FEDERAL COURT OF AUSTRALIA
SVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED
[2001] FCA 279CONTRACT – 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 Corporation & Ors v Asia Australian Express Ltd & Ors (The “Lakatoi Express”) (1990) 19 NSWLR 285 referred to
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 referred to
Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290 referred to
Australian Co-Operative Foods Ltd v Norco Co-Operative Ltd (1999) 46 NSWLR 267 considered
JLW (Victoria) Pty Ltd v Tsiloglou & Ors [1994] 1 VR 237 applied
Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 referred to
Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 referred to
Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315 approved
Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144 cited
Gregory & Bradshaw v MAB Pty Ltd [1989] 1 WAR 1 followed
Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 cited
May and Butcher Ltd v R [1934] 2 KB 17n referred to
Foley v Classique Coaches Ltd [1934] 2 KB 1 referred to
G Scammell & Nephew Ltd v Ouston [1941] AC 251 consideredSVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED & ORS
N342 of 2000
EINFELD J
20 MARCH 2001
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N342 OF 1999
BETWEEN:
SVI SYSTEMS PTY LIMITED (ACN 003 908 325) (formerly Divergent Technologies Pty Limited ACN 003 908 325)
APPLICANTAND:
BEST & LESS PTY LIMITED (ACN 003 724 696)
FIRST RESPONDENTGINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955)
SECOND RESPONDENTCAREL STASSEN
THIRD RESPONDENTIAIN DAVID MacDONALD
FOURTH RESPONDENTBEST & LESS PTY LIMITED (ACN 003 724 696)
FIRST CROSS-CLAIMANTGINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955)
CROSS-RESPONDENT TO FIRST CROSS-CLAIMGINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955)
SECOND CROSS-CLAIMANTBEST & LESS PTY LIMITED (ACN 003 724 696)
FIRST CROSS-RESPONDENT TO SECOND CROSS-CLAIMPEPKOR LTD (RN 65/077/6506)
SECOND CROSS-RESPONDENT TO SECOND CROSS-CLAIMPEPKOR LTD (RN 65/077/6506)
THIRD CROSS-CLAIMANTGINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955)
FIRST CROSS-RESPONDENT TO THIRD CROSS-CLAIMGINGES HOLDINGS PTY LIMITED
SECOND CROSS-RESPONDENT TO THIRD CROSS-CLAIMPEPKOR LTD (RN 65/077/6506)
FOURTH CROSS-CLAIMANTSVI SYSTEMS PTY LIMITED (ACN 003 908 325)
FIRST CROSS-RESPONDENT TO FOURTH CROSS-CLAIMSHAUN ROSEN
SECOND CROSS-RESPONDENT TO FOURTH CROSS-CLAIMMALCOLM THOMAS
THIRD CROSS-RESPONDENT TO FOURTH CROSS-CLAIMJUDGE:
EINFELD J
DATE OF ORDER:
20 MARCH 2001
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
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........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 6THE CLAIMS
Divergent’s position........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 7
Pepkor’s position........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 8Ginger Max’s position........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 9
THE EVIDENCE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 9
THE CONVERSATIONS
Divergent’s account........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 10
Pepkor’s account........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 15Ginger 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........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 36Collateral 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........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 54Total damages........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 57
COSTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 57
ORDERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 58
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N342 OF 1999
BETWEEN:
SVI SYSTEMS PTY LIMITED (ACN 003 908 325) (formerly Divergent Technologies Pty Limited ACN 003 908 325)
APPLICANTAND:
BEST & LESS PTY LIMITED (ACN 003 724 696)
FIRST RESPONDENTGINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955)
SECOND RESPONDENTCAREL STASSEN
THIRD RESPONDENTIAIN DAVID MacDONALD
FOURTH RESPONDENTBEST & LESS PTY LIMITED (ACN 003 724 696)
FIRST CROSS-CLAIMANTGINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955)
CROSS-RESPONDENT TO FIRST CROSS-CLAIMGINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955)
SECOND CROSS-CLAIMANTBEST & LESS PTY LIMITED (ACN 003 724 696)
FIRST CROSS-RESPONDENT TO SECOND CROSS-CLAIMPEPKOR LTD (RN 65/077/6506)
SECOND CROSS-RESPONDENT TO SECOND CROSS-CLAIMPEPKOR LTD (RN 65/077/6506)
THIRD CROSS-CLAIMANTGINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955)
FIRST CROSS-RESPONDENT TO THIRD CROSS-CLAIMGINGES HOLDINGS PTY LIMITED
SECOND CROSS-RESPONDENT TO THIRD CROSS-CLAIMPEPKOR LTD (RN 65/077/6506)
FOURTH CROSS-CLAIMANTSVI SYSTEMS PTY LIMITED (ACN 003 908 325)
FIRST CROSS-RESPONDENT TO FOURTH CROSS-CLAIMSHAUN ROSEN
SECOND CROSS-RESPONDENT TO FOURTH CROSS-CLAIMMALCOLM THOMAS
THIRD CROSS-RESPONDENT TO FOURTH CROSS-CLAIM
JUDGE:
EINFELD J
DATE:
20 MARCH 2001
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
Divergent Technologies Pty Limited (Divergent) was an Australian company which developed computer software and integrated computer systems for use in retail operations. In late 1996 or early 1997, Divergent sold its interests to the applicant, SVI Systems Pty Limited (SVI) of the United States, and early in 1998 SVI acquired Triple S Computers Pty Limited, a South African company operating in the same field[i]. Because it was the company which commenced these proceedings, the parties referred to the applicant as Divergent. For convenience, I continue that practice.
Although its name was only adopted after the sale, the second respondent (Ginger Max) owned the “Best & Less” chain of retail stores between 1965 and 31 March 1998[ii] when it was sold to a South African based group of companies headed by Pepkor Ltd[iii]. Until then the company operating the chain was Best & Less (Leasing) Pty Limited, a name changed by the new owners to Best & Less Pty Limited (the first respondent). To avoid confusion, I shall refer to the chain of stores as “Best & Less”, to the original owners as “Ginger Max”, and to the new owners as “Pepkor”.
Between 1995 and early 1996, Ginger Max (as the then owner of Best & Less) was looking around for a new computerised point of sale (POS) system to install in its stores[iv]. A POS system is the computer hardware and software needed at retail store checkouts to process the goods that customers are purchasing and to deal with payment for the goods. It is distinct from a computerised merchandising system which Ginger Max had in the “back office” of each Best and Less store and which was linked to the “management office” so that management could receive the daily transactions for accounting, financial and other trading and commercial purposes.
In 1996 Divergent and Ginger Max entered into a contract for the installation of a computerised POS system into Best & Less stores (the Divergent contract) and in the ensuing years, including after Pepkor purchased the chain, the system was installed in a number of stores. Then, five months after the sale, on 31 August 1998, Pepkor stopped the installations and Divergent launched this action 8 months later on 21 April 1999.
THE PROCEEDINGS
The proceedings have been taken against Ginger Max, Pepkor and two of its directors - Carel Stassen (the third respondent) and Iain MacDonald (the fourth respondent) - seeking relief under section 87 and damages under section 82 of the Trade Practices Act 1974 (Cth) (TPA) or the equivalent provisions of the Fair Trading Act 1987 (NSW) (FTA), (there is no relevant difference between them), and for breach of contract.
Four cross claims were filed. Under the first cross claim, Pepkor sought from Ginger Max a full indemnity for any liability of Pepkor to Divergent and damages for breach of contract.
Under the second cross claim, Ginger Max sought an order that Pepkor take an assignment or novation of the Divergent contract and full indemnity for any liability of Ginger Max to Divergent.
Under the third cross claim which substantially duplicated the first, Pepkor sought from Ginger Max (and an associated company Ginges Holdings Pty Ltd) an indemnity or compensation for any liability of Pepkor to Divergent or to Ginger Max proved in the second cross claim.
Under the fourth cross claim, Pepkor sued the applicant and two of the then Divergent directors (Shaun Rosen and Malcolm Thomas) for an indemnity or compensation for any liability of Pepkor to Ginger Max, or damages for breach of contract and under the TPA.
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.
Originally, Divergent wanted to commit Ginger Max to installing the system in all 82 stores by October 1999 if the pilot was successful but Ginger Max did not wish to guarantee a date for the full installation. Whilst it was seeking installation in all the stores, Ginger Max made clear during negotiations that it did not want to be absolutely bound to a certain end date largely because it was Ginger Max policy not to borrow but to fund the installation from cash-flow[ix]. To that end, the Divergent contract contained on page 5 what the parties referred to as the “best endeavours” clause:
Store Roll Out
A Test store system has already been delivered to Leichhardt and Ethel Webb has been trained on this system since returning from overseas.
·Best & Less and Divergent/NCR aim to commence Head Office and store pilot by week ending 22-11-96 [date handwritten and initialled in the margin] and agree to complete pilot by end of January 1997.
·Best & Less will use their best endeavours to roll out a minimum of (12) stores by December ‘97 [date handwritten and initialled in the margin].
·Best & Less will use their best endeavours to roll out a further 35 stores by October 1998 and the balance of the stores by October 1999, but Best & Less are not bound by any guarantee to do so.
In about mid 1997, Ginger Max was introduced to Pepkor as a possible purchaser of the Best & Less chain and a number of Pepkor officials visited Australia to discuss the matter[x]. Divergent was asked to talk to them during negotiations in September and October 1997 and it did so. The sale negotiations collapsed but were resurrected, and a sale to Pepkor was eventually concluded[xi] by a contract dated 4 February 1998 entitled “Agreement for sale of assets and shares”[xii] (the sale contract). By this time the pilot had been successfully completed and installation of the Divergent system was occurring in batches of varying numbers of stores.
Clause 12 of the sale contract provided for the assignment or novation to Pepkor of Ginger Max’s obligations under certain contracts and agreements set out in Schedule 4 including[xiii]:
2.Sales Quotation, Sundry Pricing and Terms, Product Maintenance Services Agreement and dolFIN Software Licence dated 21 October 1996 between Divergent Technologies Pty Limited and B&L Australia (Ginger Max)
To give effect to this provision, Ginger Max arranged for Divergent to sign and return a Deed of Novation of the Divergent contract to Pepkor.[xiv]
When Pepkor took over Best & Less, the Divergent POS system had been installed in about half the stores. It then asked Divergent to install the system in a further six stores and there was discussion about a possible rapid installation at a reduced cost by which the system would go into the stores more quickly and cheaply. Divergent would then get paid less but more quickly. There was no agreement on these matters but while the installations were proceeding, Pepkor started to look for a new fully integrated merchandising hardware and software system to include POS. Among others, Divergent was asked to put forward a proposal[xv] but at the end of August 1998, Pepkor went into negotiations with a firm called JDA Software Group Inc (JDA) whose system was apparently available at very low cost[xvi]. Divergent was then told that it would not be continuing to install its POS system and that JDA would be installing a different system[xvii]. At that moment, the Best & Less POS system was a mixture of what Divergent had installed into approximately 40 stores[xviii] and the old technology in the remainder.
