceptive conduct adds nothing.

Since the case, as to misleading or deceptive conduct, does not depend on any contentious facts, it is unnecessary to deal in detail with the submissions.

In essence, the case was that when Citigroup referred files to Shield and classified them as primary, it made a representation, as to their correct classification, on which Shield relied and acted.

The findings that I have made at [139] to [150] above as to the mechanics of assignment of files support the proposition that Citigroup did represent the classification of the files, and that Shield acted on that classification by entering the files accordingly into its computer system.

There are however two points of caution, which would require consideration if this aspect of Shield's case required decision.

The first is that, as was common ground, the data that were transferred to Shield included complete notes of actions taken on the file hitherto. It was necessary for Shield's employees to read those notes. Any perusal that was less than completely cursory would have indicated (where it was the case) that the file had been the subject of a previous referral.

Thus, there is in my mind a real question as to whether (should it require to be decided) Shield's reliance on the representations made by Citigroup, as to classification, was reasonable.

Secondly, and as I have pointed out in dealing with the analysis of the disputed files, there were some 5 files (category E) where Citigroup did not misrepresent the proper classification, but where, nonetheless, Shield (presumably) made a mistake in entering the data on its computer system, and accordingly undercharged. It cannot be said that, in those five cases, there was any misleading or deceptive conduct on Citigroup's part.

I do not propose to deal in any further detail with the parties' abbreviated submissions on this topic.

Issues 26 and 27: unconscionable conduct

Shield abandoned this claim, relatively late in the day. Accordingly, these issues do not require consideration.

Issues 18 and 19: damages; limitations on damages

Outline of the claim for damages

There are three basic components to Shield's claim for damages:

(1) first, alleged underpaid commissions;

(2) secondly, damages for loss of the benefit of the 2006 ASA; and

(3) thirdly, damages for loss of the opportunity to enter into further ASAs in subsequent years.

The first component - claim for underpaid commissions - falls to be determined by reference to the conclusions that I have expressed.

The second component - damages for loss of the benefit of the 2006 ASA - requires, on Shield's analysis, consideration of "the counterfactual": "what would have happened had Citigroup performed the 2006 [ASA] in accordance with its terms" (written closing submissions, [81]).

The loss of profits have been analysed by reference to three profit streams:

(1) stream 1 represents the profits that Shield would have earned had it retained the repayment arrangements that were in place when the 2006 ASA came to an end;

(2) stream 2 represents the profits that Shield would have earned from further assignments under the 2006 ASA up to its conclusion in April 2007; and

(3) stream 3 represents profits that Shield would have earned from assignments under further ASAs, assuming that (as had occurred in the past) the relationship was renewed from year to year on substantially the same terms.

Both the underpayments of commissions and the various streams of income have been analysed by the parties' respective experts, Mr Jennings (called by Shield) and Mr Box (called by Citigroup). I have commented briefly on those experts at [57]. I add to what I there said, that they conferred and worked diligently to reduce the issues in dispute between them, and produced joint reports reflecting their labours. The result is that the real disputes have been isolated and identified in a way that facilitates the task of resolution. It is appropriate that I record that, in my view, they performed their duties to the court in an exemplary fashion.

Citigroup's general defences

Various specific contractual defences have been dealt with already, in considering issues 11 to 13, 28 and 29.

Citigroup relied also on more general defences:

(1) there should be no allowance for lost profit, because it was entitled at any time to terminate all existing referrals, take back the files, and thus discharge any liability to pay ongoing commissions for repayments under arrangements put in place by Shield; further, it was under no obligation to refer any further work to Shield;

(2) alternatively, any claim for loss should be limited to a period of 30 days, being the period of notice that it was required to give to terminate the 2006 ASA without cause; or

(3) in the further alternative, there should be no allowance for loss of profits beyond the expiry of the 2006 ASA, in April 2007.

Issue 18

In essence, those defences are the ones raised by issue 18; and they involve consideration of what Mr Darke called the "counterfactual".

