SVI Systems Pty Ltd v Best & Less Pty Ltd

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FEDERAL COURT OF AUSTRALIA

SVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED
[2001] FCA 279


CONTRACT – construction – written signed document – whether concluded agreement – whether void for uncertainty or incompleteness – implication of terms not contained in written signed document to avoid uncertainty or incompleteness – “subject to” clauses – whether contract binding – when contract binding – intention and conduct of the parties as to whether and when contract binding – tests to be applied to determine intention of parties

CONTRACT – commerciality – ambiguity – “master agreement” – collateral contract – “best endeavours” clause – novation – whether contract novated

CONTRACT – EVIDENCE – admissibility of extrinsic evidence – evidence of surrounding circumstances admissible to determine whether concluded agreement – admissibility of post contractual conduct

TRADE PRACTICES – consumer protection – misleading and deceptive conduct – representations

DAMAGES – breach of contract – causation of loss or damage – remoteness of loss or damage – measure of loss or damage – assessment of loss or damage by experts – conflicting assessments of loss or damage by experts – resolving conflict between experts

DAMAGES – misleading and deceptive conduct – causation – remoteness – measure and  assessment of loss or damage

Trade Practices Act 1974 (Cth), ss 52, 82, 87
Federal Court of Australia Act 1976 (Cth), s 43
Fair Trading Act 1987 (NSW)

Cutts v Buckley (1933) 49 CLR 189 referred to
Vickery v Woods (1952) 85 CLR 336 referred to
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 cited
Whitlock v Brew (1968) 118 CLR 445 referred to
Olsson v Dyson (1969) 120 CLR 365 applied
J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 cited
Godecke v Kirwan (1973) 129 CLR 629 referred to
Transfield Pty Ltd v Arlo International Limited (1980) 144 CLR 83 considered
Meehan v Jones (1982) 149 CLR 571 followed
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 applied
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 applied
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 considered
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 discussed, referred to
Darlington Futures Limited v Delco Australia Proprietary Limited (1986) 161 CLR 500 considered
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 applied
Re Wakim; Ex parte McNally (Spinks v Prentice) (1999) 198 CLR 511 referred to
Ross v Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8 cited
Federal Commissioner of Taxation v Suttons Motors (Chullora) Wholesale Pty Ltd (1983) 47 ALR 449 referred to
Cook v Chas E Blanks Pty Ltd [1968] 3 NSWR 356 referred to
TJ Precision Engineering Pty Ltd v Crane Copper & Aluminium Pty Ltd [1968] 3 NSWR 360 referred to
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 applied
Mutual Export…

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Details
Case
[2001] FCA 279
Decision Date

CaseChat Overview and Summary

In this case, SVI Systems Pty Ltd, the plaintiff, filed an application against Best & Less Pty Ltd and others, the defendants, seeking interest and costs. The primary dispute centered around the obligations under a contract between Divergent and Ginger Max, specifically whether the Divergent contract required installation of a point-of-sale system in all 82 Best & Less stores. A secondary issue was whether the sale contract between Ginger Max and Pepkor obliged Pepkor to fulfill the Divergent contract. The case also touched upon potential misleading and deceptive conduct claims under the Trade Practices Act.

The court had to determine the validity and enforceability of the Divergent contract, assessing whether it was concluded, complete, and certain. Issues such as the admissibility of extrinsic evidence to interpret the contract and the implication of terms to avoid uncertainty or incompleteness were central. The court also had to consider whether the contract was binding based on the conduct and intentions of the parties, and if there was any novation or collateral contract that could affect the obligations under the Divergent contract.

In analyzing the evidence, the court found significant discrepancies in the testimonies of the various witnesses regarding the terms and negotiations of the contract. Divergent claimed that Ginger Max required the installation of the system in all Best & Less stores, while Ginger Max and Pepkor argued otherwise. The court scrutinized the conduct and communications of the parties post-contract to ascertain their intentions and whether a binding agreement existed. The court also assessed the relevance and admissibility of extrinsic evidence to interpret the contract, considering whether it could clarify ambiguities or fill gaps in the written agreement.

