Techniques Incorporated Pty Ltd v Vitarium Pty Ltd and Anor and Flujo Holdings Pty Ltd v Barton Distributions Pty Ltd and Ors
[2016] VCC 1949
•16 December 2016
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-16-00621 & CI-15-04325
| TECHNIQUES INCORPORATED PTY LTD | Plaintiff |
| v | |
| VITARIUM PTY LTD & ANOR | Defendants |
| - AND – FLUJO HOLDINGS PTY LTD | Plaintiff |
| v BARTON DISTRIBUTIONS PTY LTD & ORS | Defendants |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23, 24, 25, 28, 29, 30 November & 2 November 2016 | |
DATE OF JUDGMENT: | 16 December 2016 | |
CASE MAY BE CITED AS: | Techniques Incorporated Pty Ltd v Vitarium Pty Ltd & Anor AND Flujo Holdings Pty Ltd v Barton Distributions Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 1949 | |
REASONS FOR JUDGMENT
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Subject: CONTRACT
Catchwords: Supply arrangement for manufacture of food product; whether cancellation by supplier wrongful; whether liability of supplier excluded by exemption clauses; unauthorised debits to purchaser company’s bank account recoverable as moneys had and received; measure of damages for breach of contract
Contract for sale of shares and transfer of intellectual property; reference to liability of “the Martin Family” insufficient to render a member of that family liable for breach of contract where member not otherwise expressed to be a party to Memorandum of Agreement.
Cases Cited:BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Tozer Kemsley and Millbourn (Australasia) Pty Ltd v Collier’s Interstate Transport Service Ltd (1956) 94 CLR 384; The Council of the City of Sydney v West (1965) 114 CLR 481; Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642; Kamil Export (Aust) Pty Ltd v NPL (Australia) Pty Ltd [1996] 1 VR 538; Payzu Ltd v Saunders [1919] 2 KB 581; Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501; Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507; Gray v Richards 2014 253 CLR 660; Kenyon v Akeroyd [2008] VSCA 277; Spotlight Pty Ltd v NCON Australia Ltd (2012) 46 VR 1; Lion Nathan v CC Bottlers [1996] 1 WLR 1438;
Judgment: (1) Within 14 days of this day the parties must bring in short Minutes to give effect to these reasons. (2) Costs reserved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. Moore | Rigby Cooke |
| For the Defendants | Mr G. Redenbach | DCA Lawyers |
HIS HONOUR:
Background
1 Techniques Incorporated Pty Ltd (“Techniques”), the plaintiff in the first of the proceedings before me, is controlled by the Martin family. Its managing director is Mr Robert Martin, who is aged 82 years. His son, Mr Matthew Martin, is also a director and, it would seem, provides the day-to-day leadership. Techniques was incorporated on 9 November 1983 and, according to Mr Matthew Martin (whom I will refer to hereafter as “Mr Martin”), it provides:
“…a dry powdered contract manufacturing business specialising in dry powdered blending, packaging and product development for the food industry in Australia and very much around the world. (T369, L23-27)
2 Barton Distributions Pty Ltd (“Barton”), the defendant in the second proceeding, is also part of the Martin group.
3 Mr Mark Hanna and Mr Samuel Tew are the principals of the two defendant companies in the first proceeding, namely, Natvia Pty Ltd and Vitarium Pty Ltd, and of the plaintiff in the second proceeding, Flujo Holdings Pty Ltd (“Flujo”). According to Mr Hanna, these companies operate a “FMCG business” (T192, L22) which is an abbreviation for “fast-moving consumer groups”. (T193, L1-2)
4 Its current products, according to Mr Hanna, are “Natvia, drinking chocolate, which is under Vitarium, Norbu, which is another natural sweetener which is derived from a fruit…”. Mr Hanna said:
“…we basically do the marketing and sales and work with our suppliers to create products that hopefully are desirable and sell well in the retail market with the major supermarket chains, independents and food service and cafes.” (T192, L25-29)
5 In late 2008 and early 2009, Mr Hanna’s company was seeking a manufacturer. Mr Hanna received a recommendation to deal with the Martin family “as they had a very good reputation for dry blending”. (T193, L10-11)
6 After Christmas, he met Mr Martin in Chapel Street (presumably in a restaurant, café or coffee bar). He believed that Techniques might be able to offer manufacturing services for a cereal product which his companies were then marketing and also manufacture natural sweeteners for Natvia. According to Mr Hanna:
“…it was proposed to us that we could do a JV with the Martin families to create a brand called Vitarium, which primarily was gluten-free. We ended up setting up a JV which was initially 75 per cent - 25 per cent to us and the majority to Techniques. We saw a strategic relationship with them that they could manufacture for us and pretty much from a JV perspective watch the production of the gluten-free goods and also saw them as potentially - it was early, but a long-term supplier for our other products that we wanted to make.” (T193, L22 to T194, L1)
7 Initially, the emphasis was on a range of gluten-free products. According to Mr Hanna:
“…we weren’t getting support from the majors, and that particular business deteriorated very quick. But we shifted our focus towards sugar-free drinking mixes in kids and adults.” (T194, L13-17)
8 Mr Hanna said, “in 2011 we introduced the drinking mixes. If we hadn’t done that, Vitarium wouldn’t have been an ongoing concern”. (T195, L19-21)
9 As will appear, the time at which the drinking mixes became part of Vitarium’s product range may be a matter of contention in the second proceeding in which Flujo is the plaintiff.
10 In mid-2012, the Martins and Mr Hanna entered into a series of discussions about the continuing relationship between them and their companies. According to Mr Martin:
“We wanted to get out of the brands of what we were - sorry, the brand as in Vitarium brand, as Mark was doing what he wanted when he wanted. The family had put in a considerable amount of money into the business.” (T373, L21-24)
11 In the course of those discussions, the issue of ownership of intellectual property arose. In this context, the concept of intellectual property seems to be equivalent to the formulation for the product. Mr Martin said:
“Mark wanted the IP of the products that we had developed for the brand so he had control of what raw materials went into it and can source other manufacturers along the line to see if he can get a cheaper price at all times.” (T374, L24-28)
12 Mr Martin said that he had resistance from his father, who had a policy of retaining intellectual property within his own business, viz Techniques. (T375, L7-9)
13 This was discussed with Mr Warburton, who is accountant and adviser to the Martin family. He is also a director of Barton. Mr Warburton referred the parties to a friend of his, Mr Tyshing, who would provide guidance as to the valuation of the business.
14 Following consultations with both sides, Mr Tyshing provided a valuation report relative to Vitarium, in which the Martin interests, through Techniques, held a 75 per cent shareholding and Flujo, on behalf of Mr Hanna and his interests, earned 25 per cent. The share capital of Vitarium was 100 per cent owned by Vitarium. The shareholdings of Techniques and Flujo were in the capital of Holdings.
15 According to Mr Tyshing’s report:
“In summary, the intellectual property utilised by Vitarium comprises:
- The product formulations and technical data sheets supporting Vitarium’s current product range. I am advised that, notwithstanding an agreement between TQ [that is, Techniques] and Flujo that ownership of these product formulations and technical date (sic) sheets be transferred to Vitarium, they are still held by TQ.
- Access to the product research and development capabilities of TQ which supports Vitarium’s current product range as well as future products to be developed and marketed.
…
Discussions with Matthew Martin (of TQ) confirm that, in the event that a sale of Vitarium’s business is negotiated, TQ will:
- Effect the legal transfer of all intellectual property related to Vitarium’s current product range.
- Enter into a binding agreement to provide the successful purchaser with product research and development and manufacturing support for Vitarium’s current and future range.” (Court Book of Vitarium and Natvia (“DCB”) 382-383)
16 Ultimately, the parties signed a document styled `Full and Final Memorandum of Understanding’.
17 Whilst Mr Hanna suggested that the original drafting for this document was done by Mr Warburton, when Mr Warburton was called as a witness for Flujo and asked as to his knowledge of this transaction, he replied “I really didn’t know what the transaction was. I knew the transaction was occurring, but I didn’t know what the transaction was at the time.” (T191, L7-10)
18 There is no suggestion that any legal practitioner was involved in the drafting of this Memorandum of Understanding, which is to say the least problematic in a number of respects.
19 The purpose of the transaction that is common ground, was to reverse the majority shareholding in Vitarium so that Barton, formerly the owner of 75 per cent of the share capital of Vitarium, would before the holder of 25 per cent only. Flujo would move from the owner of 25 per cent of the share capital in Vitarium and therefore Vitarium itself, to 75 per cent.