I accept Mr Darke's submission that the question of damages should be analysed on the basis that the parties would perform the agreement that they had made. But I do not think that this deals with the problems that issue 18 is intended to raise.

It is clear beyond doubt that Citigroup's policy, as understood by (among others) Mr Vicente, Mr Shinghal and Ms Jones, included the following elements:

(1) it would not pay commissions on what it required as secondary assignments at a rate higher than 35%;

(2) it would not pay commission at the rate of 50% on assignments made before write-off, even under the assign to collect policy; and

(3) it would not refer debt files for collection, on the basis that it would be obliged to pay commission at the rate applicable to secondary or tertiary assignments, where the only previous Services rendered had been limited to skip traces or field calls prior to write-off.

It follows, in my view, that it was unlikely that Citigroup would have assigned files to Shield, so as to incur a liability to pay commissions on recoveries at the rates applicable to secondary and, in particular, tertiary assignments, unless the proper classifications under the relevant ASA coincided with the way in which Citigroup classified them having regard to its own internal policies and procedures.

In other words, I do not think that Citigroup would have assigned files to Shield unless, both on a proper construction of the relevant ASA and by reference to Citigroup's own policies and procedures, those assignments were properly to be characterised as primary or tertiary.

I have concluded that in the case of the 2004 ASA, the parties did agree (through the mechanism of variation) that Shield was to be recompensed for all assignments other than primary assignments at the rate of 50% on collections. But it does not follow that Citigroup, had it appreciated that this was the effect of the variation, would have assigned secondary files to Shield. The evidence of Citigroup's representatives, again including Mr Vicente, Mr Shinghal and Ms Jones, was clear on this point. There were other agents prepared to accept secondary assignments at rates significantly lower than 50%.

Even accepting, as the evidence suggests, that Shield was Citigroup's most effective debt collector, it does not follow that the rate of recoveries by Shield, on assignments that in Citigroup's eyes were to be classified as secondary, was so significantly higher than the rates of recoveries of other debt collectors that, in economic terms, the higher commission charge would have been worthwhile from Citigroup's perspective. The evidence does not permit any conclusion to be drawn on this particular point.

In my view, it is more likely than not that, if Citigroup had been apprised of, and prepared to accept, the proper construction to be given to the expressions "secondary assignment" and "tertiary assignment", its reaction would have been that, at most, it would send to Shield only work which, according to Citigroup's policies and procedures as well as the terms of the ASAs, properly construed, was primary or tertiary.

Thus, it is more likely than not that, among other things, Citigroup would not have sent to Shield, as tertiary assignments, any files that had not reached the stage of write-off; nor any files where the previous Services rendered were of the nature of skip traces or field calls only.

Assuming, as Mr Darke submitted I should, that Citigroup was prepared to honour its obligations under the 2006 ASA, it could, nonetheless, accommodate that position very simply with its own policies and procedures by limiting referrals to Shield in the manner just described. And in my view, that is what is likely to have happened but for the termination of the 2006 ASA, once Mr Vicente's interest had been engaged. If anything is clear in this case, it is that Mr Vicente would have used whatever means were available to him to ensure that Citigroup's relationship with a mercantile agent was conducted in accordance with Citigroup's policies and procedures.

Mr Darke relied on what he said was the file-splitting solution: an agreement said to have been reached, in late October or early November 2006, that Citigroup would send to Shield only primary and tertiary assignments.

Mr Henskens put a number of submissions on this issue. First, he said, it was not pleaded, not opened and not put to the relevant witnesses.

As to the first complaint (failure to plead): the facts said to give rise to the file splitting solution could not be regarded as material facts necessary to be pleaded, even if this were an action tried on pleadings properly so called (and it is not).

As to the second complaint (failure to open): I am not quite sure why this submission (even if correct) would disentitle Mr Darke from relying on the file splitting solution. But in any event, Mr Darke did refer in opening to some of the documentary evidence that supported his primary submission, that the file splitting solution had been reached.

