Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd
[2009] NSWDC 274
•27 October 2009
CITATION: Smart Distribution Services Pty Ltd v General Wholesale Pty Ltd [2009] NSWDC 274 HEARING DATE(S): 29/07/09 - 30/07/09
JUDGMENT DATE:
27 October 2009JURISDICTION: Civil JUDGMENT OF: Bozic SC DCJ CATCHWORDS: CONTRACT - Termination - whether contract terminated orally in February 2008 or in writing in May 2008 - whether conduct sufficiently unequivocal to amount to termination - CONTRACT - Construction of terms - meaning of "wholesale sale" - whether sale takes place upon placing of purchase order or upon passing of title to goods CASES CITED: Brambles Holdings Pty Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
Codelfa Construction Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Hide and Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310
International Air Transport Association v Ansett Australia Holidays Limited [2008] HCA 3; (2008) 234 CLR 151
Mannai Investment Co Limited v Eagle Star Life Assurance Co Limited [1997] AC 749
Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451;
Sagacious Procurement Pty Limited v Symbion Health Ltd (formerly Mayne Group Limited [2008] NSWCA 149
Sargent v ASL Developments Limited [1974] HCA 40; (1974) 131 CLR 634
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 164TEXTS CITED: Cross on Evidence, 7th Aust ed (2004) PARTIES: Smart Distribution Services Pty Ltd (plaintiff)
General Wholesale Pty Ltd (defendant)FILE NUMBER(S): 4244/08 COUNSEL: Mr N Chen (plaintiff)
Mr S Bell (defendant)SOLICITORS: Hunt's Lawyers (plaintiff)
Williamstown Lawyers (defendant)
JUDGMENT
Introduction
1 The plaintiff is a company involved in the sale and marketing of consumer electronic goods to electronic retailers. One electronic retailer to whom the plaintiff sold goods was Dick Smith Electronics Pty Ltd (“DSE”).
2 The defendant is a company involved in importing consumer electronic products. In addition to importing, the defendant also sells products to electronic retailers. Some of the products imported by the defendant are audio video senders (“AVS”). In 2006 the defendant was importing AVS from a Hong Kong company, X10 Pty Ltd, and selling them to DSE.
3 In 2006 Mr Peter McCook, a director of the plaintiff, became aware that DSE was negotiating with both the plaintiff and the defendant in relation to the price of the same consumer products. Thereafter, Mr McCook had discussions with a director of the defendant, Mr Frans de Greef about the fact that the plaintiff and the defendant were both supplying goods to DSE. A joint venture was proposed.
4 On 6 August 2007, these discussions came to fruition when Mr McCook, on behalf of the plaintiff, and Mr de Greef, on behalf of the defendant, signed a 12 page document described as a deed ("the Agreement").
5 Under the Agreement the plaintiff agreed not to deal with DSE in relation to certain consumer electronic products. Instead the plaintiff agreed to pursue other retail markets and bring in new business to the joint venture. The defendant agreed to maintain its current trading agreement with DSE and to be responsible for the purchase and wholesale distribution of the goods to DSE. In consideration of the plaintiff pursuing other retail markets the defendant agreed to pay to the plaintiff a commission of 25% of the gross profit of all AVS units sold by the defendant to DSE.
6 The Agreement stated that in the first twelve months it was expected that the defendant would achieve a minimum sales volume of 24,000 units of AVS. This was the minimum needed to maintain the viability of the joint venture. If this minimum volume was not achieved in the first twelve months of the Agreement the plaintiff was entitled to receive a commission of 40% from March 2008 onwards until 24,000 units of AVS had been sold.
7 After the signing of the Agreement the defendant continued dealing with DSE. The plaintiff started to receive commissions from the defendant by way of direct deposit into the plaintiff’s bank account. Spreadsheets were forwarded by the defendant to the plaintiff purporting to set out the transactions between DSE and the defendant and showing the commission payable.
8 On 14 February 2008 there was a meeting between Mr McCook and Mr de Greef. Mr Brad Arthur, the product manager of the defendant was also present. The defendant alleges that at this meeting the defendant terminated the Agreement. This is disputed by the plaintiff.
9 On 27 May 2008 there was an exchange of emails between Mr McCook and Mr de Greef. The plaintiff alleges that it was in this series of emails that the Agreement was terminated.
10 On 6 June 2008 the defendant forwarded a reconciliation spreadsheet which showed the calculations for the commission. In calculating the commission owing to the plaintiff the defendant took into account the cost of what were described as “warranty returns”. This is a reference to goods delivered by the defendant to DSE but subsequently returned by DSE. DSE deducted from the amounts it paid to the defendant the cost of the returned goods.
The issues
11 By an amended statement of claim the plaintiff claimed outstanding commissions of $155,433.20. This amount is arrived at by deducting from the total commission alleged to be outstanding, an amount of $211,256.03, amounts already paid, certain agreed costs and making an allowance for a credit note issued by the plaintiff.
12 By its defence the defendant alleged that the Agreement was terminated in February 2008, denied that the amount of commission claimed was owing and pleaded that the plaintiff was only entitled to payment of the commission after the defendant received payment from DSE.
13 At the hearing two questions were isolated for determination by the Court. It was said that the determination of these two questions should enable the parties to work out what amount, if any, is owing to the plaintiff by way of commission. This will obviate the need for the Court to determine the quantum of the plaintiff’s claim.