THE DISPUTE
Despite the multiplicity of parties, pleadings and allegations, the dispute is simply stated. Divergent alleges and Pepkor denies that Pepkor was bound to install the Divergent POS system in all the Best & Less stores. The words relied on by Pepkor to escape this obligation are those in the “best endeavours” clause:
“but Best & Less are not bound by any guarantee to do so.”
THE CLAIMS
Divergent’s position
In its statement of claim and subsequently, Divergent claimed that Pepkor was bound to the installation of its system in all Best & Less stores for the following reasons:
(a)The Divergent contract commenced on 22 October 1996.
(b)That contract was partially completed by Ginger Max from 22 October 1996 up to the sale of Best & Less.
(c)Ginger Max represented to Divergent that it would install Divergent’s POS system in all the Best & Less stores in accordance with the “best endeavours” clause which was entirely related to and dependent upon sufficient cash-flow.
(d)The Divergent contract was novated to Pepkor on the sale of Best & Less on 31 March 1998.
(e)Pepkor accepted and confirmed the novation by continuing to order or allow installation of Divergent’s system in the Best & Less stores up to 31 August 1998.
(f)Pepkor represented to Divergent that it would continue to install its system by attempting to renegotiate the terms of the Divergent contract in Pepkor’s favour.
(g)Pepkor represented to Divergent, and warranted by its actions and its representations, that it would continue to install its system, either in accordance with the “best endeavours” clause or on the basis of a rapid installation for a lower price than agreed in the novated Divergent contract.
(h)Pepkor breached the sale contract by refusing to allow installation of Divergent’s system after 31 August 1998.
(i)Pepkor misled or deceived Divergent by continuing to install its system when it had no intention of proceeding with the installation.
(j)Pepkor is estopped from denying that the Divergent contract is binding by virtue of its own conduct.
(k)Divergent suffered loss and damage as a result of these events and actions.
Divergent also alleged that Ginger Max breached the “best endeavours” clause by not in fact using its best endeavours to continue to install Divergent’s system in all its stores. Divergent submitted, and Ginger Max agreed, that the Divergent contract bound both parties to the installation of its POS system in 82 Best & Less stores and required Ginger Max to use its “best endeavours” to have the installation completed within a certain time frame. The “best endeavours” clause was said to be, or to be subject to, a collateral oral agreement between Divergent and Ginger Max that the speed and progress of the installation was and would be connected to cash-flow. The Divergent contract and this collateral agreement was also novated to Pepkor on the sale.
Pepkor’s position
(a)The Divergent contract was not legally binding on Pepkor.
(b)If it was a binding contract, it was void for uncertainty and incompleteness.
(c)Any contract had not been novated.
(d)If there was a contract and it had been novated, Pepkor was not in breach.
(e)Pepkor did not make any representations that it would continue with the contract.
(f)If it had made representations, those representations were not misleading or deceptive.
(g)Pepkor was not estopped from denying the existence of the contract.
Pepkor claimed that in one of its meetings with Ginger Max, Ginger Max had asserted that it was not bound to install the Divergent system in all the stores and neither was Pepkor. Pepkor also claimed that representatives of Divergent made a similar statement. Simply put, Pepkor’s position was that there was no binding contract to install the Divergent POS system and that the concluding words of the “best endeavours” clause mean no more than “maybe we will or maybe we won’t”.
Pepkor’s argument that the Divergent contract was either not binding or void for uncertainty was based on the assertions that it did not contain all essential terms, such as the “Acceptance Test Criteria” for the pilot, some prices, and some non-completed parts, and that the meaning of the “best endeavours” clause was uncertain. Oddly, this argument would mean that the contract also did not bind Divergent and Ginger Max, a viewpoint neither of them advanced and which confronts some of Pepkor’s own actions. Alternatively, Pepkor contended that the Divergent contract was a “master agreement”, providing that as Ginger Max ordered the POS system to be installed in each store, the contract would be “activated”. Again, neither Divergent nor Ginger Max agreed with this view.
Ginger Max’s position
Ginger Max said that there was never any question that the Divergent system would be installed in all 82 Best & Less stores. Once Ginger Max had committed itself to installing the system after the pilot, the only qualification to full installation was cash-flow, so that the only “uncertainty” about the Divergent contract was the date of completion.
Ginger Max denied any obligation to complete the contract after the sale to Pepkor and any liability for Pepkor’s failure to complete it. Ginger Max’s position was that it was no longer liable under the contract because of:
(a)its compliance with all its obligations under the contract and with any representations that it may have made in respect of its content during its ownership of Best & Less;
(b)the sale of Best & Less to Pepkor;
(c)the novation of the Divergent contract to Pepkor;
(d)Pepkor’s acceptance, assumption and indemnification of Ginger Max’s liabilities under the Divergent contract; and
(e)the subsequent negotiations between Divergent and Pepkor directly for possible variations to the Divergent contract without reference to Ginger Max.
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.
Mr Rosen stated that Mr Ginges told him in mid-September 1997[xxx] that Best & Less was being sold to South African interests and that Mr Marais attended at Divergent’s offices either in late September or early October 1997 as part of Pepkor’s due diligence operations[xxxi]. They discussed the arrangements between Ginger Max and Divergent and Mr Marais had said that the hardware prices were expensive[xxxii]. According to Mr Rosen and Mr Thomas, they and Mr Marais again discussed the arrangements for the installation of the Divergent system in the Best & Less stores on 10 October 1997[xxxiii]. (Mr Thomas thought that this conversation occurred on 9 October[xxxiv].) Mr Marais had said that if Pepkor was to buy Best & Less, it would want the Divergent system installed more rapidly than was occurring and would require the price to be discounted. Mr Thomas also stated that between 23 September and 10 October 1997, Mr Marais told him on a number of occasions that if the sale of Best & Less proceeded, Pepkor would “take over” the Divergent contract, would want the installation to proceed more rapidly and with some discounting, and would consider using the Divergent system in South Africa[xxxv]. Mr Marais denied all these conversations[xxxvi].
According to Mr Rosen, Mr Ginges told him in early November 1997 that the sale of Best & Less to Pepkor was not proceeding and that the installation of the Divergent POS system would continue in accordance with the contract[xxxvii]. Mr Thomas stated that he learned from Mr Marais on 10 October 1997 that the sale was not proceeding[xxxviii]. Mr Rosen said that on 8 December 1997, Mrs Webb faxed him a “proposed installation schedule” for the period January to June 1998[xxxix]. Mr McCann said that Mrs Webb would always discuss the progress of the installation of the Divergent POS system before arranging for installation in further stores[xl]. When he told Mr Rosen that the sale to Pepkor would be proceeding, Mr McCann had said that he would arrange for a Deed of Novation of the Divergent contract to be sent to Divergent for execution and return to Ginger Max’s solicitors[xli]. Mr McCann did not specifically recall this conversation but said that it is likely to have occurred as it accurately reflects the position at the time[xlii].
Mr Rosen and Mr Thomas said that following the sale, they had a conversation with Mr MacDonald and Mrs Webb on 12 May 1998. Mr MacDonald said that Pepkor would continue installation of the Divergent POS system and asked for cost savings. Mr Rosen told Mr MacDonald that he would try to find savings but if he could not, the prices set out in the contract would continue to apply[xliii].
Mr Rosen said that the Divergent contract was again discussed with Pepkor representatives at a meeting on 27 May 1998. At that meeting, Mr Stassen had affirmed that Pepkor wanted the POS installation to be “fast-tracked” and asked about Divergent’s (SVI’s) proposed purchase of Triple S on the basis that Pepkor would consider using Divergent’s system (through Triple S) in South Africa. Mr Stassen had also again asked for price reductions on the cost of the Divergent software[xliv]. Mr Stassen denied this conversation on the apparently somewhat disingenuous basis that he had no authority to conduct negotiations on Pepkor’s behalf and did not control Pepkor[xlv].
Mr Rosen stated, and Mr Thomas confirmed, that on 3 June 1998 Mr Stassen again requested a “fast-tracking” of the installation of the system and asked for price reductions. He also again mentioned the possibility of changing hardware suppliers. Mr Rosen replied that if the “fast-tracking” did not occur and no other savings could be found, Divergent would continue to charge Pepkor in accordance with the contract[xlvi]. Mr Stassen denied or did not recall this conversation[xlvii].
Mr Rosen travelled to South Africa in the week of 11 June 1998 and had a meeting with Mr Stassen and Mr Aderem among others. He asked them what was to happen with the installation of the POS system and confirmed to them Divergent’s view that there was a binding contract. Mr Stassen had stated that Pepkor was happy with the POS software but had suggested that there were possible cost savings by changing from NCR hardware to IBM hardware and by purchasing Divergent’s own merchandising system software. Mr Rosen said that he subsequently relayed this conversation to Mr Thomas in Australia[xlviii]. Mr Stassen denied that this conversation occurred[xlix].
Mr Thomas said that he had conversations with Mr MacDonald and Mrs Webb on 22 June 1998 and that both had confirmed that Pepkor would be proceeding with the installation of the Divergent system but that Pepkor wanted to change hardware supplier to reduce the cost of the system[l]. Mr MacDonald did not specifically deny this conversation but said that he had several conversations with Mr Thomas leading up to that date in which he requested breakdowns of costs, which he did not receive. Mr MacDonald also said that Mr Thomas was pressing for a decision as to whether Pepkor would be changing from NCR to IBM hardware. He stated that at a meeting with Divergent and IBM representatives on 23 June 1998, he asked IBM for a breakdown of costs for hardware and maintenance if Pepkor was to commence using its hardware. The IBM representatives questioned why costing for maintenance was required when NCR was required to provide maintenance on its equipment. Mr MacDonald replied that Pepkor did not want to “wear the risk” that NCR would not provide maintenance on its hardware[li].
Mr Rosen stated, and Mr MacDonald agreed except as to date, that in a conversation with Mr MacDonald on 30 June 1998, Mr MacDonald had said that Pepkor was not liable for the fees that NCR was charging for hardware maintenance because he had read “the contract” and it provided a 3 year on-site parts and labour warranty[lii]. Mr MacDonald said that this meeting was on 26 June[liii]. Mr Rosen said, and Mr Thomas confirmed, that at a meeting with Pepkor and NCR representatives on 1 July 1998, he told the NCR representatives that NCR should not be charging for hardware maintenance under the Divergent/NCR agreement. Mr MacDonald had replied that Pepkor would not pay NCR’s charges as they were not covered by Pepkor’s “contract” with Divergent[liv]. Mr MacDonald denied that this conversation occurred in the terms alleged and said that he told Mr Rosen that he was disappointed that the warranty issue had not been resolved, that Pepkor had bought Best & Less on the assumption that NCR would provide the warranties described in the Divergent contract, and that it was an issue to be resolved between Divergent and NCR without the involvement of Pepkor[lv].
Mr Thomas said that on 21 July 1998, he asked Mr MacDonald to confirm the timing of the installation of the POS system and to advise him whether Pepkor would require NCR or IBM hardware. Mr MacDonald had confirmed that Pepkor would continue the installation of the Divergent system and had faxed Pepkor’s hardware requirements for the installation in a further six stores[lvi]. Mr MacDonald denied this conversation and said that he had not made a decision on the hardware as he did not have sufficient information because he had not been given the hardware prices.