As to the third complaint (failure to put the matter to the relevant witnesses): Mr Darke did in fact put the matter to Ms Jones. Specifically, he asked her (T461.36 and following) whether she had agreed with Mr Colomb that Citigroup would split its recovery files; her answer was that she did not recall. That might have been thought sufficient to raise the matter; but in any event, Mr Darke went further and put to Ms Jones an email from Ms Dunk to a Ms Escobar of Citigroup dealing with the solution. That email said that Ms Dunk had established two queues, one for files that had not been previously assigned and another for files that had. Ms Jones, accepting that the email read thus, said that it did not refresh her recollection.

In those circumstances, it seems to me, Mr Darke put all that was necessary to be put. It was suggested that Mr Darke should have gone further, and put that the file splitting solution was practicable. I do not think that this is so, having regard to what was put to Ms Jones and her answers. Further, I accept Mr Darke's submission that the email in question, showing that Ms Dunk had split the files, showed also that the solution was practicable. Certainly, Ms Jones questioned whether it was. But Ms Dunk, within whose operational responsibilities it fell, seems from her email to have had no such concerns.

I am not sure whether it was part of Mr Henskens' third complaint that the matter had not been put to Mr Vicente. But if it were, I think the answer is that file splitting was a detailed operational matter that did not require Mr Vicente's approval. In any event, Mr Vicente was asked whether he would have been satisfied if the relationship between Citigroup and Shield could have continued, but without disturbance from disputed commission claims. I think it is correct to understand from what Mr Vincent said that he would have been satisfied with this (T582.21-.T582.33):

Q. If Shield had dropped its claim for compensation and Ms Jones had agreed with Shield to send it only files that both Shield and Citigroup considered to be primary assignments, so that there was no risk of any future dispute, you would have been satisfied with that situation, correct?

A. I would have been satisfied if the relationship kept going and we didn't have this issue, right?

Q. The issue being Shield's demand for additional payments?

A. Correct.

Q. In relation to the files in question?

A. Correct.

Next, Mr Henskens submitted that the split on which Mr Darke relied (about 85%/15%, in which 15% represented the disputed files and 85% represented files that on any view were primary assignments) was not proved even by "one scintilla" of evidence.

Mr Darke relied on a conversation that Mr Shield said he had with Mr Shinghal on about 25 October 2006. According to Mr Shield, Mr Shinghal said, in the course of that conversation, that he thought the problem affected only "about 10% of Shield's debt" (i.e., as I understand it, about 10% of the total files referred to Shield).

For the reasons that I have given at [82], [83] above, I accept this aspect of Mr Shield's evidence. In doing so, I take into account that when Mr Shinghal was cross-examined on the matter, his evidence went no further than saying he could not recall the relevant conversation, and that "I'm not sure whether it is factually correct or not" (T608.21).

The 85%/15% split is crucial to this aspect of Shield's case. Such other evidence as there is shows that it is likely to be a conservative estimate (as indeed does the estimate attributed to Mr Shinghal). Between April and November 2006, only about 4% of the referrals to Shield had been the subject of a prior referral to another agent. If this 7 month period should be taken to be more generally representative of the overall split, it would demonstrate that in fact the file splitting solution would have deprived Shield of less work, and therefore permitted it to earn more revenue, than would be the case on the assumed 85%/15% split.

In my view, the file splitting arrangement was made. I reach that view for several reasons. First, I accept this aspect of Mr Colomb's evidence, based as it is on a file note which I see no reason to disbelieve. Secondly, Citigroup's own documents show that Ms Dunk actually instituted a mechanism for splitting files: the two queues to which I referred earlier.

Finally, such an arrangement would have been a logical solution to the position in which the parties found themselves. Leaving aside for a moment the Shield Specials and Brodies Specials, Shield was entitled to commission at the rate of 50% on all assignments other than primary assignments. Citigroup was not prepared to pay commission at the rate of 50% on secondary assignments. Nonetheless, Shield was Citigroup's most effective debt collector. Equally, Citigroup was Shield's largest source of work. Thus, it is in my view inherently likely that an arrangement was made to split files in the manner suggested.