20 The parties to the memorandum were shown as Barton (as vendor) and Flujo (as purchaser). The price for the transaction was $247,761.14 payable by three equal payments commencing 14 July 2013 with a final payment on 15 March 2014. The agreement seems to have been signed by Mr Martin senior on behalf of Techniques (not as one would have supposed on behalf of Barton, the named vendor). It was also signed on behalf of Flujo.
21 Crucially, under the heading `Intellectual Property’, the following clause appeared:
“The Martin family will require Techniques Incorporated Pty Ltd to provide formulations for products it manufactures for and on behalf of Vitarium by the 15th February 2013.”
22 The memorandum included a clause under the heading `Ratification’ as follows:
“The parties acknowledge that this memorandum is intended as a broad agreement only and requires clarification and finalisation by respective Legal Representatives.”
23 No process of either clarification, ratification or finalisation appears to have been conducted.
24 It is accepted that the instalments of the price had been paid. (Court Book of Techniques. (“PCB”) 204-5)
25 On 5 October 2012, a document on Techniques letterhead with a typed date “3 October 2012” stated “Signing within this acknowledges in full receipt of Vitarium gluten-free products that is the IP component to Techniques Incorporated Pty Ltd financial input.” (PCB 184) The document was signed by Mr Martin and Mr Peter Vergakis. Mr Vergakis was, at this time, a director of both Natvia and Vitarium. (T359, L9-12)
26 As to the significance of this document, according to Mr Vergakis, who shortly afterwards ceased to be a director of these companies as a result of a falling out with Mr Hanna, was as follows:
“Because the IP for Vitarium was still, my understanding at the time, was still held by Techniques and it was about to bring it in under the structure of Vitarium, the holding company.” (T361, L17-20)
27 The effect of the Memorandum of Understanding was that whilst the Martin family’s involvement with Vitarium as shareholder was scaled down, Techniques would continue provided manufacturing services to Vitarium. Under the heading `Supply Agreement’, the memorandum provided:
“It is agreed that Vitarium will enter into a 2 year supply agreement with Techniques. [B]ased on an open book costing methodology Techniques must be within 10 per cent of competitive quotes.” (PCB 204-5)
28 At the time that Mr Vergakis signed off the receipt on Techniques’ letterhead, he received a bundle of material relative to Vitarium gluten-free products. (T361, L27 to T362, L7)
29 According to Mr Vergakis, those documents were “the formulations, breakdown of ingredients for each of the products that had been developed and sold under the Vitarium brand”. (T362, L8-11)
30 Mr Vergakis said he handed that material over to Mr Hanna. (Ibid, L12-13)
31 There seemed to be some dispute as to this last point but, ultimately, the point of contention in the second proceeding was not whether these documents had been delivered to Flujo and Mr Hanna but rather, whether on the one hand as the Martin family contended, the delivery of this material constituted performance by Techniques of its obligation to provide formulations in accordance with the Memorandum of Understanding, as contended by Techniques and Barton, or on the other they were, as contended by Vitarium and Flujo, inadequate, both because they did not include the most important part of Vitarium’s product range and also because the information was, as they contended, inadequate to recreate the product, matters to which I will return presently.
32 According to material produced to the Court’s Registrar by Westpac Banking Corporation under cover of letter dated 17 October 2016 in answer to a subpoena to produce relative to the `Westpac One’ account of Vitarium, on 13 December 2013, an amount of $10,037.50 was withdrawn from that account and deposited to the credit of Mr Martin and his wife. A further amount of some $7,761.14 was deposited to the credit of Mr Jeremy John Brian Bourke, trading as JBP Management on 2 December 2013. He agreed that these transfers took place and that it was he who caused those transfers to be made. (T421, L18-21) He said that both of these transfers were authorised and given prior consent by Mr Hanna. (T422, L7-10)
33 According to Mr Martin, this was by way of an attempt to recover some $806,000 by way of cash and stock which had been put into the Vitarium business by his father, which included some $640,000 odd by way of cash. (T421, L13-17)
34 Mr Hanna said that the contention that he had given prior authority or that these dispositions were in repayment of loans made by Mr Martin senior was a “total fabrication”. (T388, L18)
35 A redacted version of Natvia’s Westpac Business One account (DCB 576), discloses a withdrawal of $8,000 on 14 January 2013. According to Mr Hanna, he made this withdrawal in cash for the purposes of making a payment to Mr Martin against the liability of the Hanna interests under the Memorandum of Understanding. This payment, according to Mr Hanna, was in the sum of $9,000 and given in cash to Mr Martin, not in the form of a cheque. (T254, L18-19) Mr Hanna stood by this evidence despite a denial by Mr Martin. (T294, L20)
36 I pressed Mr Hanna to provide details of the circumstances of the payment. For instance, where the payment was made. He was unsure but said “most likely in a café at the time”. (Ibid, L28-29)
37 According to Mr Hanna, he did not obtain or consider obtaining any form of receipt. (T294, L30 to T295, L6)
38 According to Mr Hanna, the cash payment was made within a few days of the bank withdrawal on 14 January 2013. (T295, L13-14)
39 Mr Hanna said, despite his expectation that this amount would be credited against the liability of his companies under the Memorandum of Agreement that this did not happen. (T254, L13-14)
40 The line in the bank statement records a withdrawal of some $8,000, yet Mr Hanna’s evidence was that the cash payment was in the sum of $9,000. This discrepancy was not explored in the evidence. I have given a summary of the extent of Mr Hanna’s evidence on the point. Mr Martin denies the occurrence altogether.
41 The transaction provided for in the Memorandum of Understanding represented a loosening of the links between the joint venturers. The transaction was entered into according to both Mr Hanna and Mr Martin, at least in part, in response to Mr Hanna’s desire for Vitarium to have a greater insight into its costs base. This necessarily would entail Vitarium going to the market generally for manufacturing and other services rather than having those services provided exclusively by Techniques.
42 As time passed, relations began to sour. Even at the best of times, according to Mr Martin, his relations with Mr Hanna were “possibly a love/hate relationship”. (T394, L19)
43 Moving into 2015, Mr Martin said “There was a build-up of four to six different things that were occurring at the time that was very frustrating”. (T395, L19-21) Amongst those matters was “Getting accounts settled on time. Having raw materials on time”. (Ibid, L22-23)
44 Mr Martin complained that Mr Hanna frequently pressed him to make late changes in production plans, saying:
“Matt, can you swap from this one to this one. I’m running 14 production lines and I have 60 people I have to control. It’s very difficult to swap and change accordingly. We did our best at all times to accommodate, but there were a lot of different problems there, yes.” (T395, L29 to T396, L3)
45 Further, according to Mr Martin:
His attitude was very gruff and abusive at times. He kept telling me, "Listen, little boy, if you don’t listen I’ll ring your father," which was very frustrating because I’m trying to protect my father because of his age and stage. There was some defamatory emails sent around my office from Mark Hanna to all my staff, defaming myself and belittling myself. … Saying that I took money out of the business and I’m a little boy and need to be taught a big lesson over this whole matter.” (T396, L6-13 and 18-20)
46 Mr Martin said he was irritated not just by the allegations but the fact that the emails making them were copied to other people. (T397, L1)
47 Mr Martin described Mr Hanna’s approach and phone calls as being “abusive”. Upon analysis, it would seem that the calls which Mr Martin described as abusive might better be characterised as pushy or presumptuous. Mr Martin gave the following description:
“He would ring up and say, ‘I need this production - I need you to swap production around’, so many sticks or so many baking powders or cans produced on their production line. I’d say, ‘Mate, it can’t happen.’ He goes, ‘It has to happen, you’ve got to make it happen, otherwise we’re going to lose business at Coles.’ He’d put a lot of pressure back on myself in relation to that side of it. If we didn’t supply on time, there’s risk of him losing business to Coles and Woolworths, sorry, to both, and letting other people down. He would also, you know, ‘Come on, mate, you’ve got to help me here. I need your help to get this over the line’.” (T398, L8-20)
48 These tensions culminated in May 2015, with the occurrence of the break between the parties which has led to these proceedings.
49 According to the arrangements between the parties, Mr Hanna’s company sourced and provided the raw materials for the manufacture of their products by Techniques. The raw materials were sourced principally from China. One vital raw material was Erythritol, the availability and delivery of which seems to have been central to the dispute which broke out in May.