Mr Rosen stated, and Mr Thomas again confirmed, that at a meeting on 31 July 1998, Messrs Stassen, MacDonald and Aderem again raised the cost of the Divergent system. They believed that Divergent was overcharging for the products it was supplying and wanted cost savings under the contract. Mr Aderem said that he had contacted Divergent’s suppliers and that he could obtain cheaper prices for the hardware. Mr Rosen disputed that Divergent was overcharging and said that the prices were in accordance with the contract. Mr Rosen stated that Divergent’s system was a complete package and had to be viewed as a whole, not simply as a matter of changing components[lvii]. At the conclusion of the meeting, Mr Stassen had confirmed that Pepkor would be proceeding with the installation of Divergent’s POS system and requested that Divergent provide Pepkor with a proposal for a merchandising system[lviii].
Mr MacDonald denied or did not recall this conversation. He said that he told Mr Rosen that Pepkor wanted the savings on the hardware supplied by NCR passed on and that until a decision regarding change of hardware suppliers was made, the installation of the POS system was to continue on a store-by-store basis as had occurred previously[lix]. Mr Stassen also denied the conversation asserted by Mr Rosen. He stated that he and Mr Aderem told Mr Rosen that Pepkor was considering other merchandising systems and invited a proposal from Divergent. They told Mr Rosen that their decision would be based on price as well as quality. Mr Stassen also told Mr Rosen that Pepkor wanted further cost savings on the POS system and that Divergent would have some advantage when Pepkor was considering proposals because it was currently providing the system[lx]. Mr Aderem also denied Mr Rosen’s account and asserted that Messrs Rosen and Thomas told him that changing from NCR to IBM hardware would result in the cost savings that Pepkor wanted[lxi].
Mr Thomas stated that on 3 August 1998, he told Mr Stassen that he was concerned that Pepkor had not made a decision regarding the possible change of hardware suppliers. Mr Stassen told Mr Thomas “not to worry” and that Pepkor would continue with the installation of the Divergent system[lxii]. This assurance had been repeated by Mr Stassen on 21 August 1998 at a meeting in South Africa[lxiii]. Mr Stassen denied making these statements[lxiv].
Mr Rosen said that Mr MacDonald told him on 7 August 1998 that all correspondence to Pepkor was to be addressed to him and not Mr Stassen[lxv] so that communication would be through one person rather than many, as had previously occurred[lxvi].
Mr Rosen said that he contacted Mr Stassen in South Africa on 24 September 1998 and that Mr Stassen had told him that Pepkor would not be continuing the installation of the Divergent POS system because of the cost, that JDA would be supplying a new system, and that Pepkor had been advised that the Divergent contract was not binding[lxvii]. Mr Stassen agreed that he used words to this effect[lxviii]. Following that conversation, Mr Rosen contacted Mr Ginges by telephone and Mr Ginges confirmed to him that it had always been Ginger Max’s intention to complete the installation of the Divergent system[lxix]. In his affidavit Mr Ginges recalled this conversation without admitting the precise account of Mr Rosen but in his oral evidence he made clear that it had always been Ginger Max’s intention to install the system in 82 Best & Less stores after the first 12 had been completed. Mr Ginges said that when Mr Rosen told him that Pepkor was not continuing with the installation of the Divergent system and intended using JDA as a supplier, he had expressed surprise as it was the first time that he had heard that Pepkor was contemplating installing a completely new and different system[lxx].
Mr Rosen said that he and Mr Thomas had a telephone conversation with Mr MacDonald on 15 October 1998 regarding whether Pepkor would be continuing with the installation of Divergent’s POS system. Mr Rosen told Mr MacDonald that full installation of the system had not been an issue with Ginger Max and that he, Mr MacDonald, had made similar “representations”. Yet Pepkor was not using its best endeavours to complete the installation. Divergent would prefer to continue its installation but if Pepkor took on another supplier, Divergent would consider removing its software from the stores where its system was already installed and take legal action against Pepkor. Mr MacDonald had replied that Pepkor would be proceeding with another supplier and that it was a business decision not to continue installing the Divergent system. He had also said that it was a business decision for Divergent as to whether legal proceedings were commenced[lxxi]. Mr MacDonald recalled Mr Rosen’s reference to Ginger Max but denied the rest of the conversation. Mr MacDonald said that Mr Rosen’s comment regarding removal of Divergent’s software was more in terms of a threat, and that Mr Rosen had said that NCR and IBM would not supply hardware to Pepkor except through Divergent[lxxii].
Pepkor’s account
Mr Stassen stated that he attended a meeting in Australia on 7 July 1997 between representatives of Pepkor and Ginger Max as a part of the negotiations for the sale of Best & Less. At that meeting, Mr Ginges told him that Ginger Max (as the then owner of Best & Less) was not bound to continue with the whole installation of the Divergent system[lxxiii]. Mr Ginges denied any such statement and said that Mr Stassen asked him whether Ginger Max would install the Divergent system faster if sufficient funds were available and he told Mr Stassen that there were concerns whether the staff could handle a faster installation[lxxiv].
Mr Marais gave evidence of a conversation with Messrs Rosen and Thomas on 23 September 1997 at the Divergent offices. He discussed with them the purpose of his visit, the involvement of Mr Stassen in the sale of Best & Less, and some technical issues with the Divergent system. He said that he would not be involved in Best & Less if Pepkor eventually purchased it[lxxv]. He was shown a copy of the Divergent contract and discussed with Messrs Rosen and Thomas possible cost savings and whether it was “binding”. Remarkably, Mr Marais alleged that Mr Rosen effectively told him that Ginger Max could terminate the installation of the system at any time[lxxvi]. Unremarkably, this statement was denied by Mr Rosen but he said that Ginger Max wanted to slow down the installation of the system to allow for sufficient cash flow.
Mr Marais agreed that on 10 October 1997 he told Mr Thomas that the sale of Best & Less would not be proceeding, that he was returning to South Africa, and that he would consider the proposal for the use of Divergent technology in Pepkor’s South African stores[lxxvii].
Mr MacDonald described a meeting with Messrs Rosen and Thomas at the Best & Less Head Office on 12 May 1998 attended also by Mrs Webb. The meeting revolved around potential problems with the NCR hardware and the NCR warranties, and with the proposition that the Divergent system was “too expensive”. Mr MacDonald said that Mr Rosen tried to convince him that Pepkor should switch from NCR to IBM as hardware supplier. When he raised the question of merchandising software, Messrs Rosen and Thomas offered to put together a proposal for Pepkor[lxxviii]. Mr Rosen said he again told Mr MacDonald that he would try to find cost savings under the contract, but it would be unlikely unless Pepkor decided to change hardware suppliers. In the meantime, installation of the Divergent system would continue as before[lxxix].
Mr Stassen[lxxx] and Mr MacDonald[lxxxi] said that on 27 May 1998 (after the purchase of Best & Less), they discussed with Divergent a proposal for it to supply Best & Less with a merchandising system. At the meeting, they complained that Divergent’s POS system was “too expensive” and stated that Pepkor was considering buying a combined merchandising and POS system which was cheaper[lxxxii]. This complaint was again raised at two separate meetings with Mr Rosen, one on 3 June 1998 in Australia and one on 11 June 1998 in South Africa[lxxxiii]. Mr Rosen denied all these conversations and said that the merchandising system software proposal was never connected to the POS system or its installation[lxxxiv].
Mr Stassen and Mr MacDonald described, and Mr Rosen denied, a “Special Offer” by Divergent on or about 1 July 1998 for conditional price reductions on the POS system. Mr MacDonald asked for further information about the “Special Offer”, which he never received, and the “offer” was not taken up[lxxxv]. Mr Rosen’s account of the conversation included that he told the Pepkor representatives that Divergent’s charges were based on prices charged to Divergent by third parties. He did provide the Pepkor representatives with a proposal for price reductions, but it was related to the provision of a merchandising system not the POS system. Mr MacDonald said that the installation of the POS system would continue as before until Pepkor made a decision regarding the merchandising system[lxxxvi].
Mr MacDonald told Mr Thomas on 16 July 1998 that Pepkor was approaching other suppliers for proposals for a combined merchandising and a POS system[lxxxvii]. Mr Stassen testified that further “complaints” were made about the cost of the POS system at a meeting with Divergent on 31 July 1998 also attended by Mr Aderem where he also stated that Pepkor was considering three other combined merchandising and POS systems[lxxxviii]. On 31 July 1998, Mr MacDonald and Mr Stassen again discussed with Messrs Rosen and Thomas the cost of the POS system and the possibility of obtaining a new merchandising system[lxxxix]. Mr Rosen said that Mr MacDonald never informed anyone at Divergent at that time that Pepkor was approaching other suppliers for a totally new POS system and that Divergent had only been asked for proposals relating to new merchandising system software[xc].
Mr Aderem who was at that meeting informed Messrs Rosen and Thomas that he was evaluating merchandising system proposals and asked them whether or not they intended to present one. He also complained about the cost of the POS system[xci], as he did again later that day. Mr Rosen had told him that although he would try to reduce the cost of the system, the contents and prices contained in the contract were not negotiable, that Pepkor had to look at the overall system being provided, and that components could not be changed on a “whim”[xcii].
Mr Stassen also described a conversation with Mr Ginges in or about September 1998 during a visit to the Liverpool Best & Less store. Following a phone call, Mr Ginges had asked Mr Stassen whether Pepkor was continuing with the Divergent POS system. Mr Stassen had replied that Pepkor was still in the decision-making process[xciii]. Mr Ginges denied the conversation and said that Mr Stassen told him that South African reporters would be in attendance and he was to extol to the reporters the virtues of Best & Less. In the presence of the reporters, Mr Stassen praised the software system used in the back office of the store and commented that no such system was available in South Africa[xciv].
Mr Stassen related yet another conversation with Messrs Rosen and Thomas in late September 1998 regarding the cost of the Divergent POS system and the new merchandising software proposals they had received from Divergent and others. Mr Stassen told Mr Rosen that Pepkor was still unhappy with the cost of the POS system and that they were still assessing the merchandising software proposals[xcv]. Mr Rosen denied this conversation but the parties agreed that shortly after this time, after Mr Stassen had returned to South Africa, they had a telephone conversation in which Mr Stassen told Mr Rosen that Pepkor would be dealing with JDA and not continuing with the Divergent POS system. When Mr Rosen raised the contract, Mr Stassen had told him that they did not have a contract[xcvi]. Mr Rosen said that this was the first time he had been told that Pepkor was considering changing suppliers for the POS system[xcvii].
Ginger Max’s account
Mr Ginges strongly denied that he or any of his staff told Pepkor that the Divergent contract was not binding.