14 The two issues for determination are:
1. When was the Agreement terminated?
The defendant says that the Agreement was terminated at a meeting on 14 February 2008, to be effective on 29 February 2008. The plaintiff says that the Agreement was terminated in writing on 27 May 2008.
This question involves the interpretation of the term “wholesale sales” in the Agreement. Under the Agreement commission was payable on the gross profit arising from wholesale sales of specified products by the defendant to DSE. The plaintiff contends that a wholesale sale occurs when a DSE purchase order is received by the defendant in respect of goods ordered by DSE. The defendant contends that a wholesale sale occurs when title to the goods passes to DSE.2. Upon what basis is commission payable?
The Witnesses
15 Mr McCook affirmed three affidavits dated 12 February 2009, 16 June 2009 and 28 July 2009. He gave oral evidence.
16 Mr de Greef affirmed two affidavits dated 21 July 2009 and 28 July 2009. He also gave oral evidence.
17 An earlier affidavit affirmed by Mr de Greef in these proceedings and dated 31 March 2009 was tendered by the plaintiff.
The Agreement
18 Before dealing with each of these issues it is necessary to set out the relevant parts of the Agreement. In the Agreement the plaintiff is described as "SDS" and the defendant as "GWS." Mr McCook is described as "Peter." A Mr Russell Scott is described in the Agreement as “Russell”. Mr Scott plays no part in these proceedings.
19 The relevant provisions of the Agreement are as follows:
- A. GWS has expertise and is engaged in the business of importing and wholesaling consumer electronic products to dealers retailers.
B. SDS has expertise and a successful history in sales and marketing to the consumer electronics retail channels in Australia.
C. Peter is a director of SDS and Peter and Russell are and have both been involved in the management of SDS.
D. Peter and Russell personally have a long sales and marketing history in the consumer electronics retail industry in Australia.
E. GWS and SDS have agreed to establish a joint-venture to combine SDS’s sales and marketing expertise with GWS’s manufacturer agreements, logistics and distribution channels, in an attempt to consolidate costs and expand distribution and sales channels and to develop other business opportunities to their mutual financial and commercial benefit upon the terms set out in this Deed.
F. It is intended that GWS will become the sole purchasing entity, and SDS will be paid sales commissions, subject to certain exceptions and further agreement concerning this from time to time.
G. GWS has established a valid and current trading agreement with Dick Smith Electronics (DSE) and it is intended that this Deed applies to and includes purchase of product for supply to DSE.
- The Products are defined as: 1. The current the AVS50 Audio video Sender, 2.4 GHz or the same product with any model number.
2. The current AVR50 Receiver to match AVS50 2.4 GHz or the same product with any model number.
3. The current AVS58 Audio Video Sender 5.8GHz or the same product with any model number.
4. The current AVR58 Receiver to match AVS58 5.8 GHz or the same product with any model number.
5. The current PCR10, PC Remote when packaged and sold as AVS related products, or the same product with any model number.
6. The current EC8, Universal remote when packaged and sold as AVS related products, or the same product with any model number.
7. Other products may be added from time to time by mutual agreement.
1. This Deed shall come into effect on 1 March, 2007 and is valid for a period of 1 year, or until the minimum sales volume in Part 5 has been achieved. This deed converts to rolling 1 year terms unless otherwise terminated by either party or superseded by further signed mutual agreement.
- 3. It is agreed by the parties as part of the joint venture that GWS will be responsible for the purchases of the Products and the wholesale distribution in respect thereof and that SDS will continue to actively pursue other retail markets as part of the joint venture and in consideration thereof will be paid sales commissions as set out in this Deed, subject to certain exceptions and further agreement concerning this from time to time.
- 5. It is further mutually agreed that GWS is expected to achieve the minimum sales volume of 24,000 units of AVS within the first (12) month period to maintain the viability of the joint venture.
6. SDS shall receive 25% (“the SDS percentage”) of the gross profit arising from wholesale sales of AVS units by GWS to DSE.
7. If GWS fails to sell 24,000 AVS units to DSE in the first 12 months to 28th February 2008, SDS shall receive 40% (“the SDS percentage”) of the gross profit arising from wholesale sales of AVS by GWS to DSE, from March 2008 onwards, until 24,000 AVS units have been sold.
8. Margin reverts to 25% of gross profit for all AVS units following the sale of 24,000 AVS units to DSE.
9. The SDS percentage shall be paid by GWS to SDS within seven (7) days after GWS receives the payment from DSE.
10. GWS shall in addition pay to SDS 25% of the gross profit on all products (not limited to the AVS products) that SDS introduces to GWS and which become a selling line for GWS.
11. GWS shall also pay to SDS a commission being 25% of the total GP that is derived from the sale by SDS of any products supplied by GWS to SDS, to customers, on-sellers, dealers, installers and wholesalers on behalf of GWS or in the name of GWS and SDS and GWS shall identify those products from time to time that shall be under this arrangement and shall negotiate and record and report dealings in good faith.
12. All commissions shall be paid by GWS to SDS within 7 days of full payment for the relevant goods being received by or on behalf of GWS.
13. “Gross Profit” shall be defined as sale price, less rebates, less cost price, the cost price being the cost of the products landed in Australia.
14. In consideration of this deed the parties mutually agree and acknowledge that GWS shall have as between them, the exclusive right to deal with and to negotiate terms with DSE and to supply DSE with the Products.