50 Mr Hanna sent an email on 29 April 2015 to one of Techniques’ staff, Ms Debbie Morton, copied inter alia to Mr Martin headed “Re Vitarium payments Natvia”. The email stated:
“Please find payment for Tech from Vitarium and Natvia stock. [It] needs to be delivered by 12pm today.
Matt, we need to talk about all shareholders putting funds back into the business that have been taken out so it can pay it (sic) bills. These monies can no longer be left out … Regards, Mark”
51 This email was transmitted at 10.05am. Within the hour, Mr Martin responded, “Why didn’t you leave some in there the other day instead of draining it?” (DCB 416)
52 Mr Hanna said that he sent this email because stock for Natvia, which was wholly owned by the Hanna interests, was being held against outstanding payments by Vitarium “even though Matthew Martin is a shareholder in Vitarium”. (T215, L20-21)
53 Mr Hanna said he was demanding the repayment of the amounts which were withdrawn by Mr Martin from the Vitarium account in early 2013. (Ibid, 21-29, T216, L5-9)
54 Mr Martin sent an email on 6 May 2015 at 3.19pm to Mr Hanna stating:
“Please forward the last 2 years and this financial year to date financials of Vitarium, as I and the Martin family wish to sell off its last remaining shares.
Please provide within 24 hours.”
55 Mr Hanna replied, “Dear Matt, I’m away until next week but will try to get it organised for you”. (PCB 401)
56 At 1:43pm Mr Hanna then sent an email to Mr Martin under the subject heading “Stop using Debit card”. The text was as follows:
“Dear Matt,
We can’t afford this so please kindly stop using the debit card as you are the only person doing this for personal use.
Please allow the business to pay its bills to all parties. [As] the director, I will not be (sic) oversee a business that cannot pay suppliers 1st. …”.
57 The email referred to an attached list of funds “that need to be paid back along with other cash taken out by TT”. There was a dispute and no final resolution as to the identity of the attachment. (PCB 413)
58 At 2:18pm Mr Martin sent an email to Mr Hanna and Mr Tew complaining that he had tried to call them but “to no avail, you are both refusing to take my calls”. The email continued:
“Please note that due to this situation we now find ourselves in, Techniques will no longer be a supplier to Flujo, Natvia, Vitarium or any other associated businesses of yours as from today the 11/5/2015.
Please settle all accounts by the close of business this Friday the 15th of May 2015 and any and all remaining packaging will be forwarded to your nominated warehouse.
All communication is via myself and no other staff members of Techniques.
Thank you and you have pushed the point to this position.” (PCB 403)
59 Mr Hanna replied at 2.29pm:
“I am in a meeting Matt and I would reconsider this as what I emailed you about has nothing to do with supply.
Below is separate to what I emailed you about.” (PCB 407)
60 These emails were under the heading “Ceasing”.
61 At 2.39pm, Mr Martin responded, again complaining about a failure to take his phone calls and continuing:
“You have made a stance and so have I. No need for you to send what you did Mark, you continually threaten us with going elsewhere so now go and do it.
Don’t want any further association to do with you Mark and or Sam.” (Ibid)
62 Mr Martin followed this email with an email to Ms Iqbal, Vitarium’s production manager, stating “Please not (sic) the following purchase order number for both Latvia and Vitarium are now cancelled”. There followed a series of numbers. This email was under the heading “Cancelled Orders”. (PCB 402)
63 Ms Iqbal responded the following day at 11.13am, stating:
“I am surprised to receive your email as you have accepted our POs. There is no issue or reason to cancel the orders or Troy would have notified me.
Please check clause 7 of your terms of trade as we expect all these POs plus others we have bought rewind for to be completed.
Failure to do so will result in further damages that we all prefer not to have.” (PCB 409-10)
64 At 12.15pm, Mr Martin sent an email to Mr Hanna and Ms Iqbal stating:
“Whilst you are cc everyone you are making it worst (sic).
Ive (sic) also had advise (sic) this morning and with your proven track history, im (sic) not doing a thing, im well within my rights. You nor Sam even have the decency to call to work through it. You continually threaten to go elsewhere so see you later.
Have a great day.”
65 At 3.25pm on 11 May 2015 Mr Martin sent an email to Mr Sanin Pasagic, a legal practitioner who had acted for the joint venture, stating:
“Sanin, as a business, Techniques is no longer going to produce for Mark Hanna, Sam Tew, Flujo, Natvia, Vitarium and the associated businesses due to personnel and commercial conflict.
I request you don’t represent either of us in this matter, as it is deemed as a conflict of interest.”
66 This email was copied to Messrs Hanna and Tew. (DCB 424)
67 On the subject of cancelled orders, at 12.10pm on 12 May Mr Hanna emailed Mr Martin:
“Either finished (sic) the orders or you don’t. Your staff are cc[’d] as there is no issue with production as we are all aware.
We don’t need to hear why your (sic) can’t do it or refer us to the clauses in the agreement as Azrina [Iqbal] knows what it says.
Also I have now had our lawyer look at it and they have advised us we need to mitigate our losses.
The issue with you returning funds to Vitarium should not effect (sic) our production as it is a separate issue.
Please finish the orders so we can all just move on without incurring any more cost.
This is the best result for all.”
68 At 1.04pm on 12 May Mr Martin sent an email under the heading ‘Cancelled Orders’, telling Mr Hanna:
“Your losses are due to your stubborn approach of not talking, there is no moneys outstanding and if you want to keep going, the misappropriation of moneys that was allocated for Vitarium and you used to set up Natvia will come out and also we don’t raise the ATO issues do we? Ive (sic) got more but I won’t lower myself to your standard.
Your stock will be in the carpark for your collection 9am Thursday Mark, I tried to call to talk but as normal you ignored. If the stock gets wet not my problem.
At least I air it to you direct and keep other involved in their daily tasks, as I said I indicated 2 weeks ago this would occur and you ignored it and with Sam’s abusive call the other week it was unwarranted.
And Mark at the end of the day are you really bothered, knowing you and Sam are both probably laughing at all this like I am.” (PCB 417)
69 Mr Hanna replied at 1.10pm:
“Just finish the order Matt.
The rest of your issues are not my concern as below does not finish the PO.”
70 Mr Martin’s response at 1.12pm was:
“REAL SIMPLE MARK, THE ORDERS ARE CANCELLED.” (Ibid)
71 At 11.29am Mr Martin had advised Ms Iqbal by email:
“Due to commercial constraints we can no longer supply the said goods or services.
Under the trade practises act (sic), this is well within our legal rights. If you read clause 7 it states unless we state otherwise, has nothing to do with cancelling orders. Unless you are reading from an old terms and conditions.
Please advise whom (sic) will be present on Thursday when the goods are to be returned to Bettapak [Natvia’s and Vitarium’s warehouse provider] for a full stocktake ...” (PCB 414)
72 At 11.46am on 13 May 2015 Mr Martin emailed Mr Hanna:
“Hi,
Even I was to produce (sic), there is NO stock available, so your damages threat will not stand up Mark. Again you need to tell the truth.
This is why orders are cancelled as they have missed the production window due to no stock available.
Shipping documents will be requested through discovery of proceedings.
Hope you’re having a great day.”
73 The response at 1.07pm on 13 May from Mr Hanna said:
“We have plenty of stock as Brent [the manager at Bettapak] advised you on the phone and also Brett in your warehouse. I am sure 40-60 ton (sic) [of Erythritol] is enough.
You have cancelled our orders and refused to even consider completing the PO.”
74 At 1.11pm Mr Martin responded with an email to Mr Hanna, Mr Tew, and Ms Iqbal, stating:
“Dear All,
Please have the 50 tonne of Erythritol delivered to Techniques in one lot tomorrow at 9am, for production to commence on these last orders that are in the system.
Failure to do so will result in all orders being cancelled in full as of 12pm Thursday the 14th of May 2015.
All correspondences to myself and no other representative of Techniques.
Have a great day.” (PCB 423)
75 Ms Iqbal gave evidence that Natvia and Vitarium had delivered a total of 11.6 tonnes of Erythritol by 29 April. (T149, L8) Amongst the items that were on order at the time of breakdown, which orders were not fulfilled, were an order for some 8.5 million sticks of the natural sweetener Natvia. This would require approximately 17 tonnes of Erythritol. (T153, L26–T154, L20) Ms Iqbal said that the request for delivery of 50 tonne of Erythritol was not fulfilled. No Erythritol at all was delivered. (T157, L30–31) Ms Iqbal said she refrained from arranging any delivery at the direction of Mr Hanna. (T158, L1–5) She remarked that in any event “50 tonne is a very unusual number for Techniques to request”. (Ibid, L7–8) Counsel for Techniques, Mr Moore, put it to Ms Iqbal:
“Of course if Natvia had delivered 17 tonne of erythritol then it could have completed the purchase orders relating to the Natvia sticks; isn’t that right?”