THE APPLICABLE LEGAL PRINCIPLES
A contract
It is trite law that a contract may be expressly oral, written, partly written and partly oral, or implied, including by conduct. If it is written, it must generally contain all terms agreed to by the parties: Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310; Ryrie v Cruickshank (1896) 17 LR (NSW) 195. A written document is capable of being interpreted as a legally enforceable contract if it contains the essential terms: Harvey v Edward Dunlop & Co Ltd (1927) 39 CLR 302; Baxton v Kara [1982] 1 NSWLR 604, or all terms that form a material or substantial part of the bargain: Dinan v Harper [1922] VLR 49; Rhodes Pty Ltd v Galati [1961] WAR 180.
The written document must also evidence an intention to contract: Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia (1976) 50 ALR 363; Martyn v Glennan [1979] 2 NSWLR 234; Mogg v Raglan and St Arnaud Gold Mining Co NL (1878) 4 VLR (E) 138, and must also sufficiently describe the subject matter of the contract: Corcoran v O’Rourke (1888) 14 VLR 889; Parker v Barnett (1889) 16 VLR 214; Watson v Issell (1890) 16 VLR 607; Pirie v Saunders (1961) 104 CLR 149; Australia and New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21.
A contract will not exist where one party has a discretion as to whether or not to perform, because the apparent consideration provided by that party is illusory. However, the fact that a party is given a wide latitude of choice as to how to perform it does not render the agreement void, if nothing is left for future agreement and as long as the area within which that latitude is to be had is clearly laid down: Allcars Pty Ltd v Tweedle [1937] VLR 35; Thorby v Goldberg (1964) 112 CLR 597; Gregory & Bradshaw v MAB Pty Ltd [1989] 1 WAR 1; Kennard v Bazzan [1962] NSWR 1383; Lewandowski v Mead Carney-BCA Pty Ltd [1973] 2 NSWLR 640; Meehan v Jones (1982) 149 CLR 571; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130; Yaroomba Beach Development Co Pty Ltd v Coeur de Lion Investments Pty Ltd (1989) 18 NSWLR 398.
However, terms can be implied into written contracts. In Australian Co-Operative Foods Ltd v Norco Co-Operative Ltd (1999) 46 NSWLR 267, Bryson J said (at paragraph 61):
Judicial consideration of limits in the nature of requirements of good faith or reasonable conduct on the exercise of contractual powers has been very extensive. Although it cannot be said that a general obligation of good faith in the execution of contracts has been established, opinion in the Court of Appeal of New South Wales has shown openness to the implication of a duty of good faith both in performing obligations and in exercising rights: see the judgment of Sheller JA in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and his Honour's review of “implied terms”. The nature of a contractual power and the circumstances in which it is to be exercised can support such an implication, particularly when such a power if unlimited could operate to enable a party to defeat the contract altogether or impose unreasonable burdens on the other. The implication is appropriate if the contract and the power do not represent what it could reasonably be supposed that the parties intended unless there is some implied limitation requiring reasonableness, honesty or good faith in its exercise. These will often require the implication of some limitation, even if no more than a requirement of honesty, if they are to represent anything which it could reasonably be supposed that the parties intended. Powers, options and elections which are conferred on a party so as to enable it to decide whether to take an advantage for itself must be recognised and distinguished from powers conferred on a party as means of establishing or deciding, so as to affect the interests of all parties, some matter which must be decided if the contract is to be executed effectively.
Uncertainty and incompleteness
Two considerations must be taken into account before concluding that no agreement capable of being enforced has been reached notwithstanding an apparent offer and acceptance. Firstly, the agreement may be uncertain because the language used by the parties is not sufficiently precise and clear in its meaning to identify the scope of the rights and obligations agreed to. Secondly, the agreement may be incomplete because, even though the language used is perfectly clear in its meaning, part of the transaction may still remain to be agreed upon so that there is no completed agreement. In any given case there may in fact be elements both of uncertainty and incompleteness: G Scammell & Nephew Ltd v Ouston [1941] AC 251; Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709; Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106.
When there has been a choice between enforcing an uncertain or incomplete agreement that, when enforced, is something that the parties did not in fact agree to, and on the other hand upholding the reasonable expectations of parties who believed they had a contract, the alleged contract has usually been enforced, especially when it is executed and commercial: Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd [1968] 3 NSWR 761; Amalgamated Television Services Pty Ltd v Television Corporation Ltd [1970] 3 NSWR 85; Cudgen Rutile (No 2) Pty Ltd v Chalk [1975] AC 520; Rowella Pty Ltd v Hoult [1987] 1 QdR 386; Hawthorn Football Club Ltd v Harding [1988] VR 49; Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526; Toyota Motor Corp; In Re Roberts, Repington v Roberts Gawen (1881) 19 Ch D 520; Nea Agrax SA v Baltic Shipping Co Ltd [1976] QB 933. However, the nature of the agreement contemplated must always be considered so that where for example the transaction is a large one and terms usually found in an agreement are missing, elements of uncertainty and incompleteness should not be ignored: Toyota Motor Corp.
Uncertainty
Where a contract is said to be uncertain, but the parties have shown by their conduct that they understand and can apply its terms without difficulty, such conduct should not be ignored by holding that the terms of the contract are unintelligible by reason of uncertainty: York Air Conditioning and Refrigeration (Australasia) Pty Ltd v Commonwealth (1949) 80 CLR 11; Hempel v Robinson [1924] SASR 288; Sinclair v Schildt (1914) 16 WALR 100. In such situations the agreement may be upheld as a contract on the basis that by their actions in performance the parties have made certain the elements which were previously uncertain: Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110.
The same result may also be reached on the basis of an implied contract having come into existence and incorporating as many as possible of the terms of the original agreement: Way v Latilla [1937] 3 All ER 759; British Bank for Foreign Trade Ltd v Novinex Ltd [1949] 1 KB 623.
Whether uncertain conditions can be severed without destroying the entire agreement must also be considered. When a contract contains a number of conditions one of which is void for uncertainty, the question whether the whole contract is void depends on the intention of the parties to be gathered from the agreement as a whole: Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60; Whitlock v Brew (1968) 118 CLR 445; Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251. Where a provision relating to some inessential or incidental matter is vague, uncertain or meaningless, it may simply be ignored: Life Insurance Co of Australia Ltd; Whitlock v Brew; Update Constructions Pty Ltd, and the rest of the contract enforced: Nicolene Ltd v Simmonds [1953] 1 QB 543; Bosaid v Andry [1963] VR 465, Caltex Oil (Aust) Pty Ltd v Alderton [1964-65] NSWR 456; Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486; Cohen v Mason [1961] QdR 518.
It is a question of construction whether the parties intended that if the clause in question could not for any reason take effect the whole contract must fail. Even a clause relating to an important matter may be severable: Fitzgerald v Masters (1956) 95 CLR 420; David Jones Ltd v Lunn (1969) 91 WN (NSW) 468; South Coast Oils (Qld and NSW) Pty Ltd v Look Enterprises Pty Ltd [1988] 1 QdR 680; Spectra Pty Ltd v Pindari Pty Ltd [1974] 2 NSWLR 617.
The test to be applied is whether the parties must be taken to have intended that an offending provision is severable or intended that, if the clause in question could not for any reason take effect, the whole contract must fail: Fitzgerald v Masters; Whitlock v Brew; David Jones Ltd v Lunn; Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144. In determining an intention in respect of a written contract, extrinsic evidence may not be resorted to except where such evidence may be called in aid of interpretation: Whitlock v Brew. Where severance is not possible, because it would radically alter the agreement intended by the parties, the whole agreement will fail: Duggan v Barnes [1923] VLR 27; Whitlock v Brew; G Scammell & Nephew Ltd.
A clause which has more than one possible meaning or which may produce more than one result when interpreted is not void for uncertainty: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429; Head v Kelk [1962] NSWR 1363; McDermott v Black (1940) 63 CLR 161; Waldron v Tsimiklis (1975) 12 SASR 481; Meehan v Jones; Australian Energy Ltd v Lennard Oil NL [1986] 2 QdR 216; Yaroomba Beach Development Co Pty Ltd v Coeur de Lion Investments Pty Ltd (1989) 18 NSWLR 398; Youell v Bland Welch & Co Ltd (The Superhulls Cover Case) (No 2) [1990] 2 Lloyd’s Rep 431; Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (t/as Uncle Bens of Australia) (1992) 27 NSWLR 326; Star Shipping AS v China National Foreign Trade Transportation Corp (The Star Texas) [1993] 2 Lloyd’s Rep 445.
As long as the clause is capable of a meaning, it should be given the meaning consistent with the intention of the parties: Upper Hunter County District Council; Fitzgerald v Masters; Gregory & Bradshaw; Anangel Atlas Compania Naviera SA (No 2); S & E Promotions Pty Ltd v Tobin Bros Pty Ltd (1994) 122 ALR 637; Head v Kelk; Waldron v Tsimiklis; Biotechnology Australia Pty Ltd; BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources (1994) 49 FCR 155.
The question is one of construction: Meehan v Jones, and the language used should be interpreted broadly and fairly: Hillas v Arcos; Cohen v Mason; The Star Texas; Woodside Offshore Petroleum Pty Ltd v Atwood Oceanics Inc [1986] WAR 253; Terrex Resources NL; and not narrowly or pedantically: Upper Hunter County District Council; Head v Kelk; Waldron v Tsimiklis; Biotechnology Australia Pty Ltd. So long as it is not utterly impossible to place a reasonable meaning on the language used and to discern the parties’ intention, the agreement will be enforced: Brown v Gould [1972] Ch 53; Hammond v Vam Ltd [1972] 2 NSWLR 16; Head v Kelk; Meehan v Jones; Gregory & Bradshaw; The Star Texas.
Agreements which are apparently vague or uncertain may be made certain by considering a standard of reasonableness by which the content of the agreement can be more precisely defined: Hillas v Arcos; King v Ivanhoe Gold Corporation Ltd (1908) 7 CLR 617. Alternatively, certainty may be achieved by an appeal to the understanding or practices of business people: R W Cameron & Co v L Slutzkin Pty Ltd (1923) 32 CLR 81; Bowes (carrying on business as British Tie Co) v Chaleyer (carrying on business as J Chaleyer & Co) (1923) 32 CLR 159.
Where a phrase is uncertain only in the sense that the precise implications of the phrase are still to be ascertained, there is no contractual uncertainty provided that when the facts arise for application of the phrase, it is capable of being applied with reasonable certainty: Bowes v Chaleyer; Upper Hunter County District Council; Tonelli v Komirra Pty Ltd [1972] VR 737. However, if the words used, although clear in their meaning, are incapable of being applied to the facts, the agreement will fail for uncertainty: Mercantile Credits Ltd v Harry [1969] 2 NSWR 248; Re Nudgee Bakery Pty Ltd’s Agreement [1971] QdR 24; Custom Credit Corp Ltd v Gray [1992] 1 VR 540.
Incompleteness
A binding contract will not exist if the parties are still in the process of refining essential aspects of the bargain: Australian Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Lubo Medich Holdings Pty Ltd v D and A Lu Pty Ltd (unreported, CA(NSW), Gleeson CJ, Mahoney P & Beazley JA, 8 May 1996). An intention to contract, whether expressed in terms of intention to make or accept an offer or in terms of an intention to create legal relations, is therefore essential. Accordingly, if the parties’ intention to be bound is conditional on agreement being reached in relation to essential terms, there is no contract unless those terms are agreed: Toyota Motor Corp; Metal Scrap Trade Corp v Kate Shipping Co Ltd (The Gladys) (No 2) [1994] 2 Lloyd’s Rep 402.