15. GWS shall in its absolute discretion determine the wholesale price of the Products to DSE from time to time and shall give SDS reasonable notice of changes in the wholesale price.
16. GWS must provide SDS copies of all purchase orders relating to sales of products relevant to this deed.
19. SDS and GWS mutually agree to cooperate and use their contacts and resources to work together in developing and taking advantage of new business opportunities generally for them, not exclusively relating to the products but including other products and services, and for their mutual and each other’s commercial benefit.
- 24. It is agreed that is is the mutual expectation of the parties that SDS bring in new business to the Joint Venture.
- 39. Any notice, demand, consent or other communication (“the Notice”) given or made under this Deed:
- (a) must be in writing and signed by a person duly authorized by the sender;
(b) must either be delivered to the intended recipient by prepaid post (if posted to an address in another country, by registered airmail) or by hand or fax to the address or fax number last notified by the intended recipient to the sender; and
(c) will be taken to be duly given or made in the case of delivery in person when delivered; in the case of delivery by post, two business days after the date of posting if posted to an address in the same country) or seven business days after the date of posting (if posted to an address in another country); and in the case of fax, on receipt by the sender of a transmission control report from the dispatching machine showing the relevant number of pages and the correct destination fax machine number and indicating that the transmission has been made without error; but if the result is the Notice would be taken to be given or made on a day which is not a business day in the place to which the Notice is sent or is later than 4.00 p.m. (local time) it will be taken to have been duly given or made at the commencement of business on the next business day in that place.
When was the Agreement terminated?
20 Before dealing with the factual evidence it is necessary at the outset to identify certain features of clause 1 of the Agreement. Both parties relied on clause 1 to provide the context for, and the explanation of, the subsequent correspondence between the parties.
21 Under clause 1, the Agreement is valid for a period of either one year from 1 March 2007, in other words until 1 March 2008, or until a minimum sales volume of 24,000 units of AVS is achieved. The Agreement reverts to rolling one-year terms unless it is terminated by either party or superseded by further mutual agreement. Thus after 1 March 2008 one of three things could occur: the Agreement could continue for a rolling one-year term, it could be terminated or it could be re-negotiated on mutually agreed terms.
22 I will deal with the termination issues in the chronological order in which they arise.
The defendant’s version: the evidence of Mr de Greef
23 Mr de Greef says that by February 2008 he had decided that the relationship between the plaintiff and the defendant needed to change. In his view there was no benefit to the defendant in continuing with the Agreement since the plaintiff had not increased sales as envisaged by clauses 10 and 11 of the Agreement. In addition, Mr de Greef had concerns because DSE was involved in litigation with the plaintiff. Mr de Greef did not consider that the defendant would lose sales to DSE if the Agreement came to an end. As at the end of February 2008, therefore, it made good sense from the defendant’s point of view to terminate the Agreement.
24 On 14 February 2008 Mr de Greef met with Mr McCook at the Harbourside Hotel. Also present was Mr Brad Arthur, the defendant’s product manager. Mr de Greef and Mr McCook had the following conversation:
McCook: “The renewal of the deed is coming up in a couple of weeks. I'm happy to just roll it over as it is unless you want to make any changes.”
de Greef: “With all due respect, Pete, the current deed has no incentive for me. You should hear DSE about you guys.”
McCook: “Yeah, we’re having a legal battle.”
de Greef: “My objective with this agreement was to make X10 happy as Dave is really starting to have enough of Australia. Have a look at the alternative proposals I have sent you over the last few months. I don't think we need anything in writing, but I certainly will not roll this one over. If you have products we can sell just give me a ring and we take it on a case by case basis.”
McCook: “Okay, I'll talk to Russell and I'll get back to you about the in-car video displays.”
25 In his oral evidence Mr de Greef confirmed that as at February 2008 he understood that the Agreement was a fixed term agreement that expired after one year unless there was a termination. He accepted that the Agreement envisaged a developing working relationship and that other products and goods could be added to the Agreement with the consent of Mr McCook. If this was to be done there would have to be further negotiation between the parties.
26 The defendant relied on post-termination conduct as evidence that both parties considered the Agreement to be at an end after February 2008.
The plaintiff’s version: the evidence of Mr McCook
27 Mr McCook said that on 14 February 2008 he attended a meeting at the Harbourside Hotel with Mr de Greef and Mr Brad Arthur. Mr McCook said that there was no mention of termination at the meeting. Nor had there been any discussion of termination prior to the meeting. The meeting was a friendly meeting the purpose of which was to discuss general business, a next generation model of AVS and other products that SDS had been evaluating and which could be sold to DSE and other retailers. At the meeting there was also a discussion about changing the commission structure.
28 In his first affidavit dated 12 February 2009 Mr McCook said that there was the following conversation at the meeting:
McCook: “Has DSE ordered any more of the DIVS50 (dual input) AVS since your last reconciliation.”
de Greef: "No, not since the first order, that is all we have supplied. They still have stock that you supplied them in your last delivery.”
29 In his further affidavit dated 28 July 2009 Mr McCook responded to Mr De Greef’s version of the meeting and said that there was also a conversation to the following effect:
de Greef: “I'd like to discuss moving to a different commission structure with you as per the e-mail I sent you a few weeks ago. I’d like to move to paying SDS 50% of the gross profit only on products that SDS sell into other retailers and not on product sold to DSE.”