However, that does not answer the problem arising from the underlying difference as to what should be regarded as primary, secondary and in particular tertiary assignments. It means, at most, that Citigroup would not have sent to Shield, as tertiary assignments, any assignments that were not, on Citigroup's policies and procedures (and regardless of the proper construction of the 2006 ASA) to be regarded as tertiary assignments. I repeat that Citigroup was in a position to achieve this result, because it was not bound to send any work to Shield.

Nor do I think it likely that Citigroup would have renewed the 2006 ASA (or, more accurately, entered into a further ASA after the expiry of the 2006 ASA) except on terms that the remuneration provisions reflected its own policies and procedures. If (in the counterfactual world) the 2006 ASA had been performed, in the manner that I have outlined, until its expiry, it is in my view more likely than not that Mr Vincente would have insisted that the position be clarified in any subsequent ASA, and that his insistence would have been given effect. If Shield were not prepared to accept a renewal on Mr Vicente's terms, the likelihood is that there would have been no renewal.

Issue 19 - quantification of loss

There is no conceptual problem with quantification of underpaid commissions. The result depends on an application of my findings. Since the parties', and the experts', careful tabulations were prepared in advance of those findings, and require some analysis to adjust to my findings, the appropriate course is to leave that aspect of the claim for damages to the parties to be agreed.

The claim for loss of the benefit of the 2006 ASA, and loss of the opportunity to negotiate a further ASA, is more problematic. First, it suffers from the difficulty to which I have referred. I do not think that Citigroup would have sent to Shield, under the 2006 ASA, as a tertiary assignment, any assignment that Citigroup, following its own policies and procedures, did not regard as tertiary. Secondly, I do not think that Citigroup would have entered into any further ASA except on the basis that the remuneration conditions reflected its policies and procedures in this regard.

There was however a further, and fundamental, problem with Shield's claim for damages. The parties, and the experts, have proceeded on the basis that what is to be measured is loss of the profits that would be derived from the various income streams. Clearly enough, that involves not only estimating the quantum of the income streams, but also the expenses.

In relation to expenses, the experts have proceeded on the assumption that Citigroup's work represented about 12½% of all Shield's work over the relevant years. Shield relies on the evidence of Mr Shields to make good this assumption. However, Mr Shields' evidence is based not on a review of Shields' business and Citigroup's contribution to it, over the years that their relationship was in place but, rather, on a "snapshot" at a particular point of time. That snapshot was based on a computer generated report of the files on which Shield was working as at 7 November 2006.

Mr Shields said, however, that historically Citigroup provided about 20% to 25% of Shields' work. Indeed, that was the assumption that Mr Jennings, Shields' expert, was originally asked to make.

To my mind, in considering this particular issue, it is appropriate to look at the relationship overall (making necessary adjustments to reflect changes from time to time) and not at the situation on a particular day.

That approach is supported, in my view, by the evidence of Mr Wadick. His evidence showed that:

(1) from 8 April 2005 to 7 April 2006 (i.e., during the currency of the 2005 ASA), Citigroup provided a little under 28% of Shield's work overall; and

(2) thereafter, from 8 April to 31 October 2006 (i.e., during the first six months of the term of the 2006 ASA), Citigroup provided over 62% of Shield's work in total.

Mr Wadick's figures are derived from a comparison of the number of files referred by Citigroup to Shield and all files referred to Shield by all its customers. Shield's revenue figures support the proposition that Citigroup provided much more than 12%, or 12½%, of Shield's work. In September and October 2006 (again, during the currency of the 2006 ASA), commissions from Citigroup constituted about 45% of Shield's total revenue.

I am satisfied that, in carrying out the calculation of lost profit, it is not appropriate to proceed on the instructed assumption - that Citigroup provided only 12½% of Shield's work overall (excluding, if it is not otherwise clear, work undertaken by Shield Debt in its own right). To my mind, the evidence justifies the proposition that the contribution should be assessed at at least 25%, consistent with Mr Shield's estimate based on the whole length of the business relationship between the two companies.