In other words, for an implication to be made, the parties must have finally agreed on a bargain and the law does not permit a court to imply terms for the purpose of making incomplete negotiations an enforceable contract: Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695; May and Butcher Ltd v R [1934] 2 KB 17n; Toyota Motor Corp; Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32; Hawkins v Clayton (1988) 164 CLR 53; Byrne v Australian Airlines Ltd (1995) 185 CLR 410; Ashmore v Corporation of Lloyd’s (No 2) [1992] 2 Lloyd’s Rep 620.
On the other hand, an incomplete agreement may be enforced if terms relating to essential matters, which the parties themselves have not expressly dealt with, can be implied into the contract. For example, terms relating to a reasonable time for performance and a reasonable price for the subject matter of the contract can be implied: Parker v Manessis [1974] WAR 54; W & J Investments Ltd v Commissioner of Taxation (1987) 16 FCR 314; Foley v Classique Coaches Ltd [1934] 2 KB 1; Whitehouse Properties Pty Ltd v Bond Brewing (NSW) Ltd (1992) 28 NSWLR 17; Couronne Investments Pty Ltd v Bardot Pty Ltd (unreported, SC (Qld), White J, 10 April 1996); Hall v Busst (1960) 104 CLR 206; Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582. In other words, where a contract which is prima facie incomplete has been largely performed by one or both parties, the agreement may be upheld by the implication of terms in order to avoid the injustice to a party who had performed but was unable to enforce the contract: Shire of Yea v Roberts (1879) 5 VLR (E) 222; Hall v Busst.
An arrangement whereby the parties agree to negotiate in the future on some essential matter will not be enforced on the basis that the agreement is incomplete, uncertain or is supported by consideration which is illusory: Carr v Brisbane City Council [1956] St R Qd 402; Courtney and Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297; Mallozzi v Carapelli SpA [1976] 1 Lloyd’s Rep 407; Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; Itex Shipping Pte Ltd v China Ocean Shipping Co (The Jing Hong Hai) [1989] 2 Lloyd’s Rep 522; Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR 1; Walford v Miles [1992] 2 AC 128. Accordingly, the law does not recognise as an enforceable contract an agreement to agree or negotiate a contract: Masters v Cameron (1954) 91 CLR 353; Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284; Bosaid v Andry [1963] VR 465; Godecke v Kirwan (1973) 129 CLR 629; Courtney and Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297; Booker Industries; Woodside Offshore Petroleum; Biotechnology Australia Pty Ltd; Coal Cliff Collieries; Walford v Miles; Vroon BV.
An incomplete agreement, being no more than an agreement of the parties to agree at some time in the future which is not effective as a contract, will not be enforced: Booker Industries; Coal Cliff Collieries. Accordingly, a contract will fail for incompleteness where, even though the language used may be quite clear in its meaning, some essential, material or important part of the bargain is yet to be agreed: see, for example, Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601; Vroon BV; Hempel v Robinson; May and Butcher Ltd v R; Foley v Classique Coaches Ltd; Willesden v Webb [1937] QWN 8; G Scammell & Nephew Ltd. However, the agreement may be upheld where there is a machinery provision that can be applied to supply the omitted term, where a term can be implied to deal with the omission, or where severance is possible.
Where the parties have reached agreement on certain terms, but have indicated that further terms are to be negotiated, the agreement is not necessarily void for uncertainty or incompleteness, since the terms in question may not be essential terms of the agreement: Ravinder Rohini Pty Ltd v Krizaic (1991) 30 FCR 300; Granit SA v Benship International Inc [1994] 1 Lloyd’s Rep 526. Moreover, although an agreement to negotiate further terms which are essential to the completion of the contract is no different from an agreement to agree, it would appear that an express agreement to negotiate further essential terms in good faith may be binding if the parties have also agreed on the criteria against which the negotiations may be judged, objectively, in the event of a dispute: Coal Cliff Collieries; Hillas v Arcos, Trawl Industries of Australia.
Ambiguity
If a written contract contains an ambiguous term, a court can receive extrinsic evidence to resolve the ambiguity: Cameron v Avery (1873) 4 AJR 141, Parker v Barnett (1889) 16 VLR 214; Egan v Ross (1928) 29 SR (NSW) 382; Clarke v Lonergan (1960) 78 WN (NSW) 367. However, in Darlington Futures Limited v Delco Australia Proprietary Limited (1986) 161 CLR 500, the High Court held at 510 that where there is an ambiguity:
… it is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.
Generally, the later conduct and statements of parties to a contract are not admissible even to resolve an ambiguity in the meaning of the contract, although they are admissible to identify the things with which the contract deals: Sportsvision Australia Pty Ltd v Tallglen Pty Ltd And Another (1998) 44 NSWLR 103.
Conduct and intention
However, a contract or its terms may be inferred from the conduct of the parties in certain factual circumstances, such as where:
(a)they indicated by their conduct that they did in fact intend to contract even if they did not expressly discuss the formation of a contract: Haynes v McNeil (1906) 8 WALR 186; Glass v Pioneer Rubber Works of Australia Ltd [1906] VLR 754; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110; Vroon BV;
(b)their conduct is consistent only with the hypothesis that an agreement was in fact made although no direct evidence is available of what was said: W A Dewhurst and Co Pty Ltd v Cawrse [1960] VR 278;
(c)an express offer is never expressly accepted or rejected, but the subsequent conduct of the offeree in performing the acts contemplated in the offer indicates, to a reasonable person in the position of the offeror, an intention to accept the offer: Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674; Dover Fisheries Pty Ltd v Bottrill Research Pty Ltd (1994) 63 SASR 557; Brown v Brown (1905) 5 SR (NSW) 146; White Trucks Pty Ltd v Riley (1948) 66 WN (NSW) 101; Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523; Valentine Films Pty Ltd v Trimex Pty Ltd (unreported, Federal Court of Australia, Merkel J, 7 March 1996); Malthouse v Adelaide Milk Supply Co-operative Ltd [1922] SASR 572; Gjergja & Atco Controls Pty Ltd v Cooper [1987] VR 167; and
(d)the purported acceptance of an offer takes effect as a counter-offer, that counter-offer may be accepted by the conduct of the offeree, that is, the original offeror: Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554; Custom Credit Corp Ltd v Gray [1992] 1 VR 540; Re Production Sheet Metals Pty Ltd [1971] QWN 16.
Usually a person’s apparent intention will represent that person’s real intention. However, the law is more concerned with the interpretation to be placed upon the words and actions of the parties by a reasonable person in the position of the person to whom the words or actions are addressed, rather than subjective intention: R v Clarke (1927) 40 CLR 227; Toyota Motor Corp; Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571; Ebbage v McMahon’s (Transport) Pty Ltd (unreported, CA (Qld), Dowsett J, Pincus and Davies JJA, 6 September 1996).
To decide whether terms have been included by a course of conduct, the steps taken by the party alleging that terms have been incorporated and the extent of the conduct between the parties must be considered: D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251. The course of conduct must be consistent: McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125, and sufficiently long: Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (rec apptd) (in liq) (1992) 28 NSWLR 338; Teys Bros (Beenleigh) Pty Ltd v ANL Cargo Operations Pty Ltd [1990] QdR 288; D J Hill & Co; Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71; Pondcil Pty Ltd v Tropical Reef Shipyard Pty Ltd (1994) ATPR Digest 46-134. In order to rely on a course of dealing as incorporating terms into a contract, a party need not show that the other party actually knew of the terms: McCutcheon; D J Hill & Co; but some knowledge is required: Hollier.
Post contractual conduct
Only the parol evidence rule specifically excludes consideration of evidence of the conduct of the parties to the contract subsequent to the time the contract was made: White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266; Whitworth Street Estates (Manchester) Ltd v James Miller & Partners Ltd [1970] AC 583; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Administration of the Territory of Papua and New Guinea v Guba (1973) 130 CLR 353; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310; Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290. However, this general rule that extrinsic evidence of subsequent conduct cannot be employed as an aid to construction of a contract is not absolute. Evidence of circumstances surrounding the contract is admissible as an aid to the construction of an ambiguous term where it is probative of the apparent intention of the parties to the contract at the time of contracting: Codelfa Construction; Spunwill.
Evidence of the mutual subjective intention of the parties to a contract may be part of the objective framework of facts within which the contract came into existence and thus be admissible as part of the factual circumstances surrounding the contract. Evidence of conduct of the parties to a contract subsequent to the time the contract was made may be used as an aid to the construction of the contract where it is probative of a clear and mutual subjective intention as to what the contact meant at the time it was made: Spunwill.
The weight to be given to extrinsic evidence of post-contractual conduct as part of the surrounding circumstances will depend on the extent to which the conduct is referable to, and probative of, a mutual subjective intention at the time the contract was made: Re Canadian National Railways and Canadian Pacific Ltd (1978) 95 DLR (3d) 242; Spunwill.
Where implication of a term is sought, the court is not limited to a consideration of the contract itself: Criss v Alexander (1928) 28 SR (NSW) 297. Although the main consideration with respect to implied terms is the construction of the contract, the circumstances surrounding the contract may also be considered in order to establish the factual matrix against which the parties contracted: Codelfa Construction. However, where the term is said to be implied from construction of a document, evidence of the parties’ negotiations is not admissible for the purpose of implying a term: Codelfa Construction. This may be qualified if it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position: NZI Capital Corp Pty Ltd v Child (1991) 23 NSWLR 481; Codelfa Construction; IBM Australia Ltd v Lend Lease Development Pty Ltd (unreported, SC (NSW), Giles J, 21 December 1994).
The important principle established in Codelfa Construction - that the circumstances surrounding the contract may also be considered in order to establish the factual matrix against which the parties contracted - was considered in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309. The facts concerning the document in that case is almost identical to the present case. At 326 to 331 Mahoney JA raised and answered three questions (authorities omitted):
[326] The only question considered … was whether there was a binding contract between the parties. In considering this question, in a context such as the present, it is of assistance to distinguish between three questions: did the parties arrive at a consensus?; (if they did) was it such a consensus as was capable of forming a binding contract?; and (if it was) did the parties intend that the consensus at which they arrived should constitute a binding contract?…
The first question looks to the existence of a common intention. No such intention exists if, for example, A’s intention is to sell for $1,000 and B’s to buy for $2,000…
The second question looks to what the parties have agreed and to whether what they have agreed is capable of forming a binding contract. There are some forms of agreement which, because of (as it is conventionally described) uncertainty, are not capable of constituting such a contract. There are various forms or categories of uncertainty in this sense. Thus, some of the terms of the consensus arrived at may be, as to the meaning of them, too vague to be given legal effect…
Alternatively, some of the terms of the consensus may be clear as to their meaning but ineffective in the circumstances. Thus, a transaction on “the usual terms” may be incapable of constituting a binding agreement where, in fact, there are no terms which answer the description of “usual terms”.