76 Her reply was:
“For sticks production, yes.” (T159, L16–19)
77 In contrast, Mr Martin, the principal of Techniques, said that 61.5 tonnes of Erythritol was required to fill the outstanding order. (T457, L16–23) He continued:
“The costing structure that Techniques Incorporated has with Natvia Vitarium is because of the allergen controls that we must maintain, that the product is allergen-free and within our plant we have 14 production lines, so we have to sequence work, keep them allergen-free. We need to manufacture it all in one lot. We can’t stop and start, a haphazard approach. It must be in one fell lot. It’s not just the warehousing. It’s the manufacturing process. It’s the testing in the laboratories. The organoleptic testing. It’s the work in progress, handling of the stock. It’s the whole place has to operate allergen-free when an allergen-free product is there. As we were talking the other day about gluten-free products, it’s the same with gluten-free products. We can’t run wheat flour products at the same time we’re running gluten-free products at the same time.” (T457, L28–T458, L13)
78 I asked:
“So the effect then was that it wasn’t sufficient to have 14.5 tonnes or 11.5 tonnes, you had to have the full 61.5 tonnes?”
79 Mr Martin replied:
“That’s correct.”
80 I then asked:
“And the absence of that full amount meant it was the same as having nothing at all?”
81 Mr Martin replied:
“Yes, your Honour, that’s true.” (T458, L14–18)
82 According to an inventory list drawn from Techniques’ accounting system, the amount of Erythritol on hand at Techniques was 5.47 tonnes as at 4 May. There were no further deliveries from Natvia or Vitarium of Erythritol thereafter. Mr Martin said that this would be insufficient to produce 8.5 million sticks of Natvia. (PCB 358, T486, L22–23, 28–30)
83 There was an acrimonious exchange of text messages commencing 2 June 2015 and concluding 9 September 2015 put into evidence on behalf of Natvia and Vitarium. They are to be found at DCB 296–311. Mr Redenbach, on behalf of those parties, submitted that they were evidence of malice on Mr Martin’s part, and indicative therefore that Techniques’ cancellation of the outstanding purchase orders by Natvia and Vitarium was actuated not by legitimate commercial and legal considerations but rather by malice. The text messages are in some places distasteful. There are a number of proposals for settlement or resolution discussions made by Mr Martin.
84 Mr Hanna says he included a number of what he regarded as constructive proposals to resolve matters. Mr Redenbach submitted that other messages constituted threats of physical violence, which supported his allegation of malice. It will be necessary in due course to give consideration to at least some of the exchanges. Mr Hanna said that there were earlier exchanges of text messages, contemporaneous with the email exchanges from which I have quoted above. These are now unavailable because he failed to provide an adequate “back up” for his mobile phone. Mr Martin said that from his end there were text messages which he had made available to his solicitors for discovery purposes. I have not been taken to any of these other text exchanges, if they exist.
85 Following Technique’s cancellation of the purchase order, according to Mr Hanna, urgent action needed to be taken because some of the orders from Techniques, which were cancelled and therefore not filled, dated back to March and April “So our stock levels were very low”. (T234, L9) He said that he and his assistant considered alternative supply options in Australia, New Zealand, Malaysia and Singapore, but without success. China was not a first choice for alternative supplies because, as Mr Hanna said, “You have [the] language barrier.” (T235, L17-18) His experience acquiring raw materials in China pointed out the difficulties of sourcing materials from that market. Techniques, he said, was a preferred supplier because of often very good quality assurance. (Ibid, L22) Eventually, he identified a Korean-owned company producing in China marketing a natural sweetener known as “Sweetie”. Mr Hanna took his wife with him to China to act as his interpreter. He produced a list of expenses for that trip to be found at DCB 471. His initial evidence was that all expenses shown on that page were for the purposes of his first visit to China to find an alternative supplier. (T237, L11-14) He said his companies investigated six or seven potential alternative suppliers. (Ibid, L25‑26) The expenses for the second visit to China, which he made in connection with obtaining an alternative supplier following Techniques’ termination, was, he said, at DCB 520. (T238, L4-19) Upon being recalled to give further evidence on the following sitting day, Mr Hanna said that a darker section at the bottom of p271 stated expenses which were incurred on a previous trip to China dealing with raw material suppliers, which was not the subject of any claim in these proceedings. (T248, L5-25)
These proceedings
86 In September 2015, solicitors acting for Techniques commenced the first proceeding seeking damages for breach of contract, interest and consequential relief against both Vitarium and Natvia under their relative supply agreement. There was also a claim in quantum meruit. It seems to me, with respect, that the primary claims by Techniques might better be characterised as claims for liquidated sums under contracts for the sale and delivery of goods or as claims for money for goods sold and delivered. The amounts claimed were $45,902.30 plus $2,500 for legal costs against Vitarium together with interest in the sum of $3,225.74, $60,094.91 plus $2,500 legal costs against Natvia together with interest in the sum of $4,113.79, and interest pursuant to the relevant agreements or pursuant to statute. These are the figures appearing in the amended statement of claim dated 7 December 2015. By trial, and following the service of the lengthy notice to admit the amounts claimed in the Techniques’ claim, being amounts outstanding for goods sold and delivered prior to the cancellation of the purchase orders of Natvia and Vitarium, they stood uncontested. (T255, L31‑T256, L31) The basis upon which Vitarium and Natvia resist payment derives solely from their counterclaim.
Defence and counterclaim – first proceeding
87 The defendant’s defence and counterclaim went through a number of amendments. It reached its final version pursuant to leave granted by me on 23 November 2016 in the course of the trial. The document itself is dated 28 November 2016. The defendants make a counterclaim against Techniques and also Mr Martin. The claim against Mr Martin pertains to the amounts of $10,037.50 and $7,761.14 which were debited to Vitarium’s account at the instance of Mr Martin. These debits or transfers, as the counterclaim describes them, were made “by Matthew Martin without authorisation” and it was said that a total of $17,798.64, being the total of the two amounts, constituted “money had and received for the benefit of Matthew Martin”. Alternatively, these sums were monies had and received by Techniques and, to that extent, it was alleged “No amount was credited to Natvia, Vitarium or related entities’ accounts with Techniques”.
88 Next, it was said that in January 2013, Mr Martin requested a payment of $9,000 from the defendant counterclaimants which was met by the delivery of $9,000 in cash. Under the heading “Particulars”, it was said “$8,000 was specifically withdrawn from Natvia’s Westpac bank account for this purpose on 14 January 2013. The remaining $1,000 was sourced from general funds.” It was said that the $9,000 “was not credited to the account of Natvia with Techniques and was not credited towards the purchase of shares under the MOU”. Accordingly, it was said the $9,000 constituted money had and received by Mr Martin in respect of which Natvia suffered loss and damage. Alternatively, the monies were had and received by Techniques.
89 Next, it was said that Natvia and Techniques had an agreement whereby Techniques received raw product provided by Natvia and manufactured it into finished goods for delivery to Natvia. It was said to be a term of that agreement that it was terminable on reasonable notice. This term was to be implied, it was said, to give the agreement business efficacy. Techniques was alleged to have breached that agreement by terminating the agreement on 24 hours’ notice. As a consequence, Natvia was said to have suffered loss and damage constituting air freight costs, $220,083; travel costs to China between 16 May 2015 and 28 May 2015, $8,707.16; the cost of a second trip to China for new suppliers on 22 June 2015, $8,285.18; it was said $22,683.78 for packaging was retained or returned by Techniques but could not be used by other suppliers; $27,293 was said to be the value of raw materials and packaging retained by Natvia ‒ $12,612.67 for raw materials, $14,680.64 for packaging ‒ making a total counterclaim of $287,052.12.