McCook: “Frans, I don't think that at this stage of the agreement we would be willing to change the commission structure. SDS walked away from a long standing business relationship with DSE where we were selling millions of dollars of products to DSE. We have made a long term commitment to General Wholesale by agreeing not to trade with DSE. We are also engaged in a dispute with DSE about stock buybacks which we wouldn't have got involved in if we were still trading with DSE. You have minimum guarantees in the agreement specifically as a result of SDS agreeing not to trade with DSE."
Post termination conduct
30 Before dealing with the evidence of Mr McCook and Mr de Greef about the meeting at the Harbourside Hotel I will deal with the post termination conduct relied on by both parties.
31 Both parties submitted that emails sent after 14 February 2008 could be relied upon in determining the date of termination. The defendant said that the exchange of emails was evidence of a common understanding of the parties that the Agreement was at an end. Conversely, the plaintiff relied on the emails as evidence that, up to 27 May 2008, the parties were continuing to act as if they were still bound by the Agreement. It is, therefore, necessary to examine a series of e-mails commencing before 14 February 2008 and continuing through to the end of May 2008 to ascertain whether they express a common understanding of the parties as to the continuing existence, or non-existence of a contract. Statements or conduct inconsistent with the existence of a contract are relevant: see Sagacious Procurement Pty Ltd v Symbion Health Limited (formerly Mayne Group Limited)[2008] NSWCA 149 at [105].
32 In setting out the emails below I have extracted only the relevant parts of the emails. I have included as a comment after the relevant emails the submissions of the parties about the email.
The emails
5 February 2008: Mr de Greef to Mr McCook: “I also have a proposal for you to consider. Would you be open to drop these commissions in lieu of an increase of your margin on transactions you initiate from 25% to 50%? I think that is a simpler and more natural way to co-operate. Have a think about it and we can discuss it further when we meet on the 14th.”
Comment: The plaintiff submits that this letter is consistent with the Agreement continuing unless and until a new agreement is renegotiated.
19 March 2008: Mr McCook to Mr de Greef: “Can you please advise when we can get some 5.8 AVS samples. Also what is the current state of play with DSE? Obviously you have missed the 24k piece obligations in the contract with DSE orders so we would like to understand what the forecasts are.”
Comment: This is the first email after the 14 February meeting and is some three weeks after the date on which the defendant says the termination took effect. The defendant submitted that this email is consistent with the Agreement having been terminated because it shows that the the plaintiff’s concern at this stage was simply to clear up when the plaintiff was likely to receive the minimum commission due to it under the Agreement. This concern arose because at that stage the plaintiff was under the impression that only 16,000 units had been sold.
20 March 2008: Mr de Greef to Mr McCook: “ I would prefer to move forward as follows:
· we calculate how much money is outstanding to SDS to complete the 24K units
· we keep providing stock until the outstanding amount has been covered
· we increase SDS profit to 50% for new deals
Please let me know if that works for you or if you have other ideas.”
Comment: The plaintiff submitted that this email demonstrated the parties doing precisely what clause 1 of the Agreement envisaged, namely, superseding the Agreement by ‘further mutual agreement’. The plaintiff submitted that what was occurring in this email was plainly negotiation by the parties as to the content of any future agreement. The defendant on the other hand said that this email constituted the process of negotiating a new agreement, such negotiation being necessary because the Agreement had been terminated.
25 March 2008: This is a combined e-mail in which concerns raised by Mr McCook are responded to by Mr de Greef. In order to understand the exchange, the responses of Mr de Greef are underlined, the queries by Mr McCook are not underlined: “Also what is the current state of play with DSE? Obviously you have missed the 24k piece obligations in the contract with DSE orders so we would like to understand what the forecasts are.
We did indeed. I will obviously honour our agreement and I would prefer to then move to another scenario as discussed in Sydney. Did you get a chance to think about this?”
Comment: The defendant submitted that the reference to, “I will obviously honour our agreement”, is a reference to honouring the Agreement up until the date of termination. The plaintiff on the other hand submitted that this e-mail was entirely consistent with the plaintiff and the defendant conducting business together and showed that the parties were continuing to discuss the renegotiation of the Agreement as envisaged by clause 1.
1 April 2008: Mr de Greef to Mr McCook: “Your share on the 24,000 units is $60K and we should be able to balance that out easily.”
Comment: The defendant pointed to the fact that in this email there is no reference to future sales but rather the balancing up of the amount owing. This is consistent with the parties sorting out their final positions following termination.
29 April 2008: Mr McCook to Mr de Greef: “According to the agreement we therefore anticipate that we will be paid 40% of profit generated from the sale of 7755 5.8 AVS Kits to DSE. Can you please confirm you are in agreement with this, and please provide details of the current Purchase Order/s for AVS products.
Once we understand your position we will be in a position to discuss future arrangements."
Comment: The defendant again points to the fact that the plaintiff’s concern is simply the calculation of the 40% minimum guarantee provision.
1 May 2008: Mr de Greef to Mr McCook: “It doesn’t make sense for me to let the numbers flow over in the next year and cop the 40%. I may as well sell them to myself in March (last month of the agreement) and pay you the 25% on the outstanding 7,775. Also, the AVS58s fall way outside the time period of the Agreement.”