And the parties may have agreed upon some terms as binding upon them but intend that those terms, or other terms, shall be subject of subsequent agreement between them. In so far as the consensus involves “an agreement to agree”, it may be held not to be capable of constituting a legally binding contract…
…
[328] Assuming, without deciding, that the conversation may be referred to in this way, I do not think that the result is that the consensus could not constitute a binding contract. The fact that, in a situation such as the present, a choice is left to a party does not have that effect. There can, in my opinion, be an agreement that A shall give a legal mortgage to B, the security to be nominated by A, and that agreement can, in particular circumstances, be a binding contract. If, as in this case, the implication is that which A must nominate must be a security appropriate for a legal mortgage then two things are involved in the parties’ agreement: that A shall nominate the security and that it shall be appropriate in this sense. The fact that the choice of the terms of a lease may be “reasonably” made by a party has been held not to prevent a binding contract arising… At least where the choice to be made is not unrestricted but is to be made by reference to “reasonableness” or “appropriateness”, then the agreement may constitute a binding agreement in particular circumstances… If A refuses or fails to nominate such a security, the court may do so, in the context of the specific performance of the contract. If the court is able to do this in the context of specific performance, and to treat the agreement as a binding contract accordingly, I do not think that it should be seen as less binding where the court is concerned with damages for the breach of it.
[329] … The provision for incorporation of “appropriate conditions” from the annexed form of contract causes no relevant difficulty… However, it was submitted that the provision for the “application” in the agreement of “any additional terms and conditions recommended by the parties’ legal advisers” rendered the agreement not capable of constituting a legally binding contract.
I do not think that this is so. In general, parties may not provide for the incorporation into an agreement of further terms which they themselves shall agree: such an agreement will not constitute a legally binding contract. But they may provide that the terms, or additional terms, of their agreement are to be settled by a third party…
The third question looks to whether, the parties’ intention being congruent as to the terms of their agreement, they intend that agreement to be a binding contract in the sense of being legally enforceable as such. It is, of course, open to them to agree that it shall not… In those cases, the agreement between the parties itself provided that it should not be legally enforceable. But, in the present case, there was no such simple stipulation. The submission was that, either from the terms which the parties did agree upon or from extrinsic evidence, it should be concluded that the parties did not intend that the document executed by them should constitute a legally binding contract...
…
[330] It is generally accepted that, in determining whether what the parties have done results in a binding contract, their intention is significant. And there is reference in the cases and the textbooks to the question whether, for there to be a binding contract, it is necessary that the parties have an actual or subjective intention to contract… But questions in that form are, I think, apt to mislead: it is, in my opinion, of more assistance to ask whether actual or subjective intention to contract plays a part in determining whether there is a binding contract, and (if it does) what part it plays. The proper view is, in my opinion, that the existence of a contract is a consequence which the law imposes upon, or sees as a result of, what the parties have said and done. Actual subjective intention to contract is a factor which the law takes into account in determining whether a contract exists but it is not, or not always, the determining factor.
The matter may be tested by an example: A says, “I promise to sell Black Acre to B for $100”; and B says, “I promise to buy Black Acre from A for that price”, the promises being made orally. In such a case, a binding contract will be held to exist. And this will be so even though neither A nor B subjectively adverted to (and therefore had no actual subjective intention as to) whether, by the exchange of those promises, a binding contract would be made. The law will hold a binding contract to have been made even though neither had any actual subjective intention that there be a contract, in the sense that neither party gave any thought to the matter.
The law looks, in this regard, to what the parties have done, viz, to their exchange of promises to buy and sell; and it treats the fact of that exchange as prima facie sufficient for imposing on them the legal relationship of contract. It will determine whether, according to what they said and did, they exchanged congruent promises: if they did, a contract will prima facie result.
[331] But this does not mean that actual subjective intention qua contract may not be relevant. Thus, if A, notwithstanding what he said, had the actual subjective intention that no contract should result, a binding contract may not be held to exist. If the terms of A’s promise were such that B, as a reasonable man, would take it to involve a legal commitment and B did not know that A did not intend that there be a binding contract, then a binding contract would result. A would not be permitted to set up, against such a meaning of what he had said, a contrary subjective intention.
But the result would not, I think, be the same if B knew of A’s actual subjective intention. The law would not, I think, impose the relationship of contract where, eg, A thought he was play-acting and B knew of that fact. A’s actual subjective intention would be effective to prevent the contract arising. A fortiori, if both A and B had the intention that no contract should result, and each knew of it, then none would be imposed. And, I think, this notwithstanding that a reasonable bystander would take from what they said and did that there was an exchange of congruent promises and a mutual purpose to contract. I put aside for this purpose special cases, of estoppel, third party rights, and the like.
The result is therefore that intention to contract, in the subjective sense, is relevant to but not determinative of the existence of a binding contract. It acts, in a sense, as a limiting factor, that is, as a reason for not giving to what on the face of it is an exchange of congruent promises, the legal consequences which would otherwise be given to it. And on this basis, it is, in principle, relevant to know what was the actual subjective intention of each party, in the example that I have given, in order to determine whether the legal relationship of contract is to be held to exist. More correctly, it is relevant to know the intention of the one party where it is the intention of or known to the other.
If it be relevant, in this sense, to know the intention of the party or parties that no contract result, is it relevant to know that it was the intention that a contract should result? I think it is. The significance of intention, in the example I have taken, is that the law sees it as relevant to the determination of whether the legal relationship of contract should flow from what the parties have said and done. It is, similarly, relevant to know that they both, or that one with the knowledge of the other, intended that a binding contract should ensue.
It does not follow from this that intention to contract will always result in the relationship of contract. There is a difference between the effect of an intention that there be no contract and one that there be a contract. What the parties do with the intention to contract may, because of defects in what they have done, eg, the uncertainty of it, not produce a contract. But, notwithstanding, eg, the exchange of congruent promises, what they do will not produce a contract if there be no mutual intention, known between them as I have indicated.
Although its statement of claim stated that the system was installed in 44 stores at the termination of the contract, Divergent’s evidence was that only 42 installations were in place at that time. The Divergent contract provided that the 47 installations were to have been completed by no later than 31 October 1998 and in all stores by 31 October 1999. Although the actual happenings on the ground make this rate of progress seem a little conservative, I have proceeded on the basis of that rate of installation (basic installation rate).
The contract also provided for the price of the system to remain constant if it was installed in 100 stores. There was also evidence of some negotiations between Divergent and Pepkor about the possibility of installing the system in 100 stores, but those negotiations came to nothing. I ignore them.
On the other hand, Mrs Webb’s evidence and a document produced by Ginger Max dated 21 October 2000 and called “Details of Stores Rolled Out On Or After 1/4/98 With Details of Correspondence” (Exhibit 2R6) were both consistent with 44 installations when the contract was terminated. Therefore, any loss suffered can only be calculated in respect of Pepkor’s failure to install the system in 38 stores.
It seems that the revenue calculations per store installation are consistent as between the experts but there is a difference between them on the expenses per store, particularly the cost to Divergent of the software. Mr Gower assumed that the cost of the software to Divergent was largely in accordance with what was referred to as “Mr Triesman’s facsimile”, a document produced to him by Divergent, which worked out to be around $2,636 per store. Mr Bryant assumed that the cost to Divergent of the software was in the order of $12,000 because of “transfer pricing” between Divergent and SVI.
I have formed the view that Mr Gower’s calculations are to be preferred as supported by the evidence. I see transfer pricing between Divergent and SVI as essentially an irrelevant internal cost between related corporate entities.
Apart from these matters, there was virtually no evidence to enable this calculation to be performed with any certainty. However, based on my findings and taking into account changing interest, tax and inflation rates, I have calculated the loss in respect of installations as follows:
Revenue In-store hardware per store $42,350.00 In-store software per store 8,750.00 Services per store 2,395.00 $53,495.00 Expenditure In-store hardware per store $33,826.00 In-store software per store 2,646.00 Services per store 1,000.00 37,472.00 Revenue less expenditure (per store) $16,023.00 Gross for 38 stores 608,874.00 Less tax (at 36%) 219,194.64 Nett for 38 stores 389,679.36 Less discount factor (15%) 58,451.90 Present Value 331,227.46 Add tax on current value (at 34%) 112,617.34 Present Value plus tax on award $443,844.79 Interest on present value To 29/2/00 (547 days at 9.5%) $47,156.81 1/3/00 to 31/8/00 (184 days at 10%) 16,697.49 1/9/00 to 20/03/01 (201 days at 11%) 20,064.22 83,918.52 $527,763.31
Maintenance
Again the expert positions on revenue per store were consistent but their assessment of the length of the maintenance contract and the cost of the maintenance to Divergent differed. Mr Summers’ undisputed evidence was that a POS system would be retained for between 5 and 10 years, say 7 years. He also testified that normally maintenance would not have started until a year after installation.
The accountants have calculated the loss on the maintenance of the installation in 40 “lost” stores (ie 40 stores not installed with the Divergent system) whereas the Divergent contract provided in substance for maintenance on 82 stores. I think that the contractual provision should prevail.
The calculation of maintenance depends on the total cost of software and revenue. I have formed the view that the evidence supported Mr Gower’s calculation of maintenance revenue at 15% of the total cost of software and expenses at 35% of revenue. I have therefore calculated the total cost of the software and revenue as follows:
In-store software Head Office software Total cost of software (82 stores) $717,500.00 $30,645.00 Revenue per annum (at 15%) all stores $107,625.00 Revenue per annum (at 15%) per store $1,312.50 $4,596.75 Revenue per month (at 15%) per store $109.38 $383.06
On the other hand, Mr Gower based his calculations on the assumption that maintenance would commence on the date of installation whereas Mr Bryant proceeded in accordance with Mr Summers’ choice of one year after the date of installation. I accept Mr Bryant’s position. There was no evidence as to when each installation commenced operation and what moneys were paid for any maintenance actually carried out so no even generally supported calculation can be made. Doing the best I can, and erring on the side of conservatism by adopting the basic installation rate, I have allowed Divergent compensation for lost maintenance on 44 stores and Head Office for the period from 1 September 1998 to 31 October 1999, on 47 stores and Head Office for the period from 1 November 1999 to 31 October 2000, and on 82 stores and Head Office for the period from 1 November 2000 to 31 October 2006.