Reply and defence to counterclaim – first proceeding
90 In the final version of its reply in defence to counterclaim filed during trial on 29 November, Techniques said that the withdrawals from Vitarium’s bank account were made with the consent of Mr Hanna of Vitarium and were agreed to by him. Techniques denied having breached its contract with Natvia, but even if it had, it relied on exclusionary provisions in the contract excluding any liability on Techniques’ part for any indirect or consequential losses, including loss of turnover, profits, business, goodwill or liability to other parties. Further, it was said that, according to the contract, Techniques was not liable for any loss or damage suffered by Natvia where it cancelled the supply of goods or services. Any losses were said to be the result of conduct by Natvia and Natvia failed to mitigate its loss. Specifically, it said that, if Natvia had supplied Techniques with 50 tons of Erythritol, “it would not have suffered any loss”.
Plaintiff’s claim – second proceeding
91 In the second proceeding, by an amended statement of claim filed 14 November 2016, Flujo claims damages against Barton Distributions Pty Ltd and Mr Martin in the sum of $237,500 for alleged breach of the Memorandum of Understanding.
Defence – second proceeding
92 In response to the claims against them for alleged breach of the Memorandum of Understanding, Barton Distributions Pty Ltd and Mr Martin admitted the transaction for the transfer of shares and the effectuation of that transfer. As to the clause for the transfer of intellectual property by way of formulation of products, it was said that that obligation was by the Memorandum of Agreement placed upon the “Martin family”, a term which was “undefined, unclear and is not a party to the MOU”. Accordingly, it was said the term was unenforceable. If the clause were enforceable, the defendant said it was complied with when, in October 2012, Techniques provided Mr Vergakis with a formulation, as acknowledged by him in a receipt. Insofar as there was a term alleged that required the defendants to enter into a two-year supply agreement, they said such term was “incomplete and/or uncertain and … therefore void.”
Conclusions
Plaintiff’s claim – first action
93 The plaintiff’s claim in the first action is admitted; therefore, subject to the outcome of the defendants’ counterclaim, Techniques is entitled to judgment for the amount of its claim.
Counterclaim – first action
94 The terms and conditions of trade between Natvia and Techniques are set out in a document styled ‘Terms and Conditions of Trade’ to be found at PCB 138-43. The following features should be noted. First, the expression “agreement” is defined in Clause 1 to mean:
“ ‘Agreement’ means any agreement or contract entered into for the provision of goods or services by Techniques to the Customer.”
95 The customer is Natvia. According to Clause 2.4:
“An Agreement is accepted by Techniques when Techniques confirms its acceptance of an offer from the Customer in writing or electronic means or provides the Customer with the goods or services.”
96 The following subclause provides:
“2.5 Techniques in its absolute discretion may refuse to accept any offer. It is the Customer’s responsibility to provide Techniques with its clear and accurate specifications and specific requirements in relation to the goods and services.”
97 The effect of these Terms and Conditions therefore is that they acted as a master agreement which was engaged whenever Techniques accepted an offer for the supply of goods and services to Natvia. Whilst the same document set out the terms for these various contractual relationships, the intent was that each order was to be constituted as a separate and distinct agreement for the purposes of these Terms and Conditions. Accordingly, in so far as the effect of the email exchanges on 11–12 May was to establish a refusal on the part of Techniques to accept further orders, there is no respect in which such refusal could be regarded as a breach of contract. It might be thought that the contention that the allegation in the counterclaim of an implied term requiring reasonable notice of cancellation to be implied in the supply contract is to the opposite effect. If the alleged effect of such an implied term were to negate or limit the operation of Clause 2.5 of Technique’s terms of trade, that would prove in itself that no such term should be implied because no term will be implied which is inconsistent with the express terms of a written contract: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 296. Nor, as I understand the case brought by Natvia, is such a claim made against Techniques by Natvia. Rather, what is said is that in declining to fill orders which, according to Natvia, had already been accepted by Techniques, Techniques was acting in breach of contract.
98 In a rejoinder by Natvia, filed by leave of the court, reliance was placed on Clause 10 of the Terms, which provides as follows:
“10 Cancellation
10.1 If, through circumstances beyond the control of Techniques, Techniques is unable to effect delivery or provision of goods or services, then Techniques may cancel the Customer’s order (even if it has already been accepted) by notice in writing to the Customer and Techniques accepts no liability in relation thereto.
10.2 No purported cancellation or suspension of an order or any part thereof by the Customer is binding on Techniques after that order has been accepted.
10.3 If the Customer cancels, suspends or alters an order after acceptance by Techniques, then the Customer will be liable to pay all costs incurred by Techniques including but not limited to, labour costs, materials, blending/packaging and administration costs for work carried out on the order prior to cancellation or suspension.
10.4 If the Customer fails to place an order within 60 days of Techniques’ receipt of the Customer’s previous order, the Customer will be liable to pay the cost of any unused raw materials purchased by Techniques for the purpose of fulfilling orders received or expected to be received from the Customer.”
99 In this case there was no question of any cancellation by Natvia. Rather, the cancellation was by Techniques. It will be seen that, at least with respect to cancellations by Techniques, Clause 10 is a limitation of Techniques’ liability for cancellations. To say that cancelling an order because of circumstances beyond Techniques’ control imposes no liability on Techniques is not to say that Techniques is necessarily liable to Natvia for any cancellation in any other circumstance.
100 In his opening statement Mr Redenbach sought to clarify the situation, stating that, for the purposes of the rejoinder, he placed reliance on Clause 7 of the Terms and Conditions. (T45-6) Clause 7, headed `Performance of Agreement’, provides as follows:
“7.1 Any period or date for delivery of goods or provision of services stated by Techniques is intended as an estimate only and is not a contractual commitment.
7.2 Techniques will use its reasonable endeavours to meet any estimated dates for delivery of the goods or completion of the services but Techniques shall not accept any liability whatsoever for any delays from any cause whatsoever.
7.3 The Customer is not permitted to change the delivery date specified in an Agreement once manufacturing of the goods has commenced.
7.4 Techniques will use its reasonable endeavours to deliver the correct quantity ordered, however the Customer acknowledges that there may be difficulties in producing exact quantities, estimates or orders. The Customer cannot reject short or over delivery of less than 10% and must pay for or be refunded on a pro rata basis.
7.5 Any delivery dates which are specified are approximate only and no liability whatsoever is accepted for delay from any cause whatsoever. If for any cause or reason beyond Techniques’ control delivery may be hindered, the Agreement shall be voidable at Techniques’ option with no right given to the Customer to claim for any damage, loss, cost or expense whatsoever.”
101 Again, it may be thought that these subclauses are more directed to limiting the liability of Techniques than imposing any primary obligation upon it. It must be accepted, however, that the total effect of the Terms and Conditions is to impose a heavily qualified obligation on Techniques to deliver orders which it accepts.
102 Mr Moore, on behalf of Techniques, placed specific reliance on two exemption or limitation clauses to be found as part of Clause 16, which is headed `Liability’:
“16.4 Techniques is not liable for any indirect or consequential losses or expenses suffered by the Customer or any third party, however caused, including but not limited to loss of turnover, profits, business or goodwill or any liability to any other party.
16.5 Techniques will not be liable for any loss or damage suffered by the Customer where Techniques has failed to deliver goods or services or fails to meet any delivery date or cancels or suspends the supply of goods or services.”
103 Mr Redenbach, on behalf of Natvia and the other Hanna interests, submitted that exemption or limitation clauses of this type, no matter how wide, will not as a matter of principle be read so as to relieve a contracting party from liability for a wholly intentional and malicious breach of contract. He referred to Tozer Kemsley and Millbourn (Australasia) Pty Ltd v Collier’s Interstate Transport Service Ltd (1956) 94 CLR 384, 400–401; The Council of the City of Sydney v West (1965) 114 CLR 481, 489–490 per Barwick CJ and Taylor J; Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642, 651–652 per Dixon CJ, McTiernan, Webb, Fullagar and Kitto JJ; and Kamil Export (Aust) Pty Ltd v NPL (Australia) Pty Ltd [1996] 1 VR 538, 553. Mr Moore, on behalf of Techniques, did not disagree with this statement of principle. Mr Redenbach submitted on behalf of Natvia that the cancellation of the relevant orders was malicious in the sense which these authorities suggest would take it beyond the scope of the exemption clauses relied on.
104 An initial question arises as to whether the orders identified by number in Mr Martin’s email of cancellation could be regarded as having been accepted in the first place so as to come within the ambit of the concept of cancellation. Mr Moore referred to Clause 2.4 of the Terms and Conditions, stating that there was no evidence of an acceptance of any of the “offers” from Natvia in writing or electronically. At first blush there would appear to be an unhappy gap in Natvia’s proofs. Whether further searching through discoverable documents or even within the court book would disclose a statement along the lines of “Techniques accepts your purchase order No ...” is unknown. With some hesitation, however, I conclude that in so far as Mr Martin referred to the relevant orders and spoke of cancelling them by that very communication, he acknowledged that these orders had already been accepted. Had it been otherwise, they would not be appropriately processed for “cancellation”.