Comment: The plaintiff says that this email confirms what Mr de Greef said in evidence, namely, that he thought the Agreement simply expired after twelve months. Given his belief as to the meaning of clause 1, the plaintiff says that Mr de Greef would not have thought it necessary in February 2008 to expressly terminate the Agreement.
2 & 5 May 2008: There was an e-mail from Mr McCook to Mr de Greef on 2 May 2008 to which Mr de Greef responded on 5 May. The extract below is from an email which combines the observations of Mr McCook with the responses of Mr de Greef. The responses of Mr de Greef are underlined:
………………
……………..
If you are not prepared to settle or we can’t reach a satisfactory settlement we are happy to use the provisions of the agreement to move to arbitration. "
Comment: The plaintiff submitted that this exchange indicated that, at least as far as the plaintiff was concerned, the Agreement was still on foot and that the defendant was asserting, not that something occurred on 14 February 2008 but that the Agreement was a fixed term contract which had “expired.” The defendant relied on Mr de Greef’s statement as a clear indicator that, at least as far as the defendant was concerned, the Agreement had expired.
On 5 and 6 May 2008 there was an exchange of emails which, in part, went as follows:
Mr McCook to Mr de Greef: “You are correct I am looking at an older version. However the current version clearly states that you can’t get out of the current agreement until the Min guarantees have been hit. The agreement is still in full force because (a) you haven’t sold the 24 k units and (b) it rolls on for subsequent 1 year terms unless terminated or superseded. So you can’t terminate it yet.”
Mr de Greef to Mr McCook: “1. I am not really in favour of picking at contracts as I don’t think it creates the right basis for co-operation between the parties. Instead I like to come to a situation that feels right for both sides and I will be favourable towards your party, given the history between us. 2. It is by no means my intention to do wrong by you or Russell and my only motivation is to increase business together.”
Mr McCook to Mr de Greef : “By sending me a copy of the DSE PO, or at least bringing it to the meeting, we can clearly qualify what the amount outstanding equates to and negotiate a mutually rewarding way forward.”
Mr McCook to Mr de Greef: “ I have from you US$32 as the buy price, so A$34 at today’s ER plus $1.25 freight, is landed cost $35.25. The proposal to take stock up front, in lieu of payment, will need to provide you with some benefit, whether it be in reduced total $ commitment or increased per unit price, as opposed to continuing the agreement until the remaining 7775 units are sold or paid for.”
Comment: The defendant says that these emails are referrable to the necessary settling up that needed to take place after termination. The plaintiff points to the assertion by Mr McCook that the Agreement “is still in force”.
On 13 and 14 May 2008 there was a series of emails in which Mr McCook and Mr de Greef discussed the current situation. The exchange proceeded, in part, as follows:
Mr de Greef to Mr McCook: “I have been trying to get my head around your proposal, but I think this is what you mean
4. We calculate the value of 40% of 7,775 AVS58 sales.
5. We translate that into quantities of AVS58 units for you to sell.
6. We split the profits on those sales.
Please confirm if I understand this correctly.”
Mr McCook to Mr de Greef: “1 and 2 are correct. 3 is incorrect. 3 should be we revert to 50/50 profit share for all future sales beyond the settlement stock. There is a sizeable opportunity cost for us in relinquishing the agreement.”
Mr de Greef to Mr McCook: “I am afraid you just lost me….I just want to understand your reasoning so I can come back to you with an offer.”
Mr McCook to Mr de Greef: “If we are going to dissolve this agreement, then there is significant opportunity cost for us ie no ongoing revenue. By on selling this stock we can re-coup some of that and the discount provided…..We would really like to use tomorrow to finalise a settlement, so I want to make sure we spend today to clearing up any uncertainties.”
Mr de Greef to Mr McCook: “I will have an offer for you early next week; there are some intricacies I need to work out which I cannot do before tomorrow.”
Comment: The Plaintiff says that these statements by Mr McCook indicate that he considered the Agreement to be continuing.
On 27 May 2008 there was a series of emails as follows:-
Mr de Greef to Mr McCook: “Peter, Further to our discussions about settlement of our agreement, please note the following. Firstly I must express that over the past agreement year I have been very disappointed on these items:
1. That you have brought into the JV only a fraction of the business you said you would.
2. That you have contacted X10 behind our back with a view to purchase products directly. That was a direct breach of contract.
3. The high occurrence of unnecessary threats and innuendo found in various correspondence from you, which has not been taken as your best effort to maintain a good working relationship.
4. The fact that you tried to squeeze out 40% on some transactions, while I have been talking to you for months about settling in a different way. Again it looks like SDS has been trying to squeeze every dollar out of us instead of trying to maintain a good and open working relationship.
In my opinion there is now too much history and emotions between as and as such:
1. I confirm our cancellation of the agreement.
2. I assign Brad Arthur as account manager to SDS. In this way, you can continue purchasing products from GWS, ensuring we maintain a professional, unpolluted relationship with SDS as a client of GWS.
3. Brad will finalise the settlement of the current agreement with you.
Mr McCook to Mr de Greef: In the email Mr McCook set out the above email from Mr de Greef and provided his response. In the extract below Mr McCook’s response is underlined.
4. The fact that you tried to squeeze out 40% on some transactions, while I have been talking to you for months about settling in a different way. Again it looks like SDS has been trying to squeeze every dollar out of us instead of trying to maintain a good and open working relationship.