Again taking into account changing interest, tax and inflation rates, I have calculated damages in respect of maintenance as follows:
44 stores + Head Office 1/9/98–31/10/98 2 months – 44 stores 9,625.00 plus 2 months – Head Office 766.13 10,391.13 Less expenses @ 35% 3,636.89 6,754.23 Less tax @ 36% 2,431.52 4,322.71 Less 15% discount 648.41 3,674.30 Interest (61 days at 9.5%) 58.34 3,732.64 44 stores + Head Office 1/11/98–31/10/99 1 year maintenance 44 stores 57,750.00 plus 1 year maintenance Head Office 4,596.75 – 62,346.75 Less expenses @ 35% 21,821.36 40,525.39 Less tax @ 36% 14,589.14 25,936.25 Less 15% discount 3,890.44 22,045.81 Interest (1 year at 9.5%) 2,094.35 24,140.16 47 stores + Head Office 1/11/99–29/2/00 4 months – 47 stores 20,562.50 plus 4 months – Head Office 1,532.25 22,094.75 Plus CPI @ 5% 366.23 22,460.98 Less expenses @ 35% 7,733.16 Plus CPI @ 5% 128.18 7,861.34 14,599.64 Less tax @ 36% 5,255.87 9,343.77 Less 15% discount 1,401.57 7,942.20 Interest (121 days at 9.5%) 250.12 8,192.33 47 stores + Head Office 1/3/00–30/6/00 4 months – 47 stores 20,562.50 plus 4 months – Head Office 1,532.25 22,094.75 Plus CPI @ 5% 369.25 22,464.00 Less expenses @ 35% 7,733.16 Plus CPI @ 5% 129.24 7,862.40 14,601.60 Less tax @ 36% 5,256.58 9,345.03 Less 15% discount 1,401.75 7,943.27 Interest (122 days at 10%) 265.50 8,208.77 47 stores + Head Office 1/7/00–31/8/00 2 months – 47 stores 10,281.25 plus 2 months – Head Office 766.13 11,047.38 Plus CPI @ 5% 186.14 11,233.52 Less expenses @ 35% 3,866.58 Plus CPI @ 5% 65.15 3,931.73 7,301.79 Less tax @ 34% 2,482.61 4,819.18 Less 15% discount 722.88 4,096.30 Interest (62 days at 10%) 69.58 4,165.88 47 stores + Head Office 1/9/00–31/10/00 2 months – 47 stores 10,281.25 plus 2 months – Head Office 766.13 11,047.38 Plus CPI @ 5% 186.14 11,233.52 Less expenses @ 35% 3,866.58 Plus CPI @ 5% 65.15 3,931.73 7,301.79 Less tax @ 34% 2,482.61 4,819.18 Less 15% discount 722.88 4,096.30 Interest (61 days at 11%) 75.30 4,171.61 82 stores + Head Office 1/11/00–31/10/01 1 years – on 82 stores 107,625.00 plus 1 years – Head Office 4,596.75 112,221.75 Plus CPI @ 5.1% 5,723.31 117,945.06 Less expenses @ 35% 39,277.61 Plus CPI @ 5.1% 2,003.16 41,280.77 76,664.29 Less tax @ 34% 26,065.86 50,598.43 Less 15% discount 7,589.76 43,008.67 Interest (to 28/02/01 – 120 days at 11%) 1,555.38 44,564.05 82 stores + Head Office 1/11/01–31/10/02 1 years – on 82 stores 107,625.00 plus 1 years – Head Office 4,596.75 112,221.75 Plus CPI @ 2.3% 2,581.10 114,802.85 Less expenses @ 35% 39,277.61 Plus CPI @ 2.3% 903.39 40,181.00 74,621.85 Less tax @ 34% 25,371.43 49,250.42 Less 15% discount 7,387.56 41,862.86 82 stores + Head Office 1/11/02–30/6/03 8 months – 82 stores 71,750.00 plus 8 months – Head Office 3,064.50 74,814.50 Plus CPI @ 2.4% 1,795.55 76,610.05 Less expenses @ 35% 26,185.08 Plus CPI @ 2.4% 628.44 26,813.52 49,796.53 Less tax @ 34% 16,930.82 32,865.71 Less 15% discount 4,929.86 27,935.85 82 stores + Head Office 1/7/03–30/10/03 4 months – 82 stores 35,875.00 plus 4 months – Head Office 1,532.25 37,407.25 Plus CPI @ 2.4% 897.77 38,305.02 Less expenses @ 35% 13,092.54 Plus CPI @ 2.4% 314.22 13,406.76 24,898.27 Less tax @ 30% 7,469.48 17,428.79 Less 15% discount 2,614.32 14,814.47 82 stores + Head Office 1/11/03–30/10/06 3 years – 82 stores 322,875.00 plus 3 years – Head Office 13,790.25 336,665.25 Plus CPI @ 2.5% 8,416.63 345,081.88 Less expenses @ 35% 117,832.84 Plus CPI @ 2.5% 2,945.82 120,778.66 224,303.22 Less tax @ 30% 67,290.97 157,012.26 Less 15% discount 23,551.84 133,460.42 Total Award – present value $310,880.45 Plus tax 34% 105,699.35 416,579.80 Plus interest 4,627.80 $421,207.60
Additional services
Again this calculation depends on the total cost of software and revenue. The revenue per store was again consistent as between Mr Gower and Mr Bryant but the length of time to be allowed for these services and the cost of the maintenance to the services differed. Mr Summers’ undisputed 7 years as the expected life of the system must also be taken into account.
Again the evidence provided little assistance. Again the accountants have in my view wrongly calculated this loss on the basis of the 40 “lost” stores instead of 82 stores. I have formed the view that the evidence supported Mr Gower’s calculations of ongoing additional services revenue at 20% of the total cost of maintenance and expenses at 35% of maintenance revenue. I have therefore calculated the total cost of the software and revenue as follows:
In-store software Head Office software Total cost of software (82 stores) $717,500.00 $30,645.00 Revenue per annum (at 20%) all stores $143,500.00 Revenue per annum (at 20%) per store $1,750.00 $6,129.00 Revenue per month (at 20%) per store $145.83 $510.75
Mr Gower based his calculations on the assumption that these services would commence on the date of installation and would last for seven years whereas Mr Bryant assumed that the services would commence one year after the date of installation and would be provided for three years. I accept Mr Bryant’s assumptions. Again in the absence of evidence but again erring on the downside, I have allowed damages for lost ongoing additional services on the basic rate of installation, viz. 44 stores and Head Office for the period from 1 September 1998 to 31 October 1999, on 47 stores and Head Office for the period from 1 November 1999 to 31 October 2000, and on 82 stores and Head Office for the period from 1 November 2000 to 31 October 2001.
On this basis, and again taking into account changing interest rates, tax rates and CPI rates, I calculate damages in respect of additional services as follows:
44 stores + Head Office 1/9/98–31/10/98 2 months – 44 stores 12,833.33 plus 2 months – Head Office 1,021.50 13,854.83 Less expenses @ 35% 4,849.19 9,005.64 Less tax @ 36% 3,242.03 5,763.61 Less 15% discount 864.54 4,899.07 Interest (61 days at 9.5%) 77.78 4,976.85 44 stores + Head Office 1/11/98–31/10/99 1 year – 44 stores 77,000.00 plus 1 year – Head Office 6,129.00 83,129.00 Less expenses @ 35% 29,095.15 54,033.85 Less tax @ 36% 19,452.19 34,581.66 Less 15% discount 5,187.25 29,394.41 Interest (1 year at 9.5%) 2,792.47 32,186.88 47 stores + Head Office 1/11/99–29/2/00 4 months – 47 stores 27,416.67 plus 4 months – Head Office 2,043.00 29,459.67 Plus CPI @ 5% 1,472.98 30,932.65 Less expenses @ 35% 10,310.88 Plus CPI @ 5% 515.54 10,826.43 20,106.22 Less tax @ 36% 7,238.24 12,867.98 Less 15% discount 1,930.20 10,937.79 Interest (121 days at 9.5%) 344.47 11,282.25 47 stores + Head Office 1/3/00–30/6/00 4 months – 47 stores 27,416.67 plus 4 months – Head Office 2,043.00 29,459.67 Plus CPI @ 5% 1,472.98 30,932.65 Less expenses @ 35% 10,310.88 Plus CPI @ 5% 515.54 10,826.43 20,106.22 Less tax @ 36% 7,238.24 12,867.98 Less 15% discount 1,930.20 10,937.79 Interest (122 days at 10%) 365.59 11,303.38 47 stores + Head Office 1/7/00–31/8/00 2 months – 47 stores 13,708.33 plus 2 months – Head Office 1,021.50 14,729.83 Plus CPI @ 5% 736.49 15,466.33 Less expenses @ 35% 5,155.44 Plus CPI @ 5% 257.77 5,413.21 10,053.11 Less tax @ 34% 3,418.06 6,635.05 Less 15% discount 995.26 5,639.80 Interest (62 days at 10%) 95.80 5,735.59 47 stores + Head Office 1/9/00–31/10/00 2 months – 47 stores 13,708.33 plus 2 months – Head Office 1,021.50 14,729.83 Plus CPI @ 5% 736.49 15,466.33 Less expenses @ 35% 5,155.44 Plus CPI @ 5% 257.77 5,413.21 10,053.11 Less tax @ 34% 3,418.06 6,635.05 Less 15% discount 995.26 5,639.80 Interest (61 days at 11%) 103.68 5,743.47 82 stores + Head Office 1/11/00–31/10/01 1 years – on 82 stores 143,500.00 Plus 1 years – Head Office 6,129.00 149,629.00 Plus CPI @ 2.3% 3,441.47 153,070.47 Less expenses @ 35% 52,370.15 Plus CPI @ 2.3% 1,204.51 53,574.66 99,495.80 Less tax @ 34% 33,828.57 65,667.23 Less 15% discount 9,850.08 55,817.15 Interest (to 20/03/01 – 140 days at 11%) 2,355.03 58,172.18 Total award – present value $123,265.81 Plus tax 34% 41,910.38 165,176.19 Plus interest 6,134.80 $171,310.99
Total damages
These calculations lead to total damages as follows:
Installation $527,763.31 Maintenance $421,207.60 Additional Services $171,310.99 $1,120,281.90
COSTS
Section 43 of the Federal Court of Australia Act 1976 (Cth) provides:
(1)The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded.
(1A)……
(2)Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.
I have said in various decisions: eg Librizzi v Flower Power Pty Ltd [2000] FCA 1500, Re Sanchez; Ex parte Smits & Anor (1994) 49 FCR 326, that this section does not provide a “usual rule” or “normal order” but that the issue of costs is within the unfettered discretion of the Court to be exercised judicially in light of all the circumstances of the particular case. In other words, successful parties are only entitled to, or for that matter to be refused, an order for costs if the relevant circumstances of the case warrant the making, or refusal, of such an order.
It is my opinion that the circumstances of this case dictate a conclusion that:
(a)the first, third and fourth respondents pay the applicant’s costs including the costs payable by the applicant to the second respondent;
(b)the applicant pay the second respondent’s costs;
(c)there be no order as to the costs of the cross-claims.
ORDERS
The orders will be as follows:
1.The applicant’s application against the second respondent is dismissed with costs.
2.The applicant’s application against the first, third and fourth respondents is allowed.
3.The first, third and fourth respondents are to pay to the Applicant damages in the sum of $1,120,281.90.
4.The cross-claims are dismissed.
5.The first, third and fourth respondents will pay the applicant’s costs including the costs payable by the applicant to the second respondent.
6.There is 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.