105 Clause 10 of Techniques’ Terms and Conditions deals with the issue of cancellation. In broad terms, it enables Techniques to cancel orders which have already been accepted if it is unable to deliver or provide “through circumstances beyond the control of Techniques”. Clause 17, a `force majeure’ clause, provides:
“Techniques shall have no liability whatsoever under or in any way related to the sale and purchase of the goods or otherwise for any failure to fulfil any obligations hereunder to the extent that such fulfilment is prevented by circumstances beyond its reasonable control including but without limitation to industrial disputes, strikes, lockouts, accident, breakdown, import or export restrictions, acts of God, acts of terrorism, or acts of war. Should an event of force majeure occur Techniques may terminate the Agreement by giving the Customer written notice.”
106 There was no suggestion that any event of `force majeure’ had occurred here and so this provision may be put to one side. The only circumstance beyond the control of Techniques that may be relevant here is the issue of the availability of Erythritol for manufacturing purposes. I will deal with this matter below.
107 The inclusion of express provisions for force majeure and cancellation for circumstances beyond the control of Techniques by implication excludes any entitlement for Techniques simply to cancel an order which has been accepted for no reason at all. To put it another way, subject to exemption clause issues, cancellation of an order other than for circumstances beyond Techniques’ control or as a result of some event of force majeure would appear to be a breach of contract. Clause 16.5, which is quoted above would not, in accordance with the authorities cited by Mr Redenbach, excuse Techniques from liability for cancelling accepted orders as a matter of malice or caprice as Mr Moore, on behalf of Techniques, conceded.
108 What then were the reasons for the cancellation effected on 11 and 12 May 2015? In the flurry of emails at 2.39pm on 11 May in the same email in which Mr Martin said:
“Don’t want any further association to do with you Mark and or Sam.” (See above [61])
109 He said:
“No need for you to send what you did Mark.”
110 At 2.18pm, Mr Martin had said:
“All communication is via myself and no other staff members of Techniques.” (See [58] above.)
111 This language indicates that Mr Martin had taken umbrage at the matters which had been raised in the emails and circulated to other people in the Techniques organisation. This is presumably the process which Mr Martin complained entailed an attempt by Mr Hanna to “belittle” him. The email which first indicated that Techniques would no longer do business with Natvia, Flujo or Vitarium and required all packaging to be collected or returned was transmitted at 2.18pm after the 1.43pm email by Mr Hanna under the heading, “Stop Using Debit Card” and demanding repayment of certain moneys. (See above [56]) The inference that this issue was what led to the cancellation and not any issue relative to the availability of raw materials or otherwise is irresistible. In the 2.18pm email Mr Martin said to Mr Hanna and Mr Tew: “You have pushed the point to this position” which can scarcely be a reference to any shortage of raw materials.
112 The issue of availability of raw materials was, according to all the evidence, customarily dealt with by Ms Iqbal as the production manager for Natvia and Vitarium on the one hand and Mr Martin’s staff on the other side and was not a matter which customarily required the involvement of the senior executives. Mr Martin’s call for the delivery of 50 tonnes of Erythritol by 9.00am 13 May by email of 1.11pm, shows an assumption that raw materials can be made available at very short notice, subject to their being in the country and in the warehouse. I have quoted above Mr Martin’s explanation as to why completion of the orders threatened with cancellation would have required the delivery of 50 tonnes of Erythritol. Or to put it another way, delivery of any amount less than 50 tonnes would have been the equivalent of the delivery of no Erythritol at all. I am unable to accept his explanation. First, it is entirely at odds with the line taken by Mr Moore in cross-examination of Ms Iqbal. Mr Moore suggested to Ms Iqbal that the Natvia sticks could have been manufactured if she had arranged for the delivery of some 17 tonnes of Erythritol, which is of course entirely at odds with what Mr Martin ultimately said a few days later. Mr Martin was present in Court throughout the trial and present, therefore, when his counsel was cross-examining Ms Iqbal. There was no attempt to withdraw or refocus any of the cross-examination of Ms Iqbal to which I have just referred.
113 Granted that scheduling and scale are very important for an operation such as Techniques’ to maintain efficient and economic production, Mr Martin’s explanation for the need for 50 tonnes of Erythritol seemed counter intuitive and implausible. Again, when Ms Iqbal gave evidence that “50 tonne is a very unusual number of Techniques to request” during her cross-examination by Mr Moore, no follow up question putting the matters raised by Mr Martin later in the trial was addressed to her. On the other hand, Mr Hanna had complained that Techniques had held back deliveries against Vitarium based upon non-payment of debts owing to it by Natvia. In all those circumstances, it was reasonable for Mr Hanna to conclude, as he apparently did, that the demand for 50 tonnes of Erythritol was not a bona fide request for materials to enable the disputed orders to be fulfilled but was rather a strategy to put a weapon in Techniques’ hand in its dispute with Natvia and Vitarium.
114 I am fortified in the view that the cancellation by Techniques of the accepted orders was motivated, not by commercial considerations but, rather, as “payback” for a personal grievance on Mr Martin’s part, by the tone of the text messages exchanged between Mr Hanna and Mr Martin and to be found at DCB 296 and following. There certainly were attempts by Mr Martin to resolve the dispute but there were also many bitter personal communications. The fact that a party in dispute may be embittered some time after the dispute broke out, does not of course indicate that that was the spirit in which the party began the dispute. Here, however, I perceive a continuum from the sense of personal grievance in the emails exchanged in May and the tone of the text message exchanges in June and following. Mr Martin offered explanations in cross-examination as to oblique references to Outlaw bikie gangs, the inclusion of a photograph of Mr Tew’s residence and reference to a product to compete with Natvia known as “Mattvia” including a mock-up of the packaging for the new product as entailing no element of threat. The reference to the bikies, it was said, was to indicate that Mr Hanna and his associates were acting in a lawless manner. The depiction of Mr Tew’s house was to convey to Mr Hanna that he must have been ungenerous to Mr Tew because of the relatively unimpressive residence where Mr Tew lived. The “Mattvia” was just “a joke”. I found these explanations unconvincing.
115 I conclude that in cancelling or purporting to cancel the accepted purchase orders lodged with it, Techniques was actuated by malice or caprice. For the reasons already given, this meant that it cannot avail of the exemption clause in Clause 16 of its terms of trade, much less the force majeure clause.
116 Mr Moore correctly observed that a party suffering loss as a result of another party’s breach of contract is to be regarded as under a duty to mitigate its losses. He took me to the decision of McCardie J and the Court of Appeal in Payzu Ltd v Saunders [1919] 2 KB 581 where his Lordship as trial judge having referred to the authorities on the duty to mitigate loss continued:
“The question, therefore, is what a prudent person ought reasonably to do in order to mitigate his loss arising from a breach of contract. I feel no inclination to allow in a mercantile dispute an unhappy indulgence in far-fetched resentment or an undue sensitiveness to slights or unfortunately worded letters. Business often gives rise to certain asperities.” [1919] 2 KB 581, 586
117 This was a case of sale of goods. The defendant failed to deliver goods as required and the plaintiff did not accept an offer by the defendant to deliver the goods at the contract price upon the payment of cash. Both the trial judge McCardie J and of the Court of Appeal held that the only damages which could be recovered by the plaintiff were those calculated on the basis that the plaintiff had accepted the defendant’s offer to mitigate. The Court of Appeal upheld his Lordship’s conclusion. Scrutton LJ said:
“In certain cases of personal service it may be unreasonable to expect a plaintiff to consider an offer from the other party who has grossly injured him; but in commercial contracts it is generally reasonable to accept an offer from the party in default. However, it is always a question of fact. About the law there is no difficulty.” [1919] 2 KB 581, 589
118 To similar effect, Bankes LJ said:
“There may be cases where as matter of fact it would be unreasonable to expect a plaintiff to consider any offer made in view of the treatment he has received from the defendant. If he had been rendering personal services and had been dismissed after being accused in the presence of others of being a thief, and if after that his employer had offered to take him back into his service, most persons would think he was justified in refusing the offer, and it would be unreasonable to ask him in this way to mitigate the damages in an action of wrongful dismissal.” [1919] 2 KB 581, 588-9
119 Mr Moore also referred to the judgment of Finn J in the Federal Court of Australia in Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501, 582-3 [364]. He submitted the duty to mitigate damages lying upon a party claiming to recover damages for breach of contract existed both in that party’s own interests and in the interests of the contract breaker. I accept these statements of principle.