The experts agreed that if the loss of profit calculation is performed on the basis that Citigroup contributed 25% of Shield's work overall, and not the instructed 12½%, then there is no positive value to be attributed to the hypothetical lost profit stream. It is unnecessary to go into the reasons for this agreed outcome, other than to note that, mathematically, it is sound.

The result is that Shield has not proved its claim for loss of profit.

There are other difficulties in this aspect of Shield's case. For example, there is a dispute between the experts as to whether, in relation to stream 1 losses, the appropriate expense ratio is 77% (as Mr Box contended) or 24.6% (as Mr Jennings contended).

The experts agreed that 77% is the appropriate blended rate for streams 1, 2 and 3.

I prefer Mr Box's evidence on this point. I take into account that Mr Jennings has changed his opinion on this issue. In particular, in an early report, Mr Jennings attributed a cost ratio of 71.79% to stream 1 income: a rate far closer to the (agreed) blended rate of 77% than Mr Jennings' derived rate, for stream 1 only, of 34.63%. Mr Jennings has given no satisfactory explanation of the change in his position. That supports what I regard in any event as the inherent logic of the position taken by Mr Box.

Mr Darke submitted that there were layers of conservatism built into the way that the experts had approached the assessment of damages. Thus, as I understand it, he submitted that the impact of the percentage of Shield's overall work constituted by referrals by Citigroup would be minimised.

I accept that, where there were alternative approaches open (either as to raw data, or as to methodology), the experts in general chose the more conservative approach. It does not follow that, as a result, the failure of Shield to prove the 12½% assumption can be set to one side; nor can the impact of what, in my view, is (closer to) the correct figure: namely, 25%.

Mr Darke submitted, further (and perhaps in the alternative), that it would be possible for the court to make an analysis of trading figures for prior years, so as to derive a costs percentage different to that (of 77%) emerging from the expert evidence for streams 2 and 3. If that were done, Mr Darke submitted, then the experts could apply it in their model and derive a lost profits figure accordingly.

It is convenient to set out from the transcript (T838.3-37) Mr Darke's summary of his client's position on this issue:

DARKE: Yes. And the reason to take your Honour to those figures is to face up to them and tell your Honour what my submission is in the light of that evidence, and I'm think what should I say?

HIS HONOUR: You could say you are very grateful to Citigroup for terminating the contract, if that is what it did.

DARKE: In a sense that points out the absurdity of the position one reaches, if one plugs those figures into the damages model that the experts have used, because one does produce losses rather than profits.

HIS HONOUR: Yes, except the possibility is that the other work was more profitable and was subsidising the Citigroup work.

DARKE: There is no direct evidence of that, obviously. And as I submitted before, there is perhaps some reason to think that the Citigroup work was likely to be at least as profitable, if not more profitable, because there is some evidence that the files referred to Shield were more rich in debt than those of other clients. And one looks at the results for the 2005 and 2006 financial years, which are set out in Mr Box's report at paragraph 134 and one sees a modestly profitable operation.

So what I submit to your Honour is that, rather than put those figures into the damages model, the more reasonable approach to assessing damages is if one moves away from the 12.5% figure, to use the figures taken from the actual 2005 and 2006 financial year results in the way that I indicated prior to the adjournment. And, as I say, that is to be done, it is just a matter of arithmetic for the experts to recalculate.

I say, in addition to that, that one should make an allowance for the conservative aspects of the experts' model which we pointed to in paragraphs 100 to 103 of our written submissions, and that that would justify your Honour in applying a slightly more generous costs percentage than the average costs percentage for the 2005, 2006 financial years that one draws from paragraph 134 of Mr Box. That is the extent of the submissions that I put on that point.

The starting point is the proposition that it would be absurd if Shield were making losses on the work sent to it. But there is evidence, in Shield's monthly budget reports, to suggest that this is what was happening.

The budget reports were extracted from Shield's accounting system. They showed, among other things, commissions received by Shield from various sources, the expenses incurred by Shield in earning those commissions, and the result and profit and loss figure. The budget reports compared actual performance for the month to budgeted performance for the month, and displayed the variance.