Frans - whether you like it or not, you signed a legally binding deed which commits you to this. You have provided absolutely no incentive for us to walk away from the current binding agreement. We have requested on numerous occasions a settlement offer, we provided the guidelines of what we would accept, yet nothing has been forthcoming. You are in breach of a number of requirements in the Deed, you can't just walk away from it.
In my opinion there is now too much history and emotions between as and as such: 1. I confirm our cancellation of the agreement.
Frans - you cannot cancel the agreement until the MOQ's have been settled in full. Then if you cancel the agreement and you expose yourself to competition in DSE. X10 are not the only suppliers of AV senders.
Mr de Greef to Mr McCook: “I do not see any reason for mediation as there is no disagreement. A few months ago I wanted to move towards another way of working together with SDS but you have not shown interest in that and I no longer wish to pursue it.
The comments in my email were meant to express my dissatisfaction about the relationship with SDS and to advise you that Brad is now your account manager. I do not understand any of your comments about breaches, solicitors or mediation.
Yes, I did mistakenly copy you in and no, I do not understand your comments relating to this mistake.
Moving on, I have asked Brad to now calculate the total units sold over the year, provide you with the balance and terminate. You can of course have the POs from DSE and I don't recall you ever asking for them nor us refusing them."
(emphasis added)
Mr McCook to Mr de Greef: “ We obviously have our wires crossed. I thought we had spent the previous few weeks communicating about settling the current Deed and undertaking a new way forward. When can we expect the settlement offer and PO copies from Brad?"
Comment: The plaintiff says that this is the first time in any email that the term ‘terminate’ is used by Mr de Greef and that it is on this occasion that Mr de Greef terminated the agreement.
On 25 June 2008 Mr McCook wrote to Mr de Greef regarding outstanding amounts payable to the plaintiff. He stated in part:
“In light of your email dated 27 May, 2008, notifying SDS that you were cancelling the agreement, this invoked the payout of the minimum guarantees stipulated in clauses 5, 6 & 7 of the Deed."
Comment: The defendant again points to the fact that the plaintiff’s apparent concern is simply the commission owing under the minimum guarantee provisions. On the other hand the plaintiff relies on the acceptance of the ‘written termination’ contained in the letter of 27 May 2008.
33 In my view the e-mails do not provide clear and unequivocal evidence of a common understanding, nor do they contain a relevant admission by either party.
34 For example, the emails concerning the 40% minimum commission owing are as consistent with the Agreement having been terminated as they are with the Agreement continuing. The discussion could be a ‘settling up’ or simply discussions about whether under the existing Agreement the minimum sales had been met, and if not, how much was owing to the plaintiff. Similarly, the emails concerning a different basis for dealing in the future are as consistent with the Agreement having been terminated as they are with negotiations about a new agreement superseding the existing one.
35 Nor are there any relevantly clear admissions made by either party. Mr McCook asserts in the email exchange of 5-6 May 2008 that “the agreement is still in force.” This view was re-iterated in the email exchange of 27 May 2008 in which Mr McCook stated, “Frans, you cannot cancel the agreement until the MOQ’s have been settled in full."
36 The position stated by Mr de Greef is, perhaps, not so clear and consistent. Although he states in the email exchanges of 13-14 May 2008 that, “I confirm our cancellation of the agreement”, he also states in the later exchanges of 27 May towards the concluding part of the emails, “Moving on, I have asked Brad to now calculate the total costs sold last year, provide you with the balance and terminate."
37 In these circumstances I prefer to resolve the issue by reference to other parts of the evidence.
38 In relation to the evidence given by Mr McCook and Mr de Greef as to what occurred at the meeting on 14 February 2008 I accept Mr McCook's account of the meeting for the following reasons.
39 Firstly, it is in my view of some significance that Mr de Greef made no mention of the February meeting or termination effective from 29 February 2008 in an affidavit he swore on 31 March 2008. The affidavit was prepared for these proceedings but not originally read in the defendant’s case. It was subsequently tendered by the plaintiff. In his oral evidence Mr de Greef said that he understood when preparing the affidavit that it was an opportunity for him to put his version of events before the court. He agreed that central to his version of events was the meeting of 14 February 2008.
40 In paragraph 7 of the affidavit Mr de Greef said:
“The arrangements under the Deed did not continue beyond the initial period of 12 months being 1 March 2007 to 1 March 2008 as I had clearly signified to the Plaintiff on behalf of the Defendant prior to the end of the calendar year 2007 that the arrangements were not working satisfactorily and would not be renewed.” (emphasis added)
41 The significance of this paragraph is that not only does it contain no mention of the 14 February meeting but it expressly asserts that the plaintiff had been told prior to the end of 2007 that the Agreement would not be extended beyond March 2008.
42 When offered an opportunity to explain the absence of any reference to the February meeting in this affidavit, Mr deGreef said that he was not an expert in legal matters and that he didn’t understand what could and could not be put in an affidavit. He also thought that there were other emails terminating the agreement but apparently this turned out not to be so. Given that the plaintiff was alleging in the statement of claim that the date of termination was 27 May 2008 and given the significance of the termination date to the amount owing by the defendant to the plaintiff, I do not accept this explanation. Mr de Greef is an astute businessman and the significance of a meeting at which he expressly terminated a contract cannot have escaped him.