120 Mr Moore contended that the offer which Mr Martin had made to fulfil the contracts upon the prompt delivery of 50 tonnes of Erythritol should be treated as an opportunity to mitigate loss which it was incumbent upon the plaintiffs to accept. Acceptance would have eliminated all or virtually all of the losses which were now claimed for. Accordingly, no award of damages should be made against Techniques for the losses which its offer would have enabled the plaintiffs to avoid.
121 Mr Redenbach for the plaintiffs did not disagree with the principle as to mitigation of damages. As Bankes LJ said in Payzu’s case, it is in every instance a question of fact. Here, the rejection of Techniques’ offer at Mr Hanna’s direction was not the result merely of the “asperities” which had passed between him and Mr Martin. Rather, it arose out of a legitimate concern, which I have found to have been well based, that the offer to mitigate was in fact a trick. It was not unreasonable for Mr Hanna’s companies not to accept the offer.
122 I turn then to the damages sought. The major head of damages is for some $220,083 by way of air freight costs. The effect of Techniques’ terms of trade was that it was under no obligation to accept any purchase order. The liability which I have found derives from Techniques’ purported cancellation of offers which it had already accepted. Mr Hanna’s evidence was that there was no alternative supplier for his companies to turn to in Australia, New Zealand, Malaysia or Singapore. Once Techniques declined to provide manufacturing services, there was no alternative but to go to China. In the ordinary course of events, resort to China for manufacturing would necessarily entail a customer accepting the cost of sea freight. Being forced to resort to the Chinese market by Techniques’ undoubted entitlement to refuse further orders from Natvia and Vitarium, those companies must necessarily bear the cost of sea freight for the product which they have manufactured in China. The air freight is said to pertain to the need for an urgent restock following the break with Techniques. Natvia incurred those costs in obtaining a re-stock of the 8.5 million sweetener sticks which it had originally ordered from Techniques. Mr Moore did not deny assuming that his client, Techniques, were found to be in breach of contract that it should be found responsible for the cost of air freight for 8.5 million sticks. The evidence showed that purchase orders numbers 2687 and 2688 were placed with the Chinese supplier by Natvia Pty Ltd, in each case seeking delivery of some 4 million sweetener sticks. (DCB 463-467) These orders were, it seemed, completed by 4 July 2015 and Ms Iqbal conceded that on the face of it there was no reason why the two orders could not have been for 4,250,000 sticks each, leading to the entire 8,500,000 sticks being delivered by 4 July 2015. (T178-80) Had the orders been placed in this manner, submitted Mr Moore, the entire 8.5 million sticks could have been replaced in shipments designated 1, 2, 3, 4 and 5 with a total air freight cost of $124,574, rather than the larger amount claimed. The total number of sticks which were consigned by air was some 14.2 million in some eight shipments, the last of which arrived on 18 August 2015. (Exhibit 3)
123 Mr Redenbach pointed out that on Ms Iqbal’s evidence, the cancelled orders in some cases went back to March and April. As to the need to air freight additional sweetener sticks over and above the 8.5 million, Mr Redenbach referred to the following answer given by Ms Iqbal, where asked about this she said:
“Basically because it was cancelled in May we had to pretty much send new orders to the new supplier, which also means we have exhausted all the current sticks on hand at that time to all our customers and then we had series of other stock issues which has caused us to request a supplier to – the new supplier to send our orders by air freight, and we had to keep recovering that by air freight until 18 August, which is in the summary. It’s simply because we need to fulfil our customers’ orders and we have been facing out of stock issue, which is something we don’t want to deal with. Some of the – I know for a fact that some of these orders from this purchase order were sent by sea freight just so that, you know, we don’t have to air freight everything else, which is going to cost a lot of money. That was – yes.” (T188, L9-24)
124 Asked about the impact on Natvia’s “safety stock level” of the cancellation of 8.5 million sticks order, she said:
“Because if we cancel 8.5 million I have nothing on order. So for a good – I don’t know how many weeks or one month we have to look for a new supplier, which also means I had no order of 8.5 million with our supplier and then we had to use our existing stock to pack new orders for our customers at that time and our safety stock level just become zero, which is why the order with the new supplier in China was bigger than Techniques’, because we had to play catch-up game and then – fulfil back orders first and then catch-up on what we wanted at that time and also catch-up on safety stock level.” (T188, L27 – T189, L6)
125 The proper answer on causation is difficult of determination. It requires us to consider a counter-factual. What if Techniques had not purported, wrongly as I have found, to cancel orders which it had already accepted but rather exercised its undoubted right to decline to accept any further orders from Natvia? Mr Hanna’s evidence as to the difficulty in identifying a new supplier and satisfying himself as to the quality of the service which would be offered, necessarily leads to the conclusion that, even if there had been no wrongful cancellation, a change of supplier would have entailed a substantial delay and break in the continuity of supply, with the result that “catch up”, air freight would have to be resorted to in the same way that it was in the present circumstances. Accordingly, I do not regard the incurring of air freight costs over and beyond the costs which were necessary to bring the 8.5 million sticks, which were the subject of the cancelled order, to be attributable to any breach of contract by Techniques. The lower figure identified by Mr Moore is the proper one for calculation of the damages.
126 As to claims relative to the loss of packaging, Mr Martin said it would have been possible for some of the packaging that seems to have been abandoned to have been “split” and salvaged. It would have been necessary to send it to a contractor in Braeside and then send it to China. I accept the evidence of Mr Martin on this point generally; but there was a lack of specificity whether the taking of the steps would have been effective in mitigating damages would require clear evidence as to the precise cost of steps such as the “splitting” and freight costs. It would be necessary to consider whether in the circumstances this packaging could have been sent by sea. Given that burden on the points of mitigation of damages lies on the defendant (Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507, 514), I do not regard the evidence advanced by Techniques as adequate to satisfy me that there has been a failure on the part of Mr Hanna’s companies to mitigate their loss on this score. Mr Martin was, I think, willing to concede that whether the steps that he advocated were economic would require a calculation by reference to the various matters that I had mentioned, including the cost of shipping, and no such calculation has been made. In those circumstances, I believe that these heads of damages should be allowed to the plaintiff. The same considerations which related to the packaging retained by Natvia which was treated as a loss, namely $22,683.78, should apply to the $27,293 ascribed to packaging and raw materials said to be “retained by Natvia”. As I understood the evidence, this packaging was ultimately returned to Natvia. Nevertheless for the reasons already given, I accept that it should be regarded as a loss.
127 I now turn to the claims for moneys had and received, dealing first with the sum of $17,854.44, being the total of the two amounts which Mr Martin admits he withdrew from the Vitarium bank account. Mr Martin’s explanation is that, first, this constituted a repayment to the Martin family of amounts which were said to be owing to its members; and secondly, that the payments out were in fact approved by Mr Hanna. Apart from the broad assertion that the Martin, or Mr Martin Snr, had brought in some $640,000 cash to the Vitarium business, there was no clear and specific explanation as to the precise nature of the debt or the terms upon which it was repayable. Mr Martin said that some $247,000 “went back to my parents as well for what they had contributed to the business.” (T478, L1-4) He agreed that these were payments under the Memorandum of Understanding (Ibid, L5) which, it will be recalled, provided for the sale of shares by a company known as Henderson Distributions Pty Ltd to Flujo. Mr Martin said that there was around $300,000 still owing to his parents. (T483, L8) He agreed that this money was repayable on demand. (Ibid, L9-11) When I asked him why it was that a claim to recover those moneys was not included in the proceedings listed before me, he replied:
“I believe we commence the proceeding tomorrow, your Honour, in the Supreme Court for a wind-up order.” (Ibid, L15-17)
128 Mr Moore then interpolated that this was:
“an oppression proceeding that’s been commenced on behalf of Techniques.” (Ibid, L19-20)
129 This raises in my mind a question whether the “investment” by Mr Robert Martin or Mr Martin and his wife was in the form of a simple loan advance. If it were, there would be more obvious and expeditious ways of recovering that amount than in the course of an oppression proceeding. If the amounts sought to be recovered are not simple loans but constituted in some other way, there may be doubt as to the propriety of simply extracting part of these moneys in the way that these two debits were made. More significantly, in all of the contentious and bitter exchanges to be found in evidence here, both by way of email and text message, there is no statement by Mr Martin along the lines of, “Mark, you specifically approved these withdrawals.”