The budget reports show, among other things, the following:

(1) as at April 2006 (the month when the 2006 ASA commenced), Shield's cash losses (i.e., revenues compared to expenses) exceeded $311,000.00: a variation of almost $1 million from the budgeted profit figure, to that month, of about $687,500.00;

(2) for every month thereafter for which figures are available, Shield made a cash loss; and

(3) the accrued cash loss as at 5 November 2006 was almost $343,500.00 (presumably, the accumulation of losses had restarted from 1 July 2006): a variance of about $1.26 million from the budgeted profit figure of a little under $917,000.00.

I accept that the budget reports are management figures which summarise raw data, and are not to be equated to audited accounts. But, nonetheless, they cannot be disregarded. They show that, at least on a cash basis, Shield's operations had been unprofitable at the time the 2006 ASA commenced, and that they remained unprofitable thereafter.

Thus, I do not think that it is absurd, to plug into the damages model used by the experts, a relevant input that produces losses. There is a sound basis for thinking that Shield was making losses, at least on a cash basis, on its monthly operations.

To put it another way: the very fact that Shield was making cash losses suggests that the relevant input should be the higher one dictated by historical experience rather than the lower one that Mr Jennings was instructed to assume (and that Mr Box accepted as an instruction, and that neither Mr Jennings nor Mr Box verified).

Further, I think, those budget figures show that there is no rational basis on which the court could accede to Mr Darke's submission that some different costs figure, taken from earlier financial years, should be substituted for the figure of 77% derived by the experts for streams 2 and 3. First, if the budget reports are to be accepted as at least substantially accurate, there is a sound basis for thinking that the use of earlier experience might be misleading, because the ratio of costs to income appears to have increased from those earlier years.

Secondly, the figure of 77% arrived at by the experts (and I will not continue to repeat "in relation to streams 2 and 3") was not an instructed figure on the basis of which they operated. It was a figure calculated by them as the blended cost rate that, in their view, was appropriate for the assessment of loss of profit on the basis that Citigroup contributed 12.5% of Shield's work overall.

There is no rational basis on which the court could depart from the agreed position of the experts and, by reference either to some higher proportionate figure or to some other historical experience, substitute its own view of what an appropriate cost ratio might be.

Thirdly, and more fundamentally, it is for Shield to prove its case on damages. If it has not proved an essential element of the computation of damages then, unless the evidence permits the court to find, on the balance of probabilities, that there are damages over and above the obvious (underpayment of commissions) it is not for the court to select some arbitrary figure. Then must be a rational basis, founded in the evidence, for doing so. And this is not a case where the means of exact proof lie only (or at all) with the wrongdoer.

In circumstances where there is a basis in the evidence (from Shield's own accounting records) for thinking that Shield might have been operating at a unprofitably, it is not self-evident that the termination of the 2006 ASA must have caused some loss.

Fourthly, and perhaps as a restatement of the previous point, Shield has simply sought to estimate the loss of profit consequent upon loss of the income streams in question. But, as Mr Henskens submitted, this is a "hypothetical loss", because it does not seek to compare the position that would have existed in the counterfactual world on which Mr Darke relied to the position that actually obtained following termination of the 2006 ASA. And if it is correct to think that Shield was making a loss on referrals to it, a reduction in the number of referrals may well have led to a reduction in the overall loss.

Finally, and as to the submission based on inherent conservatism in the expert's model, there is no basis in the evidence for assessing the economic impact of that conservatism and contrasting it with the economic impact of the likely correct proportionate figure.

Thus, even if one were to accept that the experts' model is inherently conservative, it does not follow that this would offset completely the effect of proceeding on the basis that Citigroup contributed 25%, rather than 12½%, of Shield's work overall.

For those reasons, I conclude that Shield has not proved any loss of profit in respect of income streams that might have flowed under the 2006 ASA from November 2006 on, or under any further ASA entered into after the expiry of the 2006 ASA. For the reasons that I have sought to indicate, based on Shield's monthly budget reports, that conclusion does not seem to me to be so inherently absurd or counter-intuitive as to warrant either rejection or further and deeper analysis.