I certify that the preceding one hundred and fifty-two (152) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marcus Einfeld AO. Associate:
Dated: 20 March 2001
Counsel for the Applicant: Mr C Gee QC with Mr R Kaye
Solicitor for the Applicant: Derrick Zabow & Co
Counsel for the 1st, 3rd and 4th Respondents: Mr JC Campbell QC with Mr TJ Hancock
Solicitor for the 1st, 3rd and 4th Respondents: Abbott Tout
Counsel for the 2nd Respondent: Mr DE Horton QC with Mr VRW Gray
Solicitor for the 2nd Respondent: Denes Ebner
Date of Hearing: 16 – 26 October 2000; 9, 10 November 2000
Written submissions completed: 17 November 2000
Date of Judgment: 20 March 2001ENDNOTES:
[i] Affidavit of Shaun Rosen 4 April 2000 paragraph 51, affidavit of Shaun Rosen 18 August 2000 paragraph 29, affidavit of Lester Robin Aderem 11 August 2000 paragraph 2
[ii] Affidavit of Berel Ginges 14 August 2000 paragraphs 2, 3 & 18
[iii] Affidavit of Barry Claude McCann 18 August 2000 paragraph 4, affidavit of Iain David McDonald 26 July 2000 paragraph 10, affidavit of Carel Stassen 20 July 2000 paragraph 15
[iv] Affidavit of Berel Ginges 14 August 2000 paragraph 6, affidavit of Barry Claude McCann 18 August 2000 paragraph 5, affidavit of Ethel Louise Webb 14 July 2000 paragraph 4
[v] Amended Defence of the Second Respondent to the Application and Statement of Claim paragraph 17 (8 September 2000)
[vi] Affidavit of Shaun Rosen 4 April 2000 paragraph 2
[vii] Affidavit of Barry Claude McCann 18 August 2000 paragraph 3, affidavit of Malcolm Thomas 4 April 2000 paragraph 2, affidavit of Ethel Louise Webb 14 July 2000 paragraph 6
[viii] Affidavit of Shaun Rosen 4 April 2000 paragraphs 3 to 17, 22 to 24, affidavit of Malcolm Thomas 4 April 2000 paragraph 3
[ix] Affidavit of Barry Claude McCann 18 August 2000 paragraph 4
[x] Affidavit of Berel Ginges 14 August 2000 paragraph 15, affidavit of Iain David McDonald 26 July 2000 paragraphs 4, 5 & 6
[xi] Affidavit of Berel Ginges 14 August 2000 paragraphs 7 & 18
[xii] Affidavit of Iain David McDonald 26 July 2000 paragraph 10, affidavit of Carel Stassen 20 July 2000 and 20 July 2000 paragraph 15
[xiii] Applicant’s Tender Bundle Part C (spiral bound volume) pp 1310, 1313, 1348, 1349 and 1382
[xiv] Affidavit of Shaun Rosen 4 April 2000 paragraphs 37 and 38
[xv] Affidavit of Shaun Rosen 4 April 2000 paragraph 46, affidavit of Iain David McDonald 26 July 2000 paragraphs 73, 88 & 91
[xvi] Affidavit of Iain David McDonald 26 July 2000 paragraphs 73, 88 & 91
[xvii] Affidavit of Carel Stassen 20 July 2000 paragraphs 45 & 46
[xviii] Annexure “A” to Statement of Claim
[xix] Affidavit of Berel Ginges 14 August 2000 Paragraph 20, affidavit of Berel Ginges 16 October 2000 paragraph 1
[xx] Affidavit of Berel Ginges 14 August 2000 paragraphs 18 & 20, affidavit of Barry Claude McCann 18 August 2000 paragraphs 16 & 17
[xxi] Affidavit of Berel Ginges 14 August 2000 paragraph 7, affidavit of Barry Claude McCann 18 August 2000 paragraphs 1 & 4
[xxii] Affidavit of Berel Ginges 14 August 2000 paragraph 28, affidavit of Ethel Louise Webb 14 July 2000 paragraphs 1 & 3
[xxiii] Affidavit of Hein Marais 14 July 2000 paragraphs 3, 5, 6, 7 & 9,
[xxiv] Affidavit of Lester Robin Aderem 11 August 2000 paragraph 2
[xxv] Affidavit of Lester Robin Aderem 11 August 2000 paragraphs 8, 9 & 10,
[xxvi] Affidavit of Shaun Rosen 4 April 2000 paragraphs 15, 17, 22, 24
[xxvii] Affidavit of Malcolm Thomas 4 April 2000 paragraphs 2 & 3
[xxviii] Affidavit of Barry Claude McCann 18 August 2000 paragraphs 10,11, 12 & 13
[xxix] Affidavit of Berel Ginges 14 August 2000 paragraphs 8 & 12
[xxx] Affidavit of Shaun Rosen 4 April 2000 paragraph 31
[xxxi] Affidavit of Berel Ginges 14 August 2000 paragraph 14
[xxxii] Affidavit of Shaun Rosen 4 April 2000 paragraph 32
[xxxiii] Affidavit of Malcolm Thomas 4 April 2000 paragraphs 7 & 8
[xxxiv] Affidavit of Malcolm Thomas 4 April 2000 paragraph 9
[xxxv] Affidavit of Malcolm Thomas 4 April 2000 paragraph 13
[xxxvi] Affidavit of Hein Marais 14 July 2000 paragraph 33
[xxxvii] Affidavit of Shaun Rosen 4 April 2000 paragraph 34
[xxxviii] Affidavit of Malcolm Thomas 4 April 2000 paragraph 12
[xxxix] Affidavit of Shaun Rosen 4 April 2000 paragraph 35 and annexure M
[xl] Affidavit of Barry Claude McCann 18 August 2000 paragraph 15
[xli] Affidavit of Shaun Rosen 4 April 2000 paragraphs 36 & 37
[xlii] Affidavit of Barry Claude McCann 18 August 2000 paragraph 16
[xliii] Affidavit of Shaun Rosen 4 April 2000 paragraph 43
[xliv] Affidavit of Shaun Rosen 4 April 2000 paragraph 45
[xlv] Affidavit of Carel Stassen 20 July 2000 paragraphs 19, 20 & 21
[xlvi] Affidavit of Shaun Rosen 4 April 2000 paragraph 48
[xlvii] Affidavit of Carel Stassen 20 July 2000 paragraph 24
[xlviii] Affidavit of Shaun Rosen 4 April 2000 paragraphs 50, 51 & 52, affidavit of Malcolm Thomas 4 April 2000 paragraph 33
[xlix] Affidavit of Carel Stassen 20 July 2000 paragraph 39
[l] Affidavit of Malcolm Thomas 4 April 2000 paragraphs 35 & 36
[li] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 39 to 42
[lii] Affidavit of Shaun Rosen 4 April 2000 paragraph 56
[liii] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 50 & 51 and annexures P & Q
[liv] Affidavit of Shaun Rosen 4 April 2000 paragraph 58
[lv] Affidavit of Iain David MacDonald 26 July 2000 paragraph 57
[lvi] Affidavit of Malcolm Thomas 4 April 2000 paragraph 49 and annexure X
[lvii] Affidavit of Shaun Rosen 18 August 2000 paragraphs 22A & 31
[lviii] Affidavit of Shaun Rosen 4 April 2000 paragraph 59
[lix] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 81 & 82 and annexure P
[lx] Affidavit of Carel Stassen 20 July 2000 paragraphs 26, 27, 35 & 37
[lxi] Affidavit of Lester Robin Aderem 11 August 2000 paragraphs 23, 24, 26 & 27
[lxii] Affidavit of Malcolm Thomas 4 April 2000 paragraph 53
[lxiii] Affidavit of Malcolm Thomas 4 April 2000 paragraph 54
[lxiv] Affidavit of Carel Stassen 20 July 2000 paragraphs 38 & 39
[lxv] Affidavit of Shaun Rosen 4 April 2000 paragraph 62
[lxvi] Affidavit of Iain David MacDonald 26 July 2000 paragraph 87
[lxvii] Affidavit of Shaun Rosen 4 April 2000 paragraph 64
[lxviii] Affidavit of Carel Stassen 20 July 2000 paragraphs 46 & 47
[lxix] Affidavit of Shaun Rosen 4 April 2000 paragraph 66
[lxx] Affidavit of Berel Ginges 14 April 2000 paragraph 22
[lxxi] Affidavit of Shaun Rosen 4 April 2000 paragraph 69
[lxxii] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 97 & 98
[lxxiii] Affidavit of Carel Stassen 20 July 2000 paragraphs 7 & 8
[lxxiv] Affidavit of Berel Ginges 14 April 2000paragraphs 23 & 24
[lxxv] Affidavit of Shaun Rosen 18 August 2000 paragraphs 2 & 3
[lxxvi] Affidavit of Hein Marais 14 July 2000 paragraphs 9 & 10
[lxxvii] Affidavit of Hein Marais 14 July 2000 paragraphs 31 & 35
[lxxviii] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 12 – 25
[lxxix] Affidavit of Shaun Rosen 18 August 2000 paragraphs 11, 11A & 11B
[lxxx] Affidavit of Carel Stassen 20 July 2000 paragraphs 23, 25, 26, 27 & 28
[lxxxi] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 27 to 32
[lxxxii] Affidavit of Carel Stassen 20 July 2000 paragraphs 17 & 18, affidavit of Iain David MacDonald 25 June 2000 paragraphs 29 to 31
[lxxxiii] Affidavit of Carel Stassen 20 July 2000 paragraphs 23, 25, 26, 27 & 28
[lxxxiv] Affidavit of Shaun Rosen 18 August 2000 paragraphs 12, 18, 18A, 19, 20
[lxxxv] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 54 – 66
[lxxxvi] Affidavit of Shaun Rosen 18 August 2000 paragraphs 12B, 12C, 13 & 14
[lxxxvii] Affidavit of Iain David MacDonald 26 July 2000 paragraph 73.4
[lxxxviii] Affidavit of Carel Stassen 20 July 2000 paragraph 34
[lxxxix] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 77 – 79
[xc] Affidavit of Shaun Rosen 18 August 2000 paragraphs 15, 15A, 15 B & 15C
[xci] Affidavit of Lester Robin Aderem 11 August 2000 paragraphs 16 & 17
[xcii] Affidavit of Shaun Rosen 18 August 2000 paragraph 31
[xciii] Affidavit of Carel Stassen 20 July 2000 paragraph 40
[xciv] Affidavit of Berel Ginges 14 August 2000 paragraphs 25, 26 & 27
[xcv] Affidavit of Carel Stassen 20 July 2000 paragraph 45
[xcvi] Affidavit of Carel Stassen 20 July 2000 paragraph 46
[xcvii] Affidavit of Shaun Rosen 18 August 2000 paragraph 25
[xcviii] Reports of Goodwin Cullimore Allen Gower 28 August 2000 paragraph 45 (page 10) and 25 October 2000 page 2.
[xcix] Report of Mark Brinley Bryant 18 October 2000 Appendix 10.
- AGLC
- SVI Systems Pty Ltd v Best & Less Pty Ltd [2001] FCA 279
- Case
- [2001] FCA 279
- Decision Date
CaseChat Overview and Summary
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
Evidence
Evidence Before The Court
Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
Established by: EINFELD J
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