130 In those circumstances, I do not accept that these debits were properly made, much less that they were made with the authority of Mr Hanna. The claim to recover these amounts as moneys had and received, therefore, succeeds.
131 I come finally, therefore, to the claim for $9,000. Mr Martin denies receipt of the $9,000 in cash. Mr Hanna could give no clear account of the circumstances in which this most unusual event, namely the payment of $9,000 in cash, was made. This is such an unusual transaction that, if it occurred, I would expect Mr Hanna to have a clear memory of the circumstances because of the very incongruity of the event. If it did happen, I would expect Mr Hanna to have insisted upon a receipt so that there would be some written record of the transaction having taken place. In the circumstances, I am not satisfied on the balance of probabilities that any such cash payment was made. This part of the counterclaim, therefore, fails.
The second proceeding
132 The Flujo proceeding is beset by a number of major conceptual difficulties.
133 The claim is brought based upon the Memorandum of Agreement. The Memorandum of Agreement, according to paragraph 3 of the Amended Statement of Claim “was express and in writing”. The pleading refers to an unexecuted document, though the version to be found at page 204-5 of the Plaintiff’s Court Book appears to be signed both on behalf of Techniques and Flujo Holdings Pty Ltd. What is significant, however, is that no reliance is placed upon any oral agreement. Whilst the matters dealt with in the Memorandum of Understanding were the subject of discussions between Mr Martin and Mr Hanna, since no oral agreement between those individuals or at any rate involving Mr Martin, is pleaded and relied upon, any claim in this proceedings against Mr Martin must proceed solely from the Memorandum of Understanding. Mr Martin is not expressed to be a party to this memorandum which names as vendor and purchaser at the head, Henderson Distribution Pty Ltd and Flujo. There is also a “sign off” by Techniques in the form of Director, Mr Robert Martin. How then can a claim be made based on this memorandum against Mr Matthew Martin? Mr Redenbach relied upon the clause relative to intellectual property which said:
“The Martin Family will require Techniques Incorporated Pty Ltd to provide formulations … .”
134 He submitted that the reference to “the Martin Family” must at least include Mr Matthew Martin. He took me to the well-known authorities which have been legion at the High Court and intermediate appellate level in the past decade as to the need to give commercial agreements a “businesslike” interpretation. He submitted that in the circumstances a businesslike interpretation required the expression “the Martin Family” to include Mr Matthew Martin.
135 Assuming without deciding that the businesslike interpretation is that the relevant clause should be interpreted as meaning “Mr Matthew Martin will require Techniques Incorporated to provide formulations …”, that still does not make good a claim against him. If Mr A and Mr B agree with one another that Mr C will be required to pay $1 million and Mr C is not a party to that agreement, how can that written agreement oblige Mr C to pay $1 million? Even if I concede the interpretational point made by Mr Redenbach as to the proper construction of the phrase “the Martin Family” and treat it as a reference to Mr Matthew Martin, I cannot see that an agreement to which he is not party can subject him to liability in the absence of an allegation that one of the persons who is a party acted as his agent (there is no such allegation). The claim against Mr Martin under the Memorandum of Understanding must fail for this reason alone.
136 Next, as Mr Moore correctly observed, whilst the plaintiff Flujo alleged that Barton and Mr Martin had neglected or failed to enter into a two year supply agreement on certain terms as required by the Memorandum of Agreement, no evidence was led which would form an evidentiary basis for any finding of loss and damage. This part of the claim, therefore, must fail.
137 As to the liability of Barton relative to the formulations or intellectual property clause, this would depend upon its being within the concept of “the Martin Family”. Barton, unlike Mr Martin, appears to be a party to the memorandum, albeit that there is no execution on its behalf. Classic `Statute of Frauds’ provisions require that an agreement be in writing or evidenced in writing and signed “by the person to be charged”. Here it is suggested that Barton can be “charged” under the agreement as having been named as a party without any execution by or on its behalf. Again, the fact that Barton is specifically named as vendor of the relevant shares in the heading to the memorandum, suggests that had the parties intended that Barton be liable under the intellectual property clause, it would have been referred to in that clause. In my view, therefore, the claim against Barton under the intellectual property clause fails as it does against Mr Martin. If I were wrong in what I have said heretofore, I would accept the general argument put by Mr Moore on behalf of the defendants that the expression “the Martin Family” is too vague to be given contractual form; at any rate, in the absence of evidence of a factual matrix which would attach some specific meaning to that uncertain term.
138 There is the further difficulty with this claim that the damages sought are simply the entire consideration of the Memorandum of Understanding. Assuming, contrary to argument which in the circumstances it is not necessary to canvas, that there was a breach of contract in the failure to make over the formulations of various drinking chocolate product with an entire absence of valuation evidence, it is not clear how a proper measure of damages could be assessed. Mr Redenbach referred to a number of statements to the effect that mere uncertainty in quantification of damages does not defeat a damages claim and that it is incumbent upon the Court to “do its best” with the evidence. He referred to Gray v Richards (2014) 253 CLR 660, 677 [55] in the joint judgment of French CJ, Hayne, Bell, Gageler and Keane JJ and Kenyon v Akeroyd [2008] VSCA 277 [37] per Redlich JA and Forrest AJA. The present is not simply a case of a shortage of evidence, but rather an entire absence of evidence.
139 In Spotlight Pty Ltd v NCON Australia Ltd (2012) 46 VR 1, the Court of Appeal heard an appeal from a ruling made by a trial judge in a breach of contract proceeding. The trial had concluded and the judge had reserved and upon consideration of the evidence at trial, he concluded that there was insufficient evidence to calculate a damages award. The evidence disclosed loss of revenue by the plaintiff but did not disclose what profit might have been made, leaving open the possibility that, allowing for costs, no profit might have been derived at all by the plaintiff, even if there had been no breach of contract. (2012) 46 VR 1, 2-3 [4]. His Honour expressed a willingness to allow the plaintiff to reopen its case to make good the evidentiary deficiencies. The Court of Appeal held that the judge’s order allowing the plaintiff to reopen its case should be set aside. In a joint judgment, Harper and Tait JJA and Beach AJA said:
“It is a truism that a wronged party will not be deprived of damages simply because a precise calculation of their quantum is impossible. On the other hand, where a calculation can be made, it must be made – and evidence to substantiate the calculation must be called – to such degree of accuracy as is reasonably possible. If, at the close of the trial, the party claiming damages has failed in whole or in part to do this to the standard required in civil cases (that is, on the balance of probabilities) it will, to that extent, fail.”
140 The Memorandum of Understanding provided for a transaction entailing the sale of shares. The plaintiff’s case here is that on its true construction the memorandum entitled Flujo to have the intellectual property including the formulations for the drinking chocolate products vested in Vitarium. Without that, it seems to be contended the shares were virtually worthless. According to the learned editors of McGregor on Damages (19th Ed) paragraph 27-008:
“Where shares are in some way not up to the promised standard, this is in the nature of a breach of warranty of quality and the normal measure [of damages] is the value [of the shares] as warranted less the value in fact.”
Lion Nathan v CC Bottlers [1996] 1 WLR 1438, 1441G is cited in support of that proposition.
141 It would be tempting to regard the value of what was sold by way of shareholding in Vitarium as entailing simply a valuation of the intellectual property, being the formulations for that company’s principal products; namely, the non-sugar drinking chocolate. The plaintiff’s case seems to be that in the absence of these items, the shares were virtually worthless. That obviously raises the question why, when the formulations were not made over by the date stipulated in the Memorandum of Agreement, Flujo continued and completed making the payments provided for in the memorandum. It also fails to allow for the possibility that there could be other assets owned by Vitarium or by Vitarium Holdings which could bear upon the value of the shares, or that one or other or both of those companies might be subject to liabilities which would diminish any value which might otherwise attach to the company’s assets. A share in the capital of a company represents an entitlement to share in the surplus of assets over liability. The absence of any material concerning these sorts of issues means that there exists effectively here the same state of lack of evidence as in NCON. Assuming a breach of contract were established, no more than nominal damages could be recovered. For the reasons given above, however, not even that nominal award should be made here.
142 The second proceeding should be dismissed.
Disposition
143 I will direct that within 14 days the parties bring in short Minutes to give effect to these reasons.
144 I have heard no argument on the question of costs and so I will reserve them.
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