The court concluded that the Divergent contract did obligate Ginger Max to install the system in all Best & Less stores, and this obligation was transferred to Pepkor upon the sale of Best & Less. The court found that the contract was binding based on the conduct and intentions of the parties. The court awarded damages to SVI Systems for breach of contract and dismissed the misleading and deceptive conduct claims due to insufficient evidence. The total damages awarded were $1,120,281.90, and the court ordered the defendants to pay the plaintiff's costs, including those from the second respondent. The cross-claims were dismissed, and specific cost orders were made regarding the third cross-claim.

Orders

Orders of the court

1. the applicant’s application against the second respondent be dismissed with costs

2. the applicant’s application against the first, third and fourth respondents be allowed

3. the first, third and fourth respondents pay to the applicant damages in the sum of $1,120,281.90

4. the cross-claims be dismissed

5. the first, third and fourth respondents pay the applicant’s costs including the costs payable by the applicant to the second respondent

6. there be no order as to costs in respect of the cross-claims, except as to the third cross-claim in which the first, third and fourth respondents will pay the second respondent’s costs

Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.

TABLE OF CONTENTS

Page

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 2

THE PROCEEDINGS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 3

FACTUAL BACKGROUND........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 4

THE DISPUTE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 6

THE CLAIMS

Divergent’s position........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 7

Pepkor’s position........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 8

Ginger Max’s position........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 9

THE EVIDENCE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 9

THE CONVERSATIONS

Divergent’s account........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 10

Pepkor’s account........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 15

Ginger Max’s account........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 18

THE APPLICABLE LEGAL PRINCIPLES

A contract........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 18

Uncertainty and incompleteness........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 20

Uncertainty........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 21

Incompleteness........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 23

Ambiguity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 25

Conduct and intention........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 26

Post contractual conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 27

Commerciality........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 32

Co-operation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 33

Obviousness........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 34

Consistency........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 34

Master agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 34

“Best endeavours” clause........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 35

Novation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 36

Collateral contract........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 39

FINDINGS AND CONCLUSIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 41

The oral evidence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 42

Misleading and deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 44

DAMAGES

The principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 45

The components........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 47

Installation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 48

Maintenance........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 49

Additional services........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 54

Total damages........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 57

COSTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 57

ORDERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 58

Background

Background to the litigation

The application and all four cross claims seek interest and costs and all were defended. Some of the issues raised by the pleadings potentially involved questions concerning the jurisdiction of this Court as discussed by the High Court in Re Wakim; ex parte McNally (Spinks v Prentice) (1999) 198 CLR 511[v]. Despite the volume of the pleadings, there were only two real liability issues in the case. The first was whether the Divergent contract obliged Ginger Max to receive installation of the system in all 82 Best & Less stores. If so, the second question was whether the contract for the sale of Best & Less obliged Pepkor to carry out the Divergent contract. The parties in fact conducted a breach of contract case and largely ignored the causes of action under the TPA and FTA. However, as a clear jurisdictional base was provided by the TPA claims, there seemed little point in hearing argument about whether a Judge of the New South Wales Supreme Court had nothing better to do with his/her time than to take up this case just as it was about to start in this Court, particularly as it involved a “paper mountain” and a veritable miasma of fine detail.FACTUAL BACKGROUND Prior to 1996, Divergent had been involved in the development of POS software mounted on hardware supplied by National Cash Registers (NCR) with which it had had a long relationship[vi]. Ginger Max was already using NCR equipment for its point of sale system. However, by 1996, NCR was no longer willing to service this equipment because of its age, except at ever increasing cost, and in July of that year, it introduced Divergent to Ginger Max[vii] to discuss the possibility of Divergent installing an integrated POS computer system in Best & Less stores. After lengthy negotiations, the Divergent contract was finally signed on 22 October 1996 for the installation in Best & Less stores of Divergent’s POS system in conjunction with a head office polling system[viii]. The cover of the Divergent contract read: “Head Office Polling System and Point of Service Proposal Prepared for Best & Less 21st October 1996”. The Divergent software was written on a platform already in operation in many large not dissimilar operations where POS systems were in use. Although customised to Best & Less’ needs, little if any modification of the Divergent software was needed to make it applicable and appropriate to the Best & Less situation. Parts of the software that Ginger Max did not want were written out of the system or left for use some time in the future mainly because, as I understood the evidence, it was strictly a POS system alone and did not contain a merchandising system. The only connection between the POS software in the shops and head office was the so-called polling system for transmission of each store’s daily sales data to the central processing area. Divergent held the relevant software licences. Under the Divergent contract, Ginger Max required the system to pass a pilot test and then a live store test before it would confirm that Divergent was to commence installing the system generally. Once the system passed all the tests, Ginger Max would then give Divergent confirmation to commence the installation.