Issues 20 and 21: quantum meruit

For the reason given at [217] above, the quantum meruit issues do not require decision.

Summary of conclusions

Shield has been underpaid on some but all of the 380 disputed debt files. The detail is set out in my analysis at [365] to [381] above.

Citigroup's contractual defences fail, as does its estoppel defence. Accordingly, Citigroup is liable to Shield for the amount of the underpayments. That is a matter for the parties to calculate having regard to my findings.

Further, and for the reasons given at [309] to [364], Citigroup repudiated the 2006 ASA, and Shield accepted that repudiation as bringing the 2006 ASA to an end. Alternatively, Citigroup breached that ASA in a manner sufficiently series to justify Shield's acting as it did and treating the agreement as at an end.

However, Citigroup did not otherwise repudiate the 2006 ASA.

Although Shield is entitled to damages for repudiation, it has not proved any loss (apart from underpaid commissions), for the reasons given at [433] to [464] above. The parties are to bring in an agreed calculation of underpayments and interest.

In those circumstances, there will no doubt be a dispute as to costs. I propose to stand the matter over to a date to be fixed by arrangement with the parties, for argument on the question of costs. Any evidence in relation to the question of costs should be served no later than seven days prior to that date. No less than two days prior to that date, the parties should exchange and deliver to my Associate an outline of their competing submissions on costs. At the same time, they should provide to my Associate a folder or folders containing all the affidavits intended to be relied upon on the question of costs.

Orders

I stand the matter over to a date to be fixed for the making of final orders and for argument on the question of costs.

I give directions in accordance with [470], [471] above.

**********

Amendments

08 March 2013 - corrected paragraph numbering

Amended paragraphs: 10 - 473

Decision last updated: 08 March 2013

Medium Neutral Citation:	Shield Mercantile v Citigroup [2013] NSWSC 117
Hearing dates:	15/10/2012, 16/10/2012, 17/10/2012, 18/10/12, 22/10/12, 23/10/12, 24/10/12, 25/10/12, 29/10/12, 31/10/12, 05/11/12, 06/11/12
Decision date:	28 February 2013
Jurisdiction:	Equity Division - Commercial List
Before:	McDougall J
Decision:	Plaintiff to bring in draft orders. Reserve costs.
Catchwords:	CONTRACTS - breach of contract - breach of essential term, or alternatively, serious breach of a non-essential term - termination CONTRACTS - repudiation - acceptance of repudiation CONTRACTS - repudiation - where both parties partially misconstrue a term of the contract - where defendant failed to comply with demands purportedly made pursuant to the terms of the contract - no repudiation if the relevant demand was not wholly a requirement of the contract TRADE & COMMERCE - misleading or deceptive conduct - representations - no reliance ESTOPPEL - equitable estoppel - whether plaintiff estopped from resiling from assumption that all files referred to the defendant were appropriately classified - no reliance DAMAGES - damages for loss of benefit of the contract and likely renewals - no loss proved
Legislation Cited:	Consumer Credit Code Evidence Act (NSW) 1995 Trade Practices Act 1974 (Cth)
Cases Cited:	BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Byrne v Australian Airline Limited (1995) 185 CLR 410 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Foran v Wight (1989) 168 CLR 385 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 Sweet and Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 Peter Turnball and Co Pty Limited v Mundus Trading Co (Australasia) Pty Limited (1954) 90 CLR 235 World Best Holdings Ltd v Sarker [2010] NSWCA 24
Category:	Principal judgment
Parties:	Shield Mercantile Pty Ltd (Plaintiff) Citigroup Pty Ltd (Defendant)
Representation:	Counsel: M J Darke / T Gordon (Plaintiff) A A Henskens SC / A R Zahra (Defendant) Solicitors: McLachlan Thorpe Partners (Plaintiff) Henry Davis York (Defendant)
File Number(s):	2008/290591