43 Secondly, the unexplained absence of Mr Arthur. Mr Arthur was the product manager of the defendant. He was present at the meeting at which the alleged conversation took place. The onus of proving unavailability lies on the defendant: Cross on Evidence,7th Aust ed at [1215]. His unexplained failure to give evidence leads to the inference that his evidence would not have assisted the defendant. His absence means that I may more readily accept the evidence of Mr McCook.
44 Thirdly, Mr de Greef admitted in his oral evidence that as at February 2008 his understanding was that the Agreement simply expired after 12 months. In these circumstances there would have been no need to have terminated the Agreement. Even on his own version, Mr de Greef did not use the word “termination” during the conversation.
45 Finally, at no time prior to the meeting did Mr de Greef ever raise with Mr McCook any dissatisfaction with the plaintiff's performance or any desire on the part of the defendant to terminate the Agreement. At no time after the meeting did Mr de Greef confirm that the Agreement had been terminated. It was not until the end of May 2008 that Mr de Greef used the word ‘terminate.’
46 I find, therefore, that the agreement was not terminated at the meeting of 14 February 2008 but was terminated by the e-mail from Mr de Greef to Mr McCook dated 27 May 2008.
47 In these circumstances it is strictly unnecessary to deal with two further submissions advanced by the plaintiff on the question of termination, namely, that the conduct of Mr de Greef was not sufficiently unequivocal and that the termination was not in writing.
48 I will indicate, however, that even had I accepted Mr de Greef’s version of the conversation I would have found that the defendant’s conduct was not sufficiently unequivocal to constitute termination for the following reasons:
(i) Mr de Greef thought that the agreement had expired after twelve months;
(ii) He did not use the word terminate, but simply said, in the context of a discussion about the future, “we won’t be rolling it over."
(iii) The conversation was equally as consistent with on going negotiation as to what would happen after the expiry of twelve months and a re-negotiation of the type envisaged by the contract. It was not sufficiently unequivocal conduct: Sargent v ASL Developments Limited [1974] HCA 40; (1974) 131 CLR 634 at 641-642.
(iv) In the circumstances the conversation was insufficient to establish that a reasonable person in Mr McCook’s position would have been left in no doubt that the defendant had exercised it's right to terminate: Mannai Investment Co Limited v Eagle Star Life Assurance Co Limited [1997] AC 749.
The Construction Issue
49 The plaintiff is entitled to receive 25% of the gross profit arising from the wholesale sale of AVS units by the defendant to DSE (clause 6). The plaintiff says that there a wholesale sale when the purchase order is placed by DSE. The defendant contends that a sale occurs only when title to the goods passes.
50 In order to understand the interpretation contended for by each party it is necessary to outline how the goods were ordered, delivered, invoiced and paid for by DSE.
51 The defendant would receive a written purchase order from DSE. Usually the defendant did not have the ordered stock in Australia. After receiving a purchase order the defendant would order the goods from overseas. Upon arrival the goods would be delivered by the defendant to DSE. On the day of delivery an invoice to DSE was created by the defendant. The date of the invoice is thus the date of delivery. The invoice contained details of the quantity ordered, the item number, the price per unit, the total sale price, the GST and the total owing.
52 The details of payments made by DSE are contained in DSE remittance advices. The remittance advices show which invoices are being paid by DSE and the amount deducted by DSE in respect of the rebate and in respect of the return of invoiced goods. The remittance advices indicate that the defendant was not paid the full invoice amount but deductions were periodically made for rebates and returns. If the figures set out in annexure E to the affidavit of Mr de Greef dated 28 July 2009 are correct (as to which I make no comment since the mathematics are the subject of dispute between the parties) the total amount invoiced for the period 1 March 2007 to 29 February 2008 was $1,363,762.16 (including GST). From this amount DSE deducted rebates of $42,256.57 and amounts for returns of $64,813.19. On these figures the total amount paid was $1,256,692 (I note that these figures are only up to 29 February 2008, the date the defendant alleges the Agreement was terminated, whereas I have found that the Agreement was terminated on 27 May 2008).
53 The defendant submits that a purchase order, without more, cannot be a sale since no title to the goods has passed. As a matter of construction the defendant says that a sale occurs when title to the goods is passed. This construction would mean that commission is not payable on purchase orders placed during the currency of the agreement but not delivered until after termination. In addition, the defendant says that DSE short paid the invoices. The defendant did not therefore receive full payment of the invoices. The defendant submits that since it has not been paid in full for the invoices commission should be paid not on the invoiced amount but the amount actually paid by DSE and received by the defendant.
54 The plaintiff submitted that in interpreting the Agreement the terms of any contract between DSE and the defendant are irrelevant. The Agreement has to be interpreted within its ‘four corners.’ The plaintiff contends that the event which triggers the entitlement to the commission is the creation of a purchase order. Hence the mandatory requirement in clause 16 for “purchase orders relating to sales of products relevant to this deed” to be forwarded to SDS. The requirement to forward purchase orders confirms that it is the order of goods by DSE that constitutes the relevant ‘sale’. The purchase order is evidence of the wholesale sale. It was submitted that to construe the Agreement in this way accords with the ordinary and orthodox concepts of offer and acceptance and was consistent with the way the defendant calculated the commission. There is nothing in the Agreement to suggest that a delivery of the products is a prerequisite to the payment of commission. Rather it is the purchase order which the Agreement singles out as the objective factor giving rise to the entitlement to commission.