Evidence

Evidence Before The Court

Ginger Max also denied misleading or deceiving Divergent and said that Divergent relied, not on any representations that it may have made, but solely on the terms of the contract.THE EVIDENCE In all, 12 witnesses were called during the hearing. Divergent called its two directors at the time, Messrs Rosen (who founded the company) and Thomas, an expert accountant Goodwin Cullimore Allen Gower, and an information technology expert Peter Geoffrey Summers. Ginger Max called Berel Ginges and Barry Claude McCann. Mr Ginges was Managing Director of Best & Less until it was sold and is a Director of Ginger Max. He was contracted to remain as a consultant for one year after the sale, ostensibly to assist the new owners in finding new store locations[xix], but his services were terminated in September or October 1998[xx]. Mr McCann was Financial Controller of Best & Less from 26 September 1986 until the sale[xxi]. He is a director of Ginges Holdings Pty Ltd, which is the major shareholder of Ginger Max. For the other respondents, who were jointly represented, the third and fourth respondents themselves gave evidence along with Ethel Louise Webb, Hein Marais, Lester Robin Aderem, and an expert accountant, Mark Brinley Bryant. Mrs Webb started at Best & Less in March 1970 and was its computer systems officer from the mid-1980s. She was still in that position at the time of trial.[xxii] Mr Marais was a director of a Pepkor subsidiary in 1997 and 1998 and performed part of the due diligence of Best & Less[xxiii]. In June 1998 Mr Aderem joined, and in February 1999 he became a director of, Universal Computer Services Pty Limited, a South African company that supplies software and related services to the retail industry and looks after the information technology needs of large corporate retailers. From 1988 to early 1998[xxiv], Mr Aderem was a director of Triple S Computers Pty Limited, the South African software company acquired by SVI after it acquired Divergent. On Mr Rosen’s recommendation, SVI did not retain him after the acquisition and he was retrenched. Pepkor then engaged him as a consultant to evaluate the computer systems after Pepkor took over Best & Less[xxv].THE CONVERSATIONS Conversations between the lay witnesses in the period 1996 and 1998 sit at the heart of this dispute. There are major conflicts between many of the witnesses about what was actually said and some disputes about whether certain discussions took place at all. There are also internal inconsistencies in the various accounts of some witnesses. This situation requires a comparison of the accounts given, and findings and assessments of the credibility of the principal witnesses.Divergent’s account Mr Rosen said that he had numerous dealings with Mr Ginges and Mr McCann between July and October 1996 in negotiating the final version of the Divergent contract. During these negotiations, he was told on several occasions that Ginger Max would require the Divergent POS system to be installed in 82 Best & Less stores over a period of time subject to cash-flow[xxvi]. Mr Thomas agreed with[xxvii], and Mr McCann either agreed with or did not dispute, this evidence[xxviii]. In his affidavit Mr Ginges did not recall the conversation but conceded that it may have been said[xxix]. His oral evidence made clear his agreement with Mr Rosen’s recollection.

Decision

Reasons for decision

EINFELD J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: EINFELD J

Full text does not contain this section.