55 I approach the construction of the Agreement on the basis, firstly, that the construction requires consideration of the text of the document, the surrounding circumstances known to the parties and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [41] and International Air Transport Association v Ansett Australia Holidays Limited [2008] HCA 3 [8]; (2008) 234 CLR 151.
56 Secondly, post contractual conduct is not admissible on the question of what a contract means: Hide and Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 at 326-330; Brambles Holdings Pty Ltd v Bathurst City Council[2001] NSWCA 61; (2001) 53 NSWLR 153 at [26]. The construction of the Agreement is an objective question for the court. In the present case this means that the fact that commission was paid by the defendant on the basis of purchase orders rather than on the basis of delivery or passing of title, is not admissible on the question of the construction of the contract.
57 Thirdly, evidence of negotiations is not admissible in order to prove the subjective intention of the parties. It may, however, be admitted as part of the factual matrix to ‘establish objective background facts which were known to both parties..’: Codelfa Construction Pty Limited v State Rail Authority of New South Wales[1982] HCA 24;(1982) 149 CLR 337 at 352.
When is there a “sale”?
58 In my view there is a sale for the purposes of the Agreement when a purchase order for the goods is placed by DSE with the defendant. My reasons for this conclusion are as follows.
59 I start with the background facts known to both parties and the purpose and object of the transaction. The genesis of the joint venture was the awareness by both parties that they were both selling goods to DSE. The plaintiff agreed not to sell goods to DSE but instead to pursue other retail markets. In consideration of the plaintiff giving up its right to sell to DSE the defendant agreed to pay the plaintiff a commission. The intention of the parties, and the object of the Agreement, was to compensate (by way of commission) the plaintiff for not selling to DSE. Implicit in the Agreement is an understanding that the defendant would benefit by the plaintiff not selling goods to DSE.
60 That this is the relevant factual matrix comes not only from the terms of the Agreement itself but also from the pre-Agreement correspondence annexed to the affidavit of Mr McCook dated 16 June 2009 (annexures “A” to “I”). The exchange of emails shows a recognition that under the proposed agreement the plaintiff will be ‘staying away’ from DSE and ‘refrain from engaging DSE’, thereby permitting the defendant to ‘operate freely in relation to DSE’. Once the agreement commenced the defendant would continue 'soliciting and receiving' purchase orders from DSE.
61 It is important to understand that the dispute about whether there is a sale upon the placement of a purchase order or only when title passes is in essence a timing issue. In respect of the goods the subject of the relevant purchase orders there has been delivery of goods and payment by DSE to the defendant (less rebates and returns). There were, however, some eight purchase orders placed by DSE prior to termination on 27 May 2008 but in respect of which the defendant did not deliver the goods until after 27 May 2008 (see the affidavit of Mr de Greef dated 28 July 2009 paragraph 5).
62 If a sale occurs only when title passes then the plaintiff is not entitled to commission in respect of purchase orders received by the defendant during the duration of the Agreement. This would seem to be at odds with the common understanding of the parties that the defendant may be facilitated in obtaining such purchase orders by the plaintiff refraining from dealing with DSE. Hence the agreement to pay commission.
63 The Agreement says nothing about the passing of title. The evidence does not enable me to say that part of the factual matrix known by both parties was when title passed under the terms of the purchase orders. Under the terms of the purchase orders title to goods passed to DSE upon acceptance of the goods. Acceptance for goods that did not require testing and installation occurred upon delivery to DSE.
64 The Agreement envisages the following:
(i) a purchase order being created (clause 16);
(ii) a payment by DSE to the defendant (clauses 9 and 12);
(iii) payment of a sales commission (clause 3);
(iv) payment of the commission by the defendant to the plaintiff within seven days of receipt by the defendant of payment from DSE (clauses 9 and 16); and
(v) the provision by the defendant to the plaintiff of all purchase orders “relating to the sales of products” (clause 16).
65 In my view the Agreement contemplates commission being paid on sales that are generated during the period of the Agreement out of the efforts of the plaintiff in actively pursuing other retail markets and in refraining from dealing with DSE and the efforts of the defendant in continuing to trade with DSE. These efforts culminate in the obtaining of purchase orders and, subsequently, payment by DSE to the defendant.
66 There is nothing in the Agreement to indicate that the date of delivery, or passing of title, was of significance to the parties. The mandatory provision of clause 16, requiring the defendant to forward purchase orders to the plaintiff indicates that it is the purchase orders by which the plaintiff can verify the relevant sale. There is no obligation on the defendant to forward documents, such as invoices which would enable the plaintiff to determine and verify the date of delivery.
67 Interpreted in this way the Agreement deals with the situation where, as happened, delivery does not take place until three or four months after the placing of the purchase order. The Agreement also deals with purchase orders which are placed and subsequently cancelled by not requiring the payment of the commission until after the defendant has been paid by DSE.
Conclusion
68 The agreement was terminated on 27 May 2008.
69 There is a wholesale sale within the meaning of the Agreement when a purchase order is created. Commission is payable on the purchase orders. The commission is payable within seven days of receipt of payment by the defendant from DSE in respect of the purchase orders.
70 The matter will be stood over to a date to be fixed for further directions to give the parties time to reach agreement, if possible, on what amount, is owing by the defendant to the plaintiff in accordance with these reasons.
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